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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<S> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED MARCH 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 1-7604
</TABLE>
CROWN CRAFTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-0678148
(State of Incorporation) (I.R.S. Employer Identification No.)
1600 RIVEREDGE PARKWAY, 30328
SUITE 200 (Zip Code)
ATLANTA, GEORGIA
(Address of principal executive offices)
</TABLE>
Registrant's Telephone Number, including area code: (770) 644-6400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of exchange on which registered)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of June 13, 1997, 7,946,477 shares of Common Stock were outstanding, and
the aggregate market value of the Common Stock (based upon the NYSE closing
price of these shares on that date) held by persons other than Officers,
Directors, the Company's Employee Stock Ownership Plan, and 5% shareholders was
approximately $54,065,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Crown Crafts, Inc., Proxy Statement for its Annual Meeting
of Shareholders on August 12, 1997 are incorporated into Part III
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<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Crown Crafts, Inc., a Georgia corporation which was founded in 1957,
operates, both directly and indirectly through its subsidiaries, in a single
business segment within the textile industry. Crown Crafts, Inc. and its
subsidiaries (collectively, the "Company") are principally engaged in the
design, manufacture, and sale of home furnishings products. These products are
marketed under a variety of Company-owned trademarks, under trademarks licensed
from others, without trademarks as unbranded merchandise and with customers'
private labels.
The Company's operations are highly integrated, except that The Red
Calliope and Associates, Inc. ("Red Calliope"), a California corporation,
Churchill Weavers, Inc. ("Churchill Weavers"), a Kentucky corporation, and
Hamco, Inc. ("Hamco"), a Louisiana corporation acquired on March 31, 1997, all
of which are subsidiaries of the Company, operate largely independently of the
Company and its other subsidiaries.
PRODUCTS
The Company offers a broad range of textile home furnishings products,
including adult and infant comforters, comforter sets, infant crib sets and
accessories, baby bibs, infant soft goods, sheets, pillowcases, pillow shams,
bedskirts, duvet covers, daybed sets, window treatments, decorative pillows,
coverlets, bedspreads, rugs and throws.
The Company offers its bedcovering products in a wide variety of styles,
patterns and fabrics, from comforters to woven bedspreads and from solid colors
to designer prints. The Company believes the trend toward coordination of the
bedroom will remain strong and expects to continue its emphasis on comforter
sets with coordinated sheets and accessories, and on woven products such as
matelasse coverlets. These products are made from 100% cotton, cotton/polyester
blends, denim, velvet and corduroy.
The Company manufactures throws in a variety of colors and designs. Throws
may be constructed of either 100% cotton, 100% acrylic, cotton/acrylic blends,
rayon, wool or chenille.
Adult comforters and accessories are produced primarily at the Company's
facilities in Roxboro, North Carolina (the "Roxboro Plant"). Infant bedding
products, which are marketed by Red Calliope, are produced by a variety of
independent contractors in the greater Los Angeles, California, area. All
comforters are filled with polyester fiberfill.
The Company's facilities in Dalton, Chatsworth and Calhoun, Georgia produce
and warehouse the majority of jacquard-woven products. Throws are also
manufactured at Textile, Inc., a subsidiary in Ronda, North Carolina, by Woven
Classic Throws, Inc., a subsidiary in Manchester, New Hampshire, and by
Churchill Weavers in Berea, Kentucky. Some of the Company's throws, including
all printed and fleece throws, are also manufactured in Mexico by independent
companies. The Company also imports animal-shaped children's pillows from China
and Mexico.
Baby bibs and other infant soft goods are imported from China, and
manufactured and distributed by Hamco, Inc., a subsidiary located in
Prairieville, Louisiana.
PRODUCT DESIGN AND STYLING
The Company's research and development expenditures focus primarily on
product design and styling. The Company believes styling and design are key
components to its success. In recent years the Company has significantly
increased the number of people and other resources dedicated to this area. The
Company's designs include traditional, contemporary, textured and whimsical
patterns. The Company designs and manufactures products across a broad spectrum
of retail price points. The Company is continually developing new designs for
both bedcoverings and throws, using a wide variety of fabrics, weave patterns,
and types of yarn.
<PAGE> 3
The Company's designers and stylists work closely with the marketing staff
to develop new designs. The Company obtains its designs from numerous sources,
including graphic artists, decorative fabric manufacturers, apparel designers,
the Company's employees and museums. The Company utilizes computer aided design
systems to increase its design flexibility and reduce costs. In addition, these
systems significantly shorten the time for responding to customer needs and
changing market trends. The Company creates many designs for exclusive sale by
certain of its customers.
SALES AND MARKETING: CUSTOMERS
The Company markets its products through a national sales force consisting
of salaried sales executives and employees and independent commissioned sales
representatives. Independent representatives are used most significantly in
sales to the gift trade through Goodwin Weavers and Churchill Weavers, and to
the infant market through Red Calliope and Hamco. Sales outside the United
States and Canada are made primarily through distributors.
The Company's customers consist principally of department stores, chain
stores, mass merchants, specialty home furnishings stores, wholesale clubs, gift
stores and catalogue and direct mail houses. During the fiscal years ended March
30, 1997, March 31, 1996, and April 2, 1995, sales to Wal-Mart Stores, Inc.
accounted for 17%, 18% and 17% of net sales, respectively. The loss of Wal-Mart
as a customer would have a material adverse effect on the Company's operating
results. The Company believes, however, that its relationship with Wal-Mart is
excellent and that the loss of this customer is unlikely.
The Company's primary showroom and sales office is located in New York
City. Sales offices are also maintained in Chicago, Atlanta, Boston, Dallas and
Tyler, Texas. An additional showroom is located in the Company's Atlanta
corporate headquarters location. The Goodwin Weavers division also has a
showroom in the Atlanta Merchandise Mart, and Red Calliope maintains a showroom
in Dallas, Texas.
The Company sells the majority of its products to retailers for resale to
consumers. The Company generally introduces new products to the retail trade
during the industry's April and October home textile markets. Initial shipments
of successful new designs generally occur at least six months after the product
introduction as more conservative buyers follow the lead of market innovators.
New product introductions for the gift shop trade are concentrated in
January-March and June-August when Goodwin Weavers and Churchill Weavers
participate in numerous local and regional gift shows. Red Calliope and Hamco
introduce products once each year during the Fall Juvenile Products
Manufacturers' Association trade show. Private label products manufactured by
the Company are introduced throughout the year.
The Company uses visually appealing and informative packaging,
point-of-sale displays and advertising materials for retailers. Most of these
are produced in the Company's own print shop, which offers design, typesetting
and finishing services. The Company also regularly advertises its products in
publications directed to the trade.
MANUFACTURING
The Company has made significant investments in modernization and expansion
to lower manufacturing costs, maximize design flexibility, improve quality and
service, and increase productive capacity.
The Company produces adult comforters and accessories at the Roxboro Plant.
The Roxboro Plant utilizes an automated warehouse and distribution system which
allows the Company to reduce inventories, improve physical control over
inventories, reduce order fulfillment lead times, and provide enhanced levels of
service.
The Company produces its jacquard-woven products at its weaving mills in
Dalton, Georgia, Ronda North Carolina, and Manchester, New Hampshire. The
products are then finished, packed and shipped from the Calhoun, Georgia
facilities. In fiscal 1996, the Company completed the expansion of its warehouse
and distribution facility in Calhoun, Georgia. This expanded warehouse and
distribution center has enabled the Company to continue to increase its
efficiency and improve on-time deliveries of its products. The Company also uses
a warehouse and distribution center in Chatsworth, Georgia. To improve
utilization of weaving
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capacity, the Company is manufacturing fabrics at its Dalton facilities that are
used in a new line of comforters produced at the Roxboro plant.
OUTLET STORES
The Company markets primarily close-out and irregular products through its
outlet stores which are located in Calhoun, Georgia, Roxboro, North Carolina,
Blowing Rock, North Carolina and in several outlet malls and resort areas
located primarily in the southeastern United States. In fiscal 1997, less than
3% of the Company's sales were made through its outlet stores.
RAW MATERIALS
The principal raw materials used in the manufacture of adult and infant
comforters, sheets and accessories are wide-width and narrow printed and solid
color cotton and polycotton fabrics, and polyester fibers used as filling
material. The principal raw materials used in the manufacture of jacquard-woven
products are natural-color and pre-dyed 100% cotton and acrylic yarns. Although
the Company usually maintains supply relationships with only a limited number of
suppliers, the Company believes these raw materials presently are available from
several sources in quantities sufficient to meet the Company's requirements.
The Company uses significant quantities of cotton, either in the form of
cotton yarn, cotton fabric or polycotton fabric. Cotton is subject to ongoing
price fluctuations. The price fluctuations are a result of cotton being an
agricultural product subject to weather patterns, disease and other factors as
well as supply and demand considerations, both domestically and internationally.
To reduce the effect of potential price fluctuations, the Company often makes
commitments for future purchases of cotton yarns and fabrics up to a year before
delivery. Nonetheless, significant increases in the price of cotton could
adversely affect the Company's operations.
SEASONALITY, INVENTORY MANAGEMENT
Historically, the Company has experienced a seasonal sales pattern, with a
greater sales volume in each of the last three fiscal quarters of the year (July
through March). This seasonality results from retailers having higher sales in
the second half of the year.
The Company carries normal inventory levels to meet delivery requirements
of customers. Customer returns of merchandise shipped are not material.
Inventories are valued at the lower of cost or market. Cost is determined on a
first-in, first-out basis. Inventories increased to $56,900,000 at March 30,
1997 from $47,300,000 at March 31, 1996.
BACKLOG ORDERS
The Company's backlog of unfilled customer orders believed by management to
be firm were $28,040,000 and $22,280,000 at June 1, 1997 and May 31, 1996,
respectively. The majority of these unfilled orders are scheduled to be shipped
within eight weeks.
The Company believes that its backlog of unfilled orders is not a
meaningful indicator of its future sales volume, as customers have increasingly
followed the practice of placing orders as close to the requested delivery date
as possible. Many orders are placed using electronic data interchange, and the
Company fills many of such orders on a quick response basis.
TRADEMARKS, COPYRIGHTS AND PATENTS
The Company's products are marketed in part under well-known trademarks.
The Company considers its trademarks to be of material importance to its
business. Adult comforters and accessories primarily carry the trademark Crown
Crafts(R). The majority of throws carry the trademarks Crown Crafts(R) and
Goodwin Weavers(R). Infant bedding products carry the trademarks Red Calliope(R)
and Little Bedding(R). Protection for these marks is obtained through domestic
and foreign registrations. Also important to the Company is the trademark Royal
Sateen(R), which was developed in a joint effort with Kitan Consolidated, Ltd.
of Israel. Kitan
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is the registered owner of the mark and the Company is the exclusive marketer of
Royal Sateen(R) products in the United States and other parts of the Western
Hemisphere.
In addition, certain products are manufactured and sold pursuant to
licensing agreements that include, among others: Bob Timberlake(R), Colonial
Williamsburg(R), Department 56(R), Warner Bros.(R), Hallmark(R), Ungaro(R),
Raymond Waites(TM), and Disney(C). The licensing agreements for the Company's
designer brands generally are for a term of 3 to 6 years, and may or may not be
subject to renewal. The Disney(C) license accounted for 14% and 6% of the
Company's total sales volume in fiscal 1997 and 1996, respectively. There were
no sales of Disney(C) products in fiscal 1995. The increase in sales of licensed
Disney(C) products from 1996 to 1997 was primarily due to the inclusion of a
full year of Red Calliope sales which contain a high percentage of Disney(C)
licensed products. None of the other licenses accounted for more than 10% of the
Company's total sales volume during the last three years. Although revenue has
not been material, the Company has licensed and has sold fabric for certain of
its more successful designs to manufacturers of other products such as bath
accessories, table linens, wallpaper borders and rugs. The Company believes that
its licensing activities, both as a licensee and licensor, will continue to
increase in importance as the Company grows.
Many of the designs used by the Company are copyrighted by other parties
including trademark licensors and are available to the Company through copyright
licenses. Other designs are the subject of copyrights and design patents owned
by the Company.
COMPETITION
The textile industry, including the market for home furnishings products,
is highly competitive. The Company competes with a variety of manufacturers,
many of which are vertically-integrated textile companies with substantially
greater resources than the Company, and many of which are of similar size to the
Company. Competitors may have customer relationships which may be superior to
those of the Company and may have substantially greater resources. The Company
believes that it is the fifth largest domestic manufacturer of bed coverings,
including comforters, comforter sets and jacquard-woven bedspreads, with a total
market share of less than 10%. The Company also believes that it is the largest
domestic manufacturer of throws controlling about one-third of this market.
The Company competes on the basis of quality, design, price, service and
packaging. Except for acrylic throws, luxury linens, and matelasse coverlets and
bedspreads, the Company's products have not experienced significant competition
from imports. The Company believes that its ability to implement future price
increases for its products may be limited by current or future overcapacity in
the domestic textile industry.
GOVERNMENT REGULATION: ENVIRONMENTAL CONTROL
The Company is subject to various federal, state and local environmental
laws and regulations which regulate, among other things, the discharge, storage,
handling and disposal of a variety of substances and wastes. The Company's
operations are also governed by laws and regulations relating to employee safety
and health, principally the Occupational Safety and Health Administration Act
and regulations thereunder.
The Company believes that it currently complies in all material respect
with applicable environmental, health and safety laws and regulations. Although
the Company believes that future compliance with such existing laws or
regulations will not have a material adverse effect on its capital expenditures,
earnings or competitive position, there can be no assurances that such
requirements will not become more stringent in the future or that the Company
will not incur significant costs in the future to comply with such requirements.
EMPLOYEES
At June 13, 1997, the Company had approximately 2,200 employees. None of
the Company's employees is represented by a labor union, and the Company
considers its relationship with its employees to be good. The Company attracts
and maintains qualified personnel by paying competitive salaries and benefits,
and offering opportunities for advancement.
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INTERNATIONAL SALES
Sales to customers in foreign countries are not currently material to the
Company's business. The Company believes, however, its presence in foreign
countries will increase in the future.
ITEM 2. PROPERTIES
The Company's headquarters are located in executive offices in Atlanta,
Georgia. A showroom is also located in these offices. The Company occupies
approximately 41,213 square feet at this location under leases that expire June
29, 2002 and September 30, 2000.
The following table summarizes certain information regarding the Company's
principal properties.
<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION USE SQUARE FEET LEASED
- -------- --- ----------- ----------
<S> <C> <C> <C>
Berea, Kentucky........ Offices, manufacturing, warehouse, and 38,000 Owned
distribution facilities and retail store
Calhoun, Georgia....... Two buildings, housing offices, manufacturing 267,000 Owned
facilities, sample department, print shop and
factory outlet store
Calhoun, Georgia....... Warehouse and distribution center 233,000 Owned
Chatsworth, Georgia.... Manufacturing facility, warehouse and 115,000 Owned
distribution center
Compton, California.... Offices, warehouse and distribution center 157,400 Leased(1)
Dalton, Georgia........ Two buildings housing manufacturing facilities 161,000 Owned
Ronda, North Two buildings, housing offices, manufacturing 62,820 Owned
Carolina............. facility and warehouse
Atlanta, Georgia....... Executive offices and showroom 41,233 Leased(2)
Roxboro, North Three buildings, housing manufacturing 424,000 Owned
Carolina............. facilities, warehouse and distribution
centers, and administrative offices and
factory outlet store
Roxboro, North Five buildings, housing manufacturing 348,000 Leased(3)
Carolina............. facilities, warehouses and distribution
facilities
Blowing Rock, North Three buildings, housing administrative and 21,000 Owned
Carolina............. sales offices, and factory outlet store
New York, New York..... Sales and design offices and showroom 41,600 Leased(4)
Manchester, New One building, housing manufacturing and 17,000 Leased(5)
Hampshire............ warehousing facilities
Prairieville, Two buildings, housing manufacturing, 23,300 Leased(6)
Louisiana............ warehousing, distribution and office
facilities
</TABLE>
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(1) Lease expires May 31, 2001 (renewable for one two-year period and one
three-year period).
(2) Leases expire as follows (a) 6,693 square feet on September 30, 2000; and
(b) 34,540 square feet on June 29, 2002.
(3) Leases expire as follows: (a) 75,000 square feet on February 28, 2005; (b)
50,000 square feet on September 30, 1997 (renewable for one five-year
period); and (c) 223,000 square feet on April 30, 1998 (renewable for one
five-year period).
(4) Lease expires April 30, 2007 (renewable for up to two additional five-year
periods).
(5) Lease expires December 31, 1998.
(6) Lease expires March 31, 2000.
The Company also leases space for its various sales offices and outlet
stores.
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Management believes that its properties are suitable for the purposes for
which they are used, are in generally good condition, substantially utilized and
provide adequate production capacity for current and anticipated future
operations.
ITEM 3. LEGAL PROCEEDINGS
In order to resolve certain disputes which have arisen between them, the
Company and its Israeli supplier of Royal Sateen(R) fabric and products, Kitan
Consolidated Ltd. ("Kitan"), have entered into binding arbitration before a
three-person panel in Israel. In connection with the arbitration, the Company
and Kitan exchanged claims documents on June 9 and 10, 1997. The Company's
claims include a request for payment of $9.9 million in damages stemming
primarily from Kitan's failure to make timely deliveries over a three-year
period. Kitan's claims include a request for payment of $8.5 million for damages
allegedly suffered primarily as a result of differences between the Company's
forecasts of demand and its actual orders for Kitan's fabric and products. Each
party's claims also request reimbursement of attorneys' fees and payment of
interest from the respective date on which its claim was filed. The Company
believes Kitan's claims are without merit, and the Company intends to vigorously
pursue both its claims and its defenses. Normal commerce between the companies
is continuing during the arbitration process.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended March 30, 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is authorized by its Articles of Incorporation to issue up to
50,000,000 shares of capital stock, all of which are designated Common Stock,
par value $1.00 per share.
COMMON STOCK
The Company's common stock (the "Common Stock") is traded on the New York
Stock Exchange ("NYSE") under the symbol "CRW." The following table presents
quarterly information on the price range of the Company's Common Stock for the
fiscal years ended March 30, 1997 and March 31, 1996. This information indicates
the high and low sale prices as reported by the NYSE.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ---- ---
<S> <C> <C>
FISCAL 1997
First Quarter............................................... $115/8 $ 9
Second Quarter.............................................. 101/8 73/4
Third Quarter............................................... 10 83/8
Fourth Quarter.............................................. 12 91/4
FISCAL 1996
First Quarter............................................... $18 $16
Second Quarter.............................................. 165/8 111/2
Third Quarter............................................... 133/8 111/4
Fourth Quarter.............................................. 113/4 91/2
</TABLE>
As of June 13, 1997 there were issued and outstanding 7,946,477 shares of
the Company's Common Stock held by approximately 1,475 beneficial holders. The
estimated number of beneficial holders does not reflect the approximately 1,950
individual employee accounts in the Company's Employee Stock Ownership Plan. At
June 13, 1997, the Company's Common Stock closed at $10.50.
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In fiscal 1997, the Company continued its policy, begun in February 1989,
of paying dividends on a quarterly basis. The Company paid a dividend of $0.03
per share on its Common Stock on June 25, 1996, September 17, 1996, December 24,
1996 and March 25, 1997. Dividends paid by the Company on its Common Stock in
the future will depend upon the earnings and financial condition of the Company.
The Company presently anticipates paying dividends for the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the Company's
financial statements for the five years ended March 30, 1997. The data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
YEAR ENDED
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MARCH 30, MARCH 31, APRIL 2, APRIL 3, MARCH 28,
1997 1996 1995 1994* 1993
--------- --------- -------- -------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales................................... $256,385 $219,002 $210,963 $187,335 $151,256
Gross profit................................ 51,737 42,452 46,731 37,998 29,885
Earnings from operations.................... 11,641 10,625 18,878 15,374 11,377
Net earnings................................ 3,631 3,947 11,050 9,010 7,339
Fully diluted net
Earnings per share........................ 0.45 0.49 1.31 1.08 0.89
Cash dividends per share.................... 0.12 0.12 0.12 0.12 0.12
AT YEAR END
Total assets................................ $189,556 $185,698 $134,031 $123,348 $108,641
Long-term debt.............................. 71,200 69,300 5,000 10,000 15,000
Shareholders' equity........................ 85,695 83,017 87,000 75,385 66,325
</TABLE>
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* Fiscal 1994 contained 53 weeks of operations
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
General
During the fiscal year ended March 31, 1996, the Company acquired four home
furnishings related businesses. On April 3, 1995, the Company acquired all of
the outstanding stock of Textile, Inc., a contract manufacturer of jacquard
woven products, to supplement the Company's manufacturing capacity for woven
throws. On October 31, 1995, the Company acquired all of the outstanding stock
of The Red Calliope and Associates, Inc., a leading designer and marketer of
infant bedding products and related accessories. On December 19, 1995, the
Company purchased all of the outstanding stock of KKH Corporation, a designer
and marketer of imported patented animal-shaped children's pillows ("Pillow
Buddies") and similar products. On January 4, 1996, the Company acquired all of
the outstanding stock of Churchill Weavers, Inc., a manufacturer and marketer of
hand-woven luxury textile products.
On October 28, 1996, Hans Benjamin Furniture, Inc., a 51-percent owned
subsidiary of the Company, was notified by the California Bureau of Home
Furnishings and Thermal Insulation that a line of foam furniture it manufactured
did not comply with a California flammability standard and by the Office of the
District Attorney in Sacramento, California, that these products also appeared
to be mislabeled. An internal investigation revealed that other products
manufactured by Hans Benjamin were not in compliance with the California
flammability standard, were similarly mislabeled, and that such mislabeled
products had been shipped to locations other than California.
Hans Benjamin responded by announcing a nationwide voluntary recall of all
furniture products it manufactured. Subsequent to announcing this recall, the
Company decided to discontinue certain product
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lines through the closing of Hans Benjamin and another small subsidiary. The
liquidation of Hans Benjamin was completed on March 27, 1997. Sales of the
discontinued products aggregated less than one percent of the Company's
consolidated net sales for the years ended March 30, 1997 and March 31, 1996.
For the year ended March 30, 1997, the Company recorded an after tax loss
of approximately $1.3 million for the costs associated with the product recall
and the closing of the subsidiaries. The recorded loss includes a settlement
reached with the District Attorney's office for civil penalties, and is
reflected in the Consolidated Statements of Earnings for the year ended March
30, 1997 as follows:
<TABLE>
<S> <C>
Reduction in net sales...................................... $ 407,000
Increase in cost of products sold........................... 894,000
Increase in marketing and administrative expenses........... 213,000
Increase in other expense -- net............................ 74,000
----------
Reduction in earnings before income taxes................... 1,588,000
Reduction in provisions for income taxes.................... 325,000
----------
Reduction in net earnings................................... $1,263,000
==========
Reduction in net earnings per share......................... $ 0.16
==========
</TABLE>
Fiscal Year Ended March 30, 1997 Compared to Fiscal Year Ended March 31, 1996
Consolidated net sales increased $37.4 million or 17.1 percent to $256.4
million in the year ended March 30, 1997. The increase was attributable to
incremental net sales of $34.6 million from the four businesses acquired during
1996, and an increase in net sales of throw products partially offset by a
decline in net sales of adult bedcovering products.
Gross profit as a percent of net sales increased to 20.2 percent from 19.4
percent in 1996, primarily due to increases in sales of higher margin products
as a portion of total sales.
Marketing and administrative expenses increased $8.3 million, or 26.0
percent, to $40.1 million in 1997. Incremental marketing and administrative
expenses of companies acquired in fiscal year 1996 accounted for $4.5 million of
the increase and the remainder of the increase is due to increased promotional
expenses, sales personnel costs, legal and other professional fees, and bad
debts expense.
Interest costs increased to $4.9 million in 1997 from $4.2 million
(including capitalized interest of $402,000) in 1996. The increase in interest
expense was primarily the result of higher levels of debt outstanding during the
first and second quarters of the fiscal year. The higher debt levels were
primarily the result of significant investment spending in 1996 including
capital expenditures of $23.7 million, acquisitions of $20.5 million, and
treasury stock purchases of $7.5 million.
The effective income tax rate increased to 47.4 percent from 39.6 percent,
due to non-deductible losses incurred by the Company's 51 percent owned
subsidiary, Hans Benjamin, prior to its dissolution on March 27, 1997, higher
effective deferred state income tax rates and an increase in financial statement
expenses for non-deductible amortization of goodwill.
Net earnings were $3.6 million or $.45 per share compared to net earnings
of $3.9 million or $.49 per share for the fiscal year ended March 31, 1996. Net
earnings for the year ended March 30, 1997 were reduced by approximately $1.3
million, or $.16 per share as a result of losses incurred in connection with the
Hans Benjamin product recall and closing of subsidiaries.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended April 2, 1995
Consolidated net sales increased $8.0 million, or 3.8 percent, to $219.0
million in 1996. The increase was attributable to incremental net sales of $15.7
million from the four businesses acquired by the Company during 1996 and an
increase in net sales of throw products, offset by declines in net sales of
adult bedcovering products.
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Gross profit as a percentage of net sales declined to 19.4 percent in 1996
from 22.2 percent in 1995, primarily due to capacity underutilization at the
Company's manufacturing facilities. This underutilization was the result of less
than expected demand for the Company's manufactured products, as an extremely
weak retailing environment prevailed for most of the fiscal year. The Company
further reduced its production schedules, particularly during the fourth
quarter, as part of a plan to reduce its inventory levels.
Marketing and administrative expenses increased $4.0 million, or 14.3
percent, to $31.8 million in 1996. Of the increase, $2.7 million represents the
incremental marketing and administrative expenses of the businesses acquired by
the Company during 1996. The remaining increase was primarily attributable to
increases in staffing costs and advertising, the total of which was partially
offset by a $1.3 million decrease in executive incentive compensation payments.
Interest costs incurred increased to $4.2 million (including capitalized
interest of $402,000) in 1996 from a total of $2.1 million (including
capitalized interest of $125,000) in 1995. This increase was primarily the
result of a substantial increase in the overall levels of debt outstanding. Such
higher debt levels were the result of capital spending of $23.7 million,
acquisition activity of $20.5 million, and purchases of treasury stock of $7.5
million.
The effective income tax rate increased to 39.6 percent in 1996 from 36.8
percent in 1995, partially due to an increase in financial statement expenses
for nondeductible amortization of goodwill, and in part due to higher state and
local income tax rates applicable to acquired companies. These higher state and
local rates were partially offset by the availability and utilization of
employment-related tax credits in certain other states.
Net earnings were $3.9 million or $.49 per share compared to $11.1 million
or $1.31 per share for the year ended April 2, 1995.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Working capital increased to $77.8 million at March 30, 1997 from $67.9
million at March 31, 1996. Total debt outstanding decreased to $71.3 million at
March 30, 1997 from $75.6 million at March 31, 1996. The ratio of debt to equity
was 0.83:1 at March 30, 1997 compared to 0.91:1 at March 31, 1996. The
improvement in this ratio was attributable to cash flow provided by operating
activities partially offset by additional borrowings to fund an increase in
property, plant, and equipment.
The Company's fiscal 1997 cash needs, which included capital expenditures
of $5.7 million, were met primarily by cash provided by operating activities.
The Company maintains unsecured committed revolving credit facilities totaling
$30 million with two commercial banks at interest rates based on the London
Interbank Offered Rate (LIBOR). At March 30, 1997, borrowings of $21.0 million
were outstanding under these facilities at a weighted average interest rate of
6.1 percent. The Company pays facility fees on the unused portions of these
committed credit lines. The Company also maintains uncommitted lines of credit
totaling $40 million with two commercial banks at floating interest rates. There
were no borrowings outstanding under these lines at March 30, 1997. Among other
covenants, these bank facilities contain a requirement that the Company maintain
minimum levels of shareholders' equity, one effect of which is to restrict the
payment of cash dividends. At March 30, 1997, retained earnings of approximately
$9.4 million were available for dividend payments. Other covenants place
restrictions on the amounts the Company may expend on acquisitions and purchases
of treasury stock.
The Company expects that its total expenditures for property, plant, and
equipment will be between $6.0 and $8.0 million in fiscal 1998. The Company
believes that cash generated by operations and borrowings under its existing
credit facilities will be sufficient to meet its anticipated requirements for
capital expenditures, debt repayments and operating expenses.
To reduce its exposure to credit losses and to enhance its cash flow
forecasts, the Company factors the majority of its trade accounts receivable.
The Company's factor establishes customer credit lines, and accounts for and
collects receivable balances. The factor remits payment to the Company on the
due dates of the factored invoices. The Company does not take advances against
its factored receivable balances. The factor assumes all responsibility for
credit losses on sales within approved credit lines, but may deduct from its
9
<PAGE> 11
remittances to the Company the amounts of customer deductions for returns,
allowances, disputes and discounts. The Company's factor may, at any time,
terminate or limit its approval of shipments to a particular customer. If such a
termination occurs, the Company may either assume the credit risks for shipments
after the date of such termination or cease shipments to such customer.
During fiscal 1996, the Company's Board of Directors authorized the
purchase of up to 1,000,000 shares of outstanding common stock. During 1996, the
Company purchased a total of 636,200 shares of its own stock for a total of $7.5
million. No shares were purchased in fiscal 1997 and no decision has been made
as to whether the Company will acquire the remaining 363,800 shares covered
under this authorization.
On March 31, 1997, the Company acquired all of the outstanding stock of
Hamco, Inc., a manufacturer and marketer of infant soft goods, for a total
consideration, net of cash acquired, of $7.4 million. The acquisition was
financed by borrowings under the Company's revolving credit facilities. The
Company continues to review appropriate acquisition opportunities as a
significant part of its growth strategy. Although the Company cannot predict
when, or if, further acquisitions will occur, the Company's various credit
facilities or other forms of debt will likely continue to provide the funds
necessary to finance its growth by this method.
OTHER MATTERS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share which changes the
method of reporting earnings per share by requiring a computation of basic and
diluted earnings per share. This statement will become effective for the
Company's fiscal 1998 third quarter. The computations required by this Statement
would not have had a material impact on the earnings per share reported for the
Company's 1997, 1996, and 1995 fiscal years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-13 herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has neither changed its independent accountants nor had any
disagreements on accounting or financial disclosure with such accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the Company's directors is set forth in the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
August 12, 1997 (the "Proxy Statement") under the caption "Election of
Directors" and is incorporated herein by reference. The information with respect
to the Company's executive officers is set forth in the Proxy Statement under
the caption "Executive Officers" and is incorporated herein by reference. The
information with respect to Item 405 of Registration S-K is set forth in the
Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" in the
Proxy Statement is incorporated herein by reference.
10
<PAGE> 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Rights and Principal
Shareholders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(A)1. FINANCIAL STATEMENTS
The following consolidated financial statements of Registrant are filed
with this report and included in Part II, Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of March 30, 1997 and March
31, 1996.................................................. F-3
Consolidated Statements of Earnings for the Three Fiscal
Years in the Period Ended March 30, 1997.................. F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March 30,
1997...................................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 30, 1997.................. F-6
Notes to Consolidated Financial Statements.................. F-7
Selected Quarterly Financial Information (unaudited)........ F-13
</TABLE>
(A)2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule of Registrant is filed with this
report:
<TABLE>
<S> <C>
Schedule VIII -- Valuation and Qualifying Accounts.......... Page 12
</TABLE>
All other schedules not listed above have been omitted because they are not
applicable or the required information is included in the financial statements
or notes thereto.
11
<PAGE> 13
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SCHEDULE VIII VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- ---------- ---------- ----------- ----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS* PERIOD
---------- ---------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Accounts Receivable Valuation Accounts:
Year Ended April 2, 1995
Reserve for doubtful accounts................... $ 293 $ 55 $318 $ 30
Reserve for customer deductions................. 858 135 723
Year Ended March 31, 1996
Reserve for doubtful accounts................... $ 30 $ 67 $ 18 $ 79
Reserve for customer deductions................. 723 45 1,176
Year Ended March 30, 1997
Reserve for doubtful accounts................... $ 79 $1,123 $(18) $1,220
Reserve for customer deductions................. 1,176 169 1,345
</TABLE>
- ---------------
* Deductions from the reserve for doubtful accounts represent the amount of
accounts written off reduced by any subsequent recoveries.
12
<PAGE> 14
SCHEDULE VIII
(A)3. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following Executive Compensation Plans and Arrangements are filed with
this Form 10-K or have been previously filed as indicated below:
1. Crown Crafts, Inc. 1976 Non-Qualified Stock Option Plan (6)(Exhibit
10(b)(i))
2. Philip Bernstein Death Benefits Agreement dated March 30, 1992
(5)(Exhibit 10(b)(ii))
3. Description of Crown Crafts, Inc. Executive Incentive Bonus Plan
(5)(Exhibit 10(b)(iii))
4. Crown Crafts, Inc. 1995 Stock Option Plan (1)(Exhibit 10(b)(iv))
5. Form of Nonstatutory Stock Option Agreement (pursuant to 1995 Stock
Option Plan) (1)(Exhibit 10(b)(v))
6. Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan) (1)(Exhibit 10(b)(vi))
(A)5. EXHIBITS
Exhibits required to be filed by Item 601 of Regulation S-K are included as
Exhibits to this report as follows:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2(a) -- Merger Agreement dated as of October 8, 1995 between and
among Registrant and CC Acquisition Corp., and Neal Fohrman
and Stanley Glickman and The Red Calliope and Associates,
Inc.(7)
3(a) -- Restated Articles of Incorporation of Registrant.(1)
3(b) -- Bylaws of Registrant.(1)
4(a) -- Instruments defining the rights of security holders are
contained in the Restated Articles of Incorporation of
Registrant, and Article I of the Restated Bylaws of
Registrant.(1)
4(b) -- Form of Rights Agreement dated as of August 11, 1995 between
the Registrant and Trust Company Bank, including Form of
Right Certificate and Summary of Rights to Purchase Common
Shares.(2)
10(a) -- 9.22% Note Agreement with The Prudential Insurance Company
of America.(3)
10(a)(ii) -- Letter Agreement with The Prudential Insurance Company of
America dated July 23, 1991.(4)
10(a)(iii) -- Letter Agreement with The Prudential Insurance Company of
America dated April 9, 1992.(4)
10(a)(iv) -- Letter Agreement with The Prudential Insurance Company of
America dated May 21, 1993.(5)
10(a)(v) -- Letter Agreement with The Prudential Insurance Company of
America dated July 14, 1994.(8)
10(a)(vi) -- Letter Agreement with The Prudential Insurance Company of
America dated July 29, 1994.(8)
10(a)(vii) -- Letter Agreement with The Prudential Insurance Company of
America dated March 31, 1995.(8)
10(a)(viii) -- Letter Agreement with The Prudential Insurance Company of
America dated October 12, 1995.(1)
10(b)(i) -- Crown Crafts, Inc. Non-Qualified Stock Option Plan.(6)
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10(b)(ii) -- Philip Bernstein Death Benefits Agreement dated March 30,
1992.(5)
10(b)(iii) -- Description of Crown Crafts, Inc. Executive Incentive Bonus
Plan.(5)
10(b)(iv) -- Crown Crafts, Inc. 1995 Stock Option Plan.(1)
10(b)(v) -- Form of Nonstatutory Stock Option Agreement (pursuant to
1995 Stock Option Plan).(1)
10(b)(vi) -- Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan).(1)
10(c)(i) -- Revolving Credit Agreement dated August 25, 1995 with
NationsBank, National Association (Carolinas).(1)
10(c)(ii) -- Amendment No. 1 to Revolving Credit Agreement dated May 1,
1996 with NationsBank, National Association (Carolinas).(9)
10(c)(iii) -- Amendment No. 2 to Revolving Credit Agreement dated June 28,
1996 with NationsBank, National Association (Carolinas).
10(c)(iv) -- Letter Agreement with NationsBank, N.A. dated December 23,
1996.
10(c)(v) -- Letter Agreement with NationsBank, N.A. dated January 23,
1997.
10(c)(vi) -- Letter Agreement with NationsBank, N.A. dated May 22, 1997.
10(d)(i) -- Revolving Credit Agreement dated August 25, 1995 with
Wachovia Bank of Georgia, N.A.(1)
10(d)(ii) -- Amendment No. 1 to Revolving Credit Agreement dated May 1,
1996 with Wachovia Bank of Georgia, N.A.(9)
10(d)(iii) -- Amendment No. 2 to Revolving Credit Agreement dated June 28,
1996 with Wachovia Bank of Georgia, N.A.
10(d)(iv) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
December 24, 1996.
10(d)(v) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
January 22, 1997.
10(d)(vi) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
May 22, 1997.
10(e)(i) -- Note Purchase and Private Shelf Facility dated October 12,
1995 with The Prudential Insurance Company of America.(1)
10(e)(ii) -- Letter Agreement dated April 4, 1996 with The Prudential
Insurance Company of America.(9)
10(f) -- Lease Agreement dated June 28, 1996 between 1185 Avenue of
the Americas Associates as Lessor and Crown Crafts Home
Furnishings, Inc. as Lessee.(9)
21 -- Subsidiaries of the Registrant.
23 -- Consent of Deloitte & Touche, LLP.
27 -- Financial Data Schedule (for SEC use only).
There were no reports on Form 8-K during the quarter ended March 30, 1997.
</TABLE>
- ---------------
(1) Incorporated herein by reference to exhibit of same number to Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 1, 1995.
(2) Incorporated herein by reference to exhibit of same number to Registrant's
Report on Form 8-K dated August 22, 1995.
(3) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1991.
(4) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 29, 1992.
14
<PAGE> 16
(5) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended March 28, 1993.
(6) Incorporated herein by reference to exhibit of same number to Registrant's
Registration Statement on Form S-8, filed April 8, 1994. (Reg. No.
33-77558).
(7) Incorporated herein by reference to exhibit of same number to Registrant's
Report on Form 8-K dated November 13, 1995.
(8) Incorporated herein by reference to exhibit of same number to Registrant's
Annual Report on Form 10-K for the fiscal year ended April 2, 1995.
(9) Incorporated herein by reference to exhibit of the same number to
Registrant's Annual Report on Form 10-K for the fiscal year ended March 31,
1996.
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CROWN CRAFTS, INC.
By: /s/ MICHAEL H. BERNSTEIN
------------------------------------
Michael H. Bernstein
President and Chief Executive
Officer
Date: June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ MICHAEL H. BERNSTEIN President and Chief Executive June 27, 1997
- ----------------------------------------------------- Officer, Director
Michael H. Bernstein
/s/ PHILIP BERNSTEIN Chairman of the Board June 27, 1997
- -----------------------------------------------------
Philip Bernstein
/s/ E. RANDALL CHESTNUT Director June 27, 1997
- -----------------------------------------------------
E. Randall Chestnut
/s/ ROGER D. CHITTUM Director June 27, 1997
- -----------------------------------------------------
Roger D. Chittum
/s/ PAUL A. CRISCILLIS, JR. Director and Chief Financial June 27, 1997
- ----------------------------------------------------- Officer
Paul A. Criscillis, Jr.
/s/ RUDOLPH J. SCHMATZ Director June 27, 1997
- -----------------------------------------------------
Rudolph J. Schmatz
/s/ JANE E. SHIVERS Director June 27, 1997
- -----------------------------------------------------
Jane E. Shivers
/s/ ALFRED M. SWIREN Director June 27, 1997
- -----------------------------------------------------
Alfred M. Swiren
/s/ RICHARD N. TOUB Director June 27, 1997
- -----------------------------------------------------
Richard N. Toub
/s/ ROBERT E. SCHNELLE Chief Accounting Officer, June 27, 1997
- ----------------------------------------------------- Treasurer
Robert E. Schnelle
</TABLE>
16
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Report of Independent Auditors............................ F-2
Consolidated Balance Sheets as of March 30, 1997 and March
31, 1996............................................... F-3
Consolidated Statements of Earnings for the Three Fiscal
Years in the Period Ended March 30, 1997............... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March
30, 1997............................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 30, 1997............... F-6
Notes to Consolidated Financial Statements................ F-7
Note # 1 -- SIGNIFICANT ACCOUNTING POLICIES
Note # 2 -- ACQUISITIONS
Note # 3 -- DISCONTINUANCE OF CERTAIN BUSINESSES
Note # 4 -- INVENTORIES
Note # 5 -- FINANCING ARRANGEMENTS
Note # 6 -- INCOME TAXES
Note # 7 -- RETIREMENT PLANS
Note # 8 -- STOCK OPTIONS
Note # 9 -- MAJOR CUSTOMERS
Note #10 -- COMMITMENTS AND CONTINGENCIES
Supplemental Financial Information:
Selected Quarterly Financial Information (unaudited)...... F-13
</TABLE>
F-1
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Crown Crafts, Inc.:
We have audited the accompanying consolidated balance sheets of Crown
Crafts, Inc. and subsidiaries as of March 30, 1997 and March 31, 1996, and the
related consolidated statements of earnings, changes in shareholders equity and
cash flows for each of the three years in the period ended March 30, 1997. Our
audits also included the financial statement schedule listed at Item 14. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Crown Crafts, Inc. and
subsidiaries as of March 30, 1997 and March 31, 1996, and the results of their
operations and their cash flow for each of the three years in the period ended
March 30, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 23, 1997
(June 10, 1997 as to Note 10)
F-2
<PAGE> 20
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 30, 1997 AND MARCH 31, 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
(DOLLAR AMOUNTS IN
THOUSANDS, EXCEPT
PAR VALUE PER SHARE)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 602 $ 517
Accounts receivable (less allowances of $3,502 in 1997 and
$2,033 in 1996):
Due from factor........................................... 30,866 27,943
Other..................................................... 7,496 12,901
Inventories................................................. 56,860 47,269
Deferred income taxes....................................... 2,392 1,510
Other current assets........................................ 3,307 3,474
-------- --------
Total current assets.............................. 101,523 93,614
-------- --------
PROPERTY, PLANT AND EQUIPMENT -- at cost:
Land, buildings and improvements............................ 44,903 44,274
Machinery and equipment..................................... 68,435 65,782
Furniture and fixtures...................................... 1,487 1,544
-------- --------
114,825 111,600
Less accumulated depreciation............................... 41,809 34,265
-------- --------
Property, plant and equipment -- net.............. 73,016 77,335
-------- --------
OTHER ASSETS:
Goodwill.................................................... 13,192 13,526
Other....................................................... 1,825 1,223
-------- --------
Total Other Assets................................ 15,017 14,749
-------- --------
Total............................................. $189,556 $185,698
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................... $ 1,180
Accounts payable............................................ $ 13,212 12,480
Income taxes payable........................................ 1,336 46
Accrued wages and benefits.................................. 4,312 3,607
Accrued royalties........................................... 1,369 1,198
Other accrued liabilities................................... 3,429 2,134
Current maturities of long-term debt........................ 100 5,100
-------- --------
Total current liabilities......................... 23,758 25,745
-------- --------
NON-CURRENT LIABILITIES:
Long-Term Debt.............................................. 71,200 69,300
Deferred Income Taxes....................................... 7,877 6,936
Other....................................................... 1,026 700
-------- --------
Total non-current liabilities..................... 80,103 76,936
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock -- par value $1.00 per share; 50,000,000 shares
authorized................................................ 9,051 9,051
Additional paid-in capital.................................. 34,438 34,438
Retained earnings........................................... 57,005 54,327
Common stock held in treasury -- at cost.................... (14,799) (14,799)
-------- --------
Total shareholders' equity........................ 85,695 83,017
-------- --------
Total............................................. $189,556 $185,698
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 21
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FISCAL YEARS ENDED MARCH 30, 1997, MARCH 31, 1996 AND APRIL 2, 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Sales................................................... $256,385 $219,002 $210,963
Costs of products sold...................................... 204,648 176,550 164,232
-------- -------- --------
Gross profit................................................ 51,737 42,452 46,731
Marketing and administrative expenses....................... 40,096 31,827 27,853
-------- -------- --------
Earnings from operations.................................... 11,641 10,625 18,878
Other income (expense):
Interest expense.......................................... (4,887) (3,807) (1,992)
Cotton futures transactions............................... (847) (115)
Other -- net.............................................. 151 568 709
-------- -------- --------
Earnings before income taxes................................ 6,905 6,539 17,480
Provisions for income taxes................................. 3,274 2,592 6,430
-------- -------- --------
Net earnings................................................ $ 3,631 $ 3,947 $ 11,050
======== ======== ========
Primary earnings per share.................................. $ 0.45 $ 0.49 $ 1.31
======== ======== ========
Fully-diluted earnings per share............................ $ 0.45 $ 0.49 $ 1.31
======== ======== ========
Average shares outstanding:
Primary................................................... 8,006 8,125 8,457
======== ======== ========
Fully-diluted............................................. 8,042 8,125 8,457
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 22
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 30, 1997, MARCH 31, 1996 AND APRIL 2, 1995
<TABLE>
<CAPTION>
TREASURY STOCK
ADDITIONAL -------------------
COMMON PAID-IN RETAINED NUMBER
STOCK CAPITAL EARNINGS OF SHARES COST
------ ---------- -------- --------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCES -- APRIL 3, 1994...................... $8,836 $31,645 $41,318 420,125 $ 6,414
Exercise of stock options...................... 168 1,921
Treasury stock acquired in conjunction with
exercise of stock options.................... 44,063 753
Tax benefit from exercise of stock options..... 245
Cash dividends ($0.12 per share)............... (1,016)
Net earnings................................... 11,050
------ ------- ------- --------- -------
BALANCES -- APRIL 2, 1995...................... 9,004 33,811 51,352 464,188 7,167
Exercise of stock options...................... 47 557
Treasury stock acquired in conjunction with
exercise of stock options.................... 6,047 97
Tax benefit from exercise of stock options..... 70
Treasury stock purchases....................... 636,200 7,535
Cash dividends ($0.12 per share)............... (972)
Net earnings................................... 3,947
------ ------- ------- --------- -------
BALANCES -- MARCH 31, 1996..................... 9,051 34,438 54,327 1,106,435 14,799
------ ------- ------- --------- -------
Cash Dividends ($0.12 per share)............... (953)
Net Earnings................................... 3,631
------ ------- ------- --------- -------
BALANCES -- MARCH 30, 1997..................... $9,051 $34,438 $57,005 1,106,435 $14,799
====== ======= ======= ========= =======
</TABLE>
Number of shares of common stock issued: 9,050,636 at March 30, 1997 and March
31, 1996
See notes to consolidated financial statements.
F-5
<PAGE> 23
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 30, 1997, MARCH 31, 1996 AND APRIL 2, 1995
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings................................................ $ 3,631 $ 3,947 $ 11,050
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property, plant and
equipment.............................................. 9,798 8,885 7,104
Amortization of goodwill.................................. 618 357 5
Deferred income taxes..................................... 59 767 1,245
Gain on sale of property, plant and equipment............. 11 (10) (234)
Changes in assets and liabilities, net of effects of
acquisitions of businesses:
Accounts receivable.................................... 2,617 (7,792) 998
Inventories............................................ (9,476) 4,756 213
Other current assets................................... 167 (1,171) (407)
Other assets........................................... (321) (86) (877)
Accounts payable....................................... 669 (1,311) (2,770)
Income taxes payable................................... 1,290 (1,078) 108
Accrued liabilities.................................... 2,169 27 318
Other liabilities...................................... 45 51 47
------- ------- --------
Net Cash Provided by Operating Activities................... 11,277 7,342 16,800
------- ------- --------
INVESTING ACTIVITIES:
Capital expenditures........................................ (5,702) (23,650) (18,898)
Acquisitions, net of cash acquired.......................... (459) (20,471)
Proceeds from sale of property, plant and equipment......... 372 444 1,465
------- ------- --------
Net Cash Used for Investing Activities...................... (5,789) (43,677) (17,433)
------- ------- --------
FINANCING ACTIVITIES:
Long-term borrowings........................................ 50,400
Payment of long-term debt................................... (5,100) (6,564) (5,000)
Increase in bank revolving credit........................... 2,000 19,000
Increase (decrease) in notes payable........................ (1,350) (18,621) 5,210
Purchases of treasury stock................................. (7,535)
Stock options exercised..................................... 577 1,581
Cash dividends.............................................. (953) (972) (1,016)
------- ------- --------
Net Cash Provided by (Used for) Financing Activities........ (5,403) 36,285 775
------- ------- --------
NET INCREASE (DECREASE) IN CASH............................. 85 (50) 142
CASH AT BEGINNING OF YEAR................................... 517 567 425
------- ------- --------
CASH OF END OF YEAR......................................... $ 602 $ 517 $ 567
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................... $ 2,534 $ 3,541 $ 4,831
======= ======= ========
Interest paid, net of interest capitalized of $402 (1996),
$125 (1995)............................................... $ 4,773 $ 3,172 $ 2,046
======= ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 24
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 30, 1997, MARCH 31, 1996 AND APRIL 2, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying consolidated financial statements
include the accounts of Crown Crafts, Inc. and its subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions have been
eliminated.
The Company's fiscal year ends on the Sunday nearest March 31. Fiscal years
are designated in the consolidated financial statements and notes thereto by
reference to the calendar year within which the fiscal year ends. The
consolidated financial statements encompass 52 weeks of operations for each of
the three years presented.
The Company operates in a single business segment within the textile
industry and is principally engaged in the design, manufacture and sale of home
furnishings products. Sales are generally made directly to retailers, primarily
department and specialty stores, mass merchants, large chain stores and gift
stores.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition: Sales are recorded on the date merchandise is shipped
to customers, and are reported net of returns and allowances in the consolidated
statements of earnings.
Inventories: Inventories are valued at the lower of cost, determined on a
first-in, first-out basis, or market.
Depreciation and Amortization: Depreciation and amortization of property,
plant and equipment are provided over the estimated useful lives of the
respective assets using principally the straight-line method. Estimated useful
lives are 15 to 40 years for buildings, 4 to 7 1/2 years for machinery and
equipment, and 8 years for furniture and fixtures. The cost of improvements to
leased premises is amortized over the shorter of the estimated life of the
improvement or the term of the lease.
Goodwill represents the unamortized excess of purchase price over fair
value of net identifiable assets acquired in business combinations. Goodwill is
amortized using the straight-line method over periods ranging from 10 to 30
years. The Company reviews the carrying value of goodwill and other long-lived
assets if the facts and circumstances suggest that their recoverability may have
been impaired.
Futures Transactions: Realized and unrealized gains and losses in the fair
values of cotton futures contracts are recognized in earnings during the periods
in which such changes occur. The Company did not enter into any futures
contracts during 1997.
Provisions for Income Taxes: The provisions for income taxes include all
currently payable federal, state and local taxes which are based upon the
Company's taxable income and the change during the fiscal year in net deferred
income tax assets and liabilities. The Company provides for deferred income
taxes based on the difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates which will be in effect during
the years in which such differences are expected to reverse.
Earnings Per Share: Earnings per share have been computed using the
weighted average number of common shares outstanding including the dilutive
effect of outstanding stock options in 1997. In 1996 and 1995, outstanding stock
options did not have a materially dilutive effect and were excluded from such
computations.
Stock-Based Compensation: The Company accounts for stock option grants
using the intrinsic value method and only issues stock options that have an
exercise price that is equal to or more than the fair value of the underlying
shares at the date of grant. Accordingly, no compensation expense is recorded in
the accompanying statements of earnings with respect to stock option grants.
2. ACQUISITIONS
On October 31, 1995, the Company acquired all of the outstanding stock of
The Red Calliope and Associates, Inc. for $8.9 million in cash and $5.8
F-7
<PAGE> 25
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million in short-term notes. The Red Calliope is a leading designer and marketer
of infant bedding products and related accessories. The notes issued in
connection with this transaction were paid prior to March 31, 1996, in
accordance with their terms.
On April 3, 1995, the Company acquired all of the outstanding stock of
Textile, Inc., a contract manufacturer of jacquard-woven products. On December
19, 1995, the Company acquired all of the outstanding stock of KKH Corporation,
a designer and marketer of imported patented animal-shaped children's pillows
and related products. On January 4, 1996, the Company acquired all of the
outstanding stock of Churchill Weavers, Inc., a manufacturer and marketer of
hand-woven luxury textile products. The total consideration for these three
acquisitions was $6.4 million.
These four 1996 acquisitions were accounted for as purchases. Accordingly,
the net purchase price was allocated based upon the respective acquisition-date
fair market values of assets acquired and liabilities assumed, as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Assets acquired, other
than cash............ $18,899
Goodwill............... 13,829
-------
32,728
Less liabilities
assumed.............. 12,257
-------
Purchase price, net of
cash acquired........ $20,471
=======
</TABLE>
Goodwill of $10.2 million was associated with the acquisition of The Red
Calliope and Associates, Inc., and is being amortized over a period of thirty
years. The remaining goodwill arises principally from the acquisition of
Textile, Inc. and is being amortized primarily over fifteen years. The Company
paid during 1997 and expects to pay during 1998 additional contingent
consideration totaling $0.5 million with respect to one of its 1996
acquisitions. Such contingent consideration increases goodwill in the fiscal
years during which it is paid.
The consolidated statement of earnings for 1996 includes the revenues,
expenses and operating results for each of these four companies commencing with
its respective acquisition date. The following unaudited pro forma information
presents the Company's consolidated results of operations as though the
acquisition of The Red Calliope and Associates, Inc. had occurred on the first
day of fiscal 1995. These pro forma results do not purport to be indicative of
the results which would have been achieved had the acquisition been made on that
date, or of future results of operations. The pro forma information does not
include the operating results of the other three acquired companies, since their
inclusion would not materially alter the information shown therein or the
Company's reported consolidated results of operations.
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales................ $238,510 $236,868
Net earnings............. 4,070 10,779
Earnings per share....... 0.50 1.27
</TABLE>
On October 4, 1996, the Company acquired all of the assets of Woven Classic
Throws, Inc., a small manufacturer of specialty woven throws. This acquisition
was accounted for as a purchase and did not have a material effect on the
Company's 1997 operating results. On March 31, 1997, the Company acquired all of
the outstanding stock of Hamco, Inc., a manufacturer and marketer of bibs and
other infant soft goods.
3. DISCONTINUANCE OF CERTAIN
BUSINESSES
During the third fiscal quarter of 1997, the Company adopted plans to
discontinue two small product categories. This decision was precipitated by the
receipt of notices from two California regulatory agencies stating that a line
of juvenile foam-core furniture manufactured by Hans Benjamin Furniture, Inc., a
51-percent-owned subsidiary, did not comply with a California flammability
standard, that such products were mislabeled, and that these matters could
subject Hans Benjamin to civil penalties. The Company's subsequent internal
investigation revealed that other products manufactured by Hans Benjamin were
not in compliance with the California flammability standard, were similarly
mislabeled and that such mislabeled products had been shipped into other states
in addition to California. Hans Benjamin responded by announcing a
F-8
<PAGE> 26
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nationwide voluntary recall of all furniture products it manufactured.
During the fourth fiscal quarter of 1997, Hans Benjamin negotiated a
settlement with California regarding the civil penalties to be paid, and was
liquidated. The consolidated statement of earnings for 1997 includes costs and
expenses of $1,263,000, net of income tax benefit, related to the product
recall, the civil penalty, the discontinuance of the furniture and one other
small product line, and the liquidation of Hans Benjamin.
4. INVENTORIES
Major classes of inventory were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and
supplies........... $27,415 $23,076
Work in process...... 1,961 2,916
Finished goods....... 27,484 21,277
------- -------
$56,860 $47,269
======= =======
</TABLE>
5. FINANCING ARRANGEMENTS
Factoring Agreement: The Company assigns the majority of its trade
accounts receivable to a commercial factor. The Company does not borrow funds
from its factor or take advances against accounts receivable so assigned. Under
the terms of the factoring agreement, the factor remits payments to the Company
on the average due date of each group of invoices assigned. The factor bears
credit losses with respect to assigned accounts receivable that are within
approved credit lines. The Company bears losses resulting from returns,
allowances, claims and discounts. Factoring fees, which are included in
marketing and administrative expenses in the consolidated statements of
earnings, were: $1,777,000, $1,477,000 and $1,702,000, respectively, in 1997,
1996 and 1995.
Notes Payable: At March 30, 1997, the Company had available uncommitted
lines of credit totaling $40,000,000 with two banks at floating rates of
interest. No fees or compensating balances are required under these
arrangements, and the lines are cancelable at the banks' discretion. Annual
average borrowings and weighted average interest rates under these arrangements
were $7,161,000 at 5.8% in 1997 and $18,291,000 at 6.4% in 1996. No borrowings
were outstanding under these arrangements at March 30, 1997; however, the
Company did have outstanding letters of credit, primarily for purchases of
inventory, aggregating $3.8 million which reduced the available credit under
these arrangements to $36.2 million at that date. The weighted average interest
rates on borrowings outstanding under these arrangements at March 31, 1996 was
6.0%.
Long-Term Debt: At March 30, 1997 and March 31, 1996, long-term debt
consisted of:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
6.56% to 7.27% unsecured notes
(6.92% weighted average) due
in annual installments of
$7,143 from October 1999
through October 2005.......... $50,000 $50,000
9.22% unsecured note............ 5,000
Floating rate unsecured
revolving credit facilities
maturing August 1998.......... 21,000 19,000
Other........................... 300 400
------- -------
71,300 74,400
Less current maturities......... 100 5,100
------- -------
$71,200 $69,300
======= =======
</TABLE>
During the second quarter of fiscal 1996, the Company entered into floating
rate unsecured revolving credit facilities totaling $30 million with two banks.
The interest rate on borrowings under these lines is based on the London
Interbank Offered Rate. At March 30, 1997 and March 31, 1996, the weighted
average interest rates on amounts outstanding under these facilities were 6.1%
and 5.9%, respectively. The Company pays facility fees at the rate of 0.15% per
annum on the unused portions of the committed credit lines.
The unsecured notes, which are placed with an insurance company, and the
floating rate unsecured revolving credit facilities, which are placed with two
banks, contain similar restrictive covenants requiring the Company to maintain
certain ratios of earnings to fixed charges and of total debt to total
capitalization. In addition, the bank revolving credit facilities contain
certain covenants requiring the
F-9
<PAGE> 27
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company to maintain minimum levels of shareholders' equity and certain ratios of
total debt to cash flow. The bank facilities also place restrictions on the
amounts the Company may expend on acquisitions and purchases of treasury stock.
At March 30, 1997, the Company was in compliance with all restrictive covenants,
and retained earnings of approximately $9.4 million were available for dividend
payments.
Scheduled maturities of long-term debt in each of the next five fiscal
years are: $100,000 in 1998, $21,100,000 in 1999, $7,243,000 in 2000, $7,143,000
in 2001 and $7,143,000 in 2002. The fair value at March 30, 1997 of the
Company's long-term obligations, which amount has been estimated by discounting
the projected cash flows using rates currently available to the Company for
loans with similar terms and maturities, approximates their carrying value.
6. INCOME TAXES
The provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................. $2,887 $1,645 $4,869
State and local......... 328 180 316
------ ------ ------
Total current.... 3,215 1,825 5,185
------ ------ ------
Deferred:
Federal................. (223) 824 1,082
State and local......... 282 (57) 163
------ ------ ------
Total deferred... 59 767 1,245
------ ------ ------
$3,274 $2,592 $6,430
====== ====== ======
</TABLE>
The tax effects of temporary differences which comprise the deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax
liabilities:
Property, plant and equipment... $7,292 $6,280
DISC earnings deferral.......... 873 907
Other........................... 601 395
------ ------
Total gross deferred
income tax
liabilities............ 8,766 7,582
------ ------
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax assets:
Employee benefit accruals....... 1,512 1,277
Accounts receivable reserves.... 972 537
Other........................... 797 342
------ ------
Total gross deferred
income tax assets...... 3,281 2,156
------ ------
Net deferred income tax
liability....................... $5,485 $5,426
====== ======
</TABLE>
A reconciliation between the provisions for income taxes computed by
applying the applicable maximum federal statutory rates to earnings before
income taxes and the provisions for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at federal
statutory rates......... $2,417 $2,289 $6,118
Non-deductible
amortization of
goodwill................ 210 125 2
Operating losses of 51-
percent-owned subsidiary
not deductible in
consolidated federal tax
return.................. 430 80
State income taxes net of
federal income tax
benefit................. 403 80 311
Other..................... (186) 18 (1)
------ ------ ------
Provisions for income
taxes................... $3,274 $2,592 $6,430
====== ====== ======
</TABLE>
7. RETIREMENT PLANS
The Company maintains an Employee Stock Ownership Plan, which provides for
annual contributions by the Company at the discretion of the Board of Directors
for the benefit of eligible employees. Contributions can be made either in cash
or in shares of the Company's common stock. Participation in the Plan is open to
all Company employees who are at least twenty-one years of age and who have been
employed by the Company for at least one year. The Company recognized expense of
$450,000, $600,000, and $750,000 for its cash contributions to the Plan in 1997,
1996 and 1995, respectively.
Effective January 1, 1996, the Company established an Employee Savings Plan
under Section 401(k) of the Internal Revenue Code. The plan covers substantially
all employees. Under the Plan, employees generally may elect to exclude up to
15%
F-10
<PAGE> 28
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of their compensation from amounts subject to income tax as a salary deferral
contribution. The Board of Directors determines each calendar year the portion,
if any, of employee contributions which will be matched by the Company. Since
inception and for calendar 1997, the Company has made or will make a matching
contribution to each employee in an amount equal to the first 2% of such
contributions. The Company's matching contributions to the Plan were
approximately $550,000 for fiscal 1997 and $118,000 for fiscal 1996.
8. STOCK OPTIONS
The Company's 1976 and 1995 Stock Option Plans provide for the grant of
non-qualified stock options to officers and key employees at prices no less than
the price of the stock on the date of each grant. In addition, the 1995 Stock
Option Plan provides for the grant of incentive stock options to employees and a
fixed annual grant of 2,000 non-qualified stock options to each non-employee
director on the day after each year's annual meeting of shareholders. Through
March 30, 1997, non-qualified options covering a total of 12,000 shares have
been issued to non-employee directors and no incentive options have been issued.
One-third of the non-qualified options become exercisable on each of the first
three anniversaries of their issuance. The non-qualified options expire on the
fifth anniversary of their issuance.
A total of 5,225,000 shares of common stock have been authorized for
issuance under the Plans. At March 30, 1997, 893,491 options were reserved for
future issuance. The options outstanding at March 30, 1997 expire through March
2002, have a weighted average remaining contractual life of 4.1 years, and
include 3,664 options exercisable at March 30, 1997 with a weighted average
exercise price of $11.54.
The following table summarizes stock option activity during each of the
most recent three fiscal years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE EXERCISE
OF SHARES PER SHARE PRICE
---------- -------------- --------
<S> <C> <C> <C>
Options outstanding,
April 3, 1994...... 1,086,906 $10.63 -- 19.75 $14.06
Options granted...... 536,250 14.63 -- 20.63 14.75
Options canceled..... (70,339) 13.25 -- 20.63 14.32
Options exercised.... (167,610) 10.63 -- 15.25 12.46
---------- --------------- ------
Options outstanding,
April 2, 1995...... 1,385,207 10.63 -- 20.63 14.51
Options granted...... 515,209 9.50 -- 17.50 12.57
Options canceled..... (109,629) 11.75 -- 19.50 14.55
Options exercised.... (46,645) 10.63 -- 15.75 12.94
---------- -------------- ------
Options outstanding,
March 31, 1996..... 1,744,142 9.50 -- 20.63 13.97
Options granted...... 2,224,686 7.88 -- 11.75 9.61
Options canceled..... (1,890,076) 7.88 -- 20.63 13.64
---------- -------------- ------
Options outstanding,
March 30, 1997..... 2,078,752 $ 7.88 -- 13.25 $ 9.60
---------- -------------- ------
</TABLE>
At March 30, 1997, 6,000 of the options outstanding have a per share
exercise price which exceeds 150 percent of $7.88.
Optionees may pay the option price of options exercised by surrendering to
the Company shares of the Company's stock that the optionee has owned for at
least six months prior to the date of such exercise. Optionees may satisfy their
required income tax withholding obligations upon the exercise of options by
requesting the Company to withhold the number of otherwise issuable shares with
a market value equal to such tax withholding obligation.
Activity for 1997 includes 1,569,936 and 1,613,474 options granted and
canceled, respectively, on April 12, 1997 as the result of an exchange offer
which was authorized by the Compensation Committee of the Company's Board of
Directors under which the Company issued new stock options in exchange for
options which had been issued after December 31, 1991, were held by active
employees who elected to participate in the exchange, and for which the closing
market price on April 12, 1996 was at least $0.25 below the option exercise
price. The number of repriced options so issued was equal to 80% of options
exchanged which had originally been issued in calendar 1992 and 100% of options
exchanged which had originally been issued after December 31, 1992. The average
price of the options surrendered for cancellation under this exchange offer was
$14.14. Options granted under the offer have an exercise price of $10.25 per
share, or
F-11
<PAGE> 29
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$0.25 in excess of the closing market price of the Company's stock on April 12,
1996. The repriced options vest and expire on the same basis as any other
options issued by the Company.
The weighted-average grant-date fair value of options granted in 1997 and
1996, respectively, was $2.60 and $4.04 per share. Had compensation cost for the
Company's stock option grants been determined and recorded as expense at the
grant dates, the Company's pro forma net income would have been $2.4 million, or
$0.30 per share (primary or fully-diluted), for 1997 and $3.7 million, or $0.46
per share (primary or fully-diluted), for 1996. The pro forma net income for
1997 considers repriced options which were originally issued prior to 1996 as
newly-issued options.
For purposes of the pro forma disclosure, the fair value of each option was
estimated as of the date of grant using the Black-Scholes option-pricing model
and is amortized to expense ratably as the option vests. The following
assumptions were used for options granted in 1997: dividend yield of 0.9
percent, expected volatility of 31.7 percent, risk-free interest rate of 6.2
percent, and expected lives of 4 years. The following assumptions were used for
options granted in 1996: dividend yield of 0.9 percent, expected volatility of
31.8 percent, risk-free interest rate of 6.1 percent, and expected lives of 4
years. Because options vest over a three-year period and the pro forma
disclosures only reflect options issued during the two most recent fiscal years,
the full impact of the pro forma effect of stock options will not be reflected
until future fiscal years.
Option valuation models require the use of highly subjective assumptions
including the stock price volatility. Because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable measure of the
fair value of its employee stock options.
9. MAJOR CUSTOMERS
The Company's sales to Wal-Mart Stores, Inc. constituted 17%, 18% and 17%
of net sales, respectively, in 1997, 1996 and 1995.
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments: At March 30, 1997, the Company's minimum annual rentals
under noncancelable operating leases, principally for manufacturing, warehousing
and office facilities, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998................. $ 3,188
1999................. 2,781
2000................. 2,627
2001................. 2,361
2002................. 1,783
Thereafter........... 6,909
-------
$19,649
=======
</TABLE>
Total rent expense was $3,710,000, $3,123,000 and $2,486,000 for 1997, 1996
and 1995, respectively.
Contingencies: In order to resolve certain disputes which have arisen
between them, the Company and its Israeli supplier of Royal Sateen(R) fabric and
products, Kitan Consolidated Ltd. ("Kitan"), have entered into binding
arbitration before a three-person panel in Israel. In connection with the
arbitration, the Company and Kitan exchanged claims documents on June 9 and 10,
1997. The Company's claims include a request for payment of $9.9 million in
damages stemming primarily from Kitan's failure to make timely deliveries over a
three-year period. Kitan's claims include a request for payment of $8.5 million
for damages allegedly suffered primarily as a result of differences between the
Company's forecasts of demand and its actual orders for Kitan's fabric and
products. Each party's claims also request reimbursement of attorney's fees and
payment of interest from the date the claim was filed. The Company believes
Kitan's claims are without merit, and the Company intends to vigorously pursue
both its claims and its defenses. Normal commerce between the companies is
continuing during the arbitration process. In the opinion of the Company's
management, the ultimate resolution of the claims will not have a material
adverse effect on the Company's financial position or results of operations.
F-12
<PAGE> 30
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SELECTED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 30, 1997
Net sales............................................... $44,400 $74,848 $72,887 $64,250
Gross profit............................................ 6,912 15,379 14,766 14,680
Net earnings (loss)..................................... (1,343) 1,921 1,425 1,628
Fully diluted net earnings (loss) per share............. (0.17) 0.24 0.18 0.20
FISCAL YEAR ENDED MARCH 31, 1996
Net sales............................................... $39,207 $57,330 $62,209 $60,256
Gross profit............................................ 7,551 12,243 13,288 9,370
Net earnings (loss)..................................... 456 2,118 2,095 (722)
Fully diluted net earnings (loss) per share............. 0.05 0.26 0.26 (0.09)
</TABLE>
F-13
<PAGE> 1
Exhibit 10(c)(iii)
AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT (this "Agreement")
is made and entered into as of this 28th day of June, 1996 between CROWN
CRAFTS, INC., a Georgia corporation (the "Borrower"), and NATIONSBANK, N.A., a
national banking association formerly known as NationsBank, National
Association (Carolinas) (the "Lender").
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into a Revolving
Credit Agreement dated as of August 25, 1995, as amended, (the "Credit
Agreement"), pursuant to which the Lender has made available to the Borrower a
revolving credit facility of up to $15,000,000; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in the manner set forth herein and the Lender is willing to agree to
such amendment;
NOW, THEREFORE, in consideration of the mutual covenants and the
fulfillment of the conditions set forth herein, the parties do hereby agree as
follows:
1. Definitions. Any capitalized terms used herein without definition
shall have the meaning set forth in the Credit Agreement.
2. Amendment. Subject to the terms and conditions set forth herein,
Section 7.3 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
7.3 Consolidated Shareholders' Equity. Permit
Consolidated Shareholders' Equity to be less than $80,000,000 through
the end of the Fiscal Year ended March 31, 1996 and thereafter at all
times, the sum of (A) the amount of Consolidated Shareholders' Equity
required to be maintained pursuant to this Section 7.3 as at the end
of the immediately preceding Fiscal Year, plus (B) 50% of Net Income
(with no reduction for net losses during any period) for the Fiscal
Year of the Borrower ending on such day, plus (C) 100% of the
aggregate amount of all increases in the stated capital and additional
paid-in capital accounts of the Borrower resulting from the issuance
of equity securities, conversion of any debt instruments into equity
or other capital investments, less the effect of the Permitted Stock
Repurchases subsequent to April 2, 1995.
3. Representations and Warranties. In order to induce the Lender to
enter into this Agreement, the Borrower represents and warrants to the Lender
as follows:
(a) The representations and warranties made by Borrower in
Article V of the Credit Agreement are true and correct on and as of
the date hereof, except to the extent that such representations and
warranties expressly relate to an earlier date and except that the
financial statements referred to in Section 5.6(a) of the Credit
Agreement shall
<PAGE> 2
be deemed to be those financial statements most recently delivered to
the Lender pursuant to Section 6.1 of the Credit Agreement.
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries, taken as a whole, since the date of the most recent
financial reports of the Borrower received by the Lender under Section
6.1(a) of the Credit Agreement, other than changes in the ordinary
course of business;
(c) The business and properties of the Borrower and its
Subsidiaries, taken as a whole, are not, and since the date of the
most recent financial report of the Borrower and its Subsidiaries
received by the Lender under Section 6.1(a) of the Credit Agreement,
have not been adversely affected in any substantial way as the result
of any fire, explosion, earthquake, accident, strike, lockout,
combination of workers, flood, embargo, riot, activities of armed
forces, war or acts of God or the public enemy, or cancellation or
loss of any major contracts; and
(d) No event has occurred and is continuing which
constitutes, and no condition exists which upon the consummation of
the transaction contemplated hereby would constitute, a Default or an
Event of Default on the part of the Borrower under the Credit
Agreement, either immediately or with the lapse of time or the giving
of notice, or both.
4. Entire Agreement. This Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter.
5. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
7. Governing Law. This Agreement shall in all respects be governed by
the laws and judicial decisions of the State of Georgia.
8. Enforceability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable as to one or more of the
parties hereto, all other provisions nevertheless shall remain effective and
binding on the parties hereto.
9. Credit Agreement. All references in any of the Loan Documents to
the Credit Agreement shall mean the Credit Agreement as amended hereby.
(Signature page follows.)
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officer, all as of the day and year
first above written.
BORROWER:
CROWN CRAFTS, INC.
BY:/S/ROBERT E. SCHNELLE
----------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
LENDER:
NATIONSBANK, N.A.
BY:/S/J. LANCE WALTON
----------------------------------
J. Lance Walton
Senior Vice President
(Signature page 1 of 1)
3
<PAGE> 1
Exhibit 10(c)(iv)
LETTER AGREEMENT
December 23, 1996
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and NationsBank, N.A. ("NationsBank"), formerly NationsBank,
National Association (Carolinas).
You have notified NationsBank, as was reported in the Company press release
dated 11/21/96, that Crown Crafts will incur a pre-tax charge of approximately
$1.9 million to $2.5 million because of the recall of furniture made by the
Company's subsidiary, Hans Benjamin Furniture, Inc.
NationsBank hereby agrees to exclude the aforementioned charge for the third
fiscal quarter and any subsequent fiscal quarter through, but not beyond, the
1998 third fiscal quarter to the extent such charge is not taken during the
1997 third fiscal quarter; PROVIDED HOWEVER, that the aforementioned charge
shall not exceed $3.0 million on a cumulative basis. In addition, the
aforementioned charge will be excluded only for purposes of making the covenant
calculations for the periods referenced above, as required under Sections 7.2
and 7.4 of the Credit Agreement. With respect to Section 7.4 of the Credit
Agreement, exclusion of this charge will be made only to the extent it affects
the resultant calculation of Consolidated Cash Flow in the quarter thereof. The
exclusion of this charge shall also apply to any calculation based on any
rolling four quarter period, which includes the 1997 third fiscal quarter under
Sections 7.2 or 7.4, to the extent applicable. This Letter Agreement shall not
in any way be deemed a waiver or amendment of, or establish a course of dealing
in connection with, the Credit Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of NationsBank under the Credit Agreement or any related document
or agreement. Except as expressly set forth herein, all of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement and any related document are ratified and affirmed in all respects
and shall continue in full force and effect.
<PAGE> 2
CROWN CRAFTS, INC.
DECEMBER 23, 1996
PAGE 2
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/DAVID H. DINKINS
-----------------------
David H. Dinkins
Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
-----------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(c)(v)
LETTER AGREEMENT
January 23, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and NationsBank, N.A. ("NationsBank"), formerly NationsBank,
National Association (Carolinas).
You have notified NationsBank, as was reported in the Company press release
dated January 21, 1997, that Crown Crafts will incur a pre-tax charge of
approximately $1.9 million to $2.5 million because of the recall of furniture
made by the Company's subsidiary, Hans Benjamin Furniture, Inc.
NationsBank hereby agrees to exclude the aforementioned charge for the third
fiscal quarter and any subsequent fiscal quarter through, but not beyond, the
1998 third fiscal quarter to the extent such charge is not taken during the
1997 third fiscal quarter; PROVIDED HOWEVER, that the aforementioned charge
shall not exceed $2.5 million on a cumulative basis. In addition, the
aforementioned charge will be excluded only for purposes of making the covenant
calculations for the periods referenced above, as required under Sections 7.2
and 7.4 of the Credit Agreement. With respect to Section 7.4 of the Credit
Agreement, exclusion of this charge will be made only to the extent it affects
the resultant calculation of Consolidated Cash Flow in the quarter thereof. The
exclusion of this charge shall also apply to any calculation based on any
rolling four quarter period, which includes the 1997 third fiscal quarter under
Sections 7.2 or 7.4, to the extent applicable. This Letter Agreement shall not
in any way be deemed a waiver or amendment of, or establish a course of dealing
in connection with, the Credit Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of NationsBank under the Credit Agreement or any related document
or agreement. Except as expressly set forth herein, all of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement and any related document are ratified and affirmed in all respects
and shall continue in full force and effect.
<PAGE> 2
CROWN CRAFTS, INC.
JANUARY 23, 1997
PAGE 2
This Letter Agreement supersedes the Letter Agreement dated December 23, 1996.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/DAVID H. DINKINS
--------------------------
David H. Dinkins
Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
-------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(c)(vi)
LETTER AGREEMENT
May 22, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and NationsBank, N.A. ("NationsBank"), formerly NationsBank,
National Association (Carolinas).
Whereas, the Borrower is required under Article VII of the Agreement to comply
with certain financial covenants regarding the merger, purchase or acquisition
of other Persons.
Whereas, the Borrower has requested that NationsBank amend Section 7.2 of the
Credit Agreement for the period ended 3/30/97.
Now, therefore, pursuant to the request of the Borrower to amend Section 7.2 of
Article VII of the Credit Agreement, the Lender agrees to amend Section 7.2 for
the quarter ended March 30, 1997 to require a minimum Fixed Charge Coverage
Ratio of 1.95. This Letter Agreement shall not in any way be deemed a waiver or
amendment of, or establish a course of dealing in connection with, the Credit
Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of NationsBank under the Credit Agreement or any related document
or agreement. Except as expressly set forth herein, all of the terms,
conditions, obligations, covenants or agreements contained in the Credit
Agreement and any related document are ratified and affirmed in all respects
and shall continue in full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/DAVID H. DINKINS
---------------------------
David H. Dinkins
Vice President
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
---------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(d)(iii)
AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO REVOLVING CREDIT AGREEMENT (this "Agreement")
is made and entered into as of this 28th day of June, 1996 between CROWN
CRAFTS, INC., a Georgia corporation (the "Borrower"), and WACHOVIA BANK OF
GEORGIA, N.A (the "Lender").
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into a Revolving
Credit Agreement dated as of August 25, 1995, as amended, (the "Credit
Agreement"), pursuant to which the Lender has made available to the Borrower a
revolving credit facility of up to $15,000,000; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in the manner set forth herein and the Lender is willing to agree to
such amendment;
NOW, THEREFORE, in consideration of the mutual covenants and the
fulfillment of the conditions set forth herein, the parties do hereby agree as
follows:
1. Definitions. Any capitalized terms used herein without definition
shall have the meaning set forth in the Credit Agreement.
2. Amendment. Subject to the terms and conditions set forth herein,
Section 7.3 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
7.3 Consolidated Shareholders' Equity. Permit Consolidated
Shareholders' Equity to be less than $80,000,000 through the end of
the Fiscal Year ended March 31, 1996 and thereafter at all times, the
sum of (A) the amount of Consolidated Shareholders' Equity required to
be maintained pursuant to this Section 7.3 as at the end of the
immediately preceding Fiscal Year, plus (B) 50% of Net Income (with no
reduction for net losses during any period) for the Fiscal Year of the
Borrower ending on such day, plus (C) 100% of the aggregate amount of
all increases in the stated capital and additional paid-in capital
accounts of the Borrower resulting from the issuance of equity
securities, conversion of any debt instruments into equity or other
capital investments, less the effect of the Permitted Stock
Repurchases subsequent to April 2, 1995.
3. Representations and Warranties. In order to induce the Lender to
enter into this Agreement, the Borrower represents and warrants to the Lender
as follows:
(a) The representations and warranties made by Borrower in Article
V of the Credit Agreement are true and correct on and as of the date
hereof, except to the extent that such representations and warranties
expressly relate to an earlier date and except that the financial
statements referred to in Section 5.6(a) of the Credit Agreement shall
<PAGE> 2
be deemed to be those financial statements most recently delivered to
the Lender pursuant to Section 6.1 of the Credit Agreement.
(b) There has been no material adverse change in the condition,
financial or otherwise, of the Borrower and its Subsidiaries, taken as
a whole, since the date of the most recent financial reports of the
Borrower received by the Lender under Section 6.1(a) of the Credit
Agreement, other than changes in the ordinary course of business;
(c) The business and properties of the Borrower and its
Subsidiaries, taken as a whole, are not, and since the date of the
most recent financial report of the Borrower and its Subsidiaries
received by the Lender under Section 6.1(a) of the Credit Agreement,
have not been adversely affected in any substantial way as the result
of any fire, explosion, earthquake, accident, strike, lockout,
combination of workers, flood, embargo, riot, activities of armed
forces, war or acts of God or the public enemy, or cancellation or
loss of any major contracts; and
(d) No event has occurred and is continuing which constitutes, and
no condition exists which upon the consummation of the transaction
contemplated hereby would constitute, a Default or an Event of Default
on the part of the Borrower under the Credit Agreement, either
immediately or with the lapse of time or the giving of notice, or
both.
4. Entire Agreement. This Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter.
5. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
7. Governing Law. This Agreement shall in all respects be governed by
the laws and judicial decisions of the State of Georgia.
8. Enforceability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable as to one or more of the
parties hereto, all other provisions nevertheless shall remain effective and
binding on the parties hereto.
9. Credit Agreement. All references in any of the Loan Documents to
the Credit Agreement shall mean the Credit Agreement as amended hereby.
(Signature page follows.)
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their duly authorized officer, all as of the day and year
first above written.
BORROWER:
CROWN CRAFTS, INC.
BY:/S/ROBERT E. SCHNELLE
---------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
LENDER:
WACHOVIA BANK OF GEORGIA, N.A.
BY:/S/SUSAN E. CATES
--------------------------------
Susan E. Cates
Assistant Vice President
(Signature page 1 of 1)
3
<PAGE> 1
Exhibit 10(d)(iv)
LETTER AGREEMENT
December 24, 1996
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
RE: REVOLVING CREDIT AGREEMENT ("CREDIT AGREEMENT") DATED AS OF AUGUST 25,
1995, AS AMENDED BY THAT CERTAIN AMENDMENT DATED MAY 1, 1996, AND THAT
CERTAIN AMENDMENT DATED JUNE 28, 1996, BETWEEN CROWN CRAFTS, INC.
("COMPANY") AND WACHOVIA BANK OF GEORGIA, N.A. ("WACHOVIA")
You have notified Wachovia, as was reported in the Company press release dated
11/21/96, that Crown Crafts will incur a pre-tax charge of approximately $1.9
million to $2.5 million because of the recall of furniture made by the
Company's subsidiary, Hans Benjamin Furniture, Inc.
Wachovia hereby agrees to exclude the aforementioned charge for the third
fiscal quarter and any subsequent fiscal quarter through, but not beyond, the
1998 third fiscal quarter to the extent such charge is not taken during the
1997 third fiscal quarter; provided however, that the aforementioned charge
shall not exceed $3.0 million on a cumulative basis. In addition, the
aforementioned charge will be excluded only for purposes of making the covenant
calculations for the periods referenced above, as required under Sections 7.2
and 7.4 of the Credit Agreement. With respect to Section 7.4 of the Credit
Agreement, exclusion of this charge will be made only to the extent it affects
the calculation of Consolidated Cash Flow in the quarter thereof. The exclusion
of this charge shall also apply to any calculation based on any rolling four
quarter period, which includes the period referenced above under Sections
7.2 or 7.4, to the extent applicable. This Letter Agreement shall not in any
way be deemed a waiver or amendment of, or establish a course of dealing in
connection with, the Credit Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of Wachovia under the Credit Agreement or any related document or
agreement. Except as expressly set forth herein, all of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement and any
related document are ratified and affirmed in all respects and shall continue
in full force and effect.
<PAGE> 2
CROWN CRAFTS, INC.
DECEMBER 24, 1996
PAGE 2
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/RICHARD E.S. BOWEN
----------------------------
Richard E.S. Bowen
Commercial Officer
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
-----------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(d)(v)
LETTER AGREEMENT
January 22, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
RE: REVOLVING CREDIT AGREEMENT ("CREDIT AGREEMENT") DATED AS OF AUGUST 25,
1995, AS AMENDED BY THAT CERTAIN AMENDMENT DATED MAY 1, 1996, AND THAT
CERTAIN AMENDMENT DATED JUNE 28, 1996, BETWEEN CROWN CRAFTS, INC.
("COMPANY") AND WACHOVIA BANK OF GEORGIA, N.A. ("WACHOVIA")
You have notified Wachovia, as was reported in the Company press release dated
11/21/96, that Crown Crafts will incur a pre-tax charge of approximately $1.9
million to $2.5 million because of the recall of furniture made by the
Company's subsidiary, Hans Benjamin Furniture, Inc.
Wachovia hereby agrees to exclude the aforementioned charge for the third
fiscal quarter and any subsequent fiscal quarter through, but not beyond, the
1998 third fiscal quarter to the extent such charge is not taken during the
1997 third fiscal quarter; provided however, that the aforementioned charge
shall not exceed $3.0 million on a cumulative basis. In addition, the
aforementioned charge will be excluded only for purposes of making the covenant
calculations for the periods referenced above, as required under Sections 7.2
and 7.4 of the Credit Agreement. With respect to Section 7.4 of the Credit
Agreement, exclusion of this charge will be made only to the extent it affects
the calculation of Consolidated Cash Flow in the quarter thereof. The
exclusion of this charge shall also apply to any calculation based on any
rolling four quarter period, which includes the the period referenced above
under Sections 7.2 or 7.4, to the extent applicable. This Letter Agreement
shall not in any way be deemed a waiver or amendment of, or establish a
course of dealing in connection with, the Credit Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of Wachovia under the Credit Agreement or any related document or
agreement. Except as expressly set forth herein, all of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement and any
related document are ratified and affirmed in all respects and shall continue
in full force and effect.
<PAGE> 2
CROWN CRAFTS, INC.
JANUARY 22, 1997
PAGE 2
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/RICHARD E.S. BOWEN
---------------------------------
Richard E.S. Bowen
Commercial Officer
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
-----------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
Exhibit 10(d)(vi)
LETTER AGREEMENT
May 22, 1997
Crown Crafts, Inc.
1600 RiverEdge Parkway
Suite 200
Atlanta, Georgia 30328
Attn: Mr. Robert Schnelle, Treasurer
Reference is made to the Revolving Credit Agreement ("Credit Agreement") dated
as of August 25, 1995 as amended by that certain amendment dated May 1, 1996
and that certain amendment dated June 28, 1996 between Crown Crafts, Inc.
("Crown Crafts") and Wachovia Bank of Georgia, N.A. ("Wachovia"). Capitalized
terms not otherwise defined shall have the meanings ascribed to such terms in
the Credit Agreement.
Whereas, the Borrower is required under Article VII of the Agreement to comply
with certain financial covenants regarding the merger, purchase or acquisition
of other Persons.
Whereas, the Borrower has requested that Wachovia amend Section 7.2 of the
Credit Agreement for the period ended 3/30/97.
Now, therefore, pursuant to the request of the Borrower to amend Section 7.2 of
Article VII of the Credit Agreement, the Lender agrees to amend Section 7.2 for
the quarter ended March 30, 1997 to require a minimum Fixed Charge Coverage
Ratio of 1.95. This Letter Agreement shall not in any way be deemed a waiver or
amendment of, or establish a course of dealing in connection with, the Credit
Agreement.
Except as expressly set forth herein, this letter shall not by implication or
otherwise limit, impair, constitute a waiver of, or otherwise affect the rights
and remedies of Wachovia under the Credit Agreement or any related document or
agreement. Except as expressly set forth herein, all of the terms, conditions,
obligations, covenants or agreements contained in the Credit Agreement and any
related document are ratified and affirmed in all respects and shall continue
in full force and effect.
Please indicate your agreement and acceptance by signing a copy of this letter
below and returning it to us.
Sincerely,
BY:/S/RICHARD E.S. BOWEN
---------------------------------
Richard E.S. Bowen
Commercial Officer
Agreed and Accepted by: Crown Crafts, Inc.
BY:/S/ROBERT E. SCHNELLE
---------------------------------
Robert E. Schnelle
Chief Accounting Officer, Treasurer
<PAGE> 1
EXHIBIT NO. 21
SUBSIDIARIES OF REGISTRANT
Churchhill Weavers, Inc., a Kentucky corporation
Crown Crafts Home Furnishings, Inc., a New York corporation
Crown Crafts Home Furnishings of Illinois, Inc., a Delaware corporation
Crown Crafts Home Furnishings of California, Inc., a California corporation
Crown Crafts International, Inc., a Georgia corporation
G.W. Stores, Inc., a North Carolina corporation
KKH Corporation, a California corporation
Textile, Inc., a North Carolina corporation
The Red Calliope and Associates, Inc., a California corporation
Woven Classic Throws, Inc., a New Hampshire corporation
Hamco, Inc., a Louisiana corporation
All subsidiaries are 100% - owned.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Crown Crafts, Inc. and subsidiaries on Form S-8 of our report dated May 23,
1997, appearing in the Annual Report on Form 10-K Crown Crafts, Inc. and
subsidiaries for the year ended March 30, 1997.
/s/ Deloitte & Touche LLP
- ----------------------------
Atlanta, Georgia
June 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-30-1997
<CASH> 602
<SECURITIES> 0
<RECEIVABLES> 38,362
<ALLOWANCES> 0
<INVENTORY> 56,860
<CURRENT-ASSETS> 101,523
<PP&E> 114,825
<DEPRECIATION> 41,809
<TOTAL-ASSETS> 189,556
<CURRENT-LIABILITIES> 23,758
<BONDS> 71,200
0
0
<COMMON> 9,051
<OTHER-SE> 76,644
<TOTAL-LIABILITY-AND-EQUITY> 189,556
<SALES> 256,385
<TOTAL-REVENUES> 256,385
<CGS> 204,648
<TOTAL-COSTS> 204,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,887
<INCOME-PRETAX> 6,905
<INCOME-TAX> 3,274
<INCOME-CONTINUING> 3,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,631
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
