<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File No. 1-7604
CROWN CRAFTS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0678148
- ------------------------------------ -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 RiverEdge Parkway, Suite 200, Atlanta, Georgia 30328
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(770) 644-6400
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares of common Stock, $1.00 par value, of the Registrant
outstanding as of August 6, 1998 was 8,608,843.
---------
<PAGE> 2
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1998 (UNAUDITED) AND MARCH 29, 1998
<TABLE>
<CAPTION>
June 28, March 29,
(in thousands) 1998 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,308 $ 809
Accounts receivable, net:
Due from factor 20,330 32,234
Other 16,155 16,192
Inventories 99,610 82,432
Deferred income taxes 1,943 1,943
Other current assets 10,952 4,938
-------- --------
Total Current Assets 150,298 138,548
-------- --------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 45,950 45,496
Machinery and equipment 79,356 76,053
Furniture and fixtures 1,880 1,774
-------- --------
127,186 123,323
Less accumulated depreciation 53,921 51,361
-------- --------
Property, Plant and Equipment - net 73,265 71,962
-------- --------
OTHER ASSETS:
Goodwill 28,444 28,747
Other 2,046 2,409
-------- --------
Total Other Assets 30,490 31,156
-------- --------
TOTAL $254,053 $241,666
======== ========
</TABLE>
See notes to interim consolidated financial statements.
1
<PAGE> 3
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1998 (UNAUDITED) AND MARCH 29, 1998
<TABLE>
<CAPTION>
June 28, March 29,
(dollars in thousands, except par value per share) 1998 1998
- -----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 37,920 $ 24,850
Accounts payable 20,900 20,831
Income taxes payable 65 86
Accrued wages and benefits 4,966 5,091
Accrued royalties 1,379 1,758
Other accrued liabilities 3,229 2,930
Current maturities of long-term debt 30,100 30,100
--------- ---------
Total Current Liabilities 98,559 85,646
--------- ---------
NON-CURRENT LIABILITIES:
Long-term debt 50,100 50,100
Deferred income taxes 7,852 7,852
Other 745 745
--------- ---------
Total Non-Current Liabilities 58,697 58,697
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
50,000,000 shares authorized; 9,974,429 and
9,654,043 shares issued 9,974 9,654
Additional paid-in capital 45,877 41,800
Retained earnings 61,255 63,838
Less: 1,374,462 and 1,260,939 shares of common
Stock held in treasury (20,309) (17,969)
--------- ---------
Total Shareholders' Equity 96,797 97,323
--------- ---------
TOTAL $ 254,053 $ 241,666
========= =========
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 4
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED JUNE 28, 1998 AND
JUNE 29, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 28, June 29,
(in thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 61,708 $ 52,644
COST OF PRODUCTS SOLD 51,654 42,079
----------- -----------
GROSS PROFIT 10,054 10,565
MARKETING AND
ADMINISTRATIVE EXPENSES 12,260 9,650
----------- -----------
EARNINGS (LOSS) FROM OPERATIONS (2,206) 915
OTHER INCOME (EXPENSE):
Interest expense (1,888) (1,304)
Other - net 82 78
----------- -----------
LOSS BEFORE INCOME TAXES (4,012) (311)
INCOME TAX CREDITS (1,690) (117)
----------- -----------
NET LOSS $ (2,322) $ (194)
=========== ===========
LOSS PER SHARE - BASIC $ (0.27) $ (0.02)
LOSS PER SHARE - DILUTED $ (0.27) $ (0.02)
AVERAGE SHARES OUTSTANDING
BASIC 8,545,282 7,946,340
=========== ===========
DILUTED 8,545,282 7,946,340
=========== ===========
DIVIDENDS DECLARED PER
SHARE $ 0.03 $ 0.03
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 5
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 28, 1998 AND
JUNE 29, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 28, June 29,
(dollars in thousands) 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (2,322) $ (194)
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities;
Depreciation and amortization of property, plant
and equipment 2,659 2,396
Amortization of goodwill 303 224
Deferred income taxes (51)
Loss (gain) on sale of property, plant and equipment 26 (21)
Changes in assets and liabilities:
Accounts receivable 11,941 12,622
Inventories (17,178) (15,951)
Other current assets (6,014) (1,510)
Other assets 363 (658)
Accounts payable 69 4,566
Income taxes payable (21) (435)
Accrued liabilities (205) (808)
-------- --------
Net Cash Provided by (Used for) Operating Activities (10,379) 180
-------- --------
INVESTING ACTIVITIES:
Capital Expenditures (3,991) (1,313)
Acquisitions, net of cash acquired (7,383)
Proceeds from sale of property, plant and
Equipment 3 36
-------- --------
Net Cash Used For Investing Activities (3,988) (8,660)
-------- --------
FINANCING ACTIVITIES:
Increase in notes payable 13,070 455
Increase in bank revolving credit 8,000
Exercise of stock options 2,054 16
Cash dividends (258) (238)
-------- --------
Net Cash Provided By Financing Activities 14,866 8,233
-------- --------
NET INCREASE (DECREASE) IN CASH
(carried forward) $ 499 $ (247)
</TABLE>
4
<PAGE> 6
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JUNE 28, 1998 AND
JUNE 29, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
June 28, June 29,
(dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH
(brought forward) $ 499 $ (247)
CASH, beginning of period 809 602
------- -------
CASH, end of period $ 1,308 $ 355
======= =======
Supplemental Cash Flow Information:
Income taxes paid $ 37 $ 369
======= =======
Interest paid net of amounts capitalized $ 1,827 $ 1,336
======= =======
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 7
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, such interim consolidated
financial statements contain all adjustments necessary to present
fairly the Company's financial position as of June 28, 1998 and the
results of its operations and its cash flows for the periods ended June
28, 1998 and June 29, 1997. Such adjustments include normal recurring
accruals and a pro rata portion of certain estimated annual expenses.
2. Net sales by product group were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 28, June 29,
1998 1997
-------- --------
<S> <C> <C>
Bedroom products $ 28,270 $ 27,945
Throws and decorative
home accessories 10,768 9,114
Infant and juvenile products 22,512 15,022
Other 158 563
-------- --------
Total net sales $ 61,708 $ 52,644
======== ========
</TABLE>
3. Interest costs of $26,000 were capitalized during the quarter ended
June 28, 1998. No interest costs were capitalized during the quarter
ended June 29, 1997.
4. In the quarter ended December 28, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 replaced previously reported primary and fully-diluted
earnings per share amounts with basic and diluted earnings per share.
Earnings per share for all prior periods have been restated to conform
to the requirements of SFAS 128.
6
<PAGE> 8
5. Major classes of inventory were as follows (in thousands):
<TABLE>
<CAPTION>
June 28, March 29,
1998 1998
------- --------
<S> <C> <C>
Raw materials $39,460 $34,013
Work in process 4,075 3,441
Finished goods 56,075 44,978
------- -------
$99,610 $82,432
======= =======
</TABLE>
6. At June 28, 1998, the Company was not in compliance with certain financial
covenants pertaining to its revolving credit facilities and its 6.92%
unsecured notes. The insurance company which holds the 6.92% unsecured notes
has given the Company a written waiver with respect to these covenants for
the quarter ended June 28, 1998. Each of the other lenders has orally agreed
to waive compliance with these financial covenants of the revolving credit
facilities for the quarter ended June 28, 1998, however, written
documentation has not yet been completed.
7. Operating results of interim periods are not necessarily indicative of
results to be expected for the full fiscal year.
7
<PAGE> 9
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 28, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE 29,
1997
Net sales increased $9.1 million or 17.2% to $61.7 million in the current year
quarter compared to $52.6 million in the prior year quarter. The increase was
primarily attributable to a 49.9% growth in sales of infant and juvenile
products which included $7.9 million from businesses acquired by the Company
subsequent to the end of the prior year quarter. Flat sales across the remainder
of the infant and juvenile business were caused by a shift in purchasing
patterns of a major infant retail chain, which the Company expects will result
in a concentration of shipments over the remaining nine months of the fiscal
year. Sales of throws and decorative home accessories grew 18.1% compared to the
prior year quarter while sales of adult bedroom products increased only
slightly. The slow growth in the bedroom products category resulted from a
slowdown in sales of mass merchant bedding under a program that will be phased
out before the end of the fiscal year.
The Company entered into a license agreement with Calvin Klein, Inc. which
became effective May 11, 1998. This license gives the Company the right to
manufacture and distribute the Calvin Klein Home bed, bath and tabletop
collections. However, no sales of Calvin Klein products were made during the
quarter ended June 28, 1998 as the Company continued to negotiate the purchase
of inventory and equipment from the previous Calvin Klein licensee. These
negotiations have been completed and the Company expects to begin shipping the
Calvin Klein Home product line during its second fiscal quarter.
Gross profit as a percentage of net sales decreased to 16.3% for the quarter
ended June 28, 1998 from 20.1% for the quarter ended June 29, 1997 due to
increased sales of lower margin products and under-utilization of capacity at
the Company's manufacturing facilities.
Marketing and administrative expenses increased $2.6 million or 27.0% in the
current year quarter. The increase was primarily attributable to incremental
expenses of $1.3 million for businesses acquired subsequent to the end of the
prior year quarter and increased employee costs.
Interest expense for the quarter ended June 28, 1998 increased $0.6 million or
44.8% from the prior year quarter due to higher levels of average debt
outstanding and higher average interest rates.
The effective income tax rate increased to 42.1% for the quarter ended June 28,
1998 from 37.6% for the quarter ended June 29, 1997. The increase was due to
higher effective state income tax rates and increases in non-deductible expenses
associated with acquisitions.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
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 June 28, 1998, borrowings of $30.0 million
were outstanding under these facilities at a weighted average interest
8
<PAGE> 10
rate of 6.1%. The Company pays facility fees on the unused portions of these
committed credit lines. These credit lines are scheduled to expire on August 25,
1998; accordingly, such borrowings are included with other current maturities of
long-term debt in the June 28, 1998 balance sheet. The Company also maintains
uncommitted lines of credit totaling $40 million with two commercial banks at
floating interest rates. At June 28, 1998, borrowings of $37.9 million were
outstanding under these lines at a weighted average interest rate of 6.6%. 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 June 28, 1998, retained earnings of
approximately $4.3 million were available for dividend payments. Other covenants
require the Company to maintain certain financial ratios and place restrictions
on the amounts the Company may expend on acquisitions and purchases of treasury
stock.
In July, the Company obtained an additional $25 million unsecured committed
revolving credit facility from one of its commercial banks at an interest rate
of prime minus one percent. This facility is scheduled to expire August 31,
1998.
At June 28, 1998, the Company was not in compliance with certain financial
covenants pertaining to its revolving credit facilities and its 6.92% unsecured
notes. The insurance company which holds the 6.92% unsecured notes has given
the Company a written waiver with respect to these covenants for the quarter
ended June 28, 1998. Each of the other lenders has orally agreed to waive
compliance with these financial covenants of the revolving credit facilities for
the quarter ended June 28, 1998, however, written documentation has not yet been
completed.
The Company recently completed negotiations with a private lender for an
additional long-term fixed rate unsecured borrowing arrangement of $40 million.
The Company is currently negotiating with its two commercial banks for a new
unsecured committed revolving credit facility to replace both the committed and
uncommitted credit facilities described above.
Total debt outstanding increased to $118.1 million at June 28, 1998 from $105.1
million at March 29, 1998. The increase was used to fund the growth in
inventories during the quarter.
Total inventories increased $17.2 million to $99.6 million at June 28, 1998 from
$82.4 million at March 29, 1998. This increase is attributable to higher levels
of inventory needed to support the heavier shipping demands in the second and
third quarters of the fiscal year and increased demand for some of the Company's
imported products which have a longer lead time for delivery than domestically
produced products. This growth during the Company's first fiscal quarter is a
seasonal pattern consistent with prior years. Also contributing to the increase
was the slowdown in sales of mass merchant bedding referred to under "Results of
Operations."
FORWARD-LOOKING INFORMATION
This Form 10Q contains forward-looking statements within the meaning of the
federal securities law. Such statements are based upon management's current
expectations, projections, estimates and assumptions. Words such as "expects,"
"believes," "anticipates" and variations of such words and similar expressions
are intended to identify such forward-looking statements. Forward-looking
statements involve known and unknown risks and uncertainties that may cause
future results to differ materially from those anticipated. These risks include,
among others, general economic conditions, changing competition, the level and
pricing of future orders from the Company's customers, the Company's dependence
upon third-party suppliers, including some located in foreign countries with
unstable political situations, the Company's ability to successfully implement
new information technologies, the Company's ability to integrate its
acquisitions and new licenses, and the Company's ability to implement
improvements in its acquired businesses.
9
<PAGE> 11
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company, one of its subsidiaries, and Calvin Klein, Inc. are
defendants in a lawsuit filed on June 8, 1998 by Decorative Home
Accents, Inc. and related companies (hereinafter "DHA"). Because DHA
is under the protection of the Bankruptcy Court in the Southern
District of New York, the suit was brought as an adversary proceeding
in that court. DHA complains that the grant by Calvin Klein, Inc. of
a license for soft home products to the Company's subsidiary, instead
of renewing DHA's license, which expired on April 30, 1998, was
wrongful on various legal theories. DHA seeks to have the new license
to the Company's subsidiary declared invalid, and to have the old
license restored to DHA, and seeks actual and punitive damages. On
June 12, 1998, the Bankruptcy Court denied DHA's motion for a
temporary restraining order and indicated its intention not to grant
a preliminary injunction based, inter alia, on a finding that DHA had
not established the requisite probability of success on the merits.
The Company believes that it is entitled to retain and operate under
the Calvin Klein license and that its conduct in competing for and
obtaining the license was lawful. The suit was filed in the midst of
negotiations of an Asset Purchase Agreement by and among DHA, the
Company, and Calvin Klein, Inc. for the Company to acquire from DHA
its inventory and other assets used in the licensed business after
the defendants refused a further extension of a standstill agreement
that had been in effect since April 30, 1998. The parties to the
lawsuit have agreed upon a settlement pursuant to which the action
will be dismissed with prejudice upon closing of the Asset Purchase
Agreement.
Item 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
At June 28, 1998, the Company was not in compliance with certain
financial covenants pertaining to its revolving credit facilities and
its 6.92% unsecured notes. The insurance company which holds the
6.92% unsecured notes has given the Company a written waiver with
respect to these covenants for the quarter ended June 28, 1998. Each
of the other lenders has orally agreed to waive compliance with these
financial covenants of the revolving credit facilities for the
quarter ended June 28, 1998, however, written documentation has not
yet been completed. The Company is in negotiations with its lenders
to modify the terms of its agreements and to extend the maturity of
its revolving credit facilities.
Item 4 - Submission of Matters to Vote of Security Holders
None
Item 5 - Other Information
The Company's 1998 Annual Meeting will be held on September 1, 1998,
which is approximately a month later than it has held the annual
meeting in previous years. The Company expects that it will hold its
1999 Annual Meeting during the first week of August, as it has in
previous years, and expects to mail its proxy statement to
shareholders on or before July 9, 1999. Accordingly, shareholders
wishing to make proposals for inclusion in the Company's 1999 proxy
statement in accordance with Rule 14a-8 of the Securities & Exchange
Commission should submit such proposals in accordance with Rule 14a-8
not later than March 12, 1999. Shareholder proposals submitted
outside of the Rule 14a-8 process and received after May 26, 1999
will be voted on in accordance with the discretionary authority
granted in the Company's proxy.
10
<PAGE> 12
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
There were no reports on Form 8-K during the quarter ended June 28,
1998.
11
<PAGE> 13
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
JUNE 28, 1998
SIGNATURES
Pursuant to the requirements 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.
Date: August 12, 1998 /s/ Robert E. Schnelle
--------------- -----------------------
ROBERT E. SCHNELLE
Treasurer
(Chief Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS, INC. FOR THE 3 MONTHS ENDED JUNE 28, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-28-1998
<CASH> 1,308
<SECURITIES> 0
<RECEIVABLES> 36,485
<ALLOWANCES> 0
<INVENTORY> 99,610
<CURRENT-ASSETS> 150,298
<PP&E> 127,186
<DEPRECIATION> 53,921
<TOTAL-ASSETS> 254,053
<CURRENT-LIABILITIES> 98,559
<BONDS> 50,100
0
0
<COMMON> 9,974
<OTHER-SE> 86,823
<TOTAL-LIABILITY-AND-EQUITY> 254,053
<SALES> 61,708
<TOTAL-REVENUES> 61,708
<CGS> 51,654
<TOTAL-COSTS> 51,654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,888
<INCOME-PRETAX> (4,012)
<INCOME-TAX> (1,690)
<INCOME-CONTINUING> (2,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,322)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
