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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-7604
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
COMMON SHARE PURCHASE RIGHTS 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. Yes [X] No [ ]
As of July 29, 1999, 8,608,843 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 Option Plan, and 5% shareholders was
approximately $23,055,000.
DOCUMENTS INCORPORATED BY REFERENCE:
Crown Crafts, Inc., Proxy Statement in connection with its Annual Meeting
of Shareholders on September 28, 1999 (Part III).
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PART I
ITEM 1. BUSINESS
Crown Crafts, Inc., a Georgia corporation founded in 1957, operates, both
directly and indirectly through its subsidiaries, in two principal business
segments within the textile industry, Adult Home Furnishing and Juvenile
Products, and Infant Products. Adult Home Furnishing and Juvenile Products
consists of Bedroom Products (adult comforters and accessories), Throws and
Decorative Home Accessories (primarily jacquard-woven throws in cotton, acrylic,
rayon or chenille), and Juvenile Products (primarily Pillow Buddies). The Infant
Products segment consists of infant bedding, bibs, and infant soft goods. Sales
are generally made directly to retailers, primarily department and specialty
stores, mass merchants, large chain stores and gift stores.
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 in three product groups: bedroom
products, throws and decorative home accessories, and infant and juvenile
products.
During the fiscal year ended March 29, 1998, the Company completed four
acquisitions. Three of the acquired entities, Hamco, Inc., Noel Joanna, Inc. and
Pinky Baby Products, are engaged in the design, manufacture, marketing and
distribution of Infant Products. The fourth acquisition, Burgundy
Interamericana, S.A. de C.V., operated in Mexico as a contract manufacturer of
consumer textile products. The Company utilizes all of Burgundy's productive
capacity in the manufacture of its own infant and other products, moving
production from independent domestic and foreign manufacturers into Burgundy.
PRODUCTS
The Company's products fall into three groups: bedroom products, throws and
decorative home accessories, and infant and juvenile products.
The Company's bedroom products include comforters, comforter sets, sheets,
pillowcases, sheet sets, pillow shams, bed skirts, duvets, daybed sets, window
treatments, decorative pillows, coverlets and jacquard-woven bedspreads. These
products are made from a variety of natural and man-made fibers.
The Company offers its bedroom products in a wide variety of styles and
patterns, 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 comforters and duvets with
coordinated sheets and accessories. During the fiscal year ended March 28, 1999,
the Company began manufacturing and selling bedroom products under the Calvin
Klein trademark under a license agreement with Calvin Klein, Inc.
Throws are manufactured and imported in a variety of colors, designs and
fabrics, including cotton, acrylic, cotton/acrylic blends, rayon, wool, fleece
and chenille. Coordinated decorative home accessories include pillows, bell
pulls and other items.
Infant and juvenile products include crib bedding, diaper stackers,
mobiles, bibs, receiving blankets, burp cloths, bathing accessories and other
infant soft goods.
During the fiscal years ended March 28, 1999, March 29, 1998 and March 30,
1997, bedroom products represented 40%, 40% and 45%, respectively, of
consolidated net sales; throws and decorative home accessories represented 27%,
30% and 35%, respectively, of consolidated net sales; and infant and juvenile
products represented 33%, 30% and 20%, respectively, of consolidated net sales.
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. The Company's designs include traditional,
contemporary, textured and whimsical patterns. The Company designs and
manufactures products
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across a broad spectrum of retail price points. The Company is continually
developing new designs for all three of its product groups.
The Company's designers and stylists work closely with the marketing staff
to develop new designs. The Company develops internally and obtains 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 also creates 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 markets. 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
28, 1999, March 29, 1998, and March 30, 1997, sales to Wal-Mart Stores, Inc.
accounted for 18%, 19% and 17% of net sales, respectively. In June 1998,
Wal-Mart informed the Company that effective February 1, 1999, it would
discontinue the Company's "Signature Series" line of bedding and accessories.
Sales of all products in this line represented 9% of the Company's net sales in
the fiscal year ended March 29, 1998. Because Wal-Mart continued to purchase
these products from the Company during most of the fiscal year ended March 28,
1999, the full impact on net sales of this decision will not be felt until the
fiscal year which begins March 29, 1999.
The Company's primary showroom and sales office is located in New York
City. Sales offices are also maintained in Chicago, Atlanta, Boston, Los
Angeles, Dallas, Rogers, Arkansas, Troy, Michigan and Flint, Texas. An
additional showroom is located in the Company's Atlanta corporate headquarters
location.
The Company sells substantially all 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. Substantial
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 trade are concentrated in
January-March and June-August when Goodwin Weavers and Churchill Weavers
participate in numerous local and regional gift shows. The Company's infant
product subsidiaries generally introduce new products once each year during the
annual Juvenile Products Manufacturers' Association trade show in October.
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.
The Company also markets primarily close-out and irregular products through
its own retail stores located in Calhoun, Georgia, Roxboro, North Carolina,
Blowing Rock, North Carolina, Berea, Kentucky, Rancho Santa Margarita,
California and in several resort areas located primarily in the southeastern
United States. In fiscal 1999, approximately 2% of the Company's sales were made
through its outlet stores.
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.
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The Company produces adult comforters and accessories at its owned facility
in Roxboro, North Carolina. The Roxboro Plant utilizes an automated warehouse
and distribution system which allows the Company to improve physical control
over inventories, reduce order fulfillment lead times, and provide enhanced
levels of service.
The Company produces jacquard-woven bedspreads and throws at its weaving
mills in Dalton, Georgia. These products are then finished, packed and shipped
from the Calhoun, Georgia, facilities. The Company also utilizes a warehouse and
distribution center in Chatsworth, Georgia.
The Company's infant products are produced primarily by domestic and
foreign contract manufacturers. These products are then warehoused and shipped
from facilities in Compton, California, Rancho Santa Margarita, California and
Prairieville, Louisiana.
RAW MATERIALS
The principal raw materials used in the manufacture of adult and infant
comforters, sheets and accessories are 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 bedspreads, throws and
other products are natural-color and pre-dyed 100% cotton yarns and acrylic
yarns. The principal raw materials used in the production of infant bibs are
knit-terry polycotton, woven polycotton and vinyl fabrics. 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, which
in the last two years has become more pronounced. Sales are lowest in the first
fiscal quarter and peak in the third fiscal quarter.
The Company carries normal inventory levels to meet delivery requirements
of customers. Customer returns of merchandise shipped are not material.
ORDER BACKLOG
The Company's backlogs of unfilled customer orders believed by management
to be firm were $57,964,000 and $60,236,000 at July 25, 1999 and July 26, 1998,
respectively. The majority of these unfilled orders are scheduled to be shipped
within approximately eight weeks, and none are expected to be shipped beyond the
completion of the current fiscal year ending April 2, 2000. Due to the
prevalence of quick-ship programs adopted by its customers, the Company does not
believe that its backlogs are a meaningful indicator of future business.
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) or
Goodwin Weavers(R). Infant products carry the trademarks Red Calliope(R), Little
Bedding(R), NoJo(R), Hamco(R) and Pinky(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 Textile Industries Ltd. of Israel.
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Kitan is the registered owner of the mark and the Company is the exclusive
marketer of Royal Sateen products in North America.
In addition, certain products are manufactured and sold pursuant to
licensing agreements that include, among others: Calvin Klein(R), Disney(R),
Tracy Porter(R), Colonial Williamsburg(R), Warner Bros.(R), and Thomas
Kinkade(R). The licensing agreements for the Company's designer brands generally
are for a term of 2 to 6 years, and may or may not be subject to renewal or
extension. Sales of product under the Company's license with The Walt Disney
Company accounted for 16% of the Company's total sales volume during fiscal
1999. 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.
During the fiscal year ended March 28, 1999, the Company entered into
licensing agreements with Calvin Klein, Inc. and Disney Enterprises, Inc. The
Calvin Klein license grants the Company the right to produce and sell bedroom
products under the Calvin Klein brand. The Disney license expands the Company's
right to produce and sell products featuring Disney characters.
The Company's commitment for minimum guaranteed royalty payments under all
license agreements is $13,500,000, $15,500,000, $5,300,000, $5,400,000 and
$5,400,000 for fiscal 2000, 2001, 2002, 2003, and 2004, respectively. The
Company believes that future sales of royalty products will exceed amounts
required to cover the minimum royalty guarantees. The Company's total royalty
expense, net of royalty income, was $13,448,000, $8,687,000, and $7,336,000 for
fiscal 1999, 1998 and 1997, respectively.
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 that may be superior to
those of the Company and may have substantially greater resources. The Company
believes that it is the sixth 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 approximately one-third of this
market, and it is the largest producer of infant bed coverings and bibs,
controlling approximately one-fourth of these markets.
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 respects
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.
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EMPLOYEES
At June 14, 1999, the Company had approximately 2,500 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.
INTERNATIONAL SALES
Sales to customers in foreign countries are not currently material to the
Company's business.
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 41,200 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>
Atlanta, Georgia....... Executive offices and showroom 41,200 Leased(1)
Aguascalientes,
Mexico............... Offices, warehouse, and distribution center 82,000 Leased(2)
Berea, Kentucky........ Offices, manufacturing, warehouse, and 38,000 Owned
distribution facilities and retail store
Blowing Rock, North
Carolina............. Three buildings, housing administrative and 25,000 Owned
sales offices, and factory outlet store
Calhoun, Georgia....... Two buildings, housing offices, manufacturing 274,000 Owned
facilities, sample department, print shop and
factory outlet store
Calhoun, Georgia....... Warehouse and distribution center 234,000 Owned
Calhoun, Georgia....... Two warehouses 129,500 Leased(3)
Chatsworth, Georgia.... Manufacturing facility, warehouse and 115,000 Owned
distribution center
Compton, California.... Offices, warehouse and distribution center 157,400 Leased(4)
Compton, California.... Warehouse 100,000 Leased(5)
Dalton, Georgia........ Two buildings, housing manufacturing 150,000 Owned
facilities
Gonzales, Louisiana.... Warehouse 30,000 Leased(6)
Manchester, New
Hampshire............ Offices, warehouse, and distribution center 18,900 Leased(7)
New York, New York..... Sales and design offices and showroom 41,600 Leased(8)
Prairieville,
Louisiana............ Offices, warehouse, and distribution center 23,175 Leased(9)
Rancho Santa Margarita,
California........... Offices, warehouse, and distribution center 51,900 Leased(10)
</TABLE>
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<TABLE>
<CAPTION>
APPROXIMATE OWNED/
LOCATION USE SQUARE FEET LEASED
- -------- --- ----------- ---------
<S> <C> <C> <C>
Roxboro, North
Carolina............. Seven buildings, housing manufacturing 448,720 Leased(11)
facilities, warehouses and distribution
Roxboro, North
Carolina............. Warehouse and outlet store 36,500 Owned
Timberlake, North
Carolina............. Two buildings, housing manufacturing 420,000 Owned
facilities, warehouse and distribution
centers, and administrative offices
</TABLE>
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(1) Leases expire June 29, 2002 and September 30, 2000.
(2) Leases expire January 15, 2001 and February 1, 2001 (renewable for one two
year period).
(3) Leases expire as follows: (a) 49,500 square feet on December 3, 1999 and
(b) 80,000 square feet on April 30, 2002.
(4) Lease expires May 31, 2001 (renewable for one two-year period and one
three-year period).
(5) Lease expires May 31, 2004.
(6) Lease expires October 31, 1999.
(7) Leases expire December 31, 2001.
(8) Lease expires April 30, 2007 (renewable for up to two additional five-year
periods).
(9) Leases expire March 30, 2000.
(10) Lease expires July 31, 2001.
(11) Leases expire as follows: (a) 76,500 square feet on February 28, 2005; (b)
50,000 square feet on September 30, 1998 (renewable for one five-year
period); (c) a lease for 213,220 square feet expired on April 30, 1998 and
is currently a month to month lease; and (d) two month to month leases of
109,000 square feet.
The Company also leases space for its various sales offices, retail stores,
and showrooms around the country.
Management believes that its properties are suitable for the purposes for
which they are used, are in generally good condition and provide adequate
production capacity for current and anticipated future operations. The Company's
business is somewhat seasonal so that during the late summer and fall months
these facilities are fully utilized, while at other times of the year the
Company has excess capacity.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. Neither the
Company nor any of its subsidiaries is a party to any such legal proceeding the
outcome of which, individually or in the aggregate, is expected to have a
material adverse effect on the Company's financial condition or results of
operations.
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 28, 1999.
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.
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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 28, 1999 and March 29, 1998. This information indicates
the high and low sale prices as reported by the NYSE.
<TABLE>
<CAPTION>
QUARTER HIGH LOW
- ------- ---- ---
<S> <C> <C>
FISCAL 1999
First Quarter............................................... $22 1/4 $13 7/16
Second Quarter.............................................. 16 1/2 7 3/8
Third Quarter............................................... 8 5 1/2
Fourth Quarter.............................................. 7 1/2 5 1/8
FISCAL 1998
First Quarter............................................... $12 1/8 $10 1/4
Second Quarter.............................................. 14 15/16 10 3/16
Third Quarter............................................... 17 5/16 13 3/4
Fourth Quarter.............................................. 22 1/16 14 7/16
</TABLE>
As of July 29, 1999 there were issued and outstanding 8,608,843 shares of
the Company's Common Stock held by approximately 1875 beneficial holders. The
estimated number of beneficial holders does not reflect the approximately 2,000
individual employee accounts in the Company's Employee Stock Ownership Plan. At
July 29, 1999, the Company's Common Stock closed at $4.50.
In fiscal 1999, the Company continued its policy, begun in February 1989,
of paying dividends on a quarterly basis. The Company paid a dividend of $0.03
per share on its Common Stock on June 23, 1998, September 24, 1998, December 22,
1998 and March 23, 1999, respectively. Dividends paid by the Company on its
Common Stock in the future will depend upon the earnings and financial condition
of the Company.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for the five years ended March
28, 1999 are derived from the Company's financial statements. The data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes included elsewhere in this Annual Report.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------
March 28, March 29, March 30, March 31, April 2,
1999 1998 1997 1996 1995
--------- --------- --------- --------- --------
($ in thousands, except per share amounts.)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net sales................................... $362,071 $319,238 $256,385 $219,002 $210,963
Gross profit................................ 51,259 71,089 51,737 42,452 46,731
(Loss) earnings from operations............. (5,221) 18,993 11,641 10,625 18,878
Net (loss) earnings......................... (11,772) 7,806 3,631 3,947 11,050
Basic (loss) earnings per share............. (1.37) 0.97 0.46 0.49 1.31
Diluted (loss) earnings per share........... (1.37) 0.92 0.45 0.48 1.29
Cash dividends per share.................... 0.12 0.12 0.12 0.12 0.12
AT YEAR END
Total assets................................ $264,851 $241,666 $189,556 $185,698 $134,031
Long-term debt.............................. 72,857 50,100 71,200 69,300 5,000
Shareholders' equity........................ 86,779 97,323 85,695 83,017 87,000
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS AND DISPOSITIONS
During the fiscal year ended March 28, 1999, the Company acquired inventory
and certain other assets associated with the Calvin Klein Home business from DHA
Home, Inc., the former Calvin Klein Home licensee, and began integrating this
business into its Roxboro, North Carolina facilities. In the fourth quarter of
the fiscal year ended March 28, 1999, the Company sold its wholly-owned
subsidiary, Textile, Inc., located in Ronda, North Carolina. Textile, Inc.
manufactured woven throws and decorative home products. The effect of these
transactions on fiscal 1999 operating results is discussed below in the section
"Results of Operations: Fiscal 1999 Compared to Fiscal 1998."
During the fiscal year ended March 29, 1998, the Company acquired four
companies, Hamco, Inc., Pinky Baby Products, Noel Joanna, Inc. and Burgundy
Interamericana, S.A. de C.V. Hamco and Pinky design, manufacture, market and
distribute bibs and other infant soft goods. Noel Joanna designs, markets and
distributes infant bedding and accessories. Burgundy, located in Aguascalientes,
Mexico, was a contract manufacturer of consumer textile products.
Post-acquisition, Burgundy's production capacity has been utilized exclusively
for the manufacture of the Company's products. The effect of these acquisitions
on fiscal 1998 operating results is discussed below in the section "Results of
Operations: Fiscal 1998 Compared to Fiscal 1997."
During the fiscal year ended March 30, 1997, Hans Benjamin Furniture, Inc.,
a 51-percent owned subsidiary of the Company, announced a nationwide voluntary
recall of all furniture products it manufactured following a determination that
many of its products had been mislabeled. Subsequent to the recall, the Company
decided to terminate the operations of Hans Benjamin and to dispose of Benn
Corporation, a wholly-owned subsidiary engaged in the manufacture of textile
machinery. During fiscal 1997, the Company recorded an after-tax loss of
approximately $1.3 million for costs associated with the product recall and the
disposition of the two subsidiaries. The recorded loss includes a settlement
reached with the Office of the District Attorney in Sacramento, California,
related to mislabeled product shipped into that state. The loss is reflected in
the Consolidated Statement of Earnings for fiscal 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 expenses -- 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
==========
</TABLE>
Hans Benjamin was liquidated on March 27, 1997. Benn Corporation was sold
during the fourth quarter of fiscal 1998, resulting in a reduction of costs and
expenses of $335,000, net of related taxes.
ERP SOFTWARE
From October through December 1997, the Company conducted an assessment of
its computer applications and systems in order to determine whether existing
systems were sufficient to meet the Company's future business information needs.
As a result, the Company decided to install new Enterprise Resource Planning
(ERP) software programs. The ERP programs are expected to replace substantially
all of the Company's existing business applications software and to result in
significant improvements in the functionality and efficiency of the Company's
business processes. From January through March 1998, the Company developed a
more detailed assessment of its current business processes and systems,
identified potentially appropriate software packages, prepared requests for
proposals, interviewed software vendors and evaluated alternatives. All costs
and expenses associated with this process were expensed as incurred.
During fiscal 1999, the Company, together with its consultants, completed
the design of its ERP programs, selected certain vendors, began testing of the
system and established plans for implementation. The
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implementation plans call for converting the home office, certain sales offices
and the Company's Georgia operations to the new ERP system in July, 1999, to be
followed by its North Carolina operations in December, 1999. The Company has not
yet established plans nor begun design for converting its infant product
companies to the ERP system. During the fiscal year ended March 28, 1999, the
Company incurred capitalized expenditures totaling approximately $11 million
pertaining to this project. In the fiscal year ending April 2, 2000, the Company
expects increased operating expenses compared to fiscal year 1999 until the new
ERP system is fully operational.
YEAR 2000 ISSUE
In the latter portion of the 1990s, an issue affecting most companies has
emerged regarding the ability of computer applications and systems to properly
interpret dates later than December 31, 1999. This issue arises because, until
recently, many computer applications were written using only the two right-most
digits to define the applicable year. Accordingly, when the need arises to enter
a date after December 31, 1999, it is unclear how any particular application
will interpret the digits 00. The so-called "Year 2000 Problem" might cause
programs that perform arithmetic operations, comparisons or date sorts to
generate erroneous results when the program is required to process dates from
both centuries, and this might result in incorrect data, system failure and
other business disruptions, including, among other things, a temporary inability
to procure materials, process transactions, send invoices and service customers.
With assistance from consultants and vendors, the Company has undertaken a
comprehensive review of the "Year 2000 compliance" of the Company's various
computer systems. Because the Company has recently concluded a general upgrade
of its computer infrastructure, and because the Company is in the process of
implementing an ERP project affecting many significant business modules, many of
the Company's computer systems have been designed and deployed with "Year 2000
compliance" as a specific requirement.
The costs incurred by the Company in assessing "Year 2000 compliance" and
performing remedial or conversion work indicated by such assessments have been
expensed as incurred. The Company estimates that the total amount of such costs
incurred through March 28, 1999 to be approximately $150,000. This amount
includes the costs of the services of outside vendors and consultants
specifically to address "Year 2000 compliance." This amount does not include any
imputed amounts for the time and effort of the Company's own employees or for
computer services, equipment and software purchased principally for reasons
other than "Year 2000 compliance." For example, the systems installed as part of
the Company's recent general computer infrastructure upgrade and the ERP systems
being deployed later this year are certified by the vendors to be Year 2000
compliant, but the Company has not attempted to allocate some portion of the
costs of those entire systems to "Year 2000 compliance." The Company does not
believe that the total costs of "Year 2000 compliance" will materially adversely
affect the Company's business operations, consolidated results of operations,
liquidity or capital resources.
The Company's business activities that rely on computer applications
include principally the following: word processing, communications and network
operations, accounting and finance, manufacturing, distribution and order entry.
With the completion in 1998 of the Company's computer infrastructure upgrade,
the Company's word processing, communications and network operations operate
based on Microsoft products including Windows NT, Windows 95 and Microsoft
Office, all of which are certified by the vendor to be Year 2000 compliant. The
Company's principal accounting and finance software package is Infinium, which
also is certified by the vendor to be Year 2000 compliant. The Company deployed
in July 1999, ERP software applications supporting the Company's accounting,
finance and order entry functions, and its Georgia manufacturing and
distribution operations. SAP America, Inc. is the vendor of these software
products and certifies that they are Year 2000 compliant. The Company's two main
distribution facilities in Calhoun, Georgia, and Roxboro, North Carolina, have
"warehouse management system" software packages, each of which has been
certified by its vendor to be Year 2000 compliant. Order entry is one of the
business functions that will be performed by the ERP software when it is
deployed in 1999. Additionally, the Company has "electronic data interchange"
("EDI") links with several of its major customers, and each of these has been
designed and deployed to be Year 2000 compliant.
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<PAGE> 11
In fiscal years 1998 and 1999 the Company has invested substantial sums of
money and devoted substantial time and resources to the upgrade of its computer
systems and applications, including Year 2000 compliance. Nevertheless, there
may be isolated computers or microprocessors that are not Year 2000 compliant.
However, based on the Company's on-going diligent review, the Company does not
believe that any of these will materially adversely affect the Company's
business operations, consolidated results of operations, liquidity or capital
resources.
In addition, the Company has developed and is implementing a plan for
reviewing the Year 2000 compliance of each of its significant vendors,
suppliers, financial service organizations, service providers and customers to
confirm that the Company's operations will not be materially adversely affected
by the failure of any such third party to have Year 2000 compliant computer
systems. Where appropriate, the Company intends to request assurances from such
third parties that they are addressing the Year 2000 issue and that the products
and services procured or used by the Company will function properly or will be
available without interruption in the Year 2000. Detailed questionnaires
regarding Year 2000 readiness were submitted to such third parties during the
summer of 1998, and the responses to these questionnaires have been evaluated.
Nevertheless, it will be impossible to assess fully the potential consequences
if service interruptions occur from suppliers or in infrastructure areas such as
utilities, communications, transportation, banking and government.
As a result, the Company also is developing a business continuity plan to
minimize the impact of such external events. The Company's "Year 2000
compliance" efforts are ongoing and its overall plan, as well as its development
of a business continuity plan, will continue to evolve as new information
becomes available.
While its efforts to address Year 2000 issues will involve additional costs
and the time and effort of a number of employees, the Company believes, based on
currently available information, that it will be able to manage properly its
total Year 2000 exposure. There can be no assurance, however, that it will be
successful in its effort or that the computer systems of other companies on
which the Company will rely will be timely modified, or that a failure to modify
such systems by another company or modifications that are incompatible with its
systems would not have a material adverse effect on the Company's business
operations, consolidated results of operations, liquidity and capital resources.
Even though the software systems being installed by the Company have been
certified to be Year 2000 compliant, the software vendors may issue software
patches to address additional Year 2000 issues that may manifest themselves
later that are not covered in the current versions of the software.
At this time, the Company believes that the most likely worst-case scenario
would result from disruptions experienced by third parties such as suppliers,
utilities, and banking institutions. Such disruptions could have a material
adverse effect on the Company's operations, liquidity and financial condition.
RESULTS OF OPERATIONS: FISCAL 1999 COMPARED TO FISCAL 1998
Net sales for fiscal 1999 increased $42.8 million, or 13.4%, to $362.1
million. Net sales of bedroom products increased $17.5 million to $145.5
million, net sales of throws and decorative home accessories increased $4
million to $98.2 million, and net sales of infant and juvenile products
increased $23.3 million to $117.6 million.
The increase in sales of bedroom products was primarily attributable to
increased sales of imported sheets and of Calvin Klein Home products. The
increase in sales of throws and decorative home accessories was primarily
attributable to increased sales of woven bedspreads and imported fleece throws.
The increase in sales of infant and juvenile products was primarily
attributable to increased sales of Pillow Buddies and to the full year operation
of Noel Joanna, Inc. and Pinky Baby Products acquired during the prior fiscal
year on August 18, 1997 and January 2, 1998, respectively.
During the fiscal year ended March 28, 1999, and particularly during the
fourth quarter, the Company experienced increasing levels of deductions from
payments for products shipped to its customers, particularly large retailers.
These deductions were claimed for promotional programs, product placements,
shipping errors, and other penalties, some of which were undocumented. Compared
to fiscal year 1998, these deductions
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<PAGE> 12
increased by approximately 34% and had the effect of reducing both net sales and
gross profits. Because of this experience, in the fourth quarter of the fiscal
year ended March 28, 1999, the Company increased its reserves against its
accounts receivable, further reducing results for the quarter and the fiscal
year.
In Fiscal 1999, cost of sales increased to 85.8% of net sales from 77.8% in
fiscal 1998. There were four principal reasons for the increase in cost of sales
as a percent of net sales. First was the reduction in net sales because of
higher sales deductions, described above. Second, the Company experienced a
decline in the utilization of its Roxboro, North Carolina facilities because of
the phase-out of a bedding program manufactured for a major retailer, discussed
in Item 1, and delays in the start-up of the Calvin Klein Home product line.
Third, in the fourth quarter, the Company established pre-tax reserves of
approximately $6.2 million against certain inventories classified as irregular
or discontinued. Lastly, and also in the fourth quarter, as a result of a
routine physical count, the Company discovered certain discrepancies in its
inventory accounts, primarily at its Roxboro, North Carolina operations. This
resulted in a pre-tax increase to cost of sales of approximately $2.6 million.
Operating expenses increased by $4.4 million, or 8.4%, for fiscal 1999,
primarily because of the full year effect of companies acquired during the prior
fiscal year and because of higher marketing expenses associated with the Calvin
Klein Home line of products. As a percent of net sales, however, operating
expenses declined to 15.6% in fiscal 1999 from 16.3% in fiscal 1998.
Interest expense increased by approximately $3.4 million in fiscal 1999
because of higher borrowings and higher effective interest rates. Other expense
increased in fiscal year 1999 primarily because of a loss on the sale of
Textile, Inc.
In fiscal 1999, the effective tax rate declined to 30.8% from 37.6% in
fiscal 1998. This decline resulted from losses incurred by the Company's Mexican
subsidiary, Burgundy Interamericana, S.A. de C.V., not includable for United
States tax purposes and a capital loss from the sale of Textile, Inc. without
off-setting capital income.
RESULTS OF OPERATIONS: FISCAL 1998 COMPARED TO FISCAL 1997
Net sales for fiscal 1998 increased $62.9 million, or 24.5%, to $319.2
million. Net sales of bedroom products increased $12.5 million to $128.0
million, net sales of throws and decorative home accessories increased $6.5
million to $94.2 million, and net sales of infant and juvenile products
increased $43.3 million to $94.3 million. The four companies acquired during
fiscal 1998 accounted for $25.4 million of the sales increase, all in the infant
and juvenile products group.
The increase in sales of bedroom products was primarily attributable to
increased sales of imported sheets. The increase in sales of throws and
decorative home accessories was primarily attributable to increased sales of
imported fleece throws.
Cost of sales declined to 77.7% of sales in fiscal 1998 from 79.8% in
fiscal 1997, primarily due to increased sales of higher-margin products. Gross
margin increased to 22.3% in fiscal 1998 from 20.2% in fiscal 1997. The unusual
charges related to Hans Benjamin and Benn Corporation referred to above
increased the ratio of cost of sales to sales and reduced the gross margin by
0.5 percentage points in fiscal 1997.
Marketing and administrative expenses increased by $12.0 million, or 29.9%,
for fiscal 1998. Of this increase, $4.9 million is attributable to the companies
acquired during fiscal 1998. The balance of the increase is primarily due to
increases in personnel costs, legal expenses and other professional fees.
Interest expense increased by $1.7 million in fiscal 1998. Approximately
$1.2 million of this increase is the result of debt incurred or assumed in
acquisition transactions.
The effective income tax rate declined to 37.6% in fiscal 1998 from 47.4%
in fiscal 1997 due to lower effective state income tax rates in the current year
as a result of various state employment and investment tax credits earned. The
fiscal 1997 effective tax rate was unusually high due to nondeductible expenses
associated with the Hans Benjamin and Benn Corporation charges referred to
above.
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<PAGE> 13
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 28, 1999, the Company's borrowings
increased by $31.3 million. This increase primarily resulted from the $10.1
million purchase of inventory and other assets from DHA Home, Inc. described
above, partially off-set by the sale of Textile, Inc., and from capital
expenditures of approximately $21.1 million, most of which were for the ERP
project and related information systems.
Also contributing to the increase in borrowings during fiscal 1999 was the
operating performance of the Company and the level of accounts receivable at
fiscal year end. Accounts receivable were higher because of recoverable income
taxes of approximately $4.4 million and because approximately 41% of fourth
quarter sales occurred in the month of March.
At March 28, 1999, the Company maintained uncommitted lines of credit
totaling $40 million with two commercial banks at floating interest rates,
against which a total of $31.1 million of borrowings at an interest rate of
8.25% and $2.7 million of letters of credit were outstanding. The Company also
maintained unsecured committed revolving credit facilities totaling $30 million
with two commercial banks at interest rates based on each bank's Base Rate plus
0.5%. At March 28, 1999, borrowings of $30 million were outstanding under these
facilities a an interest rate of 8.25%. The Company pays facility fees on the
unused portions of these committed credit lines. These credit facilities expired
on March 31, 1999 and subsequently were extended by a renegotiation of their
terms in August, 1999. Among other covenants, these revolving credit facilities
contain a requirement that the Company maintain minimum levels of shareholders'
equity. At March 28, 1999, the Company was not in compliance with the required
level of shareholders' equity which could restrict the future payment of cash
dividends. Other covenants of these revolving credit facilities require the
Company to maintain certain financial ratios and place restriction on the
amounts the Company may expend on acquisitions and purchases of treasury stock.
In July 1998, the Company obtained an additional $25 million unsecured
committed revolving credit facility from one of its commercial banks. The
facility had an initial expiration date of August 25, 1998, but has been
extended by a renegotiation of its terms in August, 1999. This credit facility
carries an interest rate of the bank's Base Rate plus 0.5%. At March 28, 1999,
the Company had borrowings of $25 million under this facility.
The Company's 6.92% unsecured notes in the amount of $50,000,000 are placed
with an insurance company and are due in annual installments of $7,142,857 from
October 1999 through October 2005. The 6.92% notes and the unsecured revolving
credit facilities 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 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 28, 1999, the Company was
not in compliance with certain provisions of its unsecured revolving credit
facilities and its 6.92% unsecured notes. Each lender has waived compliance with
these provisions of its agreement for the quarter ended March 28, 1999
On July 16, 1999, the Company reached agreement in principle with its two
commercial banks and with the holders of its 6.92% unsecured notes to
restructure certain provisions of its borrowing arrangements. Among other
things, the agreement in principle extends the maturity of the $30 million
revolving credit facilities to April 3, 2000, and of the additional revolving
credit facility, in the reduced amount of $15 million, to March 31, 2000, and
adjusts financial and other covenants based on the Company's projections. In
exchange, the Company has agreed to grant security interests in substantially
all of its assets and to adjust the interest rate on its bank facilities to
either each bank's Base Rate plus 1% or the London Interbank Offered Rate
(LIBOR) plus 2.75% and on the notes placed with an insurance company to 10.42%.
The Company closed the facilities represented by the agreement in principle on
August 11, 1999.
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
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<PAGE> 14
factored invoices. The factor assumes all responsibility for credit losses on
sales within approved credit lines, but may deduct from its remittances to the
Company the amounts of customer deductions for returns, allowances, disputes and
discounts. The Company's factor at any time may 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.
The agreement in principle with its senior lenders, described above,
provides for the Company to finance its seasonal working capital needs by taking
advances against its factored receivables of up to $30 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, FASB issued Statement No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS No. 133"). This statement
requires that all derivatives be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. SFAS No. 133 is effective
for fiscal years beginning after June 15, 1999. In June, 1999, FASB issued
Statement No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133," which
amends the effective date of SFAS No. 133 to June 15, 2000. The effect on the
financial statements upon adoption of SFAS No. 133 has not been determined.
FORWARD-LOOKING INFORMATION
This annual report 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, such as Indonesia, 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 operational improvements in its acquired
businesses.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt, commodity prices and foreign exchange rates.
The Company's exposure to interest rate risk relates to its floating rate
debt, $86,150,000 of which was outstanding at March 28, 1999.
The Company's exposure to commodity price risk primarily relates to changes
in the price of cotton, which is a principal raw material in a substantial
number of the Company's products. To manage this risk, from time to time the
Company enters into commodity future contracts and forward purchase contracts.
No such contracts were outstanding at March 28, 1999.
The Company's exposure to foreign exchange rates relates to its Mexican
manufacturing subsidiary. During the fiscal year ended March 28, 1999, this
subsidiary manufactured products for the Company with a value of approximately
$7.2 million. The Company's investment in the subsidiary was approximately $4.1
million at March 28, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-17 herein.
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<PAGE> 15
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
September 28, 1999 (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.
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, SCHEDULE, 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>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 28, 1999 and March
29, 1998.................................................. F-3
Consolidated Statements of Operations and Comprehensive Loss
for the Three Fiscal Years in the Period Ended March 28,
1999...................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March 28,
1999...................................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 28, 1999.................. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
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<PAGE> 16
(A)2. FINANCIAL STATEMENT SCHEDULE
The following financial statement schedule of Registrant is filed with this
report:
<TABLE>
<S> <C>
Schedule VIII -- Valuation and Qualifying Accounts.......... Page 16
</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.
15
<PAGE> 17
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 March 30, 1997
Reserve for doubtful accounts...................... $ 79 $1,123 $ (18) $1,220
Reserve for customer deductions.................... 1,954 328 2,282
Year Ended March 29, 1998
Reserve for doubtful accounts...................... $1,220 $ 951 $1,472 $ 699
Reserve for customer deductions.................... 2,282 426 2,708
Year Ended March 28, 1999
Reserve for doubtful accounts...................... $ 699 $ 740 $ 710 $ 729
Reserve for customer deductions.................... 2,708 1,762 4,470
Inventory Valuation Accounts:
Year Ended March 30, 1997
Reserve for discontinued and irregulars............ $ 821 $1,577 $2,398
Year Ended March 29, 1998
Reserve for discontinued and irregulars............ $2,398 $ 677 $3,075
Year Ended March 28, 1999
Reserve for discontinued and irregulars............ $3,075 $2,927 $6,002
</TABLE>
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* Deductions from the reserve for doubtful accounts represent the amount of
accounts written off reduced by any subsequent recoveries.
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<PAGE> 18
(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)(i) -- 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>
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<PAGE> 19
<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)
10(c)(iv) -- Letter Agreement with NationsBank, N.A. dated December 23,
1996.(10)
10(c)(v) -- Letter Agreement with NationsBank, N.A. dated January 23,
1997.(10)
10(c)(vi) -- Letter Agreement with NationsBank, N.A. dated May 22,
1997.(10)
10(c)(vii) -- Letter Agreement with NationsBank, N.A. dated November 6,
1997. (11)
10(c)(viii) -- Letter Agreement with NationsBank, N.A. dated January 14,
1998. (11)
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)
10(d)(iv) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
December 24, 1996.(10)
10(d)(v) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
January 22, 1997.(10)
10(d)(vi) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
May 22, 1997.(10)
10(d)(vii) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
November 7, 1997. (11)
10(d)(viii) -- Letter Agreement with Wachovia Bank of Georgia, N.A. dated
January 22, 1998. (11)
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)
10(g) -- License Agreement dated January 1, 1998 between Disney
Enterprises, Inc. as Licensor and Crown Crafts, Inc. as
Licensee.(11)
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
10(h) -- License Agreement dated May 11, 1998 between Calvin Klein,
Inc. as Licensor, Crown Crafts Designer, Inc. (a
wholly-owned subsidiary of the Registrant), and Crown
Crafts, Inc. as Guarantor.(11)
21 -- Subsidiaries of the Registrant
23 -- Consent of Deloitte & Touche LLP
27.1 -- Financial Data Schedule (for SEC use only)
There were no reports on Form 8-K during the quarter ended March 28,
1999.
</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 Current 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.
(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 Registrants
Report on Current 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.
(10) 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 30,
1997.
(11) 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 29,
1998.
19
<PAGE> 21
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.
August 12, 1999 By: /s/ MICHAEL H. BERNSTEIN
------------------------------------
Michael H. Bernstein
President and Chief Executive
Officer
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 August 12, 1999
- ----------------------------------------------------- Officer, Director
Michael H. Bernstein
/s/ PHILIP BERNSTEIN Chairman of the Board August 12, 1999
- -----------------------------------------------------
Philip Bernstein
/s/ E. RANDALL CHESTNUT Director August 12, 1999
- -----------------------------------------------------
E. Randall Chestnut
/s/ ROGER D. CHITTUM Director August 12, 1999
- -----------------------------------------------------
Roger D. Chittum
/s/ MARVIN A. DAVIS Director August 12, 1999
- -----------------------------------------------------
Marvin A. Davis
/s/ JANE E. SHIVERS Director August 12, 1999
- -----------------------------------------------------
Jane E. Shivers
/s/ ALFRED M. SWIREN Director August 12, 1999
- -----------------------------------------------------
Alfred M. Swiren
/s/ RICHARD N. TOUB Director August 12, 1999
- -----------------------------------------------------
Richard N. Toub
/s/ DAVID S. FRASER Chief Accounting Officer August 12, 1999
- -----------------------------------------------------
David S. Fraser
</TABLE>
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Audited Financial Statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of March 28, 1999 and March
29, 1998............................................... F-3
Consolidated Statements of Operations and Comprehensive
(Loss) Income for the Three Fiscal Years in the Period
Ended March 28, 1999................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Three Fiscal Years in the Period Ended March
28, 1999............................................... F-5
Consolidated Statements of Cash Flows for the Three Fiscal
Years in the Period Ended March 28, 1999............... F-6
Notes to Consolidated Financial Statements................ F-7
Note # 1 -- DESCRIPTION OF BUSINESS
Note # 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Note # 3 -- ACQUISITIONS
Note # 4 -- DISCONTINUANCE OF CERTAIN BUSINESSES
Note # 5 -- INVENTORIES
Note # 6 -- FINANCING ARRANGEMENTS
Note # 7 -- INCOME TAXES
Note # 8 -- RETIREMENT PLANS
Note # 9 -- STOCK OPTIONS
Note #10 -- EARNINGS PER SHARE
Note #11 -- MAJOR CUSTOMERS
Note #12 -- COMMITMENTS AND CONTINGENCIES
Note #13 -- SEGMENT AND RELATED INFORMATION
Supplemental Financial Information:
Selected Quarterly Financial Information (unaudited)...... F-15
</TABLE>
F-1
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Crown Crafts, Inc.
We have audited the accompanying consolidated balance sheets of Crown
Crafts, Inc. and subsidiaries as of March 28, 1999 and March 29, 1998, and the
related consolidated statements of operations and comprehensive (loss) income,
changes in shareholders' equity, and cash flows for each of the three years in
the period ended March 28, 1999. 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 28, 1999 and March 29, 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
March 28, 1999 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
June 4, 1999
(August 11, 1999 as to the last paragraph of Note 6)
F-2
<PAGE> 24
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 28, 1999 AND MARCH 29, 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(dollar amounts in
thousands, except share
and par value per share)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 744 $ 809
Accounts receivable (less allowances of $5,199 in 1999 and
$3,407 in 1998):
Due from factor........................................... 48,042 32,234
Other..................................................... 7,355 16,192
Inventories................................................. 87,287 82,432
Deferred income taxes....................................... 776 1,943
Income tax recoverable...................................... 4,422
Other current assets........................................ 7,258 4,938
-------- --------
Total current assets............................... 155,884 138,548
-------- --------
PROPERTY, PLANT AND EQUIPMENT -- at cost:
Land, buildings and improvements............................ 45,190 45,496
Machinery and equipment..................................... 92,689 76,053
Furniture and fixtures...................................... 2,100 1,774
-------- --------
139,979 123,323
Less accumulated depreciation............................... 60,858 51,361
-------- --------
Property, plant and equipment -- net............... 79,121 71,962
-------- --------
OTHER ASSETS:
Goodwill.................................................... 25,558 28,747
Other....................................................... 4,288 2,409
-------- --------
Total Other Assets................................. 29,846 31,156
-------- --------
Total Assets....................................... $264,851 $241,666
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable............................................... $ 56,150 $ 24,850
Accounts payable............................................ 25,339 20,831
Income taxes payable........................................ 8 86
Accrued wages and benefits.................................. 5,017 5,091
Accrued royalties........................................... 833 1,758
Other accrued liabilities................................... 5,104 2,930
Current maturities of long-term debt........................ 7,243 30,100
-------- --------
Total current liabilities.......................... 99,694 85,646
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt.............................................. 72,857 50,100
Deferred income taxes....................................... 4,776 7,852
Other....................................................... 745 745
-------- --------
Total non-current liabilities...................... 78,378 58,697
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock -- par value $1.00 per share 50,000,000 shares
authorized................................................ 9,983 9,654
Additional paid-in capital.................................. 46,096 41,804
Retained earnings........................................... 51,032 63,838
Cumulative currency translation adjustment.................. (23) (4)
Common stock held in treasury -- at cost.................... (20,309) (17,969)
-------- --------
Total shareholders' equity......................... 86,779 97,323
-------- --------
Total Liabilities and Shareholders' Equity......... $264,851 $241,666
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 25
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
FISCAL YEARS ENDED MARCH 28, 1999, MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(in thousands, except (loss)
earnings per share)
<S> <C> <C> <C>
Net sales................................................... $362,071 $319,238 $256,385
Cost of products sold....................................... 310,812 248,149 204,648
-------- -------- --------
Gross profit................................................ 51,259 71,089 51,737
Marketing and administrative expenses....................... 56,480 52,096 40,096
-------- -------- --------
(Loss) earnings from operations............................. (5,221) 18,993 11,641
Other income (expense):
Interest expense.......................................... (9,945) (6,562) (4,887)
Other - net............................................... (1,836) 84 151
-------- -------- --------
(Loss) earnings before income taxes......................... (17,002) 12,515 6,905
Income tax (benefit) expense................................ (5,230) 4,709 3,274
-------- -------- --------
Net (loss) earnings......................................... (11,772) 7,806 3,631
-------- -------- --------
Other comprehensive income, net of tax:
Foreign currency translation adjustment................... (19) (4) --
-------- -------- --------
Comprehensive (loss) income................................. $(11,791) $ 7,802 $ 3,631
-------- -------- --------
Basic (loss) earnings per share............................. $ (1.37) $ 0.97 $ 0.46
-------- -------- --------
Diluted (loss) earnings per share........................... $ (1.37) $ 0.92 $ 0.45
-------- -------- --------
Average shares outstanding -- basic......................... 8,593 8,065 7,944
-------- -------- --------
Average shares outstanding assuming dilution................ 8,593 8,495 8,018
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 26
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 28, 1999, MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
CUMULATIVE TREASURY STOCK
ADDITIONAL CURRENCY --------------------
COMMON PAID-IN RETAINED TRANSLATION NUMBER
STOCK CAPITAL EARNINGS ADJUSTMENT OF SHARES COST
------ ---------- -------- ----------- ---------- -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCES -- MARCH 31, 1996......... $9,051 $34,438 $ 54,327 $ -- 1,106,435 $14,799
------ ------- -------- ---- ---------- -------
Net earnings....................... 3,631
Cash dividends ($0.12 per share)... (953)
------ ------- -------- ---- ---------- -------
BALANCES -- MARCH 30, 1997......... 9,051 34,438 57,005 -- 1,106,435 14,799
------ ------- -------- ---- ---------- -------
Net earnings....................... 7,806
Cash dividends ($0.12 per share)... (973)
Exercises of stock options......... 536 4,612
Treasury stock acquired in
conjunction with exercises of
stock options.................... 154,504 3,170
Tax benefits realized from
exercises of stock options....... 1,821
Stock issued in connection with an
acquisition...................... 67 933
Currency translation adjustment.... (4)
------ ------- -------- ---- ---------- -------
BALANCES -- MARCH 29, 1998......... 9,654 41,804 63,838 (4) 1,260,939 17,969
------ ------- -------- ---- ---------- -------
Net loss........................... (11,772)
Cash dividends ($0.12 per share)... (1,034)
Exercises of stock options......... 329 3,025
Treasury stock acquired in
conjunction with exercises of
stock options.................... 113,523 2,340
Tax benefits realized from
exercises of stock options....... 1,267
Currency translation adjustment.... (19)
------ ------- -------- ---- ---------- -------
BALANCES -- MARCH 28, 1999......... $9,983 $46,096 $ 51,032 $(23) 1,374,462 $20,309
====== ======= ======== ==== ========== =======
</TABLE>
Number of shares of common stock issued: 9,983,305 at March 28, 1999, and
9,654,043 at March 29, 1998.
See notes to consolidated financial statements.
F-5
<PAGE> 27
CROWN CRAFTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 28, 1999, MARCH 29, 1998 AND MARCH 30, 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) earnings......................................... $ (11,772) $ 7,806 $ 3,631
Adjustments to reconcile net (loss) earnings to net cash
provided by (used for) operating activities:
Depreciation and amortization of property, plant and
equipment.............................................. 11,421 10,193 9,798
Amortization of goodwill.................................. 1,229 998 618
Deferred income tax provisions............................ (1,352) 629 59
Loss on sale of property, plant and equipment............. 271 51 11
Loss on sale of Textile, Inc.............................. 1,805
Changes in assets and liabilities, net of effects of
acquisitions of businesses:
Accounts receivable.................................... (6,970) (5,230) 2,617
Inventories............................................ 2,720 (18,471) (9,476)
Income taxes recoverable............................... (4,422)
Other current assets................................... (2,328) (1,067) 167
Other assets........................................... 1,084 (454) (321)
Accounts payable....................................... 3,765 4,750 669
Income taxes payable................................... (95) (1,662) 1,290
Accrued liabilities.................................... 915 (664) 2,169
Other liabilities...................................... (281) 45
--------- --------- -------
Net cash (used for) provided by operating activities........ (3,729) (3,402) 11,277
--------- --------- -------
INVESTING ACTIVITIES:
Capital expenditures........................................ (21,052) (8,300) (5,702)
Acquisitions, net of cash acquired.......................... (10,072) (19,611) (459)
Proceeds from sale of property, plant and equipment......... 351 200 372
Net proceeds from the sale of Textile, Inc.................. 2,280
Other....................................................... (272)
--------- --------- -------
Net cash used for investing activities...................... (28,765) (27,711) (5,789)
--------- --------- -------
FINANCING ACTIVITIES:
Payment of long-term debt................................... (100) (775) (5,100)
Increase in bank revolving credit........................... 0 9,000 2,000
Increase (decrease) in notes payable........................ 31,300 20,273 (1,350)
Stock options exercised..................................... 2,281 3,795
Cash dividends.............................................. (1,033) (973) (953)
Other....................................................... (19)
--------- --------- -------
Net cash provided by (used for) financing activities........ 32,429 31,320 (5,403)
--------- --------- -------
NET INCREASE (DECREASE) IN CASH............................. (65) 207 85
Cash at Beginning of Year................................... 809 602 517
--------- --------- -------
CASH AT END OF YEAR......................................... $ 744 $ 809 $ 602
========= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Income taxes paid........................................... $ 190 $ 5,368 $ 2,534
========= ========= =======
Interest paid............................................... $ 9,675 $ 6,452 $ 4,773
========= ========= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 28
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED MARCH 28, 1999, MARCH 29, 1998 AND MARCH 30, 1997
1. DESCRIPTION OF BUSINESS
Crown Crafts, Inc. and its subsidiaries (collectively, the "Company")
operate in two principal business segments within the textile industry,
including adult home furnishing and juvenile products, and infant products.
Adult home furnishing and juvenile products consists of bedroom products (adult
comforters and accessories), throws and decorative home accessories (primarily
jacquard-woven throws in cotton, acrylic, rayon or chenille), and juvenile
products (primarily Pillow Buddies). The infant products segment consists of
infant bedding, bibs, and infant soft goods. Sales are generally made directly
to retailers, primarily department and specialty stores, mass merchants, large
chain stores and gift stores.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Crown Crafts, Inc. and its subsidiaries. All significant
intercompany balances and transactions are eliminated in consolidation.
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.
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 may differ from those
estimates.
Revenue Recognition: Sales are recorded when goods are shipped to
customers, and are reported net of returns and allowances in the consolidated
statements of earnings.
Inventory Valuation: Inventories are valued at the lower of first-in,
first-out cost or market.
Depreciation and Amortization: Depreciation of property, plant and
equipment is computed using the straight-line method over the estimated useful
lives of the respective assets. Estimated useful lives are 15 to 40 years for
buildings, 3 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, which represents the unamortized excess of purchase price over
fair value of net identifiable assets acquired in business combinations, is
amortized using the straight-line method over periods of up 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. The Company believes that no material impairment of goodwill or other
long-lived assets exists at March 28, 1999.
Provisions for Income Taxes: The provisions for income taxes include all
currently payable federal, state and local taxes that 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 that will be in effect when the
differences are expected to reverse.
Earnings Per Share: In 1998, 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.
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 re-
F-7
<PAGE> 29
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
corded in the accompanying statements of earnings with respect to stock option
grants.
Segments and Related Information: In 1999, the Company adopted SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement requires certain information to be reported about operating segments
on a basis consistent with the Company's internal organizational structure.
Management's analysis concluded that the Company operates in two operating
segments, adult home furnishings and juvenile products, and infant products.
Required disclosures have been made in Note 13. This statement expands and
modifies disclosures and, accordingly, had no impact on the Company's reported
financial position, results of operations, or cash flows.
3. ACQUISITIONS
In May 1998, the Company entered into a license agreement with Calvin
Klein, Inc. which gives the Company the right to manufacture and distribute
Calvin Klein Home bed, bath and table top collections. In August 1998, the
Company purchased inventory and certain other assets from the previous licensee
and in December 1998, purchased additional inventory and assets. The total
consideration for these transactions, including transaction costs, was $10.1
million. The inventory and other assets acquired were accounted for at cost.
During 1998, the Company acquired four businesses: Hamco, Inc. ("Hamco") on
March 31, 1997; Noel Joanna, Inc. ("NoJo") on August 18, 1997; Pinky Baby
Products ("Pinky") on January 2, 1998; and Burgundy Interamericana, S.A. de C.V.
("Burgundy") on January 30, 1998. NoJo designs and markets infant bedding and
accessories. Hamco and Pinky manufacture infant soft goods such as bibs, hooded
towels and burp cloths. Burgundy was a Mexican contract manufacturer of consumer
textile products. The total consideration for these four acquisitions, including
transaction costs, was $20.6 million, of which $19.6 million was paid in cash
with the balance paid through the issuance of approximately 67,000 shares of the
Company's common stock.
All four 1998 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............ $14,181
Goodwill............... 16,324
-------
30,505
Less liabilities
assumed.............. 10,121
-------
Purchase price, net of
cash acquired........ $20,384
=======
</TABLE>
The consolidated statement of earnings for 1998 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
acquisitions of Hamco, Pinky and NoJo had occurred on the first day of fiscal
1998 and of fiscal 1997. Had the acquisition of Burgundy occurred on the first
day of fiscal 1997, the pro-forma information would not differ materially from
the amounts presented. These pro forma results do not purport to be indicative
of the results which would have been achieved had the acquisitions been made on
that date, or of future results of operations.
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net sales.................. $331,805 $287,681
Net earnings............... 7,436 3,417
Basic earnings per share... 0.92 0.43
Diluted earnings per
share.................... 0.88 0.43
</TABLE>
During fiscal 1997, the Company acquired Woven Classic Throws, Inc., a
small manufacturer of specialty woven throws, for a cash purchase price of $0.2
million, including transaction costs. The acquisition was accounted for as a
purchase and did not have a material effect on the Company's 1997 operating
results.
4. DISCONTINUANCE OF CERTAIN BUSINESSES
In March 1999, the Company completed the sale of Textile, Inc. a weaving
facility located in Ronda, North Carolina. The sale, which generated
F-8
<PAGE> 30
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2.3 million in cash, resulted in a $1.8 million pre-tax loss relating to the
write-off of goodwill.
In fiscal 1997, the Company recorded costs and expenses of $1,263,000, net
of related income tax benefits, as a result of plans adopted to liquidate Hans
Benjamin Furniture, Inc. ("Hans Benjamin"), a 51-percent-owned subsidiary, and
to divest itself of Benn Corporation, a wholly-owned manufacturer of textile
machinery.
The decision to liquidate Hans Benjamin 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 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 also been
shipped into states other than California. Hans Benjamin responded by announcing
a 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 decision to sell Benn Corporation was based upon the Company's desire
to concentrate its resources on its consumer products businesses. The sale of
Benn Corporation was consummated in the fourth fiscal quarter of 1998, resulting
in a reduction of costs and expenses of $335,000, net of related income taxes.
5. INVENTORIES
Major classes of inventory were as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and
supplies........... $34,300 $34,013
Work in process...... 4,738 3,441
Finished goods....... 48,249 44,978
------- -------
$87,287 $82,432
======= =======
</TABLE>
During fiscal 1999 and 1998, the Company established pre-tax reserves of
approximately $6.0 and $3.0 million, respectively, against certain inventories
classified as irregular or discontinued.
6. FINANCING ARRANGEMENTS
Factoring Agreement: The Company assigns the majority of its trade
accounts receivable to a commercial factor. 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 $2,470,000, $1,944,000, and
$1,777,000, respectively, in 1999, 1998 and 1997.
Notes Payable and Other Credit Facilities: At March 28, 1999, 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 $27,040,000 at 7.60% in 1999 and $16,502,000 at 6.3% in 1998.
Borrowings of $31,150,000 were outstanding under these arrangements at March 28,
1999 at an average interest rate of 8.25%. In addition, the Company had
outstanding letters of credit, primarily for purchases of inventory, aggregating
$2.7 million which reduced the available credit under these arrangements.
At March 28, 1999, the Company had an additional $25 million unsecured
revolving credit facility from one of its banks, of which the full amount was
outstanding at an interest rate of 8.25%. The facility had an expiration date of
June 30, 1999 but was extended by a renegotiation of its terms in August 1999.
F-9
<PAGE> 31
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At March 28, 1999 and March 29, 1998, other credit facilities consisted of:
<TABLE>
<CAPTION>
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
6.92% unsecured notes due
in annual installments of
$7,143 from October 1999
through October 2005..... $50,000 $50,000
Floating rate unsecured
revolving credit
facilities............... 30,000 30,000
Other...................... 100 200
------- -------
80,100 80,200
Less current maturities.... 7,243 30,100
------- -------
$72,857 $50,100
======= =======
</TABLE>
The Company's 6.92% unsecured notes in the amount of $50,000,000 are placed
with an insurance company and are due in annual installments of $7,142,857 from
October 1999 through October 2005. These notes contain restrictive covenants
requiring the Company to maintain certain ratios of earnings to fixed charges
and of total debt to total capitalization.
The Company maintains unsecured committed revolving credit facilities
totaling $30 million with two commercial banks at interest rates based on each
bank's Base Rate plus 0.5%. At March 28, 1999, and March 29, 1998, borrowings of
$30 million were outstanding under these facilities at weighted average interest
rates of 8.25% and 6.1%, respectively. The Company pays facility fees at the
rate of 0.15% per annum on the unused portions of these committed credit lines.
These credit facilities expired on March 31, 1999 and subsequently were extended
by a renegotiation of their terms in August 1999. Among other covenants, these
revolving credit facilities contain a requirement that the Company maintain
minimum levels of shareholders' equity. At March 28, 1999, the Company was not
in compliance with the required level of shareholders' equity which could
restrict the future payment of cash dividends. Other covenants of these
revolving credit facilities 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.
At March 28, 1999, the Company was not in compliance with certain
provisions of its unsecured revolving credit facilities and its 6.92% unsecured
notes. Each lender has waived compliance with these provisions for the quarter
ended March 28, 1999.
The fair value at March 28, 1999 of the Company's obligations approximates
their carrying value.
On July 16, 1999, the Company reached agreements in principle with its two
commercial banks and with the holders if its 6.92% unsecured notes to
restructure certain provision of its borrowing arrangements. The agreements
extend the maturity of the $30 million revolving credit facilities to April 3,
2000 and reduces the additional revolving credit facility to $15 million and
extends its maturity to March 31, 2000. In addition, the agreements amend
financial and other covenants based on the Company's projections. The agreements
require the Company to grant security interests in substantially all of its
assets and to adjust the interest rate on its commercial bank facilities to each
bank's Base Rate plus 1% or the London Interbank Offered Rate (LIBOR) plus 2.75%
and to adjust the interest rate on its 6.92% notes to 10.42%. The agreements
provide for the Company to finance its seasonal working capital need by taking
advances against its factored receivables of up to $30 million. The Company
closed the facilities represented by the agreement in principle on August 11,
1999
7. INCOME TAXES
The provisions for income taxes are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................ $(2,866) $3,870 $2,887
State and local........ (455) 210 328
------- ------ ------
Total current... (3,321) 4,080 3,215
------- ------ ------
Deferred:
Federal................ (1,379) 404 (223)
State and local........ (530) 225 282
------- ------ ------
Total
deferred...... (1,909) 629 59
------- ------ ------
$(5,230) $4,709 $3,274
======= ====== ======
</TABLE>
F-10
<PAGE> 32
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that comprise the deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred income tax
liabilities:
Property, plant and equipment... $5,692 $7,318
DISC earnings deferral.......... 872 763
Other........................... 1,707 922
------ ------
Total gross deferred
income tax
liabilities............ 8,271 9,003
------ ------
Gross deferred income tax assets:
Employee benefit accruals....... 1,952 1,721
Accounts receivable reserves.... 1,517 917
Other........................... 2,304 456
------ ------
Total gross deferred
income tax assets...... 5,773 3,094
------ ------
Deferred tax asset valuation
allowance....................... 1,502
------ ------
Net deferred income tax
liability....................... $4,000 $5,909
====== ======
</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>
1999 1998 1997
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes at federal
statutory rates........ $(5,473) $4,380 $2,417
Non-deductible
amortization of
goodwill............... 343 278 210
Operating losses of 51-
percent-owned
subsidiary not
deductible in
consolidated federal
income tax return...... 430
State income taxes net of
federal income tax
benefit................ (650) 283 403
Other.................... 550 (232) (186)
------- ------ ------
Provisions for income
taxes.................. $(5,230) $4,709 $3,274
======= ====== ======
</TABLE>
8. 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
$480,000, $520,000 and $450,000, respectively, for its cash contributions to the
Plan in 1999, 1998 and 1997.
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% 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 that will be matched by the Company.
For calendar 1997, the Company made a matching contribution to each employee in
an amount equal to the first 2% of such contributions. Beginning in calendar
1998, the Company has made or will make a matching contribution to each employee
in an amount equal to 100% of the first 2% and 50% of the next 1% contributed by
the employee. The Company's matching contributions to the Plan were
approximately $855,000, $577,000 and $550,000, respectively, for 1999, 1998 and
1997.
9. 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 28, 1999, non-qualified options covering a total of 28,000 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 has been authorized for
issuance under the Plans. At March 28, 1999, 192,050 options were reserved for
future issuance. The options outstanding at March 28, 1999 expire through
December 14, 2003, have a weighted average remaining contractual life of 3.1
years, and include 578,701 options exercisable at March 28, 1999 with a weighted
average exercise price of $10.14.
F-11
<PAGE> 33
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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
Options granted........................................ 486,800 10.25 -- 21.31 12.66
Options canceled....................................... (138,585) 7.88 -- 15.63 9.50
Options exercised...................................... (536,740) 7.88 -- 11.75 9.59
---------- -------------- ------
Options outstanding, March 29, 1998.................... 1,890,227 7.88 -- 21.31 10.39
Options granted........................................ 504,633 5.50 -- 14.50 7.99
Options canceled....................................... (151,407) 7.88 -- 15.63 10.65
Options exercised...................................... (329,262) 7.88 -- 13.25 10.19
---------- -------------- ------
Options outstanding, March 28, 1999.................... 1,914,191 5.50 -- 21.31 9.77
---------- -------------- ------
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at March 28, 1999 by range of exercise price:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Avg. Avg. Avg.
Range Number of Remaining Exercise Price Number of Exercise Price
of Exercise Options Contractual of Options Shares of Shares
Prices Outstanding Life Outstanding Exercisable Exercisable
----------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$5.50 -- $8.06 822,354 3.6 years $ 7.84 178,120 $ 7.88
8.38 -- 10.50 663,087 2.1 years 10.22 252,203 10.21
10.56 -- 21.31 428,750 3.5 years 12.77 148,378 12.74
---------- --------
1,914,191 578,701
========== ========
</TABLE>
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 also 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, 1996 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 $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 1999, 1998
and 1997, respectively, was $6.35, $4.02 and $2.60 per share. Had compensation
cost for the Company's stock option grants been determined and recorded as
expense at
F-12
<PAGE> 34
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the grant dates, the Company's pro forma net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Net (loss) income.... $(13,685,000) $6,305,000 $2,371,000
Basic earnings per
share.............. (1.59) 0.78 0.30
Diluted earnings per
share.............. (1.58) 0.74 0.30
</TABLE>
The pro forma information 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 1999: dividend yield of 1.15
percent, expected volatility of 133.55 percent, risk-free interest rate of 4.9
percent, and expected lives of 4 years. The following assumptions were used for
options granted in 1998: dividend yield of 0.9 percent, expected volatility of
32.2 percent, risk-free interest rate of 6.1 percent, and expected lives of 4
years. 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.
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.
10. EARNINGS PER SHARE
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted earnings per share for each of the last three
years:
<TABLE>
<CAPTION>
1999 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Numerators:
Numerator for both
basic and diluted
earnings per share,
net (loss) income.. $(11,772,000) $7,806,000 $3,631,000
Denominators:
Denominator for basic
earnings per share,
weighted average
common shares
outstanding........ 8,592,635 8,064,559 7,944,201
Potential dilutive
shares resulting
from stock option
plans.............. 0 430,219 73,666
Denominator for
diluted earnings
per share.......... 8,592,635 8,494,778 8,017,867
Earnings per share:
Basic................ $ (1.37) $ 0.97 $ 0.46
Diluted.............. $ (1.37) $ 0.92 $ 0.45
------------ ---------- ----------
</TABLE>
11. MAJOR CUSTOMERS
The Company's sales to Wal-Mart Stores, Inc. constituted 18%, 19% and 17%
of net sales, respectively, in 1999, 1998 and 1997.
12. COMMITMENTS AND CONTINGENCIES
Lease Commitments: At March 28, 1999, the Company's minimum annual rentals
under noncancelable operating leases, principally for manufacturing, warehousing
and office facilities, were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR: (IN THOUSANDS)
- ------------ --------------
<S> <C>
2000............................... $ 4,708
2001............................... 3,562
2002............................... 2,759
2003............................... 1,642
2004............................... 1,389
Thereafter......................... 4,202
-------
$18,262
=======
</TABLE>
Total rent expense was $5,696,000, $4,718,000 and $3,710,000, respectively,
for the years ended March 28, 1999, March 29, 1998 and March 30, 1997.
F-13
<PAGE> 35
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENTS AND RELATED
INFORMATION
In 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company's principal segments include
adult home furnishing and juvenile products, consisting of bedroom products
(adult comforters and accessories), throws and decorative home accessories
(primarily jacquard-woven throws in cotton, acrylic, rayon or chenille), and
juvenile products (primarily Pillow Buddies). The second principal segment is
infant products, consisting of infant bedding, bibs, and infant soft goods. The
Company tracks revenues and operating profit information for these two business
segments.
The Company's manufacturing and distribution operations are also divided
into adult home furnishing and juvenile products and infant products. The
Company's facilities in Georgia, North Carolina, New Hampshire and Kentucky
support the adult home furnishing and juvenile products. The Company's
facilities in Louisiana, California and Mexico support the infant products.
Assets, capital expenditures and depreciation and amortization are tracked for
adult home furnishing and juvenile products as a whole and for infant products.
Financial information attributable to the Company's business segments for
the years ended March 28, 1999; March 29, 1998; and March 30, 1997, is as
follows (in thousands):
<TABLE>
<CAPTION>
REVENUES: 1999 1998 1997
- --------- -------- -------- --------
<S> <C> <C> <C>
Adult home furnishing
and juvenile
products........... $269,647 $243,986 $217,631
Infant products...... 92,424 75,252 38,754
-------- -------- --------
Total................ $362,071 $319,238 $256,385
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS): 1999 1998 1997
- ------------------------ ------- ------- -------
<S> <C> <C> <C>
Adult home furnishing
and juvenile
products............. $(7,650) $16,702 $ 7,593
Infant products........ 2,429 2,291 4,048
------- ------- -------
Total.................. $(5,221) $18,993 $11,641
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
ASSETS: 1999 1998 1997
- ------- -------- -------- --------
<S> <C> <C> <C>
Adult home furnishing
and juvenile
products........... $191,407 $176,370 $162,674
Infant products...... 73,444 65,296 26,882
-------- -------- --------
Total................ $264,851 $241,666 $189,556
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 1999 1998 1997
--------------------- ------- ------ ------
<S> <C> <C> <C>
Adult home furnishing and
juvenile products...... $19,777 $7,351 $5,042
Infant products.......... 1,275 949 660
------- ------ ------
Total........... $21,052 $8,300 $5,702
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND
AMORTIZATION: 1999 1998 1997
---------------- ------- ------- -------
<S> <C> <C> <C>
Adult home furnishing
and juvenile
products............. $10,910 $10,006 $ 9,936
Infant products........ 1,740 1,185 480
------- ------- -------
Total......... $12,650 $11,191 $10,416
======= ======= =======
</TABLE>
Revenues for individual product groups within these business segments, as
noted in Part I, Item 1 of Form 10-K, are summarized below. The Company's
facilities in Georgia, North Carolina, New Hampshire and Kentucky support adult
home furnishing and juvenile products.
Revenue information attributable to each of the Company's product groups
for the years ended March 28, 1999, March 29, 1998, and March 30, 1997, is as
follows (in hundreds of thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Bedroom products..... $145,500 $128,000 $115,500
Throws and decorative
home accessories... 98,200 94,200 87,800
Infant and juvenile
products........... 117,600 94,300 51,000
Other revenues....... 800 2,700 2,100
-------- -------- --------
Total....... $362,100 $319,200 $256,400
======== ======== ========
</TABLE>
F-14
<PAGE> 36
CROWN CRAFTS, INC. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
SELECTED QUARTERLY FINANCIAL INFORMATION
UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 28, 1999:
Net sales................................................ $61,708 $92,901 $120,394 $87,068
Gross profit............................................. 10,054 16,415 22,819 1,971
Net earnings (loss)...................................... (2,322) 14 2,512 (11,976)
Basic earnings (loss) per share.......................... (0.27) 0.00 0.29 (1.39)
Diluted earnings (loss) per share........................ (0.27) 0.00 0.29 (1.39)
FISCAL YEAR ENDED MARCH 29, 1998:
Net sales................................................ $52,644 $86,334 $103,037 $77,223
Gross profit............................................. 10,565 20,856 24,698 14,970
Net earnings (loss)...................................... (194) 3,440 4,481 79
Basic earnings (loss) per share.......................... (0.02) 0.43 0.55 0.01
Diluted earnings (loss) per share........................ (0.02) 0.41 0.52 0.01
</TABLE>
During the fourth quarter of the fiscal year ended March 29, 1998, net
earnings, basic earnings per share and diluted earnings per share were increased
by $335, $0.04 and $0.04, respectively, as a result of the final adjustment of
reserves recorded in the prior fiscal year for a product recall and the closing
of two of its operating subsidiaries.
Net earnings, basic earnings per share and diluted earnings per share for
the fourth quarter of the fiscal year ended March 28, 1999, were reduced by
$6,367, $0.74 and $0.74, respectively, as a result of the sale of a subsidiary
and the write-down of certain inventories. In addition, during the fourth
quarter of the fiscal year ended March 28, 1999, net earnings, basic earnings
per share and diluted earnings per share were reduced by $1,671, $0.19 and
$0.19, respectively, as a result of certain adjustments to inventory accounts.
F-15
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of Crown Crafts, Inc.
------------------------------------------
Burgundy Interamericana S.A. de C.V.
Churchill Weavers
Crown Crafts de Mexico S.A. de C.V.
Crown Crafts Designer, Inc.
Crown Crafts Infant Products
Crown Crafts Home Furnishings, Inc.
Crown Crafts Home Furnishings of Illinois, Inc.
Crown Crafts International, Inc.
Crown Crafts Real Estate, Inc.
G.W. Stores, Inc.
Hamco, Inc.
Noel Joanna, Inc.
The Red Calliope and Associates, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Crown Crafts, Inc. on Form S-8 of our report dated June 4, 1999 (August 11, 1999
as to the last paragraph of Note 6), appearing in the Annual Report on Form 10-K
of Crown Crafts, Inc. and subsidiaries for the year ended March 28, 1999.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Crown Crafts, Inc., listed in
Item 14. This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
Deloitte & Touche LLP
Atlanta, Georgia
August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-28-1999
<PERIOD-START> MAR-30-1998
<PERIOD-END> MAR-28-1999
<CASH> 744
<SECURITIES> 0
<RECEIVABLES> 55,397
<ALLOWANCES> 0
<INVENTORY> 87,287
<CURRENT-ASSETS> 155,884
<PP&E> 139,979
<DEPRECIATION> 60,858
<TOTAL-ASSETS> 264,851
<CURRENT-LIABILITIES> 99,694
<BONDS> 72,857
0
0
<COMMON> 9,983
<OTHER-SE> 76,796
<TOTAL-LIABILITY-AND-EQUITY> 264,851
<SALES> 362,071
<TOTAL-REVENUES> 362,071
<CGS> 310,812
<TOTAL-COSTS> 310,812
<OTHER-EXPENSES> 56,480
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,945
<INCOME-PRETAX> (17,002)
<INCOME-TAX> (5,230)
<INCOME-CONTINUING> (11,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,772)
<EPS-BASIC> (1.37)
<EPS-DILUTED> (1.37)
</TABLE>
