<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____to_____
Commission File No. 1-7604
CROWN CRAFTS, INC
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0678148
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 RiverEdge Parkway, Suite 200, Atlanta, Georgia 30328
---------------------------------------------------------
(Address of principal executive offices)
(770) 644-6400
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of common Stock, $1.00 par value, of the
Registrant outstanding as of February 11, 2000 was 8,608,843.
------------------------
1
<PAGE> 2
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
DECEMBER 26, 1999 (UNAUDITED) AND MARCH 28, 1999
<TABLE>
<CAPTION>
December 26, March 28,
(in thousands) 1999 1999
- -------------- ------------ ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,909 $ 744
Accounts receivable, net:
Due from factor 27,890 48,042
Other 7,045 7,355
Inventories 87,785 87,287
Deferred income taxes 776 776
Income tax recoverable 4,070 4,422
Other current assets 8,004 7,258
-------- --------
Total Current Assets 137,479 155,884
-------- --------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 45,562 45,190
Machinery and equipment 98,375 92,689
Furniture and fixtures 2,120 2,100
-------- --------
146,057 139,979
Less accumulated depreciation 69,988 60,858
-------- --------
Property, Plant and Equipment - net 76,069 79,121
-------- --------
OTHER ASSETS:
Goodwill 24,786 25,558
-------- --------
Other 4,211 4,288
-------- --------
Total Other Assets 28,997 29,846
-------- --------
TOTAL ASSETS $242,545 $264,851
======== ========
</TABLE>
See notes to interim consolidated financial statements.
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
DECEMBER 26, 1999 (UNAUDITED) AND MARCH 28, 1999
<TABLE>
<CAPTION>
December 26, March 28,
(in thousands, except par value per share) 1999 1999
- ------------------------------------------ ------------ ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 52,736 $ 56,150
Accounts payable 18,476 25,339
Income taxes payable 22 8
Accrued wages and benefits 5,739 5,017
Accrued royalties 3,067 833
Other accrued liabilities 5,127 5,104
Dividends payable 258
Current maturities of long-term debt 37,243 7,243
--------- ---------
Total Current Liabilities 122,668 99,694
--------- ---------
NON-CURRENT LIABILITIES:
Long-term debt 35,714 72,857
Deferred income taxes 4,776 4,776
Other 745 745
--------- ---------
Total Non-Current Liabilities 41,235 78,378
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
50,000,000 shares authorized; 9,983,305 and
9,983,305 shares issued 9,983 9,983
Additional paid-in capital 46,096 46,096
Retained earnings 42,872 51,009
Less: 1,374,462 and 1,374,462 shares of common
stock held in treasury (20,309) (20,309)
--------- ---------
Total Shareholders' Equity 78,642 86,779
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 242,545 $ 264,851
========= =========
</TABLE>
See notes to interim consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
DECEMBER 26, 1999 AND DECEMBER 27, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
(dollars in thousands, except per share data) 1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 91,001 $ 120,394 $ 240,950 $ 275,003
COST OF PRODUCTS SOLD 76,409 97,575 203,748 225,715
----------- ----------- ----------- -----------
GROSS PROFIT 14,592 22,819 37,202 49,288
MARKETING AND
ADMINISTRATIVE EXPENSES 13,808 15,586 39,125 41,745
----------- ----------- ----------- -----------
EARNINGS (LOSS) FROM OPERATIONS 784 7,233 (1,923) 7,543
OTHER INCOME (EXPENSE):
Interest expense (3,209) (2,784) (9,640) (7,178)
Other - net 16 118 211 215
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES (2,409) 4,567 (11,352) 580
INCOME TAX PROVISIONS (CREDITS) (742) 2,055 (4,041) 376
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ (1,667) $ 2,512 $ (7,311) $ 204
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENT $ $ (21) $ (51) $ (23)
----------- ----------- ----------- -----------
COMPREHENSIVE (LOSS) INCOME $ (1,667) $ 2,491 $ (7,362) $ 181
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE - BASIC $ (0.19) $ 0.29 $ (0.86) $ 0.02
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.19) $ 0.29 $ (0.86) $ 0.02
AVERAGE SHARES OUTSTANDING
BASIC 8,608,843 8,608,843 8,608,843 8,587,232
=========== =========== =========== ===========
DILUTED 8,608,843 8,608,843 8,608,843 8,705,943
=========== =========== =========== ===========
DIVIDENDS DECLARED PER
SHARE $ 0.03 $ 0.03 $ 0.09 $ 0.09
=========== =========== =========== ===========
</TABLE>
See notes to interim consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED DECEMBER 26, 1999 AND
DECEMBER 27, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Dec. 26, Dec. 27,
(in thousands) 1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings (loss) $ (7,311) $ 204
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities;
Depreciation and amortization of property, plant
and equipment 9,413 8,453
Amortization of goodwill 772 916
Loss (gain) on sale of property, plant and equipment (169) 29
Changes in assets and liabilities:
Accounts receivable 12,124 7,958
Inventories (498) (13,702)
Other current assets (746) (2,869)
Other assets 77 1,038
Accounts payable (6,863) 954
Income taxes payable 14 (71)
Accrued liabilities 2,979 1,037
-------- --------
Net Cash Provided by Operating Activities 9,792 3,947
-------- --------
INVESTING ACTIVITIES:
Capital expenditures (7,128) (14,113)
Acquisitions, net of cash acquired (8,949)
Proceeds from sale of property, plant
and equipment 936 39
Other (52)
-------- --------
Net Cash (Used for) Investing Activities (6,244) (23,023)
-------- --------
FINANCING ACTIVITIES:
Increase (decrease) in notes payable (3,414) 17,725
Increase in advances from factor 8,690
Payment of long-term debt (7,143)
Exercise of stock options 2,162
Cash dividends (516) (774)
-------- --------
Net Cash (Used for) Provided by Financing Activities (2,383) 19,113
-------- --------
NET INCREASE IN CASH $ 1,165 $ 37
CASH, beginning of period 744 809
-------- --------
CASH, end of period $ 1,909 $ 846
======== ========
Supplemental Cash Flow Information:
Income taxes paid (refunded) $ (4,395) $ 123
======== ========
Interest paid net of amounts capitalized $ 9,049 $ 6,867
======== ========
</TABLE>
See notes to interim consolidated financial statements.
5
<PAGE> 6
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
applicable to interim financial information and the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, such interim consolidated
financial statements contain all adjustments necessary to present
fairly the Company's financial position as of December 26, 1999 and the
results of its operations and comprehensive (loss) income and its cash
flows for the periods ended December 26, 1999 and December 27, 1998.
Such adjustments include normal recurring accruals and a pro rata
portion of certain estimated annual expenses. Operating results for the
nine-month period ended December 26, 1999, are not necessarily
indicative of the results that may be expected for the year ending
April 2, 2000. For further information, refer to the consolidated
financial statements and footnotes thereto included in the annual
report of Form 10-K for the year ended March 28, 1999 of Crown Crafts,
Inc. (the "Company").
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.
Recently Issued Accounting Standards: In 1998, the Financial Accounting
Standards Board (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 all fiscal quarters of fiscal
years beginning after June 15, 2000. The effect on the financial
statements upon adoption of SFAS No. 133 has not been determined.
2. 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.
Financial information attributable to the Company's business segments
for the quarters and nine months ended December 26, 1999 and December
27, 1998, was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
Revenues: 1999 1998 1999 1998
- ------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Adult home furnishing
and juvenile products $69,462 $ 99,515 $170,414 $208,246
Infant products 21,539 20,879 70,536 66,757
------- -------- -------- --------
Total $91,001 $120,394 $240,950 $275,003
======= ======== ======== ========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
Operating income (loss): 1999 1998 1999 1998
- ------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Adult home furnishing
and juvenile products $499 $6,604 $(6,863) $3,293
Infant products 285 629 4,940 4,250
---- ------ ------- ------
Total $784 $7,233 $(1,923) $7,543
==== ====== ======= ======
</TABLE>
Net sales by individual product groups within these business segments were as
follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Dec. 26, Dec. 27, Dec. 26, Dec. 27,
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Bedroom products $37,756 $ 41,991 $106,945 $104,128
Throws and decorative
home accessories 27,189 46,131 53,472 81,209
Infant and juvenile
products 25,986 31,962 80,341 88,950
Other 70 310 192 716
------- -------- -------- --------
Total net sales $91,001 $120,394 $240,950 $275,003
======= ======== ======== ========
</TABLE>
3. Interest costs of $69,000 and $121,000, respectively, were capitalized
during the nine months ended December 26, 1999 and December 27, 1998.
4. Major classes of inventory were as follows (in thousands):
<TABLE>
<CAPTION>
December 26, March 28,
1999 1999
------------ ---------
<S> <C> <C>
Raw materials $27,637 $34,300
Work in process 6,607 4,738
Finished goods 53,541 48,249
------- -------
$87,785 $87,287
======= =======
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ERP SOFTWARE
At the beginning of the second fiscal quarter, the Company's financial reporting
system and its woven products division converted from its legacy computer
systems to the new enterprise resource planning ("ERP") software package that
had been in preparation for 13 months. The conversion encountered more
difficulty than had been anticipated. The most significant problems have been an
impaired ability to ship and bill orders on a timely basis, especially in the
pick and pack operations that support the Goodwin Weavers division and certain
of the Crown Crafts operations. The Company has identified a number of
operational and system issues contributing to the problems and implemented a
plan to rectify them. Among the actions taken were some system modifications,
refinements of business procedures, clean-up of corrupted and inaccurate data, a
complete physical inventory in affected facilities, and a controlled restart of
operations on January 24, 2000. Following these actions, the system is
performing much better than it had in the past, but several more weeks of
operating experience will be required to assess the performance fully.
7
<PAGE> 8
YEAR 2000 ISSUE
The Company's computer applications and systems entered the year 2000 without
any significant difficulties. In addition, the Company did not experience any
difficulties or disruptions to its operations in dealing with third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 26, 1999 COMPARED TO THE THREE MONTHS ENDED DECEMBER
27, 1998
Net sales declined $29.4 million, or 24.4%, to $91 million in the current year
quarter compared to $120.4 million in the third quarter last fiscal year. The
largest decline, from $46.1 million to $27.2 million (41.1%), was in the throws
and decorative home accessories products group. There were four factors
affecting revenues for this product group in the quarter: First, in March, 1999,
the Company sold Textile, Inc., a weaving facility in Ronda, North Carolina, as
a planned reduction in capacity for this group; second, in the current fiscal
year, manufacturing capacity was shifted to woven bedspreads which are sold by
the bedroom products group; the third factor in the decline in sales of throws
and decorative home accessories products in the quarter was related to
implementation of the ERP software system discussed above; and, lastly, the
third quarter in the prior fiscal year included approximately $14 million in
sales of imported fleece products which the Company did not handle directly this
year.
In the infant and juvenile products group, sales in the current quarter declined
by 18.7%, or $6 million, to $26 million from $32 million in the prior year
quarter. The sales decline was all related to a repositioning of the Pillow
Buddies product line to the direct shipment of licensed products and is
transitional in nature. This resulted in approximately $7 million of lower
revenues compared to the prior year quarter. Accordingly, revenues of infant
products in this group were up by about $700,000, or by 3.2%.
Sales of bedroom products decreased by $4.2 million, or 10.1%, in the current
year quarter to $37.8 million from $42 million in last year's third quarter. The
decline in sales of bedroom products resulted from a decrease in sales of the
Company's in-house studio line of products and final shipments in the prior year
quarter of the discontinued mass merchant line of products. These decreases were
partially off-set by an increase in the Calvin Klein Home product line of
approximately $3.4 million and increased volume of woven bedcoverings.
For the third quarter, gross profit as a percentage of net sales decreased to
16% compared to 19% in the prior year quarter. The decline in gross margin, the
decline in revenues, and an $823,000 increase in customer deductions from
payments, led to a decrease in gross profits of approximately $8.2 million. This
decline was partly the result of higher expenses and the lower absorption of
fixed overhead costs in the Company's Georgia operations because of lower volume
related to the ERP project and because of capacity issues at the Company's
Roxboro, North Carolina manufacturing facilities due to the loss of a mass
merchant bedding program and slow progress in the transition of the Calvin Klein
Home product line from outside manufacturers into this plant. Also affecting
margins in the quarter was the sale of close-out and irregular inventory of
about $3 million at a loss of about $1.4 million.
Marketing and administrative expenses decreased by approximately $1.8 million in
the quarter compared to the third quarter of last fiscal year, but were15.2% on
a lower level of net sales, compared to 12.9% of net sales in the prior year.
The principal decline in expenses ($1.1 million) occurred in marketing and
retail store expenses due to the lower sales volume and because of fewer retail
stores than in the prior year quarter.
Interest expense increased by $425,000 versus the prior year quarter because of
higher effective interest rates in the Company's loan agreements compared to
rates in the prior agreements.
The effective income tax rate during the quarter was affected by results of the
Company's Mexican manufacturing facility and by higher effective state income
tax rates. In the prior year, the tax rate was affected by non-deductible
expenses associated with acquisitions.
8
<PAGE> 9
NINE MONTHS ENDED DECEMBER 26, 1999 COMPARED TO THE NINE MONTHS ENDED DECEMBER
27, 1998
For the nine months ended December 26, 1999, net sales compared to the prior
year period declined by $34.1 million, or 12.4%, to $240.9 million in the
current year compared to $275 million for the first three quarters last fiscal
year. Sales of bedroom products increased 2.7% from $104.1 million to $106.9
million. The sales increase resulted from the addition of the Calvin Klein Home
line of products and higher volume in woven bedcoverings. Net sales of throws
and decorative home accessories for the nine months declined by 34.2% at $53.5
million compared to $81.2 million in the prior fiscal year. The factors
affecting sales in this product group are the same as those discussed for the
three months ended December 26, 1999. In the infant and juvenile product group,
net sales decreased by 9.7% from $89 million to $80.3 million. The lower level
of sales was solely because of the repositioning of the Pillow Buddies line of
products discussed above.
In the first nine months of the current fiscal year, gross profit decreased to
$37.2 million compared to $49.3 million for the nine months ended December 27,
1998 and the gross margin declined from 17.9% in the prior year to 15.4%. The
factors affecting gross profits and gross margin were four-fold: an increase of
$3.8 million in deductions from and reserves for customer payments; the sale of
close-out and discontinued inventory of approximately $13 million at loss of $5
million; lower volume to absorb fixed costs in the woven division because of the
ERP project; and underabsorption of overhead costs in the bedding division as
the Calvin Klein Home products are transitioned into the North Carolina
manufacturing plant.
In the nine month period ended December 26, 1999, marketing and administrative
expenses were lower by $2.6 million compared to the prior year period and were
16.2% of net sales in the current period compared to 15.2% last fiscal year. The
decline was due to lower selling expenses on the reduced volume, lower retail
expenses because of a reduction in the number of company-operated outlet stores
and reduced goodwill amortization because of the sale of Textile, Inc.
Interest expense increased by $2.5 million in the first nine months of the
current fiscal year because of higher average borrowings and because of higher
effective interest rates.
The effective income tax rate for the nine months ended December 26, 1999 at
35.6% was affected by operations at the Company's Mexican manufacturing
subsidiary, but was at more normal levels than in the prior fiscal period where
the rate was affected by a high percentage of non-deductible expenses related to
acquisitions and state income taxes.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1999, the Company had committed credit facilities with two
commercial banks totaling $85 million at interest rates equal to each bank's
base plus 1% to 1 1/2% or the London Interbank Offered Rate (LIBOR) plus 2.75%.
The amounts owed, the interest rate and the maturity of these facilities at
December 26, 1999 is summarized in the following table (in thousands):
<TABLE>
<CAPTION>
Amounts Interest
Owed Rate Maturity
- ------- ---------- --------
<S> <C> <C>
$13,736 9.50%-9.75% On Demand
7,000 9.50%-9.75% January 15, 2000
14,000 8.95% On Demand
3,000 8.86% January 15, 2000
15,000 8.85% March 31, 2000
- -------
52,736
30,000 8.85%-8.86% April 3, 2000
- -------
$82,736
=======
</TABLE>
In addition, approximately $2.1 million of letters of credit were outstanding
under these facilities at December 26, 1999.
9
<PAGE> 10
In the quarter ended December 26, 1999, one of the commercial banks converted
its $30 million facility due January 15, 2000 to an uncommitted line of credit,
under provisions of the loan agreement.
The Company's notes in the amount of $42,856,143 are placed with an insurance
company, carry an interest rate of 10.42% and are due in annual installments of
$7,143,857 through October 2005. The installment due on October 12, 1999 was
paid by the Company.
To support the bank facilities and the insurance company notes, the Company has
granted a security interest in substantially all of its assets. These assets
also support a borrowing base which limits the amounts the Company may borrow
under the agreements with its lenders and advances it may take from its factor.
Under the borrowing base, the Company had available $11.1 million at December
26, 1999.
In addition, the agreements with the banks and insurance company contain
covenants requiring the Company to maintain minimum levels of shareholders'
equity and certain financial ratios, and restrict the amounts the Company may
expend on acquisitions and purchases of treasury stock. The agreement with the
insurance company also requires the Company to maintain a ratio of total debt to
total capitalization. The Company was not in compliance with certain provisions
of its loan agreements at December 26, 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 collect
receivable balances. The factor remits payments to the Company on the due dates
of the factored invoices. The factor assumes all responsibility for credit
losses on sales with 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 agreements with its lenders, described above, provide for the Company to
finance its seasonal working capital needs by taking advances against its
factored receivables of up to $30 million. At December 26, 1999, the Company had
taken such advances totaling $8,690,000 compared to no advances at December 27,
1998. The Company accounts for these advance payments on its balance sheet as a
reduction in Accounts Receivable - Due from Factor.
At December 26, 1999, total debt, including factor advances, increased by
approximately $11.6 million to $134.4 million from $122.8 million at December
27, 1998. The increase in borrowings was affected by the continuing operating
performance of the Company, partially off-set by a $14.6 million decline in
inventories compared to December 27, 1998. The decline in inventories resulted
from the Company's emphasis on the disposition of close-out and discontinued
merchandise, discussed above.
Subsequent to December 26, 1999, the Company presented a plan to its lenders to
reduce debt and return operations to profitability. In response to this plan,
the lenders agreed in principal to amend certain provisions of the Company's
loan agreements to correct the non-compliance issues, to extend certain matured
facilities to April 3, 2000, and to provide additional funding of $10 million.
As a condition to these agreements in principal, the Company has agreed to
discontinue dividends on its common stock. Although documentation for these
agreements is not yet fully completed, the Company believes that it will be
agreed to and executed in the near future.
The Company can, however, give no assurances in regards to the final
documentation mentioned above nor that certain lenders will extend the maturity
of their facilities beyond the April 3, 2000 date. If the Company is unable to
reach final agreement with its lenders or obtain extension of certain of its
agreements, the Company's ability to meet its obligations could be impaired.
FORWARD-LOOKING INFORMATION
This Form 10-Q 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
10
<PAGE> 11
from those anticipated. These risks include, among others, general economic
conditions, changing competition, the level and pricing of future orders from
the Company's customers, the Company's dependence upon third-party suppliers,
including some located in foreign countries with unstable political situations,
the Company's ability to successfully implement new information technologies,
the Company's ability to integrate its acquisitions and new licenses, and the
Company's ability to implement improvements in its acquired businesses.
ITEM 3 - 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
and advances from its factor, $82,736,000 and $8,690,000, respectively, of which
was outstanding at December 26, 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 December 26, 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 $4.7
million at December 26, 1999.
11
<PAGE> 12
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - 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 2 - Changes in Securities
None
Item 3 - Defaults Upon Senior Securities
At December 26, 1999, the Company was not in compliance with certain
provisions of its bank loan agreements and with its 10.42% notes. Each
of the lenders has agreed in principal to amend the affected provisions
of its respective agreement so that the Company would have been in
compliance at December 26, 1999 and prospectively based on the
Company's projections. Preliminary documentation for these amendments
has been received by the Company, but final versions have not yet been
executed.
Item 4 - Submission of Matters to Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
27 Financial Data Schedule (for SEC use only)
</TABLE>
There were no reports on Form 8-K during the quarter ended December 26, 1999.
12
<PAGE> 13
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
DECEMBER 26, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CRAFTS, INC.
Date: February 14, 2000 /s/ David S. Fraser
----------------- -----------------------------
DAVID S. FRASER
(Chief Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CROWN CRAFTS INCORPORATED FOR THE NINE MONTHS ENDED
DECEMBER 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-02-2000
<PERIOD-START> MAR-29-1999
<PERIOD-END> DEC-26-1999
<CASH> 1,909
<SECURITIES> 0
<RECEIVABLES> 34,935
<ALLOWANCES> 0
<INVENTORY> 87,785
<CURRENT-ASSETS> 137,479
<PP&E> 146,057
<DEPRECIATION> 69,988
<TOTAL-ASSETS> 242,545
<CURRENT-LIABILITIES> 122,668
<BONDS> 35,714
0
0
<COMMON> 9,983
<OTHER-SE> 68,659
<TOTAL-LIABILITY-AND-EQUITY> 242,545
<SALES> 240,950
<TOTAL-REVENUES> 240,950
<CGS> 203,748
<TOTAL-COSTS> 203,748
<OTHER-EXPENSES> 39,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,640
<INCOME-PRETAX> (11,352)
<INCOME-TAX> (4,041)
<INCOME-CONTINUING> (7,311)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,311)
<EPS-BASIC> (.85)
<EPS-DILUTED> (.85)
</TABLE>
