<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED July 29, 1995
-------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
---------- ----------
Commission file number 0-11457
-------
CROWN BOOKS CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1227415
--------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
3300 75th Avenue, Landover, Maryland, 20785
-------------------------------------------
(Address of principal executive offices)
(Zip Code)
(301) 731-1200
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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
----- -----
At September 11, 1995, the registrant had 5,388,973 shares of Common Stock,
$.01 par value per share, outstanding.
Page 1 of 19 pages
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Certain consolidated financial statements included herein have been
prepared by Crown Books Corporation ("Crown Books"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although Crown
Books believes that the disclosures are adequate to make the information
presented not misleading.
It is suggested that these consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in Crown Books' report on Form 10-K for the fiscal year ended January
28, 1995.
2
<PAGE> 3
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------- --------------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 63,873,000 $ 72,179,000 $124,911,000 $137,821,000
Interest and
other income 648,000 511,000 1,427,000 1,043,000
------------ ------------ ------------ ------------
64,521,000 72,690,000 126,338,000 138,864,000
------------ ------------ ------------ ------------
Expenses:
Cost of sales,
store occupancy
and warehousing 51,677,000 59,861,000 101,669,000 113,792,000
Selling and
administrative 11,308,000 10,499,000 22,092,000 20,741,000
Depreciation and
amortization 1,420,000 1,313,000 2,767,000 2,580,000
Interest expense 302,000 76,000 585,000 151,000
Restructuring
charge (566,000) - (566,000) -
------------ ------------ ------------ ------------
64,141,000 71,749,000 126,547,000 137,264,000
------------ ------------ ------------ ------------
Income (loss)
before income
taxes 380,000 941,000 (209,000) 1,600,000
Income taxes
(benefit) 130,000 332,000 (75,000) 576,000
------------ ------------ ------------ ------------
Net (loss) income $ 250,000 $ 609,000 $ (134,000) $ 1,024,000
============ ============ ============ ============
Weighted average
common shares
and common share
equivalents
outstanding 5,389,000 5,389,000 5,389,000 5,389,000
============ ============ ============ ============
Net income (loss)
per share $ .05 $ .11 $ (.02) $ .19
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 29, January 28,
1995 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 4,666,000 $ 4,226,000
Short-term instruments 23,610,000 25,408,000
Marketable debt securities 24,492,000 35,106,000
Accounts receivable 2,007,000 3,832,000
Merchandise inventories 86,895,000 102,433,000
Prepaid income taxes 852,000 -
Deferred income tax benefit 11,566,000 10,957,000
Other current assets 945,000 369,000
------------ ------------
Total Current Assets 155,033,000 182,331,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 28,555,000 24,936,000
Leasehold improvements 18,726,000 18,063,000
Property under capital leases 1,406,000 1,406,000
------------ ------------
48,687,000 44,405,000
Accumulated Depreciation and Amortization 23,739,000 21,401,000
------------ ------------
24,948,000 23,004,000
------------ ------------
Deferred Income Tax Benefit 4,799,000 7,911,000
------------ ------------
Other Assets 133,000 133,000
------------ ------------
Total Assets $184,913,000 $213,379,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited) (Audited)
July 29, January 28,
1995 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 41,137,000 $ 55,695,000
Income taxes payable - 5,046,000
Accrued expenses -
Salary and benefits 3,275,000 4,895,000
Taxes other than income 4,215,000 3,981,000
Robert M. Haft judgment 13,761,000 13,342,000
Other 11,656,000 14,639,000
Current portion of reserve for closed
stores and restructuring 6,936,000 7,839,000
Current portion of obligations under
capital leases 8,000 24,000
Due to affiliate 642,000 92,000
------------ ------------
Total Current Liabilities 81,630,000 105,553,000
------------ ------------
Obligations Under Capital Leases 1,614,000 1,582,000
------------ ------------
Reserve for Closed Stores
and Restructuring 18,013,000 22,917,000
------------ ------------
Total Liabilities 101,257,000 130,052,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized,
5,612,611 shares issued as of July 29,
1995 and January 28, 1995, respectively 56,000 56,000
Note receivable, net of discount (109,000) (103,000)
Paid-in capital 43,809,000 43,809,000
Unrealized gain (loss) on short-term
investments 21,000 (448,000)
Retained earnings 43,063,000 43,197,000
Treasury stock, 223,638 shares of
common stock, at cost (3,184,000) (3,184,000)
------------ -----------
Total Stockholders' Equity 83,656,000 83,327,000
------------ -----------
Total Liabilities and
Stockholders' Equity $184,913,000 $213,379,000
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE> 6
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
--------------------------
July 29, July 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (134,000) $ 1,024,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 2,767,000 2,580,000
Provision for (reversal of) closed stores
and restructuring charges (3,676,000) (98,000)
Change in assets and liabilities:
Accounts receivable 2,150,000 3,101,000
Merchandise inventories 15,538,000 (10,209,000)
Deferred tax benefit (852,000) 134,000
Other current assets (576,000) 162,000
Accounts payable, trade (14,558,000) (14,259,000)
Accrued expenses (3,922,000) (7,999,000)
Due to affiliate 542,000 110,000
Income taxes payable (5,046,000) (1,095,000)
Deferred income taxes 2,199,000 83,000
Other assets - (59,000)
Reserve for closed stores (2,042,000) (697,000)
------------ ------------
Net cash used in operating
activities $ (7,610,000) $(27,222,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (4,794,000) $ (2,177,000)
Purchase of United States Treasury Notes - (79,054,000)
Disposition of United States Treasury
Notes 10,258,000 63,860,000
Sale of corporate note - 45,000
Purchases of United States Agency Note - (1,492,000)
Sale of United States Agency Note 150,000 -
Purchase of municipal securities - (4,909,000)
Maturities of municipal securities 450,000 -
Sale of municipal securities 204,000 5,930,000
Proceeds from reverse repurchase
agreements and unsettled trades of
municipal securities - 11,166,000
------------ ------------
Net cash provided by (used in)
investing activities $ 6,268,000 $ (6,631,000)
------------ ------------
</TABLE>
6
<PAGE> 7
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
----------------------------
July 29, July 30,
1995 1994
------------ -------------
<S> <C> <C>
Cash Flows from Financing Activities:
Principal payments under capital lease
obligations $ (16,000) $ (15,000)
------------ ------------
Net cash used in financing activities $ (16,000) $ (15,000)
------------ ------------
Net Decrease in Cash and Equivalents $ (1,358,000) $(33,868,000)
Cash and Equivalents at Beginning of
Year 29,634,000 65,744,000
------------ ------------
Cash and Equivalents at End of
Period $ 28,276,000 $ 31,876,000
============ ============
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 166,000 $ 151,000
Income taxes 3,748,000 1,435,000
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 29, 1995 AND JULY 30, 1994
(Unaudited)
(1) General:
The accompanying consolidated financial statements reflect the accounts of
Crown Books Corporation ("Crown Books") and its wholly-owned subsidiaries.
Crown Books and its wholly-owned subsidiaries are referred to collectively as
the "Company". All significant intercompany accounts and transactions have
been eliminated. The Company is engaged in the business of operating specialty
retail bookstores. The unaudited statements as of July 29, 1995 and July 30,
1994 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of July 29, 1995 and July 30, 1994 and the results of operations
and cash flows for the periods indicated.
The results of operations for the quarter ended July 29, 1995 are not
necessarily indicative of the results to be achieved for the full fiscal year.
Certain reclassifications have been made to the January 28, 1995 balance
sheet in order to conform to the current period presentation.
(2) Net Income Per Common Share and Common Share Equivalents:
Net income per common share has been computed using the weighted average
number of shares of common stock and common stock equivalents (certain stock
options) outstanding during the period. The difference between primary net
income per common share and fully diluted net income per common share is not
significant for the periods presented.
(3) Interim Inventory Estimates:
The Company's inventories are priced at lower of cost or market using the
first-in, first-out method or market.
The Company takes a physical count of its store and warehouse inventories
at least semi-annually. The Company uses a gross profit method to determine
inventories for the quarters when complete physical counts are not taken. A
physical inventory was taken for all stores and warehouses for the twenty-six
weeks ended July 29, 1995.
8
<PAGE> 9
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 29, 1995 AND JULY 30, 1994
(Unaudited)
(4) Short-term Instruments and Marketable Debt Securities:
The Company's short-term instruments included United States Treasury Bills
and money market funds. Marketable debt securities included United States
Treasury Notes, corporate notes and municipal securities.
Management determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale.
Securities available for sale are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of stockholders'
equity. At July 29, 1995, market value was $21,000 greater than cost (adjusted
for income taxes). At July 29, 1995, the Company had no investments that
qualified as trading or held to maturity.
The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized gains
and losses are included in interest and other income. The cost of securities
sold is based on the specific identification method.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, decreased by $1,358,000 to
$28,276,000 at July 29, 1995 from $29,634,000 at January 28, 1995. The
decrease in cash was primarily due to capital expenditures, income tax payments
and expense liabilities outstanding at January 28, 1995.
Operating activities used $7,610,000 of the Company's financial
resources for the twenty six weeks ended July 29, 1995, compared to $27,222,000
for the same period one year ago. The decrease is due primarily to lower
levels of merchandise inventory as a result of closing 45 stores since January
1, 1995. The primary use of funds during the twenty-six weeks ended July 29,
1995 was for payment on outstanding expense liabilities at January 28, 1995.
Investing activities provided $6,268,000 to the Company during the
twenty-six weeks ended July 29, 1995. Sales of United States Treasury Notes
were partially offset by capital expenditures for computer systems upgrades.
Financing activities used $16,000 of the Company's funds during the
twenty-six weeks ended July 29, 1995 for payments under capital lease
obligations.
The Company anticipates that funds necessary to fund net capital
expenditures for new store openings and remodelings, meet capital lease
obligations, purchase inventory for new and existing stores and meet current
and long-term liabilities will come from operations and current assets. The
Company anticipates closing approximately 67 classic Crown Books stores and
four Super Crown Books stores during the next 3-15 months and has plans to open
approximately 28 Super Crown Books stores. The Company anticipates that costs
incurred in opening a new Super Crown Books store will be approximately
$1,100,000, including inventory, store fixtures, leasehold improvements and
certain other costs. At July 29, 1995, the Company had signed leases for
eleven new store locations and four signed amendments to existing leases for
expansion to Super Crown Books stores.
During the past three fiscal years, the Company has recorded charges in
connection with store closings and restructurings. During the year ended
January 30, 1993, the Company recorded a restructuring charge of $6,600,000 for
anticipated costs associated with a restructuring plan to close, relocate,
expand and convert approximately 50 Classic Crown Books stores to a Super Crown
Books format. During the twenty-six weeks ended July 29, 1995, the Company
charged approximately $755,000 against this reserve in connection with the
closing, relocation, expansion or conversion of approximately 40 stores. These
charges consisted primarily of unrecoverable lease costs
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources, Continued
(including buyouts of remaining lease terms) and the remaining book value of
leasehold improvements and store fixtures for stores that have closed.
In the year ended January 29, 1994, the Company determined that seven
of the smaller Super Crown Books stores (typically 6,000 - 10,000 square feet)
opened in prior years were no longer competitive in the current market
environment and in light of the industry's movement to larger stores.
Accordingly, the Company recorded an additional restructuring charge of
$6,200,000 in the year ended January 29, 1994, representing the anticipated
costs (unrecoverable lease costs and the remaining book value of leasehold
improvements and store fixtures subsequent to management's estimate of the
stores' closing dates) associated with closing, relocating and converting these
stores to the new, larger prototype. At July 29, 1995, the Company had not
charged any costs in connection with this reserve. However, the Company has
concluded that one store originally scheduled for closure will no longer be
closed and has reversed approximately $566,000 of the restructuring reserve.
The Company presently expects to complete the restructuring related to these
six stores during the next 18 months.
The activity in restructuring reserve during the twenty-six weeks ending
July 29, 1995 is summarized as follows:
<TABLE>
<S> <C>
Restructuring Reserve as of January 28, 1995 $10,515,000
Less: Costs charged against reserve (755,000)
Reversal of reserve for store
not to be closed (566,000)
-----------
Restructuring reserve as of July 29, 1995 $ 9,194,000
===========
</TABLE>
A comprehensive review of the Company was begun by its new Chief
Operating Officer and interim Chief Financial Officer shortly after their
appointments in October of 1994. That review, which continued into February of
1995, identified opportunities to improve the Company's profitability,
organization, staffing, computer systems, and operating controls. The initial
review found that the Company still had a majority of its stores in the
original Classic Crown Books stores format and concluded that many of these
Classic Crown Books stores were not generating, and were not expected to
generate, a return on investment sufficient to justify their continued
operation and that the Company's competitors had moved to a much larger format.
The Company determined to act aggressively to implement the larger Super Crown
format begun as part of its earlier restructuring and close approximately 100
of these small and under-performing stores over the succeeding 3-15 months.
As a result, the Company recorded a closed store reserve of $18.9 million for
the costs to be incurred in these closings in
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources, Continued
fiscal 1995.
During the fourth quarter of fiscal 1995 an additional 54 stores were
targeted for closure as a result of the continuing analysis of store
profitability and market presence. Additional reserves for store closings were
not deemed necessary as the remaining reserves adequately provide for the
Company's obligations for the currently identified stores to be closed due to
revisions to the planned closing dates for certain stores.
During the twenty-six weeks ended July 29, 1995, the Company charged
certain costs for closed stores relating to unrecoverable lease costs and
leasehold improvements against the closed store reserve. The Company reversed
approximately $2,000,000 of the reserve for a store that will no longer be
closed in Houston, Texas, pursuant to a Board of Directors August 10, 1995
decision to remain in the Houston market and due to improving operating
performance of that store. An additional $1,100,000 of the reserve was
reversed for costs relating to other stores that were closed under negotiated
lease settlement terms that were more favorable than originally anticipated and
changes in planned closing dates for other stores. The reversal of the closed
store reserve has been recorded as a reduction of cost of sales, store
occupancy and warehousing in the accompanying consolidated statement of income.
The activity in the closed store reserve during the twenty-six weeks
ending July 29, 1995 is summarized as follows:
<TABLE>
<S> <C>
Closed store reserve as of January 28, 1995 $20,241,000
Less: Cost charged against the reserve (1,376,000)
Reversal of reserve for closed stores (3,110,000)
-----------
Closed store reserve as of July 29, 1995 $15,755,000
===========
</TABLE>
The Company will continue to evaluate the performance and future
viability of its remaining stores and may close additional stores in the
future. No reserves for these stores have been recorded. The closings of
these small and underperforming stores may, where appropriate, be coordinated
with the opening of Super Crown Books stores in those markets where the Company
plans to maintain or expand its presence. A commitment has been made to
accelerate the opening of stores in the Super Crown Books format.
Management plans the opening of 28 Super Crown Books stores varying in
size from 12,000 to 18,000 square feet over the next 6-12 months. These stores
will total approximately 420,000 square feet of new space.
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources, Continued
The review discussed above also identified the need for changes in
officers and key employees to address the other opportunities identified for
improving the Company's performance. In this regard, the Company has recruited
and hired senior management to address particular issues identified, including
a senior management information systems specialist; a senior loss prevention
specialist; a senior human resource specialist; and two senior regional
operations managers. Recruiting of other key personnel is underway including:
a permanent chief financial officer; a senior merchandiser; a senior operations
manager; additional management information specialists; and experienced
district and sales managers at several levels. Coupled with this recruiting
effort, the Company has also begun replacing certain district and regional
managers.
Finally, as a result of the review discussed above, an increased focus
on enhancing store profitability through efforts to re-engineer operating
processes, procedures and further improve information system capabilities was
initiated. The Company believes that opportunities exist to enhance store
operating performance through the use of updated methodologies and technology.
The Company anticipates that the efforts relating to improved personnel
in strategic areas and local store management will continue and will have a
positive impact on the Company's results of operations in the future.
The Company believes that its current liquid assets are sufficient to
fund its program of store closings, restructuring and expansion. Super Crown
Books stores have generated increased sales at converted locations as well as
increased gross margins as a result of the change in product mix. The Company
believes that by leasing large stores it can obtain more favorable rates and
that as the stores mature, operating expense as a percentage of sales, will
decrease.
The liquid assets maintained by the Company are intended to fund the
expansion of the Company's retail business through the opening of stores in new
markets, converting Classic Crown Books stores to Super Crown Books stores and
the opening of additional stores in existing markets, and to fund other
corporate activities.
The Company's Board of Directors has authorized the repurchase of up to
500,000 shares of its outstanding common stock. The Company has repurchased in
open market transactions 223,638 shares of its common stock as of July 29,
1995. The last repurchase of such shares was in April 1990. The Company may
purchase additional shares in the future if market conditions are favorable.
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Sales of $124,911,000 for the twenty-six weeks ended July 29, 1995
decreased by $12,910,000 or 9.4% over the same period one year ago while sales
of $63,873,000 for the thirteen weeks ended July 29, 1995 decreased by
$8,306,000 or 11.5% over the same period one year ago. The decreases were
primarily the result of closing 45 stores since January 1, 1995. Comparable
sales (sales for stores open for fifteen months) decreased 4.5% and 5.4% during
the twenty-six weeks and thirteen week periods. Sales for Super Crown Books
stores represented 62.7% and 52.8% of total sales for the twenty-six weeks
ended July 29, 1995 and July 30, 1994, respectively and 63.4% and 54.0% of
total sales for the thirteen weeks ended July 29, 1995 and July 30, 1994,
respectively. Super Crown Books stores sales of $78,363,000 and $40,500,000
for twenty-six weeks and thirteen weeks ended July 29, 1995 increased 7.7% and
3.8% over the prior year and sales for comparable Super Crown Books stores
decreased 2.6% and 3.1%. Classic Crown Books stores' sales of $46,548,000 and
$23,373,000 for the twenty-six weeks and thirteen weeks ended July 29, 1995
decreased 28.4% and 28.5% from the prior year and sales for comparable classic
Crown Books stores decreased 7.1% and 8.7% during the twenty-six and thirteen
weeks ended July 29, 1995.
During the twenty-six weeks ended July 29, 1995, the Company closed eight
classic Crown Books stores. At July 29, 1995, the Company had 188 stores
including 70 Super Crown Books stores. Subsequent to July 29, 1995, the
Company closed eight additional classic stores and one Super Crown Books store
while opening four Super Crown Books stores.
Interest and other income increased by $384,000 and $137,000 during the
twenty-six and thirteen weeks ended July 29, 1995 when compared to the same
periods one year ago. The increases were primarily due to higher interest
rates on the Company's short-term investments.
Cost of sales, store occupancy and warehousing as a percentage of sales
were 81.4% and 80.9% for the twenty-six weeks and thirteen weeks ended July 29,
1995 compared to 82.6% and 82.9% for the same periods last year. The decreases
were primarily due to an increase in store margins as a result of a favorable
change in sales mix and improved controls over store shrink and purchasing.
The decreases were partially offset by increased store occupancy costs.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations, (Continued)
Selling and administrative expenses as a percentage of sales were 17.7%
for both the twenty-six weeks and thirteen weeks ended July 29, 1995 compared
to 15.0% and 14.5% for the same period last year. The increases were due
primarily to increased payroll costs, costs associated with the executive
committee and costs incurred to identify and improve the Company's market
share.
Depreciation expense increased $187,000 for the twenty-six weeks ended July
29, 1995 compared to the same period one year ago. The increase was primarily
due to increased fixed assets for new Super Crown stores, an upgrade to the
point-of-sale register systems and additional computer hardware at the
distribution centers.
Interest expense increased by $434,000 due to interest accrued for the
Robert M. Haft judgement.
The Company recorded a tax benefit of $75,000 for the twenty-six weeks
ended July 29, 1995, as compared to income tax expense of $576,000 for the same
period one year ago. The Company recorded a $2,500,000, valuation allowance in
fiscal year 1995 due to uncertainties relating to the timing of the reversal of
certain temporary tax differences. In management's opinion no additional
valuation allowance is necessary at this time.
The Company is required to adopt the Statement of Financial Accounting
Standards No. 114, ("SFAS No. 114") Accounting by Creditors for Impairment of
a Loan. Implementation of the standard is not expected to have a significant
impact on the financial statements.
The Company is also required to adopt SFAS No. 121, Accounting for Long
Lived Assets, no later than its fiscal year ending January 25, 1997. The
Company has not determined the impact of this recently issued accounting
standard on the Company's consolidated financial statements.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings pending against Crown Books
other than such proceedings described in its Report on Form 10-K for the year
ended January 29, 1995 (the "Annual Report") and as described below.
Ronald S. Haft Stock Options
As discussed in the Annual Report, on September 12, 1994, Ronald S. Haft
filed a lawsuit (Ronald S. Haft v. Dart Group Corporation, Del. Ch., C.A. No.
13736) (the "Options Lawsuit") against Dart Group Corporation ("Dart"), which
owns 51.4% of Crown Books' outstanding common stock, in the Delaware Court of
Chancery for New Castle County seeking a court order that Dart issue 197,048
shares of Class B Common Stock to him and grant him a loan of $17,665,353.20 to
be used as part of the payment for such shares. Because of active settlement
negotiations between the parties in the Options Lawsuit, trial has been
rescheduled for February, 12, 1996.
Herbert H. Haft's Proxy
In connection with Herbert H. Haft's sale of 172,730 shares of Class B
Common Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale Agreement"),
Ronald S. Haft purportedly granted Herbert H. Haft an irrevocable proxy (the
"Proxy") to vote these shares of stock until Herbert H. Haft's death or
incapacitation. On June 30, 1995, Ronald S. Haft sent a letter to Herbert H.
Haft purportedly revoking this proxy.
On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H.
Haft, and, nominally, Dart in the Delaware Court of Chancery for New Castle
County for Herbert H. Haft's alleged breach of contract and breach of fiduciary
duties to Ronald S. Haft and to Dart in connection with the Proxy (Ronald S.
Haft v. Herbert H. Haft, et al., C.A. No. 14425). In this action, Ronald S.
Haft seeks a declaration that the Proxy is revocable or will be revocable under
certain conditions, as well as costs and attorneys' fees. Ronald S. Haft also
requests that the Court require Dart to refuse to recognize the validity of the
Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and Counterclaim
denying liability and requesting rescission of the Stock Sale Agreement because
of Ronald S. Haft's alleged breach of contract and other grounds. Dart has not
yet filed an answer in this action. Both Ronald S. Haft and Herbert H. Haft
have moved for summary judgment in this lawsuit. Herbert Haft has also moved
to have this action consolidated with the Options Lawsuit under certain
conditions.
16
<PAGE> 17
PART II - OTHER INFORMATION (Continued)
Item 4. Submission of Matters to a Vote of Security Holders
Dart, as a holder of over fifty percent of the outstanding voting
capital stock of Crown Books, took action on June 30, 1995, to re-elect all
five incumbent Directors to Crown Books' Board of Directors by less than
unanimous written consent in lieu of taking such action at an annual meeting of
stockholders. These Directors are as follows:
Herbert H. Haft
Ronald S. Haft
Larry G. Schafran
Bonita A. Wilson
Douglas M. Bregman
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------ --------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
One Current Report on Form 8-K was filed by Crown Books
Corporation during the quarter ended July 29, 1995.
1. Crown Books Corporation filed a Current Report on Form
8-K on July 13, 1995, reporting certain correspondence
between Ronald S. Haft and Herbert H. Haft.
17
<PAGE> 18
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 BOOKS CORPORATION
Date Sept. 12, 1995 By E. STEVE STEVENS
---------------------- -----------------------------
E. STEVE STEVENS
Senior Executive Vice President
and Chief Operating Officer
Date Sept. 12, 1995 ROBERT A. MARMON
---------------------- -----------------------------
ROBERT A. MARMON
Principal Financial Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-29-1995
<CASH> 28,276
<SECURITIES> 24,492
<RECEIVABLES> 2,007
<ALLOWANCES> 0
<INVENTORY> 86,895
<CURRENT-ASSETS> 155,033
<PP&E> 48,687
<DEPRECIATION> 23,739
<TOTAL-ASSETS> 184,913
<CURRENT-LIABILITIES> 81,630
<BONDS> 1,614
<COMMON> 56
0
0
<OTHER-SE> 83,600
<TOTAL-LIABILITY-AND-EQUITY> 184,913
<SALES> 124,911
<TOTAL-REVENUES> 126,338
<CGS> 101,669
<TOTAL-COSTS> 101,669
<OTHER-EXPENSES> 24,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 585
<INCOME-PRETAX> (209)
<INCOME-TAX> (75)
<INCOME-CONTINUING> (134)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (134)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
