<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 May 4, 1996
/ / 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
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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 June 13, 1996, the registrant had 5,388,973 shares of Common Stock, $.01 par
value per share, outstanding.
Page 1 of 14 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 February
3, 1996.
2
<PAGE> 3
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-------------------------
May 4, April 29,
1996 1995
----------- -----------
<S> <C> <C>
Sales $62,492,000 $61,038,000
Interest and other income 430,000 779,000
----------- -----------
62,922,000 61,817,000
----------- -----------
Expenses:
Cost of sales, store occupancy and
warehousing 51,105,000 49,992,000
Selling and administrative 12,910,000 10,784,000
Depreciation and amortization 1,358,000 1,347,000
Interest expense 357,000 283,000
----------- -----------
65,730,000 62,406,000
----------- -----------
Loss before income taxes (2,808,000) (589,000)
Income taxes (benefit) (1,017,000) (205,000)
----------- -----------
Net loss $(1,791,000) $ (384,000)
=========== ===========
Weighted average common shares and
common share equivalents outstanding 5,389,000 5,389,000
=========== ===========
Net loss per share $ (.33) $ (.07)
=========== ===========
</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)
May 4, February 3,
1996 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 6,957,000 $ 5,691,000
Short-term instruments 15,553,000 25,074,000
Marketable debt securities 4,214,000 4,215,000
Accounts receivable 3,932,000 3,941,000
Merchandise inventories 112,596,000 102,192,000
Prepaid income taxes 1,759,000 1,471,000
Deferred income tax benefit 7,504,000 7,349,000
Other current assets 2,759,000 641,000
------------ ------------
Total Current Assets 155,274,000 150,574,000
------------ ------------
Property and Equipment, at cost:
Furniture, fixtures and equipment 31,022,000 29,873,000
Leasehold improvements 16,397,000 16,561,000
Property under capital leases 1,187,000 1,187,000
------------ ------------
48,606,000 47,621,000
Accumulated Depreciation and
Amortization 25,024,000 23,859,000
------------ ------------
23,582,000 23,762,000
------------ ------------
Deferred Income Taxes 6,958,000 6,353,000
------------ ------------
Other Assets 163,000 163,000
------------ ------------
Total Assets $185,977,000 $180,852,000
============ ============
</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)
May 4, February 3,
1996 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 46,576,000 $ 42,308,000
Accrued expenses -
Salary and benefits 4,015,000 3,658,000
Taxes other than income 3,677,000 2,299,000
Robert M. Haft judgement 14,469,000 14,233,000
Other 12,666,000 10,957,000
Current portion of reserve for
closed stores and restructuring 3,726,000 3,726,000
Due to affiliate 128,000 425,000
------------ ------------
Total Current Liabilities 85,257,000 77,606,000
------------ ------------
Obligations Under Capital Leases 1,648,000 1,636,000
Reserve for Closed Stores and
Restructuring 13,392,000 14,149,000
------------ ------------
Total Liabilities 100,297,000 93,391,000
------------ ------------
Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized,
5,612,611 issued 56,000 56,000
Note receivable, net of discount (117,000) (115,000)
Paid-in capital 43,809,000 43,809,000
Unrealized investment gains (losses) 6,000 (6,000)
Retained earnings 45,110,000 46,901,000
Treasury stock, 223,638 shares of
common stock, at cost (3,184,000) (3,184,000)
------------ ------------
Total Stockholders' Equity 85,680,000 87,461,000
------------ ------------
Total Liabilities and Stockholders' Equity $185,977,000 $180,852,000
============ ============
</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>
Thirteen Weeks Ended
--------------------------
May 4, April 29,
1996 1995
------------ -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (1,791,000) $ (384,000)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,358,000 1,347,000
Change in assets and liabilities:
Accounts receivable 16,000 341,000
Merchandise inventories (10,404,000) 5,201,000
Prepaid income taxes (288,000) (244,000)
Other current assets (2,118,000) (159,000)
Accounts payable, trade 4,268,000 (1,218,000)
Accrued expenses 3,690,000 (5,864,000)
Due to affiliate (312,000) 440,000
Income taxes payable - (5,046,000)
Deferred income taxes (754,000) 1,612,000
Reserve for closed stores (702,000) (1,095,000)
------------ ------------
Net cash used in
operating activities $ (7,037,000) $ (5,069,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures $ (1,218,000) $ (2,250,000)
Maturities of municipal securities - 200,000
------------ ------------
Net cash used in investing
activities $ (1,218,000) $ (2,050,000)
------------ ------------
Cash Flows from Financing Activities:
Principal payments under capital lease
obligations $ - $ (8,000)
------------ ------------
Net cash used in
financing activities $ - $ (8,000)
------------ ------------
Net Decrease in Cash and Equivalents $ (8,255,000) $ (7,127,000)
Cash and Equivalents at Beginning
of Year 30,765,000 29,634,000
------------ ------------
Cash and Equivalents at End
of Period $ 22,510,000 $ 22,507,000
============ ============
</TABLE>
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CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(Unaudited)
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
<TABLE>
<S> <C> <C>
Interest $ 106,000 $ 85,000
Income taxes - 3,613,000
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 AND April 29, 1995
(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 May 4, 1996 and April 29,
1995 reflect, in the opinion of management, all adjustments (normal and
recurring in nature) necessary to present fairly the consolidated financial
position as of May 4, 1996 and April 29, 1995 and the results of operations and
cash flows for the periods indicated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.
The results of operations for the quarter ended May 4, 1996 are not
necessarily indicative of the results to be achieved for the full fiscal year.
(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
annually. The Company uses a gross profit method to determine
8
<PAGE> 9
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 4, 1996 AND April 29, 1995
(Unaudited)
inventories for the quarters when complete physical counts are not taken. The
Company did not take a physical inventory for the thirteen weeks ended May 4,
1996.
(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 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 May 4, 1996, market value was $6,000 greater than cost (adjusted
for income taxes). At May 4, 1996, 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
Outlook
Except for historical information, the statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.
The Company believes that its superstore concept presents significant
growth opportunities and intends to open new Super Crown Books stores in
existing and possibly new markets. In the past, Super Crown Books stores have
generated higher sales at converted locations as well as higher gross margins
as a result of a change in product mix. The Company believes that as Super
Crown Books stores mature, operating expenses as a percentage of sales will
decrease.
The Company intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and close or relocate
under-performing stores. The Company closed seven Classic Crown Books stores
and one Super Crown Books store during the thirteen weeks ended May 4, 1996 and
anticipates closing approximately 30 additional Classic Crown Books stores and
one Super Crown Books stores during the remainder of fiscal 1997.
Liquidity and Capital Resources
Cash, including short-term instruments, is the Company's primary source of
liquidity. Cash, including short-term instruments, decreased by $8,255,000 to
$22,510,000 at May 4, 1996 from $30,765,000 at February 3, 1996. The decrease
was primarily due to payments for merchandise inventory, capital expenditures
and loss from operations.
Operating activities used $7,037,000 of the Company's cash resources for
the thirteen weeks ended May 4, 1996, compared to $5,069,000 for the same
period one year ago. The increase is due primarily to increased payments for
merchandise inventory and to a loss from operations.
The Company used $1,218,000 for investing activities during the thirteen
weeks ended May 4, 1996 for capital expenditures in new Super Crown Books
stores.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
In the past, the Company generally funded its requirements for working
capital and capital expenditures with net cash generated from operations and
existing cash resources. In fiscal 1997, the Company may need other sources of
liquidity. The Company expects to use existing cash to pay the Robert M. Haft
Judgment (see Part II Item 1 - Legal Proceedings) or settlement amount, as the
case may be. The Company expects that it will either obtain third party debt
financing or reduce planned store openings.
The Company's primary capital requirements relate to new store openings,
remodelings and investments in management information systems. The Company
believes that the costs incurred in opening a new store generally approximate
$1.1 million, including purchases of inventory and the costs of store fixtures
and leasehold improvements. During fiscal 1997, the Company expects to open
approximately 30 Super Crown Books stores and that capital expenditures would
approximate $8.5 million. As of May 4, 1996, the Company had entered into
lease agreements to open 15 new Super Crown Books stores and one amendment for
additional space in an existing store. In addition, the Company expects to
have cash expenditures related to stores that have been closed or will be
closed of approximately $4.0 million in fiscal 1997.
Results of Operations
During the thirteen weeks ended May 4, 1996, the Company opened three Super
Crown Books stores and closed seven classic Crown Books stores and one Super
Crown Books store. At May 4, 1996, the Company had 167 stores, including 86
Super Crown Books stores.
Sales of $62,492,000 for the thirteen weeks ended May 4, 1996 increased by
$1,454,000 or 2.4% compared to the thirteen weeks ended April 29, 1995.
Comparable sales (sales for stores open for thirteen months) increased 0.8%
during the thirteen weeks. Sales for Super Crown Books stores represented
73.4% and 62.0% of total sales for the thirteen weeks ended May 4, 1996 and
April 29, 1995, respectively. Super Crown Books stores sales of $45,884,000
increased 22.3% over the prior year and sales for all comparable Super Crown
Books stores increased 1.5%. Comparable sales for the new superstore prototype
increased 15%. The Company's superstores consist of the original superstores
of 6,000 to 10,000 square feet and the new superstore prototype targeted to
occupy 15,000 square feet.
Interest and other income decreased by $349,000 during the thirteen weeks
ended May 4, 1996 when compared to the same period one year ago. The decrease
was primarily due to reduced interest income as a result of decreased funds
available for short-term investment.
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Cost of sales, store occupancy and warehousing as a percentage of sales
were 81.8% for the thirteen weeks ended May 4, 1996 compared to 81.9% for the
same period one year ago. The decrease was primarily due to increased store
margins and was partially offset by increased store occupancy costs.
Selling and administrative expenses as a percentage of sales were 20.7%
for the thirteen weeks ended May 4, 1996 compared to 17.7% for the same period
one year ago. The increase was due primarily to increased payroll costs.
Depreciation expense increased $11,000 for the thirteen weeks ended May
4, 1996 compared to the same period one year ago.
Interest expense was $357,000 during the thirteen weeks ended May 4,
1996 primarily due to interest accrued for the Robert M. Haft judgment.
The Company has recorded a tax benefit on the net operating loss for the
thirteen weeks ended May 4, 1996 of $1,017,000.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for Long-Lived Assets and Long-Lived Assets to be Disposed
of. Adoption of the standard has not had a material impact on the Company's
consolidated financial statements.
The Company has adopted SFAS No. 123, Accounting for Stock Based
Compensation. The Company expects to disclose the fair value of options
granted in a footnote to its annual consolidated financial statements.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Material legal proceedings pending against Crown Books are described in
its Annual Report on Form 10-K for the year ended February 3, 1996 (the "Annual
Report") and, with respect to material developments in such earlier reported
legal proceedings, see below.
Robert M. Haft Employment Litigation
As reported in the Annual Report, in October 1995, Dart, Crown Books and
Trak Auto filed a notice with respect to a final judgment that the U.S.
District Court for the District of Delaware had entered in a lawsuit brought by
Robert M. Haft for breach of employment contract. Among other things, the
district court had awarded Robert M. Haft damages against Dart and Crown Books
in the amount of $18,856,964 and $12,800,910, respectively.
On May 30, 1996, the U.S. Court of Appeals for the Third Circuit
affirmed the judgment of the district court.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Document
------ --------
27 Financial Data Schedule
(b) Reports on Form 8-K
None
13
<PAGE> 14
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 June 14, 1996 By E. STEVE STEVENS
---------------------- ----------------------------
E. STEVE STEVENS
President and Chief
Executive Officer
Date June 14, 1996 DONALD J. PILCH
---------------------- ----------------------------
DONALD J. PILCH
Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 22,510
<SECURITIES> 4,214
<RECEIVABLES> 3,932
<ALLOWANCES> 0
<INVENTORY> 112,596
<CURRENT-ASSETS> 155,274
<PP&E> 48,606
<DEPRECIATION> 25,024
<TOTAL-ASSETS> 185,977
<CURRENT-LIABILITIES> 85,257
<BONDS> 1,648
0
0
<COMMON> 56
<OTHER-SE> 85,624
<TOTAL-LIABILITY-AND-EQUITY> 185,977
<SALES> 62,492
<TOTAL-REVENUES> 62,922
<CGS> 51,105
<TOTAL-COSTS> 51,105
<OTHER-EXPENSES> 14,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 357
<INCOME-PRETAX> (2,808)
<INCOME-TAX> (1,017)
<INCOME-CONTINUING> (1,791)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,791)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
