<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 August 2, 1997
--------------
( ) 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
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 52-1227415
--------------------------------------------- -------------------
<S> <C>
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
3300 75th Avenue, Landover, Maryland, 20785
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(Address of principal executive offices)
(Zip Code)
(301) 226-1200
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(Registrant's telephone number, including area code)
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(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 12, 1997, the registrant had 5,288,973 shares of Common Stock,
$.01 par value per share, outstanding.
1
<PAGE> 2
PART I
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' annual report on Form 10-K for the fiscal year ended
February 1, 1997.
2
<PAGE> 3
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Twenty-six
Weeks Ended Weeks Ended
------------------- -------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 67,018 $ 66,533 $133,561 $129,025
Interest and other income 71 415 184 845
-------- -------- -------- --------
67,089 66,948 133,745 129,870
-------- -------- -------- --------
Expenses:
Cost of sales, store occupancy
and warehousing 56,671 54,641 111,541 105,746
Selling and administrative 14,722 13,181 28,895 26,091
Depreciation and amortization 1,624 1,485 3,322 2,843
Interest expense 526 334 699 691
-------- -------- -------- --------
73,543 69,641 144,457 135,371
-------- -------- -------- --------
Loss before income taxes (6,454) (2,693) (10,712) (5,501)
Income taxes (benefits) (2,279) (1,157) (3,875) (2,174)
-------- -------- -------- --------
Net loss $ (4,175) $ (1,536) $ (6,837) $ (3,327)
======== ======== ======== ========
Weighted average common shares
outstanding 5,289 5,402 5,289 5,389
======== ======== ======== ========
Net loss per share $ (.79) $ (.28) $ (1.29) $ (.62)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
August 2, February 1,
ASSETS 1997 1997
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 3,904 $ 3,377
Short-term instruments 6 12,674
Accounts receivable 4,492 7,962
Income taxes refundable 4,445 3,802
Merchandise inventories 114,642 110,036
Deferred income tax benefit 889 830
Other current assets 2,652 2,902
-------- --------
Total Current Assets 131,030 141,583
-------- --------
Property and Equipment, at cost:
Furniture, fixtures and equipment 40,475 36,033
Leasehold improvements 16,165 16,122
Property under capital leases 1,187 1,187
-------- --------
57,827 53,342
Accumulated Depreciation and Amortization 30,901 27,963
-------- --------
26,926 25,379
-------- --------
Deferred Income Taxes 11,891 8,404
-------- --------
Other Assets 560 1,531
-------- --------
Total Assets $170,407 $176,897
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
August 2, February 1,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
---------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 41,760 $ 54,787
Income taxes payable 318 -
Accrued expenses -
Salaries and benefits 3,292 3,290
Taxes other than income 2,475 4,011
Other 17,605 18,916
Current portion of reserve for closed
stores and restructuring 3,298 3,298
Due to affiliate 247 213
-------- --------
Total Current Liabilities 68,995 84,515
-------- --------
Revolving Credit Facility 16,487 -
-------- --------
Obligations Under Capital Leases 1,707 1,684
-------- --------
Reserve for Closed Stores
and Restructuring 5,600 6,243
-------- --------
Total Liabilities 92,789 92,442
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized,
5,612,611 shares issued 56 56
Paid-in capital 43,809 43,809
Retained earnings 39,204 46,041
Treasury stock, 323,638 shares of
common stock, at cost (5,451) (5,451)
-------- --------
Total Stockholders' Equity 77,618 84,455
-------- --------
Total Liabilities and Stockholders' Equity $170,407 $176,897
======== ========
</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
(dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-six
Weeks Ended
---------------------
August 2, August 3,
1997 1996
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (6,837) $ (3,327)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 3,322 2,843
Interest in excess of capital lease payments 23 -
Loss on disposal of fixed assets 269 -
Changes in assets and liabilities:
Accounts receivable 3,470 108
Merchandise inventories (4,606) (9,078)
Prepaid and refundable income taxes (643) (1,737)
Other current assets 250 (1,833)
Accounts payable, trade (13,027) 12,496
Accrued expenses (2,845) 961
Due to affiliate 34 (483)
Deferred income taxes (3,546) (447)
Income taxes payable 318 -
Other assets (173) -
Reserve for closed stores (632) (1,362)
-------- --------
Net cash used in operating activities $(24,623) $ (1,859)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (4,005) $ (3,103)
Maturities of United States Treasury Bills - 2,003
Maturities of municipal securities - 250
Sales of municipal securities - 416
-------- --------
Net cash used in investing activities $ (4,005) $ (434)
-------- --------
Cash Flows from Financing Activities:
Net borrowing under revolving credit facility $ 16,487 $ -
-------- --------
Net cash provided by financing activities $ 16,487 $ -
-------- --------
Net Decrease in Cash and Equivalents $(12,141) $ (2,293)
Cash and Equivalents at Beginning of Year 16,051 28,762
-------- --------
Cash and Equivalents at End of Period $ 3,910 $ 26,469
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 699 $ 209
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 2, 1997 and August 3, 1996
(Unaudited)
NOTE 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 discount
specialty retail book stores in the United States. The stores offer books,
newspapers, magazines and related accessories. The unaudited statements as of
August 2, 1997 and August 3, 1996 reflect, in the opinion of management, all
adjustments (normal and recurring in nature) necessary to present fairly the
consolidated financial position as of August 2, 1997 and August 3, 1996 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 13 weeks ended August 2, 1997 are not
necessarily indicative of the results of operations to be achieved for the full
fiscal year.
NOTE 2 - EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares of
common stock. Common Stock equivalents are antidilutive for all periods
presented. The effect of common stock equivalents were not considered for the
periods presented as they were antidilutive. The difference between primary
earnings per common share and fully diluted earnings per common share was not
significant for the periods presented.
NOTE 3 - INTERIM INVENTORY ESTIMATES
The Company's inventories are priced at the 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 inventories for
quarters when complete physical counts are not taken. The Company did not take
a physical inventory for the quarter ended August 2, 1997.
7
<PAGE> 8
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
NOTE 4 - CREDIT AGREEMENT
On September 12, 1996, the Company entered into a revolving credit facility
with a finance company to borrow up to $50.0 million. The Company intends to
use proceeds from draw-downs under the credit facility for working capital and
other corporate purposes. The agreement has an original term of three years.
Borrowings under the credit facility include revolving loans and letters of
credit which bear interest at a rate equal to the prime rate (as defined in the
credit agreement) and LIBOR loans which bear interest at LIBOR plus 2.25%.
Interest on prime rate borrowings is payable monthly. Interest and principal
on LIBOR loans is payable between one and six months from the borrowing date.
LIBOR loans are subject to a prepayment penalty and may be continued for
subsequent one to six month periods. LIBOR loans may be converted to prime
rate loans and vice versa. The agreement includes a facility fee of .25% per
annum on the unused principal balance, as defined. No single advance may be
outstanding for more than 36 months.
Borrowings under the credit facility are secured by the Company's inventory,
accounts receivable and proceeds from the sale of such assets of the Company.
The credit facility also contains certain restrictive covenants, including a
limitation on the incurrence of additional indebtedness and places a $13.1
million limitation on payments to settle disputes with Haft family members.
There are additional covenants related to tangible net worth. Loans under the
credit facility are subject to limitations based upon eligible inventory
levels, as defined in the agreement. The Company may terminate the credit
facility upon 60-days prior written notice to the lender and the lender may
terminate it as of September 12, 1999 or on any anniversary date thereafter
upon 60-days prior written notice to the Company. During fiscal 1997 the
Company began borrowing under the credit facility. The maximum borrowings
outstanding at any one time during the 26 weeks ended August 2, 1997 were
$22,148,000 and the outstanding balance as of August 2, 1997 was $16,487,000.
The Company had $8.5 million available for borrowing at August 2, 1997. In
connection with its expansion plans, the Company will need to increase its
borrowing under its revolving credit facility, subject to limitations contained
in the loan agreement. To increase the limit from $25.0 million to $35.0
million, the Company is required to maintain a minimum tangible net worth of
$73.0 million as of the fiscal year end preceding the election and for each
fiscal year end thereafter, and to maintain a minimum tangible net worth of
$70.0 million as of the election date and thereafter, in addition to other
covenants. To increase the limit from $35.0 million to $50.0 million, the
Company is required to maintain a minimum tangible net worth of $75.0 million
as of the fiscal year end preceding the election and for each fiscal year end
thereafter, in addition to other covenants. The average borrowings and
weighted average interest rate for the 26 weeks ended August 2, 1997 were
$8,148,000 and 8.5%.
8
<PAGE> 9
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
NOTE 5 - PROPERTY, EQUIPMENT AND DEPRECIATION
Effective February 2, 1997, the Company changed its accounting policy from
expensing purchased computer software costs in the year of acquisition to
capitalizing and depreciating these costs over the estimated useful life not to
exceed five years. Management has determined that these costs benefit future
periods.
During the 26 weeks ended August 2, 1997, the Company recorded amortization of
computer costs of approximately $268,000. The effect of capitalizing purchased
computer software was to reduce the Company's loss by $1.8 million ($.34 per
share) net of income tax benefits.
NOTE 6 - SUBSEQUENT EVENT
Settlement with Robert, Gloria and Linda Haft
On August 18, 1997, the Company and Dart Group Corporation ("Dart"), which owns
52.3% of the Company's outstanding common stock, entered into an agreement to
settle certain litigation and enter other related transactions (the "RGL
Settlement") with Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain
related parties (collectively, "RGL").
The transactions contemplated by the RGL Settlement between Dart and RGL
include: the purchase by Dart from RGL (or related parties) of 104,976 shares
of Dart Class B Common Stock and 77,244 shares of Dart Class A Common Stock;
the termination of options held or claimed by RGL to purchase a total of
283,750 shares of Dart Class A Common Stock; the termination of putative
options to purchase 15 shares of Dart/SFW Corp., and the termination of a small
number of options to purchase shares of common stock of the Company and Trak
Auto Corporation ("Trak Auto"), an affiliate of Dart. Dart will pay RGL a
total of approximately $41.0 million in connection with these transactions.
The RGL Settlement also contemplates the completion of bankruptcy plans of
reorganization for the partnerships owning Dart's headquarters building in
Landover, Maryland and a warehouse leased by Trak Auto, in Bridgeview,
Illinois. Under these bankruptcy plans, Dart will pay a total of $4.4 million
(50% of which would be offset by the release to Dart of funds previously
escrowed for Ronald Haft) to Robert and Linda G. Haft for their interests in
these two partnerships, and a total of $7.0 million to reduce outstanding
institutional mortgage loans on these properties, which will thereafter be
wholly-owned by Dart affiliates.
The RGL Settlement requires a supplemental settlement arrangement between Dart
and Ronald S. Haft, which has not yet been completed and which cannot be
assured. The closing of these transactions is scheduled for late September,
subject to the satisfaction of various conditions. Closing of these
9
<PAGE> 10
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
August 2, 1997 and August 3, 1996
(Unaudited)
transactions cannot be assured.
The RGL Settlement, if consummated, would result in the termination of the
pending claim by RGL to control of Dart and the settlement of all litigation
between them and Dart and its subsidiaries.
A small portion of the cost of these transactions may be allocated to the
Company.
Settlement Discussions with Herbert H. Haft
The previously-announced settlement discussions between Dart and Herbert H.
Haft have not produced a final settlement agreement at this time, though
discussions are continuing. There can be no assurance that a settlement
between Dart and Herbert H. Haft will be entered into or that, even if a
settlement agreement with Herbert H. Haft is entered into, that the settlement
transaction will close.
10
<PAGE> 11
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 growth opportunities
and intends to open new Super Crown Books stores in existing and new markets.
Realizing these opportunities is dependent upon the successful performance of
the superstores and adequate liquidity. 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. During the last three fiscal
quarters, the new prototype superstores have performed below the Company's
expectations. The Company is considering certain revisions to the new
superstore prototype that may enhance its performance. Without a significant
improvement in the performance of all superstores, the Company would not expect
operating expenses, as a percentage of sales, to decrease as the new stores
mature.
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 six Classic Crown Books store and two Super Crown
Books store during the 26 weeks ending August 2, 1997. The Company anticipates
closing an additional seven Classic Crown Books stores and two non-prototype
Super Crown Books stores and relocating one prototype Super Crown Books store
during the remainder of fiscal 1998.
The retail book market is highly competitive. The two largest book chains
continue to open additional new stores each year in the Company's markets,
thereby continuing to increase the overall level of competition. Management
believes that the markets in which it operates will remain highly competitive
in the foreseeable future and, as a result, the Company will be significantly
challenged to improve operating results for fiscal 1998.
Dart and Crown Books have had preliminary discussions with certain third
parties concerning the possible sale of Dart's 52.3% interest in Crown Books or
the sale of all Crown Books. There can be no assurance that any such
discussions will continue or will result in any agreement for any such sale or
as to the terms or timing of any such sale, if one occurs.
Liquidity and Capital Resources
Cash, including short-term instruments, has historically been the Company'S
primary source of liquidity. However, during the 26 weeks ended August 2,
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
1997, the Company borrowed under its revolving credit facility. Cash,
including short-term instruments, decreased by $12,141,000 to $3,910,000 at
August 2, 1997 from $16,051,000 at February 1, 1997. The decrease was
primarily due to payments for increased merchandise inventory, capital
expenditures and funding operating losses. The decrease was partially offset
by borrowing under the Company's revolving credit facility.
Operating activities used $24,623,000 of the Company's cash resources for the
26 weeks ended August 2, 1997, compared to $1,859,000 for the same period one
year ago. The cash was used primarily for payments for merchandise inventory
and funding current operating losses.
The Company used $4,005,000 for capital expenditures during the 26 weeks ended
August 2, 1997 compared to capital expenditures of $3,103,000 during the 26
weeks ended August 3, 1996.
Financing activities provided $16,487,000 to the Company during the 26 weeks
ended August 2, 1997 from net borrowings under the credit facility.
The Company's primary working capital and capital requirements relate to new
store openings and investments in management information systems. The Company
believes that the net cash expenditures incurred in opening a new store
generally approximate $800,000, including purchases of inventory, net of
accounts payable, and the costs of store fixtures and leasehold improvements,
net of landlord contributions. During fiscal 1998, the Company expects to open
approximately 25 Super Crown Books stores requiring cash expenditures of
approximately $20.0 million. As of September 12, 1997, the Company opened nine
Super Crown Books stores and had entered into lease agreements to open 16 new
Super Crown Books stores in fiscal 1998 and four in fiscal 1999 and one signed
agreement for additional space in an existing store in fiscal 1998. In
addition the Company expects to have cash expenditures related to stores that
have been closed or will be closed of approximately $2.5 million in fiscal
1998.
The Company anticipates funding its requirements for working capital and
capital expenditures in fiscal 1998 with cash generated from improving its
inventory turnover, inventory from stores closed during fiscal 1998, income tax
refunds and borrowings under its existing revolving credit facility. The
Company had $8.5 million available for borrowing under its revolving credit
facility at August 2, 1997 (see Note 5 to the Consolidated Financial
Statements). As of August 2, 1997, the Company had not improved its inventory
turnover on an ongoing basis. Without a significant improvement in the
Company's inventory turnover, the Company may not have adequate liquidity to
continue its expansion plans.
In connection with its expansion plans, the Company will need to increase its
borrowing under its revolving credit facility, subject to limitations contained
in the loan agreement. To increase the limit from $25.0 million to $35.0
million, the Company is required to maintain a minimum tangible net
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
worth of $73.0 million as of the fiscal year end preceding the election and for
each fiscal year end thereafter, and to maintain a minimum tangible net worth
of $70.0 million as of the election date and thereafter, in addition to other
covenants. To increase the limit from $35.0 million to $50.0 million, the
Company is required to maintain a minimum tangible net worth of $75.0 million
as of the fiscal year end preceding the election and for each fiscal year end
thereafter, in addition to other covenants. As of February 1, 1997 and August
2, 1997 the Company's tangible net worth was $84.5 million and $77.6 million,
respectively. There can be no assurance that the Company's tangible net worth
will meet the requirements to increase its revolving credit facility
availability above the current $25.0 million limit. There also can be no
assurance that if the limit is increased above $25.0 million, that the Company
will maintain the required minimum tangible net worth and that it would be able
to pay down the revolving credit facility as required. As of August 2, 1997,
the Company's net deferred tax asset was $12.8 million. If the Company's
performance does not significantly improve, the Company may conclude that it
will need to reserve for the asset's recovery. If this event occurs, the
Company's tangible net worth would likely decrease below $70 million and, as a
result, the Company's borrowing under the credit facility would be limited to
$25 million. If the Company's borrowing is limited to $25 million and the
Company's performance does not sufficiently improve, then the Company intends
to significantly reduce its expansion plans and take other actions to improve
liquidity.
Funding of Possible Settlements
Dart and certain of its subsidiaries (including Crown Books) have entered into
an agreement to settle certain litigation and enter other related transactions
with Robert M. Haft, Gloria G. Haft, Linda G. Haft and certain related parties.
In addition, settlement discussions are continuing with each of Herbert H. Haft
and Ronald S. Haft. The aggregate payments estimated to be paid by Dart and
its subsidiaries in connection with these possible settlements, if all of them
occur, would be approximately $92.0 million (including a loan of $10.0
million), part of which would be deferred. It is anticipated that Dart would
pay substantially all of this amount, though a portion (yet to be determined)
could be allocated to Trak Auto Corporation ("Trak Auto"), an affiliate of
Dart, and Crown Books. Allocation of any actual settlement obligations among
the companies would be in proportion to reflect relative benefits each company
receives, as determined by their boards of directors after consultation with
outside advisors. Crown Books anticipates that it would pay its portion of the
settlement obligations from borrowings under its credit facility.
Results of Operations
During the 26 weeks ended August 2, 1997, the Company opened eight Super Crown
Books stores and closed six Classic Crown Books stores and two Super Crown
Books store. At August 2, 1997, the Company had 168 stores, including 115
Super Crown Books stores.
Sales of $133,561,000 for the 26 weeks ended August 2, 1997 increased by
$4,536,000 or 3.5% compared to the 26 weeks ended August 3, 1996 while sales of
$67,018,000 for the 13 weeks ended August 2, 1997 increased by $485,000 or
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
0.7% compared to the 13 weeks ended August 3, 1996. Comparable sales (sales for
stores open for 13 months) decreased 5.6% and 8.1% during the 26 and 13 weeks,
respectively. Sales for all Super Crown Books stores represented 82.3% and
82.6% of total sales for the 26 and 13 weeks ended August 2, 1997,
respectively, compared to 74.7% and 75.9% for the 26 and 13 weeks ended August
3, 1996, respectively. Sales for all Super Crown Books stores of $109,974,000
and $55,339,000 for the 26 and 13 weeks ended August 2, 1997 increased 14.1%
and 9.6% over the prior year and sales for comparable Super Crown Books stores
decreased 6.1% and 8.6%. Comparable sales for the new superstore prototype
decreased 5.8% and 8.2% for the 26 and 13 weeks ended August 2, 1997. 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 $661,000 and $344,000 during the 26 and
13 weeks ended August 2, 1997 when compared to the same periods one year ago.
The decreases were primarily due to reduced interest income as a result of the
decrease in funds available for short-term investments.
Cost of sales, store occupancy and warehousing as a percentage of sales were
83.5% and 84.6% for the 26 and 13 weeks ended August 2, 1997 compared to 82.0%
and 82.1% for the same periods one year ago. The increases were due to
increased store occupancy costs.
Selling and administrative expenses as a percentage of sales were 21.6% and
22.0% for the 26 and 13 weeks ended August 2, 1997 compared to 20.2% and 19.8%
for the same periods one year ago. The increases were due primarily to
increased payroll costs and consulting fees for new management information
systems.
Depreciation and amortization expense increased $479,000 for the 26 weeks ended
August 2, 1997 compared to the same period one year ago primarily due to the
increase in fixed assets for new superstores and to the amortization of
computer software.
Interest expense was $699,000 during the 26 weeks ended August 2, 1997 compared
to $691,000 during the 26 weeks ended August 3, 1996. Interest expense during
the 26 weeks ended August 2, 1997 was primarily due to interest on borrowings
under the credit facility while interest expense during the 26 weeks ended
August 3, 1996 was primarily due to interest on the Robert M. Haft judgement
paid in August 1996.
Effect of New Financial Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 Earnings Per Share. SFAS No.
128 replaces the presentation of primary earnings per share, previously
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
presented by the Company, with basic earnings per share and requires a
reconciliation of the numerator and denominator of basic earnings per share to
fully diluted earnings per share. Fully diluted earnings per share is computed
similarly to the previous requirements. The Company will be required to adopt
SFAS No. 128 in the fourth quarter of fiscal 1998 and to restate all previously
presented earnings per share data. The presentation of the Company's basic
earnings per share under SFAS No. 128 is not materially different than the
amounts presented herein as primary earnings per share.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
Reporting Comprehensive Income. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. The Company will adopt SFAS No.
130 in the first quarter of fiscal 1999 and will provide the necessary
disclosures.
15
<PAGE> 16
PART II
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 1, 1997 and, with
respect to material developments in such earlier reported legal proceedings,
see below.
Dart and certain of its subsidiaries (including Crown Books) have entered into
a settlement agreement with Robert, Gloria and Linda Haft. See Note 7 to Crown
Books' Consolidated Statements contained herein. This settlement, if
consummated, would result in the termination of the pending claim by Robert,
Gloria and Linda Haft to control Dart and the settlement of all litigation
between them and Dart and its subsidiaries, including Crown Books.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders (the "Meeting") was held on June 27, 1997.
At the Meeting Crown Books' shareholders re-elected all four incumbent
Directors to Crown Books' Board of Directors.
The results of the voting for the election of directors at the Meeting are set
forth below.
<TABLE>
<CAPTION>
Number of
Name of Nominee Votes For Shares Withheld
--------------- --------- ---------------
<S> <C> <C>
Herbert H. Haft 4,178,111 633,474
Larry G. Schafran 4,746,651 64,934
Bonita A. Wilson 4,746,551 65,034
Douglas M. Bregman 4,746,651 64,934
</TABLE>
Item 5. Other Information
On September 16, 1997, the Executive Committee of the Board of Directors of
Crown Books (the "Executive Committee") announced that it had ratified plans to
continue its strategic restructuring of Crown Books so as to improve market
share and earnings potential. In keeping with this restructuring plan, the
Executive Committee also announced the appointment of Mark A. Flint, Dart's
Senior Vice President and Chief Financial Officer, as Crown Books' interim
Chief Operating Officer. Mr. Flint, together with members of the Executive
Committee, will be more involved in Crown Books' day-to-day operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Document
27 Financing Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE> 17
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: September 15, 1997 By: MARK A. FLINT
---------------------- ------------------------------
MARK A. FLINT
Treasurer
Date: September 15, 1997 DONALD J. PILCH
---------------------- ------------------------------
DONALD J. PILCH
Vice President and Chief
Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> AUG-02-1997
<CASH> 3,904
<SECURITIES> 6
<RECEIVABLES> 4,492
<ALLOWANCES> 0
<INVENTORY> 114,642
<CURRENT-ASSETS> 131,030
<PP&E> 57,827
<DEPRECIATION> 30,901
<TOTAL-ASSETS> 170,407
<CURRENT-LIABILITIES> 68,995
<BONDS> 1,707
0
0
<COMMON> 56
<OTHER-SE> 77,562
<TOTAL-LIABILITY-AND-EQUITY> 170,407
<SALES> 133,561
<TOTAL-REVENUES> 133,745
<CGS> 111,541
<TOTAL-COSTS> 111,541
<OTHER-EXPENSES> 32,217
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 699
<INCOME-PRETAX> (10,712)
<INCOME-TAX> (3,875)
<INCOME-CONTINUING> (6,837)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,837)
<EPS-PRIMARY> (1.29)
<EPS-DILUTED> (1.29)
</TABLE>
