<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 2, 1998
-----------
( ) 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)
<TABLE>
<S> <C>
Delaware 52-1227415
--------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
</TABLE>
3300 75th Avenue, Landover, Maryland, 20785
-------------------------------------------
(Address of principal executive offices)
(Zip Code)
(301) 226-1200
----------------------------------------------------
(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 15, 1998, the registrant had 5,288,473 shares of Common Stock, $.01 par
value per share, outstanding.
1
<PAGE> 2
PART I
Item 1. Financial Statements
The consolidated financial statements included herein have been prepared by
Crown Books Corporation ("Crown Books"), without audit (except for the
consolidated balance sheet as of January 31, 1998, which has been derived from
the audited consolidated balance sheet on that date) 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
January 31, 1998.
2
<PAGE> 3
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, UNAUDITED
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------
May 2, May 3,
1998 1997
---------- ----------
<S> <C> <C>
Sales $ 66,000 $ 66,543
Interest and other income 101 113
-------- --------
66,101 66,656
-------- --------
Expenses:
Cost of sales, store occupancy and
warehousing 56,757 54,870
Selling and administrative 13,677 14,173
Depreciation and amortization 1,201 1,698
Interest expense 404 173
-------- --------
72,039 70,914
-------- --------
Loss before income taxes (5,938) (4,258)
Income taxes (benefits) - (1,596)
-------- --------
Net loss $ (5,938) $ (2,662)
======== ========
Per share data:
Basic earnings (loss) per share $ (1.12) $ (.50)
Diluted earnings (loss) per share (1.12) (.50)
Weighted average common shares and common
share equivalents outstanding
Basic 5,288 5,289
Diluted 5,288 5,289
</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)
May 2, January 31,
ASSETS 1998 1998
---------- ----------
<S> <C> <C>
Current Assets:
Cash $ 6,059 $ 4,320
Short-term instruments 22 9,558
Accounts receivable 9,582 5,955
Merchandise inventories 89,119 79,457
Prepaid income tax 662 584
Other current assets 1,904 3,417
-------- --------
Total Current Assets 107,348 103,291
-------- --------
Property and Equipment, at cost:
Furniture, fixtures and equipment 37,720 37,420
Leasehold improvements 11,588 11,547
Property under capital leases 1,187 1,187
-------- --------
50,495 50,154
Accumulated Depreciation and Amortization 27,953 26,819
-------- --------
22,542 23,335
-------- --------
Other Assets 497 300
-------- --------
Total Assets $130,387 $126,926
======== ========
</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)
May 2, January 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
---------- ----------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 50,002 $ 54,096
Accrued expenses -
Salaries and benefits 3,868 3,960
Taxes other than income 3,230 3,814
Other 14,335 21,299
Current portion of reserve for
closed stores and restructuring 1,955 1,955
Due to affiliate 578 418
-------- --------
Total Current Liabilities 73,968 85,542
-------- --------
Revolving Credit Facility 21,197 -
-------- --------
Obligations Under Capital Leases 1,737 1,725
-------- --------
Reserve for Closed Stores and
Restructuring 3,623 3,859
-------- --------
Total Liabilities 100,525 91,126
-------- --------
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized,
5,612,611 issued 56 56
Paid-in capital 43,809 43,809
Retained earnings (deficit) (8,547) (2,609)
Treasury stock, 324,138 shares of common
stock, at cost (5,456) (5,456)
-------- --------
Total Stockholders' Equity 29,862 35,800
-------- --------
Total Liabilities and Stockholders' Equity $130,387 $126,926
======== ========
</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 2, May 3,
1998 1997
---------- ----------
Cash Flows from Operating Activities:
<S> <C> <C>
Net (loss) $ (5,938) $ (2,662)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 1,201 1,698
Interest in excess of capital lease payments 12 -
Changes in assets and liabilities:
Accounts receivable (3,627) 2,081
Merchandise inventories (9,662) (11,983)
Prepaid and refundable income taxes (78) (298)
Other current assets 1,513 133
Accounts payable, trade (4,094) (5,548)
Accrued expenses (7,640) (2,588)
Due to affiliate 160 310
Deferred income taxes - (1,314)
Other assets (253) (607)
Reserve for closed stores (236) (380)
-------- --------
Net cash used in operating activities $(28,642) $(21,158)
-------- --------
Cash Flows from Investing Activities:
Capital expenditures $ (352) $ (1,233)
-------- --------
Net cash used in investing activities $ (352) $ (1,233)
-------- --------
Cash Flows from Financing Activities:
Net borrowing under revolving credit facility $ 21,197 $ 10,840
-------- --------
Net cash provided by financing activities $ 21,197 $ 10,840
-------- --------
Net Decrease in Cash and Equivalents $ (7,797) $(11,551)
Cash and Equivalents at Beginning of Year 13,878 16,051
-------- --------
Cash and Equivalents at End of Period $ 6,081 $ 4,500
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the quarter for:
Interest $ 412 $ 173
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, UNAUDITED
May 2, 1998 and May 3, 1997
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
May 2, 1998 and May 3, 1997 reflect, in the opinion of management, all
adjustments (normal and recurring in nature) necessary to present fairly the
consolidated financial position of the Company as of May 2, 1998 and May 3,
1997 and the results of operations and cash flows for the periods indicated.
During fiscal 1998 the Company experienced implementation problems with a new
accounts payable system (see Item 2.-Management's Discussion and Analysis of
Financial Condition and Results of Operations).
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 May 2, 1998 are not
necessarily indicative of the results of operations to be achieved for the
fiscal year ended January 30, 1999.
7
<PAGE> 8
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, UNAUDITED
May 2, 1998 and May 3, 1997
NOTE 2 - RISK AND LIQUIDITY
Crown Books has suffered substantial declines in financial performance and
substantial deterioration of its business in recent years and is currently
exploring alternatives for maintaining adequate liquidity. The Company's
principal vendor is only shipping inventory on a cash-before-delivery basis.
This same vendor has filed a lawsuit against the Company and Dart Group
Corporation (see Part II, Item 1.-Legal Proceedings). There can be no assurance
that vendors will continue to ship inventory to Crown Books or that there will
not be further significant decline in Crown Books' business and financial
condition.
Under the terms and conditions of the Credit Facility (See Note 5), Crown Book
is currently permitted to borrow up to a maximum of $25 million. As of June
12, 1998, Crown Books had borrowed $23.1 million under the Credit Facility and
had $1.9 million in availability. The Company is considering certain
alternatives to improve its liquidity situation. However if the Company is not
successful, there can be no assurance that Crown Books will have sufficient
liquidity to operate its business and remain a going concern. If additional
sources of liquidity are not available, the Company will consider
reorganization protection alternatives under bankruptcy laws. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
NOTE 3 - EARNINGS PER SHARE
The computation of diluted earnings per share is based on the weighted average
number of common shares and common share equivalents outstanding during the
periods presented. The Company adopted statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share, in the fourth quarter of fiscal
1998 and has restated all previously presented earnings per share data. Stock
options represent the only difference between basic and diluted earnings per
share, however they are anti-dilutive for all periods presented.
NOTE 4 - 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
periods when complete physical counts are not taken. The Company did not take a
physical inventory for the 13 weeks ended May 2, 1998.
8
<PAGE> 9
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, UNAUDITED (Continued)
May 2, 1998 and May 3, 1997
NOTE 5 - CREDIT AGREEMENT
On September 12, 1996, the Company entered into a revolving credit facility
(the "Credit Facility") with a finance company to borrow up to $50.0 million.
While the Company's tangible net worth is less than $70.0 million, the Company
is limited to borrowing a maximum of $25.0 million under the current terms of
the Credit Facility. As of May 2, 1998 the Company's tangible net worth was
$29.9 million. Outstanding borrowings at May 2, 1998 were approximately $21.2
million. The maximum borrowings outstanding at any one time during the 13
weeks ended May 2, 1998 were $23,788,000. The average borrowings and weighted
average interest rate for the 13 weeks ended May 2, 1998 were $12,988,000 and
8.5%. The Credit Facility 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. 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 the Credit Facility
as of September 12, 1999 or on any anniversary date thereafter upon 60-days
prior written notice to the Company. Crown Books had borrowed $23.1 under the
credit facility and had $1.9 million available for borrowing at June 12, 1998.
NOTE 6 - MERGER
On April 9, 1998, Dart Group Corporation ("Dart"), which owns approximately
52.3% of the Company's outstanding common stock, entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Richfood Holdings, Inc. ("Richfood
Holdings") and a subsidiary of Richfood Holdings ("Acquisition Subsidiary").
Pursuant to the terms of the Merger Agreement, Richfood Holdings (i) made a
cash tender offer (the "Offer") for all of the issued and outstanding shares
of common stock at a price of $160.00 per share and (ii) caused Acquisition
Subsidiary to merge with and into Dart (the "Merger") in a transaction in which
Dart became a wholly owned subsidiary of Richfood Holdings. The Offer closed
on May 13, 1998 and the Merger was effective on May 18, 1998. As a result of
the Offer and the Merger, Richfood Holdings indirectly owns 52.3% of the
outstanding Common Stock of the Company.
9
<PAGE> 10
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, UNAUDITED (Continued)
May 2, 1998 and May 3, 1997
Richfood Holdings has expressed its intent to divest Dart's interest in the
Company as soon as practicable. The impact, if any, resulting from the
divestment of the Company by Dart has not been considered in these financial
statements.
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 without limitation the ability of the Company to open new
stores and close other stores, the sufficiency of recorded reserves for closed
stores, uncertainties regarding the availability of sufficient liquidity to
continue operations, the ability of the Company to renegotiate its existing
credit arrangements or enter into new arrangements, the effect of national and
regional economic conditions and other risks described from time to time in the
Company's filings with the Securities and Exchange Commission. 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.
In connection with its acquisition of Dart, Richfood Holdings has expressed its
intent to cause Dart to divest its ownership of the Company as soon as
practicable (see Note 6 of the Consolidated Financial Statements). The Company
has formed an independent committee of the Board of Directors and is working
with a financial advisor to pursue strategic alternatives. The declines in the
Company's financial performance and its liquidity concerns may impede the
ability to effect any transaction. See Item 2. -Management's Discussion and
Analysis of Financial Condition and Results of Operations. Accordingly, there
can be no assurance that any transaction will be effected or, if effected,
will be at a price in excess of the current market price per common share.
During the last three years, the Company's business strategy has been to pursue
growth opportunities by opening new Super Crown Books stores.
In prior years Super Crown Books stores have generated higher sales at
converted locations. The new prototype superstores have performed below the
Company's expectations. New management of the Company is making significant
revisions to the design and layout of the new superstore prototype, which
management believes will enhance its performance. After considering the actual
results achieved by the superstores, together with liquidity constraints, the
Company has suspended its expansion plans.
The Company intends to continue its practice of reviewing the profitability
trends and prospects of existing stores and may close or relocate
under-performing stores. The Company did not close any stores during the 13
weeks ended May 2, 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 challenged to
significantly improve operating results.
Liquidity and Capital Resources
Crown Books has suffered substantial declines in financial performance and
substantial deterioration of its business in recent years and is currently
exploring alternatives for maintaining adequate liquidity. The Company's
principal vendor is only shipping inventory on a cash-before-delivery basis.
This same vendor has filed a lawsuit against the Company and Dart Group
Corporation (see Part II, Item 1.-Legal Proceedings). There can be no assurance
that vendors will continue to ship inventory to Crown Books or that there will
not be further significant decline in Crown Books' business and financial
condition.
Under the terms and conditions of the Credit Facility, Crown Book is currently
11
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
permitted to borrow up to a maximum of $25 million. As of June 12, 1998, Crown
Books had borrowed $23.1 million under the Credit Facility and had $1.9 million
in availability. The Company is considering certain alternatives to improve
its liquidity situation. However if the Company is not successful, there can
be no assurance that Crown Books will have sufficient liquidity to operate its
business and remain a going concern. If additional sources of liquidity are
not available, the Company will consider reorganization protection alternatives
under bankruptcy laws. The accompanying financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Cash and short-term instruments have historically been the Company's primary
source of liquidity. During the 13 weeks ended May 2, 1998, the Company
borrowed approximately $21.2 million under the Credit Facility. Cash,
including short-term instruments, decreased by $7,797,000 to $6,081,000 at May
2, 1998 from $13,878,000 at January 31, 1998 primarily due to funding operating
losses, payments for increased merchandise inventory, payments on year-end
accounts payable and other year-end liabilities and capital expenditures.
Operating activities used $28,642,000 of the Company's funds during the 13
weeks ended May 2, 1998, compared to using $21,158,000 during the 13 weeks
ended May 3, 1997. The primary use of funds during the 13 weeks ended May 2,
1998 was for funding operating losses and payments for merchandise inventory,
payments for year-end accounts payable balances and other year-end liabilities.
The Company used $352,000 for investing activities during the 13 weeks ended
May 3, 1998, for capital expenditures.
Financing activities provided $21,197,000 to the Company's working capital
during the 13 weeks ended May 2, 1998 from borrowing under the revolving credit
facility.
The Company's primary working capital and capital requirements relate the
replacement of merchandise inventory due to the extraordinary return of $37
million of inventory to vendors immediately after Christmas.
Prior management has signed leases for four new stores to open during fiscal
1999. The Company has successfully negotiated a cancellation of two of these
leases and expects to cancel the third lease during the next few weeks. The
Company is also negotiating to cancel the fourth lease.
Results of Operations
13 Week Ended May 2, 1998 Compared to the 13 Weeks Ended May 3, 1997
At May 2, 1998, the Company had 179 stores, including 131 Super Crown Books
stores. There were no store closing or openings during the 13 weeks ended May
2, 1998.
Sales of $66,000,000 for the 13 weeks ended May 2, 1998 decreased by $543,000
or 0.8% compared to the 13 weeks ended May 3, 1997. Comparable sales (sales
for
12
<PAGE> 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
stores open for 13 months) decreased 9.3% during the 13 weeks ended May 2,
1998. Sales for comparable Super Crown Books stores decreased 8.8% during the
13 weeks ended May 2, 1998. The decreases were primarily due to interruptions
in the flow of merchandise inventory primarily as a result of the liquidity
problems discussed above.
Interest and other income decreased by $12,000 during the 13 weeks ended May 2,
1998 when compared to the 13 weeks ended May 3, 1997. The decrease was
primarily due to reduced interest income as a result of decreased funds
available for short-term investments.
Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 86.0% for the 13 weeks ended May 2, 1998 compared to 82.5% for the
13 weeks ended May 3, 1997. The increase was primarily due to decreased gross
margins as a result of increased purchases from wholesalers. The increase was
also due to higher occupancy costs for new larger stores and the effect of the
decline in comparable store sales on occupancy costs, as a percentage of sales,
in existing stores.
Selling and administrative expenses as a percentage of sales were 20.7% for the
13 weeks ended May 2, 1998 compared to 21.3% for the 13 weeks ended May 3,
1997. The decrease was primarily due to cost-cutting measures implemented by
new management.
Depreciation and amortization expense decreased $497,000 for the 13 weeks ended
May 2, 1998 compared to the 13 weeks ended May 3, 1997. The decrease was
primarily due to write-off of store assets and computer equipment prior to
January 31, 1998.
Interest expense increased by $231,000 due to increased borrowing under the
Credit Facility.
During the 13 weeks ended May 2, 1998, the Company recorded a tax benefit of
approximately $2.2 million and increased its valuation allowance for deferred
income tax assets by approximately $2.2 million. The Company has a net
operating loss carryforward of approximately $49.8 million which will expire in
various years through 2014. Under provisions of the Tax Reform Act of 1986,
the utilization of the Company's net operating loss carryforward may be limited
due to substantial changes in stock ownership.
The Company had a net loss of $5,938,000 in the 13 weeks ended May 2, 1998
compared to a net loss of $2,662,000 in the 13 weeks ended May 3, 1997
primarily as a result of the decline in comparable store sales and gross
margins.
Internal Controls
During the year ended January 31, 1998, under its prior management team, Crown
Books implemented a new accounts payable inventory system without the system
being completely tested and interfaced with the store systems. As a result of
implementation problems with the system, Crown Books has been unable to
determine in an accurate and timely manner the purchases and amounts payable
for each vendor throughout fiscal 1998. Additionally, reconciliations of
certain key general ledger accounts, including cash, accounts payable and
inventory, were not performed on a timely basis during fiscal 1998 and the
adjustment to reconcile the general ledger to the physical inventory at year
ended January 31, 1998 was unusually high. Significant effort was required in
connection with the year-end financial statement closing process to reconcile
these accounts, determine the nature of any reconciling items and record
adjustments to correct errors or omissions to these accounts.
Since February 1998, Crown Books, under its new management, has invested
substantial effort and made improvements in the controls and procedures
relating to the above mentioned items. To date, these improvements have not
been tested to determine if Crown Books is able to produce accurate financial
data in a timely and efficient manner. Consequently, the Company's independent
auditors did not perform a review of the quarterly financial information
included in this report. Management intends to continue its efforts to improve
systems controls.
Year 2000
The Company is currently conducting a review of the impact of Year 2000 on its
information systems, as well as reviewing its impact on relationships with key
customers and vendors. Based on a preliminary review, the store systems will
need to upgrade to the latest version of the point-of-sale program, and some
stores will need new computer equipment to handle this upgrade. The Company
believes the general ledger system to be ready to handle Year 2000, but
13
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
ancillary and related programs could need modification. Based on this review,
a plan to ensure minimal disruption to the Company's operations will be
developed. There can be no certainty that there will be sufficient time to
implement the plan by the Year 2000. Currently the aggregate costs associated
with this program are estimated at $600,000 for fiscal 1999.
14
<PAGE> 15
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 January 31, 1998 (the "Annual
Report"). The Company's principal vendor, Ingram Books, Inc., ("Ingram") has
filed a lawsuit against Crown Books on June 10, 1998. In the lawsuit, Ingram
alleges, among other things, breach of contract by Crown Books and Dart Group
Corporation ("Dart"), fraudulent misrepresentation by Dart, negligent
misrepresentation by Dart, civil conspiracy by Dart and Crown Books, fraudulent
conveyance against Dart, breach of contract by Dart and press for a declaratory
judgment against Dart. The Company and Dart are in the process of evaluating
the merit of this lawsuit.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
27 Financial Data Schedule
(B) Reports on Form 8-K
Subsequent to May 2, 1998, Crown Books Corporation filed one Current
Report on Form 8-K.
On May 28, 1998, Crown Books Corporation filed a Current Report on
Form 8-K reporting under Item 1.-Changes in Control of Registrant that
Richfood Holdings, Inc. ("Richfood") had acquired control of the
Company. In addition, the size of the Board of Directors was
increased from three to five members and Messrs. John E. Stokely and
John C. Belknap, each of whom is an executive officer of Richfood were
elected to the Board.
15
<PAGE> 16
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 15, 1998 By: ANNA L. CURRENCE
----------------------- -----------------------------
ANNA L. CURRENCE
President
Date: June 15, 1998 By: STEPHEN M. PETTY
----------------------- -----------------------------
STEPHEN M. PETTY
Chief Financial Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 6,081
<SECURITIES> 0
<RECEIVABLES> 9,582
<ALLOWANCES> 0
<INVENTORY> 89,119
<CURRENT-ASSETS> 107,348
<PP&E> 50,495
<DEPRECIATION> 27,953
<TOTAL-ASSETS> 130,387
<CURRENT-LIABILITIES> 73,968
<BONDS> 22,934
0
0
<COMMON> 56
<OTHER-SE> 29,806
<TOTAL-LIABILITY-AND-EQUITY> 130,387
<SALES> 66,000
<TOTAL-REVENUES> 66,101
<CGS> 56,757
<TOTAL-COSTS> 56,757
<OTHER-EXPENSES> 14,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 404
<INCOME-PRETAX> (5,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,938)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
