FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended January 1, 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 No. 1-7604 ------ CROWN CRAFTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-0678148 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1600 Riveredge Parkway, Suite 200, Atlanta, Georgia 30328 - -------------------------------------------------------------------------------- (Address of principal executive offices) (404) 644-6400 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of common Stock, $1.00 par value, of the Registrant outstanding as of February 3, 1995 was 8,505,481. --------- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES PART 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS JANUARY 1, 1995 (UNAUDITED) AND APRIL 3, 1994
January 1, April 3, (dollars in thousands) 1995 1994 ----------------------------------------------------------------------------------------------------------- ASSETS ------ CURRENT ASSETS Cash $ 703 $ 425 Accounts receivable, net: Due from factor 14,498 22,744 Other 3,332 3,293 Inventories 49,205 45,122 Deferred income taxes 914 827 Other current assets 2,154 1,745 -------- -------- Total Current Assets 70,806 74,156 -------- -------- PROPERTY, PLANT AND EQUIPMENT - at cost: Land, buildings and improvements 29,127 23,982 Construction project in progress 1,497 1,823 Machinery and equipment 53,835 45,061 Furniture and fixtures 1,456 1,215 -------- -------- 85,915 72,081 Less accumulated depreciation 28,038 23,182 -------- -------- Property, Plant and Equipment - net 57,877 48,899 -------- -------- OTHER ASSETS 1,161 293 -------- -------- TOTAL $129,844 $123,348 ======== ========
See notes to interim consolidated financial statements. -1- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED BALANCE SHEETS JANUARY 1, 1995 (UNAUDITED) AND APRIL 3, 1994
January 1, April 3, (dollars in thousands) 1995 1994 -------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Notes payable $ 13,142 $ 9,860 Accounts payable 12,324 13,436 Income taxes payable 1,391 579 Accrued liabilities 4,494 4,708 Current maturities of long-term debt 5,000 5,000 -------- -------- Total Current Liabilities 36,351 33,583 -------- -------- LONG-TERM DEBT 5,000 10,000 -------- -------- DEFERRED INCOME TAXES 3,778 3,778 -------- -------- OTHER LIABILITIES 637 602 -------- -------- SHAREHOLDERS' EQUITY: Common stock - par value $1.00 per share; 15,000,000 shares authorized; 8,927,346 and 8,836,381 shares issued 8,927 8,836 Paid-in capital 32,681 31,645 Retained earnings 49,087 41,318 Less: 431,277 and 420,125 shares of common stock held in treasury (6,617) (6,414) -------- -------- Total Shareholders' Equity 84,078 75,385 -------- -------- TOTAL $129,844 $123,348 ======== ========
See notes to interim consolidated financial statements. -2- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (Continued) CONSOLIDATED STATEMENTS OF EARNINGS JANUARY 1, 1995 AND DECEMBER 26, 1993 (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED (dollars in thousands, except Jan. 1, Dec. 26, Jan. 1, Dec. 26, per share data) 1995 1993 1995 1993 --------------------------------------------------------------------------------------------------------- NET SALES $ 59,702 $ 56,281 $ 155,360 $ 137,838 COST OF PRODUCTS SOLD 45,201 44,524 120,491 109,713 ---------- ----------- ------------ ---------- GROSS PROFIT 14,501 11,757 34,869 28,125 MARKETING AND ADMINISTRATIVE EXPENSES 7,648 6,611 20,197 16,691 ----------- ----------- ------------ ---------- EARNINGS FROM OPERATIONS 6,853 5,146 14,672 11,434 OTHER INCOME (EXPENSE): Interest Expense (468) (441) (1,423) (1,119) Other - net 284 58 365 435 ----------- ----------- ------------ ---------- EARNINGS BEFORE INCOME TAXES 6,669 4,763 13,614 10,750 PROVISIONS FOR INCOME TAXES 2,504 1,747 5,084 3,998 ----------- ----------- ------------ ---------- NET EARNINGS $ 4,165 $ 3,016 $ 8,530 $ 6,752 =========== =========== ============ ========== NET EARNINGS PER SHARE $ 0.49 $ 0.36 $ 1.01 $ 0.81 =========== =========== ============ ========== AVERAGE SHARES OUTSTANDING 8,460,528 8,373,961 8,440,049 8,357,356 =========== ----------- ------------ ---------- DIVIDENDS DECLARED PER SHARE $ 0.03 $ 0.03 $ 0.09 $ 0.09 =========== =========== ============ ==========
See notes to interim consolidated financial statements. -3- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JANUARY 1, 1995 AND DECEMBER 26, 1993 (UNAUDITED)
January 1, December 26, (dollars in thousands) 1995 1993 ---------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Earnings $ 8,530 $ 6,752 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,307 4,001 Deferred income taxes (87) 226 Gain on disposal of property, plant and equipment (80) (203) Changes in assets and liabilities: Accounts receivable 8,207 (985) Inventories (4,083) (4,132) Other current assets (409) (436) Other assets (868) 758 Accounts payable (1,112) (515) Income taxes payable 812 1,489 Accrued liabilities (214) 1,822 Other liabilities 35 (96) ---------- --------- Net Cash Provided by Operating Activities 16,038 8,681 ---------- --------- INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment 1,050 523 Capital expenditures (15,255) (7,094) ---------- --------- Net Cash Used for Investing Activities (14,205) (6,571) ---------- --------- FINANCING ACTIVITIES: Payment of long-term debt (5,000) (2,000) Increase in notes payable 3,282 243 Exercise of stock options 924 496 Cash dividends (761) (753) ---------- ---------- Net Cash Used For Financing Activities (1,555) (2,014) ---------- --------- NET INCREASE IN CASH (carried forward) $ 278 $ 96
-4- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JANUARY 1, 1995 AND DECEMBER 26, 1993 (UNAUDITED)
January 1, December 26, (dollars in thousands) 1995 1993 ----------------------------------------------------------------------------------------------------------- NET INCREASE IN CASH (brought forward) $ 278 $ 96 CASH, beginning of period 425 444 ------------ ----------- CASH, end of period $ 703 $ 540 ============ =========== Supplemental Cash Flow Information: Income taxes paid $ 4,452 $ 2,386 ============ =========== Interest paid net of amounts capitalized $ 1,489 $ 1,147 ============ ===========
See notes to interim consolidated financial statements. -5- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. The accompanying interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, such interim consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of January 1, 1995 and the results of its operations and its cash flows for the periods ended January 1, 1995 and December 26, 1993. Such adjustments include normal recurring accruals and a pro rata portion of certain estimated annual expenses. 2. Interest costs of $106,000 and $396,000 were capitalized during the nine month periods ended January 1, 1995 and December 26, 1993, respectively. 3. The computation of net earnings per share for the periods ended January 1, 1995 and December 26, 1993 is based on the simple average shares outstanding. Stock options outstanding did not have a dilutive effect during either period. 4. Major classes of inventory were as follows (in thousands):
January 1, April 3, 1995 1994 ---- ---- Raw Materials $27,963 $23,321 Work in process 1,676 3,421 Finished goods 19,566 18,380 ------ ------- $49,205 $45,122 ======= =======
5. Operating results of interim periods are not necessarily indicative of results to be expected for the year. 6. Certain reclassifications have been made to the December 26, 1993 financial statements to conform to the January 1, 1995 presentation. -6- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales by major product category were as follows for each of the three month and nine month periods ended January 1, 1995 and December 26, 1993 (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- January December January December 1, 1995 26, 1993 1, 1995 26, 1993 -------------------------- ------------------------- Comforters and accessories $25,346 $31,744 $ 80,356 $ 83,425 Jacquard-woven cotton products 31,451 22,623 68,368 50,473 Other 2,905 1,914 6,636 3,940 ------- ------- -------- -------- Total net sales $59,702 $56,281 $155,360 $137,838 ======= ======= ======== ========
THREE MONTH PERIOD ENDED JANUARY 1, 1995 Consolidated net sales increased 6.1% in the quarter ended January 1, 1995 as compared to the quarter ended December 26, 1993. The current year quarter included one less week of shipping due to a scheduled week-long holiday shutdown. This shutdown did not occur until the fourth fiscal quarter in the prior year. Net sales of comforters and accessories declined 20.2% compared to the prior year quarter. In addition to the loss of one full week of shipping, import quota restrictions on hand-made quilts from China and quality problems in fabrics manufactured by the Company's supplier for the popular Royal Sateen luxury brand also had a significant effect on net sales for the current year quarter. The Company and its Royal Sateen fabric supplier believe the quality problems, which were related to Egyptian cotton supplies, have been remedied. However, as a result of these problems, over the last several months the Company received only sporadic shipments of acceptable material. The Company expects to return to normal customer service levels for these products by April. The jacquard-woven products category continued its strong growth with a net sales increase of 39.0% over the prior year quarter, primarily due to increased unit sales of cotton throws. This product category includes cotton throws, bedspreads, blankets and rugs. The Company expects a long-term worldwide trend of increased demand for jacquard-woven cotton products. The manufacturing capacity expansion completed during this fiscal year plus significant production from the Company's strategic partner in Mexico have not been sufficient to meet current demands. To support this growth, the Company recently initiated plans for capital projects that will triple production capacity for matelasse bedspreads and increase cotton throw capacity by over fifty percent. These capital projects include a new weaving plant in Dalton, Georgia and an expansion of the distribution center in Calhoun, Georgia. These projects will be completed during the second quarter of fiscal 1996 at an estimated cost of $20 million. -7- The devaluation of the peso and the resulting impact on the Mexican economy is not expected to have a significant impact on the level of business done with the Company's partner in Mexico. The sale of products which the Company purchases from Mexico has not been affected. The Company is planning growth in this area, but the extent of that growth is unclear at this time. Plans for sales into Mexico are being scaled back. Such sales have not been significant in the past. Gross margin was 24.3% for the quarter ended January 1, 1995 compared to 20.9% for the quarter ended December 26, 1993. This improvement was due in part to the automated warehouses in Roxboro, North Carolina and Calhoun, Georgia operating at full efficiency throughout the quarter. Also, gross margin in the prior year quarter was negatively impacted by higher costs incurred due to the unanticipated need to air freight certain Chinese hand-made quilt styles to meet strong customer demand and inventory write-downs on slow moving styles. Marketing and administrative expenses increased $1,037,000 or 15.7% in the current year quarter. The increase was primarily attributable to increased staffing and occupancy costs to support the overall growth in the Company's business. The effective income tax rate increased to 37.5% in the current year quarter compared to 36.7% in the prior year quarter due to anticipated higher effective income tax rates. NINE MONTH PERIOD ENDED JANUARY 1, 1995 Consolidated net sales increased 12.7% for the nine months ended January 1, 1995 as compared to the corresponding prior year period. Net sales of comforters and accessories declined 3.7% for the current year nine month period due to the decline which occurred in the third fiscal quarter as explained under "RESULTS OF OPERATIONS" for the three month period ended January 1, 1995. Net sales of jacquard-woven cotton products increased 35.5% for the current year nine month period primarily due to increased unit sales of cotton throws. Gross margin improved to 22.4% for the nine month period ended January 1, 1995 as compared to 20.4% for the nine month period ended December 26, 1993. The increase was the result of improved product mix, the operating efficiencies achieved at the Company's automated warehouses in Roxboro and Calhoun and the costs incurred in the prior year third fiscal quarter in connection with Chinese hand-made quilts and the inventory write-downs on slow moving styles. Marketing and administrative expenses increased by $3,506,000 or 21.0% during the nine month period ended January 1, 1995 as compared to the corresponding prior year period. The increase was primarily attributable to increased staffing and occupancy costs to support the overall growth in the Company's business. Increased advertising expenses for product promotion and increased factoring fees due to the higher sales volume also contributed to the increase. Excluding the effect of capitalized interest, interest expense increased by .9% in the first nine months of the current year. Capitalized interest was $106,000 and $396,000 during the nine month periods ended January 1, 1995 and December 26, 1293, respectively. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company's financial position remains strong. Shareholders' equity increased to $84.1 million at January 1, 1995 from $75.4 million at April 3, 1994. Working capital decreased to -8- $34.5 million at January 1, 1995 from $40.6 million at April 3, 1994 as the Company utilized funds of $15.3 million for capital expenditures, primarily in connection with the construction of the Calhoun Distribution Center and the purchase of additional weaving equipment for existing Georgia locations. These projects were completed during the first quarter of the fiscal year. The Company also repaid $5.0 million of long-term debt. The ratio of debt to equity was 0.3:1 at both January 1, 1995 and April 3, 1994. The Company maintains lines of credit with two banks aggregating $30.0 million which are used as needed. Total borrowings outstanding under these lines at January 1, 1995 were $13.1 million. To fund the capacity expansion for the jacquard-woven product line as explained under "RESULTS OF OPERATIONS" for the three month period ended January 1, 1995, the Company will use cash generated from operations, borrowings under the credit lines described above and is also considering the use of additional long-term debt financing. -9- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Changes in Securities None Item 3 - Defaults Upon Senior Securities None Item 4 - Submission of Matters to Vote of Security Holders None Item 5 - Other Information None Item 6 - Exhibits and Reports on Form 8-K 27 Financial Data Schedule (for SEC use only) -10- FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES JANUARY 1, 1995 SIGNATURES Pursuant to the requirements of the securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CROWN CRAFTS, INC. ------------------------------- Date: February 14, 1995 /s/ Robert E. Schnelle ------------------ -------------------------------- ROBERT E. SCHNELLE Treasurer (Chief Accounting Officer) -11- INDEX TO EXHIBITS ----------------- Exhibit Number Description - ------- ----------------------- 27 Financial Data Schedule (for SEC use only)