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 October 1, 1995
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-7604
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CROWN CRAFTS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-0678148
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 Riveredge Parkway, Suite 200, Atlanta, Georgia 30328
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(Address of principal executive offices)
(770) 644-6400
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(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 November 10, 1995 was 7,943,980.
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
OCTOBER 1, 1995 (UNAUDITED) AND APRIL 2, 1995
October 1, April 2,
(dollars in thousands) 1995 1995
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ASSETS
------
CURRENT ASSETS
Cash $ 437 $ 567
Accounts receivable, net:
Due from factor 27,190 20,657
Other 3,975 4,382
Inventories 58,622 44,909
Deferred income taxes 735 737
Other current assets 3,022 2,152
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Total Current Assets 93,981 73,404
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PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 35,998 32,060
Construction projects in progress 3,631 666
Machinery and equipment 65,181 54,584
Furniture and fixtures 1,785 1,735
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106,595 89,045
Less accumulated depreciation 33,364 29,583
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Property, Plant and Equipment - net 73,231 59,462
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OTHER ASSETS 4,130 1,165
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TOTAL $ 171,342 $ 134,031
=========== ===========
See notes to interim consolidated financial statements.
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS
OCTOBER 1, 1995 (UNAUDITED) AND APRIL 2, 1995
October 1, April 2,
(dollars in thousands) 1995 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 15,070
Accounts payable $ 12,159 10,666
Income taxes payable 2,012 687
Accrued liabilities 6,663 5,026
Current maturities of long-term debt 5,584 5,000
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Total Current Liabilities 26,418 36,449
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LONG-TERM DEBT 56,990 5,000
-------- --------
DEFERRED INCOME TAXES 5,208 4,933
-------- --------
OTHER LIABILITIES 674 649
-------- --------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
15,000,000 shares authorized; 9,048,636 and
9,003,991 shares issued 9,049 9,004
Paid-in capital 34,349 33,811
Retained earnings 53,430 51,352
Less:
1,104,656 and 464,188 shares of common
stock held in treasury (14,776) (7,167)
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Total Shareholders' Equity 82,052 87,000
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TOTAL $171,342 $134,031
======== ========
See notes to interim consolidated financial statements.
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (Continued)
CONSOLIDATED STATEMENTS OF EARNINGS
OCTOBER 1, 1995 AND OCTOBER 2, 1994
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
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(dollars in thousands, except Oct. 1, Oct. 2, Oct. 1, Oct. 2,
per share data) 1995 1994 1995 1994
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NET SALES $ 57,330 $ 55,945 $ 96,537 $ 95,658
COST OF PRODUCTS SOLD 45,087 43,277 76,743 75,290
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GROSS PROFIT 12,243 12,668 19,794 20,368
MARKETING AND
ADMINISTRATIVE EXPENSES 7,599 7,144 14,093 12,549
---------- ---------- ----------- ----------
EARNINGS FROM OPERATIONS 4,644 5,524 5,701 7,819
OTHER INCOME (EXPENSE):
Interest expense (684) (592) (1,213) (955)
Other - net (578) 49 (378) 81
---------- ---------- ----------- ----------
EARNINGS BEFORE INCOME
TAXES 3,382 4,981 4,110 6,945
PROVISIONS FOR INCOME
TAXES 1,264 1,859 1,536 2,580
---------- ---------- ----------- ----------
NET EARNINGS $ 2,118 $ 3,122 $ 2,574 $ 4,365
========== ========== =========== ==========
NET EARNINGS PER SHARE $ 0.26 $ 0.37 $ 0.31 $ 0.52
========== ========== =========== ==========
AVERAGE SHARES
OUTSTANDING 8,046,468 8,438,049 8,305,949 8,429,809
========== ========== =========== ==========
DIVIDENDS DECLARED PER
SHARE $ 0.03 $ 0.03 $ 0.06 $ 0.06
========== ========== =========== ==========
See notes to interim consolidated financial statements.
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 1, 1995 AND
OCTOBER 2, 1994
(UNAUDITED)
October 1, October 2,
(dollars in thousands) 1995 1994
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OPERATING ACTIVITIES:
Net earnings $ 2,574 $ 4,365
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization 4,284 3,540
Deferred income taxes 2 (87)
Gain on disposal of property, plant and equipment (66) (15)
Changes in assets and liabilities:
Accounts receivable (5,813) (549)
Inventories (13,713) (7,680)
Other current assets (850) (660)
Other assets 30 (193)
Accounts payable 1,483 2,517
Income taxes payable 1,086 1,882
Accrued liabilities 1,575 540
Other liabilities 25 23
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Net Cash Provided by (used for) Operating Activities (9,383) 3,683
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INVESTING ACTIVITIES:
Capital Expenditures (15,540) (10,343)
Acquisition, net of cash acquired (3,958)
Proceeds from sale of property, plant and equipment 333 107
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Net Cash Used for Investing Activities (19,165) (10,236)
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FINANCING ACTIVITIES:
Long-term borrowings 53,860
Payment of long-term debt (2,850) (2,500)
Increase (decrease) in notes payable (15,070) 9,713
Purchase of common stock for treasury (7,534)
Exercise of stock options 508 292
Cash dividends (496) (506)
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Net Cash Provided by Financing Activities 28,418 6,999
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NET INCREASE (DECREASE) IN CASH
(carried forward) $ (130) $ 446
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 1, 1995 AND
OCTOBER 2, 1994
(UNAUDITED)
October 1, October 2,
(dollars in thousands) 1995 1994
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NET INCREASE (DECREASE) IN CASH
(brought forward) $ (130) $ 446
CASH, beginning of period 567 425
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CASH, end of period $ 437 $ 871
======== ========
Supplemental Cash Flow Information:
Income taxes paid $ 449 $ 785
======== ========
Interest paid net of amounts capitalized $ 1,020 $ 968
======== ========
See notes to interim consolidated financial statements.
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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 October 1, 1995 and the results of its operations and its
cash flows for the periods ended October 1, 1995 and October 2, 1994. Such
adjustments include normal recurring accruals and a pro rata portion of
certain estimated annual expenses.
2. Interest costs of $269,000 were capitalized during the three month period
ended October 1, 1995. There was no capitalized interest during the three
month period ended October 2, 1994. Interest costs of $383,000 and $67,000
were capitalized during the six month periods ended October 1, 1995 and
October 2, 1994, respectively.
3. The computation of net earnings per share for the three-month and six-month
periods ended October 1, 1995 and October 2, 1994 is based on the simple
average shares outstanding. Stock options outstanding did not have a
material dilutive effect during either period.
4. Major classes of inventory were as follows (in thousands):
October 1, April 2,
1995 1995
---- ----
Raw materials $30,191 $24,846
Work in process 5,712 2,831
Finished goods 22,719 17,232
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$58,622 $44,909
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5. Long-Term Debt at October 1, 1995, includes notes payable of $23,860,000
which were refinanced under a long-term note agreement effective October
12, 1995.
6. Operating results of interim periods are not necessarily indicative of
results to be expected for the year.
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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 during the three-month and
six-month periods ended October 1, 1995 and October 2, 1994:
Three Months Ended Six Months Ended
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Oct. 1, Oct. 2, Oct. 1, Oct. 2,
(in thousands of dollars) 1995 1994 1995 1994
------------------------- ---- ---- ---- ----
Comforters and accessories $28,452 $29,967 $50,084 $55,010
Jacquard-woven cotton products 26,387 23,901 41,916 36,917
Other 2,491 2,077 4,537 3,731
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Total net sales $57,330 $55,945 $96,537 $95,658
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THREE MONTH PERIOD ENDED OCTOBER 1, 1995.
Consolidated net sales increased 2.5% for the quarter ended October 1, 1995
compared to the prior year quarter.
Net sales of comforters and accessories declined 5.1% from the prior year
quarter. The weakness in consumer spending in this category which began in the
first quarter continued in the second quarter ended October 1, 1995.
Net sales of jacquard-woven cotton products increased 10.4% in the current year
quarter primarily due to increased unit sales of cotton throws and matelasse
bedspreads. This product category includes cotton throws, bedspreads, blankets
and rugs.
To meet the expected demand for jacquard-woven products, the Company recently
completed the expansion of its warehouse and distribution center in Calhoun,
Georgia and its new 90,000 square foot weaving plant in Dalton, Georgia which
houses 36 state-of-the-art air-jet looms. The completion of these projects
triples the Company's production capacity for matelasse bedspreads and
increases its cotton throw capacity by over forty percent.
Gross margin declined to 21.4% for the quarter ended October 1, 1995 as
compared to 22.6% for the quarter ended October 2, 1994. The decline was due
to increased pricing pressure and higher raw material prices.
Interest expense is net of capitalized interest of $269,000 for the quarter
ended October 1, 1995. There was no capitalized interest during the
corresponding prior year quarter. Excluding the effect of interest
capitalized, interest expense increased $361,000 in the current year quarter.
The increase was due to higher levels of average total debt outstanding as
discussed under "FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES" and also
higher short-term interest rates.
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Other-net for the quarter ended October 1, 1995 was an expense of $578,000
compared to income of $49,000 for the quarter ended October 2, 1994. This
change was primarily the result of losses incurred on cotton futures contracts
of $626,000 in the current year quarter as compared to losses of $32,000 in the
prior year quarter.
SIX MONTH PERIOD ENDED OCTOBER 1, 1995
Consolidated net sales increased .9% for the six months ended October 1, 1995
as compared to the corresponding prior year period.
Net sales of comforters and accessories declined 9.0% for the current year six
month period. Weakness in consumer spending in this category caused retailers
to tighten their inventory positions thereby reducing orders for the Company's
products. Also, chronically late shipments, especially during the last six
months of fiscal 1995, by the Company's fabric supplier for the popular Royal
Sateen luxury product line prevented the Company from meeting its customers'
needs for luxury bedding products. Although the manufacturing problems which
caused the late shipments were resolved and normal shipping levels resumed in
the first quarter of the current fiscal year, it took additional time and
considerable effort to reestablish the momentum in the brand with many large
customers. Sales of Royal Sateen products increased in the second quarter of
the current year compared to the second quarter of the prior year. However,
for the current year six month period sales in this product line were below the
prior year.
Net sales of jacquard-woven cotton products increased 13.5% for the current
year six month period primarily due to increased unit sales of cotton throws
and matelasse bedspreads.
Gross margin declined to 20.5% for the six month period ended October 1, 1995
compared to 21.3% for the six month period ended October 2, 1994. The decline
was due to increased pricing pressure and higher raw material prices.
Marketing and administrative expenses increased by $1,544,000 or 12.3% during
the six month period ended October 1, 1995 as compared to the corresponding
prior year period in large part due to the Company's efforts to strengthen its
management team to pursue acquisitions and other expansion opportunities which
offer significant potential for profitable growth.
Interest expense is net of capitalized interest of $383,000 and $67,000 for the
six month periods ended October 1, 1995 and October 2, 1994, respectively.
Excluding the effect of interest capitalized, interest expense increased
$574,000 in the current year six month period. The increase was due to higher
levels of average total debt outstanding as discussed under "FINANCIAL
POSITION, LIQUIDITY AND CAPITAL RESOURCES" and also higher short-term interest
rates.
Other-net for the six month period ended October 1, 1995 was an expense of
$378,000 compared to income of $81,000 for the corresponding prior year period.
This change was primarily the result of losses incurred on cotton futures
contracts of $564,000 in the current year period as compared to losses of
$135,000 in the prior year period.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company strengthened its financial position significantly during the
current period. A long-term revolving credit facility was negotiated with each
of its two major banks. The aggregate amount of these lines is $30 million at
variable interest rates based on LIBOR with a maturity date of August 25, 1998.
-8-
The Company also entered into a $50 million note purchase and private shelf
agreement with the Prudential Insurance Company of America. The initial
borrowing under this facility was for $25 million for a term of 10 years at a
fixed rate of 7.27%. The remaining $25 million of the facility may be borrowed
at any time through October 12, 1997. The maturity and interest rate on those
funds will be determined at the time of borrowing. Those funds will be
available for future acquisitions, capital expenditures and other corporate
purposes.
The proceeds from the bank lines and the initial borrowing under the note
purchase and private shelf facility were used to reduce the Company's
short-term borrowings, fund capital expenditures and repurchase stock as
described below.
On April 3, 1995, the Company acquired all of the stock of Textile, Inc., a
contract manufacturer of jacquard-woven cotton products located in Ronda, North
Carolina. The acquisition provided the Company with immediate access to
weaving capacity for cotton throws.
On July 12, 1995, the Company's Board of Directors authorized the repurchase of
up to 1,000,000 shares of its common stock. Through October 1, 1995 the
Company had repurchased 636,200 shares at an average price per share of
$11.843.
On October 31, 1995, the Company acquired all of the stock of The Red Calliope
and Associates, Inc. for approximately $16 million in cash and short-term
notes. The Red Calliope is a leading designer, manufacturer and marketer of
infant bedding products and related accessories. Utilizing its significant
jacquard-weaving expertise, the Company plans to introduce a line of infant and
juvenile throws incorporating The Red Calliope designs, and to extend its
upscale comforter designs to infant bedding. The Red Calliope, formerly a
privately-owned company, had net sales of $27,338,000 for its most recently
completed fiscal year ended June 30, 1995.
Working capital increased to $67.6 million at October 1, 1995 from $37.0
million at April 2, 1995. This was due mainly to a reduction in notes payable
of $15.1 million and an increase in inventories of $13.7 million which, among
other things, were financed by an increase in long-term debt.
Total debt outstanding increased to $62.6 million at October 1, 1995 from $25.1
million at April 2, 1995. The ratio of debt to equity was 0.8:1 at October 1,
1995, and 0.3:1 at April 2, 1995. The Company's borrowing needs increased as
it utilized funds of $15.5 million for capital expenditures primarily in
connection with the Calhoun Distribution Center expansion and the Dalton
weaving facility project. Expenditures of $4.0 million for the acquisition of
Textile, Inc. and $7.5 million for common stock repurchases, and financing
needs for the increased inventory levels also were met through additional
borrowings.
Inventories increased to $58.6 million at October 1, 1995 from $44.9 million at
April 2, 1995. This increase was partly attributable to producing inventory
based on anticipated customer order levels that were higher than the actual
order volume received, and a normal inventory build up to bring stock to
adequate levels to meet the heavier shipping demands of the fall season. The
Company is focusing efforts on an inventory reduction plan, which combined with
the inventory declines that normally occur in the third and fourth fiscal
quarters, should result in inventory levels at the end of the fiscal year being
equal to or below the prior year-end levels exclusive of inventories of
acquired companies.
In addition to the long-term revolving credit facilities described above, The
Company has short-term credit lines with two banks aggregating $40.0 million
which are used as needed.
-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
The Registrant's Annual Meeting of Shareholders was held on August 8,
1995. The following matters were submitted to a vote of security
holders of the Registrant through the solicitation of proxies.
Amendment to the Crown Crafts, Inc. Bylaws to classify the Company's
Board of Directors
A proposal to amend the Company's Bylaws to divide the Board into
three classes as nearly equal in size as possible was passed. After
a start-up period during which two classes will be elected for
one-year and two-year terms, the term of office of the directors of
each class shall expire at the third annual meeting after their
election. There were 3,935,394 shares voted in favor of the
amendment, 2,535,304 shares against the amendment, and 1,292,881
abstentions.
Directors of the Registrant were elected as follows:
Three Year Term: Two Year Term: One Year Term:
---------------- -------------- --------------
Michael H. Bernstein E. Randall Chestnut Philip Bernstein
Paul A. Criscillis, Jr. Roger D. Chittum Rudolph J. Schmatz
Richard N. Toub Patricia G. Knoll Jane E. Shivers
Alfred M. Swiren
Amendment to the Crown Crafts, Inc. Articles of Incorporation to
increase authorized Common Stock
A proposal to amend the Company's Articles of Incorporation to
provide for an increase to 50,000,000 the number of authorized shares
of common stock, $1.00 par value was passed. There were 5,812,624
shares voted in favor of the amendment, 1,937,516 shares against the
amendment, and 13,439 abstentions.
-10-
Amendment to the Crown Crafts, Inc. Articles of Incorporation to
authorize a new class of Preferred Stock
A proposal to amend the Company's Articles of Incorporation to
authorize the creation of a new class of 10,000,000 shares of
Preferred Stock was defeated. Approval would have required the
affirmative vote of two-thirds of the outstanding shares. There
were 4,114,433 shares voted in favor of the amendment, 2,361,042
shares against the amendment, and 1,288,104 abstentions.
Adoption of the Crown Crafts, Inc. 1995 Stock Option Plan
A proposal to approve the Crown Crafts, Inc. 1995 Stock Option Plan
was passed. There were 5,046,226 shares in favor of the proposal,
1,420,669 shares against the proposal, and 1,296,684 abstentions.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(A) EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
3(a) Restated Articles of Incorporation of Registrant
3(b) Bylaws of Registrant
10(a)(viii) Letter Agreement with The Prudential Insurance Company of
America dated October 12, 1995
10(b)(iv) Crown Crafts, Inc. 1995 Stock Option Plan
10(b)(v) Form of Nonstatutory Stock Option Agreement (pursuant to 1995
Stock Option Plan)
10(b)(vi) Form of Nonstatutory Stock Option Agreement for Nonemployee
Directors (pursuant to 1995 Stock Option Plan)
10(c) Revolving Credit Agreement dated August 22, 1995 with
NationsBank, National Association (Carolinas)
10(d) Revolving Credit Agreement dated August 22, 1995 with Wachovia
Bank of Georgia, N.A.
10(e) Note Purchase and Private Shelf Facility dated October 12, 1995
with The Prudential Insurance Company of America
27 Financial Data Schedule (for SEC use only)
(B) In the quarter ended October 1, 1995, the Company filed one report
on Form 8-K:
(1) Form 8-K dated August 22, 1995, covering Items 5 and 7.
-11-
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
OCTOBER 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: November 15, 1995 /s/ Robert E. Schnelle
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ROBERT E. SCHNELLE
Treasurer
(Chief Accounting Officer)
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