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 September 29, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File 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 11, 1996 was 7,944,201.
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART 1 - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 (UNAUDITED) AND MARCH 31, 1996
September 29, March 31,
(dollars in thousands) 1996 1996
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ASSETS
CURRENT ASSETS
Cash $ 414 $ 517
Accounts receivable, net:
Due from factor 35,330 27,943
Other 5,664 12,901
Inventories 57,846 47,269
Deferred income taxes 1,487 1,510
Other current assets 3,167 3,474
-------- --------
Total Current Assets 103,908 93,614
-------- --------
PROPERTY, PLANT AND EQUIPMENT - at cost:
Land, buildings and improvements 45,855 44,274
Machinery and equipment 65,739 65,782
Furniture and fixtures 1,596 1,544
-------- --------
113,190 111,600
Less accumulated depreciation 38,092 34,265
-------- --------
Property, Plant and Equipment - net 75,098 77,335
-------- --------
OTHER ASSETS
Goodwill 13,240 13,526
Other 1,588 1,223
-------- --------
Total Other Assets 14,828 14,749
-------- --------
TOTAL $193,834 $185,698
======== ========
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
SEPTEMBER 29, 1996 (UNAUDITED) AND MARCH 31, 1996
September 29, March 31,
(dollars in thousands) 1996 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,450 $ 1,180
Accounts payable 19,371 12,480
Income taxes payable 851 46
Accrued wages and benefits 4,474 3,607
Other accrued liabilities 5,007 3,332
Current maturities of long-term debt 2,600 5,100
-------- --------
Total Current Liabilities 35,753 25,745
-------- --------
LONG-TERM DEBT 67,300 69,300
-------- --------
DEFERRED INCOME TAXES 6,937 6,936
-------- --------
OTHER LIABILITIES 726 700
-------- --------
SHAREHOLDERS' EQUITY:
Common stock - par value $1.00 per share;
50,000,000 shares authorized;
9,050,636 shares issued 9,051 9,051
Paid-in capital 34,438 34,438
Retained earnings 54,428 54,327
Less:
1,106,435 shares of common
stock held in treasury (14,799) (14,799)
-------- --------
Total Shareholders' Equity 83,118 83,017
-------- --------
TOTAL $193,834 $185,698
======== ========
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
SEPTEMBER 29, 1996 (UNAUDITED) AND OCTOBER 1, 1995
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
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(dollars in thousands, except Sept. 29, Oct. 1, Sept. 29, Oct. 1,
per share data) 1996 1995 1996 1995
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NET SALES $ 74,848 $ 57,330 $ 119,248 $ 96,537
COST OF PRODUCTS SOLD 59,469 45,087 96,957 76,743
--------- --------- --------- ---------
GROSS PROFIT 15,379 12,243 22,291 19,794
MARKETING AND
ADMINISTRATIVE EXPENSES 10,760 7,650 18,974 14,196
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 4,619 4,593 3,317 5,598
OTHER INCOME (EXPENSE):
Interest expense (1,308) (684) (2,567) (1,213)
Other - net 98 (527) 292 (275)
--------- --------- --------- ---------
EARNINGS BEFORE INCOME
TAXES 3,409 3,382 1,042 4,110
PROVISIONS FOR INCOME
TAXES 1,488 1,264 464 1,536
--------- --------- --------- ---------
NET EARNINGS $ 1,921 $ 2,118 $ 578 $ 2,574
========= ========= ========= =========
NET EARNINGS PER SHARE $ 0.24 $ 0.26 $ 0.07 $ 0.31
========= =========== =========== =========
AVERAGE SHARES
OUTSTANDING 7,944,201 8,046,468 7,944,201 8,305,949
========= =========== =========== =========
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 SEPTEMBER 29, 1996 AND
OCTOBER 1, 1995(UNAUDITED)
September 29, October 1,
(dollars in thousands) 1996 1995
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OPERATING ACTIVITIES:
Net earnings $ 578 $ 2,574
Adjustments to reconcile net earnings to net
cash provided by (used for) operating activities:
Depreciation and amortization of property,
plant and equipment 4,927 4,284
Amortization of goodwill 286 103
Deferred income taxes 24 2
Gain on disposal of property, plant and equipment (118) (66)
Changes in assets and liabilities:
Accounts receivable (150) (5,813)
Inventories (10,577) (13,713)
Other current assets 307 (850)
Other assets (365) (73)
Accounts payable 6,891 1,483
Income taxes payable 805 1,086
Accrued liabilities 2,542 1,575
Other liabilities 26 25
--------- --------
Net Cash Provided by (Used for) Operating Activities 5,176 (9,383)
--------- --------
INVESTING ACTIVITIES:
Capital expenditures (2,908) (15,540)
Acquisition, net of cash acquired (3,958)
Proceeds from sale of property, plant and equipment 336 333
--------- --------
Net Cash Used for Investing Activities (2,572) (19,165)
--------- --------
FINANCING ACTIVITIES:
Payment of long-term debt (2,500) (2,850)
Decrease in bank revolving credit (2,000)
Long-term borrowings 53,860
Increase (decrease) in notes payable 2,270 (15,070)
Purchase of common stock for treasury (7,534)
Exercise of stock options 508
Cash dividends (477) (496)
--------- --------
Net Cash Provided (Used for) by Financing Activities (2,707) 28,418
--------- --------
NET DECREASE IN CASH
(carried forward) $ (103) $ (130)
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FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 29, 1996 AND
OCTOBER 1, 1995
(UNAUDITED)
September 29, October 1,
(dollars in thousands) 1996 1995
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NET DECREASE IN CASH
(brought forward) $ (103) $ (130)
CASH, beginning of period 517 567
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CASH, end of period $ 414 $ 437
====== ======
Supplemental Cash Flow Information:
Income taxes paid $ 79 $ 449
====== ======
Interest paid net of amounts capitalized $1,187 $1,020
====== ======
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 September 29, 1996 and the results of its
operations and its cash flows for the periods ended September 29, 1996 and
October 1, 1995. Such adjustments include normal recurring accruals and a
pro rata portion of certain estimated annual expenses.
2. The computations of net earnings per share for the three-month and
six-month periods ended September 29, 1996 and October 1, 1995 are based
on the simple average shares outstanding. Stock options outstanding did
not have a material dilutive effect during any of the periods presented.
3. Major classes of inventory were as follows (in thousands):
Sept. 29, March 31,
1996 1996
-------- -------
Raw materials $27,974 $23,076
Work in process 5,389 2,916
Finished goods 24,483 21,277
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$57,846 $47,269
======= =======
4. On October 28, 1996, Hans Benjamin Furniture, Inc., a 51-percent-owned
subsidiary of the Company, was notified by the California Bureau of Home
Furnishings that its juvenile foam furniture products had been tested and
found not to comply with California flammability standards for upholstered
furniture. The Bureau issued a statewide off-sale order for these
products. On the same day, Hans Benjamin received a letter from the
Office of the District Attorney in Sacramento, California stating that the
products also appear to be mislabeled and stating that the law allows it
to bring a lawsuit for an injunction and civil penalties. The letter also
requests representatives of Hans Benjamin to meet and provide certain
information. Hans Benjamin is cooperating with the District Attorney's
Office and the Bureau of Home Furnishings and with retailers to remove the
subject products from sale. Hans Benjamin has also notified the U.S.
Consumer Product Safety Commission that the labeling on these products may
be inaccurate and is considering the possible need for corrective action
nationally. However, the Company does not believe that the products pose
a substantial risk of hazard as the label warns consumers to avoid an open
flame or contact with burning cigarettes. Since it began conducting
business in 1993, Hans Benjamin has sold approximately $4.0 million of the
subject products. The Company is unable to assess with any degree of
certainty at this time the impact that these matters may have on the
Company's financial condition or results of operations.
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 October 1, 1995 financial
statements to conform to the September 29, 1996 presentation.
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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
THREE MONTHS ENDED SEPTEMBER 29, 1996 COMPARED TO THE THREE MONTHS ENDED
OCTOBER 1, 1995
Consolidated net sales increased $17.5 million or 30.6% to $74.8 million in the
current year quarter. The increase was primarily attributable to incremental
net sales of $12.5 million from businesses acquired by the Company subsequent
to the end of the comparable prior year quarter and an increase in net sales of
throws, partially offset by declines in net sales of adult bedcovering
products.
Gross profit as a percentage of net sales declined to 20.5% for the quarter
ended September 29, 1996 from 21.4% for the quarter ended October 1, 1995,
primarily due to underutilization of production capacity at the Company's
comforter and accessories manufacturing facilities resulting from weaker demand
during the second quarter of the current year compared to the same quarter last
year.
Marketing and administrative expenses increased $3.1 million or 40.7% in the
current year quarter compared to the same quarter of last year. The incremental
marketing and administrative expenses of the businesses acquired subsequent to
the end of the comparable prior year quarter, accounted for $1.9 million of the
increase. The remainder of the increase was primarily attributable to increased
promotion, bad debt, rent, and depreciation expenses.
Interest costs incurred increased to $1.3 million in the current year quarter
from $1.0 million (including capitalized interest of $269,000) in the prior
year quarter. This increase was due to higher levels of debt outstanding. The
higher debt levels are attributable to fiscal 1996 capital expenditures of
$23.7 million, acquisitions of $20.5 million and purchases of treasury stock of
$7.5 million.
The effective income tax rate increased to 43.6% for the three month period
ended September 29, 1996 from 37.4% for the three month period ended October 1,
1995. This increase is attributable to an increase of $92,000 in financial
statement expenses for nondeductible amortization of goodwill and higher state
and local income tax rates applicable to acquired companies.
SIX MONTHS ENDED SEPTEMBER 29, 1996 COMPARED TO THE SIX MONTHS ENDED OCTOBER 1,
1995
Consolidated net sales increased $22.7 million or 23.5% to $119.2 million in
the six months ended September 29, 1996. The increase was primarily
attributable to incremental net sales of $22.3 million from businesses acquired
by the Company subsequent to the end of the same six month period in the prior
year. Net sales of throws also increased during the six month period compared
to the prior year while net sales of adult bedcovering products declined.
-7-
Gross profit as a percentage of net sales declined to 18.7% for the six months
ended September 29, 1996 from 20.5% for the same six months of last year,
primarily due to underutilization of production capacity at the Company's
primary manufacturing facilities. This underutilization resulted from
particularly weak demand for throws and bedcovering products in the first
quarter of the fiscal year. Capacity utilization at the Company's throw
manufacturing facilities improved dramatically in the second fiscal quarter as
demand strengthened. However, while demand for comforters and accessories
products improved in the second quarter, the demand was not enough to fully
utilize the Company's manufacturing facilities for these products.
Marketing and administrative expenses increased $4.8 million or 33.7% to $19.0
million in the current year six month period. The incremental marketing and
administrative expenses of the businesses acquired subsequent to the end of the
comparable prior year quarter, accounted for $3.4 million of the increase. The
remainder of the increase was primarily attributable to increased promotion,
bad debt, rent, and depreciation expenses.
Interest costs incurred increased to $2.6 million in the current year six month
period from $1.6 million (including capitalized interest of $383,000) in the
same period of the prior year. This increase was due to higher levels of debt
outstanding. The higher debt levels are attributable to fiscal 1996 capital
expenditures of $23.7 million, acquisitions of $20.5 million and purchases of
treasury stock of $7.5 million.
The effective income tax rate increased to 44.5% for the six month period ended
September 29, 1996 from 37.4% for the six month period ended October 1, 1995.
This increase is attributable to an increase of $183,000 in financial statement
expenses for nondeductible amortization of goodwill and higher state and local
income tax rates applicable to acquired companies.
FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The Company maintains uncommitted lines of credit totaling $40 million with two
banks at floating interest rates. Total borrowings outstanding under these
lines at September 29, 1996 were $3.5 million. The Company also has unsecured
committed revolving credit agreements totaling $30 million with two banks at
interest rates based on the London Interbank Offered Rate (LIBOR). There were
$17.0 million in borrowings outstanding under these agreements at September 29,
1996.
Total debt outstanding decreased to $73.3 million at September 29, 1996 from
$75.6 million at March 31, 1996. The ratio of debt to equity was 0.88:1 at
September 29, 1996 compared to 0.91:1 at March 31, 1996. The decrease in total
debt was attributable to cash flow provided by operating activities partially
offset by additional borrowings to fund an increase in property, plant, and
equipment.
Working capital increased slightly to $68.2 million at September 29, 1996 from
$67.9 million at March 31, 1996. Total inventories increased $10.5 million to
$57.8 million at September 29, 1996 from the $47.3 million at March 31, 1996.
This inventory buildup is a seasonal pattern to bring stock to adequate levels
to meet heavier shipping demands in the third quarter of the fiscal year.
-8-
OTHER MATTERS
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 121 addresses issues surrounding the measurement and recognition
of losses when the value of certain assets has been deemed to be permanently
impaired. This Statement was effective for the Company beginning April 1, 1996
and had no impact on the Company's financial position as of September 29, 1996,
or results of operations for the six month period then ended.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which was effective for the Company beginning April 1, 1996.
SFAS No. 123 establishes a method of accounting for stock compensation plans
based on fair value, but also permits companies to continue to account for
stock options under the intrinsic value method established by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The
Company will continue to account for stock-based compensation following the
intrinsic value method. SFAS No. 123 requires disclosure in the notes to
financial statements of pro forma net income and earnings per share as if the
alternative method established in SFAS No. 123 had been used to measure
compensation cost. The Company will disclose the required pro forma
information in the notes to its financial statements for the year ended March
30, 1997.
-9-
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1- Legal Proceedings
On October 28, 1996, Hans Benjamin Furniture, Inc., a 51-percent-owned
subsidiary of the Company, was notified by the California Bureau of Home
Furnishings that its juvenile foam furniture products had been tested and
found not to comply with California flammability standards for upholstered
furniture. The Bureau issued a statewide off-sale order for these
products. On the same day, Hans Benjamin received a letter from the
Office of the District Attorney in Sacramento, California stating that the
products also appear to be mislabeled and stating that the law allows it
to bring a lawsuit for an injunction and civil penalties. The letter also
requests representatives of Hans Benjamin to meet and provide certain
information. Hans Benjamin is cooperating with the District Attorney's
Office and the Bureau of Home Furnishings and with retailers to remove the
subject products from sale. Hans Benjamin has also notified the U.S.
Consumer Product Safety Commission that the labeling on these products may
be inaccurate and is considering the possible need for corrective action
nationally. However, the Company does not believe that the products pose
a substantial risk of hazard as the label warns consumers to avoid an open
flame or contact with burning cigarettes. Since it began conducting
business in 1993, Hans Benjamin has sold approximately $4.0 million of the
subject products. The Company is unable to assess with any degree of
certainty at this time the impact that these matters may have on the
Company's financial condition or results of operations.
Item 2- Changes in Securities
None
Item 3- Defaults Upon Senior Securities
None
Item 4- Submission of Matters to Vote of Security Holders
The following directors of the registrant were elected for a three
year term
Philip Bernstein
Rudolph J. Schmatz
Jane E. Shivers
Item 5- Other Information
None
Item 6- Exhibits and Reports on Form 8-K
27 Financial Data Schedule (for SEC use only)
There were no reports on Form 8-K during the quarter ended September 29,
1996.
-10-
FORM 10-Q
CROWN CRAFTS, INC. AND SUBSIDIARIES
SEPTEMBER 29, 1996
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 12, 1996 /s/ Robert E. Schnelle
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ROBERT E. SCHNELLE
Treasurer
(Chief Accounting Officer)
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