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 June 29, 1997 ------------- ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File 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 incorporation or organization) Identification No.) 1600 Riveredge Parkway, Suite 200, Atlanta, Georgia 30328 - ------------------------------------------------------------------------------- (Address of principal executive offices) (770) 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 August 6, 1997 was 7,963,955. FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES PART 1 - FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS JUNE 29, 1997 (UNAUDITED) AND MARCH 30, 1997
June 29, March 30, (in thousands) 1997 1997 - -------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash $ 355 $ 602 Accounts receivable, net: Due from factor 19,995 30,866 Other 7,134 7,496 Inventories 74,838 56,860 Deferred income taxes 2,318 2,392 Other current assets 4,887 3,307 -------- -------- Total Current Assets 109,527 101,523 -------- -------- PROPERTY, PLANT AND EQUIPMENT - at cost: Land, buildings and improvements 46,195 44,903 Machinery and equipment 68,423 68,435 Furniture and fixtures 1,635 1,487 -------- -------- 116,253 114,825 Less accumulated depreciation 44,129 41,809 -------- -------- Property, Plant and Equipment - net 72,124 73,016 -------- -------- OTHER ASSETS Goodwill 17,651 13,192 Other 2,202 1,825 -------- -------- Total Other Assets 19,853 15,017 -------- -------- TOTAL $201,504 $189,556 ======== ========
See notes to interim consolidated financial statements. 1 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED BALANCE SHEETS JUNE 29, 1997 (UNAUDITED) AND MARCH 30, 1997
June 29, March 30, (dollars in thousands, except par value per share) 1997 1997 - ------------------------------------------------------------------------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 1,150 Accounts payable 17,831 $ 13,212 Income taxes payable 901 1,336 Accrued wages and benefits 4,176 4,312 Accrued royalties 975 1,369 Other accrued liabilities 3,395 3,429 Current maturities of long-term debt 100 100 --------- --------- Total Current Liabilities 28,528 23,758 --------- --------- NON-CURRENT LIABILITIES Long-term debt 79,200 71,200 Deferred income taxes 7,752 7,877 Other 745 1,026 --------- --------- Total Current Liabilities 87,697 80,103 --------- --------- SHAREHOLDERS' EQUITY: Common stock - par value $1.00 per share; 50,000,000 shares authorized; 9,057,912 and 9,050,636 shares issued 9,058 9,051 Additional paid-in capital 34,504 34,438 Retained earnings 56,573 57,005 Less: 1,111,435 and 1,106,435 shares of common stock held in treasury (14,856) (14,799) --------- --------- Total Shareholders' Equity 85,279 85,695 --------- --------- TOTAL $ 201,504 $ 189,556 ========= =========
See notes to interim consolidated financial statements. 2 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (Continued) CONSOLIDATED STATEMENTS OF EARNINGS JUNE 29, 1997 AND JUNE 30, 1996 (UNAUDITED)
June 29, June 30, (in thousands, except per share data) 1997 1996 - --------------------------------------------------------------------------------- NET SALES $ 52,644 $ 44,400 COST OF PRODUCTS SOLD 42,079 37,488 ----------- ----------- GROSS PROFIT 10,565 6,912 MARKETING AND ADMINISTRATIVE EXPENSES 9,650 8,214 ----------- ----------- EARNINGS (LOSS) FROM OPERATIONS 915 (1,302) OTHER INCOME (EXPENSE): Interest expense (1,304) (1,258) Other - net 78 193 ----------- ----------- (LOSS) BEFORE INCOME TAXES (311) (2,367) PROVISIONS (CREDITS) FOR INCOME TAXES (117) (1,024) ----------- ----------- NET (LOSS) $ (194) $ (1,343) =========== =========== NET (LOSS) PER SHARE $ (0.02) $ (0.17) =========== =========== AVERAGE SHARES OUTSTANDING 7,946,340 7,944,201 =========== =========== DIVIDENDS DECLARED PER SHARE $ 0.03 $ 0.03 =========== ===========
See notes to interim consolidated financial statements. 3 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996 (UNAUDITED)
June 29, June 30, (in thousands) 1997 1996 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net loss $ (194) $ (1,343) Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization of property, plant and equipment 2,396 2,437 Amortization of goodwill 224 143 Deferred income taxes (51) 24 Gain on disposal of property, plant and equipment (21) (112) Changes in assets and liabilities: Accounts receivable 12,622 14,645 Inventories (15,951) (8,950) Other current assets (1,510) (169) Other assets (658) (330) Accounts payable 4,566 775 Income taxes payable (435) 48 Accrued liabilities (808) 68 Other liabilities 13 -------- -------- Net Cash Provided by Operating Activities 180 7,249 -------- -------- INVESTING ACTIVITIES: Capital expenditures (1,313) (1,647) Acquisitions, net of cash acquired (7,383) Proceeds from sale of property, plant and equipment 36 331 -------- -------- Net Cash Used For Investing Activities (8,660) (1,316) -------- -------- FINANCING ACTIVITIES: Payment of long-term debt (2,500) Increase (decrease) in bank revolving credit 8,000 (19,000) Increase in notes payable 455 15,570 Exercise of stock options 16 Cash dividends (238) (239) -------- -------- Net Cash Provided By (Used For) Financing Activities 8,233 (6,169) -------- -------- NET DECREASE IN CASH (carried forward) $ (247) $ (236) ======== ========
4 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS (continued) CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 29, 1997 AND JUNE 30, 1996 (UNAUDITED)
June 29, June 30, (dollars in thousands) 1997 1996 - ----------------------------------------------------------------- NET DECREASE IN CASH (brought forward) $ (247) $ (236) CASH, beginning of period 602 517 ------- ------- CASH, end of period $ 355 $ 281 ======= ======= Supplemental Cash Flow Information: Income taxes paid $ 369 $ 68 ======= ======= Interest paid net of amounts capitalized $ 1,336 $ 1,220 ======= =======
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 June 29, 1997 and the results of its operations and its cash flows for the periods ended June 29, 1997 and June 30, 1996. Such adjustments include normal recurring accruals and a pro rata portion of certain estimated annual expenses. 2. On March 31, 1997, the Company acquired all of the outstanding stock of Hamco, Inc., a manufacturer and marketer of infant soft goods, for a total purchase price of $7.5 million. This acquisition has been accounted for using the purchase method of accounting based on the estimated fair value of assets acquired and liabilities assumed resulting in the recording of approximately $4.7 million in goodwill. Operating results of Hamco, Inc. from the date of acquisition are included in the accompanying Consolidated Statement of Earnings for the period ending June 29, 1997. 3. The computation of net loss per share for the periods ended June 29, 1997 and June 30, 1996 was computed using the weighted average number of common shares outstanding. 4. Major classes of inventory were as follows (in thousands):
June 29, March 30, 1997 1997 ------- ------- Raw materials $31,740 $27,415 Work in process 4,909 1,961 Finished goods 38,189 27,484 ------- ------- $74,838 $56,860 ======= =======
5. Operating results of interim periods are not necessarily indicative of results to be expected for the year. 6 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 JUNE 29, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1996 On March 31, 1997 the Company acquired all of the outstanding stock of Hamco, Inc. ("Hamco"), a manufacturer and marketer of infant soft goods. The impact of the Hamco acquisition on the Company's consolidated results of operations for the quarter ended June 29, 1997 included net sales of $2.3 million and earnings before income taxes of $0.2 million. Excluding Hamco, consolidated net sales increased $5.9 million or 13.3% in the current year quarter. The increase was attributable to increased net sales of adult bedcoverings and infant/juvenile products partially offset by a decline in net sales of adult throws. Gross profit as a percentage of net sales increased to 20.1% for the quarter ended June 29, 1997 from 15.6% for the quarter ended June 30, 1996 primarily due to increased sales of higher margin products. Excluding Hamco, marketing and administrative expenses increased $1.0 million or 12.2% in the current year quarter. The increase is primarily due to increased employee costs, professional fees, bad debt expenses and promotional costs. The effective income tax rate decreased to 37.6% for the quarter ended June 29, 1997 from 43.3% for the quarter ended June 30, 1996. The decrease was due to lower effective state income tax rates as a result of various state tax credits earned. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES The Company maintains unsecured committed revolving credit facilities totaling $30 million with two commercial banks at interest rates based on the London Interbank Offered Rate (LIBOR). At June 29, 1997, borrowings of $29.0 million were outstanding under these facilities at a weighted average interest rate of 6.1 percent. The Company pays facility fees on the unused portions of these committed credit lines. The Company also maintains uncommitted lines of credit totaling $40 million with two commercial banks at floating interest rates. At June 29, 1997, borrowings of $1.2 million were outstanding under these lines. Among other covenants, these bank facilities contain a requirement that the Company maintain minimum levels of shareholders' equity, one effect of which is to restrict the payment of cash dividends. At June 29, 1997, retained earnings of approximately $9.0 million were available for dividend payments. Other covenants place restrictions on the amounts the Company may expend on acquisitions and purchases of treasury stock. 7 On March 31, 1997, the Company acquired all of the outstanding stock of Hamco, Inc., a manufacturer and marketer of infant soft goods, for a total purchase price of $7.5 million. This acquisition is consistent with the Company's strategy of growing infant and juvenile products to about one-third of its total business. The acquisition was financed by borrowings under the Company's revolving credit facilities. The Company continues to review appropriate acquisition opportunities as a significant part of its growth strategy. Although the Company cannot predict when, or if, further acquisitions will occur, the Company's various credit facilities or other forms of debt will likely continue to provide the funds necessary to finance its growth by this method. Working capital increased to $81.0 million at June 29, 1997 from $77.8 million at March 30, 1997. Total debt outstanding increased to $80.5 million at June 29, 1997 from $71.3 million at March 30, 1997. The ratio of debt to equity was 0.94:1 at June 29, 1997 compared to 0.83:1 at March 30, 1997. The increase in this ratio was primarily attributable to the increase in debt resulting from the acquisition of Hamco, Inc. and growth in inventories partially offset by a decrease in accounts receivable and an increase in accounts payable. Total inventories increased to $74.8 million at June 29, 1997 from $56.8 million at March 30, 1997. The Hamco acquisition accounted for $1.7 million of the increase. The remainder of the increase is a seasonal pattern to build inventories to meet heavier shipping demands in the second and third quarters of the fiscal year. The increase in the current year first quarter is larger than in prior years due to increased demand for some of the Company's imported products which have a longer lead time for delivery than domestically produced products. OTHER MATTERS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share which changes the method of reporting earnings per share by requiring a computation of basic and diluted earnings per share. This statement will become effective for the Company's fiscal 1998 third quarter. The computations required by this Statement would have had no impact on the loss per share reported for the quarters ended June 29, 1997 and June 30, 1996. 8 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 - Legal Proceedings In order to resolve certain disputes which have arisen between them, the Company and its Israeli supplier of Royal Sateen(R) fabric and products, Kitan Consolidated Ltd. ("Kitan"), have entered into binding arbitration before a three-person panel in Israel. In connection with the arbitration, the Company and Kitan exchanged claims documents on June 9 and 10, 1997. The Company's claims include a request for payment of $9.9 million in damages stemming primarily from Kitan's failure to make timely deliveries over a three-year period. Kitan's claims include a request for payment of $8.5 million for damages allegedly suffered primarily as a result of differences between the Company's forecasts of demand and its actual orders for Kitan's fabric and products. Each party's claims also request reimbursement of attorneys' fees and payment of interest from the respective date on which its claim was filed. The Company believes Kitan's claims are without merit, and the Company intends to vigorously pursue its claims and its defenses. Normal commerce between the companies is continuing during the arbitration process. 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
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS ------- ----------------------- 10(e)iii Letter Agreement dated July 29, 1997 with The Prudential Insurance Company of America 27 Financial Data Schedule (for SEC use only)
There were no reports on Form 8-K during the quarter ended June 29, 1997. 9 FORM 10-Q CROWN CRAFTS, INC. AND SUBSIDIARIES JUNE 29, 1997 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: August 12, 1997 /s/ Robert E. Schnelle --------------- -------------------------- ROBERT E. SCHNELLE Treasurer (Chief Accounting Officer) 10