1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 31, 1995
----------------------------
Crown Crafts, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 1-7604 58-0678148
- ------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
1600 RiverEdge Parkway, Suite 200, Atlanta, Georgia 30328
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 644-6400
---------------------------
2
Item 2. Acquisition or Disposition of Assets
Crown Crafts, Inc., a Georgia corporation (the "Company"), CC
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
the Company ("Merger Sub"), The Red Calliope and Associates, Inc., a California
corporation ("RCA"), and Neal Fohrman and Stanley Glickman, each shareholders
of RCA (collectively, the "Shareholders"), entered into a Merger Agreement
dated as of October 8, 1995, as amended by Amendment No. 1 thereto dated as of
October 31, 1995 (as amended, the "Merger Agreement"), pursuant to which the
Merger Sub was merged with and into RCA with RCA thereupon becoming a
wholly-owned subsidiary of the Company (the "Merger"). The Merger was
consummated and became effective as of October 31, 1995 (the "Closing").
Pursuant to the Merger Agreement, the issued and outstanding shares of
RCA immediately prior to the Merger (the "RCA Shares"), were converted into the
right to receive consideration, in the aggregate, of approximately $13.0
million of which $ 7.2 million was paid to certain of the holders of the RCA
Shares as of Closing in the form of cash and $ 5.8 million was paid to certain
of the holders of the RCA Shares as of Closing in the form of promissory notes
made by the Company, which notes are due and payable on January 10, 1996 and
which bear interest at a rate equal to 6.25% per annum. In addition, the
holders of the RCA Shares are entitled to receive cash in an amount equal to
the sum of: (i) the Adjustment Amount (as defined in the Merger Agreement);
(ii) the Environmental Reserve (as defined in the Merger Agreement); (iii) the
Tax Dispute Reserves (as defined in the Merger Agreement); and (iv) all Tax
Benefits (as defined in the Merger Agreement) (collectively, the "Holdback
Amounts"). The Holdback Amounts will be released to the holders of the RCA
Shares upon the happening of certain events and on certain dates all as more
fully described in the Merger Agreement.
At the Closing, Carol Glickman, the wife of Stanley Glickman, a
shareholder of RCA, entered into a consulting agreement with RCA, a copy of
which is attached to the Merger Agreement as Exhibit A. In addition, at the
Closing, each of Neal Fohrman and Nanci Freeman entered into an employment
agreement with RCA, copies of which are attached to the Merger Agreement as
Exhibits B and C, respectively.
The consideration for the Merger was determined as a result of
negotiations between the Company, RCA and the Shareholders and was approved by
the boards of directors of the Company and the Merger Sub. Prior to the
Merger, neither the Company nor any of its affiliates, directors or officers,
nor any associate of any such director or officer had any relationship with RCA
or the Shareholders.
The description contained herein of the Merger Agreement is qualified
in its entirety by reference to the Merger Agreement and the Press Release
dated November 6, 1995, which are attached hereto as Exhibits 2 and 99,
respectively, and incorporated herein by this reference.
2
3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. Included in this
Report are the financial statements, together with the notes thereto and
certain supplementary information, of RCA as of June 30, 1995 and the year then
ended which have been audited by the independent accounting firm of Lederman,
Zeidler & Co., whose opinion is also included herein.
(b) Pro Forma Financial Information. Included in this Report are
the unaudited pro forma condensed consolidated balance sheet and condensed
consolidated statements of earnings of the Company and the RCA, together with
the notes thereto, which give effect to the Merger as if it had occurred for
balance sheet presentation purposes as of July 2, 1995 and for statement of
earnings presentation purposes as of April 4, 1994. The pro forma condensed
consolidated statement of earnings for the year ended April 2, 1995 includes
RCA's results of operations for its fiscal year ended June 30, 1995. A pro
forma condensed consolidated statement of earnings for the quarter ended July
2, 1995 is also included.
The pro forma financial statements are provided for informational
purposes only and should not be construed to be indicative of the Company's
financial position or results of operations had the Merger been consummated on
such dates and do not project the Company's financial position or results of
operations for any future date or period.
The pro forma adjustments are based upon available information and
upon assumptions that the Company believes are reasonable in the circumstances.
The pro forma financial statements and accompanying notes should be read in
conjunction with the Consolidated Financial Statements of the Company and its
subsidiaries, including the notes thereto, and the other financial information
pertaining to the Company and RCA included elsewhere herein.
The Merger will be accounted for using the purchase method of
accounting. The total purchase price of approximately $16 million will be
allocated to the assets of RCA based on their respective fair values. Such
allocations will be made based on valuations that have not yet been finalized.
The Company believes that substantially all of the excess of purchase price
over the historical book value of net assets acquired will be allocated to
goodwill, as the historical book value of such assets approximates their fair
value. Accordingly, the pro forma condensed consolidated statement of earnings
filed herewith reflects amortization of this excess over a life of 20 years
resulting in an annual amortization charge of $559,000.
(c) Exhibits. The following is a list of the Exhibits attached
hereto.
Exhibit No. 2.1 Merger Agreement
Exhibit No. 2.2 Amendment No. 1 to Merger Agreement
Exhibit No. 10.1 Consulting Agreement*
Exhibit No. 10.2 Employment Agreement (Fohrman)*
3
4
Exhibit No. 10.3 Employment Agreement (Freeman)*
Exhibit No. 10.4 Tax Reporting Agreement*
Exhibit No. 10.5 Disbursement Agreement*
Exhibit No. 10.6 Promissory Note (Fohrman)
Exhibit No. 10.7 Promissory Note (Tannenbaum)
Exhibit No. 23 Consent of Lederman, Zeidler & Co.
Exhibit No. 99 Press Release
* Contained as an exhibit to the Merger Agreement
4
5
THE RED CALLIOPE & ASSOCIATES, INC.
FINANCIAL STATEMENTS
with
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
JUNE 30, 1995 AND 1994
LEDERMAN, ZEIDLER & CO. Certified Public Accountants
6
CONTENTS
Page
----
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS 1-2
Financial statements
Balance sheet 3
Statement of income and retained earnings 4
Statement of cash flows 5
Notes to financial statements 6-8
Supplementary information
Summary of cost of sales and design
and royalty expenses 9
Summary of selling, general and
administrative expenses 10
LEDERMAN, ZEIDLER & CO. Certified Public Accountants
7
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
The Red Calliope & Associates, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of the Red Calliope &
Associates, Inc. as of June 30, 1995 and 1994 and the related statements of
income and retained earnings and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
8
2
Board of Directors
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The Red Calliope &
Associates, Inc. at June 30, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
LEDERMAN, ZEIDLER & CO., CPA'S
August 10, 1995
9
THE RED CALLIOPE & ASSOCIATES INC.
BALANCE SHEET
ASSETS
------
JUNE 30,
----------------------------
1995 1994
------------ -------------
Current assets
Cash $ 267,369 $ 121,244
Account receivable, trade, net of
allowance for doubtful accounts
of $100,000 4,961,601 3,765,768
Inventories (Note 2) 7,947,520 4,753,734
Prepaid expenses 110,457 151,874
Accrued interest receivable, net of
allowance for doubtful account (Note 4) 70,379 52,327
Accrued royalties receivable 10,269 23,351
Accounts receivable, other - 54,782
Notes receivable, officers (Note 3) 180,510 180,510
Deferred income taxes 14,500 14,500
------------ ------------
Total current assets 13,562,605 9,118,090
Note receivable, officer, net of
allowance for doubtful account (Note 4) - -
Furniture, fixtures and equipment, at cost,
net of accumulated depreciation (Note 5) 202,626 250,776
Other assets
Loan origination fee net of
accumulated amortization - 22,500
Deposits 61,681 55,561
------------ ------------
$ 13,826,912 $ 9,446,927
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable, trade $ 3,010,496 $ 2,148,839
Accrued expenses 1,405,814 745,547
Note payable, bank (Note 6) 4,998,134 2,654,564
Income taxes payable 29,505 27,503
------------ ------------
Total current liabilities 9,443,949 5,576,453
------------ ------------
Stockholders' equity
Common stock, $10 par value
Authorized - 2,500 shares
Issued and outstanding, 1,700 shares 14,330 14,330
Additional paid-in capital 63,860 63,860
Retained earnings 4,304,773 3,792,284
------------ ------------
4,382,963 3,870,474
------------ ------------
$ 13,826,912 $ 9,446,927
============ ============
The accompanying accountants' notes are an
integral part of these financial statements
10
4
THE RED CALLIOPE & ASSOCIATES INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED
----------------------------------------
JUNE 30, 1995 JUNE 30, 1994
------------------- -------------------
% of % of
Amount Sales Amount Sales
------------------- -------------------
Gross sales $28,595,082 104.6 $ 22,371,989 103.4
Rebates and discounts 450,791 1.6 300,227 1.4
Returns and allowances 806,637 3.0 433,410 2.0
----------- ----- ------------ -----
Net sales 27,337,654 100.0 21,638,352 100.0
Cost of sales 17,583,155 64.3 14,510,226 67.1
----------- ----- ------------ -----
Gross profit 9,754,499 35.7 7,128,126 32.9
----------- ----- ------------ -----
Operating expenses
Design and royalty 2,010,048 7.4 978,088 4.5
Shipping 1,563,059 5.7 1,075,944 4.9
Selling 1,972,593 7.2 1,460,346 6.8
General and administrative 2,415,061 8.8 2,137,156 9.9
----------- ----- ------------ -----
7,960,761 29.1 5,651,534 26.1
----------- ----- ------------ -----
Income from operations 1,793,738 6.6 1,476,592 6.8
----------- ----- ------------ -----
Other income(expense)
Interest expense (450,774) (1.7) (268,906) (1.3)
Interest income 48,119 .2 43,244 .2
Royalty income 108,166 .4 148,598 .7
Reserve for bad debt(Note 4) (30,000) (.1) (30,000) (.1)
Other income 66,740 .2 - -
----------- ----- ------------ -----
(257,749) (1.0) (107,064) (.5)
----------- ----- ------------ -----
Net income before provision for
income taxes 1,535,989 5.6 1,369,528 6.3
----------- ----- ------------ -----
Provision(credit)for income taxes
Current 23,500 .1 35,800 .1
Deferred - - (1,500) -
----------- ----- ------------ -----
23,500 .1 34,300 .1
----------- ----- ------------ -----
Net income 1,512,489 5.5 1,335,228 6.2
===== =====
Retained earnings, beginning of
period 3,792,284 3,157,056
Distributions 1,000,000 700,000
----------- ------------
Retained earnings, end of period $ 4,304,773 $ 3,792,284
=========== ============
The accompanying accountants notes are an
integral part of these financial statements
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5
THE RED CALLIOPE & ASSOCIATES, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
----------------------------
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
Cash flows from operating activities
Net income $ 1,512,489 $ 1,335,228
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 115,927 117,118
Reserve for bad debt 30,000 30,000
(Increase) decrease in trade accounts
receivable (1,195,833) (5,435)
(Increase) decrease in inventories (3,193,786) (544,367)
(Increase) decrease in prepaid expenses 41,417 (100,029)
(Increase) decrease in accrued interest
receivable (48,052) (42,615)
(Increase) decrease in accrued royalties
receivable 13,082 2,532
(Increase) decrease in accounts
receivable other 54,782 70,318
(Increase) decrease in loan origination fee - (22,500)
(Increase) decrease in deposits (6,120) (2,125)
(Increase) decrease in deferred taxes - (1,500)
Increase (decrease) in trade accounts payable 861,657 459,198
Increase (decrease) in accrued liabilities 660,267 1,728
Increase (decrease) in income taxes payable 2,002 22,800
----------- -----------
Net cash provided (used) by operating
activities (1,152,168) 1,320,351
----------- -----------
Cash flows from investing activities
Purchases of property and equipment (45,277) (119,361)
Proceeds from short-term notes receivable - 8,000
Increase in short term notes receivable - (55,000)
----------- -----------
Net cash used by investing activities (45,277) (166,361)
----------- -----------
Cash flows from financing activities
Increase (Decrease)in short-term debt 2,343,570 (342,918)
Stockholders' distributions (1,000,000) (700,000)
----------- -----------
Net cash provided (used) by financing
activities 1,343,570 (1,042,918)
----------- -----------
Net increase (decrease) in cash 146,125 111,072
Cash beginning of year 121,244 10,172
----------- -----------
Cash at end of period $ 267,369 $ 121,244
=========== ===========
Supplemental disclosures of cash flow
information
Interest paid (net of amounts) $ 402,655 $ 255,662
=========== ===========
Taxes $ 21,498 $ 23,460
=========== ===========
The accompanying accountants' notes are an
integral part of these financial statements
12
6
THE RED CALLIOPE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
1. Summary of significant accounting policies
This summary of significant accounting policies of Red Calliope
& Associates, Inc. is presented to assist in understanding the
Company's financial statements. The financial statements and the
notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial
statements.
Business Activity - The Company manufactures infant bedding
products. The Company's products are sold to major department
stores and to independent juvenile bedding stores through
independent sales representatives. The Company grants credit
to customers in the juvenile bedding industry throughout the
nation. Consequently the company's ability to collect the
amounts due from customers is affected by economic fluctuations
in the juvenile bedding industry.
Inventories - Inventories are stated at lower of cost or market.
Cost is determined by the first-in, first-out method of
accounting.
Depreciation - Furniture, fixtures and equipment are stated at cost.
Depreciation is provided over their estimated useful lives using the
straight-line method of accounting. Repairs that do not materially
extend the useful life of equipment are charged to operations.
Cash and Cash Equivalents - For purposes of the statement of cash
flows, the Company considers all short-term debt securities
purchased with a maturity of three months or less to be cash
equivalents.
Concentrations of Credit Risk - Financial instruments that
potentially subject the Company to concentrations of credit risk
consist principally of trade accounts receivables. Concentrations
of credit risk with respect to trade receivables are limited due to
the large number of customers comprising the Company's customer base
and their dispersion across different industries and geographic
areas. As of June 30, 1995 the Company had no significant
concentrations of credit risk.
Income Taxes - Income taxes are providing for the tax effects of
transactions reported in the financial statements and consist of
taxes currently due plus deferred taxes related primarily to
differences between the bases of certain assets and liabilities
for financial and tax reporting. The deferred taxes represent the
future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities
are recovered or settled.
13
7
THE RED CALLIOPE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
2. Inventories
-----------
Inventories are summarized
as follows:
JUNE 30,
---------------------------
1995 1994
------------ ------------
Raw materials $ 4,316,065 $ 3,155,318
Finished goods 3,631,455 1,598,416
------------ ------------
$ 7,947,520 $ 4,753,734
============ ============
3. Notes receivable, officers
--------------------------
Notes receivable, officers,
unsecured with interest at 10%,
due on demand. $ 180,510 $ 180,510
============ ============
4. Note receivable, officer
------------------------
The officer is involved in
litigation. It is probable that
the note will not be collectible.
An allowance for doubtful accounts
has been made for the related
accrued interest income for $131,750
and $101,750 respectively.
Note receivable, officer, with
interest at 10% due on demand $ 300,000 $ 300,000
Allowance for doubtful account (300,000) (300,000)
------------ -----------
$ - $ -
============ ===========
5. Furniture, fixtures and equipment
---------------------------------
Furniture, fixtures and equipment
are summarized as follows:
March 31,
---------------------------- Estimated
Useful
1995 1994 Life
------------ ------------- --------
Computer equipment $ 232,907 $ 202,057 5 years
Furniture and fixtures 41,039 59,280 4-7 years
Machinery and equipment 521,559 595,290 4-7 years
Leasehold improvements 49,004 42,254 3-5 years
------------ ------------
844,509 903,881
Less: accumulated
depreciation 641,883 653,105
------------ ------------
$ 202,626 $ 250,776
============ ============
Current depreciation $ 93,427 $ 81,493
============ ============
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8
THE RED CALLIOPE & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994
6. Notes payable, bank
-------------------
JUNE 31,
--------------------------
1995 1994
------------ ------------
The Company has a revolving
line of credit secured by
accounts receivable and finished
goods inventory. The terms
of the agreement permit borrowing
to $5,000,000 and $3,000,000 at
prime plus 2.00% maturing
February 1996 and 1995 respectively. $ 4,998,134 $ 2,654,564
============ ============
7. Income taxes
------------
The Company has elected by unanimous consent of its stockholders' to be taxed
under the provision for Subchapter S of the Internal Revenue Code for both
federal and state purposes. Under these provisions, the Company does not pay
federal corporate income taxes on its taxable income. Instead the
stockholders' are liable for individual federal income taxes on their
respective share of the Company's taxable income. The Company is, however,
subject to a state franchise tax based on 1.5% of the Company's taxable income.
8. Commitments
-----------
The Company is obligated under a long-term, non-capitalized lease for
its premises which expires March 31, 1996. Annual lease payments,
exclusive of property taxes and insurance are summarized as follows:
Year Ended
------------
June 30, 1996 $ 169,806
-----------
$ 169,806
===========
9. Subsequent events
The Company is in negotiation and has signed a letter of intent regarding
the Company's possible acquisition by another company.
15
SUPPLEMENTARY INFORMATION
16
9
THE RED CALLIOPE & ASSOCIATES, INC.
SUMMARY OF COST OF SALES, DESIGN AND ROYALTY AND SHIPPING EXPENSES
YEAR ENDED
-------------------------------------------
JUNE 30, 1995 JUNE 30, 1994
-------------------- --------------------
% of % of
Amount Sales Amount Sales
--------------------- ------------------
Cost of sales
Inventories, beginning
of period $ 4,753,734 17.4 $ 4,209,367 19.5
Purchases 13,367,917 48.9 9,394,471 43.4
Contract labor
Manufacturing 5,347,496 19.6 4,123,137 19.1
Packaging 271,436 1.0 159,454 .7
Manufacturing labor 202,785 .7 214,574 1.0
Packaging labor 206,980 .8 194,461 .9
Depreciation 54,952 .2 53,108 .3
Payroll taxes 46,344 .2 32,367 .2
Repairs and maintenance 28,092 .1 26,534 .1
Rent 201,984 .7 158,925 .7
Shop supplies 63,676 .2 22,381 .1
Quality control salaries 84,371 .3 - -
Packaging supplies 900,908 3.3 675,181 3.1
------------ ----- ----------- -----
25,530,675 93.4 19,263,960 89.1
Less: inventories, end of
period 7,947,520 29.1 4,753,734 22.0
------------ ----- ----------- -----
$ 17,583,155 64.3 $14,510,226 67.1
============ ===== =========== =====
Design and royalty expenses
Artwork $ 97,835 .4 $ 88,109 .4
Design salaries 131,401 .5 98,072 .5
Payroll taxes 11,157 - 6,326 -
Royalties 1,725,213 6.3 722,141 3.3
Samples 44,442 .2 63,440 .3
------------ ----- ----------- -----
$ 2,010,048 7.4 $ 978,088 4.5
============ ===== =========== =====
Shipping Expenses
Freight-out $ 487,325 1.8 $ 328,333 1.5
Payroll taxes 31,288 .1 27,438 .1
Shipping salaries 439,623 1.6 342,789 1.6
Shipping supplies 604,823 2.2 377,384 1.7
------------ ----- ----------- -----
$ 1,563,059 5.7 $ 1,075,944 4.9
============ ===== =========== =====
The accompanying accountants' notes are integral
part of these financial statements
17
10
THE RED CALLIOPE & ASSOCIATES, INC.
SUMMARY OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
YEAR ENDED
---------------------------------------------
JUNE 30, 1995 JUNE 30, 1994
---------------------- --------------------
% of % of
Amount Sales Amount Sales
---------------------- --------------------
Selling expenses
Advertising $ 106,676 .4 $ 87,887 .4
Commissions 1,605,738 5.9 1,152,859 5.3
Entertainment 9,855 - 8,318 -
Marketing expense 14,797 .1 13,399 .1
Selling and catalog expense 78,217 .3 59,335 .3
Trade shows 90,445 .3 44,208 .2
Travel 66,865 .2 94,340 .5
----------- ---- ----------- ----
$ 1,972,593 7.2 $ 1,460,346 6.8
=========== ==== =========== ====
General and administrative
expenses
Amortization $ 22,500 .1 $ 35,625 .2
Automotive 39,992 .1 34,111 .2
Collection costs 5,271 - 2,060 -
Computer expense 25,782 .1 23,995 .1
Contributions 2,375 - 948 -
Depreciation 38,475 .1 28,385 .1
Dues & subscriptions 5,585 - 6,885 -
Employee benefits 36,703 .1 - -
Insurance - group 103,176 .4 103,948 .5
- general 152,628 .6 141,071 .7
Office supplies and expense 78,794 .3 53,647 .3
Payroll taxes 78,348 .3 66,260 .3
Postage 45,962 .2 28,083 .1
Professional fees 166,320 .6 83,406 .4
Provision for bad debts 52,536 .2 62,165 .3
Quality control - - 2,066 -
Rent 127,699 .5 109,574 .5
Salaries - office 333,449 1.2 294,955 1.4
- officers'/shareholders 673,304 2.5 636,425 2.9
- officers'/other 289,009 1.0 265,955 1.2
Taxes and licenses 8,472 - 23,708 .1
Telephone and utilities 128,681 .5 133,884 .6
----------- ---- ----------- ----
$ 2,415,061 8.8 $ 2,137,156 9.9
=========== ==== =========== ====
The accompanying accountants' notes are integral
part of these financial statements
18
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 2, 1995
(DOLLARS IN 1,000'S)
Crown Crafts, Inc. RCA Pro Forma Company
Historical Historical Adjustments Pro Forma
----------------- ---------- ----------- ---------
ASSETS:
Current Assets:
Cash $ 423 $ 267 $ 690
Accounts Receivable 17,143 5,655 $ (698) 22,100
Inventories 55,856 7,948 63,804
Deferred Income Taxes 735 14 749
Other Current Assets 2,259 110 2,369
------- ------- ------- --------
Total Current Assets 76,416 13,994 (698) 89,712
------- ------- ------- --------
Property, Plant and Equipment-net 66,978 203 67,181
------- ------- --------
Other Assets 4,291 62 11,185 15,538
-------- ------- ------- --------
TOTAL ASSETS $147,685 $14,259 $10,487 $172,431
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 25,665 $ 4,998 $ 5,779 $ 36,442
Accounts Payable 14,249 3,010 17,259
Income Taxes Payable 908 30 938
Accrued Liabilities 4,526 1,406 5,932
Current Maturities of Long-Term Debt 5,502 5,502
-------- ------- ------- --------
Total Current Liabilities 50,850 9,444 $ 5,779 66,073
-------- ------- ------- --------
Long-Term Debt 3,312 $ 9,523 12,835
-------- ------- ------
Deferred Income Taxes 5,208 5,208
-------- ------
Other Liabilities 661 661
-------- ------
Shareholder's Equity
Common Stock 9,045 14 (14) 9,045
Additional Paid-ln-Capital 34,299 64 (64) 34,299
Retained Earnings 51,551 4,737 (4,737) 51,551
Common Stock Held in Treasury (7,241) (7,241)
-------- ------- ------- --------
Total Shareholders' Equity 87,654 4,815 (4,815) 87,654
-------- ------- ------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY $147,685 $14,259 $10,487 $172,431
======== ======= ======= ========
See Notes to Pro Forma Condensed Consolidated Balanced Sheet
1
19
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
1. The RCA historical balance for accounts receivable has been adjusted
from the amount reported in its June 30, 1995 audited financial
statements to include $432,000 of notes receivable and accrued
interest due from an officer/shareholder of RCA. This amount had been
considered uncollectible and was fully reserved at June 30, 1995,
however, it will be collected from the proceeds received by the
officer/shareholder for the sale of his stock in RCA.
2. The reduction in accounts receivable represents the repayment of notes
receivable from shareholders.
3. The increase in other assets represents the unallocated excess of
purchase price over net assets acquired. The Company believes that
substantially all of the excess will be allocated to goodwill and will
be amortized over a period of 20 years.
4. The increase in notes payable and long term debt represents the
additional debt incurred by the Company to finance the purchase price
of $16,000,000.00, including fees and expenses less the repayment of
notes receivable from shareholders.
5. The adjustments to shareholders' equity represent the elimination of
the shareholders' equity accounts of RCA.
2
20
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED APRIL 2, 1995
(DOLLARS IN 1,000'S, EXCEPT PER SHARE AMOUNTS)
Crown Crafts, Inc. RCA Pro Forma Company
Historical Historical Adjustments Pro Forma
------------------ ---------- ------------ -----------
Net Sales $ 210,963 $27,338 $ 238,301
Cost of Sales 164,232 21,048 185,280
--------- ------- ---------
Gross Profit 46,731 6,290 53,021
Marketing and Administrative
Expense 27,848 4,418 32,266
--------- ------ ---------
Earnings From Operations 18,883 1,872 20,755
Other Income (Expense):
Interest Expense (1,992) (451) ($926) (3,369)
Other - Net 589 115 (559) 145
--------- ------ ------- ---------
Earnings Before Income Taxes 17,480 1,536 (1,485) 17,531
Provisions For Income Taxes 6,430 614 (370) 6,674
--------- ------ ------- ---------
Net Earnings $ 11,050 $ 922 ($1,115) $ 10,857
========= ====== ======= =========
Net Earnings Per Share $ 1.31 $ 1.28
========= =========
Average Shares Outstanding 8,457,333 8,457,333
========= =========
See Notes to Pro Forma Condensed Consolidated Statement of Earnings
3
21
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
1. The RCA was an S Corporation and therefore not subject to corporate
federal income taxes. After the acquisition, RCA's income will become
subject to federal income taxes as part of the Company's consolidated
federal income tax return. The RCA historical balances have been
adjusted to reflect provisions for income taxes using a combined
federal and state income tax rate of 40%.
2. The increase in interest expense represents interest on the
acquisition debt for the year ended April 2, 1995 as if the
transaction had occurred on April 4, 1994. Interest expense was
computed based on an assumed rate of 7.27%, the Company's borrowing
rate on its long-term note agreement which closed October 12, 1995.
The increased interest expense was partially offset by the interest
expense reduction on the average outstanding short-term borrowings of
RCA attributable to the lower short-term borrowing rate of the
Company. The RCA average short-term borrowing rate for the period was
10.5% compared to 5.6% for the Company.
3. The adjustment to other - net represents the quarterly amortization of
goodwill over a life of 20 years.
4. The reduction of the provisions for income taxes represents the tax
savings attributable to the increase in interest expense based on a
combined federal and state income tax rate of 40%.
5. Certain amounts from the RCA June 30, 1995 financial statements have
been reclassified to conform to the Crown Crafts, Inc. classification
for these items.
4
22
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
QUARTER ENDED JULY 2, 1995
(DOLLARS IN 1,000'S, EXCEPT PER SHARE AMOUNTS)
Crown Crafts RCA Pro Forma Company
Historical Historical Adjustments Pro Forma
----------- ---------- ----------- ---------
Net Sales $ 39,207 $7,553 $ 46,760
Cost of Sales 31,656 5,742 37,398
-------- ------ ---------
Gross Profit 7,551 1,811 9,362
Marketing and Administrative
Expense 6,494 1,279 7,773
-------- ------ ---------
Earnings From Operations 1,057 532 1,589
Other Income
(Expense):
Interest Expense (529) (151) ($223) (903)
Other - Net 200 12 (140) 72
-------- ------ ----- ---------
Earnings Before Income Taxes 728 393 (363) 758
Provisions For Income Taxes 272 157 (89) 340
-------- ------ ----- ---------
Net Earnings $ 456 $ 236 ($274) $ 418
========= ====== ===== =========
Net Earnings Per Share $ 0.05 $ 0.05
========= =========
Average Shares Outstanding 8,565,429 8,565,429
========= =========
See Notes to Pro Forma Condensed Consolidated Statement of Earnings
5
23
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
1. The RCA was an S Corporation and therefore not subject to corporate
federal income taxes. After the acquisition, RCA's income will become
subject to federal income taxes as part of the Company's consolidated
federal income tax return. The RCA historical balances have been
adjusted to reflect provisions for income taxes using a combined
federal and state income tax rate of 40%.
2. The increase in interest expense represents interest on the
acquisition debt for the quarter ended July 2, 1995 as if the
transaction had occurred on April 4, 1994. Interest expense was
computed based on an assumed rate of 7.27%, the Company's borrowing
rate on its long-term note agreement which closed October 12, 1995.
The increased interest expense was partially offset by the interest
expense reduction on the average outstanding short-term borrowings of
RCA attributable to the lower short-term borrowing rate of the
Company. The RCA average short-term borrowing rate for the period was
11.0% compared to 6.6% for the Company.
3. The adjustment to other - net represents the quarterly amortization of
goodwill over a life of 20 years.
4. The reduction of the provisions for income taxes represents the tax
savings attributable to the increase in interest expense based on a
combined federal and state income tax rate of 40%.
5. Certain amounts from the RCA financial statements have been
reclassified to conform to the Crown Crafts, Inc. classification for
these items.
6
24
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CROWN CRAFTS,INC.
By: /s/ ROBERT E. SCHNELLE
------------------------
Name: Robert E. Schnelle
Title: Treasurer
Dated: November 13, 1995
25
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
Exhibit No. 2.1 Merger Agreement
Exhibit No. 2.2 Amendment No. 1 to Merger Agreement
Exhibit No. 10.1 Consulting Agreement*
Exhibit No. 10.2 Employment Agreement (Fohrman)*
Exhibit No. 10.3 Employment Agreement (Freeman)*
Exhibit No. 10.4 Tax Reporting Agreement*
Exhibit No. 10.5 Disbursement Agreement*
Exhibit No. 10.6 Promissory Note (Fohrman)
Exhibit No. 10.7 Promissory Note (Tannenbaum)
Exhibit No. 23 Consent of Lederman, Zeidler & Co.
Exhibit No. 99 Press Release