Crown a company divided

Don Hogsett, July 27, 2001

Atlanta — In a bold surgical gambit that gives the wounded company a fighting chance of survival, Crown Crafts Inc. has been split into two separate companies: its adult bedding business, sold to former ceo Michael Bernstein and now known as Design Works, and Crown Crafts, which continues to focus on its infant products business under new ceo Randall Chestnut, the man who put the company into the baby business.

Paying a bargain-basement price of $8.5 million, plus picking up some debt, Bernstein, who built Crown into the nation's sixth-largest home fashions producer with $357 million in sales at its apex, has split off and acquired the adult bedding business with its two powerful premium fashion brands, Calvin Klein Home and Royal Sateen. Now operating as Design Works Holding Co., the adult bedding business had $76 million in sales last year.

Still flying under the Crown Crafts banner is the larger, and more consistently profitable, infant products operation, now headed by Chestnut, the man who developed the business for Crown through a string of acquisitions beginning with The Red Calliope, a small, luxury bedding producer, in October 1995. During the fiscal year ended April 2, the infants' and juvenile products brought in about $101.9 million in sales and generated an operating profit of $1.9 million. Currently, the business is generating about $110 million in sales, up almost 8 percent from a year ago, said cfo Carl Texter.

This most recent piece of surgery completes the break-up of the once high-flying Crown Crafts, following last fall's sale of the $85 million woven products business and plants — the cotton jacquard operation — to Mohawk Industries.

At the same time, enabling the entire, complex transaction, Crown Crafts completed a financial restructuring, reducing its crushing debt load as three lenders — Wachovia, Prudential and Bank of America — agreed to take a haircut and write off a portion of their loans to Crown Crafts. Under the terms of the restructuring, long-term debt is reduced by roughly a third, to about $50 million from $75 million. In return, the lenders receive warrants that can later be converted into Crown Crafts stock.

"This gives us a lot of breathing room and a real good shot going forward," Chestnut told Home Textiles Today.

He added, "I want to make it clear to everyone that we could not have put this together without the cooperation of the banks, the support of our customers and the loyalty of our employees. We owe more than I can ever tell you to all of those good people."

While Crown Crafts has shrunk in size — and lost money over the past three years — the infants' business, now Crown's core business, has been consistently and reliably profitable over the years, said Chestnut. "Yes, absolutely. Backward and forward. Always has been. And now we have the structure in place — organizational and financial — that will allow that to continue."

Hobbled by a whole host of problems — first by debt; then costly, complex computer systems that snarled shipments and sales; the high cost of acquiring and assimilating the Calvin Klein business; the collapse of the cotton throw business; and a weakening retail environment — Crown Crafts lost $40.8 million in 1999 and 2000.

Through the first nine months of the most recent fiscal year, the company lost $28.2 million, and by the time all the paperwork is completed, the company will have lost about $70 million, producing a three-year loss of more than $110 million. Included in the most recent deficit, said Texter, are a $10 million loss on the sale of the woven products business; a $24 million write-off related to the sale of the adult bedding business; a $12 million write-off on computer systems; and a $5 million loss on the sale of the Roxboro, NC, plants. "We think that's the end of the bad news," said Texter.

Crown Crafts, said Chestnut, will remain a public company, even though its shares are thinly traded. It has been de-listed from the New York Stock Exchange, moving on to the Bulletin Board, and the stock has recently sold for about 10 cents a share. Any hopes or plans to move the stock back to one of the major exchanges? "First we've got to develop a track record," said Chestnut. "One thing at a time."

For the near term, both Crown Crafts, the infants' and juvenile products company, and the spun-off Dream Works, will share space and computer facilities at Crown Crafts' Atlanta headquarters. But the lease for that office and showroom expires in 12 months, and at that time, if not sooner, said Chestnut, the two companies will be entirely separate.

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