FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 27, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-10590
VENTURE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-0914490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 East Terra Lane, O'Fallon, Missouri 63366-0110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 281-5500
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of April 27, 1996:
Common stock, $1 par value - 17,547,947
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Venture Stores, Inc.
Condensed Statement of Earnings
(Unaudited)
(thousands, except per share data)
13 WEEKS ENDED
April 27, April 29,
1996 1995
Net Sales $ 351,240 $ 440,916
Costs and expenses:
Cost of merchandise sold 260,336 332,047
Selling, general, administrative
and other expenses 81,794 110,740
Net interest expense 6,112 3,408
Earnings (loss) before income taxes 2,998 (5,279)
Income tax provision (benefit) 1,261 (2,088)
NET EARNINGS (LOSS) $ 1,737 $ (3,191)
Dividends on preferred stock 625 625
NET EARNINGS (LOSS) AVAILABLE TO
COMMON SHAREOWNERS $ 1,112 $ (3,816)
EARNINGS (LOSS) PER COMMON SHARE $ 0.06 $ (0.22)
DIVIDENDS DECLARED PER COMMON SHARE $ 0.000 $ 0.145
AVERAGE COMMON SHARES OUTSTANDING 17,471 17,261
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Balance Sheet
(thousands)
(Unaudited) (Unaudited)
April 27, April 29, January 27,
1996 1995 1996
ASSETS
Current assets:
Cash and cash equivalents $ 38,671 $ 16,050 $ 57,465
Accounts receivable, net 13,679 14,052 14,290
Merchandise inventories 326,812 326,897 303,200
Prepaid income taxes 4,836 3,219 13,663
Other current assets 16,235 12,391 7,746
Total current assets 400,233 372,609 396,364
Property and equipment, at cost 530,443 510,470 531,763
Accumulated depreciation (152,996) (140,815) (145,212)
Property and equipment, net 377,447 369,655 386,551
Other assets 5,315 5,330 5,228
TOTAL ASSETS $ 782,995 $ 747,594 $ 788,143
LIABILITIES AND SHAREOWNERS'
INVESTMENT
Current liabilities:
Short-term debt $ 112,000 $ 31,000 $ 115,000
Current maturities of long-
term debt 4,093 3,021 3,905
Accounts payable 120,669 177,243 132,806
Accrued expenses 63,683 79,300 84,036
Total current liabilities 300,445 290,564 335,747
Long-term debt 182,373 151,981 168,529
Other liabilities 3,824 2,923 3,915
Deferred gain on sale/leaseback 20,148 21,585 20,507
Deferred income taxes 32,854 19,878 18,440
Deferred investment tax credit(ITC) - 245 56
Shareowners' investment 243,351 260,418 240,949
TOTAL LIABILITIES AND SHAREOWNERS'
INVESTMENT $ 782,995 $ 747,594 $ 788,143
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Statement of Cash Flows
(Unaudited)
(thousands)
13 WEEKS ENDED
April 27, April 29,
1996 1995
OPERATING ACTIVITIES:
Net earnings (loss) $ 1,737 $ (3,191)
Items not requiring the outlay of cash:
Depreciation and amortization 7,596 7,805
Deferred income tax and ITC 14,358 621
Other (194) 0
Working capital and other (54,294) (74,743)
Total operating activities (30,797) (69,508)
INVESTING ACTIVITIES:
Net additions of property and equipment (1,103) (15,064)
Proceeds from sale of assets 2,617 0
Other 82 82
Total investing activities 1,596 (14,982)
FINANCING ACTIVITIES:
Repayments of long-term debt (968) (779)
Proceeds from sale/leaseback 15,000 0
Short-term borrowings (3,000) 31,000
Dividends (625) (3,128)
Proceeds from exercised stock options 0 73
Total financing activities 10,407 27,166
DECREASE IN CASH AND CASH EQUIVALENTS (18,794) (57,324)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,465 73,374
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 38,671 $ 16,050
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 4,863 $ 2,636
Income taxes $ (23,989) $ 9,844
During the first quarter of 1996, the company made a non-cash contribution
of its common stock to the Venture Profit Sharing Plan, which represented
the entire 1995 company contribution. This contribution consisted of
199,985 shares of common stock with an average market price of $4.80 per
share.
See accompanying Notes to Condensed Financial Statements.
VENTURE STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The accompanying unaudited condensed financial statements
should be read in conjunction with the audited financial
statements for the fiscal year ended January 27, 1996, and
the accompanying notes thereto included in the company's
1995 Annual Report to Shareowners. In the opinion of
management, this information is fairly presented and all
adjustments, of a normal, recurring nature, which are
necessary for a fair statement of the results for the
interim periods have been included; however, certain items
are included in these statements based on estimates for the
entire year. The interim operating results exclude the
Christmas season and therefore may not be indicative of the
operating results that may be expected for the full fiscal
year. Certain prior year items have been reclassified to
conform to the current year presentation.
2. Net earnings (loss) per common share are computed by
dividing net earnings (loss), after deducting preferred
dividend requirements, by the weighted average number of
common shares outstanding. Common stock equivalents had no
material dilutive effect on net earnings (loss) per common
share during the periods presented.
3. In March 1995, the Financial Accounting Standards Board
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." This standard
requires that long-lived assets and certain intangibles and
goodwill related to those assets to be held and used be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. This standard also requires that long-lived
assets and certain identifiable intangibles to be disposed
of be reported at the lower of carrying amount or fair value
less cost to sell. In the first quarter of 1996, the
company adopted this statement and determined that no
impairment loss needs to be recognized.
4. On January 29, 1996, the company sold six store properties
for $15.0 million. Simultaneously the company entered into
a 25-year below market lease of the properties with the new
owner. The transaction was accounted for as a financing in
accordance with SFAS No. 98, "Accounting for Leases," and
the related obligation is included in long-term debt and
current maturities of long-term debt. The obligation is
being amortized over the lease term. The minimum annual
rent which the company is obligated to pay during the lease
term is $1.9 million.
5. In May 1996, the shareowners approved an amendment to the
Venture Stores, Inc. 1992 Long Term Performance Plan, to
allow for implementation of a restricted stock program for
key executives. Under the plan, incentive stock options,
nonqualified stock options, stock appreciation rights,
restricted stock, and performance awards may be granted.
Options granted under the plan will be granted at the market
price on the date of grant, have a maximum term of 10 years,
may be exercised in installments only after stated intervals
of time, and are conditioned upon continued active
employment with the company, except for periods following
retirement, disability or death. Restricted stock grants
may be issued at a purchase price less than market price on
the date of grant, or as a bonus, and may be subject to
restrictions, conditions, terms and/or performance goals
such as return on net assets, earnings per share, share
price change, return on equity, free cash flow per share and
operating earnings. A maximum of 1.5 million shares of
common stock may be issued under the plan. On May 24, 1996,
704,200 shares of restricted stock were granted under the
plan.
6. Subsequent to the first quarter of 1996, BankAmerica
Business Credit, Inc. committed, subject to the negotiation
of definitive documentation and the fulfillment of other
conditions, to provide the company a three year secured
credit facility (the "Credit Facility") consisting of
revolving credit loans and letters of credit of up to $225
million in the aggregate, with a sublimit of $125 million
for letters of credit. The Credit Facility will require the
company to meet a quarterly fixed charge coverage ratio and
other covenants to be set forth in the definitive documents.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
First quarter 1996 sales were $351.2 million, down 20.3% from
$440.9 million during the same period in 1995. Comparable store
sales for the first quarter declined 18.9%. First quarter sales
were negatively impacted by the closing of six stores on March
30, 1996. These six stores were part of the previously announced
plan to close ten stores. Sales were also negatively impacted by
the elimination or reduction of historically low-margin product
lines, including certain categories of hardware, automotive, and
sporting goods in connection with the company's margin based
repositioning strategy, and the conversion of four stores to
temporary chain-wide clearance centers. The company's plans
reflect a store-for-store sales decline for the balance of 1996.
Earnings per common share for the first quarter of 1996 was $0.06
compared with loss per common share of $0.22 for the comparable
1995 period. Net earnings available to common shareowners was
$1.1 million for the first quarter of 1996 as compared with net
loss applicable to common shareowners of $3.8 million for the
comparable 1995 period. First quarter of 1996 included a pre-tax
gain from a real estate transaction of $1.5 million, or $0.05 per
share, related to the reduction of recorded reserves on a closed
store due to the property being subleased, subject to the
landlord's approval.
First quarter of 1995 included non-recurring charges of $3.6
million ($2.2 million after-tax or $0.13 per share) to complete
the implementation of the image builder program. Of this amount,
$.3 million is included in cost of merchandise sold and $3.3
million is included in selling, general, administrative and other
expenses.
The components of the earnings (loss) as a percent of sales were
as follows:
13 Weeks Ended
Apr. 27, Apr.29,
1996 1995
Net sales 100.0% 100.0%
Cost of merchandise sold (before LIFO charge) 74.0 75.2
LIFO charge 0.1 0.1
Gross margin 25.9 24.7
Selling, general, administrative
and other expenses 23.3 25.1
Operating income (loss) 2.6 (0.4)
Net interest expense 1.7 0.8
Earnings (loss) before income taxes .9 (1.2)
Income tax provision (benefit) .4 (0.5)
Net earnings (loss) .5 % (0.7)%
Gross margin as a percent of sales increased during the first
quarter over the same period from the prior year primarily due to
an increase in sales of higher margin softline items as a
percentage of sales and the exiting or downsizing of historically
low-margin product lines while expanding merchandise assortments
in home, family apparel, and leisure categories as part of the
repositioning completed in early March of 1996.
Selling, general, administrative and other expenses as a percent
of sales decreased in the first quarter of 1996 compared to the
first quarter of 1995, largely due to the company's expense
reduction and stringent cost control efforts. Payroll and
payroll taxes decreased $17.5 million in the first quarter of
1996 over the first quarter of 1995 as a result of the reduction
of the workforce by approximately 950 positions during the second
quarter of 1995, the elimination of 390 sales support positions
in connection with a realignment of the company's store
organization in the first quarter of 1996, and the decrease in
the number of stores from first quarter of 1995 to first quarter
of 1996. Other factors contributing to the decrease in selling,
general, administrative and other expenses were a decrease in
retirement expense as a result of the suspension of benefit
accruals under the retirement plan as of January 1, 1996 and
reduction of certain previously provided benefit accruals, a
decrease in insurance expense resulting from the reduction in the
workforce and the reduction of certain insurance accruals no
longer required, the reduction of recorded reserves on a closed
store due to the property being subleased as described above, and
a decrease in credit card fees paid due to the decline in sales.
Advertising expense was higher than the prior year due to the
cost to launch the repositioning strategy.
Net interest expense increased during the first quarter of 1996
compared to the same period in 1995 due to the increase in short-
term borrowings and the financing obligation resulting from the
sale/leaseback transactions in the fourth quarter of 1995 and the
first quarter of 1996.
FINANCIAL CONDITION
The company maintains with several domestic and foreign banks an
unsecured credit facility (the "Revolving Credit Facility") that
provides for $175.0 million of committed borrowings and letters
of credit, subject to a sub-limit of $125.0 million of
borrowings. The Revolving Credit Facility, which expires
September 4, 1997, prohibits the payment of dividends on its
common stock.
Subsequent to the first quarter of 1996, BankAmerica Business
Credit, Inc. committed, subject to the negotiation of definitive
documentation and the fulfillment of other conditions, to provide
the company a three year secured credit facility (the "Credit
Facility") consisting of revolving credit loans and letters of
credit of up to $225 million in the aggregate, with a sublimit of
$125 million for letters of credit. The Credit Facility will
require the company to meet a quarterly fixed charge coverage
ratio and other covenants to be set forth in the definitive
documents.
The company's debt-to-capitalization ratio (including the present
value of operating leases) was 65.3% at April 27, 1996 compared
to 59.9% at the end of the first quarter of 1995 and 66.3% at
year-end 1995.
During the first quarter of 1996, the company completed a
sale/leaseback of six store properties for $15.0 million. The
sale/leaseback was accounted for as a financing transaction in
accordance with Statement of Financial Accounting Standards No.
98, "Accounting for Leases", because of the below market rents.
The proceeds from the sale/leaseback were used to meet working
capital and capital expenditure needs associated with the
repositioning and for other corporate purposes. The obligation
from the sale/leaseback is included in long-term debt and current
maturities of long-term debt, causing the increase in long-term
debt between year-end 1995 and April 1996.
Long-term debt increased between the first quarters of 1995 and
1996 primarily due to obligations from the $15.0 million
sale/leaseback in the first quarter of 1996 and the $25.0 million
sale/leaseback of 10 store properties in the fourth quarter of
1995, net of a $5.0 million prepayment under the terms of an
amendment to the company's secured loan agreement with Principal
Mutual Life Insurance Company in 1995 and other regularly-
scheduled maturities of long-term debt and capital leases.
The increase in short-term debt and decrease in accounts payable
at April 27, 1996 compared with April 29, 1995 reflect the
company's greater reliance on short-term debt to fund working
capital as a result of reduced sales and moderate earnings. The
company's voluntary shortening of payment terms to take advantage
of additional trade discounts and a general tightening of credit
terms during the fourth quarter of 1995 contributed to the
decrease in accounts payable in 1996 over first quarter of 1995.
The increase in non-current deferred income taxes resulted
primarily from the sale/leaseback of 16 store properties in 1995
and 1996. For book purposes, the sale/leaseback transactions
were recorded under the financing method with no gain or loss
recognized. The property continues to be reported as assets on
the books of the company. As future book depreciation is
recorded on the sale/leaseback assets, the related deferred
income tax liability will be reduced. The decrease in prepaid
income taxes in 1996 over year-end 1995 is primarily the result
of the company receiving a tax refund for the 1995 tax year in
the first quarter of 1996, offset by the change in deferred taxes
discussed above.
The decrease in accrued expenses in the first quarter of 1996
over year-end 1995 is largely due to a $9.2 million reduction in
the accrued liabilities for construction in process related
principally to remodeling and refixturing for the repositioning
which was completed in the first quarter of 1996 and a $4.8
million decrease in reserves related to store closings. A
decrease in accrued real estate taxes as a result of prepaying
certain real estate taxes in connection with the sale/leaseback
transactions also contributed to the decrease in accrued expenses
in the first quarter of 1996 over year end 1995. The decrease in
accrued expenses in the first quarter of 1996 over the first
quarter of 1995 is primarily due to a decrease in payroll,
benefit, and insurance accruals resulting from the reduced
workforce and the curtailment of the retirement plan, the
decrease in real estate taxes from the sale/leaseback
transactions as discussed above, and a decrease in the accrual
for nonrecurring costs in connection with the image builder
program.
A $7.8 million increase in prepaid advertising expense
contributed to most of the increase in other current assets from
year end 1995. The increase in other current assets in first
quarter of 1996 over first quarter of 1995 was caused by an
increase in prepaid advertising expense, offset by a $4.4 million
decrease in receivables primarily from the refund of a cash bond
upon favorable dismissal of a lawsuit against the company.
The decline in capital expenditures from $15.1 million in the
first 13 weeks of 1995 to $1.1 million in the first 13 weeks in
1996 is primarily due to the fact that there will be no new store
openings in the current year. Two stores were opened in the
first quarter of 1995 (one in Houston and one in Amarillo,
Texas). Six stores were closed in the first quarter of 1996
(three in Indianapolis, one in Chicago, one in Houston, and one
in Champaign, Illinois), and four stores (two in Indianapolis,
one in Chicago, and one in Houston) were converted to clearance
center formats temporarily to facilitate the conversion to a
family value department store. The capital expenditure budget
totals approximately $18.0 million for 1996, with no new store
openings planned for 1996. Subsequent to the first quarter of
1996, the company reopened the clearance center in Houston,
Texas, as a family value department store. The company also
announced plans to reopen five more stores, which were previously
closed or being operated as clearance centers, as family value
department stores. These stores include four stores in
Indianapolis (of which two were operating as clearance centers)
which are scheduled to reopen before August of 1996 and one in
Houston which is scheduled to reopen in October of 1996.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The company's Annual Meeting of Shareowners was held May 24,
1996. In addition to the election of Directors and the
ratification of independent auditors, the shareowners
approved the amendment to the Venture Stores, Inc. 1992 Long
Term Performance Plan.
The results of the voting were as follows:
Votes
Withheld
Votes or
For Against Abstained
I. Election of Directors:
Timothy F. Finley 15,403,213 705,417 -
Lawrence J. Young 15,396,080 712,550 -
II. Approval of an amendment 14,444,691 1,542,626 121,313
to the Venture Stores,
Inc. 1992 Long Term
Performance Plan
III. Ratification of 15,813,382 236,336 58,912
independent auditors
There were no broker non-votes on any of the matters
submitted to a vote.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third Amendment to the Restricted Stock Plan for
Non-Management Directors of Venture Stores, Inc.,
executed May 10, 1996.
10.2 First Amendment to the Retirement Plan for Non-
Management Directors of Venture Stores, Inc.,
executed May 10, 1996.
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended April 27, 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.
VENTURE STORES, INC.
(Registrant)
Date: June 11, 1996 By:\s\ Eugene Caldwell
Eugene Caldwell
Senior Vice President
Chief Financial Officer
Exhibit Index
Exhibit No. Description
10.1 Third Amendment to the Restricted Stock Plan
for Non-Management Directors of Venture
Stores, Inc., executed May 10, 1996.
10.2 First Amendment to the Retirement Plan for Non-
Management Directors of Venture Stores, Inc.,
executed May 10, 1996.
11 Computation of Earnings per Common Share
27 Financial Data Schedule