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 July 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 July 27, 1996:
Common stock, $1 par value - 18,284,525
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Venture Stores, Inc.
Condensed Statement of Earnings
(Unaudited)
(thousands, except per share data)
13 WEEKS ENDED 26 WEEKS ENDED
July 27, July 29, July 27, July 29,
1996 1995 1996 1995
Net Sales $ 329,423 $ 456,830 $ 680,663 $ 897,746
Costs and expenses:
Cost of merchandise
sold 246,218 348,629 506,554 680,676
Selling, general,
administrative and
other expenses 83,631 132,846 165,425 243,586
Net interest expense 6,499 4,017 12,611 7,425
Earnings (loss) before
Income taxes (6,925) (28,662) (3,927) (33,941)
Income tax provision
(benefit) (3,115) (11,321) (1,854) (13,408)
NET EARNINGS (LOSS) $ (3,810) $ (17,341) $ (2,073) $ (20,533)
Dividends on preferred
stock 625 625 1,250 1,250
NET EARNINGS (LOSS)
AVAILABLE TO COMMON
SHAREOWNERS $ (4,435) $ (17,966) $ (3,323) $ (21,783)
EARNINGS (LOSS) PER
COMMON SHARE $ (0.24) $ (1.04) $ (0.19) $ (1.26)
DIVIDENDS DECLARED PER
COMMON SHARE $ 0.000 $ 0.070 $ 0.000 $ 0.215
AVERAGE COMMON SHARES
OUTSTANDING 18,113 17,310 17,792 17,286
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Balance Sheet
(thousands)
(Unaudited) (Unaudited)
July 27, July 29, January 27,
1996 1995 1996
ASSETS
Current assets:
Cash and cash equivalents $ 20,938 $ 16,509 $ 57,465
Accounts receivable, net 13,827 10,118 14,290
Merchandise inventories 302,618 317,176 303,200
Prepaid income taxes 5,583 15,703 13,663
Other current assets 12,884 11,249 7,746
Total current assets 335,850 370,755 396,364
Property and equipment, at cost 534,552 523,285 531,763
Accumulated depreciation (161,415) (148,879) (145,212)
Property and equipment, net 373,137 374,406 386,551
Other assets 7,335 4,842 5,228
TOTAL ASSETS $ 736,322 $ 750,003 $ 788,143
LIABILITIES AND SHAREOWNERS'
INVESTMENT
Current liabilities:
Short-term debt $ 85,000 $ 35,000 $ 115,000
Current maturities of long-
term debt 4,184 3,027 3,905
Accounts payable 110,842 181,059 132,806
Accrued expenses 58,919 94,959 84,036
Total current liabilities 258,945 314,045 335,747
Long-term debt 181,292 151,195 168,529
Other liabilities 3,812 2,897 3,915
Deferred gain on sale/leaseback 19,788 21,226 20,507
Deferred income taxes 32,854 18,722 18,440
Deferred investment tax credit(ITC) - 180 56
Shareowners' investment 239,631 241,738 240,949
TOTAL LIABILITIES AND SHAREOWNERS'
INVESTMENT $ 736,322 $ 750,003 $ 788,143
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Statement of Cash Flows
(Unaudited)
(dollars in thousands, except per share)
26 WEEKS ENDED
July 27, July 29,
1996 1995
OPERATING ACTIVITIES:
Net earnings (loss) $ (2,073) $ (20,533)
Items not requiring the outlay of cash:
Depreciation and amortization 15,857 15,698
Deferred income tax and ITC 14,358 (600)
Other 279 0
Working capital and other (41,977) (52,980)
Total operating activities (13,556) (58,415)
INVESTING ACTIVITIES:
Net additions of property and equipment (5,212) (27,879)
Proceeds from sale of assets 2,617 0
Other 129 382
Total investing activities (2,466) (27,497)
FINANCING ACTIVITIES:
Repayments of long-term debt (1,958) (1,559)
Proceeds from sale/leaseback 15,000 0
Short-term borrowings (30,000) 35,000
Dividends (1,250) (4,965)
Proceeds from exercised stock options 0 571
Other (2,297) 0
Total financing activities (20,505) 29,047
DECREASE IN CASH AND CASH EQUIVALENTS (36,527) (56,865)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 57,465 73,374
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,938 $ 16,509
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period:
Interest $ 12,841 $ 8,015
Income taxes $ (26,382) $ 10,810
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. During the second quarter of 1996, the company granted 704,200
shares of restricted stock with a market price of $7.75 per share on the
date of grant. $472 was charged to expense in the second quarter of 1996
related to these shares of restricted stock, which will vest no later than
five years from the date of grant.
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. On June 28, 1996, the company terminated its unsecured
credit facility with several domestic and foreign banks and
entered into an agreement with BankAmerica Business Credit,
Inc., as agent, and a syndicate of financial institutions
for a secured revolving 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 is in effect until June 27, 1999, and is secured by
the inventory, equipment, and substantially all other assets
of the company, excluding real estate and certain property
under leases. The Credit Facility requires the company to
meet certain quarterly covenants, including a fixed charge
coverage ratio. Under the terms of the Credit Facility, the
company is prohibited from paying dividends on its common
stock. As of July 27, 1996, the company was in compliance
with these covenants.
Interest on borrowings under the Credit Facility is payable
based on multiple rate options. Additionally, the company
is required to pay certain unused line fees and letter of
credit fees.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Second quarter 1996 sales were $329.4 million, down 27.9% from
$456.8 million during the same period in 1995. Comparable store
sales for the second quarter declined 23.1%. For the 26 weeks
ended July 27, 1996, sales were $680.7 million, a decrease of
24.2% from $897.7 million in the 26 weeks ended July 29, 1995.
Total sales for the second quarter and year-to-date were
negatively impacted by the closing of six stores on March 30,
1996 and the conversion of four stores to temporary chain-wide
clearance centers. The company reopened one clearance center in
Houston, Texas as a family value store on June 7, 1996, and
reopened four stores in Indianapolis (two which were operating as
clearance centers and two which were closed) on July 31, 1996.
Sales for both periods of 1996 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. The company's plans reflect a store-for-
store sales decline for the third and fourth quarters of 1996.
Loss per common share for the second quarter and year-to-date
periods of 1996 was $0.24 and $0.19, respectively, compared with
loss per common share of $1.04 and $1.26 for the comparable 1995
periods. Net loss applicable to common shareowners was $4.4
million and $3.3 million for the second quarter and first 26
weeks of 1996, respectively, as compared with net loss applicable
to common shareowners of $18.0 million and $21.8 million for the
comparable 1995 periods. The first 26 weeks of 1996 included a
pre-tax gain from a real estate transaction of $2.1 million, or
$0.07 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.
Second quarter of 1995 included nonrecurring charges of $16.0
million ($9.7 million after-tax or $0.56 per share) incurred in
connection with the August 1995 closing of three stores and the
company's expense reduction and repositioning programs. These
nonrecurring charges are included in selling, general,
administrative and other expenses. Year-to-date 1995 included
nonrecurring charges of $19.6 million ($11.9 million after-tax or
$0.69 per share) to complete the image builder program and for
the store closings, expense reduction, and repositioning
programs. Of the year-to-date amount, $0.3 million is included
in cost of merchandise sold and $19.3 million is included in
selling, general, administrative and other expenses.
The components of the net earnings (loss) as a percent of sales
were as follows:
13 Weeks Ended 26 Weeks Ended
July 27, July 29, July 27, July 29,
1996 1995 1996 1995
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold
(before LIFO charge) 74.9 76.2 74.4 75.7
LIFO charge (0.2) 0.1 0.0 0.1
Gross margin 25.3 23.7 25.6 24.2
Selling, general, admin.
and other expenses 25.4 29.1 24.3 27.2
Operating income (loss) (0.1) (5.4) 1.3 (3.0)
Net interest expense 2.0 0.9 1.9 0.8
Loss before income taxes (2.1) (6.3) (0.6) (3.8)
Income tax benefit (0.9) (2.5) (0.3) (1.5)
Net earnings (loss) (1.2)% (3.8)% (0.3)% (2.3)%
Gross margin as a percent of sales increased during the second
quarter and first 26 weeks of 1996 over the same periods from the
prior year primarily due to an increase in sales of higher margin
softline items as a percentage of sales, the exiting or
downsizing of historically low-margin product lines and expansion
of merchandise assortments in home, family apparel, and leisure
categories as part of the repositioning, and reduced permanent
markdowns in the 1996 periods.
The second quarter of 1996 included a LIFO credit of $0.5
million, compared with a LIFO charge of $0.4 million in the
second quarter of 1995. For the first 26 weeks of 1996, LIFO was
$0.0 million, compared with a LIFO charge of $0.4 million for the
same period in 1995.
Selling, general, administrative and other expenses as a percent
of sales decreased in the second quarter and year-to-date periods
of 1996 compared to the second quarter and year-to-date periods
of 1995, largely due to the company's expense reduction and
stringent cost control efforts. Payroll and payroll taxes
decreased $23.7 million and $41.1 million in the second quarter
and first 26 weeks of 1996 over the same periods 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 the quarter and
year-to-date periods of 1995 to the same periods in 1996. As
previously discussed, selling, general, administrative and other
expenses for the second quarter and year-to-date periods of 1995
included nonrecurring charges of $9.7 million and $19.3 million,
respectively. 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.
Net interest expense increased during the second quarter and
first 26 weeks of 1996 compared to the same periods 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
On June 28, 1996, the company terminated its unsecured credit
facility with several domestic and foreign banks and entered into
an agreement with BankAmerica Business Credit, Inc., as agent,
and a syndicate of financial institutions for a secured revolving
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 is in effect until June 27, 1999, and is
secured by the inventory, equipment, and substantially all other
assets of the company, excluding real estate and certain property
under leases. The Credit Facility requires the company to meet
certain financial covenants, including a minimum fixed charge
coverage ratio. Under the terms of the Credit Facility, the
company is prohibited from paying dividends on its common stock.
As of July 27, 1996, the company was in compliance with these
covenants.
Interest on borrowings under the Credit Facility is payable based
on multiple rate options. Additionally, the company is required
to pay certain unused line fees and letter of credit fees.
The company's debt-to-capitalization ratio (including the present
value of operating leases) was 64.4% at July 27, 1996 compared to
62.0% at the end of the second 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 July 1996.
Long-term debt increased between the second 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 July 27, 1996 compared with July 29, 1995 reflect the
company's greater reliance on short-term debt to fund working
capital as a result of reduced sales and the net loss. The
decrease in accounts payable is primarily due to a reduction in
receipts of merchandise in the current year compared to last year
based on the company's sales trend.
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 properties continue 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 prepaid income taxes in July
1996 over July 1995 is due primarily to a larger net operating
loss in the first two quarters of 1995.
The decrease in accrued expenses in the second quarter of 1996
over year-end 1995 is largely due to a $11.8 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 $6.5
million decrease in reserves related to store closings. A
decrease in accrued severance costs and a decrease in payroll,
benefit, and insurance accruals resulting from the reduced
workforce and the suspension of benefit accruals under the
retirement plan also contributed to the decrease in accrued
expenses in the second quarter of 1996 over year end 1995. The
decrease in accrued expenses in the second quarter of 1996 over
the second quarter of 1995 is primarily due to a $10.7 million
decrease in payroll, benefit, and insurance accruals resulting
from the reduced workforce and the suspension of benefit accruals
under the retirement plan, a $17.0 million decrease in reserves
related to store closings, a $4.9 million decrease in real estate
and personal property taxes, and a $1.4 million decrease in the
accrual for nonrecurring costs in connection with the image
builder program.
A $3.2 million increase in prepaid advertising expense and a $1.0
million increase in deferred preopening expenses for stores that
will reopen in 1996 contributed to most of the increase in other
current assets from year end 1995.
The capital expenditure budget totals approximately $18.0 million
for 1996, including approximately $2.5 million to open one new
store in the fall of 1996. The decline in capital expenditures
from $27.9 million in the first 26 weeks of 1995 to $5.2 million
in the first 26 weeks in 1996 is primarily due to the fact that
there were no new store openings in the first two quarters of the
current year. Two stores were opened in the first quarter of
1995 (one in Houston and one in Amarillo, Texas)and two stores
were opened during the second quarter of 1995 (one in Fort Worth
and one in Houston, 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 store. During the second quarter of
1996, the company reopened the clearance center in Houston,
Texas, as a family value store. Subsequent to the second quarter
of 1996, the company reopened four stores in Indianapolis (two of
which were operating as clearance centers and two of which were
closed) as family value stores. The company plans to reopen one
store in Houston in the fall of 1996.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On June 28, 1996, the company entered into an agreement with
BankAmerica Business Credit, Inc., as agent, and a syndicate of
financial institutions for a secured revolving credit
facility,(the "Credit Facility"), which prohibits the payment of
cash dividends on the company's common stock. The credit
facility expires June 27, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Loan and Security Agreement, dated as of June 28,
1996, between the company and BankAmerica Business
Credit, Inc. as Agent
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 July 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: September 9, 1996 By:\s\Eugene Caldwell
Eugene Caldwell
Senior Vice President
Chief Financial Officer
Exhibit Index
Exhibit No. Description
10 Loan and Security Agreement, dated as of
June 28, 1996, between the company and and
BankAmerica Business Credit, Inc. as Agent
11 Computation of Earnings per Common Share
27 Financial Data Schedule