- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 30, 1994
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 1-8765
BROADWAY STORES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-0457907
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3880 NORTH MISSION ROAD
LOS ANGELES, CALIFORNIA 90031
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(213) 227-2000
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 .
--- ---
Indicated by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes X . No .
--- ---
As of September 6, 1994, approximately 45,789,125 shares of the registrant's
common stock were outstanding.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
BROADWAY STORES, INC.
FORM 10-Q INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Earnings . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 8
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
BROADWAY STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The discussion of results of operations that follows is based upon the
Company's consolidated financial statements set forth on pages 4 to 7. The
discussion of liquidity and capital resources is based upon the Company's
current financial position.
RECENT DEVELOPMENTS
On June 17, 1994, at the Company's annual meeting, shareholders approved
the change of the Company's name from Carter Hawley Hale Stores, Inc. to
Broadway Stores, Inc. in order to more closely identify the Company with its
operations. Accordingly, on June 20, 1994, Company common stock began trading
on the New York Stock Exchange under the symbol "BWY".
A significant number of the Company's Southern California stores suffered
damage as a result of the major earthquake which affected that area on
January 17, 1994. While most of the area stores were reopened within two weeks,
four stores suffered substantial damage. Of these stores, one reopened in late
May, two stores reopened in June and the remaining store is
scheduled to reopen in November.
The Company maintains earthquake and business interruption insurance with
standard deductible provisions that require the Company to incur an initial
level of costs at each location subject to damage or interruption of business.
In January 1994, the Company established both a reserve of $65.4 million to
cover costs of building and fixture repairs, inventory and business interruption
losses, and other costs related to the earthquake and a receivable of $50.4
million for estimated insurance recoveries. As of July 30, 1994, $45.6 million
of the reserve has been utilized to cover repairs and damaged inventories, and
$21.3 million has been received in insurance recoveries. The $15.0 million non-
recurring charge recognized in January 1994, in management's opinion, continues
to be adequate to cover earthquake related losses in excess of estimated
insurance proceeds.
RESULTS OF OPERATIONS
Sales for the current quarter and year-to-date periods ended July 30, 1994
were $457.0 million and $888.1 million compared to $474.9 million and $917.4
million in the comparable prior year periods. Current year results were
impacted by the January 17, 1994 Northridge earthquake and the loss of sales
from the four most severely damaged stores. On a comparative store basis sales
for the current quarter and year-to-date periods increased 1.2% and 2.9% over
the comparable prior year periods.
The net losses of $12.9 million and $30.9 million in the current quarter
and year-to-date periods improved from losses of $42.5 million and $52.8 million
in the comparable prior year periods. Prior year results include a $25.0
million charge for non-recurring costs for the implementation of expense
reduction programs.
Earnings before interest and taxes ("EBIT") of $10.6 million and $15.1
million in the current quarter and year-to-date periods compare to losses of
$20.8 million and $15.7 million in the comparable prior year periods.
1
Cost of goods sold improved to $338.3 million, 74.0% of sales and $657.7
million, 74.1% of sales in the current quarter and year-to-date periods as
compared to $360.3 million, 75.9% of sales and $689.8 million, 75.2% of sales in
the comparable prior year periods. The improvement reflects improving margins
and lower buying and occupancy costs.
Selling, general, and administrative expenses were $130.5 million, 28.6% of
sales and $260.2 million, 29.3% of sales in the current quarter and year-to-date
periods compared to $130.2 million, 27.4% of sales and $259.5 million, 28.3% of
sales last year. Savings from cost reduction programs put in place during
fiscal 1993 were largely offset by higher store operating expense levels during
the current year period.
Finance charge revenue increased to $22.4 million, 4.9% of sales, and $44.9
million, 5.1% of sales in the current quarter and year-to-date periods, from
$19.9 million, 4.2% of sales, and $41.1 million, 4.5% of sales in the comparable
prior year periods. The improvement reflects increased customer receivable
balances resulting from an October 1993 change in payment terms which reduced
the minimum monthly payment requirement on the Company's short term revolving
charge accounts.
Interest expense increased by $1.8 million to $23.5 million in the second
quarter and increased by $2.0 million to $46.0 million for the current year. The
increase was largely due to rising interest rates.
Limitations on the Company's ability to record income tax benefits for net
operating loss carryforwards for financial statement purposes resulted in no
income tax benefit being recognized in the current year. The income tax benefit
recognized in the first quarter of the prior year was eliminated in the fourth
quarter of that year for similar reasons.
Due to the seasonal nature of the retail business wherein a significant
portion of sales for the year are generated in the fourth quarter, the Company
follows the practice of allocating certain fixed buying and occupancy costs
among quarters within the fiscal year to match these costs with the associated
seasonal sales revenue. Operating results, on a pre-tax basis, reflect the
reallocation of such buying and occupancy costs, resulting in benefits of $5.9
million and $12.8 million being reflected in the operating results for the
current quarter and year-to-date periods as compared to $4.6 million and $11.2
million in the comparable prior year periods.
The seasonal nature of the retail business also results in a significant
portion of the earnings from operations for the year being generated in the
fourth quarter. Interim operating results are thus not necessarily indicative
of earnings from operations that will be realized for the full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Company is currently finalizing a private placement
subordinated note offering totalling $64.0 million. The subordinated asset
backed notes are to be issued in two classes: $38.0 million of 7.55% Class A
notes due 1999 (rated BBB by Standard and Poors and Fitch Investors Service)
and $26.0 million of 11.00% Class B notes due 1999 (rated BB by Standard and
Poors and Fitch Investors Service).
The proceeds of the notes are to be used to increase the Company's
liquidity. Concurrently, the Company is finalizing proposed changes to its
$800.0 million credit and receivables facilities. The proposed amendments will
extend the maturity date of the agreements from October 1995 to October 1996.
Subject to collateral limitations, the facilities, as currently stated,
provide for up to $225.0 million in credit financing and up to $575.0 million in
financing for the Company's proprietary credit card receivables portfolio. As
of July 30, 1994, no advances and $61.6 million in letters of credit were
outstanding under the credit facility and $392.1 million of borrowings, $65.6
million less than the maximum available based on the level of customer
receivables, were outstanding under the receivables facility.
The credit facility, as currently stated, contains a number of operating
and financial covenants, as well as significant negative covenants. The
credit facility includes covenants for material adverse changes, minimum
aggregate net cash flow and earnings before interest, taxes, depreciation and
amortization ("EBITDA"). In addition, the credit facility prohibits the
Company from paying
2
dividends on its stock and places limitations on inventory levels and capital
expenditure amounts. During the first quarter of the current year, the
financial covenants were relaxed by an amendment to the credit facility which
took into account the enhanced liquidity provided by proceeds of $137.9 million
from the December 1993 issuance of 6.25% Convertible Senior Subordinated Notes.
Further covenant changes to enhance flexibility are currently being finalized
concurrent with the $64.0 million issuance of subordinated notes. The Company
is currently in compliance with all covenants under the credit facility. As
of July 30, 1994, cash flow and EBITDA levels exceeded covenant requirements
by $30.8 million and $28.0 million, respectively. In addition, the
Company's net inventory ratio at July 30, 1994 was 80.4% or 6.7% less than the
maximum permitted under the credit facility and year-to-date capital
expenditures amounted to $21.7 million compared to the $110.0 million maximum
allowable for fiscal 1994. The credit agreement and the Company's agreements
with its other principal secured creditors contain additional covenants and
requirements, all of which the Company is in compliance with.
A substantial portion of the Company's debt is at variable interest
rates. Assuming that the average borrowings and all other variables would
have remained constant, an increase (or decrease) of one percent in the
interest rates applicable to the variable rate portion of the Company's debt
would have increased (or decreased) the Company's interest expense by
approximately $1.2 million and $2.2 million for the current quarter
and year-to-date periods respectively.
CAPITAL EXPENDITURES. The Company's business strategy includes a store
remodeling program designed to increase selling space within existing stores and
to make more productive use of existing selling space. Capital expenditures for
the current year, excluding costs for earthquake repairs, are projected at
approximately $100 million and will be largely concentrated on the remodel
program.
The capital expenditure program may be modified over time to accommodate
market factors and the Company's then existing financial condition. In
addition, from time to time the Company may consider proposals to close existing
stores or open new stores.
The Company's ability to fund its capital expenditure program and to
implement its business strategy will depend on cash flow from operations and the
continued availability of borrowings under the credit facility. Operating cash
flow will be affected by, among other things, the timing of results from the
Company's business strategy, sales during the holiday season, and general
competitive and economic conditions. The Company believes that the operating
cash flow and amounts available under the credit facility, together with
proceeds from the debt and equity offerings during the past year, will be
sufficient to fund the major elements of its business strategy. However,
the Company continuously evaluates increasing or decreasing the number of
stores, the terms of its credit and receivables facilities and other
operating and financing alternatives.
3
BROADWAY STORES, INC.
Consolidated Statement of Earnings
(In thousands)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------- -------------------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
---------- ---------- ---------- ----------
Sales $ 457,030 $ 474,935 $ 888,107 $ 917,415
Finance charge revenue 22,388 19,865 44,925 41,093
Cost of goods sold, including
occupancy and buying costs 338,288 360,343 657,654 689,797
Selling, general, and
administrative expenses 130,549 130,237 260,244 259,450
Charge for non-recurring costs 25,000 25,000
---------- ------------ ---------- ----------
Earnings (loss) from operations
before interest expense and
income taxes 10,581 (20,780) 15,134 (15,739)
Interest expense, net 23,516 21,690 46,029 43,990
---------- ------------ ---------- ----------
Pretax loss (12,935) (42,470) (30,895) (59,729)
Income tax benefit 0 0 0 6,900
---------- ------------ ---------- ----------
Net loss $ (12,935) $ (42,470) $ (30,895) $ (52,829)
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
Loss per common share $ (0.28) $ (1.12) $ (0.66) $ (1.44)
---------- ------------ ---------- ----------
---------- ------------ ---------- ----------
See Accompanying Notes to Consolidated Financial Statements.
4
BROADWAY STORES, INC.
Consolidated Balance Sheet
(In thousands)
(Unaudited)
July 30, January 29, July 31,
1994 1994 1993
-------- ----------- --------
ASSETS
Current assets
Cash $ 15,575 $ 18,192 $ 14,966
Accounts receivable, net 569,931 627,374 484,525
Merchandise inventories 415,443 427,631 405,768
Other current assets 27,640 9,799 22,231
----------- ----------- -----------
1,028,589 1,082,996 927,490
Property and equipment, net 816,947 810,608 785,140
Other assets 35,572 40,543 41,182
----------- ----------- -----------
$ 1,881,108 $ 1,934,147 $ 1,753,812
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments $ 3,460 $ 3,459 $ 3,195
Accounts payable 128,997 151,687 116,920
Accrued expenses 125,525 186,837 121,351
Current income taxes 977 1,203 2,923
----------- ----------- -----------
258,959 343,186 244,389
Receivables based financing 392,143 332,182 362,035
Other secured long-term debt 523,517 517,287 511,577
Convertible subordinated notes 143,750 143,750
Capital lease obligations 43,199 44,667 46,078
Other liabilities 121,227 124,508 114,649
Deferred income taxes 14,850 14,850 5,550
Shareholders' equity
Preferred stock, $.01 par value 9 9 11
Common stock, $.01 par value 469 468 467
Other paid-in capital 501,425 500,785 499,165
Accumulated deficit (118,440) (87,545) (30,109)
----------- ----------- -----------
383,463 413,717 469,534
----------- ----------- -----------
$ 1,881,108 $ 1,934,147 $ 1,753,812
----------- ----------- -----------
----------- ----------- -----------
See Accompanying Notes to Consolidated Financial Statements.
5
BROADWAY STORES, INC.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- -----------------------
July 30, July 31, July 30, July 31,
1994 1993 1994 1993
-------- -------- -------- --------
Operating activities
Loss from operations $ (12,935) $ (42,470) $ (30,895) $ (52,829)
Adjustments to reconcile
loss from operations
to net operating cash flows
Depreciation and amortization 10,192 8,615 20,201 16,950
Deferred income taxes (6,900)
Changes in operating assets and liabilities
Customer receivables, net 4,438 35,036 39,048 94,146
Merchandise inventories (9,935) 13,855 12,188 61,941
Accounts payable and accrued expenses (4,139) 17,992 (49,166) (67,275)
Other, net (28,273) (5,097) (31,239) (10,502)
---------- ---------- ---------- ----------
Net cash provided (used)
by operating activities (40,652) 27,931 (39,863) 35,531
---------- ---------- ---------- ----------
Investing activities
Proceeds from asset sales 5,600 5,600
Purchases of property and equipment (14,387) (9,206) (21,741) (19,204)
---------- ---------- ---------- ----------
Net cash used by
investing activities (14,387) (3,606) (21,741) (13,604)
---------- ---------- ---------- ----------
Financing activities
Net change in financing under
receivables based facility 52,582 (49,496) 59,961 (105,542)
Net change in financing under
working capital facility (112,200) (52,315)
Retirements of long-term debt and
capital lease obligations (808) (13,478) (1,615) (15,323)
Issuances of common stock 426 147,602 641 147,602
---------- ---------- ---------- ----------
Net cash provided (used)
by financing activities 52,200 (27,572) 58,987 (25,578)
---------- ---------- ---------- ----------
Net decrease in cash (2,839) (3,247) (2,617) (3,651)
Cash at the beginning of the period 18,414 18,213 18,192 18,617
---------- ---------- ---------- ----------
Cash at the end of the period $ 15,575 $ 14,966 $ 15,575 $ 14,966
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See Accompanying Notes to Consolidated Financial Statements.
6
BROADWAY STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF REPORTING
The consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q of the Securities and Exchange Commission and
should be read in the context of the Summary of Significant Accounting Policies
and Financial Review contained in the Company's Annual Report on Form 10-K for
the fifty-two week period ended January 29, 1994. In the opinion of the
Company's management, these statements contain all adjustments, all of which are
of a normal recurring nature, necessary for the amounts shown to be fairly
stated as of July 30, 1994 and July 31, 1993 and for the thirteen and twenty-six
week periods then ended. The Balance Sheet as of January 29, 1994 is as
included in the Company's Form 10-K report for the year ended January 29, 1994.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share are computed on the basis of the weighted average number
of shares outstanding during the period, including dilutive stock options and
all 35.0 million shares of Common Stock expected to be issued in accordance with
the plan of reorganization (the "POR") approved in connection with the Company's
emergence from bankruptcy on October 8, 1992 (the "Emergence Date"). As of July
30, 1994, 1.1 million shares of common stock remain to be issued in accordance
with the POR.
INVENTORIES
The last-in, first-out ("LIFO") method of accounting resulted in charges to
cost of goods sold of $.5 million and $1.0 million for the thirteen and twenty-
six week periods ended July 30, 1994 and in the comparative prior year periods.
If all inventories had been valued on a first-in, first-out basis, they would
have been lower by $9.8 million, $10.8 million and $.9 million at July 30, 1994,
January 29, 1994 and July 31, 1993 respectively.
7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material change has occurred in the litigation described in "Item 3:
Legal Proceedings" on pages 17 and 18 of the Company's Form 10-K for the year
ended January 29, 1994.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1* Computation of Earnings Per Share.
27.1* Financial Data Schedules.
- - ---------------
* Exhibit filed with this Form 10-Q.
(b) Reports on Form 8-K:
None
8
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.
BROADWAY STORES, INC.
Date September 9, 1994 /s/ J.C. HAECKEL
----------------- ---------------------------------------
J.C. Haeckel, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date September 9, 1994 /s/ J.D. DAVIES
----------------- ---------------------------------------
J.D. Davies, Vice President, Accounting
(Principal Accounting Officer)
9