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 31, 1997
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 0-21226
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SEAMAN FURNITURE COMPANY, INC.
------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2751205
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
300 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORK 11797
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (516) 496-9560
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
--- ---
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding as of September 10, 1997
--------------------------- ------------------------------------
Common Stock $.01 par value 4,536,839
Page 1 of 13
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PART I
- ------
Condensed Consolidated Balance Sheets -
July 31, 1997 and April 30, 1997 3
Condensed Statements of Consolidated Operations -
Three months ended July 31, 1997 and 1996 4
Condensed Statements of Consolidated Cash Flows
Three months ended July 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
PART II
- -------
Other Information 10 - 11
Signatures 12
Exhibits 13
Page 2 of 13
PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
JULY 31, APRIL 30,
1997 1997
---- ----
(UNAUDITED)
ASSETS
- ------
CURRENT ASSETS:
Cash & cash equivalents $ 11,143 $ 6,423
Accounts receivable, net 68,344 68,916
Merchandise inventories 29,117 28,782
Prepaid expenses and other 1,247 1,133
Deferred tax asset 4,977 4,977
--------- ---------
Total current assets 114,828 110,231
PROPERTY AND EQUIPMENT-net 30,781 31,391
PROPERTY FINANCED BY CAPITAL LEASES-net 4,624 4,727
OTHER ASSETS 3,764 4,039
DEFERRED TAX ASSET 10,734 10,834
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TOTAL $ 164,731 $ 161,222
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
- ----------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $ 16,224 $ 13,167
Accrued expenses 20,494 19,947
Customer deposits 8,243 8,487
Current portion of long-term debt 1,134 1,123
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Total current liabilities 46,095 42,724
LONG-TERM DEBT 12,572 12,878
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STOCKHOLDERS' EQUITY
Common stock 50 50
Additional paid-in capital 86,817 86,817
Retained earnings 24,758 24,310
Treasury stock (5,561) (5,557)
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Stockholders' equity 106,064 105,620
--------- ---------
TOTAL $ 164,731 $ 161,222
========= =========
See notes to condensed consolidated financial statements.
Page 3 of 13
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
JULY 31,
--------
1997 1996
---- ----
(UNAUDITED) (UNAUDITED)
REVENUES:
Net sales $ 66,497 $ 62,659
Net finance charge income 2,861 3,614
-------- --------
Total 69,358 66,273
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OPERATING COST & EXPENSES:
Cost of sales, including
buying and occupancy costs 44,434 42,298
Selling, general and administrative 23,684 22,682
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Total 68,118 64,980
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INCOME FROM OPERATIONS 1,240 1,293
INTEREST EXPENSE 503 538
INTEREST INCOME (92) (25)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 829 780
PROVISION FOR INCOME TAXES 381 335
-------- --------
NET INCOME $ 448 $ 445
======== ========
NET INCOME PER SHARE $ 0.09 $ 0.09
======== ========
See notes to condensed consolidated financial statements.
Page 4 of 13
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS OF DOLLARS)
THREE MONTHS ENDED
JULY 31,
--------
1997 1996
---- ----
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net Income $ 448 $ 445
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,465 1,193
Deferred tax asset 100 60
Asset and liability management:
Accounts receivable 572 850
Merchandise inventories (335) (1,823)
Prepaid expenses and other assets (19) 2,534
Accounts payable 3,057 2,364
Accrued expenses and other 517 1,838
Customer deposits (244) (836)
-------- --------
Net cash provided by operating activities 5,561 6,625
-------- --------
INVESTING ACTIVITIES:
Purchase of equipment (542) (750)
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Net cash used in investing activities (542) (750)
-------- --------
FINANCING ACTIVITIES:
Repayment of loans (295) (7,913)
Purchase of treasury stock (4) --
-------- --------
Net cash used in financing activities (299) (7,913)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 4,720 (2,038)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,423 3,436
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 11,143 $ 1,398
======== ========
See notes to condensed consolidated financial statements.
Page 5 of 13
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial
statements include the accounts of Seaman Furniture Company, Inc. and
its wholly-owned subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all the adjustments
necessary to present fairly the financial position at July 31, 1997; the
results of consolidated operations for each of the three month periods
ended July 31, 1997 and July 31, 1996; and the cash flows for the three
month periods ended July 31, 1997 and July 31, 1996. Such adjustments
consisted only of normal recurring items. The condensed consolidated
financial statements and notes thereto should be read in conjunction
with the consolidated financial statements and notes for the years ended
April 30, 1997 and April 30, 1996 included in the Company's Annual
Report on Form 10-K/A for 1997 and Form 10-K for 1996 each of which was
filed with the Securities and Exchange Commission.
The interim financial results are not necessarily indicative of
the results to be expected for the full year.
2. NET INCOME PER SHARE
--------------------
Net income per share is based on the weighted average number of
common and common equivalent shares outstanding. Employee and director
stock options are considered to be Common Stock equivalents and,
accordingly 513,836 Common Stock equivalent shares have been included in
the computation for the three month period ended July 31, 1997 using the
treasury stock method.
3. SUBSEQUENT EVENTS
-----------------
On August 5, 1997, the Company consummated the sale of substantially all
of its customer accounts receivable to Household Bank (Nevada), N.A.
("Household) for net proceeds of approximately $70 million. In connection
therewith, the Company also entered into a Merchant Agreement with Household,
dated August 1, 1997 with an effective date of August 5, 1997, pursuant to which
Household will provide revolving credit financing to individual qualified
customers of the Company through issuance of the Company's proprietary credit
card and will provide services to existing credit customers. The Company has
terminated its Service Agreement with SPS Payment Systems, Inc. which had
provided services since April 1994 with regard to the Company's proprietary
credit card program.
Page 6 of 13
Item 2 MANAGEMENT DISCUSSION AND ANALYSIS
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended July 31, 1997 compared to Three Months Ended July 31, 1996
- -----------------------------------------------------------------------------
Net sales for the three months ended July 31, 1997 of $66.5 million
increased by $3.8 million (or 6.1%) compared to net sales for the three months
ended July 31, 1996. Comparable store sales for the three months ended July 31,
1997 were $65.0 million, an increase of $2.4 million (or 3.8%) compared to
comparable store sales of $62.7 million for the same period last year.
Net finance charge income of $2.9 million for the three months ended
July 31, 1997 decreased by approximately $753,000 (or 20.8%) from the three
months ended July 31, 1996, primarily due to an increased amount of deferred
interest promotions.
As a result of the foregoing, total revenues for the three months ended
July 31, 1997 were $69.4 million, an increase of $3.1 million (or 4.7%) over the
comparable prior year period.
Cost of sales increased by $2.1 million (or 5.0%) for the three months
ended July 31, 1997 primarily due to the additional sales, but as a percentage
to sales decreased from 67.5% for the three months ended July 31, 1996 to 66.8%
for the three months ended July 31, 1997.
Selling, general and administrative expenses increased by $1.0 million
(or 4.4%) for the three months ended July 31, 1997. Approximately $400,000 of
the increase was due to one-time, non-recurring expenses related to the
Company's termination of the $40 million Revolving Credit and Security Agreement
(see Liquidity & Capital Resources), and in addition, approximately $200,000 was
due to pre-opening costs of three new stores.
As a result of the foregoing, income from operations was $1.2 million
for the three months ended July 31, 1997, a decrease of $53,000 (or 4.1%)
compared to $1.3 million for the three months ended July 31, 1996.
Net interest expense of $411,000 for the three months ended July 31,
1997 decreased by $102,000 (or 19.9%) compared to the three months ended July
31, 1996, primarily resulting from increased interest income due to the
Company's higher cash balances.
The provision for income taxes for the three months ended July 31, 1997
is based upon an effective income tax rate of 46.0% as compared to 43.0% for the
three months ended July 31, 1996.
As a result of the foregoing, the Company's net income for the three
months ended July 31, 1997 was $448,000, an increase of $3,000 (or .7%) compared
to $445,000 for the three months ended July 31, 1996.
Page 7 of 13
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital increased from $67.5 million at April 30,
1997 to $68.7 million at July 31, 1997. Cash and cash equivalents increased from
$6.4 million at April 30, 1997 to $11.1 million at July 31, 1997. The Company's
principal uses of cash are working capital needs, capital expenditures and debt
service obligations, including capitalized lease costs. As of July 31, 1997 the
Company had stockholder's equity of $106 million. The Company's largest asset at
such date was accounts receivable of $68.3 million (net of bad debt reserves).
In addition at July 31, 1997 the Company had $12.6 million in other long term
debt, consisting of capitalized lease obligations and a mortgage in connection
with its Central Islip, New York warehouse facility.
Capital expenditures were approximately $542,000 for the three months
ended July 31, 1997. These expenditures were primarily for the opening of new
stores and the renovation of existing stores. The Company plans to spend
approximately $4 million in capital expenditures during the current fiscal year
ending April 30, 1998. The capital expenditures planned for fiscal 1998 are
primarily for the opening of new stores and the renovation of certain existing
stores.
On July 30, 1997 the Company terminated the $40 million Revolving Credit
and Security Agreement (the "Loan Agreement") with the Bank of New York
Commercial Corporation and Fleet Bank, N.A. (as Successor-by-Merger to NatWest
Bank N. A.) as lenders. The termination of the Loan Agreement was done in
connection with the sale of the Company's customer accounts receivables. See
"Subsequent Events".
The Company entered into a commitment letter dated July 31, 1997 with
Heller Business Credit, a division of Heller Financial, Inc., to provide a
five-year term loan for $10 million and a five-year revolving credit facility
for $25 million collateralized by eligible inventory of the Company (the "Heller
Loan Facility"). Pursuant to a letter dated August 27, 1997, this commitment was
extended through November 30, 1997.
The Company currently expects that its cash position and prospective
borrowings under the Heller Loan Facility will be sufficient to meet the
Company's planned capital expenditures, long-term debt (composed of capital
lease obligations, principal on the Company's mortgage and repayments on the
Heller Loan Facility) and currently anticipated working capital requirements
through the end of fiscal 1999 without consideration of uncertainties
surrounding the Merger Agreement. See "Item 5 - Other Information - Proposal to
take the Company Private." It is expected that final documentation for the
Heller Loan Facility will be consummated at the effective time of the Merger.
Page 8 of 13
SUBSEQUENT EVENTS
- -----------------
On August 5, 1997, the Company consummated the sale of substantially all
of its customer accounts receivable to Household Bank (Nevada), N.A.
("Household) for net proceeds of approximately $70 million. In connection
therewith, the Company also entered into a Merchant Agreement with Household,
dated August 1, 1997 with an effective date of August 5, 1997, pursuant to which
Household will provide revolving credit financing to individual qualified
customers of the Company through issuance of the Company's proprietary credit
card and will provide services to existing credit customers. The Company has
terminated its Service Agreement with SPS Payment Systems, Inc. which had
provided services since April 1994 with regard to the Company's proprietary
credit card program.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
- -------------------------------------------------
With the exception of the historical information contained in this
report, the matters described herein contain forward-looking statements that
involve risk and uncertainties including but not limited to economic and
competitive factors outside of the control of the Company. These factors more
specifically include: competition from other retail stores, continuing strong
economic conditions, especially in the northeastern United States and the
Company's ability to identify consumer preferences with regard to its
merchandise mix. Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate," "intend," "estimate," and similar
expressions. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates.
Page 9 of 13
PART II
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OTHER INFORMATION
ITEM 1 Legal Proceedings
The Company from time to time is involved in legal
proceedings and litigation incidental to the normal course
of the Company's business. The Company believes that the
ultimate disposition of these proceedings and litigation
will not materially adversely affect the Company's
financial position.
ITEM 2 Change in Securities
None
ITEM 3 Defaults Upon Senior Securities
None
ITEM 4 Submission of Matters to a Vote of Security Holders
None
ITEM 5 Other Information
Proposal to take the Company Private
On July 9, 1997 the Company announced that it had received
a proposal from a group consisting of the Company's senior
management and majority stockholders, M.D. Sass
Associates, Inc., T. Rowe Price Recovery Fund, L.P., and
Carl Marks Management Co. L.P. to purchase the approximate
20% of the Company's outstanding common stock not already
owned by the group for $24.00 per share. SFC Merger
Company, a Delaware corporation controlled by this group,
executed a merger agreement (the "Merger Agreement") with
the Company on August 13, 1997. The Merger Agreement
provides for, among other things, cash consideration of
$25.05 per share for each share of the Company's
outstanding common stock, excluding shares of common stock
held by SFC Merger Company, and other than shares as to
which dissenters rights are perfected in accordance with
Delaware law. Under the terms of the Merger Agreement, the
Company will survive the merger and be owned directly and
indirectly by the majority stockholders and the current
senior
Page 10 of 13
management of the Company (the "Merger"). The
Merger Agreement was approved by a special committee of
the Board of Directors of the Company consisting of two
directors not affiliated with the majority stockholders or
management. The special committee received a fairness
opinion from Wasserstein Perrella & Co., Inc. The Merger
Agreement is subject to certain conditions, including
financing and stockholder approval.
ITEM 6 Exhibits and Reports on Form 8-K
(a) The exhibits listed on the Exhibit Index following
the signature page hereof are filed herewith in
response to this item.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 10,
1997 regarding the proposal by the Company's senior
management and majority stockholders to take the
Company private for $24 a share pursuant to Item 5
of Form 8-K.
The Company filed a report on Form 8-K on August
15, 1997 regarding the sale of the customer
accounts receivables pursuant to Item 2 of Form 8-K
and the execution of the Merger Agreement pursuant
to Item 5 of Form 8-K.
The Company filed a report on Form 8-K regarding
the Amendment dated September 4, 1997 executed by
the Company and SFC Merger Company amending the
Agreement and Plan of Merger between the Company
and SFC Merger Company, pursuant to Item 5 of Form
8-K.
Page 11 of 13
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.
SEAMAN FURNITURE COMPANY, INC.
Date September 10, 1997 /s/ Alan Rosenberg
------------------ -----------------------------
Alan Rosenberg, President &
Chief Executive Officer
Date September 10, 1997 /s/ Peter McGeough
------------------ -----------------------------
Peter McGeough, Executive Vice
President / Chief Administrative
& Financial Officer
Page 12 of 13
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
11 Statement regarding computation of per share earnings.
See Note 2 to Consolidated Financial Statements.
Page 13 of 13