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 October 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
SEAMAN FURNITURE COMPANY, INC.
(Exact Name of Registrant as Specified In Its Charter)
Delaware 11-2751205
-------------------------------- ---------------------
(State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization) dentification Number)
300 Crossways Park Drive
Woodbury, New York 11797
---------------------------------- ------------
(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 December 12, 1997
--------------------------- -----------------------------------
Common Stock $.01 par value 4,536,839
Page 1 of 14
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Part I
- ------
Condensed Consolidated Balance Sheets -
October 31, 1997 and April 30, 1997 3
Condensed Statements of Consolidated Operations -
Three and six months ended October 31, 1997 and 1996 4
Condensed Statements of Consolidated Cash Flows -
Three and six months ended October 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 - 10
Part II
- -------
Other Information 11 - 12
Signatures 13
Exhibits 14
Page 2 of 14
PART I
FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
OCTOBER 31, APRIL 30,
1997 1997
---- ----
(UNAUDITED)
ASSETS
------
CURRENT ASSETS:
Cash & cash equivalents $75,609 $6,423
Accounts receivable, net 0 68,916
Merchandise inventories 29,504 28,782
Prepaid expenses and other 3,426 1,133
Deferred tax asset 4,977 4,977
----------- ----------
Total current assets 113,516 110,231
PROPERTY AND EQUIPMENT-net 30,235 31,391
PROPERTY FINANCED BY CAPITAL LEASES-net 4,521 4,727
OTHER ASSETS 4,516 4,039
DEFERRED TAX ASSET 10,484 10,834
----------- ----------
TOTAL $163,272 $161,222
=========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
CURRENT LIABILITIES:
Accounts payable - trade $12,330 $13,167
Accrued expenses 21,671 19,947
Customer deposits 8,854 8,487
Current portion of long-term debt 1,161 1,123
----------- ----------
Total current liabilities 44,016 42,724
LONG-TERM DEBT 12,264 12,878
STOCKHOLDERS' EQUITY
Common stock 50 50
Additional paid-in capital 86,817 86,817
Retained earnings 25,686 24,310
Treasury stock (5,561) (5,557)
----------- ----------
Stockholders' equity 106,992 105,620
----------- ----------
TOTAL $163,272 $161,222
=========== ==========
See notes to condensed consolidated financial statements.
Page 3 of 14
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------- ----------
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES:
Net sales $67,659 $63,722 $134,156 $126,381
Net finance charge income 2,893 2,861 6,507
-
------------ ------------- ------------ -------------
Total 67,659 66,615 137,017 132,888
------------ ------------- ------------ -------------
OPERATING COST & EXPENSES:
Cost of sales, including
buying and occupancy costs 45,194 42,584 89,628 84,882
Selling, general and administrative 20,340 21,629 43,665 44,311
Nonrecurring charges 948 - 1,307 -
------------ ------------- ------------ -------------
Total 66,482 64,213 134,600 129,193
------------ ------------- ------------ -------------
INCOME FROM OPERATIONS 1,177 2,402 2,417 3,695
INTEREST EXPENSE 455 555 958 1,093
INTEREST INCOME (998) (12) (1,090) (37)
------------ ------------- ------------ -------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,720 1,859 2,549 2,639
PROVISION FOR INCOME TAXES 792 800 1,173 1,135
------------ ------------- ------------ -------------
NET INCOME $928 $1,059 $1,376 $1,504
============ ============= ============ =============
NET INCOME PER SHARE (PRIMARY AND FULLY DILUTED) $0.18 $0.21 $0.27 $0.30
============ ============= ============ =============
See notes to condensed consolidated financial statements.
Page 4 of 14
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS OF DOLLARS)
SIX MONTHS ENDED
OCTOBER 31,
1997 1996
---- ----
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net Income $1,376 $1,504
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,045 2,386
Deferred tax asset 350 498
Asset and liability management:
Accounts receivable (817) (2,141)
Merchandise inventories (722) (3,638)
Prepaid expenses and other assets (3,304) 2,174
Accounts payable (837) 3,530
Accrued expenses and other 1,724 1,688
Customer deposits 367 (1,162)
-------------- --------------
Net cash provided by operating 1,182 4,839
activities
-------------- --------------
INVESTING ACTIVITIES:
Purchase of equipment (1,149) (1,829)
-------------- --------------
Net cash used in investing activities (1,149) (1,829)
-------------- --------------
FINANCING ACTIVITIES:
Repayment of loans (576) (4,833)
Purchase of treasury stock (4) -
Sale of accounts receivable portfolio 69,733 -
-------------- --------------
Net cash used in financing activities 69,153 (4,833)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 69,186 (1,823)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,423 3,436
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $75,609 $1,613
============== ==============
See notes to condensed consolidated financial statements.
Page 5 of 14
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 (the "Company"). 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 Company's financial position at October
31, 1997; the results of consolidated operations for each of the three
and six month periods ended October 31, 1997 and October 31, 1996; and
the cash flows for the six month periods ended October 31, 1997 and
October 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 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, 532,336 common stock equivalent shares have been
included in the computation for the three month period and 532,182
common stock equivalent shares have been included in the computation
for the six month period ended October 31, 1997 using the treasury
stock method.
3. Sale of Customer Accounts Receivable
------------------------------------
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 14
4. Subsequent Event
----------------
At a meeting of the Board of Directors (the "Board") of the
Company held on November 17, 1997, the Board called for a Special
Meeting of Stockholders of the Company to be held on December 23, 1997
at 9:00 A.M., New York time at the office of Jones, Day, Reavis &
Pogue, 599 Lexington Avenue, New York, New York 10022, for the
following purposes: (i) to consider and vote upon the adoption of an
Agreement and Plan of Merger dated as of August 13, 1997, as amended on
September 4, 1997 (the "Merger Agreement"), by and between the Company
and SFC Merger Company, a Delaware corporation ("Newco"), providing for
the merger (the "Merger") of Newco with and into the Company, with the
Company continuing as the surviving corporation; and (ii) to transact
such other business as may properly come before the Meeting or any
postponements or adjournments thereof. Only holders of the Company's
common stock of record on the books of the Company at the close of
business on November 17, 1997 are entitled to notice of, and to vote
at, the Meeting and any adjournment thereof.
Item 2. MANAGEMENT DISCUSSION AND ANALYSIS
- -------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended October 31, 1997 compared to Three Months
Ended October 31, 1996
- ------------------------------------------------------------
Net sales for the three months ended October 31, 1997 of $67.7 million
increased by $3.9 million (or 6.2%) compared to net sales for the three months
ended October 31, 1996. Comparable store sales for the three months ended
October 31, 1997 were $64.6 million, an increase of approximately $900,000 (or
1.4%) compared to comparable store sales of $63.7 million for the same period
last year.
Net finance charge income of $2.9 million for the three months ended
October 31, 1996 decreased to $0 for the three months ended October 31, 1997 due
to the sale of the customer accounts receivable on August 5, 1997. See
"Liquidity and Capital Resources".
As a result of the foregoing, total revenues for the three months ended
October 31, 1997 were $67.7 million, an increase of $1.0 million (or 1.6%) over
the comparable prior year period.
Cost of sales, including buying and occupancy costs, increased by $2.6
million (or 6.1%) for the three months ended October 31, 1997 as compared to the
three months ended October 31, 1996, primarily due to the increased cost of
goods sold related to the additional sales and increased occupancy costs
primarily associated with the opening of four new stores since April 1997.
Selling, general and administrative expenses decreased by $1.3 million
(or 6.0%) for the three months ended October 31, 1997, principally due to the
elimination of write-offs related to the accounts receivable.
Nonrecurring charges of $948,000 for the three months ended October 31,
1997 are attributed to the sale of the accounts receivable.
Page 7 of 14
As a result of the foregoing, income from operations was $1.2 million
for the three months ended October 31, 1997, as compared to $2.4 million for the
three months ended October 31, 1996, a decrease of $1.2 million (or 51.0%).
Net interest income for the three months ended October 31, 1997 was
$543,000 compared to net interest expense of $543,000 for the three months ended
October 31, 1996. This is primarily due to increased interest income due to the
Company's higher cash balance primarily attributed to the sale of the accounts
receivable.
The provision for income taxes for the three months ended October 31,
1997 of $792,000 is based upon an effective income tax rate of 46.0%, as
compared to $800,000, which was based on effective income tax rate of 43% for
the three months ended October 31, 1996.
As a result of the foregoing, the Company's net income for the three
months ended October 31, 1997 was $928,000, a decrease of $131,000 (or 12.4%)
compared to $1.1 million for the three months ended October 31, 1996.
SIX MONTHS ENDED OCTOBER 31, 1997 COMPARED TO SIX MONTHS ENDED OCTOBER 31, 1996
- -------------------------------------------------------------------------------
Net sales for the six months ended October 31, 1997 of $134.2 million
increased by $7.8 million (or 6.2%) compared to net sales for the six months
ended October 31, 1996. The increase in net sales is attributed to an increase
in comparable store sales and to the Company opening new stores. Comparable
store sales were $129.7 million and $126.4 million for the six months ended
October 31, 1997 and 1996 respectively, an increase of $3.3 million (or 2.6%).
Net finance charge income decreased from $6.5 million for the six
months ended October 31, 1996 to $2.9 million (or 56.0%) for the six months
ended October 31, 1997. This decrease is attributed to the sale of the customer
accounts receivable. See "Liquidity and Capital Resources".
As a result of the foregoing, total revenues for the six months ended
October 31, 1997 were $137.0 million, an increase of $4.1 million (or 3.1%) over
the comparable prior year period.
Cost of sales, including buying and occupancy costs, increased by $4.7
million (or 5.6%) for the six months ended October 31, 1997 as compared to the
six months ended October 31 1996, principally due to the increased cost of goods
sold related to the additional sales and increased occupancy costs primarily
associated with the opening of four new stores since April 1997.
Selling, general and administrative expenses decreased $646,000 (or
1.5%) for the six months ended October 31, 1997, principally due to the
elimination of write-offs related to the accounts receivable.
Nonrecurring charges of $1.3 million for the six months ended October
31, 1997 are attributed to the sale of the accounts receivable and to the
Company's termination of the $40 million Revolving Credit and Security
Agreement. See "Liquidity and Capital Resources".
Page 8 of 14
As a result of the foregoing, income from operations was $2.4 million
for the six months ended October 31, 1997 compared to $3.7 million for the six
months ended October 31, 1996, a decrease of $1.3 million (or 34.6%).
For the six months ended October 31, 1997 there was net interest income
of $132,000 compared to net interest expense of $1.1 million for six months
ended October 31, 1996. This is primarily due to increased interest income due
to the Company's higher cash balance primarily attributed to the sale of the
accounts receivable.
The provision for income taxes for the six months ended October 31,
1997 of $1.2 million is based upon an effective income tax rate of 46.0%, as
compared to $1.1 million which is based upon an effective income tax rate of
43%, for the six months ended October 31, 1996.
As a result of the foregoing, the Company's net income for the six
months ended October 31, 1997 was $1.4 million, a decrease of approximately
$100,000 (or 8.5%) compared to $1.5 million for the six months ended October 31,
1996.
Liquidity and Capital Resources
- -------------------------------
The Company's working capital increased from $67.5 million at April 30,
1997 to $69.5 million at October 31, 1997. Cash and cash equivalents increased
from $6.4 million at April 30, 1997 to $75.6 million at October 31, 1997,
primarily due to the sale of the Company`s accounts receivable on August 5, 1997
for approximately $70 million. The Company's principal uses of cash are working
capital needs, capital expenditures and debt service obligations, including
capitalized lease costs. As of October 31, 1997 the Company had stockholder's
equity of $107 million. In addition, at October 31, 1997, the Company had $12.3
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 $1.1 million for the six months
ended October 31, 1997. These expenditures were primarily for the opening of new
stores and the renovation of existing stores. The Company plans to spend
approximately $3.5 million in capital expenditures during the current fiscal
year ending April 30, 1998.
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 receivable. See
"Note 3 to the Notes to Condensed Consolidated Financial Statements."
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 December 9, 1997, this commitment
was extended through December 31, 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
Page 9 of 14
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 "Note 4 to the Notes to Condensed
Consolidated Financial Statements" and "Item 5 of Part II Other Information". It
is expected that final documentation for the Heller Loan Facility will be
consummated at the effective time of the Merger.
Certain Factors Affecting Future Performance
- --------------------------------------------
From time to time, information provided by the Company, statements by
its employees or information included in its filing with the Securities and
Exchange Commission (including those portions of this Management Discussion and
Analysis that refer to the future) may contain forward looking statements that
are not historical facts. These statements are "forward looking" within the
meaning of the Private Securities Litigation Reform Act of 1996. Such forward
looking statements and the Company's future performance operating results,
financial position and liquidity are subject to a variety of factors that could
materially affect such results including the Company's ability to select and
stock merchandise attractive to customers, general economic cycles affecting
consumer spending, weather factors affecting retail operations, the Company's
inventory controls, operating factors affecting customers satisfaction, the
Company's relationship with its employees, the mix of goods sold, pricing and
other competitive factors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- ------- MARKET RISKS.
None.
Page 10 of 14
PART II
-------
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 management of the Company (the
"Merger"). The Merger Agreement was approved by a
special committee of the Board of
Page 11 of 14
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
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 12 of 14
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: December 12, 1997 /s/ Alan Rosenberg
-------------------
Alan Rosenberg, President &
Chief Executive Officer
/s/ Peter McGeough
--------------------
Peter McGeough, Executive Vice
President / Chief Administrative
& Financial Officer
Page 13 of 14
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
11 Statement regarding computation of per share
earnings.
See Note 2 to Consolidated Financial Statements.
Page 14 of 14