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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MAY 31, 1995
COMMISSION FILE NUMBER 0-15247
REEDS JEWELERS, INC.
(Exact name of registrant as specified in its charter)
North Carolina 56-1441702
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2525 South Seventeenth Street
Wilmington, North Carolina 28401
(Address of principal executive offices)
(910) 350-3100
(Registrant's telephone number, including area code)
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 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
class of common stock, as of the latest practicable date.
The number of outstanding shares of Common Stock, par value $0.10 per
share, as of July 10, 1995 was 3,819,387.
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Part I
Item 1. FINANCIAL STATEMENTS
The consolidated financial statements included herein have been
prepared by Reeds Jewelers, Inc. (the "Company"), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K for the
fiscal year ended February 28, 1995.
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REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 28, May 31, May 31,
1995 1995 1994
---- ---- ----
ASSETS
Cash and cash equivalents $ 134,000 $ 255,000 $ 255,000
Accounts receivable:
Customers, less
allowance for doubtful
accounts of $2,869,000,
$2,777,000 and $2,416,000 35,379,000 34,032,000 29,796,000
Other 838,000 523,000 755,000
Merchandise inventories 26,438,000 31,281,000 27,670,000
Deferred income taxes 1,840,000 1,817,000 1,531,000
Other 365,000 470,000 496,000
----------- ----------- -----------
Total current assets 64,994,000 68,378,000 60,503,000
Property and equipment 20,893,000 21,566,000 19,002,000
Less: accumulated depreciation
and amortization 11,270,000 11,630,000 10,398,000
----------- ----------- -----------
Net Property and equipment 9,623,000 9,936,000 8,604,000
Goodwill, net of accumulated
amortization of $536,000,
$553,000, $487,000 2,189,000 2,172,000 2,240,000
Other 595,000 574,000 480,000
----------- ----------- -----------
Total other assets 2,784,000 2,746,000 2,720,000
----------- ----------- -----------
TOTAL ASSETS $77,401,000 $81,060,000 $71,827,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 8,567,000 $10,113,000 $11,451,000
Accrued expenses 4,523,000 2,883,000 2,977,000
Deferred revenue 1,074,000 1,122,000 925,000
Income taxes 1,702,000 286,000 371,000
Current portion of long-term debt 3,313,000 3,320,000 3,536,000
----------- ----------- -----------
Total current liabilities 19,179,000 17,724,000 19,260,000
Revolving credit note 19,000,000 24,249,000 14,749,000
Long-term debt and subordinated
notes payable 9,378,000 8,857,000 12,233,000
Subordinated notes payable to
shareholders 900,000 900,000 900,000
Deferred income taxes 2,211,000 2,204,000 1,870,000
Deferred revenue 906,000 918,000 784,000
----------- ----------- -----------
Total long-term liabilities 32,395,000 37,128,000 30,536,000
Common stock, par value $0.10
per share; 10,000,000 shares
authorized; 3,819,387 shares
issued and outstanding at
February 28, 1995 and; May 31,
1995; 3,815,900 shares issued and
outstanding at May 31, 1994 382,000 382,000 347,000
Additional paid-in capital 7,406,000 7,406,000 3,481,000
Retained earnings 18,039,000 18,420,000 18,203,000
----------- ----------- -----------
Total shareholders' equity 25,827,000 26,208,000 22,031,000
----------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $77,401,000 $81,060,000 $71,827,000
=========== =========== ===========
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REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three months ended May 31,
1995 1994
---- ----
Revenues:
Net sales $17,145,000 $14,860,000
Other (principally finance charges) 2,371,000 2,146,000
----------- -----------
Total revenues 19,516,000 17,006,000
Costs and expenses:
Cost of sales (including
occupancy costs) 10,153,000 8,923,000
Selling, general, and administrative 7,380,000 6,361,000
Bad debt 581,000 500,000
Interest 832,000 705,000
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Total costs and expenses 18,946,000 16,489,000
----------- -----------
Earnings before income taxes 570,000 517,000
Income taxes 188,000 186,000
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Net earnings $ 382,000 $ 331,000
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Earnings per share $ 0.10 $ 0.09
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Weighted average shares outstanding 3,819,387 3,811,625
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REEDS JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended May 31,
1995 1994
---- ----
Cash flows from operating activities:
Net earnings $ 382,000 $ 331,000
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 488,000 402,000
Provision for loss on accounts receivable 500,000 500,000
Loss/(gain) on sale of property and equipment 13,000 0
Changes in assets and liabilities:
Accounts receivable 1,162,000 577,000
Merchandise inventories -4,843,000 -5,440,000
Other assets -93,000 -47,000
Trade payables 1,545,000 3,082,000
Accrued expenses -1,640,000 -177,000
Deferred revenue 71,000 18,000
Income taxes -1,411,000 -1,231,000
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Net cash provided by (used in) operating activities -3,826,000 -1,985,000
Cash flows from investing activities:
Purchases of property and equipment -792,000 -356,000
Proceeds from sale of property and equipment 3,000 0
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Net cash used in investing activities -789,000 -356,000
Cash flows from financing activities:
Net proceeds from revolving credit note 5,249,000 2,819,000
Principal payments on debt -513,000 -513,000
Proceeds from exercise of options on common stock 0 36,000
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Net cash provided by financing activities 4,736,000 2,342,000
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Net decrease in cash 121,000 1,000
Cash, beginning of period 134,000 254,000
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Cash, end of period $ 255,000 $ 255,000
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 848,000 $ 715,000
Income taxes 1,604,000 1,440,000
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REEDS JEWELERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. MANAGEMENT'S OPINION
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the
fiscal year ended February 28, 1995.
Management of Reeds Jewlers, Inc. believes that the consolidated financial
statements contained herein contain all adjustments necessary to present
fairly the financial position, consolidated results of operations, and
cash flows for the interim period. Management also believes that all
adjustments so made are of a normal and recurring nature.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Net sales of $17,145,000 for the three months ended May 31, 1995 were
$2,285,000, or 15%, higher than the $14,860,000 for the same period in 1994.
Comparable store sales were up 8%.
Other revenues increased 10% over the first quarter of last year to $2,371,000
as a result of higher finance charges resulting from the 14% increase in
customer receivables at May 31, 1995 from a year earlier. Gross margins were
essentially flat at 41% of net sales in both quarters.
Selling, general, and administrative expenses were flat at 43%. However, as
planned, expenses increased at the same rate as sales increased.
Bad debt expense for the quarter ended May 31, 1995 was $581,000, or 16% higher
than the same quarter in the previous year. The rate of increase was slightly
higher than the 14% increase in customer receivables; however, delinquency at
the end of the quarter was 7% lower than the prior year.
Interest expense increase $127,000 to $832,000. The increased expense resulted
from higher average debt outstanding.
The Company's anticipated tax rate was 33% and 36% in the quarters ended May
31, 1995 and 1994, respectively. After income taxes of $188,000 and $186,000 in
the first quarters of 1995 and 1994, respectively, the Company earned $382,000
and $331,000. Earnings per share was $.10 per share in 1995 and $.09 per share
in 1994, adjusted for the stock dividend of August 1994.
The Company generally follows the practice of passing on price changes to its
customers. As a result, management believes its operations have not been
materially affected by inflationary forces during the periods reported herein.
Liquidity and Capital Resources
Working capital increased 23% to $50,654,000 at May 31, 1995 from $41,243,000
at May 31, 1994. The ratio of current assets to current liabilities as of May
31, 1995 was 3.9 to 1, compared to 3.1 to 1 at May 31, 1994.
Customer receivables, net of allowance for doubtful accounts, were $34,032,000
and $29,796,000 at May 31, 1995 and 1994, respectively. The 14% increase
resulted from increased credit sales caused by aggressive solicitation of new
credit customers and promotion to existing customers by the Company. Credit
extension policies and criteria remained consistent during each of the two
periods.
Merchandise inventories were 13% higher at the end of the first quarter of 1995
than at the same time in 1994, $31,281,000 compared to $27,670,000. Management
had planned for inventory levels to remain flat, and has not planned for
additional growth in inventory levels until October through December.
Inventories are expected to be 5%-7% higher at February 29, 1996 than they were
a year earlier.
Capital expenditures were $792,000 during the three months ended May 31, 1995,
compared to $356,000 for the same period in 1994. Such expenditures were for
leaseholds, furniture, and fixtures in new or remodeled stores. The Company
opened one new store in Fredricksburg VA during the first quarter ended May 31,
1995; in June, the Company closed its store in Carbondale IL. Management plans
to open a total of six to eight during the fiscal year. The capital
expenditures budget for the fiscal year is approximately $2,700,000.
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In March 1995, the Company increased and extended its revolving credit
facility, expiring June 30, 1996, with two commercial banks. This revolving
credit facility provides for $22,000,000 through April 30, 1995, $25,000,000
through September 30, 1995, $27,000,000 through January 31, 1996, $24,000,000
through April 30, 1996, and $25,000,000 through June 30, 1996. Borrowings under
the revolving credit facility may be at rates based on 30-day LIBOR and capped
at the bank's prime rate less 0.25%.
In order to hedge the interest rates related to the senior secured notes and
the senior subordinated notes, on May 23, 1994 the Company entered into an
interest rate swap with a major commercial bank as the counterparty. The swap
is for a term of two years ending May 24, 1996 at notional amounts of
$15,000,000 for the first year and reducing to $12,000,000 for the second year,
approximating the outstanding average balances on the senior secured notes and
the senior subordinated note. At the end of each six month period during the
term of the swap, the Company will receive an annualized fixed rate of 6.35%
and will pay the six-month LIBOR rate in effect, at the counterparty's option,
at either the beginning or the end of each six-month period. The risk
associated with this swap is a function of the change in the floating LIBOR
rate, which have to be approximately 130 basis points higher at any
determination date than it was at the time the swap agreement was initiated in
order for the Company to have a net expense for the period. The Company paid a
net of approximately $7,000 during the first year of the swap agreement.
At this time, management believes its credit lines are adequate to support its
plans for the current year and knows of no other material events or
uncertainties which would cause the financial information herein not to be
indicative of the operating results or future financal condition of Reeds
Jewelers, Inc.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
Not applicable.
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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.
REEDS JEWELERS, INC.
July 10, 1995 /s/ James R. Rouse
----------------------
James R. Rouse
Treasurer and
Chief Financial Officer
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