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 April 29, 1995.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from_____________ to ___________________
___________________________________________________________________
Commission file number__ 33-13622_________________________________
___________________________________________________________________
BRENDLE'S INCORPORATED
Elkin, North Carolina 56-0497852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 North Bridge Street, Elkin, North Carolina 28621
(910) 526-5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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 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 ISSUERS 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 Sections 12, 13,
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________ Not Applicable________
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.
As of June 1, 1995, there were 12,758,717 shares of the issuer's
Common Stock outstanding.
Page 2 of 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BRENDLE'S INCORORATED
Consolidated Statement of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended
Apr. 29, Apr. 30,
1995 1994
Net Sales $23,920 $25,946
Other income 233 31
Total revenue 24,153 25,977
Cost and expenses:
Cost of merchandise sold 16,977 18,808
Selling, operating and
administrative expenses 9,481 9,532
Depreciation and amortization 864 879
Interest expense:
Capitalized leases 51 111
Other 625 241
Provision for restructuring -- 246
27,998 29,817
Loss before and provision for income taxes
and extraordinary item (3,845) (3,840)
Provision for income taxes -- --
Loss before extraordinary item (3,845) (3,840)
Extraordinary item - gain from debt forgiveness -- (28,673)
Net income (loss) $(3,845) $ 24,833
Weighted average shares outstanding 12,759 8,398
Net income (loss) per share $ (0.30) $ 2.96
Page 3 of 15
BRENDLE'S INCORPORATED
Consolidated Balance Sheet
(Unaudited)
(In thousands except per share data)
Apr. 29, January 28, Apr. 30,
1995 1995 1994
Assets
Current Assets:
Cash and temporary cash investments $ 2,457 $ 1,781 $12,886
Accounts receivable 898 971 1,420
Merchandise inventories 54,045 48,451 55,878
Other current assets 1,533 1,361 1,531
Total current assets 58,933 52,564 71,715
Property and equipment, less accumulated
depreciation and amortization 8,224 8,776 10,937
Other assets 853 788 585
$68,010 $62,128 $83,237
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility $20,352 $15,368 $ --
Accounts Payable
Trade 8,078 4,192 8,422
Outstanding Checks (Note #5) 2,215 1,053 23,244
Current portion of capitalized lease obligations 848 1,241 1,579
Current portion of restructuring reserve 426 445 509
Other accrued liabilities 3,132 2,759 3,505
Total current liabilities 35,051 25,058 37,259
Reorganization notes 387 403 332
Capitalied lease obligations, less current portion 407 449 2,603
Other liabilities 1,124 1,332 456
Other deferred credit 529 529 219
Total long-term liabilities 2,447 2,713 3,610
Liabilities subject to compromise (Note #6) -- -- 4,812
Total Liabilities 37,498 27,771 45,681
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized, 12,758,717, 12,758,717
and 12,769,145 shares issued 12,759 12,759 12,769
Capital in excess of par value 20,896 20,896 20,905
Retained earnings (deficit) (3,143) 702 3,882
Total shareholders' equity 30,512 34,357 37,556
$60,010 $62,128 $82,237
Page 4 of 15
BRENDLE'S INCORPORATED
Consolidated Statement of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
Apr. 29, Apr. 30,
1995 1994
Operating activities:
Net income (loss) $(3,845) $24,833
Items not requiring (providing) cash:
Depreciation and amortization 864 879
Extraordinary item- gain from debt forgiveness -- (28,673)
Changes in assets and liabilities:
Accounts receivable 73 60
Merchandise inventories (5,594) (1,745)
Other current assets (172) (561)
Accounts payable and accrued liabilities 4,240 6,082
Cash provided (used) by operating activities (4,434) 875
Investing Activities:
Additions to property and equipment (312) (113)
Retirements of property and equipment -- 4,064
Addition in other assets (65) (146)
Cash provided (used) by investing activities (377) 3,805
Financing Activities:
Decrease in liabilities subject to compromise -- (50,344)
Outstanding checks 1,162 23,244
Increase in long-term liabilities (224) 675
Increase in reorganization notes -- 332
Decrease in capitalized lease obligations (435) (475)
Borrowings on revolving credit facility 4,984 --
Cash provided (used) by financing activities 5,487 (26,568)
Net increase (decrease) in cash and
temporary cash investments 676 (21,888)
Cash and temporary cash investments
- beginning of year 1,781 34,774
Cash and temporary cash investments
- end of year $ 2,457 $ 12,886
Supplemental disclosure of non-cash financing activities:
During fiscal year 1995, the company issued 4,469,201 shares of common stock
valued at $7,263,000 to creditors under the terms of its Plan of Reorganization
which resulted in an increase in capital in excess of par value of $2,793,000.
Page 5 of 15
BRENDLE'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements
reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the
results of the interim period.
Note 2. In April 1986, four shareholders of the Company agreed
not to transfer or sell their Common Stock to any
unrelated party (as defined) without the written
consent of the other parties to the agreement. In
addition, in the event of the death of one of the four
shareholders, the Company can be required to purchase
their Common Stock at fair value up to the life
insurance proceeds, consisting of policies with a face
value of $5,250,000, $5,000,000, $3,070,000 and
$3,000,000, respectively. An amount equal to the cash
surrender value of these policies at April 29, 1995 and
April 30, 1994 of $529,000 and $219,000, respectively,
has been shown as an other deferred credit on the
balance sheet with a corresponding reduction in
retained earnings. The Company has taken out loans
against the cash surrender value of these policies in
the sum of $1,835,000 to finance current capital
requirements.
Note 3. Tax refunds resulting from losses incurred are
calculated using tax payments of three prior years.
Any losses in excess of those allowed for carry-back
are carried forward for use as future earnings allow.
These loss carry-forwards at January 28, 1995 were
approximately $66 million. Tax loss carry-backs were
exhausted during the second quarter of Fiscal 1992.
Note 4. Effective for the first quarter of Fiscal 1994, the
Company implemented Statement of Financial Accounting
Standards 109, "Accounting for Income Taxes," (SFAS
109). SFAS 109 mandates the use of the liability
method to calculate deferred taxes. SFAS 109 permits
restatement of earlier years or presentation of the
cumulative effect of the change in the years adopted.
The Company has adopted the Statement prospectively and
the adoption does not impact the Company's financial
condition or results of operations due to the fact that
the Company has recorded a valuation allowance against
the deferred tax asset which primarily results from the
Company's net operating loss carry-forwards.
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Note 5. Outstanding checks totaling $2,215,000 on April 29,
1995 were classified under current liabilities (as
outstanding checks) and included in cash at April 29,
1995.
Note 6. On April 30, 1994, liabilities subject to compromise
include disputed claim obligations where claim
objections were filed with the Bankruptcy Court, which
have subsequently been resolved.
Page 7 of 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Comparison of Operations
First Quarter Fiscal 1996 Compared to First Quarter Fiscal 1995
Net sales for the first quarter of FYE January 1996,
("Fiscal 1996") decreased $2,026,000, or 7.8%, compared to the
same period last year. Since the Company operated 30 stores
during both years, the comparable store sales decrease was also
7.8%. The decrease in sales was primarily the result of the
elimination of two promotional flyers in the first quarter and
moving the "Mother's Day Gold Sale" promotion into the second
quarter. Sales were also impacted by a sluggish retail
environment.
Other income, which consists of miscellaneous non-recurring
items was $233,000 for the first quarter of Fiscal 1996 compared
to $31,000 for the same period last year.
The cost of merchandise sold in the first quarter of Fiscal
1996 was $16,977,000 compared to $18,808,000 for the same period
last year. The decrease in cost of goods sold was primarily the
result of the decrease in sales as discussed above.
Gross margin as a percentage of revenues was 29.7% for the
first quarter of Fiscal 1996 compared to 27.6% for the same
period last year. This increase in the gross margin percentage
is primarily the result of an increase in the jewelry sales mix
and the Company's planned shift in hardline promotions to higher-
margin items and categories.
Selling, operating, and administrative expenses ("SO & A")
for the first quarter of Fiscal 1996 and 1995 were $9,481,000 and
$9,532,000, respectively. This decrease is primarily the result
of management's continuing focus on controlling costs. SO & A
expenses, as a percentage of revenues, increased to 39.3%,
compared to 36.7% for the same period last year, primarily due to
the decrease in total sales as discussed above.
Interest on capital leases for Fiscal 1996 and Fiscal 1995
was $51,000 and $111,000, respectively. This interest expense is
less because the Company's capital leases are near the end of
term. Interest expense on other debt and bank fees were $625,000
compared to $241,000 for the same quarter last year. This
increase in interest expense is due to borrowings under the
Company's $45 million Revolving Credit Facility. Prior to
emerging from Chapter 11 on April 29, 1994, the Company had no
borrowings under its then existing revolving credit facility.
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Reorganization costs of $246,000 for the first quarter of
Fiscal 1995 consisted of costs associated with the Chapter 11
proceeding and store closing expenses reduced by interest income.
Because the Company has achieved substantial consummation of its
Plan of Reorganization, there were no reorganization costs for
the first quarter of Fiscal 1996.
Debt forgiveness recorded for the first quarter of Fiscal
1995 was $28,673,000. This amount represents the pre-petition
debt of $35,936,000 that was forgiven to date under the Plan of
Reorganization offset by 4,469,191 shares of stock valued at
$7,263,000 issued to unsecured creditors in accordance with the
Plan. The Company did not report any debt forgiveness for the
first quarter of Fiscal 1996.
Net loss for the first quarter of Fiscal 1996 was
($3,845,000) compared to net income of $24,833,000 for the first
quarter of Fiscal 1995. Management believes earnings (loss)
before interest, taxes, depreciation, amortization and
reorganization items ("EBITDA") is a useful tool for measuring
performance because net income (loss) is not comparable with the
previous period due to the Chapter 11 Proceeding and the unique
financial events involved with the reorganization.
EBITDA for the first quarter of Fiscal 1996 was ($2,305,000)
compared with ($2,363,000) for the same period last year.
The Company's tax loss carry-backs were exhausted in Fiscal
1992 resulting in the loss of any tax benefit for the first
quarter of Fiscal 1996. The loss carry-forwards will be used as
future earnings allow.
Liquidity and Capital Resources
The Company's business is highly seasonal with operating
cash and working capital needs fluctuating during the year in
relation to seasonal inventory levels. These requirements are
financed by internally generated funds, borrowings under the
Company's Revolving Credit Facility and vendor credit terms.
Cash flow from operations is primarily generated in the fourth
quarter of the fiscal year.
The Company's cash balance at April 29, 1995 was $2,457,000
compared to $12,886,000 million at April 30, 1994. The decrease
in the cash balance was the result of payments to creditors under
the Company's Plan of Reorganization. Management believes that
current cash levels are adequate for current operations.
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Merchandise inventories were $54,045,000 at April 29, 1995,
compared to $55,878,000 at April 30, 1994. The decline in
inventories was primarily the result of a planned reduction in
the number of units kept in stock.
Current liabilities at April 29, 1995 were $35,051,000
compared with $37,259,000 at April 30, 1994.
On April 20, 1994, the Company received Bankruptcy Court
Approval for a five-year, $45 million Revolving Credit Facility
which was used to fund payments to creditors described above
while the balance of the facility may be used to fund working
capital, inventory purchases, capital expenditures, and other
general corporate purposes. The $45 million Revolving Credit
Facility includes restrictions on capital expenditures as well as
standard covenants found in similar agreements. These include
two financial ratio covenants: (1) current ratio, and (2) total
liabilities to tangible net worth ratio. At April 29, 1995, the
Company was in compliance with all covenants.
Under the Revolving Credit Facility, the lender agrees to
make revolving loans and issue or guarantee letters of credit for
the Company in an amount not exceeding the lesser of the
Borrowing Base (as defined in the Loan Agreement), or $45
million. The Revolving Credit Facility includes a sublimit of
$10 million for documentary and stand-by letters of credit.
The Revolving Credit Facility provides that each loan shall
bear interest at a rate of prime plus one and forty-four one
hundredths (1.44) percentage points. Interest on these loans
shall be payable monthly in arrears on the first day of each
month. Also, under the Revolving Credit Facility, the Company
pays an unused line fee for an amount equal to one-half percent
(.50%) per annum on the unused portion of the Revolving Credit
Facility and a letter of credit fee equal to two and one-half
percent (2.5%) per annum on the average daily balance of the
aggregate undrawn letters of credit and letter of credit
guarantees outstanding during the immediately preceding month and
certain other fees. The Revolving Credit Facility also requires
an annual facility fee equal to one-half of one percent (.50%) of
the maximum amount of the facility payable on each anniversary of
the Facility closing date and a monthly servicing fee of $3,500
per month. The Company also paid an initial, one-time fee of
$450,000 in order to establish the Revolving Credit Facility.
Page 10 of 15
At April 29, 1995, the Company had borrowed $20,352,000 from
the Revolving Credit Facility and had outstanding $1,407,000 in
open letters of credit, for a total of $21,759,000. At April 29,
1995, the total available under the Revolving Credit Facility
based on the borrowing base formula was $27,363,000.
The Company's capacity to continue as a going concern is
dependent, in part, on the Company's ability to obtain
merchandise on a timely basis from its vendors under favorable
credit terms. Since the filing of the Chapter 11 Proceeding, the
Company's ability to obtain credit through arrangements such as the
Revolving Credit Facility, and vendor credit lines has continued
to improve and is at the highest level experienced since the
Chapter 11 filing. Management of the Company believes that its
ability to obtain credit should continue to improve based on the
acceptable performance of the Company.
In addition to cash used for operations, approximately
$312,000 was also used for capital expenditures during the first
quarter of Fiscal 1996. The Company anticipates capital
expenditures for Fiscal 1996 primarily for normal facility
maintenance, store relocation, and various projects to improve
information systems.
Management believes the Revolving Credit Facility, together
with the cash from operations and vendor credit, should be
adequate to cover working capital requirements and capital
expenditures.
Page 11 of 15
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On November 22, 1992, the Company and its wholly-owned
principal operating subsidiary, Brendle's Stores, Inc. (BSI),
(collectively sometimes referred to as the "Company") filed for
protection under Chapter 11 of the Bankruptcy Code. Under
Chapter 11, the Company and BSI, Debtors In Possession, continued
to conduct business in the ordinary course under the protection
of the Bankruptcy Code while a Plan of Reorganization was
developed to restructure and reorganize the debt structure and
allow the debtor to strengthen its financial position.
On November 10, 1993, the Company filed a modified Plan of
Reorganization (the "Plan") with the United States Bankruptcy
Court for the Middle District of North Carolina. The Plan was
approved by the Company's creditors and shareholders in December,
1993, and was confirmed by the Bankruptcy Court by order entered
on December 20, 1993. On April 29, 1994, the Company
substantially consummated its Plan of Reorganization by making
payments to creditors in accordance with the Plan and
distributing stock for the benefit of certain unsecured
creditors.
ITEM 2. CHANGES IN SECURITIES
On April 29, 1994, the date the Plan of Reorganization was
substantially consummated, the Company issued 4,469,191 shares of
Common Stock, or 35% of the outstanding stock, to Arnold Zahn of
Zahn and Associates, Inc., as escrow agent for the Unsecured
Creditors, pending the resolution of certain disputed claims.
These shares were valued at $7,263,000 and brought the total
shares outstanding to 12,769,145 at April 30, 1994.
ITEM 3. DEFAULT UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
Page 12 of 15
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.
BRENDLE'S INCORPORATED
(Registrant)
_______________________
David R. Renegar
Vice President and
Chief Financial Officer
Date: June 1, 1995
Page 13 of 15