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 THIRTEEN WEEKS ENDED MAY 3, 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:1-8057
L. LURIA & SON, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0620505
(State of incorporation) (I.R.S. Employee Identification No.)
5770 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
(305) 557-9000
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 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 [ ]
Common stock, par value $.01 per share: 5,486,792 shares
outstanding as of May 22, 1997
Class B stock, par value $.01 per share: 670 shares
outstanding as of May 22, 1997
This filing consists of 11 pages
L. LURIA & SON, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
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ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets - May 3, 1997 (Unaudited) and
February 1, 1997 ............................................. 3
Condensed Statements of Operations (Unaudited), for
the thirteen weeks ended May 3, 1997 and May 4, 1996 ......... 4
Condensed Statements of Cash Flows (Unaudited), for
the thirteen weeks ended May 3, 1997 and May 4, 1996 ......... 5
Notes to Condensed Financial Statements....................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 8
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.............................. 10
Signatures.................................................... 11
2
Item 1. Financial Statements
L. LURIA & SON, INC.
CONDENSED BALANCE SHEETS
MAY 3, FEBRUARY 1,
(Dollars in thousands, except per share amounts) 1997 1997
----------- -----------
(UNAUDITED)
Assets
Current assets
Cash and cash equivalents $ 836 $ 1,568
Accounts receivable 1,289 2,519
Inventories 44,190 44,884
Prepaid expenses 1,992 2,277
Assets held for sale, net - 4,676
------- -------
Total current assets 48,307 55,924
------- -------
Property and Equipment, net 19,759 20,210
Other assets 1,425 1,725
------- -------
Total assets $69,491 $77,859
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short term borrowings $17,756 $16,973
Accounts payable and accrued liabilities 40,295 47,107
Current portion of long-term debt - 850
------- -------
Total current liabilities 58,051 64,930
------- -------
Deferred taxes and other liabilities 1,676 1,612
Shareholders' equity
Preferred stock, $1 par value, 5,000,000 shares authorized;
no shares issued
Common stock, $.01 par value, 14,000,000 shares authorized; 54 54
5,486,792 shares issued and outstanding at May 3, 1997 and
5,486,792 shares issued and outstanding at February 1, 1997
Class B common stock, $.01 par value, 6,000,000 shares authorized;
670 shares issued and outstanding at May 3, 1997 and 670 shares
issued and outstanding at February 1, 1997
Additional paid-in capital 18,327 18,327
(Deficit) Retained earnings (8,617) (7,064)
------- -------
Total shareholders' equity 9,764 11,317
------- -------
Total liabilities and shareholders' equity $69,491 $77,859
======= =======
The accompanying notes to the financial statements are an integral part of these
statements
3
L. LURIA & SON, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THIRTEEN WEEKS ENDED
(Dollars in thousands, except MAY 3, MAY 4,
loss per common share) 1997 1996
- ----------------------------------------------------------------------------------------------
(AS RESTATED)(1)
Net sales $ 16,973 $ 29,369
Cost of goods sold 11,194 21,413
--------- --------
Gross margin 5,779 7,956
Operating expenses 8,757 12,305
--------- --------
Loss from operations (2,978) (4,349)
Other income 1,850 -
Interest expense, net (425) (270)
--------- --------
Loss before income tax benefit (1,553) (4,619)
Benefit for income taxes - (1,605)
--------- --------
Net loss before cumualtive effect of change in
accounting principle (1,553) (3,014)
Cumulative effect of change in accounting principle, net - (4,386)
--------- --------
Net loss $ (1,553) $ (7,400)
========= ========
Weighted average number of common shares outstanding 5,487 5,447
========= ========
Loss per common share before cumulative effect $ (0.28) $ (0.55)
Cumulative effect of change in accounting principle, net - (0.80)
--------- --------
Net loss per common share $ (0.28) $ (1.35)
========= ========
<FN>
(1) The losses for the first quarter of the year ended February 1, 1997 have
been restated to reflect the change in accounting method as stated
previously in Form 10K for the fiscal year ended February 1, 1997.
</FN>
The accompanying notes to the financial statements are an integral part of these
statements.
4
L. LURIA & SON, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
THIRTEEN WEEKS ENDED
MAY 3, MAY 4,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------
(AS RESTATED)(1)
Cash flows from operating activities
Net loss $(1,553) $(7,400)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 742 1,028
Loss on sale of property 121 --
(Increase) decrease in other assets 300 (1,510)
(Increase) decrease in accounts receivable 1,230 (83)
Decrease in inventories 694 4,776
(Increase) decrease in prepaid expenses 285 (1,567)
Decrease in accounts payable, accrued
liabilities, taxes payable and other
liabilities (6,748) (18,269)
------- --------
Net cash used in operating activities (4,929) (23,025)
------- --------
Cash flows from investing activities:
Additions to property, net (291) (336)
Proceeds of sale of property, net 4,555 --
------- --------
Net cash used in investing activities 4,264 (336)
------- --------
Cash flows from financing activities:
Borrowings under line of credit agreement 783 19,860
Repayments of long-term debt (850) 14
------- --------
Net cash provided by financing activities (67) 19,874
------- --------
Net decrease in cash and cash equivalents (732) (3,487)
Cash and cash equivalents, beginning of year 1,568 4,941
------- --------
Cash and cash equivalents, end of period $ 836 $ 1,454
======= ========
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest (net of amounts capitalized) $ 425 $ 271
Income taxes paid (refunded) $ -- $ --
======= ========
<FN>
(1) The losses for the first quarter of the year ended February 1, 1997 have
been restated to reflect the change in accounting method as stated
previously in Form 10K for the fiscal year ended February 1, 1997.
</FN>
The accompanying notes to the financial statements are an integral part of these
statements
5
L. LURIA & SON, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997 AND MAY 4, 1996
GENERAL
The accompanying condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q of the Securities and Exchange
Commission and in accordance with generally accepted accounting principles
applicable to interim financial statements and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management of L. Luria &
Son, Inc. (the "Company"), the accompanying condensed financial statements
reflect all adjustments necessary to present fairly the financial position of
the Company as of May 3, 1997 and May 4, 1996, and the results of its operations
and cash flows for the thirteen weeks ended May 3, 1997 and May 4, 1996.
Furthermore, all adjustments were of a normal or recurring nature.
SEASONALITY
The results of operations for the thirteen weeks ended May 3, 1997 are not
indicative of the results to be expected for the entire year because the
Company's operations are seasonal.
ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in Note 1 to
the Company's financial statements in the 1997 L. Luria & Son, Inc. Annual
Report, which is incorporated by reference in Form 10-K.
Effective February 4, 1996, the Company changed its method of accounting
for certain buying and warehousing costs. The Company believes that this change
provides a better measurement of operating results given the changes in the
Company's operations. The warehouse and buying costs that were capitalized in
inventory as of February 3, 1996 are reflected in the 1997 statement of
operations as a cumulative effect of a change in accounting of $4,386,000.
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings
Per Share", effective for financial statements ending after December 15, 1997.
Earlier application is not permitted. SFAS No. 128 supersedes Accounting
Principles Board Opinion No. 15, "Earnings Per Share" and replaces the
presentation of primary earnings per share with the presentation of basic
earnings per share. The Company does not believe that the ultimate adoption of
SFAS No. 128 would have a material impact on the Company's computation of
earnings per share as presented herein.
COMMITMENTS AND CONTINGENCIES
In February 1997, the Company settled a lawsuit against Service Merchandise
Co., Inc. for $1.8 million. The award amount has been reflected as other income
for the first quarter ended May 3, 1997.
The Company is party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
6
WORKING CAPITAL
The Company entered into a secured revolving credit arrangement providing
up to $30.0 million. The line available to the Company is based on the value of
inventory. At May 3, 1997, the Company was not in compliance with four of the
borrowing covenants. The Company has received waivers of the covenants from the
lender. However, the Company is presently unable to meet the covenants on an
ongoing basis without waivers from the lender or amending the agreement. The
Company is currently in discussions with its lender to amend the agreement.
7
L. LURIA & SON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
The following table sets forth for the periods indicated percentages which
certain items reflected in the financial data bear to net sales of the Company:
RELATIONSHIPS TO NET SALES
PERIOD ENDED
MAY 3, 1997 MAY 4, 1996
----------- -----------
Net sales 100.0 % 100.0 %
Cost of goods sold 66.0 72.9
----- -----
Gross margin 34.0 27.1
Operating expenses 51.6 41.9
----- -----
Loss from operations (17.6) (14.8)
Other income 10.9 -
Interest income (expense), net (2.5) (0.9)
----- -----
Loss before income tax and cumulative effect
of change (9.2) (15.7)
Income tax benefit - (5.4)
----- -----
Loss before cumulative effect of change (9.2) (10.3)
Cumulative effect of change in accounting
principle, net - (14.9)
----- -----
Net loss (9.2)% (25.2)%
===== =====
NET SALES
For the thirteen weeks ended May 3, 1997, net sales were approximately
$17.0 million, a 42.2% decrease compared to the same period last year.
Comparable store sales decreased 26.2%. This year's first quarter sales were
impacted by operating 28 stores vs. 43 stores or a reduction of 34.9% from the
same period last year, reduced advertising expenditures, and reduced inventory
levels.
GROSS MARGINS
Gross margins as a percent of net sales for the first thirteen weeks of the
current year increased to 34.0% as compared to 27.1% for the prior year first
quarter primarily due to non-recurring purchase discounts of $1.8 million
reflected as a reduction in cost of goods sold, partially offset by customer
incentives and sales events during the respective period.
OPERATING EXPENSES
Operating expenses for the quarter decreased approximately $3.5 million or
28.8% below last year's operating expenses, primarily due to operating 28 stores
versus 43 stores for the same thirteen week period. Operating expenses for the
current quarter increased as a percent of net sales to 51.6% this year from
41.9% last year, primarily due to lower sales than last year. Approximately $1.4
million of expenses associated with previously closed stores has been charged to
reserves established in fiscal 1997.
8
L. LURIA & SON, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
INCOME TAX BENEFIT
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities are
recognized for future taxable amounts and deferred tax assets are recognized for
future deductions, as well as net operating loss carryforwards, tax credits and
other tax benefits. The Company did not record an income tax benefit for the
thirteen-week period ended May 3, 1997 compared to last year's 37.6% expected
benefit.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $0.8 million at May 3, 1997
compared to $1.4 million at May 4, 1996. Working capital at May 3, 1997 was a
deficit of $9.7 million compared to $21.6 million at May 4, 1996 and a deficit
of $9.0 million at February 1, 1997. Net cash used by operations during the
quarter ending May 3,1997 was $4.9 million primarily due to the net loss of $1.6
million, a decrease in accounts payable and accrued liabilities of $6.7 million
and a decrease in other assets and receivables of $1.5 million.
In February, 1996 the Company entered into a revolving credit agreement
secured by substantially all assets of the Company, which currently provides
maximum borrowings up to $30.0 million. The amount of credit available under the
revolving credit agreement is based on the value of the Company's inventory. At
May 3, 1997, the Company was not in compliance with four of the borrowing
covenants. The Company has received waivers of the covenants from the lender.
However, the Company is presently unable to meet the covenants on an ongoing
basis without waivers from the lender or amending the agreement. The Company is
currently in discussions with its lender to amend the agreement.
Management believes that the short-term and long-term working capital and
capital expenditure needs of the Company will be met if the Company's operating
results continue to improve in the near future. The continued improvement in the
Company's operating results will depend on, among other things, the success of
the Company's strategic plan, which includes, the reduction of operating
expenses, reduced advertising expenditures, purchasing of higher margin products
to increase the Company's profit margin, the use of loss leaders to increase
store traffic, the successful negotiations of terms of its credit agreement or
obtaining other credit facilities, the continued support of the Company's
numerous providers of goods and services, the competitive environment, the
prevailing economic climate and the ability of the Company to adapt to these
conditions, and successful negotiations with landlords to terminate lease
agreements related to the closing of its under-performing stores. No assurances
can be given that the Company can successfully implement its strategic plan or
obtain the additional sources of funds in the future.
9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27.1 Financial Data Schedule
b) On April 1, 1997, the Company filed a Form 8-K to report as an Other
Event the sale of the Company's distribution and headquarters facility
and a settlement of a judgment in favor of the Company. No financial
statements were filed with the Form 8-K.
10
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.
L. LURIA & SON, INC.
Date: MAY 22, 1997 /s/ RACHMIL LEKACH
--------------------------------------
Rachmil Lekach
Chief Executive Officer
and Director
Date: MAY 22, 1997 /s/ ALBERT FRIEDMAN
--------------------------------------
Albert Friedman
Executive Vice President, Chief
Financial Officer and Principal
Accounting Officer
11
EXHIBIT INDEX
EXHIBIT PAGE
- ------- ----
27.1 Financial Data Schedule