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Form 10-Q
Securities and Exchange Commission
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
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For Quarter Ended April 30, 1994 Commission File No. 1-7927
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House of Fabrics, Inc.
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(Exact Name of Registrant as specified in its charter)
Delaware 95-3426136
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(State or other jurisdiction) (I.R.S. Employer I.D. Number)
13400 Riverside Drive, Sherman Oaks, CA 91423
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Post Office Box 9110, Van Nuys, CA 91409
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 995-7000
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No Change
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Former name, former address and former fiscal year,
if changed since last report.
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 the 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
classes of common stock, as of the latest practicable date.
Class Outstanding at May 31, 1994
Common Stock 13,697,107 Shares
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HOUSE OF FABRICS, INC.
INDEX
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PAGE NO.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet April 30, 1994 3
Consolidated Balance Sheet January 31, 1994 4
Consolidated Statements of Operations -
for the three months ended
April 30, 1994 and 1993 5
Consolidated Statements of
Cash Flows - for the three months
ended April 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8 - 9
Part II. Other Information
Signature 10
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
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<S> <C>
CURRENT ASSETS
Cash $ 6,869,000
Receivables 7,508,000
Merchandise Inventories 236,311,000
Prepaid Expenses & Other Current Assets 4,290,000
Refundable Income Taxes 11,206,000
Deferred Income Taxes 4,538,000
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Total Current Assets 270,722,000
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PROPERTY
Land 1,729,000
Buildings 14,403,000
Furniture and Fixtures 67,645,000
Leasehold Improvements 35,773,000
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Total 119,550,000
Less Accumulated Deprec. & Amort. (56,259,000)
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Property - Net 63,291,000
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PROPERTY HELD FOR SALE 2,709,000
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OTHER ASSETS 916,000
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GOODWILL - NET 39,944,000
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TOTAL ASSETS $377,582,000
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C>
CURRENT LIABILITIES
Accounts Payable $ 50,199,000
Notes Payable to Banks 138,000,000
Accrued Liabilities 24,656,000
Current Portion of Long-Term Debt 1,935,000
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Total Current Liabilities 214,790,000
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DEFERRED INCOME TAXES 3,111,000
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LONG-TERM DEBT 2,605,000
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OTHER LONG TERM LIABILITIES 8,137,000
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STOCKHOLDERS' EQUITY
Preferred Stock, $.10 Par Value;
Authorized, 1,000,000 Shares;
Outstanding, None
Common Stock $.10 Par Value;
Authorized 29,000,000 Shares;
Issued 13,697,107 Shares; 1,370,000
Paid-In Capital 46,880,000
Retained Earnings 100,689,000
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Total Stockholders' Equity 148,939,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $377,582,000
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JANUARY 31, 1994
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
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<S> <C>
CURRENT ASSETS
Cash $ 9,758,000
Receivables 9,765,000
Merchandise Inventories 243,151,000
Prepaid Expenses & Other Current Assets 5,601,000
Refundable Income Taxes 10,738,000
Deferred Income Taxes 4,538,000
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Total Current Assets 283,551,000
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PROPERTY
Land 1,729,000
Buildings 14,403,000
Furniture and Fixtures 67,845,000
Leasehold Improvements 36,067,000
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Total 120,044,000
Less Accumulated Deprec. & Amort. (54,454,000)
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Property - Net 65,590,000
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PROPERTY HELD FOR SALE 2,740,000
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OTHER ASSETS 962,000
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GOODWILL - NET 40,212,000
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TOTAL ASSETS $393,055,000
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<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
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<S> <C>
CURRENT LIABILITIES
Accounts Payable $ 55,890,000
Notes Payable to Banks 143,000,000
Accrued Liabilities 26,565,000
Current Portion of Long-Term Debt 1,963,000
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Total Current Liabilities 227,418,000
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DEFERRED INCOME TAXES 3,110,000
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LONG-TERM DEBT 2,862,000
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OTHER LONG TERM LIABILITIES 9,256,000
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STOCKHOLDERS' EQUITY
Preferred Stock, $.10 Par Value;
Authorized, 1,000,000 Shares;
Outstanding, None
Common Stock $.10 Par Value;
Authorized 29,000,000 Shares; 1,370,000
Issued 13,697,107 Shares;
Paid-In Capital 46,880,000
Retained Earnings 102,159,000
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Total Stockholders' Equity 150,409,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $393,055,000
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 30, 1994 AND 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
SALES $114,695,000 $127,981,000
EXPENSES
Cost of Sales 62,168,000 67,690,000
Store & Operating 44,194,000 51,402,000
General and Administrative 7,217,000 8,509,000
Interest 2,688,000 1,185,000
Intangible Amortization 366,000 323,000
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Total 116,633,000 129,109,000
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(LOSS) BEFORE INCOME TAXES (1,938,000) (1,128,000)
INCOME TAXES (BENEFIT) (468,000) (435,000)
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NET (LOSS) $ (1,470,000) $ (693,000)
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NET (LOSS) PER SHARE * $(0.11) $(.05)
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</TABLE>
* Net (loss) per share is computed based on average
outstanding shares of common stock and common stock
equivalents (13,697,107 shares in 1994 and
13,893,208 shares in 1993)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 30, 1994 AND 1993
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
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<S> <C> <C>
Cash Flows from Operating Activities
Net (Loss) ($1,470,000) $ (693,000)
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Adjustments to Reconcile Net
(Loss) to Net Cash Used for
Operating Activities:
Depreciation and Amortization 2,837,000 2,747,000
Loss on Disposal of Fixed Assets 267,000 111,000
Changes in Assets and Liabilities
Inventories 6,840,000 (25,275,000)
Accounts Payable and
Accrued Liabilities (7,599,000) 10,596,000
Reserve for Restructure (1,039,000) -
Prepaids and Other Assets 3,644,000 (1,462,000)
Refundable Income Taxes (468,000) -
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Total Adjustments 4,482,000 (13,283,000)
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Net Cash Provided By (Used For)
Operating Activities 3,012,000 (13,976,000)
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Cash Flows from Investing Activities
Capital Expenditures (616,000) (5,499,000)
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Net Cash (Used For)
Investment Activities (616,000) (5,499,000)
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Cash Flows from Financing Activities
Change in Net Borrowings Under Lines
of Credit Agreements (5,000,000) 17,886,000
Proceeds from Issuance of Stock - 289,000
Debt Repayment (285,000) (283,000)
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Net Cash Provided by (Used for)
Financing Activities (5,285,000) 17,892,000
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Net (Decrease) in Cash (2,889,000) (1,583,000)
Cash at Beginning of Period 9,758,000 2,214,000
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Cash at End of Period $ 6,869,000 $ 631,000
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Cash Paid During the Period for:
Interest $2,131,000 $1,240,000
Taxes $ 92,000 $ 95,000
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited interim consolidated financial
statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's
financial position as of April 30, 1994 and the results of its
operations and its cash flows for the three months ended April
30, 1994 and 1993.
2. NOTES PAYABLE TO BANKS
On November 30, 1993, the Company renegotiated its existing three
bank agreements (Bank of America and the original Bank Group,
Bank of California, and the United States National Bank of
Oregon) into one amended and restated credit agreement with Bank
of America NT & SA as Agent Bank, and have further renegotiated
with the Banks to amend the credit agreement as of May 13, 1994.
Borrowings prior to May 13, 1994, under the Credit Agreement bear
interest at rates equal to either the "Offshore Rate" (which is
generally based on LIBOR) plus 2.5% through April 30, 1994, and
2.75% through May 13, 1994, or the "Base Rate" (which is
generally based on the reference rate announced by the Bank of
America) plus 1.50% through April 30, 1994, 1.75% through July
31, 1994, 2.00% through October 31, 1994, 2.25% through January
31, 1995 and 2.50% through May 31, 1995.
Future borrowings under the renegotiated Credit Agreement dated
May 13, 1994, will only bear interest at rates equal to the "Base
Rate" plus 1.75% through July 31, 1994, 2.00% through October 31,
1994, 2.25% through January 31, 1995 and 2.50% through May 31,
1995.
As of May 13, 1994, the Credit Agreement provides for maximum,
borrowings of $150,000,000, which is reduced to $140,000,000 on
October 31, 1994, and further reduced to $130,000,000 on January
31, 1995. Borrowings are also limited to a specified percentage
of eligible inventory ranging from 64% to 60% through August 31,
1994 and 55% thereafter. Available borrowings are also subject
to further reductions upon the occurrence of certain future
events that would result in mandatory repayments of amounts
borrowed. The Credit Agreement expires on May 31, 1995. The
amount of available unused borrowings at April 30, 1994 is
$3,800,000. As of April 30, 1994, $138,000,000 was outstanding
under the Credit Agreement.
Borrowings under the Credit agreement are secured by
substantially all assets of the Company, excluding property. The
Credit Agreement imposes monthly, quarterly and annual financial
covenants requiring the Company to maintain certain liquidity,
leverage and interest coverage ratios and achieve certain levels
of tangible net worth. In addition, the Credit Agreement
prohibits the payment of dividends and restricts the level of
capital expenditures.
The bank has asserted that the Company is currently not in compliance
with one of its non financial ratio covenants. The Company is having
discussions with the bank regarding this matter. To date no formal
default proceedings have been instituted by the bank.
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HOUSE OF FABRICS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
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THREE MONTHS ENDED
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Sales for the quarter ended April 30, 1994, decreased 10.4% to
$114,695,000 from $127,981,000 for the quarter ended April 30,
1993. The decrease in sales of $13,286,000 was primarily due to
the elimination of sales for the mall stores under the Plan for
the quarter ended April 30, 1994 of $7.2 million and a 2.4%
decrease in store-for-store sales. During the quarter ended
April 30, 1994, the Company did not open any new super stores and
closed 4 older super stores.
The decrease in store for store sales resulted in part from the
generally poor economic conditions (including California, which
has 153 of the Company's super stores as of April 30, 1994) and
the competitive pressure in the fabric retailing industry in
general which resulted in continued pressure on margins. The
Company believes these factors may continue to adversely affect
sales for the remainder of fiscal 1995 and possibly beyond. The
Company will continue to close unprofitable super stores in
addition to mall stores under the Plan during the remainder of
fiscal 1995.
Gross profit as a percentage of sales decreased to 45.8% for the
quarter ended April 30, 1994 from 47.1% for the quarter ended
April 30, 1993. This decrease was largely due to a reduction in
the opening markup slightly offset by lower markdowns.
Store and operating expense as a percent of sales decreased to
38.5% for the quarter ended April 30, 1994 from 40.2% for the
quarter ended April 30, 1993. This decrease was due mainly to
lower payroll expense of 2.1% as a result of the Company's
increased efforts to control these expenses. General and
administrative expense as a percent of sales decreased to 6.3%
from 6.6% in the same period in the prior year. Interest expense
for the quarter ended April 30, 1994 increased $1,503,000 over
the quarter ended April 30, 1993 primarily as a result of an
increase in average borrowings during the period of $41,618,000
and by a 2.0% increase in the Company's average effective
borrowing rate. During the three months ended April 30, 1994,
the Company recorded a loss before income taxes of $1,938,000
compared to a loss before income taxes of $1,128,000 for the same
period last year. The Company recorded a tax benefit of $468,000
for the quarter ended April 30, 1994, as a result of the loss
incurred, compared to $435,000 for the quarter ended April 30,
1993.
FINANCIAL CONDITION
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During the quarter April 30, 1994, short-term borrowings ranged
from $138,000,000 to $149,000,000 with average borrowings of
$146,236,000. Borrowings in the quarter ended April 30, 1993
ranged from $94,400,000 to $113,168,000 with average borrowings
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of $104,618,000. Increased borrowing levels in the quarter
ended April 30, 1994, over the same period last year were due
primarily to a lack of available inventory financing, the
conversion of certain long-term debt to short-term borrowings,
and funds needed to fund operating losses generated during the
quarter.
Cash at April 30, 1994 was $6,869,000, up significantly from
$631,000 at April 30, 1993. Cash flows from operating activities
increased $16,988,000 during the quarter ended April 30, 1994,
compared to the quarter ended April 30, 1993, mainly due to a
decrease in inventory partially offset by increases in accounts
payable and accrued liabilities. Also, the Company used $616,000
for capital expenditures.
The Company's April 30, 1994 ending inventory of $236,311,000
decreased from $279,537,000 at April 30, 1993. During the fiscal
quarter, the average inventory balance was $240,767,000 compared
to $269,753,000 in the same period last year. Average inventory
turnover during the quarter ended April 30, 1994 was 1.23 times,
compared to 1.15 times during the quarter ended April 30, 1993.
The majority of the Company's inventory consists of basic
products that are kept in stock even though turnover is slow.
The Company monitors the level of these items to assure that the
level of slow moving inventory is kept at a minimum, while still
consistently providing customers with a complete product mix. In
addition, markdowns are taken currently on out-of-season and
discontinued merchandise.
The Company will continue to open new store locations, however,
at significantly reduced levels during the remaining quarters in
fiscal 1995, and remodel existing locations whenever the
projected rate of return is acceptable. Such capital
expenditures will be financed primarily by the use of short-term
borrowings.
The Company owns a warehouse in Portland, Oregon, that is not
currently in use by the Company. This property is reflected in
the Consolidated Balance Sheets as Property Held for Sale, and is
valued at the lower of cost or market. The Company sold the
property on June 1, 1994, and realized a small gain on the
transaction.
The Company's amended and restated credit agreement prohibits the
payment of dividends.
During the quarter ended April 30, 1994, the Company has
continued to make progress with its Plan for restructuring.
Under the Plan, the Company has excluded mall store sales of
$7,226,000 from the operating results. The related operating
losses, asset dispositions and other store closing costs of
$1,119,000 were charged to the restructuring reserve. The
Company closed 7 mall stores in the first quarter ended April 30,
1994.
The Company expects that future cash required to implement its
restructuring plan will approximate $603,000 and relates
primarily to lease termination costs and certain other store
closing costs.
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SIGNATURE
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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.
House of Fabrics, Inc.
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Registrant
Date: June 13, 1993
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Donald W. Boyer
Senior Vice President &
Chief Financial Officer
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