<PAGE>
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
__________________________
For Quarter Ended April 30, 1995 Commission File No. 1-7927
-------------- ------
House of Fabrics, Inc.
---------------------
(Exact Name of Registrant as specified in its charter)
Delaware 95-3426136
- -------------------------------- -------------------------------
(State or other jurisdiction) (I.R.S. Employer I.D. Number)
13400 Riverside Drive, Sherman Oaks, CA 91423
- --------------------------------------- ----------
Post Office Box 9110, Van Nuys, CA 91409
- ---------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 995-7000
--------------
No Change
________________________________________________________________________________
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, 1995
Common Stock 13,697,107 Shares
<PAGE>
HOUSE OF FABRICS, INC.
INDEX
-----
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 1995
and January 31, 1995 2 - 3
Consolidated Statements of Operations
for the three months ended
April 30, 1995 and 1994 4
Consolidated Statements of
Cash Flows for the three months
ended April 30, 1995 and 1994 5 - 6
Notes to Consolidated Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10 - 12
Part II. Other Information
Item 6. Exhibits 13
(a) Exhibits
27. Financial Data Schedule
Signature 14
1
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
ASSETS APRIL 30, 1995 JANUARY 31, 1995
<S> <C> <C>
Current Assets:
Cash $ 23,116,000 $ 47,381,000
Receivables, net 13,874,000 12,877,000
Merchandise Inventories, net 151,226,000 132,963,000
Prepaid Expenses and Other Current Assets 21,506,000 35,709,000
Refundable Income Taxes 6,351,000 6,351,000
Deferred Income Taxes 1,655,000 1,655,000
------------- ------------
Total Current Assets 217,728,000 236,936,000
Property:
Land 1,729,000 1,729,000
Buildings 15,035,000 15,035,000
Furniture & Fixtures 50,341,000 52,637,000
Leasehold Improvements 23,175,000 24,909,000
------------- ------------
90,280,000 94,310,000
Less Accumulated Depreciation and Amortization (47,542,000) (47,695,000)
------------- ------------
Property, net 42,738,000 46,615,000
Deferred Income Taxes 2,842,000 2,842,000
Other Assets 1,512,000 2,064,000
Goodwill, net 38,872,000 39,140,000
------------- ------------
$ 303,692,000 $327,597,000
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED BALANCE SHEET (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY APRIL 30, 1995 JANUARY 31, 1995
<S> <C> <C>
Current Liabilities:
Accounts Payable $ 7,809,000 $ 12,806,000
Accrued Liabilities 21,881,000 24,851,000
Restructuring Reserve 16,264,000 19,583,000
------------ ------------
Total Current Liabilities 45,954,000 57,240,000
Deferred Income Taxes 4,497,000 4,497,000
Liabilities Subject to Compromise under
reorganization proceedings 206,201,000 210,836,000
------------ ------------
Total Liabilities 256,652,000 272,573,000
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 Par Value;
Authorized 1,000,000 Shares; Outstanding, None
Common Stock, $.10 Par Value;
Authorized 29,000,000 Shares; 13,697,107 Shares
Issued and Outstanding at April 30, 1995
and January 31, 1995 1,370,000 1,370,000
Paid-In Capital 46,880,000 46,880,000
Retained Earnings (Deficit) (1,210,000) 6,774,000
------------ ------------
Total Stockholder' Equity 47,040,000 55,024,000
------------ ------------
$303,692,000 $327,597,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
THREE MONTHS ENDED
--------------------------------
APRIL 30, 1995 APRIL 30, 1994
<S> <C> <C>
Sales $ 73,759,000 $114,695,000
Expenses:
Cost of Sales 36,875,000 62,168,000
Selling, General and Administrative 37,368,000 51,777,000
Interest 3,928,000 2,688,000
------------ ------------
Total Expenses $ 78,171,000 $116,633,000
Loss Before Income Taxes (Benefit)
and Reorganization Costs (4,412,000) (1,938,000)
Reorganization Costs 3,522,000
------------ ------------
Loss Before Income Taxes (Benefit) (7,934,000) (1,938,000)
Income Taxes (Benefit) 50,000 (468,000)
------------ ------------
Net Loss $ (7,984,000) $ (1,470,000)
============ ============
Loss Per Share $(0.58) $(0.11)
============ ============
Weighted Average Number of
Shares Outstanding 13,697,107 13,697,107
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
APRIL 30, 1995 APRIL 30, 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (7,984,000) ($1,470,000)
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used In) Operating Activities:
Depreciation and Amortization 2,168,000 2,837,000
Loss on Disposal of Fixed Assets 0 267,000
Changes in Assets and Liabilities:
Receivables (997,000) 2,257,000
Merchandise Inventories (18,263,000) 6,840,000
Prepaid Expenses, Refundable Income Taxes and Other Assets 14,755,000 919,000
Accounts Payable and Accrued Liabilities (7,967,000) (7,599,000)
Restructuring Reserve (1,554,000) (1,039,000)
Operating Payables subject to compromise under
Reorganization Proceedings 1,379,000 0
------------ -----------
Net Cash (Used In) Provided by Operating Activities (18,463,000) 3,012,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (111,000) (616,000)
Proceeds from Sale of Property 323,000 0
------------ -----------
Net Cash Provided by (Used In) Investing Activities 212,000 (616,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of Long-Term Debt (14,000) (285,000)
Net Repayments Under Line of Credit Agreements (6,000,000) (5,000,000)
------------ -----------
Net Cash Used In by Financing Activities (6,014,000) (5,285,000)
------------ -----------
NET DECREASE IN CASH (24,265,000) (2,889,000)
CASH AT BEGINNING OF PERIOD 47,381,000 9,758,000
------------ -----------
CASH AT END OF PERIOD $ 23,116,000 $ 6,869,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
________________________________________________________________________________
THREE MONTHS ENDED
APRIL 30, 1995 APRIL 30,1994
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $3,533,000 $2,131,000
Income Taxes Paid (Refunded) $ 96,000 $ 92,000
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES-
During the three months ended April 30, 1995 and 1994, loss on disposal of
property charged to the restructuring reserve amounted to $1,631,000 and
$16,000, respectively.
See accompanying notes to consolidated financial statements.
6
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1: REORGANIZATION, BASIS OF REPORTING AND RESTRUCTURING PLANS
REORGANIZATION AND BASIS OF REPORTING:
House of Fabrics, Inc. and subsidiaries (Debtors-in-Possession) (the "Company")
is one of the largest home sewing/craft retailers in the United States,
operating 404 stores in 34 states as of April 30, 1995. The Company's stores
are located throughout the United States and operate under the names "House of
Fabrics," "So-Fro Fabrics," "Fabricland" or "Fabric King." The Company operates
most of its stores in leased premises principally in neighborhood shopping
centers or stand-alone locations.
As a result of certain events in fiscal 1995, the Company filed for protection
under Chapter 11 of the United States Bankruptcy Code (Chapter 11) on November
2, 1994. The Company continues to conduct normal business operations as Debtors-
in-Possession subject to the jurisdiction of the Bankruptcy Court and intends to
propose a plan of reorganization. As Debtors-in-Possession, the Company may not
engage in transactions outside the ordinary course of business without approval
of the Bankruptcy Court, after notice and hearing.
Under Chapter 11, actions to enforce claims against the Company are stayed if
the claims arose, or are based on events that occurred, on or before the
petition date of November 2, 1994, and such claims cannot be paid or
restructured prior to the conclusion of the Chapter 11 proceedings or approval
of the Bankruptcy Court. Other liabilities may arise or be subject to compromise
as a result of rejection of executory contracts, including leases, or the
Bankruptcy Court's resolution of claims for contingencies and other disputed
amounts. Liabilities subject to compromise (see Note 2) in the accompanying
consolidated balance sheet represent the Company's estimates of liabilities as
of April 30, 1995 and January 31, 1995, subject to adjustment in the
reorganization process. The Company is continuing to pay interest on secured
debt although principal payments have generally been suspended.
The accompanying consolidated financial statements have been prepared in
conformity with principles of accounting applicable to a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As a result of the Chapter 11 filing and
circumstances relating to this event, realization of assets and satisfaction of
liabilities are subject to uncertainty. A plan of reorganization could
materially change the amounts reported in the accompanying consolidated
financial statements, which do not give effect to adjustments to the carrying
values of assets and liabilities which may be necessary as a consequence of a
plan of reorganization. The Company's ability to continue as a going concern is
contingent upon, among other things, its ability to formulate a plan of
reorganization that will be confirmed by the Bankruptcy Court, to achieve
satisfactory levels of profitability and cash flow from operations, maintain
compliance with the Debtors-in-Possession financing agreement (see Note 3) and
obtain financing sources to meet future obligations.
The consolidated financial statements included herein do not include all the
information and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles, although the Company believes that disclosures are adequate to make
the information not misleading. Certain reclassifications have been made to
prior year amounts to conform to the current years reporting classification.
Refer to the Notes to Consolidated Financial Statements contained in the
Company's 1995 Annual Report.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation for the interim periods
have been included in the consolidated financial statements.
7
<PAGE>
The results of operations for the interim periods presented, are not necessarily
indicative of the operating results to be expected for the full fiscal year.
RESTRUCTURING PLANS:
In both fiscal 1994 and fiscal 1995, the Company implemented restructuring plans
that involve the closing of a significant number of stores and significant
revisions to the Company's marketing and merchandising strategies.
Effective September 1, 1993, the Company's Board of Directors approved a plan of
restructuring (the "1993 Plan") for the closure of its 110 then remaining mall
stores and the implementation of a new merchandising strategy that focused on
everyday value pricing. During the quarter ended April 30, 1995, two stores
were closed under the 1993 Plan bringing the total stores closed to 95. The
Company canceled the planned closure of 11 mall stores during fiscal 1995 due to
better than expected performance and reversed the related portion of the
restructuring charge. The four remaining stores will be closed by June 30,
1995. During the three months ended April 30, 1995, mall store sales of
$1,013,000 and operating profit of $89,000 were excluded from operating
results and charged to the restructuring reserve.
Effective August 26, 1994, the Company's Board of Directors approved a plan of
restructuring (the "1994 Plan") to close 125 underperforming super stores. This
plan was subsequently amended to included an additional 63 super stores,
bringing the total number of super stores slated for closure to 188. During the
quarter ended April 30, 1995, 25 super stores were closed under the 1994 Plan
bringing the total stores closed to 151. The Company canceled the planned
closure of 12 super stores during fiscal 1995 due to better than expected
performance and reversed the related portion of the restructuring charge. The
25 remaining stores will be closed by June 30, 1995. During the three months
ended April 30, 1995, super store sales of $11,745,000 and operating losses of
$1,454,000 were excluded from operating results and charged to the restructuring
reserve.
Information with respect to the number of stores operated by the Company for the
quarter:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1995 OPENED CLOSED TOTAL
- ---------------- ------ ------ -----
<S> <C> <C> <C>
433 -0- 29 404
</TABLE>
NOTE 2: LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consist of the following as of April 30, 1995
and January 31, 1995:
<TABLE>
<CAPTION>
APRIL 30, 1995 JANUARY 31, 1995
-------------- ----------------
<S> <C> <C>
Secured Liabilities:
Notes payable to banks $120,666,000 $126,666,000
Long term debt 1,386,000 1,400,000
Unsecured Liabilities:
Accounts payable, trade 78,254,000 76,875,000
Other payables and accrued expenses 5,750,000 5,750,000
Other 145,000 145,000
------------ ------------
$206,201,000 $210,836,000
============ ============
</TABLE>
A plan of reorganization ultimately approved by the Company's impaired
prepetition creditors and stockholders and confirmed by the Bankruptcy Court may
materially change the amounts and terms of these prepetition liabilities.
8
<PAGE>
Such amounts were estimated as of April 30, 1995 and January 31, 1995, and the
Company anticipates that claims filed with the Bankruptcy Court by the Company's
creditors will be reconciled to the Company's financial records. The additional
liability arising from this reconciliation process, if any, is not subject to
reasonable estimation, and accordingly, no provision has been recorded for these
possible claims. The termination of other contractual obligations and the
settlement of disputed claims may create additional prepetition liabilities.
Such amounts, if any, will be recognized in the consolidated balance sheet as
they are identified and become subject to reasonable estimation.
The Company has a credit agreement (Credit Agreement) for which Bank of America
NT & SA acts as agent bank. As a result of the Chapter 11 filing, all required
repayments of principal on the notes payable under the Credit Agreement have
been suspended, except for certain principal repayments that have been approved
by the Bankruptcy Court and are required by the Company's Debtors-in-Possession
financing agreement (see Note 3). Under such agreement, up to a total of
$28,000,000 of permanent principal reductions may be required based on a
preapproved formula through January 31, 1996, of which $6,000,000 was repaid
through April 30, 1995. The Company has continued to accrue and pay interest at
the contractual rate on these notes and has classified these notes as subject to
compromise in the accompanying consolidated balance sheets.
By authorization of the Bankruptcy Court, the Company has continued to pay
interest at the contractual rate on certain long term debt. Such obligations
have been classified as subject to compromise in the accompanying consolidated
balance sheets.
NOTE 3: DEBTORS-IN-POSSESSION FINANCING
During the first quarter of 1995, the Company entered into, and the Bankruptcy
Court approved, an agreement with Bank of America NT & SA, acting as agent bank,
to provide Debtors-in-Possession financing in the form of a $20 million line of
credit (The "D.I.P. Financing"). The D.I.P. Financing agreement provides for a
combination of cash borrowings and the issuance of up to $10 million in letters
of credit. Interest and fees are payable monthly. Cash borrowings bear interest
at the bank reference rate plus 1.5% per annum, and a commitment fee of .5% per
annum on unused availability. Fees for letters of credit are generally .25% per
annum. This agreement is collateralized by a first priority lien on generally
all assets of the Company, as defined. The Company is required to follow a
formula for sequestration of excess cash, as defined in the D.I.P. Financing
agreement, for permanent principal reductions of notes payable under the Credit
Agreement. The Company is also required to permanently reduce all or a portion
of the borrowings under the D.I.P. Financing agreement by an amount equal to the
net proceeds from asset dispositions which occur outside the normal course of
business and, under certain circumstances, a portion of the funds derived from
store liquidations. The agreement will terminate, generally, on January 31,
1996, or the effective date of a plan of reorganization confirmed by the
Bankruptcy Court.
The D.I.P. Financing agreement includes certain other restrictive covenants that
are computed monthly and related to, among other things, cash and inventory
level requirements in comparison to planned levels. As of April 30, 1995, the
Company had drawn letters of credit in the total amount of $7,291,000 against
the line leaving credit available of $12,709,000, of which $2,709,000 was
available for letters of credit under the agreement.
The Company was in compliance with all financial covenants as of April 30, 1995.
NOTE 4: REORGANIZATION COSTS
Professional fees and expenditures directly related to the Chapter 11 filing are
classified as reorganization costs and are expensed as incurred. Reorganization
costs during the three months ended April 30, 1995, consisted primarily of
professional fees. Cash paid for reorganization costs during the three months
ended April 30, 1995 amounted to $2,813,000.
9
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
________________________________________________________________________________
The Company is one of the largest home sewing/craft retailers in the United
States, operating 404 stores in 34 states as of April 30, 1995. The following
discussion explains material changes in the results of operations for the first
quarter of fiscal years 1996 and 1995 and significant developments affecting
financial condition since the end of fiscal 1995.
CHAPTER 11 REORGANIZATION
- -------------------------
On November 2, 1994, the Company and subsidiaries filed voluntary petitions for
relief under Chapter 11 of Title 11 of the United States Code in the United
States Bankruptcy.
The consolidated financial statements have been presented on the basis that the
Company will continue as a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
a result of the Chapter 11 filing and circumstances relating to this event,
realization of assets and satisfaction of liabilities is subject to uncertainty.
A plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements, which do not reflect all
adjustments to the carrying values of assets and liabilities which may be
necessary as a consequence of a plan of reorganization. The ability of the
Company to continue as a going concern is dependent on, among other things, its
ability to formulate a plan of reorganization that will be confirmed by the
Bankruptcy Court, to achieve satisfactory levels of profitability and cash flow
from operations, maintain compliance with the Debtors-in-Possession financing
agreement (see Note 3) and obtain financing sources to meet future obligations.
In both fiscal 1994 and fiscal 1995, the Company implemented restructuring plans
that involve the closing of a significant number of stores and significant
revisions to the Company's marketing and merchandising strategies.
Effective September 1, 1993, the Company's Board of Directors approved a plan of
restructuring (the "1993 Plan") for the closure of its 110 then remaining mall
stores and the implementation of a new merchandising strategy that focused on
everyday value pricing. During the quarter ended April 30, 1995, two stores were
closed under the 1993 Plan bringing the total stores closed to 95. The Company
canceled the planned closure of 11 mall stores during fiscal 1995 due to better
than expected performance and reversed the related portion of the restructuring
charge. The four remaining stores will be closed by June 30, 1995. During the
three months ended April 30, 1995, mall store sales of $1,013,000 and operating
profit of $89,000 were excluded from operating results and charged to the
restructuring reserve.
Effective August 26, 1994, the Company's Board of Directors approved a plan of
restructuring (the "1994 Plan") to close 125 underperforming super stores. This
plan was subsequently amended to included an additional 63 super stores,
bringing the total number of super stores slated for closure to 188. During the
quarter ended April 30, 1995, 25 super stores were closed under the 1994 Plan
bringing the total stores closed to 151. The Company canceled the planned
closure of 12 super stores during fiscal 1995 due to better than expected
performance and reversed the related portion of the restructuring charge. The
25 remaining stores will be closed by June 30, 1995. During the three months
ended April 30, 1995, super store sales of $11,745,000 and operating losses of
$1,454,000 were excluded from operating results and charged to the restructuring
reserve.
10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Sales for the quarter ended April 30, 1995 decreased 35.7% to $73,759,000 from
$114,695,000 for the quarter ended April 30, 1994. The decrease in sales of
$40,936,000 was primarily due to the exclusion of sales from quarterly results
totalling $11,745,000 for stores under the 1994 Plan, a 16.3% decrease in store
for store sales, and the closing of 18 non plan stores with sales of $2,100,000.
The decrease in store for store sales resulted from a loss of customers as a
result of merchandise shortages in the third and fourth quarters of fiscal 1995,
the full chain wide implementation of everyday value pricing environment and
highly competitive market conditions. During the quarter ended April 30, 1995,
the Company closed 29 stores, including 2 stores from the 1993 Plan, 25 stores
from the 1994 Plan, and 2 non-plan stores.
Gross profit as a percentage of sales increased to 50.0% for the quarter ended
April 30, 1995 from 45.8% for the quarter ended April 30, 1994. The increase is
primarily due to the change from a highly promotional sales strategy in the
quarter ended April 30, 1995. In accordance with the Company's merchandising
strategies, seasonal merchandise is marked down at the end of the spring and
fall seasons. It is anticipated that gross margins will be affected in the
second and fourth quarters of the fiscal year.
Selling, general and administrative expenses as a percent of sales increased to
50.7% for the quarter ended April 30, 1995 from 45.1% for the quarter ended
April 30, 1994. Although expense reduction programs have been implemented to
reduce total costs, the fixed cost components of payroll and rent represent a
higher percent of sales in the current quarter.
Interest expense for the quarter ended April 30, 1995 increased $1,240,000 over
the quarter ended April 30, 1994 primarily as a result of an increase in the
Company's average effective borrowing rate from 6.3% in the quarter ended April
30, 1994 to 11.5% in the quarter ended April 30, 1995.
Reorganization costs associated with the Company's Chapter 11 filing amounted to
$3,522,000 for the 3 months ending April 30, 1995, which are comprised primarily
of professional fees. The Company anticipates that additional reorganization
costs will be incurred throughout the Chapter 11 reorganization.
The Company recorded a tax expense of $50,000 for the three months ended April
30, 1995, for minimum state income taxes compared to $468,000 benefit for the
quarter ended April 30, 1994. No tax benefit was recognized for the net
operating loss generated in the three months ended April 30, 1995. The net loss
incurred during the quarter increased the net operating loss carryforward that
existed as of January 31, 1995.
During the three months ended April 30, 1995, the Company recorded a net loss of
$7,984,000 including charges of $3,522,000 for reorganization costs, compared to
a net loss of $1,470,000 for the same period last year. Earnings before
interest, income taxes, depreciation, amortization and reorganization costs
(EBITDA), an alternative measure of operating performance generally reported by
debtors-in-possession, were approximately $1,450,000 for the three months ended
April 30, 1995 compared to $3,400,000 for the three months ended April 30, 1994.
The increase in net losses and decreases in EBITDA were the result of the
decreases in both total and store for store sales. The net loss was adversely
impacted by the costs associated with the Chapter 11 process.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital was approximately $171.8 million as of April 30,
1995, and its current ratio was 4.7 to 1. Net cash used in operating activities
was approximately $18,463,000 for the three months ended April 30, 1995,
compared to net cash provided by operating activities of approximately
$3,012,000 for the 3 months ended April 30, 1994. The increase in net cash used
in operating activities is due primarily to an increase in merchandise
inventories necessary to fully restock stores and to a decrease in net earnings.
11
<PAGE>
During the first quarter of 1995, the Company entered into, and the Bankruptcy
Court approved, an agreement with Bank of America NT & SA, acting as agent bank,
to provide Debtors-in-Possession financing in the form of a $20 million line of
credit (The "D.I.P. Financing"). The D.I.P. Financing agreement provides for a
combination of cash borrowings and the issuance of up to $10 million in letters
of credit. Interest and fees are payable monthly. Cash borrowings bear interest
at the bank reference rate plus 1.5% per annum, and a commitment fee of .5% per
annum on unused availability. Fees for letters of credit are generally .25% per
annum. This agreement is collateralized by a first priority lien on generally
all assets of the Company, as defined. The Company is required to follow a
formula for sequestration of excess cash, as defined in the D.I.P. Financing
agreement, for permanent principal reductions of notes payable under the Credit
Agreement. The Company is also required to permanently reduce all or a portion
of the borrowings under the D.I.P. Financing agreement by an amount equal to the
net proceeds from asset dispositions which occur outside the normal course of
business and, under certain circumstances, a portion of the funds derived from
store liquidations. The agreement will terminate, generally, on January 31,
1996, or the effective date of a plan of reorganization confirmed by the
Bankruptcy Court.
The D.I.P. Financing agreement includes certain other restrictive covenants that
are computed monthly and related to, among other things, cash and inventory
level requirements in comparison to planned levels. As of April 30, 1995, the
Company had drawn letters of credit in the total amount of $7,291,000 against
the line leaving credit available of $12,709,000, of which $2,709,000 was
available for letters of credit under the agreement.
The Company believes that its ongoing operating cash flow, the D.I.P. Financing
agreement, and the refund of income taxes should enable the Company to meet
liquidity requirements in fiscal 1996. However, notwithstanding all of the
events and circumstances described above, there is substantial uncertainty with
respect to the Company's liquidity. The Company's ability to meet its
obligations as they come due and successfully emerge from Chapter 11 is
contingent upon, among other things, its ability to formulate a plan of
reorganization that will be confirmed by the Bankruptcy Court, to achieve
satisfactory levels of profitability and cash flow from operations, maintain
compliance with the Debtors-in-Possession financing agreement and obtain
financing sources to meet future obligations.
The foregoing discussion is designed to comply with interim reporting standards
and should be read in conjunction with the more detailed discussion in the
Company's 1995 Annual Report.
12
<PAGE>
Part II. OTHER INFORMATION
Item 6. EXHIBITS
(a) Exhibits.
27. Financial Data Schedule
13
<PAGE>
SIGNATURE
---------
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.
----------------------------
Registrant
Date: June 14, 1995 Norman L. Salvesen
Vice President-Controller
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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0
0
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</TABLE>
