<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 31, 1996.
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 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
----- -----
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, or 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
------ ------
1
<PAGE>
On November 2, 1994, the Registrant and four (4) of its' subsidiaries filed
separate voluntary petitions for reorganization under Chapter 11 of Title 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court of the
Central District of California (the "Bankruptcy Court"). On July 10, 1996, the
Bankruptcy Court confirmed the Third Amended Joint Plan of Reorganization, (the
"Plan"), of the Registrant and its' subsidiaries. On July 31, 1996, all
conditions to the effectiveness of the Plan were met, and the Plan became
effective ("Effective Date"). Pursuant to the Plan, 3,643,936 shares of newly
reorganized House of Fabrics, Inc. common stock have been issued.
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 December 12, 1996
Common Stock, par value $.10 per share 3,643,936 Shares
2
<PAGE>
HOUSE OF FABRICS, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of October 31, 1996
and January 31, 1996 4 - 5
Consolidated Statements of Operations
for the three months ended
October 31, 1996 and 1995 6
Consolidated Statements of Operations
for the nine months ended
October 31, 1996 and 1995 7
Consolidated Statements of
Cash Flows for the nine months
ended October 31, 1996 and 1995 8 - 9
Notes to Consolidated Financial Statements 10 - 14
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15-18
Part II. Other Information 19
Item 6. Exhibits
(a) Exhibits
10.1 Increase in Revolving Credit Agreement credit line.
10.2 Amendment to Revolving Credit Agreement
27. Financial Data Schedule 21
Signature 20
</TABLE>
3
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
SUCCESSOR CO. PREDECESSOR CO.
OCTOBER 31, 1996 JANUARY 31, 1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,097,000 $ 16,634,000
Receivables, net 5,665,000 24,322,000
Merchandise Inventories, net 111,019,000 107,140,000
Prepaid Expenses and Other Current Assets 4,688,000 5,651,000
Refundable Income Taxes - 377,000
Deferred Income Taxes 25,000 25,000
------------ ------------
Total Current Assets 124,494,000 154,149,000
Property
Land 1,011,000 1,011,000
Buildings 1,707,000 1,707,000
Furniture & Fixtures 15,559,000 39,333,000
Leasehold Improvements 5,546,000 21,255,000
------------ ------------
23,823,000 63,306,000
Less Accumulated Depreciation and Amortization (1,047,000) (36,198,000)
------------ ------------
Property, net 22,776,000 27,108,000
Deferred Income Taxes 254,000 254,000
Property Held for Sale 7,120,000 9,590,000
Other Assets 1,154,000 1,386,000
Reorganization Value in Excess of Amounts Allocated
to Net Assets, net 3,272,000 -
Goodwill, net - 38,067,000
------------ ------------
$159,070,000 $230,554,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
SUCCESSOR CO. PREDECESSOR CO.
OCTOBER 31, 1996 JANUARY 31, 1996
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts Payable $ 20,267,000 $ 9,754,000
Notes Payable to Bank 54,887,000 -
Accrued Liabilities 21,109,000 32,297,000
Restructuring Reserve - 12,949,000
------------ ------------
Total Current Liabilities 96,263,000 55,000,000
Deferred Income Taxes 279,000 279,000
Long Term Liabilities 22,502,000 -
Liabilities Subject to Compromise under
reorganization proceedings - 190,618,000
------------ ------------
Total Liabilities 119,044,000 245,897,000
STOCKHOLDERS' EQUITY (DEFICIT)
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 January 31, 1996 - 1,370,000
Authorized 5,136,415 Shares; 3,640,299 Shares
Issued and Outstanding at October 31, 1996 514,000 -
Paid-In Capital 38,638,000 46,880,000
Retained Earnings (Deficit) 874,000 (63,593,000)
------------ ------------
Stockholders' Equity (Deficit) 40,026,000 (15,343,000)
------------ ------------
$159,070,000 $230,554,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 1996 OCTOBER 31, 1995
SUCCESSOR CO. PREDECESSOR CO.
<S> <C> <C>
Sales $69,953,000 $ 92,307,000
Expenses:
Cost of Sales 40,200,000 52,482,000
Selling, General and Administrative 27,536,000 39,973,000
Interest 1,319,000 3,263,000
----------- ------------
Total Expenses 69,055,000 95,718,000
Income (Loss) Before Income Taxes
and Reorganization Items 898,000 (3,411,000)
Reorganization Items:
Profeesional Fees - 2,054,000
----------- ------------
Income (Loss) Before Income Taxes 898,000 (5,465,000)
Income Taxes 24,000 50,000
----------- ------------
Net Income (Loss) $ 874,000 $ (5,515,000)
=========== ============
Income (Loss) Per Share(a) $0.17 $ N/A
Weighted Average Number of
Shares Outstanding(a) 5,136,415 N/A
=========== ============
</TABLE>
(a) The net income per common share and the weighted average number of common
shares for the Predecessor Company have not been presented because, due to
the Reorganization and Implementation of Fresh-Start accounting, they
are not comparable to subsequent periods.
See accompanying notes to consolidated financial statements.
6
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
OCTOBER 31, 1996 JULY 31, 1996 OCTOBER 31, 1995
SUCCESSOR CO. PREDECESSOR CO. PREDECESSOR CO.
<S> <C> <C> <C>
Sales $69,953,000 $111,355,000 $237,975,000
Expenses:
Cost of Sales 40,200,000 62,000,000 130,413,000
Selling, General and Administrative 27,536,000 53,952,000 113,663,000
Interest 1,319,000 4,911,000 10,788,000
----------- ------------ ------------
Total Expenses 69,055,000 120,863,000 254,864,000
Income (Loss) Before Reorganization Items,
Income Taxes, and Extraordinary Item 898,000 (9,508,000) (16,889,000)
Reorganization Items:
Fresh-Start Adjustments (65,011,000)
Reorganization Costs - 1,440,000 7,499,000
----------- ------------ ------------
Income (Loss) Before Income Taxes,
and Extraordinary Item 898,000 54,063,000 (24,388,000)
Income Taxes 24,000 48,000 150,000
----------- ------------ ------------
Net Income (Loss) Before Extraordinary Item 874,000 54,015,000 (24,538,000)
Gain on Forgiveness of Debt - (9,578,000) -
----------- ------------ ------------
Net Income (Loss) $ 874,000 $ 63,593,000 $(24,538,000)
=========== ============ ============
Income (Loss) Per Share(a) $0.17 $ N/A $ N/A
=========== ============ ============
Weighted Average Number of
Shares Outstanding(a) 5,136,415 N/A N/A
=========== ============ ============
</TABLE>
(a) The net income per common share and the weighted average number of
common shares for the Predecessor Company have not been presented
because, due to the Reorganization and implementation of Fresh-Start
accounting, they are not comparable to subsequent periods.
See accompanying notes to consolidated financial statements.
7
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
OCTOBER 31, 1996 JULY 31, 1996 OCTOBER 31, 1995
SUCCESSOR CO. PREDECESSOR CO. PREDECESSOR CO.
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 874,000 $ 63,593,000 $(24,538,000)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used In) Operating Activities:
Fresh-Start adjustments - (65,011,000) -
Extraordinary Item - Gain on Forgiveness of Debt - (9,578,000) -
Depreciation and Amortization 1,131,000 2,895,000 6,099,000
(Gain) Loss on Disposal of Fixed Assets - (3,191,000) 521,000
Changes in Assets and Liabilities
Receivables (1,342,000) 15,246,000 5,081,000
Merchandise Inventories (15,568,000) 12,287,000 (26,047,000)
Prepaid Expenses and Other Assets 1,752,000 (1,008,000) 23,744,000
Accounts Payable and Accrued Liabilities 7,206,000 (4,719,000) (852,000)
Restructuring Reserve - - (3,152,000)
Operating Payables subject to compromise under
reorganization proceedings - 843,000 (1,779,000)
Long Term Liabilities 989,000 21,513,000 -
Refundable Income Taxes 377,000 - 1,535,000
------------ ------------- -------------
Total Adjustments (5,455,000) (30,723,000) 5,150,000
------------ ------------- -------------
Net Cash Provided by (Used In) Operating Activities (4,581,000) 32,870,000 (19,388,000)
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (1,264,000) (2,687,000) (3,974,000)
Proceeds from Sale of Property - 5,050,000 734,000
------------ ------------- -------------
Net Cash Provided by (Used In) Investing Activities (1,264,000) 2,363,000 (3,240,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments Under Line of Credit Agreements - (105,245,000) (6,773,000)
Borrowings Under Line of Credit Agreements - 59,300,000 -
Borrowings and Repayments Under Revolving Line, net 6,988,000 - -
Settlement of Administrative and Priority Claims, net (3,968,000) - -
Repayment of Long Term Debt - - (42,000)
------------ ------------- -------------
Net Cash Provided by (Used in) Financing Activities 3,020,000 (45,945,000) (6,815,000)
------------ ------------- -------------
NET (DECREASE) IN CASH (2,825,000) (10,712,000) (29,443,000)
CASH AT BEGINNING OF PERIOD 5,922,000 16,634,000 47,381,000
CASH AT END OF PERIOD $ 3,097,000 $ 5,922,000 $ 17,938,000
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
OCTOBER 31, 1996 JULY 31, 1996 OCTOBER 31, 1995
SUCCESSOR CO. PREDECESSOR CO. PREDECESSOR CO.
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest Paid $ 1,241,000 $ 4,933,000 $ 10,731,000
Income Taxes Paid (Refunded) $ (1,432,000) $ (21,285,000) $ (1,515,000)
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES-
During the six months ended July 31, 1996 loss on disposal of property charged
to accrued reserves amounted to $5,222,000. During the nine months ended
October 31, 1995, loss on disposal of property charged to the restructuring
reserve amounted to $3,344,000 and $4,774,000 of prepetition receivables were
offset against prepetition payables.
See accompanying notes to consolidated financial statements.
9
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
- - --------------------------------------------------------------------------------
NOTE 1: BASIS OF REPORTING
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. The plan of reorganization has
materially changed the amounts reported in the accompanying consolidated
financial statements, which give effect to adjustments to the carrying values of
assets and liabilities as a consequence of the plan of reorganization. The
results of operations and cash flows have been split into two periods. The
first six months ended July 31, 1996 reflect operations prior to emergence from
Chapter 11 proceedings. The latest three months ended October 31, 1996 reflect
operations after the emergence from Chapter 11 proceedings and reflect the
effects of Fresh-Start Reporting. As a result, the net income for the three
months ended October 31, 1996 is not comparable with prior periods and is not
combined with prior period net income for year-to-date totals due to non-
comparability. The balance sheet at October 31, 1996 is also not comparable to
prior periods. The Company's ability to continue as a going concern is
contingent upon, among other things, the ability to achieve satisfactory levels
of profitability and cash flow from operations and maintain compliance with
the financing agreement (see Note 4).
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 1996 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.
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.
The accompanying consolidated financial statements have been presented in
accordance with Statement of Position 90-7 - Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code. (Fresh-Start Reporting)
NOTE 2: REORGANIZATION
House of Fabrics, Inc. (the "Company") is one of the largest home sewing/craft
retailers in the United States, operating 267 stores in 28 states as of October
31, 1996. 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. While under Chapter 11, certain claims against the Company that were
in existence prior to the filing of the petition for relief under the federal
bankruptcy laws were stayed while the Company continued to conduct normal
business operations as Debtors-in-Possession. These
10
<PAGE>
claims were reflected in the Company's consolidated balance sheet as
"Liabilities Subject to Compromise under reorganization proceedings" as of
January 31, 1996.
In August 1995, the Company filed a Disclosure Statement and Plan of
Reorganization with the Bankruptcy Court which was amended in May 1996. The
Plan was confirmed by the Bankruptcy Court on July 10, 1996, and became
effective on July 31, 1996 ("Effective Date").
Under the Plan, the Company has or plans to issue approximately 5,136,000 shares
of newly reorganized House of Fabrics, Inc. common stock ("New Common Stock")
including shares issuable upon resolution of claims as well as additional
shares, as necessary, to satisfy the warrants, equity incentive plans and
additional bank group stock issuance as required by the Plan. As of October 31,
1996, 3,640,299 shares have been issued. The secured bank group received
$76,500,000 (discounted based on debt outstanding as of May 1, 1996) plus
approximately 257,000 shares (or 5%) of New Common Stock. In accordance with the
Plan, on December 5, 1996, the Company paid $1,157,000 to satisfy the
requirement to bring the aggregate market value of the approximately 257,000
shares up to $2,000,000 (see Note 8). Generally, defaults under other secured
obligations were cured and the maturities reinstated or converted to longer term
obligations at market rates of interest. Reclamation claims received 25% in cash
shortly after the effective date of the Plan and will receive the balance in 12
equal monthly installments. Holders of general unsecured claims that are not
covered by insurance will receive a pro rata distribution of approximately
4,777,000 shares (or 93%) of New Common Stock. A portion of the approximately
4,777,000 shares of New Common Stock to be issued to holders of unsecured claims
was placed in a claims reserve based on the percentage of disputed claims to
total claims (total claims include both allowed claims and disputed claims).
Holders of existing House of Fabrics, Inc., common stock received a pro-rata
distribution of approximately 103,000 shares (or 2%) of New Common Stock
(subject to dilution) plus warrants to purchase additional shares of New Common
Stock. (A copy of the Plan was filed under Form 8-K on July 23, 1996)
The Company is currently listed on the NASDAQ stock exchange in addition to the
Pacific Stock Exchange. The symbol for the New Common Stock is HFAB and the
symbol for the warrants is HFABW. On May 24, 1996, the New York Stock Exchange
("the Exchange") suspended trading of the Company's common stock and
subsequently delisted the issue.
On July 31, 1996, and effective August 1, 1996, the Company restructured its
organizational structure by merging Fabricland, Inc., Sofro Fabrics, Inc., House
of Fabrics of South Carolina, Inc. and Metrolina Express, Inc. into House of
Fabrics, Inc.
Upon emergence from its Chapter 11 proceedings, the Company (referred to as
"Successor Company" when compared to periods prior to August 1, 1996) adopted
the provisions of Statement of Position No. 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code ("Fresh-Start Reporting")
as promulgated by the American Institute of Certified Public Accountants in
November 1990. Accordingly, all assets and liabilities have been restated to
reflect their reorganization value, which approximates their fair value at the
Effective Date. In addition, the accumulated deficit of the Company was
eliminated and its capital structure was recast in conformity with the Plan, and
as such, the Company has recorded the effects of the Plan and Fresh-Start
Reporting as of August 1, 1996. The adjustment to eliminate the accumulated
deficit totaled $74,589,000 of which $9,578,000 was forgiveness of bank group
debt and the remaining $65,011,000 were Fresh-Start adjustments. The results of
operations and cash flows for the six months ended July 31, 1996 include
operations prior to the Company's emergence from Chapter 11 proceedings
(referred to as "Predecessor Company") and the effects of Fresh-Start Reporting.
The results of operations and cash flows for the three months ended October 31,
1996 include operations subsequent to the Company's emergence from Chapter 11
proceedings and reflect the effects of Fresh-Start Reporting. As a result, the
net income for the three months ended October 31, 1996 is not comparable with
prior periods and the net income for the year-to-date period ended October 31,
1996 is divided into Successor Company and Predecessor Company and is also not
comparable with prior periods. In addition, the Balance Sheet as of October 31,
1996 is not comparable to prior periods for the reasons discussed above.
11
<PAGE>
The reorganization value of the Company's common equity of $39,150,000 was
determined by the Company with the assistance of financial advisors after
consideration of several factors and by reliance on various valuation methods,
including discounted projected cash flows, price/earnings ratios, and other
applicable ratios and economic and industry information relevant to the
operations of the Company. The reorganization value of the Company has been
allocated to specific asset categories pursuant to Fresh-Start Reporting.
Reorganization Value in Excess of Amounts Allocated to Net Assets reflects the
difference in the Company's stock valuation and the Company's net assets.
In anticipation of the Company filing the Plan of Reorganization to exit Chapter
11 with the Bankruptcy Court and to facilitate the Company's ability to
negotiate exit financing prior to emergence from Chapter 11, the Company agreed
to close 86 underperforming stores and use the proceeds to permanently reduce
the secured debt of the Company's prepetition bank loan. In January 1996, with
approval of the Bankruptcy Court, the Company entered into an agency agreement
with an unrelated partnership formed to liquidate the 86 stores. The
partnership assumed control of the 86 stores and assumed substantially all of
the expenses of operating the stores through liquidation. The liquidation was
completed in April 1996. In addition, the Company approved the closure of an
additional 8 stores that did not meet certain profitability requirements. Of
these 8 stores, 2 have been closed, both during the quarter ended October 31,
1996.
NOTE 3: LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consist of the following as of January 31,
1996:
<TABLE>
<CAPTION>
JANUARY 31, 1996
----------------
<S> <C>
Secured Liabilities:
Notes payable to banks $ 102,823,000
Long term debt 941,000
Unsecured Liabilities:
Accounts payable, trade 71,309,000
Other payables and accrued expenses 15,400,000
Other 145,000
-------------
$ 190,618,000
=============
</TABLE>
In accordance with the Plan, these liabilities subject to compromise were
resolved on the Effective Date, including forgiveness of debt by the bank group
of $9,578,000.
NOTE 4: FINANCING
At July 31, 1996, the Company entered into a Financing Agreement with CIT
Group/Business Credit, Inc. ("CITBC"), to provide a $65,000,000 line of credit,
as amended on September 11, 1996, having a term of 3 years, with automatic
annual renewals unless 90 days written notice is provided prior to the
anniversary date of the agreement. Cash borrowings bear interest at prime (based
on the Chase Manhattan Bank Rate) plus 1% or Libor plus 3 1/4% and a commitment
fee of .5% per annum on unused availability. Fees for letters of credit are
generally 1 1/2% per annum based on the amount of letters of credit issued. The
Financing Agreement provides for a combination of cash borrowings and the
issuance of up to $20,000,000 in letters of credit. The Financing Agreement is
collateralized by a first priority lien on generally all assets of the Company,
as defined, excluding up
12
<PAGE>
to $10,000,000 for Point of Sale equipment which may be secured by the purchased
Point of Sale equipment. Loan availability is determined by an advance rate on
eligible inventory as defined. The Financing Agreement includes certain
restrictive covenants that are computed quarterly and are principally related to
net worth, fixed charge coverage ratio, operating leases and capital
expenditures. As of October 31, 1996, the Company had direct borrowings of
$54,887,000 and letters of credit of $771,000 outstanding with additional
credit available of approximately $8,800,000.
As of October 31, 1996, the Company was in compliance with all terms of the
amended Financing Agreement.
In March 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 $20,000,000 line of credit
(The "D.I.P. Financing") that expired on January 31, 1996. The D.I.P. Financing
agreement provided for a combination of cash borrowings and the issuance of up
to $10,000,000 in letters of credit. Interest and fees were payable monthly.
Cash borrowings bore 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 were generally .25% per annum. This agreement was collateralized by a
first priority lien on generally all assets of the Company, as defined. The
Company was required to follow a formula for sequestration of excess cash, as
defined in the D.I.P. Financing agreement, and for permanent principal
reductions of notes payable under the Credit Agreement. The Company was 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.
On January 29, 1996, the D.I.P. Financing agreement was extended through April
30, 1996, with Bankruptcy Court approval. The amended and restated D.I.P.
agreement was reduced to a $17,300,000 line of credit with a provision for up
to $10,000,000 in letters of credit and any unused portion of the loan
available for cash borrowings. The amended and restated D.I.P. Financing
agreement required the closure of at least 86 stores with the proceeds therefrom
to be used to permanently reduce the prepetition secured bank loan. On May 1,
1996, the amended and restated D.I.P. Financing agreement was extended through
June 28, 1996 and subsequently through July 31, 1996.
The D.I.P. Financing agreement included certain other restrictive covenants that
were computed monthly and related to, among other things, cash and inventory
level requirements in comparison to planned levels. At July 31, 1996, the
Company retired the D.I.P. Financing agreement and replaced it with a new
Financing Agreement with CITBC as explained above.
NOTE 5: REORGANIZATION COSTS
Prior to emergence from bankruptcy, professional fees and expenditures directly
related to the Chapter 11 filing are classified as reorganization costs and are
expensed as incurred. There were no reorganization costs for the three months
ended October 31, 1996. Reorganization costs with respect to the six months
ended July 31, 1996 consisted primarily of professional fees and lease
termination expenses offset by the gain on the sale of the Sherman Oaks,
California office building.
NOTE 6: STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning February 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair market value
13
<PAGE>
of the equity instrument awarded. Companies are permitted, however, not required
to continue to apply APB Opinion No. 25, which recognizes compensation cost
based on the intrinsic value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based compensation awards to
employees and will disclose the required pro forma effect of net income and
earnings per share.
During August 1996, the Company's Board of Directors approved a stock option
plan providing 669,375 shares for directors, officers, and other key employees.
The options have a term of ten years and vest 25% after 18 months, an
additional 50% after 24 months and the final 25% after 36 months. The price of
the options at grant date was $4. Stock option grants of 617,736 have been
issued as of October 31, 1996.
NOTE 7: INCOME TAXES
In March, June, and September 1996, the Company received approximately
$9,321,000, $11,865,000, and $1,316,000 respectively, pursuant to claims for
refund filed on Internal Revenue Service Form 1139. Income tax refunds received
on Form 1139 are subject to later review and audit by the Internal Revenue
Service. Although the Company believes it will ultimately prevail on any
Internal Revenue Service audit of claims filed on Form 1139, it has reserved
against amounts received and will record the respective tax benefits upon
successful completion of such audits.
NOTE 8: SUBSEQUENT EVENTS
On November 19, 1996 the Company sold the previously closed Mauldin, South
Carolina distribution facility for $8,350,000. The proceeds were used to reduce
borrowings under the Financing Agreement with CITBC.
On December 5, 1996, as required by the terms of the Plan of Reorganization,
additional cash payments of $1,157,000 were made to the secured bank group to
bring the aggregate value of the approximately 257,000 shares issued to the bank
group up to $2,000,000 (see Note 2).
14
<PAGE>
HOUSE OF FABRICS, INC. AND SUBSIDIARIES
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 267 stores in 28 states as of October 31, 1996. The following
discussion explains material changes in the results of operations for the third
quarter of fiscal years 1997 and 1996 and significant developments affecting
financial condition since the end of fiscal 1996.
CHAPTER 11 REORGANIZATION
- - -------------------------
On November 2, 1994, the Company and subsidiaries filed voluntary petitions for
relief under Chapter 11 of the United States Code in the United States
Bankruptcy Court.
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 are subject to
uncertainty. The plan of reorganization materially changed the amounts reported
in the accompanying consolidated financial statements, which give effect to
adjustments to the carrying values of assets and liabilities as a consequence of
the plan of reorganization. The Company's ability to continue as a going
concern is contingent upon, among other things, the ability to achieve
satisfactory levels of profitability and cash flow from operations and
maintain compliance with the financing agreement (see Note 4 to consolidated
financial statements).
In August 1995, the Company filed a Disclosure Statement and Plan of
Reorganization (the Plan) with the Bankruptcy Court which was amended in May
1996. The Plan was confirmed by the Bankruptcy Court on July 10, 1996, and
became effective on July 31, 1996.
Under the Plan, the Company has or plans to issue approximately 5,136,000 shares
of newly reorganized House of Fabrics, Inc. common stock ("New Common Stock")
including shares issuable upon resolution of claims as well as additional
shares, as necessary, to satisfy the warrants, equity incentive plans and
additional bank group stock issuance as required by the Plan. As of October 31,
1996, 3,640,299 shares have been issued. The secured bank group received
$76,500,000 (discounted based on debt outstanding as of May 1, 1996) plus
approximately 257,000 shares (or 5%) of New Common Stock. In accordance with the
Plan, on December 5, 1996, the Company paid $1,157,000 to satisfy the
requirement to bring the aggregate market value of the approximately 257,000
shares up to $2,000,000 (see Note 8 to consolidated financial statements).
Generally, defaults under other secured obligations were cured and the
maturities reinstated or converted to longer term obligations at market rates of
interest. Reclamation claims received 25% in cash shortly after the effective
date of the Plan and will receive the balance in 12 equal monthly installments.
Holders of general unsecured claims that are not covered by insurance will
receive a pro rata distribution of approximately 4,777,000 shares (or 93%) of
New Common Stock. A portion of the approximately 4,777,000 shares of New Common
Stock to be issued to holders of unsecured claims was placed in a claims reserve
based on the percentage of disputed claims to total claims (total claims include
both allowed claims and disputed claims). Holders of existing House of Fabrics,
Inc., common stock received a pro rata distribution of approximately 103,000
shares (or 2%) of New Common Stock (subject to dilution) plus warrants to
purchase additional shares of New Common Stock. (A copy of the Plan was filed
under Form 8-K on July 23, 1996)
15
<PAGE>
STORE CLOSURES:
In anticipation of the Company's exit from Chapter 11, the liquidation of 86
underperforming stores was completed in April 1996. The Company also approved
the closing of an additional 8 stores during 1996 that did not meet certain
profitability requirements, two of which were closed during the quarter ended
October 31, 1996.
As a result of previous store closings, the Company remains with the best
performing store locations that management believes will contribute to the
future success of the company.
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED
------------------
Sales for the quarter ended October 31, 1996 decreased 24.2% to $69,953,000 for
the Successor Company from $92,307,000 for the Predecessor Company. Sales
decreased $22,354,000 of which $19,436,000 was due to the closing of
underperforming stores. Store for store sales decreased by 4.0% due to product
shortages caused by lack of vendor credit during the first month after emerging
from Chapter 11. During the quarter ended October 31, 1996, the Company closed
two stores.
Gross profit as a percentage of sales decreased to 42.5% for the quarter ended
October 31, 1996 from 43.1% for the quarter ended October 31, 1995. The decrease
is primarily due to aggressive markdowns in seasonal products and an increase in
promotional pricing.
Selling, general and administrative expenses as a percent of sales decreased to
39.4% for the quarter ended October 31, 1996 from 43.3% for the quarter ended
October 31, 1995. Expense reduction programs have been implemented to reduce
total costs and also reduce costs as a percentage of sales. The major areas of
reduction are in store staffing and occupancy expenses, advertising, and in
general and administrative expenses.
Interest expense for the quarter ended October 31, 1996 decreased by $1,944,000
from $3,263,000 for the quarter ended October 31, 1995, to $1,319,000 for the
quarter ended October 31, 1996, primarily as a result of a decrease in the
Company's average loan balance and a decrease in the Company's average effective
borrowing rate from 11.5% in the quarter ended October 31, 1995 to 9.5% in the
quarter ended October 31, 1996.
There were no reorganization costs for the quarter ended October 31, 1996,
compared to $2,054,000 for the quarter ended October 31, 1995.
The Company recorded a tax expense of $24,000 for the three months ended October
31, 1996, for minimum state income taxes compared to a $50,000 expense for the
quarter ended October 31, 1995.
RESULTS OF OPERATIONS
- - ---------------------
NINE MONTHS ENDED
-----------------
Sales for the nine months ended October 31, 1996, combining both Predecessor and
Successor Companies, decreased 23.8% to $181,308,000 from $237,975,000 for the
Predecessor Company. Sales decreased by $56,667,000 of which $52,974,000 was due
to the closing of underperforming stores. Store for store sales decreased by
2.0% due to product shortages caused by a lack of vendor credit through the
first month after emerging from Chapter 11. During the nine months ended October
31, 1996, the Company closed two stores.
Gross profit as a percentage of sales decreased to 43.6% for the combined nine
months ended October 31, 1996 from 45.2% for the nine months ended October 31,
1995. The decrease is primarily due to higher markdowns in the first quarter of
1996 compared to those generated in the first quarter of 1995 and aggressive
clearance of seasonal merchandise in the third quarter 1996.
Selling, general and administrative expenses as a percent of sales decreased to
44.9% for the combined nine months ended October 31, 1996 from 47.8% for the
nine months ended October 31, 1995. Expense reduction programs have been
implemented to reduce total costs as well as costs as a percent of sales in the
nine months ended October 31, 1996. The major areas of cost reduction were store
payroll, occupancy costs, advertising, and home office general and
administrative expenses.
Interest expense for the combined nine months ended October 31, 1996 decreased
$4,558,000 from $10,788,000, to $6,230,000 for the nine months ended October 31,
1995, primarily as a result of a decrease in the Company's average loan balance
and a decrease in the Company's average effective borrowing rate to 10.6% in the
nine months ended October 31, 1996 from 11.5% in the nine months ended October
31, 1995.
16
<PAGE>
Reorganization costs associated with the Company's Chapter 11 filing amounted to
$1,440,000 for the Predecessor Company in the nine months ended October 31,
1996, which include primarily lease termination and asset write-offs of
approximately $1,300,000 and professional fees offset by an approximately
$3,400,000 gain on the sale of the Sherman Oaks, California office building.
For the nine months ended October 31, 1995, reorganization costs were $7,499,000
which were primarily professional fees.
The Company recorded a tax expense of $72,000 for the combined nine months ended
October 31, 1996, for minimum state income taxes compared to a $150,000 expense
for the nine months ended October 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company finances its operations from internally generated cash flow and
short-term borrowings. The Company's primary capital requirements have been
the financing of inventory and MIS systems.
Adjusting for Fresh-Start reporting (see Note 2 to consolidated financial
statements), the Company's working capital was approximately $28,231,000 as of
October 31, 1996, and its current ratio was approximately 1.3 to 1.
Net cash used by operating activities was approximately $5,455,000 for the three
months ended October 31, 1996. The decrease was primarily attributable to a
seasonal increase in merchandise inventories, offset by increases in accounts
payable and accrued liabilities, resulting from improving vendor credit terms.
Net cash provided by financing activities was approximately $3,020,000 for the
three months ended October 31, 1996. The increase is primarily attributable to
borrowings under the Company's Revolving Line, offset by settlements of
administrative and priority bankruptcy claims.
At July 31, 1996, the Company entered into a Financing Agreement with CIT
Group/Business Credit, Inc. ("CITBC"), to provide a $65,000,000 line of credit,
as amended on September 11, 1996, having a term of 3 years, with automatic
annual renewals unless 90 days written notice is provided prior to the
anniversary date of the agreement. Cash borrowings bear interest at prime (based
on the Chase manhattan Bank Rate) plus 1% or Libor plus 3 1/4% and a commitment
fee of .5% per annum on unused availability. Fees for letters of credit are
generally 1 1/2% per annum based on the amount of letters of credit issued. The
Financing Agreement provides for a combination of cash borrowings and the
issuance of up to $20,000,000 in letters of credit. The Financing Agreement is
collateralized by a first priority lien on generally all assets of the Company,
as defined, excluding up to $10,000,000 for Point of Sale equipment which may be
secured by the purchased Point of Sale equipment. Loan availability is
determined by an advance rate on eligible inventory as defined. The Financing
Agreement includes certain restrictive covenants that are computed quarterly and
are principally related to net worth , fixed charge coverage ratio, operating
leases and capital expenditures. As of October 31, 1996, the Company had direct
borrowings of $54,887,000 and letters of credit of $771,000 outstanding with
additional credit available of approximately $8,800,000. In addition, on
November 19, 1996 proceeds from the sale of the previously closed Mauldin, S.C.
distribution facility were used to pay down amounts borrowed under the Financing
Agreement (see Note 8).
As of October 31, 1996, the Company was in compliance with all terms of the
amended Financing Agreement.
The Company believes that its ongoing operating cash flow and the CITBC
Financing agreement should enable the Company to meet liquidity requirements for
the reasonably foreseeable future.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
- - ----------------------------------------------
The preceding Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future
events. The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those in the forward looking statements, including without limitation, those
associated with the ability of Company to reduce the current expense levels and
increase the sales volumes. In addition, these statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward looking statements, including without limitation, decline
in demand for the merchandise offered by the Company, the ability of the Company
to obtain adequate merchandise supply and hire
17
<PAGE>
and train employees, management's ability to manage the Company's return to
profitability and the effect of economic conditions.
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 1996 Annual Report.
18
<PAGE>
Part II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Increase in Revolving Credit Agreement to $65,000,000 credit line
from The CIT Group/Business Credit, Inc., as Agent and Lender,
Dated September 6, 1996.
10.2 Amendment to Revolving Credit Agreement dated October 30, 1996.
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended October
31, 1996.
19
<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: December 16, 1996 John E. Labbett
Executive Vice President-Chief Financial
Officer
20
<PAGE>
EXHIBIT 10.1
September 6, 1996
House of Fabrics, Inc.
13400 Riverside Drive
Sherman Oaks, CA 91423
Gentlemen:
Reference is made to the Financing Agreement dated as of July 31, 1996 (as
amended, modified, supplemented and in effect from time to time, the "Financing
Agreement"), among you, the Lenders named therein, and The CIT Group/Business
Credit, Inc., as Agent (the "Agent"). Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to such terms in the
Financing Agreement.
Pursuant to mutual understanding and effective upon the fulfillment of the
Condition Precedent (as defined below), the Financing Agreement is hereby
amended by amending the definition of "Line of Credit" as set forth in Section 1
of the Agreement to read in its entirety as follows:
"LINE OF CREDIT shall mean the commitment of the Lenders acting through the
--------------
Agent to make loans and advances and issue Letter of Credit Guaranties, all
pursuant to and in accordance with, but subject to, Section 3 and 4 of this
Financing Agreement, in the aggregate amount of $65,000,000 or such lesser
amount as the Company may elect in accordance with Section 7 of this
Financing Agreement."
The effectiveness of the above amendment shall be, and hereby is, subject to the
fulfillment to the Agent's satisfaction of the following Condition Precedent:
the execution and delivery to the Agent of a modification (in form and substance
satisfactory to the Agent) to the mortgage granted or to be granted by you to
the Agent for the ratable benefit of the Lenders upon your Real Estate which
reflects the revised Line of Credit and any other documentation reasonably
requested by the Agent in connection therewith.
Except to the extent set forth herein, no other waiver of, or change in any of
the terms, provisions or conditions of the Financing Agreement is hereby
intended or implied. If the foregoing is in accordance with your understanding
of the agreement among you, the Lenders, and the Agent, kindly so indicate by
signing and returning the enclosed copy of this letter.
This agreement may be executed in multiple counterparts and each shall be deemed
an original but, when taken together, shall constitute one document. It is
hereby understood and agreed that a signed faxed document shall be deemed to be
of the same force and effect as an original of a manually signed copy.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT, INC.
(as Agent and Lender)
By: /s/ Frank Brown
----------------------------------
Title: Assistant Vice President
<PAGE>
WELLS FARGO BANK, N.A.
By: /s/ Scott J. Lorimer
----------------------------------
Title: Vice President
LA SALLE BUSINESS CREDIT, INC.
By: /s/ Larry Magkamit
----------------------------------
Title: Assistant Vice President
FINOVA CAPITAL CORPORATION
By: /s/ Carlos Valles
----------------------------------
Title: Vice President
FREMONT FINANCIAL CORPORATION
By: /s/ Cheri Rittan
----------------------------------
Title: Assistant Vice President
Read and Agreed to:
HOUSE OF FABRICS, INC.
By: /s/ John E. Labbett
----------------------------------
Title: EVP-Chief Financial Officer
<PAGE>
EXHIBIT 10.2
October 30, 1996
House of Fabrics, Inc.
13400 Riverside Drive
Sherman Oaks, CA 91423
Gentlemen:
Reference is made to the Financing Agreement between you and the undersigned as
Agent and Lender dated July 23, 1996 as the same may be amended from time to
time (the "Financing Agreement"). Capitalized terms not otherwise defined herein
shall have the meaning ascribed thereto in the Financing Agreement.
You have requested and we hereby agree to amend the Financing Agreement as
follows:
1. Effective October 30, 1996, paragraph 10 of Section 6 of the Financing
Agreement is hereby deleted and the following is substituted in lieu thereof:
"10. The Company and its Subsidiaries, shall have, on a consolidated
basis, a Fixed Charge Coverage Ratio (calculated at the end of each fiscal
quarter indicated below for the applicable period) of a least:
<TABLE>
<CAPTION>
PERIOD RATIO
------ -----
<S> <C>
a) For the one (1) Fiscal Quarter ending
October 31, 1996 1.25 to 1.0
b) For the two (2) Fiscal Quarters ending
January 31, 1997 1.50 to 1.0
c) For the three (3) Fiscal Quarters ending
April 30, 1997 .75 to 1.0
d) For the four (4) Fiscal Quarters ending
July 31, 1997 and for the four (4)
fiscal quarters ending on each October 31,
January 31, April 30, and July 31 thereafter 1.0 to 1.0
</TABLE>
Notwithstanding any provision to the contrary contained herein, in the event
that the Company's average daily Availability for the thirty (30) day period
immediately preceding any such calculation date for this Fixed Charge Coverage
Ratio Covenant is $7,500,000 or more, such Fixed Charge Coverage Ratio Covenant
shall not be effective solely for any such calculation date and the Company
shall have no obligation hereunder to comply with such Fixed Charge Coverage
Ratio Covenant with respect to the period ending as of any such calculation
date."
<PAGE>
2. In consideration of this amendment you hereby agree to pay the Agent
on behalf of the Lenders: (i) a $75,000 facility fee, due upon execution of this
Amendment, and (ii) a $25,000 contingency fee, which shall be due and payable
solely in the event your Mauldin, South Carolina premises is not sold on or
before December 15, 1996. You hereby authorize the Agent to charge your
Revolving Loan Account with the Agent with any such amounts as set forth above.
Except as set forth herein no other change in the terms or provisions of the
Financing Agreement is intended or implied. If the foregoing is in accordance
with your understanding of our agreement, please so indicate by signing and
returning to us the enclosed copy of this letter. It is agreed with respect to
this amendment that signed faxed copies shall be deemed of the same force and
effect as an original manually signed copy, provided further that the Company
hereby confirms that it shall promptly deliver original signature pages to the
undersigned.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT, Inc.
(as Agent and Lender)
By: /s/ Frank Brown
-------------------------------
Title: Assistant Vice President
WELLS FARGO BANK, N.A. (as Lender)
By: /s/ Scott J. Lorimer
-------------------------------
Title: Vice President
LA SALLE BUSINESS CREDIT, INC., (as Lender)
By: /s/ Larry Magkamit
-------------------------------
Title: Assistant Vice President
FINOVA CAPITAL CORPORATION, (as Lender)
By: /s/ Pete Martinez
-------------------------------
Title: Assistant Vice President
FREMONT FINANCIAL CORPORATION, (as Lender)
By: /s/ Cheri Rittan
-------------------------------
Title: Assistant Vice President
Read and Agreed to:
HOUSE OF FABRICS, INC.
By: John E. Labbett
-----------------------
Title: EVP/CFO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 3,097
<SECURITIES> 0
<RECEIVABLES> 5,665
<ALLOWANCES> 0
<INVENTORY> 111,019
<CURRENT-ASSETS> 124,494
<PP&E> 23,823
<DEPRECIATION> 1,047
<TOTAL-ASSETS> 159,070
<CURRENT-LIABILITIES> 96,263
<BONDS> 0
0
0
<COMMON> 514
<OTHER-SE> 38,638
<TOTAL-LIABILITY-AND-EQUITY> 159,070
<SALES> 181,308
<TOTAL-REVENUES> 181,308
<CGS> 102,200
<TOTAL-COSTS> 102,200
<OTHER-EXPENSES> 81,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,230
<INCOME-PRETAX> 54,961
<INCOME-TAX> 72
<INCOME-CONTINUING> 54,889
<DISCONTINUED> 0
<EXTRAORDINARY> 9,578
<CHANGES> 0
<NET-INCOME> 64,467
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
