FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 29, 1998
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Commission File Number 0-1500
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EVANS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 36-1050870
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(State or other jurisdiction of (IRS Employer Identification
Incorporation or organization) Number)
36 South State Street, Chicago, Illinois 60603
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 312-855-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: as of October 12, 1998,
5,199,845 shares of common stock, $.20 par value, were outstanding.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Condensed Consolidated Balance Sheets -
August 29, 1998, August 30, 1997
and February 28, 1998 2
Condensed Consolidated Statements of Operations -
Thirteen and Twenty-six weeks ended August 29, 1998
and August 30, 1997 3
Condensed Consolidated Statements of Cash Flows -
Twenty-six weeks ended August 29, 1998
and August 30, 1997 4
Notes to Condensed Consolidated Financial Statements 5 - 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7 - 9
Part II. Other Information 10
Signatures 11
Index to Exhibits 12
<PAGE>
PART I. FINANCIAL INFORMATION
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
August 29, August 30, February 28,
1998 1998 1997
---------- ----------- -----------
ASSETS (Audited)
Current assets:
Cash and cash equivalents $ 700,000 $ 194,000 $ 650,000
Accounts receivable (net) 11,775,000 12,019,000 12,639,000
Merchandise inventories 25,846,000 22,048,000 25,495,000
Prepaid expenses and other
assets 175,000 1,399,000 923,000
Assets held for sale - 4,750,000 -
---------- ---------- ----------
Total current assets 38,496,000 40,410,000 39,707,000
---------- ---------- ----------
Property and equipment 11,789,000 11,505,000 11,642,000
Accumulated depreciation and
amortization (8,582,000) (7,752,000) (8,203,000)
---------- ---------- ----------
Net property and equipment 3,207,000 3,753,000 3,439,000
---------- ---------- ----------
Other assets 5,094,000 5,411,000 5,254,000
---------- ---------- ----------
$46,797,000 $49,574,000 $48,400,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $16,809,000 $15,441,000 $13,021,000
Current portion of long-term
debt 1,745,000 2,197,000 1,411,000
Accounts payable 9,392,000 7,772,000 11,165,000
Accrued liabilities 5,617,000 6,073,000 4,694,000
---------- ---------- ----------
Total current liabilities 33,563,000 31,483,000 30,291,000
---------- ---------- ----------
Long-term debt 1,193,000 4,252,000 1,808,000
---------- ---------- ----------
Other liabilities - 17,000 -
---------- ---------- ----------
Shareholders' equity:
Preferred stock, 3,000,000 shares
authorized, none issued
Common stock, 6,333,435 shares
issued 1,267,000 1,267,000 1,267,000
Capital in excess of par
value 15,023,000 15,510,000 15,495,000
Unearned compensation (96,000) - -
(Accumulated deficit)retained
earnings (451,000) 1,424,000 3,890,000
---------- ---------- ----------
15,743,000 18,201,000 20,652,000
Treasury stock (1,347,664
shares at cost) (3,702,000) (4,379,000) (4,351,000)
---------- ---------- ----------
12,041,000 13,822,000 16,301,000
---------- ---------- ----------
$46,797,000 $49,574,000 $48,400,000
========== ========== ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen weeks ended Twenty-six weeks ended
---------------------- -----------------------
August 29, August 30, August 29, August 30,
1998 1997 1998 1997
------------ ----------- ------------ ------------
Net sales $ 8,201,000 $ 7,266,000 $ 18,906,000 $ 16,316,000
Service revenues 4,218,000 4,006,000 10,678,000 8,773,000
----------- ---------- ---------- -----------
12,419,000 11,272,000 29,584,000 25,089,000
----------- ---------- ---------- -----------
Costs and expenses:
Cost of goods and
services sold,
buying and
occupancy 8,957,000 7,593,000 20,147,000 16,559,000
Selling and general
expenses 5,953,000 5,221,000 12,827,000 10,776,000
Provision for doubtful
accounts 113,000 134,000 256,000 257,000
Interest expense 370,000 401,000 702,000 800,000
Other income, net (3,000) - (7,000) (2,000)
------------ ---------- ---------- -----------
15,390,000 13,349,000 33,925,000 28,390,000
------------ ---------- ---------- -----------
Net loss (2,971,000) (2,077,000) (4,341,000) (3,301,000)
============ ============ ========== ============
Net loss per common
share $ (0.57) $ (0.42) $ (0.84) $ (0.67)
============ ============ ========== ============
Weighted average number
of common shares
outstanding 5,194,245 4,985,771 5,194,245 4,956,485
============ ============ ========== ============
See accompanying notes to condensed consolidated financial statements.
<PAGE>
Evans, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-six weeks ended
---------------------------------
August 29, 1998 August 30, 1997
-------------- -------------
Cash Flows from Operating Activities:
Net loss $ (4,341,000) $ (3,301,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 548,000 513,000
Provision for doubtful accounts 256,000 257,000
Non-cash compensation expense 47,000 16,000
Change in assets and liabilities:
Accounts receivable 608,000 389,000
Merchandise inventories (351,000) (1,914,000)
Prepaid expenses and other current assets 782,000 (447,000)
Other assets - (177,000)
Accounts payable (1,773,000) (1,546,000)
Accrued liabilities 923,000 1,090,000
Other liabilities - (26,000)
-------------- -------------
Net cash used in operating activities (3,301,000) (5,146,000)
Cash Flows from Investing Activities:
Acquisition of business - (5,387,000)
Additions to property and equipment (156,000) (92,000)
-------------- -------------
Net cash used in investing activities (156,000) (5,479,000)
Cash Flows from Financing Activities:
Proceeds from short-term borrowing 3,788,000 6,133,000
Note payable related to acquisition - 3,815,000
Proceeds from long-term debt - 1,009,000
Payments on acquisition debt (100,000) -
Payments on long-term debt (181,000) (291,000)
-------------- -------------
Net cash provided by financing activities 3,507,000 10,666,000
-------------- -------------
Net increase in cash and cash equivalents 50,000 41,000
Cash and cash equivalents at beginning of
period 650,000 153,000
-------------- -------------
Cash and cash equivalents at end of period $ 700,000 $ 194,000
============== =============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 673,000 $ 673,000
Income taxes 45,000 4,000
See accompanying notes to condensed consolidated financial statements.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The financial information included herein was prepared in conformity
with generally accepted accounting principles and such principles were
applied on a basis consistent with those reflected in the 1998 Form 10-K
Annual Report filed with the Securities and Exchange Commission. The
accompanying financial data should be read in conjunction with the notes
to consolidated financial statements contained in the 1998 Form 10-K
Annual Report.
The information furnished herein, other than the Condensed Consolidated
Balance Sheet as of February 28, 1998 is unaudited and includes all
adjustments and accruals consisting only of normal recurring adjustments
which are, in the opinion of management, necessary for a fair statement
of results for the interim periods. The Condensed Consolidated Balance
Sheet as of February 28, 1998 has been derived from, and does not
include all the disclosures contained in the audited financial
statements as of and for the year ended February 28, 1998.
2. Because of the seasonal nature of the Company's business, operating
results for the first twenty-six weeks are not considered to be
indicative of the results that may be expected for the full year.
Historically, the Company realizes a major portion of its annual
revenues and most of its earnings in the fourth quarter of its fiscal
year.
3. The following table sets forth the computation of basic and diluted
earnings per share:
Weighted Avg.
Net loss Shares Per Share
(Numerator) (Denominator) Amounts
Twenty-six weeks ended
August 29, 1998
Basic EPS:
Loss available to common
shareholder $(4,341,000) 5,194,245 $(0.84)
============ ========= =======
Effect of dilutive options 0
---------
Dilutive EPS:
Loss available to common
shareholder plus assumed
conversions $(4,341,000) 5,194,245 $(0.84)
============ ========= =======
Twenty-six weeks ended
August 30, 1997
Basic EPS:
Loss available to common
shareholder $(3,301,000) 4,956,485 $(0.67)
============ ========= =======
Effect of dilutive options 0
---------
Dilutive EPS:
Loss available to common
shareholder plus assumed
conversions $(3,301,000) 4,956,485 $(0.67)
============ ========= =======
<PAGE>
EVANS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Evans recognizes the potential impact that the Year 2000 issue may
have relative to its computer systems and has implemented an action
plan to ensure that all systems will be fully Year 2000 compliant.
The action plan includes a combination of internal and external
resources to be utilized for modifications. These modifications will
include hardware and software upgrades or replacement of non-compliant
systems. Modifications for all systems are in various stages of
completion. Some modifications have been fully implemented and
satisfactorily tested, while others are in lesser stages of completion.
The Company is confident that all systems will be appropriately
modified in a timely manner to handle the turn of the century computer
issues. The related costs of compliance are currently being evaluated.
Preliminary estimates range from $500,000 to $750,000.
The Company has completed its assessment with regard to non-financial
software and chip embedded technology. Modifications will include
upgrades or replacement of systems. The cost of making those adaptations
are not expected to be material and will be expensed in the period
incurred.
The Company has contacted its critical suppliers, service providers and
partners to determine the extent to which the Company is vulnerable to
those third parties' failure to remedy their own Year 2000 issues. The
Company has received indications from a majority of its suppliers,
service providers and partners that they are in the process of working
on Year 2000 compliance. In the event that any of the Company's
significant suppliers, service providers or partners do not successfully
and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected.
The costs of the project and the date on which the Company plans to
complete its Year 2000 assessment and remediation are based on
management's estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be achieved
and actual results could differ significantly from those plans.
The Company is developing contingency plans for the above areas
addressing any material failure to deal with Year 2000 issues.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Cash and cash equivalents at August 29, 1998 were $700,000 as compared to
$650,000 at February 28, 1998. The increase was due to cash provided by
financing activities of $3,507,000 offset by cash used in operating activities
of $3,301,000 and cash used in investing activities of $156,000.
The cash used in operating activities was due primarily to the increase in
inventories and accounts payable of $351,000 and $1,773,000 respectively, due to
the purchase of fur merchandise for the acquired locations coupled with the
seasonal increase of inventory for the fall season.
The cash used in investing activities was due to additions to property and
equipment of $156,000.
The cash provided by financing activities was due to proceeds from short-term
borrowings of $3,788,000 offset by payments on acquisition debt and other
long-term debt totaling $281,000.
Working capital at August 29, 1998 was $4,933,000 as compared to $9,416,000 at
February 28, 1998. The decrease in working capital is due to the general funding
of operations in the first and second quarters.
The $35,000,000 credit facility, which expires June 15, 2000 is considered
adequate to finance seasonal inventory requirements as well as commitments for
capital expenditures during fiscal 1999.
Results of Operations
Total revenues for the second quarter ended August 29, 1998 increased $1,147,000
(10.2%) as compared to the same period last year. Fur merchandise sales
increased $677,000 (21.1%) due primarily to locations acquired during the last
month of the second quarter of fiscal 1998. The current quarter includes all
three months of revenues. Sales at comparable locations were flat for the
quarter. Women's ready-to-wear sales increased $258,000 (6.4%). The Company
believes that women's ready-to-wear sales were favorably impacted by the
increase in the demand for casual wear by consumers. The Company continues to
focus its efforts to provide product in line with the tastes of its target
consumers. Service revenues increased $212,000 (5.3%) due primarily to an
increase of $625,000 in sales from locations acquired during the last month of
the second quarter of fiscal 1998 offset by a comparable sales decrease of
$413,000. The comparable sales decrease is a result of the impact of the
unseasonably warm winter as customer's needs for services on their fur coats
decreased due to decreased use of the garments.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Total revenues for the first six months increased $4,495,000 (17.9%) as compared
to the same period last year. Fur merchandise sales increased $2,269,000 (34.6%)
due primarily to sales of $2,799,000 from locations acquired during the last
month of the second quarter of fiscal 1998 and an increase of comparable sales
of $325,000. The Company believes that the comparable sales increase is due to
the continued resurgence of fur as fashion. These increases were offset by sales
of $855,000 associated with store closing events in the Macy's store in Texas in
the second quarter of 1998. Women's ready-to-wear sales increased $321,000
(3.3%). The Company believes that women's ready-to-wear sales were favorably
impacted by the increase in the demand for casual wear by consumers. The Company
continues to focus its efforts to provide product in line with the tastes of its
target consumers. Service revenues increased $1,905,000 (21.7%) due an increase
of $2,382,000 from locations acquired during the last month of the second
quarter of fiscal 1998 offset by a comparable sales decrease of $477,000. The
comparable sales decrease is a result of the impact of the unseasonably warm
winter as customer's needs for services on their fur coats decreased due to
decreased use of the garments.
Cost of goods and services sold, buying and occupancy costs as a percentage of
total revenues for the second quarter and for the first six months increased
(72.1% versus 67.4% and 68.1% versus 66.0% respectively). Cost of goods and
services sold as a percentage of revenues increased from 47.3% to 50.5% for the
second quarter and increased from 47.8% to 48.8% for the six month period. The
increase in the quarter and year to date is due to increased costs associated
with running the service business at locations acquired during the last month of
the second quarter of fiscal 1998. Buying costs as a percentage of total
revenues, for both the quarter and for the six months ended, were comparable
with prior year levels. Occupancy costs as a percentage of total revenues for
the second quarter (17.6% versus 15.9%) and first six months (15.9% versus
14.6%) increased in comparison with the prior periods. These increases were due
primarily to higher average rental costs related to the rentals included on
locations acquired during the second quarter of 1998.
Total selling and general expenses increased $733,000 (14.0%) and $2,052,000
(19.0%) for the second quarter and for the first six months respectively as
compared to the prior year. Payroll and related fringe benefits increased
$888,000 (24.5%) and $2,049,000 (28.5%) for the quarter and year to date,
respectively. The increases are due primarily to the payroll and benefits
related to the acquisition and the operation of the Maximilian(R) Fur Salons at
Bloomingdale's Stores. For the second quarter, the increase was offset by
settlements received totaling approximately $81,000 in the second quarter of the
previous year.
Interest expense for the second quarter and first six months decreased $31,000
(7.7%) and $98,000 (12.3%) respectively due primarily to higher average
short-term borrowings at a lower weighted average interest rate as compared to
the same period last year.
<PAGE>
EVANS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The credit for income taxes for the second quarter and year to date was offset
by an increase in the Company's valuation allowance with respect to the future
tax benefits of the net operating loss as a result of the uncertainty of their
ultimate realization.
Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995
Certain statements included in these financial statements that are not
historical facts may include forward-looking statements. The Company cautions
readers that these forward-looking statements are subject to a variety of risks
and uncertainties that could cause Evans' actual results to differ materially
from those expressed in forward-looking statements. These risks and
uncertainties include, without limitation, general economic and business
conditions affecting the customers in existing and new geographical markets,
competition from national, regional and local retailers, the availability of
sufficient capital, and the ability to obtain and identify the right product mix
and to maintain sufficient inventory to meet customer demand.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the twenty-six
weeks ended August 29, 1998.
Items other than those listed are omitted because they are not
required.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
EVANS, INC.
DATE: October 12, 1998 ROBERT K. MELTZER
------------------------
ROBERT K. MELTZER
President and
Chief Executive Officer
DATE: October 12, 1998 WILLIAM E. KOZIEL
------------------------
WILLIAM E. KOZIEL
Vice President and
Chief Financial Officer
<PAGE>
EVANS, INC. AND SUBSIDIARIES
Exhibit Page No.
27 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Feb-27-1999
<PERIOD-END> Aug-29-1998
<CASH> 700,000
<SECURITIES> 0
<RECEIVABLES> 11,775,000
<ALLOWANCES> 0
<INVENTORY> 25,846,000
<CURRENT-ASSETS> 38,496,000
<PP&E> 11,789,000
<DEPRECIATION> 8,582,000
<TOTAL-ASSETS> 46,797,000
<CURRENT-LIABILITIES> 33,563,000
<BONDS> 0
0
0
<COMMON> 1,267,000
<OTHER-SE> 10,774,000
<TOTAL-LIABILITY-AND-EQUITY> 46,797,000
<SALES> 18,906,000
<TOTAL-REVENUES> 29,854,000
<CGS> 14,451,000
<TOTAL-COSTS> 32,974,000
<OTHER-EXPENSES> 110,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 702,000
<INCOME-PRETAX> (4,341,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,341,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,341,000)
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
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