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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-----------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
--------------------------
For the Quarter Ended Commission File No. 1-6695
- - - --------------------- --------------------------
April 30, 1994
FABRI-CENTERS OF AMERICA, INC.
- - - --------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-0720629
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 Darrow Road
Hudson, Ohio 44236
- - - ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
216 - 656 - 2600
- - - -------------------------------
(Registrant's telephone number)
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.
Shares of Common Stock outstanding at May 13, 1994: 9,126,066.
Sequential page 1 of 13
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Consolidated Balance Sheets (Unaudited)
Fabri-Centers of America, Inc.
<TABLE>
<CAPTION>
(Thousands of dollars)
April 30, January 29,
1994 1994
- - - ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 8,030 $ 7,715
Merchandise inventories 220,649 224,803
Prepaid expenses and other current assets 10,026 11,009
Deferred income taxes 4,777 4,123
----------------------------
Total current assets 243,482 247,650
Property and equipment, at cost:
Land 1,966 1,966
Buildings 20,324 20,052
Furniture and fixtures 71,311 70,159
Leasehold improvements 26,798 26,069
----------------------------
120,399 118,246
Less accumulated depreciation and amortization 47,295 44,668
----------------------------
73,104 73,578
Mortgage receivable 7,863 7,926
Other assets 8,888 9,164
----------------------------
Total assets $ 333,337 $ 338,318
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 68,029 $ 62,309
Accrued expenses 8,528 11,375
Accrued income taxes - 2,954
Net liabilities of discontinued operation - 1,502
----------------------------
Total current liabilities 76,557 78,140
Long-term debt 43,000 45,500
Convertible subordinated debentures 56,983 56,983
Deferred income taxes 8,499 8,499
Other long-term liabilities 194 184
Shareholders' equity:
Common stock 978 975
Additional paid-in capital 71,010 70,598
Other (1,835) (1,896)
Retained earnings 86,346 87,602
----------------------------
156,499 157,279
Treasury stock, at cost (8,395) (8,267)
----------------------------
Total shareholders' equity 148,104 149,012
----------------------------
Total liabilities and shareholders' equity $ 333,337 $ 338,318
============================
See notes to consolidated financial statements
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</TABLE>
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<TABLE>
Consolidated Statements of Income (Unaudited)
Fabri-Centers of America, Inc.
(Thousands of dollars, except share and per share data)
<CAPTION>
April 30, May 1,
Thirteen Weeks Ended 1994 1993
- - - ----------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 132,676 $ 139,751
Costs and expenses:
Cost of goods sold 76,434 83,800
Selling, general and administrative expenses 56,700 57,311
Interest expense, net 1,584 1,334
----------------------------
134,718 142,445
----------------------------
Loss before income taxes and cumulative effect of
accounting change (2,042) (2,694)
Income tax benefit (786) (1,010)
----------------------------
Loss before cumulative effect of accounting change (1,256) (1,684)
Cumulative effect of accounting change - 399
----------------------------
Net loss $ (1,256) $ (1,285)
============================
Loss per common share:
Loss before cumulative effect of accounting change $ (0.13) $ (0.18)
Cumulative effect of accounting change - 0.04
----------------------------
Net loss $ (0.13) $ (0.14)
============================
Average shares and equivalents outstanding 9,347,073 9,368,060
============================
See notes to consolidated financial statements.
</TABLE>
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Consolidated Statements of Cash Flows (Unaudited)
Fabri-Centers of America, Inc.
(Thousands of dollars)
<TABLE>
<CAPTION>
April 30, May 1,
Thirteen Weeks Ended 1994 1993
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (1,256) $ (1,285)
Additions (deductions) not requiring cash:
Cumulative effect of accounting change - (399)
Cancellation of restricted stock awards - (598)
Depreciation and amortization and other noncash expenses 3,155 2,956
Loss on disposal of fixed assets 73 183
Deferred income taxes (654) (333)
Working capital changes:
Merchandise inventories 4,154 8,960
Prepaid expenses and other current assets 983 569
Accounts payable 5,720 (8,362)
Accrued expenses (2,847) (1,866)
Accrued income taxes (2,954) (971)
Net liabilities of discontinued operation (1,502) (3,716)
------------------------
Net cash provided by (used for) operating activities 4,872 (4,862)
Investing activities:
Capital expenditures (2,357) (2,615)
Mortgage receivable 63 37
Other, net 76 (168)
------------------------
Net cash used for investing activities (2,218) (2,746)
Financing activities:
Proceeds from long-term debt 100 15,700
Repayment of long-term debt (2,600) (5,100)
Other long-term liabilities 10 12
Proceeds from exercise of stock options 279 37
Repurchase of common stock (128) (2,298)
------------------------
Net cash (used for) provided by financing activities (2,339) 8,351
Net increase in cash 315 743
Cash at beginning of period 7,715 6,627
------------------------
Cash at end of period $ 8,030 $ 7,370
========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,488 $ 2,524
Income taxes 2,652 239
See notes to consolidated financial statements
</TABLE>
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FABRI-CENTERS OF AMERICA, INC.
APRIL 30, 1994, JANUARY 29, 1994 AND MAY 1, 1993
1. Basis of Presentation:
The accompanying consolidated financial statements include the
accounts of Fabri-Centers of America, Inc. and its wholly owned
subsidiaries (the "Company") and have been prepared without audit,
pursuant to the rules of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those
rules and regulations, although the Company believes that the
disclosures herein are adequate to make the information not
misleading. The statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended January
29, 1994. The statements present the Company's Cargo Express Stores
division as a discontinued operation, accordingly, except as noted,
the statements pertain to only the Company's continuing operations.
In the opinion of Management, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of results for the
interim periods.
2. Significant Accounting Policies:
A. Inventories are stated at the lower of cost determined by the
last-in, first-out (LIFO) method or market.
B. Store physical inventories are taken on a cycle basis
throughout the fiscal year, with an approximate equal
percentage of stores inventoried each fiscal quarter. Store
inventories subsequent to the physical inventory are charged
at cost for shipments of merchandise to the stores and are
relieved at cost for the sale of merchandise.
C. The expenses incurred in connection with the opening of new
stores are charged to operations in the period the store is
opened.
D. Earnings per share are computed based on the weighted average
number of shares and share equivalents outstanding during the
fiscal period.
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E. Depreciation of buildings, furniture and fixtures and
leasehold improvements is provided by charges to operations on
a straight-line basis over the estimated useful lives of the
assets. Accelerated methods of depreciation are used for
federal income tax purposes.
F. Certain reclassifications have been made of amounts reported
in fiscal 1994 in order to conform with the presentation for
fiscal 1995.
G. The Company is a national specialty retailer of fabric and
related products through Company-operated retail stores. The
stores sell a wide variety of fashion and decorator fabrics,
related notions, patterns, crafts, seasonal and other
merchandise.
3. Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
As permitted by SFAS 109, the Company elected not to restate the
financial statements for any prior years. The effect of the change on
pre-tax earnings from continuing operations for the three months ended
May 1, 1993, was not material; however, the cumulative effect of the
change increased net earnings by $399,000, or $0.04 per share, for the
first quarter of fiscal 1994.
4. As of January 29, 1994, the Company provided $5,201,000 net of tax
benefit, for the liquidation of its housewares division, Cargo Express
Stores (Cargo Express), primarily for the write-off of fixed assets,
estimated costs to complete the liquidation and estimated operating
losses to be incurred through completion of the liquidation. During
the first quarter of fiscal 1995, the Company completed the
liquidation of Cargo Express which did not require the recognition of
any additional gain or loss.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Except where otherwise noted, Management's Discussion and Analysis of
Financial Condition and Results of Operations pertains to the Company's
continuing operations. Assets and liabilities of Cargo Express have been
reclassified on the balance sheets as net liabilities of discontinued
operation.
RESULTS OF OPERATIONS
THE THIRTEEN WEEKS ENDED APRIL 30, 1994 VS. MAY 1, 1993
Net sales for the first quarter of fiscal 1995 decreased 5.1%, or $7.1
million, to $132.7 million from $139.8 million in fiscal 1994. The decrease in
sales was primarily attributable to lower levels of promotional discounting in
the first quarter of fiscal 1995 as compared to the same quarter a year ago.
Comparable store sales decreased 4.6% in the first quarter against the same
quarter a year earlier.
Gross profit increased $0.3 million in the first quarter of fiscal
1995 compared to the same quarter of fiscal 1994. As a percentage of net
sales, fiscal 1995 first quarter gross profit was 42.4%, an increase of 2.4
percentage points from the gross profit of 40.0% for the same quarter a year
earlier. The higher gross profit was the direct result of less aggressive
promotional pricing by the Company and a general easing in the discounting
practices of the fabric retailing industry.
Selling, general and administrative expenses for the first quarter of
fiscal 1995 decreased $0.6 million from the same quarter a year ago. This
decrease was attributable to lower costs associated with the implementation of
new management information systems, which were offset in part by increased
store-level spending directed at improving the level of customer service. As a
percentage of sales, selling, general and administrative expenses increased 1.7
percentage points to 42.7% from 41.0% for the first quarter of fiscal 1994
primarily as a result of lower sales volume in the first quarter of fiscal 1995
compared to fiscal 1994.
Net interest expense increased $0.3 million to $1.6 million for the
first quarter of fiscal 1995 compared to the first quarter of fiscal 1994.
This increase was primarily attributable to a higher weighted average interest
rate on bank borrowings.
The Company's effective income tax rate was 38.5% for the first
quarter of fiscal 1995 as compared to 37.5% for the same quarter a year ago.
The change in effective tax rate was attributable to the change in the federal
corporate tax rate from 34% to 35% as a result of the Revenue Reconciliation
Act of 1993,
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<PAGE> 8
as well as fluctuations in the Company's state income tax rates.
The net loss in the first quarter of fiscal 1995 was $1.3 million, or
$0.13 per share, which compares to the net loss of $1.3 million, or $0.14 per
share, for the same quarter a year earlier. The net loss in the first quarter
of fiscal 1994 included a one-time credit of $0.4 million, or $0.04 per share,
from the cumulative effect of adopting SFAS No. 109, "Accounting for Income
Taxes."
LIQUIDITY AND CAPITAL RESOURCES
Fabri-Centers completed the first quarter of fiscal 1995 in sound
financial condition. At April 30, 1994, the Company had working capital of
$166.9 million compared to $169.5 million at January 29, 1994. The ratio of
current assets to current liabilities was 3.2:1 at both April 30, 1994, and
January 29, 1994.
The Company generated positive cash flow from operations of $4.9
million in the first quarter of fiscal 1995 compared to a negative cash flow
from operations of $4.9 million for the same quarter a year ago. The
improvement is primarily a result of the Company continuing to manage inventory
levels in relation to planned sales levels.
Capital expenditures were $2.4 million for the first quarter of fiscal
1995 as compared to $2.6 million for the first quarter of fiscal 1994. For
fiscal 1995, the Company expects capital expenditures to be less than $15.0
million and to be used primarily to invest in new equipment and in the opening
of 40 superstores while closing 45 smaller units. It is anticipated that the
capital required for these expenditures will be financed by internally
generated funds, a revolving credit facility, and other existing lines of
credit.
The Company has borrowing capacity up to a maximum of $140.0 million
available through a $125.0 million revolving credit facility which expires May
31, 1995, as well as through existing lines of credit. As of April 30, 1994,
the Company had $43.0 million in borrowings outstanding under these facilities,
representing a decrease of $2.5 million from the fiscal year ended January 29,
1994. The Company continues to maintain excellent vendor and banking
relationships and has sufficient current resources, including unused lines of
credit, to meet the financing needs of its operations.
The Company may purchase from time to time in the open market or in
private transactions shares of Company common stock. These shares will be used
to satisfy obligations under the Company's employee benefit plans and for other
corporate purposes. The
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<PAGE> 9
number of shares that can be acquired pursuant to prior authorization by the
Board of Directors is 1,028,325.
In the highly competitive retail fabric business, the Company competes
with other specialty fabric and craft stores and, to a lesser extent,
department stores and mass merchants on the basis of assortment, price and
convenience. The Company is taking steps to improve margins through revised
promotional pricing policies and better store operating procedures.
Accordingly, sales results could be somewhat weaker as the Company will not be
driving sales as hard through promotions.
The Company's business exhibits seasonality which is typical of most
retail companies, with much stronger sales in the second half of the fiscal
year than the first half of the fiscal year. In general, net earnings are the
highest during the months of September through December, when high sales
volumes normally provide significant operating leverage. Conversely, net
earnings are substantially lower during the relatively low sales volume months
of January through August. Accordingly, a loss for the second quarter, which
is traditionally the Company's slowest quarter, is expected.
Through the first quarter of fiscal 1995, the Company has opened 8 new
superstores and closed 9 smaller stores. As of April 30, 1994, the Company
operated 654 stores in 36 states, of which 504 are superstores.
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PART II OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
See the Exhibit Index at sequential page 12 of this report.
b) Reports of Form 8-K
-------------------
The Company was not required to file reports on Form 8-K for
the 13-week period ended April 30, 1994.
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<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
FABRI-CENTERS OF AMERICA, INC.
DATE: May 23, 1994 Alan Rosskamm
-------------
BY: Alan Rosskamm
Chairman, President and
Chief Executive Officer
Robert Norton
-------------
BY: Robert Norton
Vice Chairman and Chief
Financial Officer
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<PAGE> 12
FABRI-CENTERS OF AMERICA, INC.
FORM 10-Q FOR THE THIRTEEN-WEEK
PERIOD ENDED APRIL 30, 1994
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
- - - ----------- ----------- ----------
11 Statement re Computation of 13
Earnings per Common Share
Page 12 of 13
<PAGE> 1
<TABLE>
Computation of Earnings per Common Share Exhibit 11
Fabri-Centers of America, Inc.
(Thousands of dollars, except share and per share data)
<CAPTION>
April 30, May 1,
Thirteen Weeks Ended 1994 1993
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Loss before cumulative effect of accounting change $ (1,256) $ (1,684)
Cumulative effect of accounting change - 399
------------- -------------
Net loss $ (1,256) $ (1,285)
============= =============
Weighted average shares of common stock outstanding during the period 9,118,896 9,159,108
Incremental shares from assumed exercise of stock options (primary) 228,177 208,952
------------- -------------
9,347,073 9,368,060
============= =============
Primary earnings (loss) per common share:
Loss before cumulative effect of accounting change $ (0.13) $ (0.18)
Cumulative effect of accounting change - 0.04
------------- -------------
Net loss $ (0.13) $ (0.14)
============= =============
FULLY DILUTED EARNINGS PER SHARE:
Loss before cumulative effect of accounting change $ (1,256) $ (1,684)
Interest expense applicable to 6 1/4% convertible subordinated debentures, net of tax 548 557
------------- -------------
(708) (1,127)
Cumulative effect of accounting change - 399
------------- -------------
Net loss $ (708) $ (728)
============= =============
Weighted average shares of common stock outstanding during the period 9,118,896 9,159,108
Incremental shares from assumed exercise of stock options (fully diluted) 231,787 209,106
Incremental shares from assumed conversion of 6 1/4% convertible
subordinated debentures 1,168,882 1,168,882
------------- -------------
10,519,565 10,537,096
============= =============
Fully diluted earnings (loss) per common share:
Loss before cumulative effect of accounting change $ (0.07) $ (0.11)
Cumulative effect of accounting change - 0.04
------------- -------------
Net loss $ (0.07) $ (0.07)
============= =============
<FN>
Note: This calculation is submitted in accordance with Regulation S-K Item 601(b)(11) although it is contrary to
paragraph 40 of APB Opinion No. 15 because it produces an anti-dilutive result.
</TABLE>
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