<PAGE> 1
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 April 29, 1995 Commission File No. 1-6695
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 26, 1995: 9,185,752
Sequential Page 1 of 13
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Fabri-Centers of America, Inc.
(Thousands of dollars)
<TABLE>
<CAPTION>
APRIL 29, JANUARY 28,
1995 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,304 $ 21,887
Merchandise inventories 310,573 290,560
Prepaid expenses and other current assets 10,589 11,963
Deferred income taxes 1,296 1,296
------------- ------------
Total current assets 333,762 325,706
Property and equipment, at cost:
Land 1,975 1,975
Buildings 20,923 20,699
Furniture and fixtures 82,734 77,982
Leasehold improvements 33,714 33,525
------------- ------------
139,346 134,181
Less accumulated depreciation and amortization 53,332 50,059
------------- ------------
86,014 84,122
Mortgage receivable 7,612 7,676
Other assets 9,514 9,800
------------- ------------
Total assets $ 436,902 $ 427,304
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 115,797 $ 96,738
Accrued expenses 17,920 28,043
Accrued income taxes 717 2,678
------------- ------------
Total current liabilities 134,434 127,459
Long-term debt 72,000 70,000
Convertible subordinated debentures 56,983 56,983
Deferred income taxes 9,818 9,818
Other long-term liabilities 1,396 1,325
Shareholders' equity:
Common stock 988 989
Additional paid-in capital 72,669 72,921
Other (1,940) (2,556)
Retained earnings 99,614 99,336
------------- ------------
171,331 170,690
Treasury stock, at cost (9,060) (8,971)
------------- ------------
Total shareholders' equity 162,271 161,719
------------- ------------
Total liabilities and shareholders' equity $ 436,902 $ 427,304
============= ============
</TABLE>
See notes to consolidated financial statements
Page 2
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Fabri-Centers of America, Inc.
(Thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
APRIL 29, APRIL 30,
THIRTEEN WEEKS ENDED 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 183,280 $ 132,676
Costs and expenses:
Cost of goods sold 102,181 76,424
Selling, general and administrative expenses 78,174 56,710
Interest expense, net 2,473 1,584
------------- ------------
182,828 134,718
------------- ------------
Earnings (loss) before income taxes 452 (2,042)
Income tax provision (benefit) 174 (786)
------------- ------------
Net earnings (loss) $ 278 $ (1,256)
============= ============
Net earnings (loss) per common share $ 0.03 $ (0.13)
============= ============
Average shares and equivalents outstanding 9,468,311 9,347,073
============= ============
</TABLE>
See notes to consolidated financial statements
Page 3
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Fabri-Centers of America, Inc.
(Thousands of dollars)
<TABLE>
<CAPTION>
APRIL 29, APRIL 30,
THIRTEEN WEEKS ENDED 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net earnings (loss) $ 278 $ (1,256)
Additions (deductions) not requiring cash:
Cancellation of restricted stock awards (32) --
Depreciation and amortization and other noncash expenses 3,957 3,155
Loss on disposal of fixed assets 77 73
Deferred income taxes -- (654)
Working capital changes:
Merchandise inventories (20,013) 4,154
Prepaid expenses and other current assets 1,374 1,211
Accounts payable 22,769 5,720
Accrued expenses (10,123) (2,847)
Accrued income taxes (1,961) (2,954)
Net liabilities of discontinued operation -- (1,730)
------------- ------------
Net cash provided by (used for) operating activities (3,674) 4,872
Investing activities:
Capital expenditures (5,664) (2,357)
Acquisition of Cloth World (see Note 3) (3,710) --
Mortgage receivable 64 63
Other, net 305 76
------------- ------------
Net cash used for investing activities (9,005) (2,218)
Financing activities:
Proceeds from long-term debt 4,000 100
Repayment of long-term debt (2,000) (2,600)
Other long-term liabilities 71 10
Proceeds from exercise of stock options 114 279
Repurchase of common stock (89) (128)
------------- ------------
Net cash provided by (used for) financing activities 2,096 (2,339)
Net increase (decrease) in cash (10,583) 315
Cash at beginning of period 21,887 7,715
------------- ------------
Cash at end of period $ 11,304 $ 8,030
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,455 $ 2,488
Income taxes 2,134 2,652
</TABLE>
See notes to consolidated financial statements
Page 4
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Fabri-Centers of America, Inc.
April 29, 1995, January 28, 1995 and April 30, 1994
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 and as amended by
Form 10-K/A Amendment No. 1 for the fiscal year ended January 28, 1995.
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. Cash equivalents consist of highly liquid investments with a maturity
of three months or less at the time of purchase. The Company believes
that the carrying value of cash equivalents approximates their fair
value. At April 29, 1995, and January 28, 1995, the Company held cash
equivalents of $2.0 million and $11.5 million, respectively, stated at
cost.
B. Inventories are stated at the lower of cost or market. Cost is
determined principally by the last-in, first-out (LIFO) method.
C. Store physical inventories are taken on a cycle basis throughout the
fiscal year. 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.
D. Store opening expenses are charged to operations as incurred,
which is generally the same period that the store is opened.
E. Earnings per share are computed based on the weighted average number
of shares and share equivalents outstanding during the fiscal period.
Fully diluted earnings per share are the same as primary earnings per
share due to the computation of fully diluted earnings per share
producing an anti-dilutive result.
F. Depreciation of buildings, furniture and fixtures and leasehold
improvements is provided principally by charges to operations on a
straight-line basis over the estimated useful lives of the assets.
G. Certain reclassifications have been made of amounts reported in
fiscal 1995 in order to conform with the presentation for fiscal 1996.
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H. The Company's principal business is conducted in the retail fabric and
craft industry through specialty stores which sell a wide variety of
fashion and decorator fabrics, notions, crafts, patterns and sewing
accessories.
3. On October 2, 1994, the Company acquired substantially all of the
assets of Cloth World, a division of Brown Group, Inc., ("Cloth World")
for approximately $97 million in cash and assumed liabilities. The
acquisition required a cash payment at closing of $62.0 million and an
additional payment due upon determination of the final purchase price. A
final payment of $3.7 million was made during the first quarter of fiscal
1996. The funds used to acquire Cloth World were provided by internally
generated funds and borrowings under a credit facility. The acquisition
has been recorded using the purchase method, and accordingly, the results
of operations of Cloth World have been included in the Company's financial
statements since the date of acquisition. The purchase price allocation
has been based on preliminary estimates which may be revised; however, the
effect of any revisions on the results of operations for the first quarter
of fiscal 1996 would not be material.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On October 2, 1994, the Company acquired substantially all of the assets
of Cloth World, a division of Brown Group, Inc., ("Cloth World") for
approximately $97 million in cash and assumed liabilities. The funds used to
acquire Cloth World were provided by internally generated funds and borrowings
under a credit facility. The acquisition has been recorded using the purchase
method and, accordingly, the results of operations of Cloth World have been
included in the Company's consolidated financial statements since the date of
acquisition. The purchase price allocation has been based on preliminary
estimates that may be revised; however, the effect of any revisions on the
results of operations for the first quarter of fiscal 1996 would not be
material.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 29, 1995 VS. APRIL 30, 1994
Net sales for the first quarter of fiscal 1996 increased 38.1%, or $50.6
million, to $183.3 million from $132.7 million in fiscal 1995, largely due to
$49.3 million of sales generated from the Cloth World stores during the first
quarter. Net sales for the first quarter of fiscal 1996, excluding the Cloth
World stores, increased $1.3 million, or 1.0%, while comparable stores sales
increased 1.2% in the first quarter of fiscal 1996, over the same quarter a year
earlier.
Gross profit increased $24.8 million in the first quarter of fiscal 1996
compared to the same quarter of fiscal 1995, primarily as a result of the
increase in net sales. As a percentage of net sales, fiscal 1996 first quarter
gross profit was 44.2%, an increase of 1.8 percentage points from the gross
profit of 42.4% for the same quarter a year earlier. The increase in gross
profit margin primarily resulted from improved purchasing and inventory
management.
Selling, general and administrative expenses as a percentage of net sales
were 42.7% in the first quarter of fiscal 1996 and 1995. Increases in
advertising and store level payroll expenses were offset by lower administrative
costs.
Net interest expense increased $0.9 million to $2.5 million for the first
quarter of fiscal 1996 compared to $1.6 million for the first quarter of 1995,
due to an increase in average bank borrowings and higher interest rates, in line
with the general increase in short-term interest rates.
The Company's effective income tax rate was 38.5% for both the first
quarter of fiscal 1996 and the first quarter of fiscal 1995.
Net earnings for the first quarter of fiscal 1996 increased $1.6 million
to $0.3 million, or $0.03 per share, compared to a net loss of $1.3 million, or
$0.13 per share, for the same quarter a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed the first quarter of fiscal 1996 in sound financial
condition. Working capital increased $1.1 million to $199.3 million, at April
29, 1995, compared to $198.2 million at January 28, 1995. The ratio of current
assets to current liabilities was 2.5:1 at April 29, 1995, and 2.6:1 at January
28, 1995. Debt to capitalization ratio was 44.3% at April 29, 1995, and 44.0% at
January 28, 1995.
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The Company used $3.7 million for operating activities in the first
quarter of fiscal 1996 compared to $4.9 million provided by operations in the
first quarter of the prior year. The net use of cash in the first quarter of
fiscal 1996 resulted from the payment of liabilities relating to the purchase of
Cloth World and the payment of accrued employee benefits. Additionally, a $20.0
million increase in inventories during the first quarter of fiscal 1996 was
offset by a $22.8 million increase in accounts payable. Higher levels of
inventory are needed to expand the product mix in the Cloth World stores to the
broader selection of merchandise available in Jo-Ann Fabrics and Crafts stores.
Capital expenditures were $5.7 million for the first quarter of fiscal
1996 as compared to $2.4 million for the first quarter of fiscal 1995. Fiscal
1996 capital expenditures primarily relate to the conversion of Cloth World
stores to the Jo-Ann Fabrics and Crafts format. During fiscal 1996, the Company
will convert approximately 300 Cloth World stores to the Jo-Ann Fabrics and
Crafts format and expects to open approximately 45 superstores while closing 35
smaller stores.
The Company has a $200.0 million revolving credit facility with a group of
eight banks that expires on September 29, 1997. The Company may borrow up to a
maximum of $220.0 million, subject to further limitations during specified time
frames, by using funds available under this credit facility and other lines of
credit. As of April 29, 1995, the Company had borrowings of $72.0 million under
the revolving credit facility.
The Company continues to maintain excellent vendor and banking
relationships and has sufficient resources, including unused credit facilities,
to meet its operating needs and to fund its capital expenditures for fiscal
1996.
The Company has remaining board authorization to purchase in the open
market or in private transactions 997,025 shares of Company common stock. These
shares will be used to satisfy obligations under the Company's benefit plans and
for other corporate purposes.
The Company's business exhibits seasonality that is typical for most
retail companies, with much stronger sales in the second half of the year than
the first half of the year. In general, net earnings are highest during the
months of September through December, when sales volumes provide significant
operating leverage. Conversely, net earnings are substantially lower during the
relatively low volume sales months of January through August. Accordingly, a
loss for the second quarter, which is normally the Company's lowest sales
period, is expected. Working capital requirements fluctuate during the year and
reach their highest levels in the third and fourth fiscal quarters as the
Company increases its inventory in anticipation of its peak selling season.
Through the first quarter of fiscal 1996, the Company has opened 6
superstores and closed 20 stores, many of which were in overlapping markets. As
of April 29, 1995, the Company operates 950 stores.
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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 11 of this report.
b) Reports on Form 8-K
The Company was not required to file reports on Form 8-K for the
13-week period ended April 29, 1995.
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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: June 12, 1995 /s/ Alan Rosskamm
---------------------------------------
BY: Alan Rosskamm
Chairman, President and Chief
Executive Officer
/s/ Robert Norton
---------------------------------------
BY: Robert Norton
Vice Chairman and Chief
Financial Officer
Page 10
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FABRI-CENTERS OF AMERICA, INC.
FORM 10-Q FOR THE THIRTEEN-WEEK
PERIOD ENDED APRIL 29, 1995
EXHIBIT INDEX
Sequential
Exhibit No. Description Page No.
----------- ----------- ----------
11 Statement re Computation of 12
Earnings per Common Share
27 Financial Data Schedule 13
Page 11
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COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11
Fabri-Centers of America, Inc.
(Thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
APRIL 29, APRIL 30,
THIRTEEN WEEKS ENDED 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings (loss) $ 278 $ (1,256)
=========== =============
Weighted average shares of common stock outstanding during the period 9,185,731 9,118,896
Incremental shares from assumed exercise of stock options - primary 282,580 228,177
----------- -------------
9,468,311 9,347,073
=========== =============
Primary earnings (loss) per common share $ 0.03 $ (0.13)
=========== =============
FULLY DILUTED EARNINGS PER SHARE:
Net earnings (loss) $ 278 $ (1,256)
Interest expense applicable to 6 1/4% convertible subordinated
debentures,net of tax 548 548
----------- -------------
Net earnings (loss) $ 826 $ (708)
=========== =============
Weighted average shares of common stock outstanding during the period 9,185,731 9,118,896
Incremental shares from assumed exercise of stock options - fully diluted 321,946 231,787
Incremental shares from assumed conversion of 6 1/4% convertible
subordinated debentures 1,168,882 1,168,882
----------- -------------
10,676,559 10,519,565
=========== =============
Fully diluted earnings (loss) per common share $ 0.08 $ (0.07)
=========== =============
</TABLE>
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.
Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE CONSOLIDATED BALANCE SHEET OF FABRI-CENTERS OF AMERICA, INC. AS OF APRIL 29,
1995 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THIRTEEN WEEKS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 11,304
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 310,573
<CURRENT-ASSETS> 333,762
<PP&E> 139,346
<DEPRECIATION> 53,332
<TOTAL-ASSETS> 436,902
<CURRENT-LIABILITIES> 134,434
<BONDS> 128,983
<COMMON> 988
0
0
<OTHER-SE> 161,283
<TOTAL-LIABILITY-AND-EQUITY> 436,902
<SALES> 183,280
<TOTAL-REVENUES> 183,280
<CGS> 102,181
<TOTAL-COSTS> 180,355
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,473
<INCOME-PRETAX> 452
<INCOME-TAX> 174
<INCOME-CONTINUING> 278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 278
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
