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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
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For the Quarter Ended April 27, 1996 Commission File No. 1-6695
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FABRI-CENTERS OF AMERICA, INC.
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(Exact name of Registrant as specified in its charter)
Ohio 34-0720629
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 Darrow Road
Hudson, Ohio 44236
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(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 Class A Common Stock outstanding at May 24, 1996: 8,922,760
Shares of Class B Common Stock outstanding at May 24, 1996: 8,836,463
Sequential Page 1 of 12
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
Fabri-Centers of America, Inc.
(Thousands of dollars)
<TABLE>
<CAPTION>
APRIL 27, JANUARY 27,
1996 1996
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,784 $ 11,552
Merchandise inventories 327,000 337,974
Prepaid expenses and other current assets 11,112 11,860
----------------- -----------------
Total current assets 348,896 361,386
Property and equipment, at cost:
Land 1,777 1,777
Buildings 21,958 21,701
Furniture and fixtures 104,472 103,364
Leasehold improvements 40,433 39,800
----------------- -----------------
168,640 166,642
Less accumulated depreciation and amortization 68,745 64,608
----------------- -----------------
99,895 102,034
Mortgage receivable 7,346 7,414
Other assets 8,498 8,814
----------------- -----------------
Total assets $ 464,635 $ 479,648
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 97,862 $ 104,415
Accrued expenses 16,892 20,056
Accrued income taxes 25 370
Deferred income taxes 4,564 4,388
----------------- -----------------
Total current liabilities 119,343 129,229
Long-term debt 100,200 98,500
Convertible subordinated debentures 56,983 56,983
Deferred income taxes 12,674 12,422
Other long-term liabilities 1,561 1,551
Shareholders' equity:
Common Stock:
Class A 501 499
Class B 499 496
Additional paid-in capital 74,869 74,216
Other (1,496) (1,688)
Retained earnings 117,864 116,794
----------------- -----------------
192,237 190,317
Treasury stock, at cost (18,363) (9,354)
----------------- -----------------
Total shareholders' equity 173,874 180,963
----------------- -----------------
Total liabilities and shareholders' equity $ 464,635 $ 479,648
================= =================
</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 27, APRIL 29,
THIRTEEN WEEKS ENDED 1996 1995
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<S> <C> <C>
Net sales $ 203,028 $ 183,280
Costs and expenses:
Cost of goods sold 114,641 102,181
Selling, general and administrative expenses 83,836 78,174
Interest expense, net 2,839 2,473
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201,316 182,828
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Earnings before income taxes 1,712 452
Income tax provision 642 174
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Net earnings $ 1,070 $ 278
============= =============
Net earnings per common share:
Primary $ 0.06 $ 0.01
============= =============
Assuming full dilution $ 0.06 $ 0.01
============= =============
Average shares and equivalents outstanding:
Primary 18,810,008 18,936,622
============= =============
Assuming full dilution 18,830,540 19,015,354
============= =============
</TABLE>
See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Fabri-Centers of America, Inc.
(Thousands of dollars)
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
THIRTEEN WEEKS ENDED 1996 1995
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<S> <C> <C>
Operating activities:
Net earnings $ 1,070 $ 278
Adjustments to reconcile net earnings to net cash provided by
(used for) operating activities:
Cancellation of restricted stock awards -- (32)
Depreciation and amortization and other noncash expenses 5,272 3,957
Loss on disposal of fixed assets 292 77
Deferred income taxes 428 --
Working capital changes:
Merchandise inventories 10,974 (20,013)
Prepaid expenses and other current assets 748 1,374
Accounts payable (6,553) 22,769
Accrued expenses (3,164) (10,123)
Accrued income taxes (345) (1,961)
--------------- ----------------
Net cash provided by (used for) operating activities 8,722 (3,674)
Investing activities:
Capital expenditures (3,211) (5,664)
Acquisition of Cloth World -- (3,710)
Mortgage receivable 68 64
Other, net 318 305
--------------- ----------------
Net cash used for investing activities (2,825) (9,005)
Financing activities:
Proceeds from long-term debt 13,100 4,000
Repayment of long-term debt (11,400) (2,000)
Other long-term liabilities 10 71
Proceeds from exercise of stock options 634 114
Purchase of common stock (9,009) (89)
--------------- ----------------
Net cash (used for) provided by financing activities (6,665) 2,096
Net decrease in cash (768) (10,583)
Cash and cash equivalents at beginning of period 11,552 21,887
--------------- ----------------
Cash and cash equivalents at end of period $ 10,784 $ 11,304
=============== ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,490 $ 3,455
Income taxes 560 2,134
</TABLE>
See notes to consolidated financial statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Fabri-Centers of America, Inc.
April 27, 1996, January 27, 1996 and April 29, 1995
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 27, 1996.
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 or market. Cost is
determined principally by the last-in, first-out (LIFO) method.
B. 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.
C. Store opening expenses are charged to operations as incurred, which is
generally the same period that the store is opened.
D. Depreciation of buildings, furniture and fixtures and leasehold
improvements is provided principally by the straight-line method over
the estimated useful lives of the assets.
E. 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. Earnings Per Share
Primary earnings per share equals net earnings divided by the weighted
average number of common shares, after giving effect for the assumed
exercise of dilutive stock options. Earnings per share assuming full
dilution would equal net earnings plus after tax interest incurred on the
Company's 6-1/4 percent convertible subordinated debentures divided by the
weighted average number of common shares, after giving effect for the
assumed exercise of dilutive stock options and assumed shares to be issued
on the conversion of the convertible subordinated debentures. The effect
of the convertible subordinated debentures are not included in the
earnings per share calculation assuming full dilution for the thirteen
week periods ended April 27, 1996 and April 29, 1995 because it is
anti-dilutive. Earnings per share amounts have been restated to give
effect to the increased number of shares outstanding as a result of the
Recapitalization Amendment (see note 4).
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4. Recapitalization Amendment
On August 2, 1995, the shareholders of the Company approved a
recapitalization amendment to the Company's Articles of Incorporation
("Recapitalization Amendment") which became effective on that date,
creating a new class of nonvoting shares designated as Class B Common
Shares and changing each outstanding common share into one Class A and one
Class B Common Share. Additionally, the number of authorized Common Shares
was increased from 75,000,000 to 150,000,000, consisting of 75,000,000
Class A Common Shares and 75,000,000 Class B Common Shares. Pursuant to
this amendment, the Common Shares, with a stated value of $0.10 per share,
were changed into one Class A Common Share and one Class B Common Share,
with each class having a stated value of $0.05 per share. As a result of
the recapitalization, 9,191,514 Class A Common Shares and 9,191,514 Class
B Common Shares were outstanding as of the effective date. All earnings
per share amounts have been restated to reflect the recapitalization
amendment, which has been accounted for as if it were a two-for-one stock
split.
5. Capital Stock
During the first quarter of fiscal year 1997, the Company purchased 407,525
Class A and 450,506 Class B Common Shares on the open market. The aggregate
purchase price of these shares was approximately $9,000,000 which was funded
through the Company's revolving credit facility.
6. Legal Proceedings
The Company was notified by the staff of the Securities and Exchange
Commission that the staff tentatively intends to recommend that the
Commission bring an enforcement action against the Company, its chief
executive officer and two former officers in connection with the Company's
financial statements for its fiscal year ended February 1, 1992, and for
the immediately following three quarters, and with the adequacy of certain
disclosures relating to such periods. The staff contends that the
financial statements were not accurate because of the manner in which the
Company calculated one of its inventory-related reserves for such periods.
The accounting issues that have been raised are not related to any current
period, and no current accounting policies or financial statements are in
question. The Company has filed written responses, and met, with the staff
to explain the Company's position on the issues raised. If any action is
brought, the Company intends to vigorously contest it. Based on
information currently available, Management does not believe the impact,
if any, of this matter would have a material adverse effect on the
Company's financial position.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 27, 1996 VS. APRIL 29, 1995
Net sales for the first quarter of fiscal 1997 increased 11 percent, or
$19,748,000, compared to the first quarter of fiscal 1996. The increase was
largely due to higher sales in the Cloth World stores, which throughout fiscal
year 1996 were converted to the Jo-Ann Fabrics and Crafts format. Comparable
store sales, which primarily reflect the Jo-Ann Fabrics and Crafts stores,
increased 7 percent for the first quarter of fiscal 1997 over the same quarter a
year earlier. Sales of seasonal merchandise increased in the Jo-Ann stores
during the first quarter of fiscal 1997 as compared to the same quarter a year
earlier.
Gross profit increased $7,288,000 in the first quarter of fiscal 1997
compared to the same quarter of fiscal 1996. As a percentage of net sales,
fiscal 1997 first quarter gross profit was 43.5 percent, a decrease of 0.7
percentage points from the same quarter a year earlier. The decrease in the
gross profit margin percentage resulted from reduced prices on selected seasonal
merchandise in order to stimulate sales and reduce inventories.
Selling, general and administrative expenses as a percentage of net sales
were 41.3 percent for the first quarter of fiscal 1997, a decrease of 1.4
percentage points from the same quarter a year earlier. Reductions as a percent
of sales in advertising and store level payroll expenses primarily accounted for
the improvement.
The Company's effective income tax rate was 37.5 percent for the first
quarter of fiscal 1997 and 38.5 percent for the first quarter of fiscal 1996.
Net earnings for the first quarter of fiscal 1997 were $1,070,000, or
$0.06 per share, compared to net earnings of $278,000, or $0.01 per share, for
the same quarter a year earlier.
The Company's business exhibits seasonality which 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 months of January through August. Accordingly, a loss for
the second quarter, which is normally the Company's lowest sales period, is
expected. Capital requirements needed to finance the Company's operations
fluctuate during the year and reach their highest levels during the second and
third fiscal quarters as the Company increases its inventory in preparation for
its peak selling season.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased $2,604,000 to $229,553,000 at April 27, 1996,
compared to $232,157,000 at January 27, 1996. The ratio of current assets to
current liabilities was 2.9:1 at April 27, 1996, and 2.8:1 at January 27, 1996.
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The Company generated $8,722,000 of cash from operating activities in the
first quarter of fiscal 1997 compared to $3,674,000 of cash used for operating
activities in the first quarter of the prior year. As a result of actions taken
to improve inventory turnover, inventories were reduced by $10,974,000 during
the first quarter of fiscal 1997.
Capital expenditures were $3,211,000 for the first quarter of fiscal 1997
as compared to $5,664,000 for the same period of fiscal 1996. For the full year
of fiscal 1997, capital expenditures are expected to be approximately
$20,000,000 down from $34,732,000 in the prior year. The Company plans to open
50 to 60 superstores and close 60 to 70 smaller stores during fiscal 1997.
Higher fiscal 1996 capital expenditures primarily related to the conversion of
Cloth World stores to the Jo-Ann Fabrics and Crafts format.
The Company purchased 407,525 Class A and 450,506 Class B Common Shares on
the open market at an aggregate purchase price of approximately $9,000,000
during the first quarter of fiscal 1997. The remaining number of shares that can
be acquired pursuant to prior authorization by the Board of Directors is 597,025
Class A and 557,025 Class B Common Shares.
See note 6, Legal Proceedings, in the Notes to Consolidated Financial
Statements section elsewhere in this report.
The Company has a $200,000,000 revolving credit facility with a group of
eight banks that expires on September 30, 1998. The Company may borrow up to a
maximum of $220,000,000, subject to further limitations during specified time
frames, by utilizing funds available under this credit facility and other lines
of credit. As of April 27, 1996, the Company had borrowings of $100,200,000
under the revolving credit facility and other lines of credit. 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 1997.
During the first three months of fiscal 1997, the Company opened 8
superstores and closed 22 smaller stores. As of April 27, 1996, the Company
operated 922 stores in 48 states primarily under the names Jo-Ann Fabrics and
Crafts, Cloth World and New York Fabrics and Crafts.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts
are forward-looking statements that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth in the forward-looking statement. These risks and uncertainties
include, but are not limited to, changes in customer demand, changes in trends
in the fabric and craft industry, changes in the competitive pricing for
products, the impact of competitor store openings and closings, the availability
of acceptable store locations, the availability of merchandise, general economic
conditions and other risk factors discussed in documents filed by the Company
with the Securities and Exchange Commission.
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PART II OTHER INFORMATION
Item 5. Other Events
------------
Robert Norton resigned as Chief Financial Officer effective May 31,
1996, and delivered his resignation as Director and Vice Chairman of
the Board to be effective June 12, 1996.
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
-------------------
No reports on Form 8-K were filed during the 13-week period ended
April 27, 1996.
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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 10, 1996 /s/ Alan Rosskamm
-----------------------------------------
BY: Alan Rosskamm
Chairman, President and Chief
Executive Officer
/s/ Robert R. Gerber
-----------------------------------------
BY: Robert R. Gerber
Senior Vice President, Controller and
Chief Accounting Officer
Page 10
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FABRI-CENTERS OF AMERICA, INC.
FORM 10-Q FOR THE THIRTEEN WEEK
PERIOD ENDED APRIL 27, 1996
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
EXHIBIT NO. Description Page No.
- ---------------------- -------------------------------------------------------------- ----------------------
<S> <C> <C>
11 Statement re Computation of Earnings per Common 12
Share
27 Financial Data Schedule
</TABLE>
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EXHIBIT NO. 11
COMPUTATION OF EARNINGS PER COMMON SHARE
FABRI-CENTERS OF AMERICA, INC.
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
-------------------------------
APRIL 27, APRIL 29,
1996 1995
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<S> <C> <C>
PRIMARY EARNINGS PER SHARE:
Net earnings $ 1,070 $ 278
============= ============
Weighted average shares of common stock outstanding during the period 18,268,965 18,371,462
Incremental shares from assumed exercise of stock options - primary 541,043 565,160
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18,810,008 18,936,622
============= ============
Net earnings per common share - primary $ 0.06 $ 0.01
============= ============
EARNINGS PER SHARE ASSUMING FULL DILUTION:
Net earnings $ 1,070 $ 278
Interest expense applicable to 6 1/4% convertible
subordinated debentures, net of tax 556 548
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Net earnings $ 1,626 $ 826
============= ============
Weighted average shares of common stock outstanding during the period 18,268,965 18,371,462
Incremental shares from assumed exercise of stock options - fully diluted 561,575 643,892
Incremental shares from assumed conversion of 6 1/4% convertible
subordinated debentures 2,337,764 2,337,764
------------- ------------
21,168,304 21,353,118
============= ============
Net earnings per common share assuming full dilution $ 0.08 (a) $ 0.04 (a)
============= ============
<FN>
(a) 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>
Note: The number of shares for the periods ended April 29, 1995 have been
restated to give effect to the Company's recapitalization amendment,
which has been accounted for as if it were a two-for-one stock split.
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF FABRI-CENTERS OF AMERICA, INC. AS OF APRIL 27,
1996 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE THIRTEEN WEEKS THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> APR-27-1996
<CASH> 10,784
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 327,000
<CURRENT-ASSETS> 348,896
<PP&E> 168,640
<DEPRECIATION> 68,745
<TOTAL-ASSETS> 464,635
<CURRENT-LIABILITIES> 119,343
<BONDS> 157,183
<COMMON> 0
1,000
0
<OTHER-SE> 172,874
<TOTAL-LIABILITY-AND-EQUITY> 464,635
<SALES> 203,028
<TOTAL-REVENUES> 203,028
<CGS> 114,641
<TOTAL-COSTS> 198,477
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,839
<INCOME-PRETAX> 1,712
<INCOME-TAX> 642
<INCOME-CONTINUING> 1,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,070
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
