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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1994
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
0-5179
(Commission File Number)
FAY'S INCORPORATED
(Exact name of registrant as specified in its charter)
State of New York 16-0919350
(State of Incorporation) (I.R.S. Employer
Identification No.)
7245 HENRY CLAY BOULEVARD, LIVERPOOL, NEW YORK 13088
(Address of principal executive offices)
Registrant's telephone number, including area code: (315)451-8000
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Indicate by check mark whether 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 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
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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 June 9, 1994
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Common Stock, $.10 par value 20,270,856
10 Pages
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FAY'S INCORPORATED AND SUBSIDIARIES
Index
Page No.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
April 30, 1994 and January 29, 1994 3
Consolidated Condensed Statements of Net Earnings-
Thirteen Weeks Ended April 30, 1994 and May 1, 1993 4
Consolidated Condensed Statements of Cash Flows-
Thirteen Weeks Ended April 30, 1994 and May 1, 1993 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
2
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FAY'S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
(Unaudited)
April 30, January 29,
1994 1994
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,121 $ 1,006
Accounts receivable 31,942 32,066
Merchandise inventories 153,010 153,627
Prepaid expenses 7,149 8,080
Refundable income taxes 1,406 -
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Total Current Assets 194,628 194,779
Deferred Income Taxes 534 534
Property and Equipment, Net 67,103 67,243
Intangible and Other Assets, Net 21,973 17,158
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Total Assets $ 284,238 $ 279,714
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 18,195 $ 14,605
Accounts payable, trade 58,949 54,890
Accrued payroll and related taxes 6,507 8,102
Other accrued expenses 16,445 15,901
Federal and state income taxes payable - 1,758
Current portion of long-term debt and obligation under leases 7,747 8,996
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Total Current Liabilities 107,843 104,252
Long-Term Debt 65,249 65,307
Obligation Under Leases 1,971 2,106
Deferred Gain and Other Liabilities 3,692 3,585
Accrued Postretirement Benefit Obligation (Note 3) 7,560 7,626
Commitments
Stockholder's Equity:
Common stock, par value $.10 per share 2,028 2,027
Additional paid-in capital 59,642 59,515
Retained earnings 36,370 35,413
Common stock held in treasury, at cost (117) (117)
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Total Stockholders' Equity 97,923 96,838
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Total Liabilities and Stockholder's Equity $ 284,238 $ 279,714
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</TABLE>
See notes to consolidated condensed financial statements.
3
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FAY'S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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April 30, May 1,
1994 1993
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<S> <C> <C>
Net sales $ 239,061 $ 216,742
Cost and expenses:
Cost of merchandise sold 170,138 152,254
Selling, general and administrative expenses 59,286 55,505
Depreciation and amortization expenses 4,196 4,049
Interest expense, net 2,005 1,965
Unusual charge-store closings - 4,845
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Total cost and expenses 235,625 218,618
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Earnings (loss) before income taxes 3,436 (1,876)
Provision for (benefit from) income taxes 1,463 (779)
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Earnings (loss) before cumulative effect of accounting change 1,973 (1,097)
Cumulative effect of accounting change, net of tax (Note 3) - (4,806)
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Net earnings (loss) $ 1,973 $ (5,903)
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NET EARNINGS (LOSS) PER SHARE:
Earnings (loss) before cumulative effect of accounting change $ 0.10 $ (0.05)
Cumulative effect of accounting change - (0.24)
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Net earnings (loss) per share $ 0.10 $ (0.29)
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Cash dividends paid per share $ 0.05 $ 0.05
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Stores in operation at end of period 325 304
</TABLE>
See notes to consolidated condensed financial statements.
4
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FAY'S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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April 30, May 1,
1994 1993
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 1,973 $ (5,903)
Adjustments to reconcile net earnings (loss) to net
cash provided from operating activities:
Cumulative effect of accounting change - 7,998
Depreciation and amortization 4,196 4,049
Decrease (increase) in current assets 266 (5,780)
Increase (decrease) in other current liabilities 1,249 (3,393)
Increase in other long-term liabilities 41 4,845
Changes in deferred tax assets and liabilities - (4,339)
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Net cash provided from (used for) operating activities 7,725 (2,523)
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CASH FLOW FOR INVESTING ACTIVITIES:
Expenditures for property and equipment (3,185) (1,782)
Increase in intangibles and other assets (5,686) (516)
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Net cash used for investing activities (8,871) (2,298)
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CASH FLOW FROM FINANCING ACTIVITIES:
Increase in notes payable 3,590 6,100
Repayment of long-term debt and reductions
of obligation under leases (1,443) (326)
Cash dividends paid (1,014) (999)
Other 128 9
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Net cash provided from financing activities 1,261 4,784
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Net increase (decrease) in cash 115 (37)
Cash balance, beginning of period 1,006 917
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Cash balance, end of period $ 1,121 $ 880
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</TABLE>
See notes to consolidated condensed financial statements.
5
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FAY'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1994
(1) STATEMENT OF MANAGEMENT
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of Management, the information contained
herein reflects all normal and recurring adjustments necessary for a fair
presentation of the results of operations for the periods. The consolidated
financial statements and notes thereto should be read with the financial
statements and notes included in the Company's latest Annual Report on
Form 10-K. The January 29, 1994 balance sheet data is derived from audited
financial statements.
(2) COMMON STOCK AND EARNINGS PER SHARE
Earnings per share data rate based on the weighted average number of shares of
common stock and common stock equivalents (stock options) with a dilutive effect
outstanding during the period, where applicable. The average number of shares of
common stock and dilutive common stock equivalents used to calculate earnings
per share were 20,337,158 and 19,978,861 for the thirteen weeks ended April 30,
1994 and May 1, 1993, respectively.
(3) CHANGES IN ACCOUNTING
Effective January 31, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" ("SFAS No. 106"). SFAS No. 106 requires the Company to
accrue the estimated cost of retiree benefit payments during the years the
employee provides services. The Company previously expensed the cost of these
benefits, which are principally health care, as claims were incurred. The
Company elected to recognize in the first quarter of fiscal 1994 the cumulative
effect of this obligation resulting in a one-time charge against net earnings of
$4,805,992, net of $3,203,995 in income tax benefits.
(4) RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, Employer's Accounting for Postemployment Benefits.
This Statement is effective for the Company's fiscal 1995 financial statements.
The effect of this Statement on the Company's consolidated financial statements
is not anticipated to be material.
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FAY'S INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal business is the operation of a chain of super drug
stores under the name "Fay's Drugs." As of April 30, 1994, the Company was
operating 209 Fay's Drug stores, 50 traditional drug stores, 35 discount auto
supply stores, under the name "Wheels Discount Auto Supply," and 31 discount
office supply, party supply, book and greeting card stores under the name "The
Paper Cutter." Since the end of the first quarter of the precious fiscal year,
the Company has opened two Fay's Drug stores, four Wheels Discount Auto Supply
stores, six Paper Cutter stores, and acquired 12 traditional drug stores. During
the same period, the Company closed two Fay's Drug stores and one traditional
drug store. It also converted two traditional drug stores to Fay's Drug stores.
Net earnings for the first quarter of fiscal 1995 were $1,973,000 ($.10 per
share) compared to a net loss of $5,903,000 in the first quarter of fiscal 1994.
The net loss in fiscal 1994 included the result of the adoption of a new
accounting standard of postretirement benefits of $4.8 million ($.24 per share)
and changes associated with the April 1993 closing of nine Paper Cutter stores
located in the Philadelphia metropolitan area amounting to $4.8 million on a
pretax basis ($.14 per share). Excluding the unusual and one-time charges in
1993, net earnings for the quarter increased 13.7% from $1,736,000 ($.09 per
share).
Sales for the first quarter of fiscal 1995 were $239.1 million, which
represented and increase of 10.3% over first quarter fiscal 1994 sales of $216.7
million. Sales from comparable stores (those open one year or more as of April
30, 1994) increased 5.5% for the quarter. Sales increases are reflective of a
15.3% increase in pharmacy sales for the quarter. Excluding the effect of closed
stores, total sales increased 11.2% over the first quarter of fiscal 1994.
The gross profit rate on sales was 28.83% in the first quarter of fiscal 1995
compared to 29.75% for the same period last year. The decline in overall gross
profit is attributable to continued pressures on third party pharmacy margins,
decreased margins on promotional sales, and decreases in the gross profit rate
for the Wheels and Paper Cutter stores. In addition, the Company's mail order
division, Postscript, which operates at lower margins than the Company's retail
stores, began operations in the second quarter of fiscal 1994.
7
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FAY'S INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Selling, general and administrative expenses, as a percentage of sales, were
24.80% in the first quarter of fiscal 1995 compared to 25.61% for the same
period last year. The reduction in these expenses as a percentage of sales in
the first quarter of fiscal 1995 is due in part to expense reductions realized
from the sale or closure of 13 stores during the past year as well as the
leveraging of sales increases combined with tighter expense controls.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1994, the Company had cash of $1.1 million and total working
capital of $86.8 million. Cash flow from operations was $7.7 million for the
first quarter of fiscal 1995. Operating cash flows were augmented by short-term
borrowings and were used primarily for expenditures for property and equipment
and the acquistion of two institutional pharmacies in the first quarter of
fiscal 1995.
The Company continues to maintain a sound financial position and believes that
its operations and capital resources will provide sufficient cash availability
to meet its liquidity needs and to finance planned growth.
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FAY'S INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K: There were no reports on Form 8-K filed
during the fiscal quarter ended April 30, 1994.
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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.
FAY'S INCORPORATED
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(Registrant)
Dated: June 10, 1994 /s/James F. Poole, Jr.
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James F. Poole, Jr.
Vice President -- Finance and
Chief Financial Officer
Dated: June 10, 1994 /s/Warren D. Wolfson
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Warren D. Wolfson
Senior Vice President
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