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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 October 29, 1994
[ ] 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 December 2 , 1994
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Common Stock, $.10 par value 20,212,475
10 Pages
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Fay's Incorporated and Subsidiaries
Index
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Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
October 29, 1994 and January 29, 1994 3
Consolidated Condensed Statements of Net Earnings -
Thirteen and Thirty-Nine Weeks Ended
October 29, 1994 and October 30, 1993 4
Consolidated Condensed Statements of Cash Flows -
Thirty-Nine Weeks Ended October 29, 1994 and
October 30, 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
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2
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Fay's Incorporated and Subsidiaries
Consolidated Condensed Balance Sheets
(in thousands of dollars)
<TABLE>
<CAPTION>
October 29,
1994 January 29,
(Unaudited) 1994
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,374 $ 1,006
Accounts receivable 34,147 32,066
Merchandise inventories 187,449 153,627
Prepaid expenses 6,691 8,080
Refundable income taxes 319 -
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Total Current Assets 229,980 194,779
Deferred Income Taxes 1,114 534
Property and Equipment, net 70,027 67,243
Intangible and Other Assets, net 25,863 17,158
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Total Assets $326,984 $279,714
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank $ 19,000 $ 14,605
Accounts payable, trade 75,413 54,890
Accrued payroll and related taxes 7,584 8,102
Other current liabilities 17,822 15,901
Federal and state income taxes payable - 1,758
Current portion of long-term debt and obligation under leases 10,352 8,996
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Total Current Liabilities 130,171 104,252
Long-Term Debt 83,851 65,307
Obligation Under Leases 1,699 2,106
Deferred Gain and Other Liabilities 3,169 3,585
Accrued Postretirement Benefit Obligation (Note 3) 7,427 7,626
Commitments
Stockholders' Equity:
Common stock, par value $.10 per share 2,028 2,027
Additional paid-in capital 59,648 59,515
Retained earnings 39,108 35,413
Common stock held in treasury, at cost (117) (117)
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Total Stockholders' Equity 100,667 96,838
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Total Liabilities and Stockholders' Equity $326,984 $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 Statements of Net Earnings
(Unaudited)
(In thousands of dollars except per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
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October 29, October 30, October 29, October 30,
1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Net Sales $260,593 $225,966 $ 752,033 $664,633
Cost and Expenses:
Cost of merchandise sold 184,099 159,486 534,632 468,294
Selling, general and administrative expenses 66,337 56,726 187,027 167,073
Depreciation and amortization expenses 4,149 4,113 12,305 12,278
Interest expense, net 2,189 1,892 6,336 5,900
Unusual charge-store closings - - - 3,995
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Total cost and expenses 256,774 222,217 740,300 657,540
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Earnings before income taxes 3,819 3,749 11,733 7,093
Provision for income taxes 1,613 1,555 4,973 2,930
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Earnings before cumulative effect of accounting change 2,206 2,194 6,760 4,163
Cumulative effect of accounting change, net of tax (Note 3) - - - (4,806)
-------- -------- --------- --------
Net earnings (loss) $ 2,206 $ 2,194 $ 6,760 $ (643)
======== ======== ========= ========
Earnings (loss) per share:
Earnings before cumulative effect of accounting change $ 0.11 $ 0.11 $ 0.33 $ 0.21
Cumulative effect of accounting change - - - (0.24)
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Earnings (loss) per share $ 0.11 $ 0.11 $ 0.33 $ (0.03)
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Cash dividends paid per share $ 0.05 $ 0.05 $ 0.15 $ 0.15
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Stores in operation at end of period 371 316 371 316
</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>
Thirty-Nine Weeks Ended
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October 29, October 30,
1994 1993
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<S> <C> <C>
Cash Flow From Operating Activities:
Net earnings (loss) $ 6,760 $ (643)
Adjustments to reconcile net earnings (loss) to net
cash provided from operating activities:
Cumulative effect of accounting change - 7,998
Depreciation and amortization 12,305 12,278
Increase in current assets (34,833) (32,957)
Increase in current liabilities 20,168 20,246
Decrease in other long-term liabilities (615) -
Changes in deferred income tax assets and liabilities (580) (4,339)
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Net cash provided from operating activities 3,205 2,583
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Cash Flow For Investing Activities:
Expenditures for property and equipment (12,960) (7,567)
Increase in intangibles and other assets (10,834) (2,694)
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Net cash used for investing activities (23,794) (10,261)
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Cash Flow From Financing Activities:
Increase in notes payable, bank 4,395 11,700
Increase in long-term debt 26,265 -
Repayment of long-term debt and reduction
of obligation under leases (6,772) (964)
Cash dividends paid (3,041) (2,998)
Other 110 109
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Net cash provided from financing activities 20,957 7,847
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Net increase in cash 368 169
Cash balance, beginning of period 1,006 917
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Cash balance, end of period $ 1,374 $ 1,086
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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
October 29, 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 are 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. The average number of shares of common stock and
dilutive common stock equivalents used to calculate earnings per share were
20,404,914 and 20,066,910 for the thirteen weeks ended October 29, 1994 and
October 30, 1993, respectively, and 20,361,766 and 19,986,012 for the thirty-
nine weeks ended October 29, 1994 and October 30, 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.
6
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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 October 29, 1994, the Company was
operating 209 Fay's Drug stores, 64 traditional drug stores, 66 discount auto
supply stores under the name "Wheels Discount Auto Supply," and 32 discount
office supply, party supply, book and greeting card stores under the name "The
Paper Cutter." On June 15, 1994 the Company acquired the assets of 26 National
Auto Supply Stores in New York and four Whitlock Auto Supply stores in
Pennsylvania. In July 1994, the Company also acquired twelve traditional drug
stores via the purchase of the capital stock of Peterson Drug Company of Western
New York, Inc.
Since the end of the third quarter of fiscal year 1994, the Company has also
opened one Fay's Drug store, six Wheels Discount Auto Supply stores, four Paper
Cutter stores, and acquired eight traditional drug stores. During the same
period, the Company closed three Fay's Drug stores, one traditional drug store,
and converted two traditional drug stores to Fay's Drug stores. The Company also
closed one Wheels Discount Auto Supply Store and one acquired National Auto
Supply Store in the second quarter of fiscal 1995.
Net earnings for the third quarter of fiscal 1995 were $2,206,000 as compared to
$2,194,000 in the third quarter of the previous year. For the first three
quarters of fiscal 1995, earnings were $6,760,000 compared to $4,163,000 in
fiscal 1994 before the effect of the accounting change for postretirement
benefits. Included in fiscal 1994 year-to-date earnings were charges, after tax,
of $2,352,000 pertaining to nine Paper Cutter stores closed in the first quarter
of fiscal 1994. Excluding the charges for the Paper Cutter closings and the
change in accounting, net earnings for the first three quarters of fiscal 1995
increased 3.8% from $6,515,000 in fiscal 1994.
Sales for the third quarter and the first three quarters of fiscal 1995 were
$260.6 and $752.0 million, respectively, representing increases of 15.3% and
13.2% over the same periods a year earlier. Sales from comparable stores (those
open one year or more as of October 29, 1994) increased 4.2% for the quarter and
4.9% for the first three quarters of fiscal 1995. Sales increases are reflective
of a 22.2% increase in total pharmacy sales for the quarter and a 8.8% increase
in pharmacy sales from comparable stores for the quarter. Excluding the effect
of closed stores, total sales for the quarter and the first three quarters of
fiscal 1995 increased 19% and 14.2%, respectively,
The gross profit rate on sales was 29.35% in the third quarter of fiscal 1995
compared to 29.42% for the same period last year. For the first three quarters
of fiscal 1995, the gross profit decreased to 28.90% from 29.54% in the previous
year. The decline in gross profit is largely attributable to continued pressures
on third party pharmacy margins, combined with an increase in third party
prescription sales as a percentage of total pharmacy sales.
7
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Selling, general and administrative expenses were 25.46% of sales in the third
quarter of fiscal 1995 compared to 25.10% for the same period last year. This
increase was primarily the result of expenses incurred in connection with the
assimilation of the acquired National and Whitlock Auto Supply stores. For the
first three quarters, these expenses decreased from 25.14% of sales in fiscal
1994 to 24.87%. These decreases were due in part to the leveraging of payroll
expenditures in connection with sales increases and expense controls. In
addition they reflect a decrease, as a percentage of sales, in occupancy and
advertising costs due to the closure of underperforming locations within the
past twelve months.
Liquidity and Capital Resources
At October 29, 1994, the Company had cash of $1.4 million and total working
capital of $99.8 million. Cash flow from operations totaled $3.2 million and was
used primarily for expenditures on property and equipment, the payment of cash
dividends, and reductions in long-term obligations. Fiscal 1995 acquisitions
have been funded primarily by additional long-term borrowings.
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.
8
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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 October 29, 1994.
9
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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: December 8, 1994 /s/ James F. Poole, Jr.
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James F. Poole, Jr.
Vice President - Finance and
Chief Financial Officer
Dated: December 8, 1994 /s/ Warren D. Wolfson
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Warren D. Wolfson
Senior Vice President
10
