<PAGE>
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 29, 1995
---------------------------------------------
[ ] 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
- --------------------------------------------------------------------------------
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
-
- --------------------------------------------------------------------------------
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 5, 1995
- ---------------------------- ---------------------------
Common Stock, $.10 par value 20,583,209
10 Pages
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FAY'S INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
April 29, 1995 and January 28, 1995 3
Consolidated Condensed Statements of Net Earnings-
Thirteen Weeks Ended April 29. 1995 and April 30, 1994 4
Consolidated Condensed Statements of Cash Flows-
Thirteen Weeks Ended April 29, 1995 and April 30, 1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 8
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>
April 29,
1995 January 28,
(Unaudited) 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,284 $ 1,941
Accounts receivable 32,484 35,992
Merchandise inventories 173,249 166,956
Prepaid expenses 7,306 8,457
Refundable income taxes 725 -
-------- --------
Total Current Assets 215,048 213,346
Deferred Income Taxes 1,572 1,572
Property and Equipment, net 69,771 70,395
Intangible and Other Assets, net 31,317 28,815
-------- --------
Total Assets $ 317,708 $ 314,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank $ 13,300 $ 13,100
Accounts payable, trade 63,823 57,411
Accrued payroll and related taxes 7,912 9,423
Other current liabilities 21,289 20,176
Federal and state income taxes payable - 1,866
Current portion of long-term debt and obligation under leases 10,259 10,294
-------- --------
Total Current Liabilities 116,583 112,270
Long-Term Debt 81,487 81,656
Obligation Under Leases 1,486 1,587
Deferred Gain and Other Liabilities 3,955 4,229
Accrued Postretirement Benefit Obligation 7,428 7,405
Commitments
Stockholders' Equity:
Common stock, par value $.10 per share 2,058 2,055
Additional paid-in capital 61,093 61,050
Retained earnings 43,719 43,977
Common stock held in treasury, at cost (101) (101)
-------- --------
Total Stockholders' Equity 106,769 106,981
-------- --------
Total Liabilities and Stockholders' Equity $ 317,708 $ 314,128
======== ========
</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
----------------------
April 29, April 30,
1995 1994
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<S> <C> <C>
Net Sales $ 266,404 $ 239,061
Cost and Expenses:
Cost of merchandise sold 190,019 170,138
Selling, general and administrative expenses 68,429 59,286
Depreciation and amortization expenses 4,351 4,196
Interest expense, net 2,268 2,005
--------- --------
Total cost and expenses 265,067 235,625
--------- --------
Earnings before income taxes 1,337 3,436
Provision for income taxes 565 1,463
--------- --------
Net earnings $ 772 $ 1,973
========= ========
Earnings per share $ 0.04 $ 0.10
========= ========
Cash dividends paid per share $ 0.05 $ 0.05
========= ========
Stores in operation at end of period 381 325
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
FAY'S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------
April 29, April 30,
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 772 $ 1,973
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 4,351 4,196
(Increase) decrease in current assets (2,359) 266
Increase in current liabilities 4,148 1,249
(Decrease) increase in other long-term liabilities (251) 41
-------- ----------
Net cash provided from operating activities 6,661 7,725
-------- ----------
CASH FLOW FOR INVESTING ACTIVITIES:
Expenditures for property and equipment (2,907) (3,185)
Increase in intangibles and other assets (3,322) (5,686)
-------- ----------
Net cash used for investing activities (6,229) (8,871)
-------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in notes payable, bank 200 3,590
Repayment of long-term debt and reduction
of obligation under leases (305) (1,443)
Cash dividends paid (1,027) (1,014)
Other 43 128
-------- ----------
Net cash from (for) financing activities (1,089) 1,261
-------- ----------
Net increase (decrease) in cash (657) 115
Cash balance, beginning of period 1,941 1,006
-------- ----------
Cash balance, end of period $ 1,284 $ 1,121
======== ==========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
FAY'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 29, 1995
(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 28, 1995 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
20,728,787 and 20,337,158 for the thirteen weeks ended April 29, 1995 and April
30, 1994, respectively.
6
<PAGE>
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 29, 1995, the Company was
operating 214 Fay's Drug stores, 62 traditional drug stores, 74 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."
The total number of stores being operated has increased from 325 at the end of
the first quarter of fiscal 1995 to 381. This increase includes the acquisition
of 30 National Auto Supply stores in June 1994, the acquisition of the 12 store
Peterson Drug chain in July 1994, and the opening of 4 new super drug stores and
11 Wheels Discount Auto Supply stores.
Net earnings for the first quarter of fiscal 1996 were $772,000 compared to
$1,973,000 in the first quarter of the previous year. Earnings were impacted by
lower than anticipated sales in all three of the Company's retail divisions and
lower pharmacy gross margins.
Sales for the first quarter of fiscal 1996 were $266.4 million representing an
increase of 11.4% over the first quarter of last year. Sales increases reflected
growth in the number of stores from last year as well as a 17% increase in
pharmacy sales. Sales from comparable stores (those open one year or more as of
April 29, 1995) increased 1.8% including an 8.6% increase in pharmacy sales.
The gross profit rate on sales was 28.67% compared to 28.83% for the same period
last year. The decline in gross profit is largely attributable to continued
pressures on third party pharmacy margins, combined with the trend of third
party prescription sales accounting for a greater portion of total pharmacy
revenues. Third party pharmacy sales were over 78% of total pharmacy sales in
the first quarter compared to 71% in the previous year.
Selling, general and administrative expenses were 25.7% of sales and increased
from 24.8% last year largely due to the lower than anticipated sales volume.
Interest costs were higher than last year due to increases in debt required to
finance acquisitions made during fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At April 29, 1995, the Company had cash of $1.3 million and total working
capital of $98.5 million. Cash flow from operations totaled $6.7 million and was
used primarily for expenditures on property and equipment, the payment of cash
dividends, and reductions in long-term obligations. On May 12, 1995, the Company
announced that it had begun exploring the possible divestiture of some or all
of its interests in its two non-drugstore retail businesses, Wheels Discount
Auto Supply and The Paper Cutter. The proceeds from such transactions, if they
were to occur, would be used to reduce outstanding debt obligations and for
other general corporate purposes.
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.
7
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FAY'S INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On May 29, 1995, the Company was served with a summons and
complaint in an action filed in U.S. District Court for the
Northern District of New York entitled David Rowitt vs. Fay's
----------------------
Incorporated, Henry A. Panasci, Jr. and David H. Panasci. The
---------------------------------------------------------
complaint alleges violations by the Company of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5. The suit is brought as
a class action pursuant to Federal Rules of Civil Procedure 23(a) and
23(b)(3) on behalf of certain persons who purchased the Company's
common stock from January 30, 1995 through May 12, 1995. Henry A.
Panasci, Jr. and David H. Panasci are alleged to be "controlling
persons" within the meaning of Section 20(a) of the Exchange Act with
the power and influence to cause the Company to engage in the conduct
complained of.
The factual basis alleged to underlie the proceedings involves certain
public disclosures made by the Company between May 1994 and April 29,
1995 that the plaintiff alleges were materially false and misleading.
The plaintiff further alleges that the Company failed to disclose
material adverse facts about the Company's business operations and
presented an unduly optimistic presentation of the Company's current
operating condition and future business prospects.
The Company plans to interpose an answer denying all of plaintiffs
allegations of violations of law. The Company believes the lawsuit to
be wholly without merit, and the Company plans to vigorously defend
same.
8
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
[TYPE] - - 27
[DESCRIPTION] - - Article 5 Financial Data Schedule for the
quarter ended April 29, 1995.
[MULTIPLIER] 1,000
[PERIOD-TYPE] Qtr-1
[FISCAL-YEAR-END] Jan-27-1996
[PERIOD-START] Jan-29-1995
[PERIOD-END] Apr-29-1995
[CASH] 1,284
[SECURITIES] 0
[RECEIVABLES] 32,484
[ALLOWANCES] 0
[INVENTORY] 173,249
[CURRENT-ASSETS] 215,048
[PP&E] 192,619
[DEPRECIATION] 122,848
[TOTAL-ASSETS] 317,708
[CURRENT-LIABILITIES] 116,583
[BONDS] 81,487
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 2,058
[OTHER-SE] 104,711
[TOTAL-LIABILITY-AND-EQUITY] 317,708
[SALES] 266,404
[TOTAL-REVENUES] 266,404
[CGS] 190,019
[TOTAL-COSTS] 265,067
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 2,268
[INCOME-PRETAX] 1,337
[INCOME-TAX] 565
[INCOME-CONTINUING] 772
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 772
[EPS-PRIMARY] 0.04
[EPS-DILUTED] 0.04
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the fiscal quarter ended April 29, 1995.
9
<PAGE>
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
--------------------------------
(Registrant)
Dated: June 8, 1995 /s/ James F. Poole, Jr.
--------------------------------
James F. Poole, Jr.
Senior Vice President - Finance
and Chief Financial Officer
Dated: June 8, 1995 /s/ Warren D. Wolfson
--------------------------------
Warren D. Wolfson
Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<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> 1,284
<SECURITIES> 0
<RECEIVABLES> 32,484
<ALLOWANCES> 0
<INVENTORY> 173,249
<CURRENT-ASSETS> 215,048
<PP&E> 192,619
<DEPRECIATION> 122,848
<TOTAL-ASSETS> 317,708
<CURRENT-LIABILITIES> 116,583
<BONDS> 81,487
<COMMON> 2,058
0
0
<OTHER-SE> 104,711
<TOTAL-LIABILITY-AND-EQUITY> 317,708
<SALES> 266,404
<TOTAL-REVENUES> 266,404
<CGS> 190,019
<TOTAL-COSTS> 265,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,268
<INCOME-PRETAX> 1,337
<INCOME-TAX> 565
<INCOME-CONTINUING> 772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 772
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
