<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JULY 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
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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 September 1, 1995
--------------------------------- --------------------------------------
Common Stock, $.10 par value 20,589,512
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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 -
July 29, 1995 and January 28, 1995 3
Consolidated Condensed Statements of Net Earnings -
Thirteen and Twenty-Six Weeks Ended July 29, 1995
and July 30, 1994 4
Consolidated Condensed Statements of Cash Flows -
Twenty-Six Weeks Ended July 29, 1995 and July 30,
1994 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
2
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FAY'S INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands of dollars)
<TABLE>
<CAPTION>
July 29,
1995 January 28,
ASSETS (Unaudited) 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 1,425 $ 1,941
Accounts receivable 33,717 35,992
Merchandise inventories 162,586 166,956
Prepaid expenses 5,759 8,457
Refundable income taxes 1,933 -
---------- -----------
Total Current Assets 205,420 213,346
Deferred Income Taxes 1,572 1,572
Property and Equipment, net 69,235 70,395
Intangible and Other Assets, net 31,550 28,815
---------- -----------
Total Assets $ 307,777 $ 314,128
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank $ 11,700 $ 13,100
Accounts payable, trade 55,986 57,411
Accrued payroll and related taxes 8,198 9,423
Other current liabilities 21,285 20,176
Federal and state income taxes payable - 1,866
Current portion of long-term debt and
obligations under leases 10,191 10,294
---------- -----------
Total Current Liabilities 107,360 112,270
Long-Term Debt 81,425 81,656
Obligation Under Leases 1,380 1,587
Deferred Gain and Other Liabilities 3,432 4,229
Accrued Postretirement Benefit Obligation 7,361 7,405
Commitments
Stockholders' Equity:
Common stock, par value $.10 per share 2,060 2,055
Additional paid-in capital 61,172 61,050
Retained earnings 43,688 43,977
Common stock held in treasury, at cost (101) (101)
---------- -----------
Total Stockholders' Equity 106,819 106,981
---------- -----------
Total Liabilities and Stockholders' Equity $ 307,777 $ 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 Twenty-Six Weeks Ended
---------------------- ----------------------
July 29, July 30, July 29, July 30,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 269,846 $ 252,379 $ 536,250 $ 491,440
Cost and Expenses:
Cost of merchandise sold 194,099 180,395 384,118 350,533
Selling, general and administrative expenses 67,230 61,404 135,659 120,690
Depreciation and amortization expenses 4,520 3,960 8,871 8,156
Interest expense, net 2,298 2,142 4,566 4,147
--------- --------- --------- ---------
Total cost and expenses 268,147 247,901 533,214 483,526
--------- --------- --------- ---------
Earnings before income taxes 1,699 4,478 3,036 7,914
Provision for income taxes 725 1,897 1,290 3,360
--------- --------- --------- ---------
Net earnings $ 974 $ 2,581 $ 1,746 $ 4,554
========= ========= ========= =========
Earnings per share $ 0.05 $ 0.13 $ 0.08 $ 0.22
========= ========= ========= =========
Cash dividends paid per share $ 0.05 $ 0.05 $ 0.10 $ 0.10
========= ========= ========= =========
Stores in operation at end of period 381 368 381 368
</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>
Twenty-Six Weeks Ended
----------------------
July 29, July 30,
1995 1994
-------- --------
<S> <C> <C>
Cash Flow From Operating Activities:
Net earnings $ 1,746 $ 4,554
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Depreciation and amortization 8,871 8,156
Decrease (increase) in current assets 7,410 (2,241)
Decrease in current liabilities (3,407) (2,172)
(Decrease) increase in other long-term
liabilities (843) (362)
Changes in deferred tax assets and
liabilities - (580)
-------- --------
Net cash provided from operating activities 13,777 7,355
-------- --------
Cash Flow For Investing Activities:
Expenditures for property and equipment (5,894) (7,909)
Increase in intangibles and other assets (4,555) (7,283)
-------- --------
Net cash used for investing activities (10,449) (15,192)
-------- --------
Cash Flow From Financing Activities:
Decrease in notes payable, bank (1,400) (10,605)
Increase in long-term debt - 25,000
Repayment of long-term debt and reduction
of obligation under leases (539) (2,868)
Cash dividends paid (2,056) (2,027)
Other 151 110
-------- --------
Net cash from (for) financing activities (3,844) 9,610
-------- --------
Net increase (decrease) in cash (516) 1,773
Cash balance, beginning of period 1,941 1,006
-------- --------
Cash balance, end of period $ 1,425 $ 2,779
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
FAY'S INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 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
20,858,472 and 20,343,227 for the thirteen weeks ended July 29, 1995 and July
30, 1994, respectively, and 20,793,640 and 20,340,193 for the twenty-six weeks
ended July 29, 1995 and July 30, 1994, respectively.
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 July 29, 1995, the Company was
operating 215 Fay's Drug stores, 61 traditional drug stores, 75 discount auto
supply stores under the name "Wheels Discount Auto Supply," and 30 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 368 at the end of
the second quarter of fiscal 1995 to 381. This increase includes the opening of
five Fay's Drug stores, 12 Wheels Discount Auto Supply stores, and one Paper
Cutter store. During the same period, the Company closed two traditional drug
stores, one Fay's Drug store, two Paper Cutter stores, and converted one
traditional drug store to a Fay's Drug store.
Net earnings for the second quarter of fiscal 1996 were $974,000 compared to
$2,581,000 in the second quarter of the previous year. Earnings for the first
half of the year were $1,746,000 compared to $4,554,000 in fiscal 1995. Earnings
were impacted by weakened demand for seasonal and general merchandise and lower
pharmacy gross margins.
Sales for the second quarter and first half of fiscal 1996 were $269.8 and
$536.3 million, respectively, representing increases of 6.9% and 9.1% over the
same periods a year earlier. Sales from comparable stores (those open one year
or more as of July 29, 1995) were approximately the same as in the second
quarter of last year, and for the first half increased .9%. The overall sales
increases reflected growth in the number of stores from last year as well as
increases in pharmacy sales. Total pharmacy sales increased 13.3% and 15.1% for
the three and six months, respectively, while comparable stores increased 6.8%
and 7.6%, respectively.
The gross profit rate on sales was 28.07% in the second quarter compared to
28.52% for the same period last year. For the first half, the gross
profit rate decreased from 28.67% last year to 28.37%. These declines were
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 half compared to approximately 71% in
the previous year.
Selling, general and administrative expenses were 24.9% of sales for the quarter
compared to 24.3% last year, and for the first half increased from 24.6% last
year to 25.3%. These increases were 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 July 29, 1995, the Company had cash of $1.4 million and total working capital
of $98.1 million. Cash flow from operations totaled $13.8 million and was used
primarily for expenditures on property
7
<PAGE>
and equipment, the payment of cash dividends, and reductions in debt
obligations. On May 12, 1995 the Company announced that it had begun exploring
the possible divestiture of its two non-drug store 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.
8
<PAGE>
FAY'S INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The 1995 Annual Meeting of Stockholders was held on May 26, 1995.
(c) Each of the matters voted upon at the Meeting, and the number of
votes cast for, against, or withheld, as well as the number of
abstentions and broker non-votes, as to each matter, including a
separate tabulation with respect to each nominee for office, is as
follows:
(i) Votes cast for director nominees:
Robert J. Bennett For 16,941,276
Against 157,545
Lee H. Flanagan For 16,913,031
Against 185,790
Henry A. Panasci, Jr. For 16,927,578
Against 171,243
Alair A. Townsend For 16,928,254
Against 170,568
(ii) Proposal to approve the appointment of Deloitte & Touche LLP
to audit the financial statements of the Company and its subsidiaries
for the fiscal year ending January 27, 1996.
For 16,971,414
Against 72,407
Abstain 54,499
Unvoted 505
9
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Article 5 Financial Data Schedule for the quarter ended April 29,
1995.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the fiscal quarter ended July 29, 1995.
10
<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: September 8, 1995 /s/ James F. Poole, Jr.
---------------------------------
James F. Poole, Jr.
Senior Vice President - Finance
and Chief Financial Officer
Dated: September 8, 1995 /s/ Warren D. Wolfson
---------------------------------
Warren D. Wolfson
Senior Vice President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> JUL-29-1995
<CASH> 1,425
<SECURITIES> 0
<RECEIVABLES> 33,717
<ALLOWANCES> 0
<INVENTORY> 162,586
<CURRENT-ASSETS> 205,420
<PP&E> 195,566
<DEPRECIATION> 126,331
<TOTAL-ASSETS> 307,777
<CURRENT-LIABILITIES> 107,360
<BONDS> 81,425
<COMMON> 2,060
0
0
<OTHER-SE> 104,759
<TOTAL-LIABILITY-AND-EQUITY> 307,777
<SALES> 269,846
<TOTAL-REVENUES> 269,846
<CGS> 194,099
<TOTAL-COSTS> 268,147
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,298
<INCOME-PRETAX> 1,699
<INCOME-TAX> 725
<INCOME-CONTINUING> 974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 974
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
