UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
Commission File Number: 0-6731
C.R. ANTHONY COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0129405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
701 Broadway, Oklahoma City, 73102
Oklahoma
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (405)278-7400
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 by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ X ] No [ ]
Number of shares of Common Stock outstanding
as of May 4, 1996: 9,005,245
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
May 4, April 30, February 3,
ASSETS 1996 1995 1996
CURRENT ASSETS:
Cash and cash equivalents $3,814 $3,268 $2,654
Accounts receivable, less
allowance for doubtful
accounts of $100 3,409 4,201 2,353
Merchandise inventories 86,321 88,744 84,438
Other assets 1,769 663 1,620
Deferred income taxes 2,323 2,410 1,849
Total current assets 97,636 99,286 92,914
PROPERTY AND EQUIPMENT, net 14,876 14,566 15,331
OTHER ASSETS 358 239 376
DEFERRED INCOME TAXES 8,439 9,473 8,439
TOTAL $121,309 $123,564 $117,060
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $22,392 $26,021 $14,562
Other liabilities 7,796 9,305 6,673
Accrued compensation 1,856 1,538 1,889
Income taxes payable - - 522
Current maturities of
long-term debt 3,695 9,454 7,069
Total current
liabilities 35,739 46,318 30,715
LONG-TERM DEBT, less current
maturities 18,081 12,531 18,114
OTHER LIABILITIES 1,095 1,096 1,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par
value; 50,000,000 shares
authorized; 9,005,245
shares issued and
outstanding 90 90 90
Additional paid-in capital 57,216 57,216 57,216
Retained earnings 9,088 6,313 9,829
Total stockholders'
equity 66,394 63,619 67,135
TOTAL $121,309 $123,564 $117,060
See notes to consolidated financial statements.
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in Thousands, except per share amounts)
13 Weeks 13 Weeks
Ended Ended
May 4, April 30,
1996 1995
NET SALES $61,190 $62,341
COST OF GOODS SOLD 43,012 43,291
GROSS MARGIN 18,178 19,050
EXPENSES:
Selling, general and administrative 15,944 16,985
Advertising 2,051 2,905
Depreciation and amortization 975 1,042
Interest 423 462
Total expenses 19,393 21,394
LOSS BEFORE INCOME TAXES (1,215) (2,344)
INCOME TAX BENEFIT 474 914
NET LOSS $(741) $(1,430)
NET LOSS PER SHARE $(0.08) $(0.16)
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 9,005,245 9,005,245
See notes to consolidated financial statements.
C.R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
13 Weeks 13 Weeks
Ended Ended
May 4, April 30,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(741) $(1,430)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 975 1,042
Deferred tax benefit (474) (914)
Gain on disposals of equipment (12) (2)
Changes in other assets and
liabilities:
Accounts receivable (1,056) (1,552)
Merchandise inventories (1,883) (12,823)
Other assets (149) 177
Accounts payable and other
liabilities 8,430 10,899
Accrued compensation (33) (1,423)
Net cash provided by (used in)
operating activities 5,057 (6,026)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (500) (623)
Proceeds from sale of property and
equipment 10 7
Net cash used in investing
activities (490) (616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) - Revolving
Credit Agreement (3,375) 6,290
Payments of long-term debt (32) (164)
Net cash provided by (used in)
financing activities (3,407) 6,126
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,160 (516)
CASH AND CASH EQUIVALENTS, Beginning of
period 2,654 3,784
CASH AND CASH EQUIVALENTS, End of period $3,814 $3,268
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $344 $532
Income taxes $557 $1,150
See notes to consolidated financial statements.
C.R. ANTHONY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS
ENDED MAY 4, 1996 AND APRIL 30, 1995
(Unaudited)
SUMMARY OF INTERIM REPORTING PRACTICES
Basis of presentation - The consolidated financial
statements include the results of operations, account
balances and cash flows of the Company and its wholly owned
subsidiary (ANCO Transportation, which principally
transports merchandise to Company stores). All material
intercompany accounts and transactions have been eliminated.
The consolidated balance sheets as of May 4, 1996 and April
30, 1995 and the statements of operations and cash flows for
the thirteen weeks ended May 4, 1996 and April 30, 1995 have
been prepared by the Company without audit. In the opinion
of management, all adjustments (consisting only of normal,
recurring accruals) necessary to state fairly the Company's
financial position and the results of operations and cash
flows for the thirteen weeks ended May 4, 1996 and April 30,
1995 have been made. Due to the seasonal nature of the
business, results for the interim periods are not
necessarily indicative of a full year's operations, and
balances of inventory, receivables, revolving credit
agreement borrowings, and trade payables vary with the
seasonal demands of the business.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed
or omitted. It is suggested that these financial statements
be read in connection with the annual consolidated financial
statements and notes thereto.
Earnings per share - Earnings per share is computed based
upon net income divided by the weighted average number of
shares outstanding. The impact of stock options on earnings
per share is not materially dilutive.
Reclassifications - Certain reclassifications have been made
to prior year balances to conform with the classifications
of such amounts in the current period.
Accounting pronouncements - In March 1995, the Financial
Accounting Standards Board issued SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which establishes accounting
standards for such assets. In October 1995, the Financial
Accounting Standards Board issued SFAS 123, "Accounting for
Stock-Based Compensation." SFAS 123 establishes a fair
value method and disclosure standards for stock-based
employee compensation arrangements, such as stock purchase
plans and stock options. As allowed by SFAS 123, the
Company will continue to follow the provisions of Accounting
Principles Board Opinion 25 for such stock based
compensation arrangement and disclose the proforma effects
of applying SFAS 123, if any, in the financial statements.
The Company adopted these new standards effective February
4, 1996. The adoption of these standards had no material
impact on the Company's financial position, results of
operations or related disclosures to the Notes to
Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table presents selected results of operations expressed as a
percent of net sales:
13 Weeks 13 Weeks
Ended Ended
May 4, April
1996 30, 1995
Net sales 100.0% 100.0%
Gross margin 29.7% 30.6%
Selling, general and 26.1% 27.3%
administrative expense
Advertising 3.3% 4.7%
Depreciation & amortization 1.6% 1.7%
Interest expense 0.7% 0.7%
Loss before income taxes (2.0%) (3.8%)
Net sales. Comparable store sales have declined 3.2% during
the thirteen weeks ended May 4, 1996 ("fiscal 1996 first
quarter") compared to the thirteen weeks ended April 30, 1995
("fiscal 1995 first quarter"). Net sales in the fiscal 1995
first quarter were particularly strong as comparable store sales
increased 5.6% from the prior year first quarter. The fiscal
1995 first quarter benefited from expanded advertising programs
which were not repeated in the current year.
Net sales during the quarter also reflect the effect of a
net increase of eleven stores as the Company was operating 211
stores as of May 4, 1996 compared to 200 as of April 30, 1995.
The Company opened 7 new stores while closing 4 during fiscal
1996 first quarter. Total selling square footage increased to
3,007,847 at May 4, 1996 from 2,934,314 at April 30, 1995.
Although total selling square footage has increased, the average
selling square footage per store is declining due to the
Company's strategy of opening smaller stores in rural markets
while closings have been larger, metropolitan stores.
Gross margin. Gross margin declined in comparing fiscal 1996 first
quarter to fiscal 1995 first quarter. The decline in margins for the
quarter was primarily related to a strategy of positioning inventory through
clearance activity which occurred principally in February. Margins have
improved over prior year in March and April. The decline in gross margin
dollars was also attributable to the $1,151,000 decline in net sales.
Selling, general and administrative expense. The decline in selling,
general and administrative expense in fiscal 1996 first quarter as compared to
fiscal 1995 first quarter is primarily due to a $1,082,000 reduction achieved in
comparable stores. The decreases were the result of lower handling costs
associated with a reduction in merchandise purchases and lower personnel
costs from implementing improved business processes and management practices.
The costs associated with new stores were essentially offset by savings
realized from stores closed as the net increase in non-comparable stores
(new and closed stores) was only $83,000. Costs associated with the
Company's corporate office were also lower during the fiscal 1996 first
quarter as compared to the fiscal 1995 first quarter due to reductions in
corporate office staff.
Advertising expense. Advertising expense decreased $854,000, or 29.4%,
in fiscal 1996 first quarter compared to fiscal 1995 first quarter. The
decrease is primarily attributable to reductions in the quantity of
pre-printed inserts and broadcast commercials run in fiscal 1996 first quarter.
In the prior year, the Company was introducing a campaign of "Every Jean On
Sale Everyday." While this promotional strategy continues to be utilized, the
marketing costs of maintaining the program are lower than were incurred in
the prior year. Management has been pursuing a strategy of reducing reliance
on pre-printed inserts and broadcast in favor of other programs such as
everyday low pricing in selected markets.
Interest expense. While average borrowings were approximately
$3 million higher during the fiscal 1996 first quarter as compared to
fiscal 1995 first quarter due to higher working capital borrowings in the
early part of the quarter, interest expense decreased as a result of the
lower interest rate under the new revolving credit agreement entered into
July 27, 1995 (see "Liquidity and Capital Resources").
Tax benefit. The Company's effective tax rate was 39% in first quarter
fiscal 1996 and first quarter fiscal 1995. The principal differences from
the federal statutory rate were state income taxes.
Net loss. As a result of the above factors, results of operations
improved as the net loss decreased $689,000, or 48.2%, to $741,000 in fiscal
1996 first quarter compared to a net loss of $1,430,000 in fiscal 1995 first
quarter.
Liquidity and Capital Resources
The Company's primary cash requirements are for seasonal working capital
and capital expenditures in connection with its new store expansion and
remodeling programs, equipment and software for information systems and
distribution center facilities. The Company's inventory levels build in
early spring for the Easter and spring selling season, in early summer for
the back-to-school selling season, and throughout the fall, peaking during
the Christmas selling season. Accounts receivable, consisting principally of
layaway receivables, peak during July due to the back-to-school layaway
promotion and decrease during the third quarter as payments are received.
Capital expenditures typically occur throughout the year.
The Company's primary sources of funds are cash flow from operations,
borrowings under its working capital and letter of credit facility and trade
accounts payable. Terms for trade accounts payable are generally 30 days
with the total of trade accounts payables fluctuating with the timing of
merchandise receipts.
The Company also has a private label charge card program. The charge
card receivables are sold to a third party processor on a non-recourse basis
at 100% of face value, less a stated discount rate. The Company is also
obligated to pay a fee to the third party processor for bad debt losses
equal to 50% of such losses in excess of 2.25% of annual private label
charge card sales. The Company records the discount and accrues for its
estimated obligation for bad debt expense at the time the receivables are
sold.
The Company had net operating loss carryforwards of approximately
$16,800,000 at the end of fiscal 1995. The benefit of the net operating
loss carryforwards has been fully recorded as a deferred tax asset. The
Company can deduct approximately $2,700,000 of the loss carryforward each
year through fiscal 2007 which, at current effective income tax rates,
produces a tax savings annually of approximately $1,050,000.
The increase in cash flow from operating activities in fiscal 1996 first
quarter as compared to fiscal 1995 first quarter was due in part to improved
operating results. However, the principal cause for improvement was a
reduction during the first quarter of fiscal 1996 in required working
capital, contrasted to an increase in the first quarter of fiscal 1995.
Purchases during the fiscal 1996 first quarter were approximately
$10,055,000 less than fiscal 1995 first quarter. Outstanding borrowings of
long-term debt, which were $9,324,000 higher at the end of fiscal 1995
compared to the end of fiscal 1994, were $209,000 lower at May 4, 1996 as
compared to April 30, 1995.
Net cash used for capital expenditures was $500,000 and $623,000 in
fiscal 1996 first quarter and fiscal 1995 first quarter, respectively.
These amounts include the following expenditures in the periods presented
(dollars in thousands):
13 Weeks 13 Weeks
Ended Ended
May 4, April
1996 30,
1995
Store expenditures:
New stores $224 $257
Remodels, expansions, and
relocations 46 154
Other 23 74
Information systems 73 74
Other 134 64
Total $500 $623
The Company's capital expenditures in fiscal 1996 are expected to total
approximately $8 million. This amount contemplates the opening of 40 stores
and expending approximately $2 million for equipment and software to automate
the distribution center processes. The distribution center project will be
financed by the Company's revolving credit agreement.
On July 27, 1995, the Company entered into an Amended and Restated Loan
Agreement (the "Agreement") maturing July 26, 2000. The Agreement replaced
the revolving credit agreement which was scheduled to mature August 3, 1995.
The Agreement provides for revolving credit borrowings, letters of credit and
$20 million of long-term debt. The long-term portion requires a $2 million
annual payment. Maximum borrowings under the Agreement are $60 million
reduced annually by the $2 million long-term principal payment. The rate
of interest on borrowings is at the index rate plus 2% per annum plus a fee
of 0.25% on the unused portion of the facility. The Agreement is secured by
a lien on substantially all assets of the Company. Proceeds from the new
agreement were used to pay off the $15,368,000 secured note payable to the
former Bank Group which had provided for $3 million annual principal
reductions and matured June 1, 1999. By paying off the term debt, the Company
achieved a slight improvement in interest cost and reduced annual principal
payments obligation of $3.0 million to $2.0 million.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently subject to certain litigation in
the normal course of business which, in the opinion of
management, will not result in a material adverse effect on the
Company's business, financial position, or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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.
C.R. ANTHONY COMPANY
(Registrant)
Dated: May 24, 1996 /s/ Michael E. McCreery
Michael E. McCreery
Vice Chairman, Chief
Administrative Officer and
Treasurer (principal
financial officer)
Dated: May 24, 1996 /s/ Richard E. Stasyszen
Richard E. Stasyszen
Vice President and
Controller (chief accounting
officer)
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