UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 1994
-------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission file number 1-10491
-------
MERRY-GO-ROUND ENTERPRISES, INC.
- - -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0913402
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3300 Fashion Way, Joppa, Maryland 21085
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
410-538-1000
- - ---------------------------------------------------
(Registrant's telephone number, including area code)
Neither name, address nor fiscal year has been changed since the last report.
- - -------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if changed since last
report.)
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
--- ---
Number of shares of Common Stock outstanding as of September 9, 1994:
53,948,283
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Page 2
This report on Form 10-Q/A is being filed by Merry-Go-Round Enterprises, Inc.
(the "Company") to correct a typographical error in the Company's unaudited
Consolidated Statements of Cash Flows located on page five of the Company's
report on Form 10-Q filed with the Commission on September 13, 1994.
MERRY-GO-ROUND ENTERPRISES, INC.
INDEX
Part I - Financial Information
Consolidated Statements of Operations (Unaudited) for the
Six Months Ended July 30, 1994 and July 31, 1993. 3
Consolidated Balance Sheets as of July 30, 1994
(Unaudited) and January 29, 1994 4
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended July 30, 1994 and July 31, 1993. 5
Notes to Consolidated Financial Statements (Unaudited) 6
Signatures 10
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PART I: FINANCIAL INFORMATION
- - ------------------------------
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -----------------------------
July 30, 1994 July 31, 1993 July 30, 1994 July 31, 1993
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $175,969,000 $214,412,000 $344,985,000 $400,339,000
------------ ------------ ------------ ------------
Costs and expenses:
Costs of sales, buying
and occupancy 145,857,000 163,567,000 284,883,000 303,933,000
Selling and administrative 51,941,000 53,513,000 101,893,000 95,443,000
Interest expense, net 357,000 1,300,000 425,000 1,820,000
------------ ------------ ------------- -------------
Total 198,155,000 218,380,000 387,201,000 401,196,000
------------ ------------ ------------- -------------
Earnings (loss) before reorganization
costs and income tax (benefit)
expense (22,186,000) (3,968,000) (42,216,000) (857,000)
Reorganization costs, net (note 3) 20,392,000 - 27,401,000 -
------------ ------------ ------------- -------------
Earnings (loss) before income tax
(benefit) expense (42,578,000) (3,968,000) (69,617,000) (857,000)
Income tax (benefit) expense (note 4) (4,684,000) (1,449,000) (7,658,000) (313,000)
------------ ------------ ------------- -------------
Net earnings (loss) $(37,894,000) $ (2,519,000) $(61,959,000) $ (544,000)
============ ============ ============= =============
Earnings (loss) per share of $ (.70) $ (.05) $ (1.15) $ (.01)
common stock ============ ============ ============= =============
Weighted average number of
shares outstanding 53,938,973 53,911,748 53,935,654 53,896,339
============ ============ ============= =============
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 30, 1994 January 29, 1994
--------------- ----------------
(Unaudited) (Note)
ASSETS
------
<S>
Current assets: <C> <C>
Cash and cash equivalents $ 57,580,000 $113,119,000
Receivables 4,502,000 3,916,000
Merchandise inventories 128,705,000 71,528,000
Prepaid expenses and other, including deferred
income taxes of $3,557,000 and $2,323,000 13,905,000 4,279,000
Refundable income taxes 7,283,000 18,026,000
------------ ------------
Total current assets 211,975,000 210,868,000
------------ ------------
Property and equipment, at cost:
Land and land improvements 5,421,000 5,421,000
Buildings 32,612,000 37,428,000
Leasehold improvements 130,995,000 140,301,000
Furniture, fixtures and equipment 174,245,000 183,681,000
------------ ------------
343,273,000 366,831,000
Less accumulated depreciation and amortization 125,065,000 119,691,000
------------ ------------
Net property and equipment 218,208,000 247,140,000
------------ ------------
Other 3,815,000 3,871,000
------------ ------------
$433,998,000 $461,879,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade $ 30,787,000 $ 5,406,000
Other payables and accrued expenses 29,687,000 30,997,000
Total current liabilities ------------ ------------
60,474,000 36,403,000
------------ ------------
Noncurrent liabilities:
Long-term debt 10,000,000 10,000,000
Other, including deferred income taxes of $3,382,000 and $648,000 14,313,000 11,113,000
----------- ------------
Total noncurrent liabilities 24,313,000 21,113,000
----------- ------------
Liabilities subject to compromise under reorganization proceedings 219,623,000 213,142,000
(note 2) ----------- ------------
Stockholders' equity:
Common stock of $.01 par value per share:
Authorized 100,000,000 shares; issued and outstanding 53,948,283
shares at July 30, 1994 and 53,932,335 shares at January 29, 1994 540,000 539,000
Additional paid-in capital 70,970,000 70,644,000
Retained earnings 58,078,000 120,038,000
------------ ------------
Total stockholders' equity 129,588,000 191,221,000
------------ ------------
$433,998,000 $461,879,000
============ ============
<FN>
Note - The consolidated balance sheet at January 29, 1994 has been derived from the audited consolidated
financial statements at that date.
See accompanying notes to consolidated financial statements.
/TABLE
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<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
-------------------------------
July 30, 1994 July 31, 1993
<S> <C> <C>
-------------- -------------
Operating activities:
Net earnings (loss) ($61,959,000) $ (544,000)
Adjustments to reconcile net earnings (loss) to net cash used in
operating activities:
Noncash reorganization items, including $14,625,000 provision for
loss on disposal of property and equipment 25,395,000
Depreciation and amortization 18,083,000 16,847,000
Provision for deferred income taxes 1,500,000 1,325,000
Loss on disposal of property and equipment - 1,083,000
Amortization of restricted common stock 284,000 654,000
Change in operating assets and liabilities, net of effects
of store acquisition:
(Increase) decrease in:
Receivables (829,000) (699,000)
Merchandise inventories (57,177,000) (80,461,000)
Prepaid expenses and other (8,392,000) (3,776,000)
Refundable income taxes 10,743,000
Other assets (9,000) (151,000)
Increase (decrease) in:
Accounts payable, trade 25,381,000 50,164,000
Other payables and accrued expenses (3,400,000) (7,786,000)
Federal and state income taxes payable - (8,551,000)
Other noncurrent liabilities 466,000 1,646,000
Operating payables subject to compromise under reorganization plan (856,000) --
------------ -------------
Net cash used in operating activities (50,770,000) (30,249,000)
------------ -------------
Investing activities:
Property and equipment expenditures (6,627,000) (30,675,000)
Proceeds from sales of property and equipment 314,000 -
Acquisitions of store locations - (10,769,000)
------------ ------------
Net cash used in investing activities (6,313,000) (41,444,000)
------------ ------------
Financing activities:
Net borrowings under revolving credit agreement 1,502,000 48,034,000
Principal payments on long-term debt - (322,000)
Proceeds from issuance of common stock 42,000 382,000
Dividends paid - (1,434,000)
------------ ------------
Net cash provided by financing activities 1,544,000 46,660,000
------------ ------------
Net decrease in cash and cash equivalents (55,539,000) (25,033,000)
Cash and cash equivalents at beginning of period 113,119,000 40,115,000
------------ ------------
Cash and cash equivalents at end of period $ 57,580,000 $ 15,082,000
============ ============
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
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MERRY-GO-ROUND ENTERPRISES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. REORGANIZATION AND BASIS OF REPORTING
-------------------------------------
Merry-Go-Round Enterprises, Inc. (the "Company"), a national specialty
retailer of contemporary fashions for young men and women, operated 1,314
stores in 44 states and Washington, D.C. at July 30, 1994.
As a result of certain events in the third and fourth quarters of fiscal
1994, on January 11, 1994, the Company and certain of its subsidiaries, filed
voluntary petitions for relief under Chapter 11 ("Chapter 11") of Title 11 of
the United States Code in the United States Bankruptcy Court for the District
of Maryland, Baltimore Division (the "Bankruptcy Court"). The Company and its
subsidiaries are presently operating their businesses as debtors-in-possession
under the jurisdiction of the Bankruptcy Court and intend to propose a plan of
reorganization pursuant to Chapter 11. As debtors-in-possession, the Company
and its subsidiaries may not engage in transactions outside of the ordinary
course of business without approval of the Bankruptcy Court.
Almost all of the Company's stores are located in enclosed regional
shopping malls and are leased. The geographic distribution of the retail
stores by regions of the United States was as follows: East North Central,
293 stores; East South Central, 63 stores; Mid-Atlantic, 226 stores; Mountain,
44 stores; New England, 88 stores; Pacific, 125 stores; South Atlantic, 269
stores; West North Central, 53 stores; and West South Central, 153 stores.
During the first six months of fiscal 1995, the numbers of stores opened,
closed and converted to other concepts, were as follows:
<TABLE>
<CAPTION>
Open at Open at
January 29, Stores Stores Stores July 30,
1994 Opened Closed Converted, Net 1994
------- ------ ------ -------------- --------
Concept
- - -------
<S> <C> <C> <C> <C> <C>
Merry-Go-Round 517 - (21) 10 506
Dejaiz/Attivo 395 - (29) (20) 346
Chess King 417 5 (42) (92) 288
Cignal 80 - (3) 2 79
Club International 20 - (4) - 16
Boogies Diner 5 - (1) - 4
Fashion Outlets - - (25) 100 75
----- --- --- ---- -----
1,434 5 (125) - 1,314
----- --- --- ---- -----
</TABLE>
During the first quarter of fiscal 1995, the Company converted the
merchandising strategy for 101 store locations to offer prior season clearance
and "off-price" branded merchandise. Since conversion, 25 of these stores
have been closed.
In August and the first two weeks of September 1994, the Company closed
33 store locations. In return for an extension through January 31, 1995, of
its time to assume or reject leases under the Chapter 11 proceedings, which
otherwise would have expired on August 31, 1994, the Company agreed to notify
certain landlords by September 8, 1994, of stores to be closed by September
18, 1994, and reject the related leases. Any stores leased by these landlords
not rejected in accordance with this agreement must remain open through
December 31, 1994, except in the event of a natural lease expiration. The
Company plans, pursuant to this agreement, to close 28 additional stores on or
before September 17, 1994. A portion of the stores leased by the Company are
unaffected by this agreement. After December 31, 1994, the Company's right to
reject real estate leases as permitted under Chapter 11 will be fully restored
as to all stores and will remain in effect through January 31, 1995. The
Company anticipates that it may reject additional leases and close the related
stores, although the number of stores which would be affected is undetermined
at this time.
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Liabilities subject to compromise (see note 2) in the accompanying
consolidated balance sheets represent the Company's estimate of liabilities as
of July 30, 1994, subject to adjustment in the reorganization process. Under
Chapter 11, actions to enforce certain claims against the Company are stayed
if the claims arose, or are based on events that occurred, on or before the
petition date of January 11, 1994. The ultimate terms of settlement of these
claims will be determined in accordance with a plan of reorganization
confirmed by the Bankruptcy Court. Other liabilities may arise or be subject
to compromise as a result of rejection of executory contracts, including
leases, or the Bankruptcy Court's resolution of contingent and disputed
claims. The ultimate resolution of such liabilities will be addressed as part
of a plan of reorganization.
The accompanying consolidated financial statements have been presented on
the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. As a result of the Chapter 11 filing and circumstances relating
to this event, realization of assets and satisfaction of liabilities is
subject to uncertainty. A plan of reorganization could materially change the
amounts reported in the accompanying consolidated financial statements, which
do not reflect adjustments to the carrying values of assets and liabilities
which may be necessary as a consequence of a plan of reorganization. The
ability of the Company to continue as a going concern is dependent on, among
other things, confirmation of an acceptable plan of reorganization, future
profitable operations, compliance with the debtor-in-possession financing
agreement, and the ability to generate sufficient cash from operations and
financing sources to meet future obligations.
The consolidated financial statements included herein do not include all
the information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles. For further information, such as the significant accounting
policies followed by the Company, refer to the notes to consolidated financial
statements contained in the 1994 Annual Report.
In the opinion of management, all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation for the
interim periods have been included in the consolidated financial statements.
The results of operations for the period ended July 30, 1994, are not
necessarily indicative of the operating results to be expected for the full
year.
2. LIABILITIES SUBJECT TO COMPROMISE
---------------------------------
Liabilities subject to compromise as of July 30, 1994 and January 29,
1994 consisted of:
<TABLE> July 30, 1994 January 29, 1994
-------------- ----------------
<CAPTION>
<S> <C> <C>
Secured note payable $ 4,997,000 $ 4,997,000
Unsecured liabilities:
Accounts payable, trade 40,181,000 40,881,000
Other payables and accrued expenses 35,512,000 28,331,000
Revolving credit debt 44,520,000 44,520,000
Chess King acquisition debt 29,413,000 29,413,000
Institutional investor notes 65,000,000 65,000,000
------------- ------------
$219,623,000 $213,142,000
============= ============
</TABLE>
A plan of reorganization ultimately confirmed by the Bankruptcy Court may
materially change the amounts and terms of these prepetition liabilities.
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Page 8
The Company anticipates that it will negotiate with creditors to
reconcile claims filed with the Bankruptcy Court to the Company's financial
records. The additional liability arising from this reconciliation process,
if any, is not subject to reasonable estimation. As a result, no provision
has been recorded for these possible claims. The Company will recognize the
additional liability, if any, as the amounts become subject to reasonable
estimation.
Additional bankruptcy claims and prepetition liabilities may arise from
the termination of other contractual obligations and the settlement of
contingent and disputed claims. Consequently, the amounts included in the
consolidated balance sheets as liabilities subject to compromise may be
subject to further adjustment.
Included in other payables and accrued expenses above are claims by
landlords of approximately $8.9 million arising from the rejection of
approximately 88 store leases as permitted under the Bankruptcy Code. Of
these stores, 26 were leases acquired in the 1993 acquisition of Chess King
and were guaranteed by a subsidiary of Melville. Therefore, the lessors of
these leases may have a claim against Melville for unpaid lease obligations
and breach of contract claims beyond the amounts permitted by the Bankruptcy
Code. As part of the purchase agreement, the Company has agreed to indemnify
Melville against any loss under its lease guarantees. As a result, Melville
may assert claims against the Company for amounts, if any, it is required to
pay under the lease guarantees.
If Melville is required to perform under its lease guarantees relating to
these rejected leases, the amount of any allowed claim against the Company in
Bankruptcy Court under the indemnification clause of the purchase agreement is
uncertain. As a result, the Company has recorded a liability subject to
compromise in the amount of the maximum claim permitted by the landlord under
the Bankruptcy Code and has not recorded any amount relating to the potential
claims by Melville which may arise under the indemnification clause of the
purchase agreement. In addition, since landlords are generally required to
mitigate losses under the rejected leases, the amount of their losses
including the portion of their losses which may represent a claim against
Melville, cannot be estimated at this time. The total lease commitments on
the rejected Chess King stores in excess of the recorded claims are
approximately $4.6 million.
Additional amounts relating to these stores will be recorded, if
necessary, in the period in which, based on the legal status of Melville's
claim, it is probable that the Company will be required to reimburse Melville
for any amounts paid under the lease guarantees and those amounts can be
reasonably estimated. In the event claims arising from the Melville lease
guarantees are permitted in Bankruptcy Court, these claims will be prepetition
claims and will be subject to the payment terms dictated by a confirmed plan
of reorganization.
3. REORGANIZATION COSTS, NET
-------------------------
<TABLE>
Three Months Ended Six Months Ended
July 30, 1994 July 30, 1994
------------------ ----------------
<CAPTION>
<S> <C> <C>
Reorganization costs consisted of:
Write-off of leasehold improvements
and fixtures associated with
closed stores $ 11,903,000 $ 14,625,000
Estimated lease rejection claims 5,127,000 7,351,000
Professional fees 1,821,000 4,021,000
Other 1,922,000 2,166,000
Interest income (381,000) (762,000)
---------- ----------
$ 20,392,000 $ 27,401,000
========== ==========
</TABLE>
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Page 9
4. INCOME TAX BENEFIT
------------------
The income tax benefit for the second quarter and first six months of
fiscal 1995 reflects limitations applicable to net operating loss carrybacks
resulting from alternative minimum tax rules and the reduced realizability of
deferred tax assets.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
MERRY-GO-ROUND ENTERPRISES, INC.
DATE September 19, 1994 /s/ Isaac Kaufman
------------------ --------------------------------------
Isaac Kaufman
Executive Vice President, Secretary and
Treasurer (Principal Financial Officer)
DATE September 19, 1994 /s/ Frank C. Peters
------------------ --------------------------------------
Frank C. Peters
Vice President and Controller
(Principal Accounting Officer)
