UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-7090
PHARMHOUSE CORP.
(Exact name of registrant as specified in its charter)
New York 13-2634868
(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
860 Broadway, New York, New York 10003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 477-9400
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 twelve months 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
As of May 9, 1995, there were outstanding 2,235,625 of Registrant's common
shares, par value $.01 per share.
<PAGE>
PHARMHOUSE CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
April 29,
1995 January 28,
(Unaudited) 1995
Current assets:
Cash $ 2,078 $ 1,313
Trade and other receivables 1,843 2,428
Merchandise inventories 52,330 16,867
Prepayments and other 599 812
Total current assets 56,850 21,420
Property, fixtures and equipment, net 4,697 4,806
Video inventory held for rental, net 449 451
Total assets $ 61,996 $ 26,677
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 33,015 $ 7,181
Accounts payable 7,335 7,600
Accrued liabilities 4,227 1,789
Total current liabilities 44,577 16,570
Long term loans 8,377 300
Other liabilities 823 803
Total liabilities 53,777 17,673
SHAREHOLDERS' EQUITY:
Preferred shares, $.10 par; authorized and
unissued 2,500,000 shares
Common shares, $.01 par; authorized
25,000,000 shares; issued 2,235,625
and 2,235,631, respectively 22 22
Capital in excess of par,net of unearned
compensation of $368 and $350 at April 29,
and January 28, 1995, respectively 21,017 20,978
Accumulated deficit (12,819) (11,995)
Total shareholders' equity 8,221 10,781
Less - treasury shares, at cost,
16,734 shares and 16,734 shares, respectively 1 1
Total liabilities and shareholders' equity $ 61,996 $ 26,677
See accompanying notes to consolidated financial statements.<PAGE>
PHARMHOUSE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
(Unaudited)
Three Months Ended
April 29, April 30,
1995 1994
Revenues:
Net store sales $ 20,947 $ 20,823
Video rental, leased department
and other income 645 707
21,592 21,530
Costs and expenses:
Cost of merchandise sold 16,546 16,537
Selling, general and administrative 5,568 5,562
Interest expense 302 197
22,417 22,296
Net loss $ (824) $ (766)
Per common share:
Net loss $ (.37) $ (.34)
Average shares outstanding 2,235,627 2,231,236
Dividends per common share None None
See accompanying notes to consolidated financial statements.
<PAGE>
PHARMHOUSE CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
April 29, April 30,
1995 1994
Cash flows from operating activities:
Net loss $ ( 824) $ ( 766)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 326 322
Increase in operating lease obligations 20 21
Changes in assets and liabilities:
Trade and other receivables 585 249
Merchandise inventories (35,463) 1,606
Prepayments and other 213 50
Accounts payable (265) (1,052)
Accrued liabilities 2,438 (187)
Reserve for restructure and store closure costs (76)
Net cash used for operating activities 32,970 167
Cash flows from investing activities:
Capital expenditures (197) (130)
Net cash used for investing activities (197) (130)
Cash flows from financing activities:
Borrowings under debt agreements (7,481)
Borrowings under debt agreements 41,392 3
Proceeds from sale of stock options 21 40
Net cash provided by financing activities 33,932 43
Net decrease in cash 765 80
Cash at beginning of period 1,313 512
Cash at end of period $ 2,078 $ 592
See accompanying notes to consolidated financial statements.
<PAGE>
PHARMHOUSE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 29, 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Pharmhouse
Corp. ("Company"), have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. These
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements of the Company and the notes thereto
for the fiscal year ended January 28, 1995 ("Fiscal 1995") included in the
Company's Annual Report on Form 10-K heretofore filed with the Securities and
Exchange Commission. The current period results of operations reflect sales
and expenses for the two day period of April 28 - April 29, 1995 for the 24
"The Rx Place" deep discount drug stores (the "Rx Place Stores") acquired on
April 28, 1995 (the "Acquisition") from F.W. Woolworth, Co., a subsidiary of
Woolworth Corporation (collectively, "Woolworth"), pursuant to the terms of an
Asset Purchase Agreement (as amended, the "Acquisition Agreement"). The
current period results of operations are not necessarily indicative of results
which ultimately will be reported for the full fiscal year ending February 3,
1996 ("Fiscal 1996").
NOTE 2 - ACQUISITION:
On April 28, 1995, the Company acquired the assets and business of 24 "The Rx
Place" deep discount drug stores (the "Rx Place Stores") from a subsidiary of
Woolworth Corporation ("Woolworth") for approximately $37 million, of which
approximately $21.9 million was paid in cash at the closing, $2.4 million will
be paid shortly after delivery of merchandise to the Company's warehouse from
one of the Woolworth warehouses, and the balance is represented by promissory
notes (the "Purchase Money Notes") with maturity dates ranging from January
1996 to April 1998. The assets acquired consist of merchandise inventories,
furniture, fixtures and equipment, store supplies and related items, all
subject to post-closing review and potential adjustments. In addition, the
Company assumed Woolworth's obligations under the leases of the Rx Place Stores
as well as certain other obligations of Woolworth specified in the Acquisition
Agreement.
The Acquisition was financed through (a) a senior secured revolving credit
facility (the "Senior Credit Facility") provided by Congress Financial
Corporation ("Congress"), pursuant to which the Company has borrowing
availability equal to the lesser of 60% of its eligible inventories or $45
million, (b) a $3 million secured subordinated term loan (the "Subordinated
Loan") provided by an unaffiliated trade supplier, and (c) the aforementioned
promissory notes. Also, the Company and the unaffiliated trade supplier
entered into a three-year merchandise Supply Agreement governing future
purchases of merchandise by the Company and providing for deferred payment by
the Company of $1 million of existing trade payables over a period of 12 to 18
months. The Senior Credit Facility is secured by a first priority security
interest in all of the Company's inventory, accounts receivable and other
assets, including a mortgage on the Company's owned store premises located in
Winchester, Virginia. All indebtedness to the trade supplier is secured by a
second priority security interest in the assets (not including real property)
of the Company. Each of the Senior Credit Facility and the Subordinated Loan
has a term of three years, subject to extension upon terms and conditions of
the respective loan agreements.<PAGE>
NOTE 3 - BORROWINGS:
In December 1991, the Company entered into a Revolving Credit Agreement with
a secured lender to provide $5 million of secured financing for a two year
period which was subsequently extended through June 1996. At January 28, 1995,
such Revolving Credit Agreement (as amended the "Pre-Acquisition Credit
Agreement") provided for borrowing availability to the Company at the lower of
$8,250,000 or 40% of eligible inventory as defined in the Credit Agreement.
On April 28, 1995, the Company entered into the Secured Credit Facility with
Congress Financial Corporation and obtained the Subordinated Loan. The
proceeds of these new secured credit facilities were used at the closing of the
Acquisition as follows:
(1) to pay Woolworth an aggregate of $21.9 million, representing the cash
portion of the purchase price paid by the Company for the inventories,
furniture, fixtures and equipment and other related assets in the Rx Place
Stores;
(2) to repay in full and retire all of the outstanding indebtedness owing by
the Company to its prior senior and subordinated secured lenders in the
aggregate of $7.5 million;
(3) to pay approximately $1.9 million (exclusive of expense attributable to
warrants issued to the Company's financial advisor discussed in Note 7) in
transaction costs incurred in connection with the Acquisition and the
refinancing of the Company's previously outstanding secured indebtedness.
The remaining available balance of the Senior Credit Facility which,
immediately following the Acquisition, equalled approximately $6.0 million, is
available for use by the Company to finance its increased working capital
requirements in connection with the operation of 38 deep discount drug stores.
Pursuant to the terms of the agreements governing the Senior Credit Facility
and the Subordinated Loan, the lenders thereunder have been granted security
interests in the inventories, receivables and other assets of the Company. In
addition, the borrowing availability under the Senior Credit Facility also
requires that the Company satisfy minimum net worth requirements and restricts
the Company from paying cash dividends. Both the Senior Credit Facility and
the Subordinated Loan have initial terms of three years, subject to extensions
upon terms and conditions described in the respective agreements governing
same. The amount borrowed under the Senior Credit Facility at April 28, 1995
totaled $25,403,000.
The purchase price paid by the Company to Woolworth for the assets and business
of the Rx Place Stores was approximately $37 million, of which approximately
$21.9 million was paid in cash at closing, $2.4 million will be paid shortly
after delivery of merchandise to the Company's warehouse from one of the
Woolworth warehouses, and the balance is represented by the Purchase Money
Notes.
Interest expense in the first quarter of Fiscal 1996 and Fiscal 1995 was
$302,000 and $178,000, respectively.
<PAGE>
NOTE 4 - LOSS PER COMMON SHARE:
Loss per Common Share for the first quarter of Fiscal 1996 and Fiscal 1995 is
based on the weighted average number of shares issued during the periods which
was 2,235,627 and 2,231,236, respectively. Shares issuable with respect to
outstanding warrants, convertible debentures and stock options were not
included in the computations since the inclusion of such shares would be
antidilutive.
NOTE 5 - WARRANTS:
In connection with the Acquisition, the Company became obligated to issue
warrants to its financial advisor to purchase shares of the Company's Common
Stock equal to 3% of the Company's issued and outstanding shares, subject to
certain antidilution protection, for a per share exercise price of
approximately $.94. Certain terms of such warrants are subject to further
discussion between the Company and such financial advisor.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Pharmhouse Corp. operates a chain of 38 deep discount drug stores of which 14
are operated under the "Pharmhouse" name and 24 are temporarily operating under
the "The Rx Place" name. The stores are located in eight states in the Mid-
Atlantic and New England areas. A wide variety of branded health and beauty
care products, cosmetics, prescription drugs, stationery, housewares, pet
supplies, greeting cards, food, snacks, beverages and other merchandise,
including seasonal products, are sold in the stores at everyday low prices.
The Company competes with other retail outlets selling similar merchandise by
offering its customers broad selections of merchandise in its product
categories at deep discount prices. The stores average 35,000 square feet in
the Pharmhouse locations and 25,000 square feet in The Rx Place locations. The
Company maintains one distribution center to support its store operations.
Results of Operations
First quarter of fiscal 1996 vs. First quarter of fiscal 1995
Revenues. During the first quarter of Fiscal 1996, the Company's revenues
(including video rental, leased department and other income) totaled
$21,592,000, an increase of $62,000 (or .3%) compared to revenues of
$21,530,000 for the first quarter of the prior year. These revenues include
$1,010,000 in revenues for the 24 Rx Place stores acquired on April 28, 1995.
On a comparable basis with Fiscal 1995, the revenues decreased $948,000 or 4.4%
in the current fiscal year. The lower same store sales resulted from increased
competition in several markets and sporadic merchandise shortages due to some
tightening of vendor credit during this fiscal period.
Gross Profit. The Company's gross profit (total revenue less costs of
merchandise and services sold) for the first quarter of Fiscal 1996 was
$5,046,000 or 23.4% compared to $4,993,000 or 23.2% of revenues for the first
quarter of Fiscal 1995. This increase resulted from higher gross margins
attained for the Pharmhouse stores compared to the same period in Fiscal 1995
as well as to the gross profit achieved on the Rx Place store revenues for
April 28th and April 29th, 1995. On a comparable basis with Fiscal 1995, the
gross profit decreased $151,000 or 3% in the current fiscal year, due primarily
to lower revenues achieved in the Pharmhouse stores.
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses of the Company in the first quarter of Fiscal 1996 were
$5,568,000 compared to $5,562,000 for the first quarter of Fiscal 1995. These
expenses include Rx Place expenses for April 28th and April 29th, 1995. On a
comparable basis with Fiscal 1995, the expenses decreased $114,000 or 2% in the
current fiscal year.
Interest Expense. The Company's interest expense for the first quarter of
Fiscal 1996 was $302,000 an increase of $105,000 (or 3.5%) compared to $197,000
for the first quarter of fiscal 1995. This increase is due to higher levels
of borrowing under the old credit facility prior to the acquisition of the Rx
Place Stores as well as to substantially increased borrowings incurred in
connection with the acquisition of such stores.
Liquidity and Capital Resources
The Company had working capital of $12,273,000 at April 29, 1995 compared to
working capital of $4,850,000 at January 28, 1995, an increase of $7,423,000.
The increase in working capital was primarily attributable to the acquisition
of the 24 Rx Place stores on April 28, 1995.
In April 1995, the Company entered into the Senior Credit Facility with
Congress Financial Corporation which provides for borrowing availability equal
to the lower of sixty percent (60%) of eligible inventory or $45,000,000.
Borrowings under this Senior Credit Facility were used to finance a portion of
the acquisition on April 28, 1995 of 24 The Rx Place Stores from F. W.
Woolworth Co. (the "Acquisition"), to repay in full indebtedness of the
Company under its then existing senior and subordinated secured loans in the
aggregate amount of approximately $$7.5 million, and to provide working capital
to the Company for the operation of its 38 stores. In addition, in connection
with the Acquisition, the Company received a $3,000,000 Subordinated Loan from
one of its unaffiliated suppliers as well as $1,000,000 in extended dating
terms payable in 12 to 18 months and issued promissory notes to F. W. Woolworth
Co. in an aggregate principal amount of approximately $12.4 million, all of
which borrowings were used by the Company to pay the balance of the Acquisition
purchase price.
<PAGE>
PHARMHOUSE CORP. AND SUBSIDIARY
PART II
OTHER INFORMATION
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHARMHOUSE CORP.
(Registrant)
/s/ Marcie B. Davis
Marcie B. Davis
Senior Vice President-Finance
and Chief Financial Officer
Dated: June 18, 1995
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<PP&E> 5,146
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0
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<CGS> 16,546
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