<PAGE> 1
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 quarterly period ended April 29, 1995
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 0-12203
The Clothestime, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0469138
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5325 E. Hunter Avenue
Anaheim, California 92807
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 779-5881
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former 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 ___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.001 Par Value 14,185,429 shares at June 8, 1995
- --------------------------------------------------------------------------------
This Form 10-Q consists of 16 Pages
Exhibit Index on Page 14
Page 1 of 16
<PAGE> 2
THE CLOTHESTIME, INC.
INDEX TO FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Consolidated Financial Statements (Unaudited)
Condensed balance sheets -- April 29, 1995 and January 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed statements of operations -- thirteen weeks ended April 29, 1995 and April 30, 1994 . . . . . . . . . . 4
Condensed statements of cash flow -- thirteen weeks ended
April 29, 1995 and April 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to condensed consolidated financial statements-April 29, 1995 . . . . . . . . . . . . . . . . . . . . . . 6-9
Item 2. Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
Page 2 of 16
<PAGE> 3
THE CLOTHESTIME, INC.
PART I. -- FINANCIAL INFORMATION
Item 1. -- Consolidated Financial Statements
<TABLE>
<CAPTION>
BALANCE SHEETS (Unaudited)
April 29, January 28,
1995 1995
------------- ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 3,045,690 $ 40,829,741
Marketable securities available-for-sale, net of allowances 3,183,082 7,682,273
of $141,922 and $631,328
Merchandise inventories 38,916,763 24,812,265
Income taxes receivable 7,758,144 5,350,284
Prepaid expenses and other current assets 4,337,686 2,650,227
Deferred income taxes 5,368,827 5,560,677
------------ ------------
Total Current Assets 62,610,192 86,885,467
============ ============
Investments 1,880,238 1,880,238
------------ ------------
Property, Plant and Equipment - On the basis of cost 75,565,286 75,671,921
Less: accumulated depreciation & amortization (27,678,421) (25,686,104)
------------ ------------
47,886,865 49,985,817
Other Assets 1,998,321 1,650,606
------------ ------------
Total Assets $114,375,616 $140,402,128
============ ============
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 28,209,206 $ 19,161,810
Accrued sales taxes 2,746,240 2,918,754
Accrued payroll and related taxes 3,591,309 4,030,168
Other accrued liabilities 19,930,536 20,177,354
------------ ------------
Total Current Liabilities 54,477,291 46,288,086
============ ============
Long-term Liabilities
Long-term debt 7,063,268 37,234,019
Deferred income taxes 5,966,332 5,966,332
------------ ------------
Total long-term liabilities 13,029,600 43,200,351
============ ============
Shareholders' Equity
Common Stock, $.001 par value:
Authorized-50,000,000 shares; issued
and outstanding- 14,185,429 shares and 14,181,346 shares
at April 29, 1995 and January 28, 1995, respectively 14,750 14,746
Additional paid-in capital 10,836,109 10,828,773
Retained earnings 40,954,370 45,304,232
Less: Treasury Stock, 565,000 shares at cost at April 29,1995
and January 28, 1995, respectively (4,850,215) (4,850,215)
Net unrealized holding loss on marketable securities (86,289) (383,845)
------------ ------------
Total Shareholders' Equity 46,868,725 50,913,691
------------ ------------
Total Liabilities and Shareholders' Equity $114,375,616 $140,402,128
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 3 of 16
<PAGE> 4
THE CLOTHESTIME, INC.
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
----------------------------------
April 29, April 30,
1995 1994
------------ -----------
<S> <C> <C>
Revenues:
Net Sales $72,347,239 $83,515,761
Interest and other income 372,466 339,243
----------- -----------
72,719,705 83,855,004
----------- -----------
Costs and Expenses:
Cost of sales, including buying and distribution and occupancy costs 54,022,447 56,552,067
Selling, general and administrative expenses 25,083,404 25,648,805
Loss on disposal of property, plant and equipment - 497,888
Interest expense 374,900 64,827
Other losses 393,331 28,025
----------- -----------
79,874,082 82,791,612
----------- -----------
Income (Loss) before Income Taxes (7,154,377) 1,063,392
Provision (Benefit) for Income Taxes (2,804,515) 393,455
----------- -----------
Net Income (Loss) $(4,349,862) $ 669,937
=========== ===========
Earnings (Loss) per Common and
Common Equivalent Share $ (0.31) $ 0.05
=========== ===========
Weighted average number of common
and common equivalent shares used in the
calculation 14,182,489 14,564,295
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 4 of 16
<PAGE> 5
THE CLOTHESTIME, INC.
STATEMENTS OF CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------------
April 29, April 30,
1995 1994
------------ ------------
<S> <C> <C>
Operating Activities:
Net income (loss) $ (4,349,862) $ 669,937
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,552,593 2,092,398
Loss on disposal of property, plant and equipment - 497,888
Loss on sales of marketable securities 393,331 28,025
Changes in operating assets and liabilities:
Increase in merchandise inventories (14,104,498) (11,578,999)
Increase in income taxes receivable (2,407,860) -
Increase in prepaid expenses and other assets (2,035,174) (1,469,155)
Increase in accounts payable 9,047,396 12,135,477
Decrease in accrued payroll and related taxes (438,859) (512,286)
Decrease in accrued sales tax and other accrued liabilities (486,906) (579,697)
Decrease in income taxes payable - (124,014)
------------ ------------
Net cash provided by (used in) operating activities (11,829,839) 1,159,574
------------ ------------
Investing Activities:
Investment in marketable securities (11,534) (3,177,185)
Proceeds from sales of marketable securities 4,606,800 5,164,031
Purchases of property, plant and equipment (453,641) (4,314,681)
------------ ------------
Net cash provided by (used in) investing activities 4,141,625 (2,327,835)
------------ ------------
Financing Activities:
Net borrowings (repayments) under revolving credit facility (31,319,336) 1,500,000
Proceeds from long term debt 1,400,000 -
Principal payments under long-term debt (183,841) (140,456)
Proceeds from the exercise of stock options 7,340 -
------------ ------------
Net cash provided by (used in) financing activities (30,095,837) 1,359,544
------------ ------------
Increase (decrease) in cash and cash equivalents (37,784,051) 191,283
Cash and cash equivalents at beginning of year 40,829,741 2,705,688
------------ ------------
Cash and cash equivalents at end of quarter $ 3,045,690 $ 2,896,971
============ ============
Supplemental disclosure of cash flow information:
Income taxes paid $ 8,420 $ 517,500
Interest paid $ 374,900 $ 304,827
</TABLE>
See Notes to Condensed Consolidated Financial Statements
Page 5 of 16
<PAGE> 6
THE CLOTHESTIME, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
April 29, 1995
Note A - Significant Accounting Policies
Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of 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. The consolidated financial statements
include the accounts of the Company and its consolidated group of subsidiaries,
MRJ Industries, Inc., Clothestime Stores, Inc., Clothestime Insurance Company,
Clothestime International, Inc., Clothestime Investment, Inc., and Clothestime
Acquisition Corporation. All material intercompany balances and transactions
have been eliminated in consolidation. The operating results for the thirteen
week period ended April 29, 1995 are not necessarily indicative of the results
that may be expected for the year ending January 27, 1996 ("fiscal 1995"). For
further information, refer to the financial statements and related notes
included in the Company's annual report on Form 10-K for the year ended January
28, 1995 ("fiscal 1994").
Note B - Credit Agreements
At April 29, 1995, the Company, through its subsidiary Clothestime Stores,
Inc., had a senior secured revolving credit facility with a bank serving as
agent for a lending group comprised initially of two banks which allows for
total credit of $40 million. The agreement expires February 1, 1997, and is
secured by substantially all of the assets of the Company and its subsidiaries,
excluding merchandise inventories. The Company had outstanding borrowings and
outstanding letters of credit in the amount of $3.8 million and $13.9 million,
respectively, as of April 29, 1995. Amounts outstanding under the agreement
bear interest at various rates approximating prime plus 1%. The interest rate
was 10% per annum at the end of the first three months of fiscal 1995. The
commitment and agency fee required on this agreement amounts to $55,000 on a
quarterly basis. The Company is also required to pay certain fees with respect
to each letter of credit issued under the agreement.
The agreement contains various restrictive covenants requiring, among
other things, the maintenance of certain financial ratios, including debt to
net worth and current ratio, the establishment of maximum levels of cumulative
net loss, the establishment of maximum levels of capital expenditures, the
establishment of certain limitations regarding investments made within the
Company's affiliated group, a limitation on the incurrence of future
indebtedness, and a prohibition regarding declaring or making any cash
dividends by the Company or its subsidiaries. The Company was in compliance
with or had obtained waivers for all such covenants as of April 29, 1995.
Page 6 of 16
<PAGE> 7
THE CLOTHESTIME, INC.
Note C - Capital Stock and Stock Option Transactions
The following table summarizes the activity under the Company's Stock
Option Plans during the thirteen week period ended April 29, 1995:
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Options Outstanding, January 28, 1995 2,708,665
Activity during the period:
Options Granted
(per share amounts: $2.75 to $2.75) 195,500
Options Exercised
(per share amounts: $1.50 to $1.88) (4,083)
Options Cancelled
(per share amounts: $1.50 to $12.50) (86,791)
---------
Options outstanding, April 29, 1995 2,813,291
=========
</TABLE>
At April 29, 1995, there were exercisable options covering 1,727,663 shares of
the Company's common stock. Due to the loss in the first quarter of fiscal
1995, 68,058 common equivalent shares were excluded from the loss per share
calculation as a result of the antidilutive effect. In the first quarter of
fiscal 1994, common share equivalents of 411,846 were included in the earnings
per share computation.
Note D - Long-Term Debt
Long-term debt and capital lease obligations were:
<TABLE>
<CAPTION>
April 29, 1995 January 28, 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to bank at various rates based on
prime plus 1% at April 29, 1995, and LIBOR at
January 28, 1995. $3,833,664 $35,153,000
Secured note payable to bank based on LIBOR
plus 1.5% fully amortized over 25 years,
balance due in 10 years. 1,395,333 -
Notes payable to bank at 6.1% and 6.2%,
fully amortized over five years. 1,389,897 1,478,927
Capital lease obligation 1,244,925 1,335,069
- -------------------------------------------------------------------------------------------------------------------
Total debt 7,863,819 37,966,996
Less: Current maturities (800,551) (732,977)
- -------------------------------------------------------------------------------------------------------------------
Total $7,063,268 $37,234,019
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 7 of 16
<PAGE> 8
THE CLOTHESTIME, INC.
Note D - Long-Term Debt (Con't)
The Company borrowed $1,400,000 during the first quarter of fiscal 1995,
evidenced by a note payable to the bank collaterized by an office/warehouse
building and underlying real property that the Company uses to house a portion
of its administrative and warehousing facilities. During the fourth quarter of
fiscal 1993, the Company borrowed $1,890,000, and used the proceeds to invest
in certain tax advantaged investments. In addition, during fiscal 1993, the
Company capitalized certain equipment acquired in connection with a capital
lease agreement. The current portion of the aforementioned obligations is
included in other accrued liabilities. No commitment or other fees were
required under the aforementioned notes.
Note E - Marketable Securities
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), was adopted by
the Company at the beginning of fiscal 1994. SFAS 115 requires that
investments be classified as "held-to-maturity", "available- for-sale" or
"trading securities". At April 29, 1995, the Company classified all of its
investments in securities which did not meet the definition of cash equivalents
as marketable securities available-for-sale. Investment securities
available-for-sale are those securities not held as trading securities nor as
held-to-maturity securities. These securities are reported at fair value, with
unrealized gains and losses, net of related income taxes, reported as a
separate component of stockholders' equity.
The carrying values (cost) and estimated market values of investment
securities available-for-sale are summarized as follows:
<TABLE>
<CAPTION>
As of April 29, 1995
-----------------------------------------------------------------
Gross Gross
Unrealized Unrealized
Fair Holding Holding
Cost Value Losses Gains
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. state and local government agency issues $3,325,004 $3,183,082 $141,922 $-
</TABLE>
Maturities of investment securities available-for-sale are summarized as
follows:
<TABLE>
<CAPTION>
As of April 29, 1995
-------------------------------------------------------
<S> <C>
Within 1 year $ 123,425
After 1 year through 5 years 996,999
After 5 years through 10 years 2,204,580
After 10 years -
-----------
$3,325,004
==========
</TABLE>
Page 8 of 16
<PAGE> 9
THE CLOTHESTIME, INC.
Note E - Marketing Securities (Con't)
<TABLE>
<CAPTION>
For the period ended
April 29, 1995
--------------------
<S> <C>
Proceeds from sales of investment
securities available-for-sale $ 4,606,800
Gross realized gains on sales of
investment securities available-for-sale $ 5,490
Gross realized losses on sales of
investment securities available-for-sale $ 398,821
Net unrealized holding loss on available-for-sale securities
included as a component of stockholders' equity, net of tax $ 86,289
</TABLE>
All realized gains and losses are computed on the specific identification
basis.
Item 2. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
Consolidated Results of Operations
The following table sets forth certain items in the consolidated
statements of operations as a percentage of total revenues for the thirteen
week period ended April 29, 1995 and April 30, 1994.
<TABLE>
<CAPTION>
Thirteen weeks ended
------------------------
April 29, April 30,
1995 1994
--------- ---------
<S> <C> <C>
Total revenues 100.0% 100.0%
Cost of sales, including buying and distribution and occupancy costs 74.3 67.4
Selling, general and administrative expenses 34.5 30.6
Loss on disposal of property, plant and equipment - 0.6
Interest expense 0.5 0.1
Other losses 0.5 -
----- -----
Income (loss) before income taxes (9.8) 1.3
Provision (benefit) for income taxes (3.8) 0.5
----- -----
Net Income (loss) (6.0)% 0.8%
===== =====
</TABLE>
Net Sales
Net sales decreased 13% in the first quarter of fiscal 1995 to $72.3
million compared to $83.5 million in the first quarter of fiscal 1994.
Comparable store sales (stores in operation for at least 15 months) decreased
by 17% in the first quarter of fiscal 1995 as compared with the first quarter
of fiscal 1994. Noncomparable or new store sales resulted in an increase of 4%
of net sales. Management believes that the principal factors that negatively
affected sales in the first quarter of fiscal 1995 were the continued weakness
in women's apparel specialty retail segments and extended negotiations
regarding its new credit agreement which impacted the flow of merchandise from
the Company's vendors and factors to its stores.
Page 9 of 16
<PAGE> 10
THE CLOTHESTIME, INC.
Net Sales (Con't)
The Company's primary target market is women in the 18 to 35 age group.
While customer demographics revealed that this age range represents a
significant portion of our customers, the Company still maintains a lesser
customer base in the 14 to 17 and 36 and over age groups. The Company's
business is comprised of two principal selling seasons: Spring (the first and
second quarters) which includes the period during which spring and summer
styles are introduced, and Fall (the third and fourth quarters) which includes
the back-to-school, winter and Christmas selling seasons. Consistent with the
majority of clothing retailers, first quarter sales are generally lower than
sales in the other quarters primarily as a result of the higher sales activity
during the summer, back-to-school, and Christmas selling seasons. As is the
case for most clothing retailers, abnormal seasonal weather may also affect
sales because the seasonal merchandise then in the stores may not correspond to
the merchandise consistent with the abnormal weather. In addition, since most
of the Company's stores are located in non-enclosed retail locations as
opposed to enclosed malls, the Company's sales can be adversely affected by
abnormal rain or other inclement weather. In the first quarter of fiscal 1995,
management believes that abnormal rain, primarily in California markets, may
have adversely affected sales in those markets. The actual financial impact of
the weather could not, however, be determined. There was no evidence of
adverse weather in the first quarter of fiscal 1994.
Interest and Other Income; Interest Expense; Other Losses
Interest and other income increased to $372 thousand in the first quarter
of fiscal 1995, compared to $339 thousand in the first quarter of fiscal 1994.
The increase in interest and other income in the first quarter of fiscal 1995
was primarily due to interest of $75 thousand resulting from Internal Revenue
Service tax refunds, partially offset by a lower average invested cash balance
in the first quarter of fiscal 1995.
Interest expense increased to $375 thousand in the first quarter of fiscal
1995, compared to $65 thousand in the first quarter of fiscal 1994. The
interest expense stemmed from outstanding borrowings under the Company's credit
agreement; additional borrowings of $1.4 million made during the first quarter
of fiscal 1995, evidenced by a secured note payable to the bank; a bank loan of
$1.9 million taken out in the fourth quarter of fiscal 1993, the proceeds of
which were used to purchase certain tax advantaged investments; and a capital
lease obligation of $1.9 million entered into during fiscal 1993 related to
store equipment financing. See Notes B and D of the Notes to Condensed
Consolidated Financial Statements.
During the first quarter of fiscal 1995 and fiscal 1994, other losses of
$393 thousand and $28 thousand were incurred, respectively. The losses were
due to losses from sales of marketable securities. See Note E to Condensed
Consolidated Financial Statements.
Cost of Sales
Cost of sales as a percentage of total revenues increased to 74.3% in the
first quarter of fiscal 1995 as compared with 67.4% in the first quarter of
fiscal 1994. Cost of sales as a percentage of total revenues rose primarily as
a result of the decrease in sales and higher occupancy costs in the Company's
new locations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percent of total
revenues increased to 34.5% for the first quarter in fiscal 1995 compared with
30.6% for first quarter of fiscal 1994. The overall increase in expenses as a
percentage of total revenues in the current year was due to increases in (i)
store operations and supervisory payroll (1.8%); (ii) advertising costs
Page 10 of 16
<PAGE> 11
THE CLOTHESTIME, INC.
Selling, General and Administrative Expenses (Con't)
(1.4%); and (iii) other expenses to support the increase in net stores opened
from the first quarter of fiscal 1994 to the end of the first quarter of fiscal
1995 (0.7%). Store operations and supervisory payroll and other expenses to
support store growth were higher for the quarter primarily as a result of
staffing and facilities intended to support higher than realized sales levels.
Advertising expenses were higher as the Company launched a major advertising
campaign in the month of April 1995 in an attempt to raise sales during the
Easter selling season.
Loss on Disposal of Plant, Property and Equipment
During the first quarter of fiscal 1995 and fiscal 1994, the Company
expensed $0 and $498 thousand, respectively, primarily for store-related asset
write-offs (e.g., obsolete fixtures, equipment, etc.). During the first
quarter of fiscal 1995, the Company utilized $278 thousand against the accrual
for store closures it had recorded at the end of fiscal 1994. As the Company's
stores mature, the Company will continue to remodel and/or relocate stores,
resulting in asset write-offs.
Provision (Benefit) for Income Taxes
The Company's effective tax (benefit) rate was (39.2%) and 37.0% for the
first quarter of fiscal 1995 and fiscal 1994, respectively. Based on the level
of tax advantaged investments, the Company in the first quarter of fiscal 1995
anticipates a higher net benefit rate than was anticipated for the same period
of fiscal 1994. The effective tax benefit rate of 39.2% is comparable to the
full year benefit rate that the Company experienced in fiscal 1994.
Net Income (Loss) and Earnings (Loss) Per Share
Net loss and loss per share for the first quarter of fiscal 1995 were $4.3
million and $0.31, respectively. This compared with net income and earnings
per share of $0.7 million and $0.05 for the first quarter of fiscal 1994.
Management believes that the decrease in earnings in the first quarter of
fiscal 1995, compared to the same period in fiscal 1994, was due to the
decrease in net sales in the first quarter of fiscal 1995, as discussed above.
Income (loss) before income taxes as a percentage of total revenues in the
first quarter of fiscal 1995 were (9.8%) compared with 1.3% in the same quarter
last year. The decrease in the first quarter of fiscal 1995, compared to the
same period in fiscal 1994, was due to an increase in cost of sales, selling,
general and administrative expenses and interest expense as a percentage of
total revenues, referenced above.
Liquidity and Capital Resources
Cash provided from operating activities, the Company's capital structure
and resources available from its committed long-term credit agreement provides
the financial stability to support both current operations, capital
requirements and future growth. As of the end of the first quarter in fiscal
1995, the Company, through its subsidiary Clothestime Stores, Inc., had a
senior secured revolving credit facility with a bank serving as agent for a
lending group comprised initially of two banks which allows for total credit of
$40 million. This agreement expires February 1, 1997, and is secured by
substantially all of the assets of the Company and its subsidiaries, excluding
merchandise inventories. The agreement contains various restrictive covenants
requiring, among other things, the maintenance of certain financial ratios,
including debt to net worth and current ratio, the establishment of maximum
levels of cumulative net loss, the establishment of maximum levels of capital
expenditures, the establishment of certain limitations regarding investments
made within the Company's affiliated group, a limitation on the incurrence of
future indebtedness, and a prohibition regarding declaring or making any cash
dividends by the Company or its subsidiaries.
Page 11 of 16
<PAGE> 12
THE CLOTHESTIME, INC.
Liquidity and Capital Resources (Con't)
--------------------------------------
These restrictive covenants have not affected, and management does not
expect that such covenants will affect the ability of the Company and its
subsidiaries to meet their respective cash obligations. The Company was in
compliance with or had obtained waivers for all such covenants as of April 29,
1995. At the end of the first three months, the Company had outstanding
borrowings and outstanding letters of credit in the amount of $3.8 million and
$13.9 million, respectively. The banking agreement and the amounts
outstanding thereunder are more fully described in Notes B and to the Notes to
Condensed Consolidated Financial Statements.
Cash and cash equivalents and marketable securities decreased to $6.2
million by the end of the first quarter of fiscal 1995, compared to $48.5
million at the end of fiscal 1994, primarily due to net repayments under the
line of credit of $31.3 million and cash used in operating activities of $11.8
million. Merchandise inventories increased to $38.9 million at the end of the
first quarter of fiscal 1995, from $24.8 million at the end of fiscal 1994.
The increase in inventory for the first quarter of fiscal 1995 can be
attributed to seasonal inventory fluctuations and inventory returning to higher
levels following aggressive promotional activity at the end of fiscal 1994. In
the normal course of the purchasing cycle during the year, cash and cash
equivalents will periodically decrease as the Company purchases inventory to
meet projected sales demands. Accounts payable increased to $28.2 million at
the end of the first quarter of fiscal 1995, from $19.2 million at the end of
fiscal 1994. The relative increase in accounts payable resulted primarily from
seasonal inventory purchasing.
Income taxes receivable increased to $7.8 million by the end of the first
quarter of fiscal 1995, compared to $5.4 million at the end of fiscal 1994,
primarily due to the Company recognizing a tax benefit in the current quarter.
The Company has the ability to realize tax refunds as a result of taxes paid in
fiscal 1993 and fiscal 1992.
Prepaid expenses and other current assets increased $1.7 million from the
end of fiscal 1994 to the end of the first quarter of fiscal 1995 due to
increase of $0.6 million in receivables due from insurers relating to the
captive insurance, an increase of $0.6 million in prepaid bank-related fees and
$0.5 million in various other components.
Other assets increased $0.4 million from $1.6 million at fiscal 1994 year
end to $2.0 million at the end of the first quarter of fiscal 1995 due to an
increase of $0.3 million of deferred corporate-owned life insurance costs and
$0.1 million in various other components.
Accrued sales tax decreased to $2.7 million at the end of the first
quarter of fiscal 1995 from $2.9 million at the end of fiscal 1994 mainly due
to tax payment timing differences. Accrued payroll and related taxes decreased
from $4.0 million at the end of fiscal 1994 to $3.6 million at the end of the
first quarter of fiscal 1995 primarily due to group health and payroll-related
tax payments, decreasing the accruals by $0.4 million.
Other accrued liabilities decreased $0.3 million from the end of fiscal
1994 to the end of the first quarter of fiscal 1995 due to decreases in
accruals for store closures, gift certificate accruals, legal-related accruals
and accruals for inventory services of $0.3 million, $0.2 million, $0.3 million
and $0.3 million, respectively, offset by an increase of $0.8 million in
unearned premium and insurance claims accruals recorded relating to captive
insurance.
Total cash used in operating activities during the first three months of
fiscal 1995 was $11.8 million, compared to $1.1 million provided by operating
activities during the same period of fiscal 1994. The Company's cash used in
operations was impacted by losses in the first quarter of fiscal 1995 and an
increase in merchandise inventories, partially offset by more leverage on
accounts payable. Although future performance will affect cash provided by
operations, the aforementioned factors are not expected to have short or
long-term implications on the Company's liquidity, as merchandise is purchased
and liabilities are paid in the normal course of business.
Page 12 of 16
<PAGE> 13
THE CLOTHESTIME, INC.
Liquidity and Capital Resources (Con't)
Consistent with many retailers, the Company has an indirect relationship
with the factoring community which assists vendors of merchandise inventories
in securing up front payment (as opposed to payment terms from the retailer
directly) for goods shipped to retailers like the Company. The Company
believes that internally generated funds, along with its current financial
position and the availability of lines of credit under its current credit
agreement will be sufficient to meet both operating and capital requirements.
However, to the extent cash provided from operating activities is adversely
affected, the factors require greater credit support and/or manufacturers are
less willing to deliver merchandise pursuant to payment terms, short or
long-term liquidity may be adversely impacted.
During fiscal 1995, capital expenditures of approximately $2.0 million are
anticipated. The Company plans to spend approximately $1.5 million to open
approximately 8 new stores and provide capital support for its existing store
base. In addition, the Company plans to spend approximately $0.5 million for
system enhancements and various other corporate expenditures. Capital
expenditures for expansion are planned at lower levels during fiscal 1995 in
order to conserve cash and focus on its existing store network. Management
anticipates that these capital requirements will be funded principally by cash
generated from operating activities, along with resources available under the
long-term credit agreement.
In the first three months of fiscal 1995, the Company opened four new
stores and closed six stores. As a result, property, plant and equipment
decreased $0.1 million (net of write-offs), from $75.7 million at the end of
fiscal 1994 to $75.6 million at April 29, 1995.
Page 13 of 16
<PAGE> 14
THE CLOTHESTIME, INC.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
MATERIAL CONTRACTS
10.1 Credit Agreement dated February 28, 1995 between Clothestime Stores, Inc., Wells Fargo Bank, N.A. and Union Bank,
previously filed as Exhibit 10.45 to the Annual Report on Form 10-K for the Fiscal Year Ended January 28, 1995, which
was filed with the U.S. Securities and Exchange Commission on April 28, 1995, (the "1994 Report"), is incorporated
herein by reference.
10.2 Waiver and Amendment Agreement dated April 27, 1995, by and among The Clothestime, Inc. (the "Company"), each of the
subsidiaries of the Company, Wells Fargo Bank, N.A. and Union Bank, previously filed as Exhibit 10.46 to the 1994 Annual
Report, is incorporated herein by reference.
10.3 Security Agreement dated February 28, 1995, between the Company and Wells Fargo Bank, N.A., previously filed as
Exhibit 10.47 to the 1994 Annual Report, is incorporated herein by reference. Each of the parties identified in the
Schedule attached to Exhibit 10.47 are parties to separate Security Agreements dated February 28, 1995 with Wells
Fargo Bank, N.A., each of which is substantially identical in all material respects to the Security Agreement filed as
Exhibit 10.47. Such Schedule also is incorporated herein by reference.
10.4 Guaranty dated February 28, 1995 between the Company and Wells Fargo Bank, N.A., previously filed as Exhibit 10.48 to the
1994 Annual Report, is incorporated herein by reference. Each of the parties identified in the Schedule attached to
Exhibit 10.48 are parties to separate Guaranties dated February 28, 1995 with Wells Fargo Bank, N.A., each of which is
substantially identical in all material respects to the Guaranty filed as Exhibit 10.48. Such Schedule also is
incorporated herein by reference.
10.5 Pledge Agreement dated February 28, 1995 between Clothestime Stores, Inc. and Wells Fargo Bank, N.A., previously filed as
Exhibit 10.49 to the 1994 Annual Report, is incorporated herein by reference. Each of the parties identified in the
Schedule attached to Exhibit 10.49 are parties to separate Pledge Agreements dated February 28, 1995 with Wells Fargo
Bank, N.A., each of which is substantially identical in all material respects to the Pledge Agreement filed as
Exhibit 10.49. Such Schedule also is incorporated herein by reference.
10.6 Warrant Agreement dated February 28, 1995 between the Company and Wells Fargo Bank, N.A., previously filed as
Exhibit 10.50 to the 1994 Annual Report, is incorporated herein by reference.
10.7 Warrant Agreement dated February 28, 1995 between the Company and Union Bank, previously filed as Exhibit 10.51 to the 1994
Annual Report, is incorporated herein by reference.
10.8 Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated February 28, 1995
</TABLE>
Page 14 of 16
<PAGE> 15
THE CLOTHESTIME, INC.
<TABLE>
<S> <C>
between Clothestime Stores, Inc., American Securities Company and Wells Fargo Bank, N.A., previously filed as Exhibit 10.52
to the 1994 Annual Report, is incorporated herein by reference.
10.9 $1.4 Million Loan Agreement dated February 28, 1995 between Clothestime Stores, Inc. and Wells Fargo Bank, N.A., previously
filed as Exhibit 10.53 to the 1994 Annual Report, is incorporated herein by reference.
10.10 Guaranty dated February 28, 1995 between the Company and Wells Fargo Bank, N.A., previously filed as Exhibit 10.54 to the
Annual Report, is incorporated herein by reference. Each of the parties identified in the Schedule attached to
Exhibit 10.54 are parties to separate Guaranties dated February 28, 1995 with Wells Fargo Bank, N.A., each of which is
substantially identical in all material respects to the Guaranty filed as Exhibit 10.54. Such Schedule also is
incorporated herein by reference.
10.11 Deed of Trust with Assignment of Rents dated as of February 28, 1995 between Clothestime Stores, Inc., American Securities
Company and Wells Fargo Bank, N.A., previously filed as Exhibit 10.55 to the 1994 Annual Report, is incorporated herein by
reference.
OTHER EXHIBITS
27. Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
quarterly period ended April 29, 1995.
Page 15 of 16
<PAGE> 16
THE CLOTHESTIME, INC.
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.
THE CLOTHESTIME, INC.
<TABLE>
<S> <C> <C> <C>
Date: June 12, 1995 By: /s/ John Ortega II
------------- -----------------------------------------------------------
John Ortega II
Chairman of the Board
and Chief Executive Officer
Date: June 12, 1995 By: /s/ David A. Sejpal
------------- -----------------------------------------------------------
David A. Sejpal
Vice President -
Chief Financial Officer
(Principal Financial Officer)
</TABLE>
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<EXCHANGE-RATE> 1
<CASH> 3,046
<SECURITIES> 3,183
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 38,917
<CURRENT-ASSETS> 62,610
<PP&E> 75,565
<DEPRECIATION> 27,678
<TOTAL-ASSETS> 114,376
<CURRENT-LIABILITIES> 54,477
<BONDS> 7,063
<COMMON> 15
0
0
<OTHER-SE> 46,854
<TOTAL-LIABILITY-AND-EQUITY> 114,376
<SALES> 72,347
<TOTAL-REVENUES> 72,720
<CGS> 54,022
<TOTAL-COSTS> 54,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 375
<INCOME-PRETAX> (7,154)
<INCOME-TAX> (2,804)
<INCOME-CONTINUING> (4,350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,350)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
