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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 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
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COMMISSION FILE NUMBER 1-8765
CARTER HAWLEY HALE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-0457907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3880 North Mission Road
Los Angeles, California 90031
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(213) 227-2000
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 .
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Indicated 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 .
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As of May 28, 1994, approximately 45,622,122 shares of the registrant's common
stock were outstanding.
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CARTER HAWLEY HALE STORES, INC.
Form 10-Q Index
<TABLE>
PAGE
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PART I. FINANCIAL INFORMATION:
Management's Discussion and Analysis of Financial Condition and Results of Operations. . 1
Consolidated Statement of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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CARTER HAWLEY HALE STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The discussion of results of operations that follows is based upon the
Company's consolidated financial statements set forth on pages 4 to 7. The
discussion of liquidity and capital resources is based upon the Company's
current financial position.
RECENT DEVELOPMENTS
A significant number of the Company's Southern California stores suffered
damage as a result of the major earthquake which affected that area on January
17, 1994. While most of the area stores were reopened within two weeks, four
stores suffered substantial damage. Of these stores, one was reopened in the
later part of May, two stores are scheduled to reopen during June and the
remaining store is scheduled to reopen in the fall season.
The Company maintains earthquake and business interruption insurance with
standard deductible provisions that require the Company to incur an initial
level of costs at each location subject to damage or interruption of business.
In January 1994, the Company established both a reserve of $65.4 million to
cover costs of building and fixture repairs, inventory and business interruption
losses, and other costs related to the earthquake and a receivable of $50.4
million for estimated insurance recoveries. As of April 30, 1994, $27.3 million
of the reserve had been utilized, largely to cover repairs and damaged
inventories, and $21.2 million had been received in insurance recoveries. The
$15.0 million non-recurring charge recognized in January 1994, in management's
opinion, continues to be adequate to cover earthquake related losses in excess
of estimated insurance proceeds.
RESULTS OF OPERATIONS
For the thirteen weeks ended April 30, 1994, total sales were $431.1
million, a decrease of 2.6% compared with the $442.5 million in sales for the
thirteen weeks ended May 1, 1993. Current year results were impacted by the
January 17, 1994 Northridge earthquake and the loss of sales from the four
stores which remained closed during the period. On a comparable store basis,
sales increased 4.7% for the quarter.
Earnings before interest and taxes ("EBIT") of $4.6 million, 1.1% of sales
in the current year period compares to $5.0 million, 1.1% of sales in the prior
year period. The decrease in the current quarter reflects the impact of lower
sales and a continuing promotional environment.
Cost of goods sold improved to $319.4 million, 74.1% of sales from $329.5
million, 74.5% in the prior year period. The .4% improvement reflects savings
in buying costs.
Selling, general, and administrative expenses were $129.7 million, 31.1% of
sales, compared to $129.2 million, 29.2% of sales last year. Savings from cost
reduction programs put in place during fiscal 1993 were largely offset by higher
promotion and store operating expense levels during the current year period.
Finance charge revenue increased to $22.5 million, 5.2% of sales, in the
current year period, from $21.2 million, 4.8% of sales, in the comparable prior
year period. The improvement reflects increasing customer receivable balances
resulting from an October 1993 change in
1
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payment terms, reducing the minimum monthly payment requirement on the
Company's short term revolving charge accounts.
Limitations on the Company's ability to record income tax benefits for net
operating loss carryforwards for financial statement purposes resulted in no
income tax benefit being recognized in the current year. The income tax benefit
recognized in the first quarter of the prior year was eliminated in the fourth
quarter of that year for similar reasons.
Interest expense increased by $.2 million to $22.5 million in the current
year first quarter from $22.3 million in the comparable prior year period. The
effect of increased interest rates and borrowing fees was partially offset by
lower borrowing levels.
Due to the seasonal nature of the retail business wherein a significant
portion of sales for the year are generated in the fourth quarter, the Company
follows the practice of allocating certain fixed buying and occupancy costs
among quarters within the fiscal year to match these costs with the associated
seasonal sales revenue. Operating results, on a pre-tax basis, reflect the
reallocation of such buying and occupancy costs, resulting in benefits of $6.9
million and $6.6 million being reflected in the operating results for the
current and prior year first quarter periods.
The seasonal nature of the retail business also results in a significant
portion of the earnings from operations for the year being generated in the
fourth quarter. Interim operating results are thus not necessarily indicative of
earnings from operations that will be realized for the full fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Company has adequate funding available to meet its
operating requirements under separate credit and receivables facilities. Subject
to collateral limitations, the facilities provide for up to $225.0 million in
credit financing and up to $575.0 million in financing for the Company's
proprietary credit card receivables portfolio. As of April 30, 1994, no advances
and $56.0 million in letters of credit were outstanding under the credit
facility and $340.2 million of borrowings, $104.5 million less than the maximum
available based on the level of customer receivables, were outstanding under the
receivables facility. The facilities expire in October 1995.
The credit facility contains a number of operating and financial covenants,
as well as significant negative covenants. The credit facility includes
covenants for material adverse changes, minimum aggregate net cash flow and
earnings before interest, taxes, depreciation and amortization ("EBITDA"). In
addition, the credit facility prohibits the Company from paying dividends on its
stock and places limitations on inventory levels and capital expenditure
amounts. During the first quarter of the current year, the financial covenants
were relaxed by an amendment to the credit facility which took into account the
enhanced liquidity provided by proceeds of $137.9 million from the December 1993
issuance of 6.25% Convertible Senior Subordinated Notes. The Company is
currently in compliance with all covenants under the credit facility. As of
April 30, 1994, cash flow and EBITDA levels exceeded covenant requirements by
$30.9 million and $28.4 million, respectively. In addition, the Company's net
inventory ratio at April 30, 1994 was 73.7% or 13.5% less than the maximum
permitted under the credit facility and year-to-date capital expenditures
amounted to $7.4 million compared to the $110.0 million maximum allowable for
fiscal 1994. The credit agreement and the Company's agreements with its other
principal secured creditors contain additional covenants and requirements, all
of which the Company is in compliance with.
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A substantial portion of the Company's debt is variable rate debt. Assuming
that the average borrowings and all other variables would have remained
constant, an increase (or decrease) in the interest rates applicable to the
variable rate portion of the Company's debt throughout the thirteen week period
ended April 30, 1994 of one percent would have increased (or decreased) the
Company's interest expense for such period by approximately $1.0 million.
CAPITAL EXPENDITURES. The Company's business strategy includes a store
remodeling program designed to increase selling space within existing stores and
to make more productive use of existing selling space. Capital expenditures for
the current year, excluding costs for earthquake repairs, are projected at
approximately $100.0 million and will be largely concentrated on the remodel
program.
The capital expenditure program may be modified over time to accommodate
market factors and the Company's then existing financial condition. In addition,
from time to time the Company may consider proposals to close existing stores or
open new stores.
The Company's ability to fund its capital expenditure program and to
implement its business strategy will depend on cash flow from operations and the
continued availability of borrowings under the credit facility. Operating cash
flow will be affected by, among other things, the timing of results from the
Company's business strategy, sales during the holiday season, and general
competitive and economic conditions. The Company believes that the operating
cash flow and amounts available under the credit facility, together with
proceeds from the 1993 Convertible Senior Subordinated Notes and equity
offerings, will be sufficient to fund the major elements of its business
strategy. However, the Company continuously evaluates increasing or decreasing
the number of stores, the terms of its credit and receivables facilities and
other operating and financing alternatives.
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CARTER HAWLEY HALE STORES, INC.
Consolidated Statement of Earnings
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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April 30, May 1,
1994 1993
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Sales $ 431,077 $ 442,480
Finance charge revenue 22,537 21,228
Cost of goods sold, including
occupancy and buying costs 319,366 329,454
Selling, general, and
administrative expenses 129,695 129,213
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Earnings from operations before interest
expense and income taxes 4,553 5,041
Interest expense, net 22,513 22,300
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Pretax loss (17,960) (17,259)
Income tax benefit 0 6,900
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Net loss $ (17,960) $ (10,359)
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Loss per common share $ (0.38) $ (0.29)
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</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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CARTER HAWLEY HALE STORES, INC.
Consolidated Balance Sheet
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
April 30, January 29, May 1,
1994 1994 1993
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ASSETS
Current assets
Cash $ 18,414 $ 18,192 $ 18,213
Accounts receivable, net 572,014 627,374 518,884
Merchandise inventories 405,508 427,631 419,623
Other current assets 21,215 9,799 18,837
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1,017,151 1,082,996 975,557
Property and equipment, net 810,353 810,608 786,730
Other assets 37,957 40,543 43,276
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$ 1,865,461 $ 1,934,147 $ 1,805,563
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ $ $ 112,200
Current installments 3,460 3,459 7,070
Accounts payable 129,690 151,687 114,892
Accrued expenses 150,422 186,837 106,948
Current income taxes 1,116 1,203 2,984
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284,688 343,186 344,094
Receivables based financing 339,561 332,182 411,531
Other secured long-term debt 520,366 517,287 517,492
Convertible subordinated notes 143,750 143,750
Capital lease obligations 43,933 44,667 46,818
Other liabilities 122,341 124,508 115,676
Deferred income taxes 14,850 14,850 5,550
Shareholders' equity
Preferred stock, $.01 par value 9 9 11
Common stock, $.01 par value 467 468 352
Other paid-in capital 501,001 500,785 351,678
Accumulated earnings (deficit) (105,505) (87,545) 12,361
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395,972 413,717 364,402
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$ 1,865,461 $ 1,934,147 $ 1,805,563
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</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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CARTER HAWLEY HALE STORES, INC.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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April 30, May 1,
1994 1993
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Operating activities
Loss from operations $ (17,960) $ (10,359)
Adjustments to reconcile loss from operations
to net operating cash flows
Depreciation and amortization 10,009 8,335
Deferred income taxes (6,900)
Changes in operating assets and liabilities
Customer receivables, net 34,610 59,110
Merchandise inventories 22,123 48,086
Accounts payable and accrued expenses (45,027) (85,267)
Other, net (2,966) (5,405)
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Net cash provided
by operating activities 789 7,600
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Investing activities
Purchases of property and equipment (7,354) (9,998)
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Financing activities
Net change in financing under
receivables based facility 7,379 (56,046)
Net change in financing under working
capital facility 59,885
Retirements of long-term debt and
capital lease obligations (807) (1,845)
Issuances of common stock 215
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Net cash provided
by financing activities 6,787 1,994
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Net increase (decrease) in cash 222 (404)
Cash at the beginning of the period 18,192 18,617
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Cash at the end of the period $ 18,414 $ 18,213
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</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
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CARTER HAWLEY HALE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF REPORTING
The consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q of the Securities and Exchange Commission and
should be read in the context of the Summary of Significant Accounting Policies
and Financial Review contained in the Company's Annual Report on Form 10-K for
the fifty-two week period ended January 29, 1994. In the opinion of the
Company's management, these statements contain all adjustments, all of which are
of a normal recurring nature, necessary for the amounts shown to be fairly
stated as of April 30, 1994 and May 1, 1993 and for the thirteen week periods
then ended. The Balance Sheet as of January 29, 1994 is as included in the
Company's Form 10-K report for the year ended January 29, 1994.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share are computed on the basis of the weighted average number
of shares outstanding during the period, including dilutive stock options and
all 35.0 million shares of Common Stock expected to be issued in accordance with
the plan of reorganization (the "POR") approved in connection with the Company's
emergence from bankruptcy on October 8, 1992 (the "Emergence Date"). As of April
30, 1994, 1.2 million shares of common stock remain to be issued in accordance
with the POR.
INVENTORIES
The last-in, first-out ("LIFO") method of accounting resulted in charges to
cost of goods sold of $.5 million in the first quarters of both the current and
prior year. If all inventories had been valued on a first-in, first-out basis,
they would have been lower by $10.3 million and $1.4 million at April 30, 1994
and May 1, 1993.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No material change has occurred in the litigation described in "Item 3:
Legal Proceedings" on pages 17 and 18 of the Company's Form 10-K for the year
ended January 29, 1994.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits:
11.1* Computation of Earnings Per Share.
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* Exhibit filed with this Form 10-Q.
(b) Reports on Form 8-K:
March 9, 1994 Filing of Sixth Amendment to Credit
Agreement, dated as of February 26, 1994,
among Carter Hawley Hale Stores, Inc.,
various financial institutions and
General Electric Capital Corporation, as
agent for the lenders.
March 14, 1994 Filing of Carter Hawley Hale Stores,
Inc.'s financial results reported for the
fiscal year and fourth quarter ended
January 29, 1994.
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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.
CARTER HAWLEY HALE STORES, INC.
Date June 8, 1994 /s/J.C. HAECKEL
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J.C. Haeckel, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date June 8, 1994 /s/J.D. DAVIES
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J.D. Davies, Vice President, Accounting
(Principal Accounting Officer)
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EXHIBIT 11.1
CARTER HAWLEY HALE STORES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
April 30, 1994 May 1, 1993
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Net loss used to compute earnings
per common share . . . . . . . . . . . . . . . . . . . . $(17,960) $(10,359)
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Weighted average number of common shares
outstanding during this period (1) . . . . . . . . . . . 46,826 35,200
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Loss per common share. . . . . . . . . . . . . . . . . . . $ (.38) $ (.29)
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(1) The weighted average number of shares outstanding reflects all shares of
Common Stock expected to be issued in accordance with the POR as if they
had been issued on the Emergence Date.
</TABLE>
