<PAGE>
- --------------------------------------------------------------------------------
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 OCTOBER 29, 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 1-8765
BROADWAY 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 .
--- ---
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 Securities Exchange
Act of 1934 subsequent to the distribution of securities under a plan confirmed
by a court. Yes X . No .
--- ---
As of December 5, 1994, approximately 45,852,291 shares of the registrant's
common stock were outstanding.
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<PAGE>
BROADWAY STORES, INC.
FORM 10-Q INDEX
PAGE
----
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
<PAGE>
BROADWAY 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
On June 17, 1994, at the Company's annual meeting, shareholders approved
the change of the Company's name from Carter Hawley Hale Stores, Inc. to
Broadway Stores, Inc. in order to more closely identify the Company with its
operations. Accordingly, on June 20, 1994, Company common stock began trading
on the New York Stock Exchange under the symbol "BWY".
On November 4, 1994, the Company reopened the last of the four stores
which suffered substantial damage in the January 17, 1994 Northridge earthquake.
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 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. In addition, the Company
established a receivable of $50.4 million for estimated insurance recoveries.
The reserve has been fully utilized to cover repairs and damaged inventories,
and as of October 29, 1994, $33.8 million has 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
Sales for the current quarter and year-to-date periods ended October 29,
1994 were $474.9 million and $1,363.0 million compared to $469.7 million and
$1,387.1 million in the comparable prior year periods. Current year results
were impacted by the January 17, 1994 Northridge earthquake and the loss of
sales from the four most severely damaged stores. On a comparative store basis
sales for the current quarter and year-to-date periods increased 3.9% and 3.2%
over the comparable prior year periods.
The net losses of $18.4 million and $49.3 million in the current quarter
and year-to-date periods improved from losses of $25.1 million and $77.9 million
in the comparable prior year periods. Prior year results include a $25.0
million charge in the second quarter for non-recurring costs for the
implementation of expense reduction programs.
Earnings before interest and taxes ("EBIT") of $7.1 million and $22.2
million in the current quarter and year-to-date periods compare to losses of
$5.3 million and $21.0 million in the comparable prior year periods.
Cost of goods sold including buying and occupancy costs improved to
$355.3 million, 74.8% of sales and $1,012.9 million, 74.3% of sales in the
current quarter and year-to-date periods as compared to $360.0 million, 76.7% of
sales and $1,049.8 million, 75.7% of sales in the comparable prior year
periods. The improvement reflects improving margins.
1
<PAGE>
Selling, general, and administrative expenses were $134.7 million, 28.4%
of sales and $395.0 million, 29.0% of sales in the current quarter and year-to-
date periods compared to $133.8 million, 28.5% of sales and $393.3 million,
28.4% of sales last year. Savings from cost reduction programs put in place
during fiscal 1993 were largely offset by higher store operating expenses and
promotional costs during the current year period.
Finance charge revenue increased to $22.2 million, 4.7% of sales, and
$67.1 million, 4.9% of sales in the current quarter and year-to-date periods,
from $18.9 million, 4.0% of sales, and $60.0 million, 4.3% of sales in the
comparable prior year periods. The improvement reflects earnings on higher
customer receivable balances resulting from an October 1993 change in payment
terms which reduced the minimum monthly payment requirement on the Company's
short term revolving charge accounts.
Interest expense increased by $5.7 million to $25.5 million in the third
quarter and increased by $7.7 million to $71.5 million for the current year-to-
date period. The increase was largely due to rising interest rates in 1994 and
in part due to rising borrowing levels during the third quarter.
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.
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 $6.4
million and $19.2 million being reflected in the operating results for the
current quarter and year-to-date periods as compared to $7.5 million and $18.8
million in the comparable prior year 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. On September 13, 1994 the Company finalized a private
placement of subordinated asset backed notes (the "Asset Backed Notes")
totalling $64.0 million. The Asset Backed Notes were issued in two classes:
$38.0 million of 7.55% Class A notes due 1999 (rated BBB by Standard and Poors
and Fitch Investors Service) and $26.0 million of 11.00% Class B notes due 1999
(rated BB by Standard and Poors and Fitch Investors Service). Proceeds of the
notes are being used to increase the Company's liquidity. Concurrently, the
Company finalized changes to its $800.0 million credit and receivables
facilities. The amendments extended the maturity date of the agreements from
October 1995 to October 1996 and enhanced certain credit facility provisions.
Subject to collateral limitations, the facilities, as currently stated,
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 October 29, 1994, there were $41.9 million in advances and $50.6 million in
letters of credit outstanding under the credit facility, $425.0 million of
borrowings under the receivables facility and $64.0 million of Asset Backed
Notes outstanding. Under these notes and facilities, $132.5 million remained
available for borrowing.
2
<PAGE>
The credit facility contains a number of operating and financial
covenants, as well as significant negative covenants including 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. Further covenant changes to
enhance flexibility were finalized concurrent with the issuance of $64.0 million
in Asset Backed Notes. The Company is currently in compliance with all
covenants under the credit facility. As of October 29, 1994, cash flow and
EBITDA levels both exceeded covenant requirements by $34.2 million. In
addition, the Company's net inventory ratio at October 29, 1994 was 72.1% or
5.0% less than the maximum permitted under the credit facility and year-to-date
capital expenditures amounted to $75.8 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.
A substantial portion of the Company's debt is at variable interest
rates. Assuming that the average borrowings and all other variables would have
remained constant, an increase (or decrease) of one percent in the interest
rates applicable to the variable rate portion of the Company's debt would have
increased (or decreased) the Company's interest expense by approximately $1.3
million and $3.4 million for the current quarter and year-to-date periods
respectively.
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 $110 million and have been largely concentrated on the remodel
program. Substantially all major projects were completed prior to the start of
the holiday selling season.
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 future capital expenditure programs and
implement new business strategies 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 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.
3
<PAGE>
BROADWAY STORES, INC.
Consolidated Statement of Earnings
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
--------------------------------- ---------------------------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 474,910 $ 469,688 $ 1,363,017 $ 1,387,103
Finance charge revenue 22,171 18,895 67,096 59,988
Cost of goods sold, including
occupancy and buying costs 355,260 360,036 1,012,914 1,049,833
Selling, general, and
administrative expenses 134,724 133,821 394,968 393,271
Charge for non-recurring costs 25,000
------------ ------------- ------------- -------------
Earnings (loss) from operations
before interest expense and
income taxes 7,097 (5,274) 22,231 (21,013)
Interest expense, net 25,507 19,811 71,536 63,801
------------- ------------- ------------- -------------
Pretax loss (18,410) (25,085) (49,305) (84,814)
Income tax benefit 6,900
------------- -------------- ------------- -------------
Net loss $ (18,410) $ (25,085) $ (49,305) $ (77,914)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Loss per common share $ (0.39) $ (0.54) $ (1.05) $ (1.95)
------------- ------------- -------------- -------------
------------- ------------- -------------- -------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BROADWAY STORES, INC.
Consolidated Balance Sheet
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 29, January 29, October 30,
1994 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Assets
Current assets
Cash $ 16,917 $ 18,192 $ 15,408
Accounts receivable, net 569,912 627,374 482,651
Merchandise inventories 547,890 427,631 504,438
Other current assets 37,108 9,799 28,222
------------ ------------ ------------
1,171,827 1,082,996 1,030,719
Property and equipment, net 863,149 810,608 799,552
Other assets 39,968 40,543 39,080
------------ ------------ ------------
$ 2,074,944 $ 1,934,147 $ 1,869,351
------------ ------------ ------------
------------ ------------ ------------
Liabilities and Shareholders' Equity
Current liabilities
Notes payable $ 43,167 $ $ 44,280
Current installments 3,460 3,459 3,195
Accounts payable 191,163 151,687 185,651
Accrued expenses 134,285 186,837 120,470
Current income taxes 930 1,203 2,863
------------ ------------ ------------
373,005 343,186 356,459
Receivables based financing 488,950 332,182 388,681
Other secured long-term debt 525,904 517,287 514,471
Convertible subordinated notes 143,750 143,750
Capital lease obligations 42,465 44,667 45,338
Other liabilities 120,503 124,508 113,577
Deferred income taxes 14,850 14,850 5,550
Shareholders' equity
Preferred stock, $.01 par value 9 9 11
Common stock, $.01 par value 469 468 467
Other paid-in capital 501,889 500,785 499,991
Accumulated deficit (136,850) (87,545) (55,194)
------------ ------------ ------------
365,517 413,717 445,275
------------ ------------ ------------
$ 2,074,944 $ 1,934,147 $ 1,869,351
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
BROADWAY STORES, INC.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
--------------------------------
October 29, October 30,
1994 1993
------------ ------------
<S> <C> <C>
Operating activities
Loss from operations $ (49,305) $ (77,914)
Adjustments to reconcile
loss from operations
to net operating cash flows
Depreciation and amortization 30,842 25,033
Deferred income taxes (6,900)
Changes in operating assets and liabilities
Customer receivables, net 25,774 99,413
Merchandise inventories (120,259) (36,729)
Accounts payable and accrued expenses 44,046 3,588
Other, net (55,222) (20,941)
------------ ------------
Net cash used
by operating activities (124,124) (14,450)
------------ ------------
Investing activities
Proceeds from asset sales 5,600
Purchases of property and equipment (75,766) (39,674)
------------ ------------
Net cash used by
investing activities (75,766) (34,074)
------------ ------------
Financing activities
Net change in financing under
receivables based facility 156,768 (78,896)
Net change in financing under
working capital facility 43,167 (8,035)
Retirements of long-term debt and
capital lease obligations (2,425) (16,182)
Issuances of common stock 1,105 148,428
------------ ------------
Net cash provided
by financing activities 198,615 45,315
------------ ------------
Net decrease in cash (1,275) (3,209)
Cash at the beginning of the period 18,192 18,617
------------ ------------
Cash at the end of the period $ 16,917 $ 15,408
------------ ------------
------------ ------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
BROADWAY 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 October 29, 1994 and October 30, 1993 and for the thirteen and
thirty-nine 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 October 29, 1994, 1.1 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 and $1.5 million for the thirteen and
thirty-nine week periods ended October 29, 1994 and in the comparative prior
year periods. If all inventories had been valued on a first-in, first-out
basis, they would have been lower by $9.3 million, $10.8 million and $.4 million
at October 29, 1994, January 29, 1994 and October 30, 1993 respectively.
7
<PAGE>
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.
27.1* Financial Data Schedules.
* Exhibit filed with this Form 10-Q.
(b) Reports on Form 8-K:
September 13, 1994 Summary information relating to the completion
of both the private placement of $64.0 million
of Subordinated Credit Card Notes Due 1999 and
the Seventh Amendment to the Credit Agreement,
dated as of September 13, 1994, among Broadway
Stores, Inc., various financial institutions
and General Electric Capital Corporation as
agent for the lenders.
8
<PAGE>
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.
BROADWAY STORES, INC.
Date December 9, 1994 /s/ J.C. HAECKEL
---------------- ----------------------------------------
J.C. Haeckel, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date December 9, 1994 /s/ J.D. DAVIES
---------------- ----------------------------------------
J.D. Davies, Vice President, Accounting
(Principal Accounting Officer)
9
<PAGE>
EXHIBIT 11.1
BROADWAY STORES, INC.
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------ -----------------------------
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net loss used to compute earnings
per common share......................... $ (18,410) $ (25,085) $ (49,305) $ (77,914)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number of common shares
outstanding during this period (1) 46,896 46,676 46,862 39,964
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loss per common share........................ $ (.39) $ (.54) $ (1.05) $ (1.95)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<FN>
(1) The weighted average number of shares outstanding reflects all shares of Common Stock expected to be issued in accor-
dance with the POR as if they had been issued on the Emergence Date.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> OCT-29-1994
<CASH> 16,917
<SECURITIES> 0
<RECEIVABLES> 569,912
<ALLOWANCES> 0
<INVENTORY> 547,890
<CURRENT-ASSETS> 1,171,827
<PP&E> 863,149
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,074,944
<CURRENT-LIABILITIES> 373,005
<BONDS> 1,201,069
<COMMON> 469
9
0
<OTHER-SE> 365,039
<TOTAL-LIABILITY-AND-EQUITY> 2,074,944
<SALES> 1,363,017
<TOTAL-REVENUES> 1,430,113
<CGS> 1,012,914
<TOTAL-COSTS> 1,012,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,536
<INCOME-PRETAX> (49,305)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,305)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,305)
<EPS-PRIMARY> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
