SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal quarter ended
October 28, 1995.
BROADWAY STORES, INC.
7 West Seventh St.
Cincinnati, Ohio 45202
(513) 579-7000
Delaware 1-8765 94-0457907
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification Number)
The Registrant has filed all reports required to be filed by
Section 12, 13 or 15 (d) of the Act during the preceding 12
months and has been subject to such filing requirements for the
past 90 days.
37,044 shares of the Registrant's Common Stock, $.01 par value,
were outstanding as of November 25, 1995.
<TABLE>
PART I -- FINANCIAL INFORMATION
BROADWAY STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE FIGURES)
<CAPTION>
Successor | Predecessor
13 Weeks Ended | 13 Weeks Ended
October 28, 1995 | October 29, 1994
<S> <C> <C>
Net Sales, including leased |
department sales $ 414,841 | $ 474,910
|
Cost of sales 288,962 | 307,808
|
Selling, general and |
administrative expenses 168,364 | 160,005
|
Operating Income (Loss) (42,485) | 7,097
|
Interest expense - net (26,859) | (25,507)
|
Loss Before Income Taxes (69,344) | (18,410)
|
Federal, state and local income |
tax benefit - | -
|
Net Loss $ (69,344) | $ (18,410)
|
Loss per Share $ - | $ (.39)
|
Average Number of Shares Outstanding - | 46,896
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<TABLE>
BROADWAY STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(THOUSANDS, EXCEPT PER SHARE FIGURES)
<CAPTION>
Successor | Predecessor Predecessor
13 Weeks Ended | 26 Weeks Ended 39 Weeks Ended
October 28, 1995 | July 29, 1995 October 29, 1994
<S> <C> <C> <C>
Net Sales, including |
leased department sales $ 414,841 | $ 884,550 $ 1,363,017
|
Cost of sales 288,962 | 585,005 881,419
|
Selling, general and |
administrative expenses 168,364 | 317,792 459,367
|
Operating Income (Loss) (42,485) | (18,247) 22,231
|
Interest expense - net (26,859) | (62,499) (71,536)
|
Loss Before Income Taxes (69,344) | (80,746) (49,305)
|
Federal, state and local |
income tax benefit - | - -
|
Net Loss $ (69,344) | $ (80,746) $ (49,305)
|
Loss per Share $ - | $ (1.72) $ (1.05)
|
Average Number of Shares |
Outstanding - | 46,955 46,862
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<TABLE>
BROADWAY STORES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
Successor | Predecessor
October 28, | January 28, October 29,
1995 | 1995 1994
<S> <C> <C> <C>
ASSETS: |
Current Assets: |
Cash $ 15,352 | $ 18,318 $ 16,917
Accounts receivable 540,275 | 664,825 569,912
Merchandise inventories 441,740 | 504,522 547,890
Supplies and prepaid expenses 8,346 | 11,613 37,108
Total Current Assets 1,005,713 | 1,199,278 1,171,827
|
Property and Equipment - net 883,230 | 888,258 863,149
Intangible Assets - net 183,879 | - -
Other Assets 10,189 | 39,540 39,968
|
Total Assets $ 2,083,011 | $2,127,076 $2,074,944
|
LIABILITIES AND SHAREHOLDERS' EQUITY: |
Current Liabilities: |
Short-term debt $ 631,605 | $ 18,490 $ 46,627
Accounts payable and accrued |
liabilities 380,631 | 316,649 325,448
Income taxes 735 | 1,002 930
Total Current Liabilities 1,012,971 | 336,141 373,005
|
Long-Term Debt 557,174 | 1,280,929 1,201,069
Deferred Income Taxes 14,850 | 14,850 14,850
Other Liabilities 103,458 | 109,504 120,503
Shareholders' Equity 394,558 | 385,652 365,517
|
Total Liabilities and Shareholders' |
Equity $ 2,083,011 | $2,127,076 $2,074,944
The accompanying notes are an integral part of these unaudited
Consolidated Financial Statements.
</TABLE>
<TABLE>
BROADWAY STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(THOUSANDS)
<CAPTION>
Successor | Predecessor Predecessor
13 Weeks Ended | 26 Weeks Ended 39 Weeks Ended
October 28, 1995 | July 29, 1995 October 29, 1994
<S> <C> <C> <C>
Cash flows from operating activities: |
Net loss.. $ (69,344) | $ (80,746) $ (49,305)
Adjustments to reconcile net income |
to net cash provided by operating |
activities: |
Depreciation and amortization 9,548 | 25,339 30,842
Amortization of intangible assets.. 2,328 | - -
Changes in assets and liabilities: |
Decrease in customer |
accounts receivable 21,357 | 71,718 25,774
(Increase) decrease in |
merchandise inventories (86,661) | 113,697 (120,259)
Increase (decrease) in accounts |
payable and accrued liabilities |
not separately identified 104,210 | (96,325) 44,046
Other increases (decreases) |
not separately identified (7,146) | 11,158 (55,222)
Net cash provided (used) by |
operating activities (25,708) | 44,841 (124,124)
|
Cash flows from investing activities: |
Purchase of property and equipment (7,867) | (15,420) (75,766)
Disposition of property and equipment 321 | - -
Net cash used by investing |
activities (7,546) | (15,420) (75,766)
|
Cash flows from financing activities: |
Capital contribution from parent 111,000 | - -
Debt issued - | - 199,935
Debt repaid (78,295) | (32,345) (2,425)
Issuance of common stock - | 507 1,105
Net cash provided (used) by |
financing activities 32,705 | (31,838) 198,615
|
Net decrease in cash (549) | (2,417) (1,275)
Cash at beginning of period 15,901 | 18,318 18,192
|
Cash at end of period $ 15,352 | $ 15,901 $ 16,917
</TABLE>
BROADWAY STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
In the 13 weeks ended October 28, 1995, Broadway Stores, Inc.
(the "Company") became a subsidiary of Federated Department
Stores, Inc. ("Federated") pursuant to an Agreement and Plan
of Merger, dated August 14, 1995 (the "Broadway Merger
Agreement"). Pursuant to the Broadway Merger Agreement, each
outstanding share of the Company's common stock was converted
into 0.27 shares of common stock of Federated, and each
outstanding share of the Company's preferred stock was
converted into one one-thousandth of a share of new preferred
stock of the Company. All of the outstanding common stock of
the Company is owned by Federated.
The acquisition of the Company by Federated was accounted for
under the purchase method and, accordingly, certain
adjustments have been made to the Company's assets and
liabilities based on their estimated fair values. As a result
of the acquisition and other related events discussed below,
the Company's financial condition and results of operations
subsequent to July 29, 1995 are not comparable to prior
periods.
In these notes and the accompanying financial statements,
"Predecessor" refers to the Company on dates and for
accounting periods through July 29, 1995, and "Successor"
refers to the Company on dates and for accounting periods
subsequent to July 29, 1995.
Summary of Significant Accounting Policies
A description of the Company's significant accounting policies
is included in the Company's Annual Report on Form 10-K for
the fiscal year ended January 28, 1995 (the "1994 10-K"). The
accompanying Consolidated Financial Statements should be read
in conjunction with the Consolidated Financial Statements and
notes thereto in the 1994 10-K. The description and financial
statements in the 1994 10-K are those of the Predecessor, and
do not reflect the changes discussed herein.
The Predecessor followed a practice of allocating certain
fixed buying and occupancy costs among periods within the
fiscal year to match these costs with the associated sales
revenue. The Successor expenses such costs as incurred.
The Consolidated Financial Statements of the Predecessor
reflect the capitalization of certain buying and handling
costs in merchandise inventories. The Consolidated Financial
Statements of the Successor reflect such costs in selling,
general and administrative expenses when incurred.
Because of the seasonal nature of the general merchandising
business, the results of operations for the 13 weeks ended
October 28, 1995 and October 29, 1994, the 26 weeks ended July
29, 1995 and the 39 weeks ended October 29, 1994 (which do not
include the Christmas season) are not indicative of such
results for the fiscal year.
BROADWAY STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Consolidated Financial Statements for the 13 weeks ended
October 28, 1995 and October 29, 1994, the 26 weeks ended July
29, 1995 and the 39 weeks ended October 29, 1994, in the
opinion of management, include all adjustments considered
necessary to present fairly, in all material respects, the
consolidated financial position and results of operations of
the Company.
Certain items reflected in the Predecessor's financial
statements were reclassified to conform to the classifications
of such items reflected in the Successor's financial
statements.
2. MERGER TRANSACTION
The total purchase price of the acquisition of the Company by
Federated was approximately $1,620.0 million, including the
Company's total indebtedness of $1,267.1 million. The
acquisition was accounted for under the purchase method and,
accordingly, the purchase price was allocated to the Company's
assets and liabilities based on their estimated fair values as
of July 29, 1995. Based upon initial estimates, the excess of
cost over net assets acquired is approximately $186.2 million,
which is being amortized on a straight-line basis over 20
years. Notwithstanding the acquisition of the Company by
Federated, the sole responsibility for the payment and
satisfaction of the Company's indebtedness and other
liabilities remains with the Company.
Although a majority of the Company's stores will be retained,
it is anticipated that certain stores will be disposed of
during fiscal 1996 and beyond. (As of the date of this
report, a definitive agreement to sell nine stores had been
entered into, 10 additional stores had been identified to be
sold, and a determination as to the disposition of certain
other stores had yet to be made.) Accordingly, the allocation
of the purchase price to the Company's property and equipment
has yet to be determined, and the Company is presently unable
to determine the amount of one-time charges that will
ultimately be incurred in connection with the integration of
the Company's operations with Federated's other operations.
The Company has recorded an accrued severance liability in the
amount of $27.0 million as an adjustment to the purchase price
allocation for the recognition of certain estimated
involuntary termination benefits.
BROADWAY STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was acquired by Federated Department Stores, Inc.
in the 13 weeks ended October 28, 1995. As a result of the
acquisition, the results of operations and financial condition
of the Company for dates and periods subsequent to July 29,
1995 are not comparable to prior periods. Accordingly, the
following comparisons of the Company's results of operations
for the 39 weeks ended October 28, 1995 to the 39 weeks ended
October 29, 1994 may not be meaningful. Reference should be
made to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 29, 1995 for a comparison of the
Company's result of operations for the 26 weeks then ended to
such results for the comparable period of 1994.
RESULTS OF OPERATIONS
COMPARISON OF THE 13 WEEKS ENDED OCTOBER 28, 1995 AND OCTOBER 29, 1994
For purposes of the following discussion, all references to
"third quarter of 1995" and "third quarter of 1994" are to the
Company's 13-week fiscal periods ended October 28, 1995 and
October 29, 1994, respectively.
Net sales for the third quarter of 1995 totaled $414.8 million
compared to $474.9 million in the third quarter of 1994, a
decrease of 12.6%. On a comparable store basis, net sales
decreased 12.1%. The decreases reflect difficulties in the
California economy and the effects of delays in merchandise
shipments by vendors and other concerns regarding the economic
viability of the Company prior to its acquisition by
Federated.
Cost of sales was 69.7% as a percent of net sales for the
third quarter of 1995 compared to 64.8% for the third quarter
of 1994. Cost of sales was negatively impacted by higher
markdowns taken to make inventory assortments fresh and
fashion-current. Cost of sales includes no charge in the
third quarter of 1995 compared to a charge of $0.5 million in
the third quarter of 1994 resulting from the valuation of
merchandise inventory on the last-in, first-out basis.
Excluding the impact of the capitalization of certain buying
and handling costs in merchandise inventories, cost of sales
for the third quarter of 1994 would have been 65.0% as a
percent of net sales.
Selling, general and administrative expenses were 40.6% as a
percent of net sales for the third quarter of 1995 compared to
33.7% for the third quarter of 1994. The increase reflects
higher sales promotion and selling costs in the third quarter
of 1995. Prior to its acquisition by Federated, the Company
followed a practice of allocating certain fixed buying and
occupancy costs among quarters within the fiscal year to match
those costs with the associated seasonal sales revenue.
Selling, general and administrative expenses in the third
quarter of 1994 reflect a benefit of $6.4 million due to
reallocation of such costs.
Net interest expense was $26.9 million for the third quarter
of 1995, compared to $25.5 million for the third quarter of
1994.
No income tax benefit was recorded in the third quarter of
1995 or the third quarter of 1994 due to limitations on the
Company's ability to record net operating loss carryforwards
for financial statement purposes.
BROADWAY STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
COMPARISON OF THE 39 WEEKS ENDED OCTOBER 28, 1995 AND OCTOBER 29, 1994
For purposes of the following discussion, all references to
"1995" and "1994" are to the Company's 39 week fiscal periods
ended October 28, 1995 and October 29, 1994, respectively.
Net sales for 1995 were $1,299.4 million compared to $1,363.0
million for 1994, a decrease of 4.9%. On a comparable store
basis, net sales decreased 6.9%. The decreases reflect
difficulties in the California economy and the effects of
delays in merchandise shipments by vendors and other concerns
regarding the economic viability of the Company prior to its
acquisition by Federated.
Cost of sales was 67.3% as a percent of net sales for 1995
compared to 64.7% for 1994. The increase reflects the higher
markdowns taken in 1995 to make inventory assortments fresh
and fashion-current. Cost of sales includes a charge of $2.0
million in 1995 compared to $1.5 million in 1994 resulting
from the valuation of merchandise inventory on the last-in,
first-out basis. Excluding the impact of the capitalization
of certain buying and handling costs in merchandise
inventories, cost of sales would have been 67.6% and 65.0% as
a percent of net sales for 1995 and 1994, respectively.
Selling, general and administrative expenses were 37.4% as a
percent of net sales for 1995 compared to 33.7% for 1994. The
increase reflects higher sales promotion costs incurred in
1995. Prior to its acquisition by Federated, the Company
followed a practice of allocating certain fixed buying and
occupancy costs among quarters within the fiscal year to match
those costs with the associated seasonal sales revenue.
Selling, general and administrative expenses reflect a benefit
of $11.5 million in 1995 compared to $19.2 million in 1994 due
to reallocation of such costs.
Net interest expense was $89.4 million for 1995, compared to
$71.5 million for 1994. The increase was due to both higher
average borrowings and increased average interest rates.
No income tax benefit was recorded in 1995 or 1994 due to
limitations on the Company's ability to record net operating
loss carryforwards for financial statement purposes.
LIQUIDITY AND CAPITAL RESOURCES
For purposes of the following discussion, all references to
"1995" and "1994" are to the Company's 39 week fiscal periods
ended October 28, 1995 and October 29, 1994, respectively.
Net cash provided by operating activities was $19.1 million in
1995 compared to net cash used by operating activities of
$124.1 million in 1994. The primary factors contributing to
the increase in cash provided by operating activities were
greater decreases in customer accounts receivable and
decreases in merchandise inventories compared to increases in
the prior year. The lower merchandise levels reflected delays
in shipments from vendors resulting from limitations on the
Company's working capital financing and the general weakness
in its operating results.
Net cash used by investing activities was $23.0 million in
1995 compared to $75.8 million in 1994.
BROADWAY STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net cash provided by financing activities was $0.9 million in
1995. During the 13 weeks ended October 28, 1995 the Company
received capital contributions from Federated totaling $111.0
million and repaid debt totaling $78.3 million.
On December 11, 1995, the Company repurchased for cash $142.0
million of its 6-1/4% Convertible Senior Subordinated Notes
Due 2000. The source of funds for such repurchase was a
capital contribution from Federated. Although the Company
presently anticipates that it may receive additional capital
contributions or other funds from Federated from time to time,
Federated is under no obligation to make any such
contributions or otherwise make its resources available to the
Company.
PART II - - OTHER INFORMATION
BROADWAY STORES, INC.
ITEM 1. LEGAL PROCEEDINGS
The Office of the Attorney General of the State of
California has advised Federated that it is reviewing the
competitive effects of Federated's consummated acquisition
of the Company. Federated is cooperating with the Office
of the Attorney General in the review. There can be no
assurances as to the outcome of the review.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's stockholders was held
on October 11, 1995, at which the stockholders approved
the adoption of the Broadway Merger Agreement. The votes
for the adoption were 39,696,518, the votes against the
adoption were 39,548, the votes abstained were 32,738, and
there were 1,066,347 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Amended and Restated Term
Loan Agreement, dated as of October 11, 1995 by and
among the Company, the banks party thereto and Bank
of America National Trust and Savings Association,
as Agent for Banks (incorporated by reference to
Exhibit 10.2.3 to Federated's Quarterly Report on
Form 10-Q for the period ended October 28, 1995)
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, dated June 29, 1995
reporting matters under Item 5 thereof
Current Report on Form 8-K, dated August 14, 1995
reporting matters under Item 5 thereof
Current Report on Form 8-K/A, dated August 14, 1995
reporting matters under Item 5 thereof
Current Report on Form 8-K, dated October 11, 1995
reporting matters under Items 1 and 4 thereof
Current Report on Form 8-K/A, dated November 7, 1995
reporting matters under Item 4 thereof
BROADWAY STORES, 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 thereunder duly authorized.
BROADWAY STORES, INC.
Date December 12, 1995
/s/ Dennis J. Broderick
Dennis J. Broderick
Vice President
/s/ John E. Brown
John E. Brown
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000750217
<NAME> BROADWAY STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> OCT-28-1995
<CASH> 15,352
<SECURITIES> 0
<RECEIVABLES> 540,275
<ALLOWANCES> 0
<INVENTORY> 441,740
<CURRENT-ASSETS> 1,005,713<F1>
<PP&E> 883,230
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,083,011<F2>
<CURRENT-LIABILITIES> 1,012,971
<BONDS> 557,174
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,083,011<F3>
<SALES> 414,841
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 288,962
<OTHER-EXPENSES> 168,364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,859
<INCOME-PRETAX> (69,344)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (69,344)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes the following:
Supplies and prepaid expenses 8,346
<F2>Includes the following:
Intangible assets - net 183,879
Other assets 10,189
<F3>Includes the following:
Deferred income taxes 14,850
Other liabilities 103,458
Shareholders' equity 394,558
</FN>
</TABLE>
