<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended February 25, 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 1-8210
PAYLESS CASHWAYS, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0945849
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two Pershing Square
2300 Main, P.O. Box 419466
Kansas City, Missouri 64141-0466
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 234-6000
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 / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of March 17, 1995:
Voting -- 37,662,022 shares
Class A Non-Voting -- 2,250,000 shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (1)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------
February 25, February 26,
1995 1994
--------------- --------------
<S> <C> <C>
---------------------------------------------------------------------------------------------
Income
Net sales $ 556,218 $ 542,053
Other income 1,344 1,256
--------------- --------------
557,562 543,309
Costs and Expenses
Cost of merchandise sold 389,065 375,281
Selling, general and administrative 142,669 137,882
Provision for depreciation and amortization 14,689 14,298
Interest expense 15,273 16,605
--------------- --------------
561,696 544,066
--------------- --------------
LOSS BEFORE INCOME TAXES (4,134) (757)
Federal and state income taxes (1,770) (76)
--------------- --------------
Loss before equity in loss of joint venture (2,364) (681)
Equity in loss of joint venture (5) (1,500) --
--------------- --------------
NET LOSS $ (3,864) $ (681)
=============== ==============
Net loss per common share (3) $ (.13) $ (.05)
=============== ==============
Weighted average common shares outstanding 39,878 39,628
=============== ==============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (1)
<TABLE>
<CAPTION>
February 25, November 26, February 26,
(In thousands) 1995 1994 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,209 $ 2,680 $ 11,510
Trade receivables -- 5,127 7,459
Merchandise inventories (2) 397,935 406,066 419,869
Prepaid expenses and other current assets 15,465 26,448 20,154
Deferred income taxes 9,927 9,549 8,977
--------------- --------------- ----------------
TOTAL CURRENT ASSETS 442,536 449,870 467,969
OTHER ASSETS
Real estate held for sale 5,496 5,498 8,185
Cost in excess of net assets acquired, less
accumulated amortization of $85,610,
$82,355 and $72,593, respectively 435,057 438,311 448,073
Deferred financing costs 12,533 11,199 25,476
Other 20,978 17,706 10,647
LAND, BUILDINGS AND EQUIPMENT 824,635 810,825 756,234
Allowance for depreciation and amortization (246,522) (237,527) (221,838)
--------------- --------------- ----------------
TOTAL LAND, BUILDINGS AND EQUIPMENT 578,113 573,298 534,396
--------------- --------------- ----------------
$ 1,494,713 $ 1,495,882 $ 1,494,746
=============== =============== ================
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS - Continued (Unaudited) (1)
<TABLE>
<CAPTION>
February 25, November 26, February 26,
(In thousands) 1995 1994 1994
--------------- --------------- ----------------
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 50,732 $ 20,269 $ 54,962
Advances under bank facilities -- -- 60,000
Trade accounts payable 142,250 151,059 141,731
Other current liabilities 117,466 128,031 112,050
Income taxes payable 8,929 11,383 11,025
--------------- --------------- ----------------
TOTAL CURRENT LIABILITIES 319,377 310,742 379,768
LONG-TERM DEBT, less portion
classified as current liability (4) 650,002 654,131 636,467
NON-CURRENT LIABILITIES
Deferred income taxes 71,566 72,129 65,572
Other 23,204 23,015 23,549
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par value, 25,000,000
shares authorized; issued:
Cumulative Preferred Stock, 406,000 shares,
$68.4 million aggregate liquidation preference 40,600 40,600 40,600
Common Stock, $.01 par value:
Voting, 150,000,000 shares authorized,
37,662,022, 37,624,222, and 37,491,492
shares issued, respectively 377 376 375
Non-Voting Class A, 5,000,000 shares
authorized, 2,250,000 shares issued 23 23 23
Additional paid-in capital 486,703 486,326 485,332
Foreign currency translation adjustment (1,905) (90) --
Accumulated deficit (95,234) (91,370) (136,940)
--------------- --------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 430,564 435,865 389,390
--------------- --------------- ----------------
COMMITMENTS (6)
$ 1,494,713 $ 1,495,882 $ 1,494,746
=============== =============== ================
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (1)
(In thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
------------------------------------------
February 25, February 26,
1995 1994
--------------- --------------
<S> <C> <C>
---------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net loss $ (3,864) $ (681)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,689 14,298
Non-cash interest 550 1,004
Equity in loss of joint venture 1,500 --
Deferred income taxes (941) 1,769
Other 332 978
Changes in assets and liabilities 2,657 (50,027)
--------------- ---------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 14,923 (32,659)
Cash Flows from Investing Activities
Additions to land, building and equipment (19,278) (8,867)
Proceeds from sale of land, buildings and equipment 22 538
Investment in joint venture (2,941) (490)
Increase in other assets (891) (2,327)
--------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES (23,088) (11,146)
Cash Flows from Financing Activities
Proceeds from long-term debt 30,000 --
Retirements of long-term debt (3,666) (4,676)
Fees paid in connection with an interest rate cap (4) (1,700) --
Increase in short-term borrowings -- 55,000
Sale of Common Stock under stock option plan -- 1,670
Sale of Common Stock under warrants -- 89
Other 60 (441)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 24,694 51,642
--------------- --------------
Net increase in cash and cash equivalents 16,529 7,837
Cash and cash equivalents, beginning of period 2,680 3,673
--------------- --------------
Cash and cash equivalents, end of period $ 19,209 $ 11,510
=============== ==============
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen weeks ended February 25, 1995 and February 26, 1994.
(1) The accompanying condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q. To the extent
that information and footnotes required by generally accepted accounting
principles for complete financial statements are contained in or consistent
with the audited consolidated financial statements incorporated by
reference in the Company's Form 10-K for the year ended November 26, 1994,
such information and footnotes have not been duplicated herein. In the
opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of financial
statements have been reflected herein. The November 26, 1994, condensed
consolidated balance sheet has been derived from the audited consolidated
financial statements as of that date. Certain reclassifications have been
made to prior period amounts to conform with the 1995 presentation.
(2) Approximately 81% of the Company's inventories are valued using the LIFO
(last-in, first-out) method. Because inventory determination under the LIFO
method is only made at the end of each fiscal year based on the inventory
levels and costs at that time, interim LIFO determinations must necessarily
be based on management's estimates of expected year-end inventory levels
and costs. Since future estimates of inventory levels and costs are subject
to change, interim financial results reflect the Company's most recent
estimate of the effect of inflation and are subject to final year-end LIFO
inventory amounts. If the FIFO (first-in, first-out) method of inventory
accounting had been used by the Company, inventories would have been $24.5
million, $23.3 million and $21.3 million higher than reported at February
25,1995, November 26, 1994, and February 26, 1994, respectively.
(3) Net loss per common share has been computed based on the weighted average
number of common shares outstanding during the period plus common stock
equivalents, when dilutive, consisting of certain stock options and
warrants. For purposes of this computation, net loss was adjusted for
dividend requirements on preferred stock.
(4) Long-term debt consisted of the following:
<TABLE>
<CAPTION>
February 25, November 26, February 26,
(In thousands) 1995 1994 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
1994 Credit Agreement $ 375,000 $ 345,000 $ --
1993 Credit Agreement -- -- 325,000
Mortgage loan payable to insurance company 150,551 154,195 164,815
Senior subordinated notes - 9-1/8% 173,655 173,655 200,000
Other senior debt 1,528 1,550 1,614
--------------- --------------- ---------------
700,734 674,400 691,429
Less portion classified as current liability (50,732) (20,269) (54,962)
--------------- --------------- ---------------
$ 650,002 $ 654,131 $ 636,467
=============== =============== ===============
</TABLE>
During the first quarter of 1995, the Company entered into an interest rate
cap with an affiliate of an investment banking firm, limiting to 8% LIBOR
the interest rates on $100 million of its floating rate debt. The cost of
this agreement is included in deferred financing costs and is being
amortized over the three-year period of the agreement.
(5) The Company is a 49% investor in Total Home de Mexico, S.A. de C.V., a
joint venture with a Mexican company, Alfa, S.A. de C.V. Total Home has
opened one store in Mexico and plans to open two additional stores in 1995,
and others, as appropriate, thereafter. The Company accounts for this
investment on the equity method.
(6) In 1995, the Company has entered into an agreement providing for the
operating lease of two of its 1994 new stores and up to six of its 1995 or
1996 new stores. The Company will have the option to purchase the stores
at the end of the lease terms. In the event the Company chooses not to
exercise this option, it is obligated to arrange the sale of the stores to
an unrelated party and is required to pay the lessor any difference between
the net sales proceeds and the lessor's net investment in the stores,
subject to certain limitations.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
Income
Net sales for the quarter ended February 25, 1995 increased 2.6% over the same
period of 1994 in total and .3% on a comparable-store sales basis. (Comparable
stores are those open one full year.) The sales increase for the first quarter
of 1995 was negatively impacted by the prior year's strong sales comparisons and
a significant decline in lumber costs from the record highs of 1994. One new
store opened in each of the first quarters of 1995 and 1994. Two stores were
sold during the first quarter of 1995.
Costs and Expenses
Cost of merchandise sold as a percent of sales was 70.0% and 69.2% for the first
quarter of 1995 and 1994, respectively. This increase is primarily due to
pricing initiatives as well as lower volume rebates and purchases discounts
relating to changes in inventory levels.
Selling, general and administrative expenses as a percent of sales were
relatively unchanged for the first quarter of 1995 and 1994, 25.6% and 25.4%,
respectively. The dollar increase in selling, general and administrative
expenses is due to the costs associated with new stores opened in 1994.
The provision for depreciation and amortization increased over the first quarter
of 1994 due to increased capital expenditures over the past two years.
Interest expense for the first quarter of 1995 decreased to $15.3 million
compared to $16.6 million for the same period of 1994.
The income tax benefit for the first quarter of 1995 was $1.8 million compared
to $.1 million for the first quarter of 1994. The effective tax rates for both
periods were different from the 35% statutory rate primarily due to the effect
of goodwill amortization, which is nondeductible for income tax purposes.
Net Loss
Net loss for the quarter ended February 25, 1995 was $3.9 million compared to a
net loss of $.7 million for the same period of 1994. The increase in net loss
was due, in large part, to decreased operating earnings. Net loss for the 1995
period also reflects a $1.5 million loss attributable to start-up costs for
Total Home, the Company's joint venture in Mexico.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash is from operations. Cash provided by
operating activities was $14.9 million for the first quarter of 1995 compared to
cash used in operating activities of $32.7 million for the same period of 1994,
primarily as a result of the change in inventory levels. Due to seasonally
lower sales in the winter months, cash flow in the first quarter represents a
small amount of annual operating cash flow.
Borrowings are available under the 1994 Credit Agreement to supplement cash
generated by operations. At February 25, 1995, $24.5 million was available for
borrowing under the 1994 Credit Agreement. At February 25, 1995, working
capital was $123.2 million compared to $139.1 million and $88.2 million at
November 26, 1994 and February 26, 1994, respectively. The current ratios at
February 25, 1995, November 26, 1994, and February 26, 1994 were 1.39 to 1, 1.45
to 1, and 1.23 to 1, respectively.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued
LIQUIDITY AND CAPITAL RESOURCES - Continued
The Company's primary investing activities continue to be capital expenditures
for existing and new stores and distribution centers. The 1994 Credit Agreement
governs the amount of capital expenditures which can be made. The Company spent
approximately $19.3 million and $8.9 million for new stores, equipment and
renovation of retail facilities and distribution centers during the first
quarter of 1995 and 1994, respectively. One new store opened in each of the
first quarters of 1995 and 1994. The Company intends to finance the remaining
fiscal 1995 budgeted capital expenditures of approximately $63 million,
consisting primarily of three new stores, additional equipment, and renovation
of existing stores, with funds generated from operations. Four additional 1995
new stores will be leased. The Company has entered into an agreement providing
for the operating lease of two of its 1994 new stores and up to six of its 1995
or 1996 new stores.
The Company also invested $2.9 million and $.5 million in its joint venture,
Total Home de Mexico, S.A. de C.V., during the first quarter of 1995 and 1994,
respectively. Total Home opened its first store in Monterrey, Mexico, in
December, 1994 and plans to open two additional stores in 1995, and others, as
appropriate, thereafter. A loss of $4 to $5 million attributable to the
Company's share of the start-up cost of Total Home is expected to be incurred in
1995. Economic conditions in Mexico, as they relate to long range plans for
opening additional Total Home stores over the next several years, continue to be
assessed.
The Company's most significant financing activity is and will continue to be the
retirement of indebtedness. Although the Company's consolidated indebtedness is
and will continue to be substantial, management believes that, based upon its
analysis of the Company's financial condition, the cash flow generated from
operations during the past 12 months and the expected results of operations in
the future, cash flow from operations and borrowing availability under the 1994
Credit Agreement should provide sufficient liquidity to meet all cash
requirements for the next 12 months without additional borrowings.
<PAGE> 9
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements of Payless Cashways, Inc. and
its subsidiary for the thirteen week periods ended February 25, 1995 and
February 26, 1994, have been reviewed by KPMG Peat Marwick LLP, independent
auditors. Their report is included in this filing.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
4.0 Long-term debt instruments of Payless in amounts not exceeding
ten percent (10%) of the total assets of Payless and its
subsidiary on a consolidated basis will be furnished to the
Commission upon request.
11.1 Computation of per share earnings.
15.1 Letter re unaudited financial information - KPMG Peat Marwick
LLP.
27.1 Financial data schedule.
b. Reports on Form 8-K.
No reports on Form 8-K were filed by Payless during the quarter ended
February 25, 1995.
<PAGE> 10
SIGNATURE
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.
PAYLESS CASHWAYS, INC.
(Registrant)
Date: March 27, 1995 By s/Stephen A. Lightstone
Stephen A. Lightstone, Senior Vice President,
Financial and Chief Financial Officer
(Principal Financial Officer and Principal
<PAGE> 1
Exhibit 11.1
PAYLESS CASHWAYS, INC. AND SUBSIDIARY
COMPUTATION OF PER SHARE EARNINGS (LOSS)
---------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter and Year Ended
----------------------------------------------
February 25, February 24,
1995 1994
------------ ------------
<S> <C> <C>
PRIMARY
-------
Net loss $ (3,864) $ (681)
Less:
Preferred stock dividends (1,341) (1,239)
------------ ------------
Net loss available to common shareholders $ (5,205) $ (1,920)
------------ ------------
Weighted average common and dilutive common
equivalent shares outstanding 39,878 (1) 39,628 (1)
------------ ------------
Net loss per common share $ (.13) $ (.05)
============ ============
FULLY DILUTED
-------------
Net loss $ (3,864) $ (681)
Less:
Preferred stock dividends (1,341) --
------------ ------------
Net loss available to common shareholders $ (5,205) $ (681)
------------ ------------
Weighted average common and dilutive common
equivalent shares outstanding 39,878 (1) 39,628 (1)
------------ ------------
Net loss per common share $ (.13) $ (.02)
============ ============
<FN>
(1) Due to a loss being incurred for the period, dilutive common equivalent shares have not been computed as the resulting earnings
per share would be antidilutive.
</TABLE>
<PAGE> 1
EXHIBIT 15.1
------------
[Letterhead of KPMG Peat Marwick LLP]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Payless Cashways, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of
Payless Cashways, Inc. and subsidiary as of February 25, 1995 and February
26, 1994 and the related condensed consolidated statements of operations and
cash flows for the thirteen week periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Payless Cashways, Inc. and
subsidiary as of November 26, 1994 and the related consolidated statements of
operations, shareholders' equity and cash flows for the fiscal year then
ended (not presented herein); and in our report dated January 9, 1995, we
expressed an unqualified opinion on those consolidated financial statements.
Our report referred to a change in the method of accounting for post-retirement
benefits other than pensions in fiscal 1992. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
November 26, 1994 is fairly presented, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 13, 1995
<PAGE> 2
EXHIBIT 15.1
------------
[Letterhead of KPMG Peat Marwick LLP]
Payless Cashways, Inc.
Kansas City, Missouri
Gentlemen:
With respect to the subject registration statements on Form S-8 and Form S-3, we
acknowledge our awareness of the use therein of our report dated March 13,
1995 related to our review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1993, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of Sections 7 and 11 of the Securities Act.
s/ KPMG Peat Marwick LLP
Kansas City, Missouri
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FEBRUARY
25, 1995, FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-25-1995
<PERIOD-END> FEB-25-1995
<CASH> 19209
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 397935
<CURRENT-ASSETS> 442536
<PP&E> 824635
<DEPRECIATION> 246522
<TOTAL-ASSETS> 1494713
<CURRENT-LIABILITIES> 319377
<BONDS> 650002
<COMMON> 400
0
40600
<OTHER-SE> 389564
<TOTAL-LIABILITY-AND-EQUITY> 1494713
<SALES> 556218
<TOTAL-REVENUES> 557562
<CGS> 389065
<TOTAL-COSTS> 389065
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15273
<INCOME-PRETAX> (4134)
<INCOME-TAX> (1770)
<INCOME-CONTINUING> (3864)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3864)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
</TABLE>
