<PAGE> 1
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 PERIOD ENDED AUGUST 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER: 0-15017
BARRY'S JEWELERS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3746316
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 WEST LEMON AVENUE, MONROVIA, CA 91016
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 303-4741
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 4, 1996:
Common Stock, no par value, 3,999,416 shares
<PAGE> 2
BARRY'S JEWELERS, INC.
FORM 10-Q
AUGUST 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets
August 31, 1996 and May 31, 1996 2
Condensed Statements of Operations
Three months ended August 31, 1996 and 1995 3
Condensed Statements of Cash Flows
Three months ended August 31, 1996 and 1995 4
Notes to Condensed Financial Statements - August 31, 1996 5
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
BARRY'S JEWELERS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
1996 1996
(Unaudited) (Note A)
----------- --------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,700,000 $ 1,765,000
Customer receivables, net of allowance for doubtful
accounts of $9,769,000 (August 31, 1996) and
$10,930,000 (May 31, 1996) 64,517,000 68,374,000
Merchandise inventories 59,994,000 54,559,000
Prepaid expenses and other current assets 2,348,000 2,031,000
------------- ------------
Total current assets 128,559,000 126,729,000
Net property and equipment 18,851,000 16,366,000
Deferred income taxes 122,000 122,000
Other assets, net of accumulated amortization of
deferred debt issuance costs of $1,877,000 (August 31, 1996)
and $1,864,000 (May 31, 1996) 3,605,000 2,756,000
------------- ------------
Total assets $ 151,137,000 $145,973,000
============= ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt $ 181,000 $ 181,000
Accounts payable - trade 13,729,000 3,837,000
Other accrued liabilities 6,012,000 5,336,000
------------- ------------
Total current liabilities 19,922,000 9,354,000
Long-term debt, less current maturities 103,741,000 103,398,000
Shareholders' equity
Common stock, no par value: authorized - 8,000,000
shares; issued and outstanding 3,999,416 shares 33,196,000 33,196,000
(Accumulated deficit) Retained earnings (5,722,000) 25,000
------------- ------------
Total shareholders' equity 27,474,000 33,221,000
------------- ------------
Total liabilities and shareholders' equity $ 151,137,000 $145,973,000
============= ============
</TABLE>
Note: The balance sheet at May 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See Note to Condensed Financial Statements.
2
<PAGE> 4
BARRY'S JEWELERS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $ 26,101,000 $ 26,740,000
Finance and credit insurance charges 3,733,000 4,176,000
------------ ------------
29,834,000 30,916,000
Costs and expenses:
Cost of goods sold,
buying and occupancy 17,394,000 16,389,000
Selling, general and
administrative expenses 12,561,000 11,407,000
Provision for doubtful accounts 2,138,000 2,138,000
------------ ------------
Operating (loss) income (2,259,000) 982,000
Interest expense, net 2,612,000 2,658,000
------------ ------------
Loss before income taxes and
extraordinary item (4,871,000) (1,676,000)
Income taxes - (670,000)
------------ ------------
Loss before extraordinary item (4,871,000) (1,006,000)
Extraordinary item 876,000 -
------------ ------------
Net loss ($ 5,747,000) ($ 1,006,000)
============ ============
Loss per share:
Loss before extraordinary item ($ 1.22) ($ 0.25)
Extraordinary item ($ 0.22) -
------------ ------------
Net loss per share ($ 1.44) ($ 0.25)
============ ============
Weighted average common shares
outstanding 3,999,416 3,968,975
============ ============
</TABLE>
See Note to Condensed Financial Statements.
3
<PAGE> 5
BARRY'S JEWELERS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1996 1995
---- ----
<S> <C> <C>
Cash from operations 3,010,000 748,000
Investing activities:
Proceeds on sale of assets 11,000 -
Purchase of property and equipment (3,429,000) (1,352,000)
------------ -----------
Net cash used in investing
activities (3,418,000) (1,352,000)
------------ -----------
Financing activities:
Principal payments on long-term debt (31,000) (123,000)
Repayment under securitization
facility (45,119,000) -
Net borrowings under revolving
facility 45,493,000 717,000
------------ -----------
Net cash provided by financing
activities 343,000 594,000
------------ -----------
Decrease in cash ($ 65,000) ($ 10,000)
============ ===========
</TABLE>
See Note to Condensed Financial Statements.
4
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BARRY'S JEWELERS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PREPARATION
The accompanying unaudited condensed 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. Operating results for the three months ended August 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ending May 31, 1997. For further information, refer to the financial statements
and footnotes thereto included in the Registrant Company's Annual Report on Form
10-K for the year ended May 31, 1996.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the impairment
of long-lived assets and for long-lived assets to be disposed of". This
statement is effective for the Company beginning June 1, 1996. Among other
provisions, the statement standardizes the accounting practices for the
recognition and measurement of impairment losses on certain long-lived assets.
Adoption of the statement did not have a material impact on the Company's
financial statements.
The Company currently accounts for its stock-based compensation plans
using the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). In 1995, the Financial Accounting
Standards Board issued a new statement on accounting for stock-based
compensation (SFAS 123). This statement is effective for the Company beginning
June 1, 1996. Among other provisions, the statement allows companies to elect to
account for stock-based compensation plans using a fair-value-based method or
continue measuring compensation expense for those plans using the intrinsic
value method prescribed in APB 25. SFAS 123 requires that companies electing to
continue using the intrinsic value method must make pro forma disclosures of net
income and earnings per share as if the fair-value-based method of accounting
had been applied. The adoption of SFAS 123 will be reflected in the Company's
1997 fiscal year-end financial statements. As the Company will continue to
account for stock-based compensation using the intrinsic value method, SFAS 123
will not have an impact on the Company's results of operations or financial
position but will require additional disclosures.
During the first quarter of fiscal 1997, the Company was notified that
the agent under the accounts receivable securitization facility established in
December 1995 (the "Securitization Facility") desired to extinguish the
commitment under the facility. Consequently, on August 30, 1996, the Company
entered into a Second Amended and Restated Revolving credit agreement
5
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with a bank (the "Amended Revolving Credit Agreement"). Funds drawn under the
Amended Revolving Credit Facility were used, in part, to refinance the
Securitization Facility, which was thereupon terminated. In connection with the
Amended Revolving Credit Agreement, the Company incurred financing fees of
approximately $2,100,000, which will be charged to earnings over the life of the
facility. Such financing fees are included in the accompanying condensed balance
sheet. During the first quarter of 1997, the Company recorded an extraordinary
charge of $876,000 that is composed of deferred financing fees related to the
terminated Securitization Facility.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales in the first quarter of fiscal year 1997 decreased $639,000,
or 2% versus net sales in the comparable quarter of the previous year. Sales of
comparable stores (those open for the same period in both the current and
preceding comparative quarter) also decreased, by 4.8%, versus the comparable
quarter of the previous year, primarily due to the Company's more restrictive
credit policies, which tend to reduce sales in the short-term but result in
higher quality receivables. The decrease in net sales that resulted from the
decrease in comparable store sales was partially offset by the benefit of a net
increase of 8 stores since the first quarter of 1996.
Finance and credit insurance charges decreased approximately 11% for
the three month period of fiscal year 1997 versus the comparable period of the
previous year primarily due to an decrease in the average total outstanding
accounts receivable.
Cost of goods sold, buying and occupancy expenses were 67% and 61% of
net sales for the first quarter of fiscal year 1997 and 1996, respectively.
The gross margin percentage declined in the fiscal 1997 quarter because of the
Company's continued value pricing strategy instituted in the prior year to
enhance its competitive position, higher reserves recorded for inventory
shrinkage, and an increase in occupancy costs due to the increase in the
number of stores.
Selling, general and administrative expenses increased $1,154,000 or
10% for the three month period of fiscal year 1997 from the comparable quarter
of the prior year, primarily due to an increase in professional services,
advertising and new store expenses.
The provision for doubtful accounts remained consistent at 8% of net
sales for the first quarter of fiscal year 1997 and 1996.
Net interest expense decreased $46,000 in the three month period versus
the comparable period of the prior year, as a result of a decrease in the
amortization of deferred financing fees associated with the Securitization
Facility offset by interest on higher outstanding debt balances. In connection
with the termination of the Securitization Facility, the Company recognized an
extraordinary charge of $876,000 related to deferred financing fees.
6
<PAGE> 8
The benefit for income taxes for the first quarter of fiscal year 1997
and 1996 was none and $670,000, respectively. The benefit for income taxes was
calculated based on the Company's expected annual effective tax rate for each
year. As described more fully below under "Liquidity and Capital Resources," the
Company has available net operating loss carryovers (the "NOL") to offset future
taxable income.
Liquidity and Capital Resources
The Company's operations require working capital to fund the purchase
of inventory and growth of customer receivables. Also, the seasonality of the
Company's business requires a significant build-up of inventory for the December
holiday selling period. These additional inventory needs must be funded during
the late summer and fall months because of the necessary lead time to obtain
additional inventory. The heavy holiday selling period leads to a seasonal
build-up of customer receivables that must be funded during the winter and
spring months.
In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for the first quarter of fiscal year 1997 and
1996 were $3,418,000 and $1,352,000, respectively. Such expenditures have been
made primarily in connection with the opening of 11 new stores during the
first quarter of the fiscal 1997 and the remodeling of 14 stores in the same
period of fiscal year 1996, respectively. The Company intends to continue
improving its existing operations through increased inventory investment in
existing high-volume locations while also carrying out a planned new store
expansion.
The Company believes that funds available under the Amended Revolving
Credit Agreement and funds generated from operations will provide sufficient
working capital for the financing of inventory and accounts receivable as well
as for the Company's expansion plans and other purposes for the foreseeable
future. The Company expects that interest expense under the Amended Revolving
Credit Facility will exceed that which would have been incurred for the same
amount of financing under the terminated Securitization Facility, due to a
higher average cost of funds under the new amended facility.
At August 31, 1996, the Company had available approximately $14,000,000
of the remaining pre-reorganization usable NOL for federal income tax purposes
that expire in the years ending May 31, 2006 through 2008. Additionally, the
Company had approximately $1,336,000 of post-reorganization net operating loss
carryovers that originated in fiscal 1996 and expire in 2011. The utilization
of the remaining NOL is limited to $1,159,000 of taxable income annually.
7
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PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
8
<PAGE> 10
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.
BARRY'S JEWELERS, INC.
Date: October 15, 1996 /S/ROBERT W. BRIDEL
---------------- -------------------
Robert W. Bridel
President and
Chief Executive Officer
Date: October 15, 1996 /S/THOMAS S. LISTON
----------------- --------------------
Thomas S. Liston
Vice Chairman of the Board,
Secretary, Treasurer and
Chief Financial Officer
(Principal Financial Officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF OPERATIONS FOUND ON PAGES 2
AND 3 OF THE COMPANY'S FORM 10-Q FOR THE FIRST QUARTER ENDED AUGUST 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,700,000
<SECURITIES> 0
<RECEIVABLES> 74,286,000
<ALLOWANCES> 9,769,000
<INVENTORY> 59,994,000
<CURRENT-ASSETS> 128,559,000
<PP&E> 29,679,000
<DEPRECIATION> 10,828,000
<TOTAL-ASSETS> 151,137,000
<CURRENT-LIABILITIES> 19,922,000
<BONDS> 103,741,000
0
0
<COMMON> 33,196,000
<OTHER-SE> (5,722,000)
<TOTAL-LIABILITY-AND-EQUITY> 151,137,000
<SALES> 26,101,000
<TOTAL-REVENUES> 29,834,000
<CGS> 17,394,000
<TOTAL-COSTS> 12,561,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,138,000
<INTEREST-EXPENSE> 2,612,000
<INCOME-PRETAX> (4,871,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,871,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 876,000
<CHANGES> 0
<NET-INCOME> (5,747,000)
<EPS-PRIMARY> (1.44)
<EPS-DILUTED> (1.44)
</TABLE>
