FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[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.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 33-13622
BRENDLE'S INCORPORATED
Elkin, North Carolina 56-049-7852
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1919 North Bridge Street, Elkin, North Carolina 28621
(919) 526 5600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant 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 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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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,
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 Not Applicable
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At April 30, 1994, there were 12,769,145 shares of the issuer's
Common Stock outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BRENDLE'S INCORPORATED
Consolidated Statements of Income
(Unaudited)
(In thousands except per share data)
Three Months Ended
April 30, May 1,
1994 1993
Net sales $25,946 $33,274
Other income 31 102
Total revenue 25,977 33,376
Cost and expenses:
Cost of merchandise sold 18,808 24,349
Selling, operating and
administrative expenses 9,532 12,066
Depreciation and amortization 879 1,489
Interest expense:
Capitalized leases 111 226
Other 241 1
Reorganization Costs 246 (157)
29,817 37,974
Net loss before income taxes
and extraordinary item (3,840) (4,598)
Provision for income taxes -- --
Net loss before extraordinary item (3,840) (4,598)
Debt forgiveness (28,673) --
Net income (loss) $24,833 $(4,598)
Weighted average shares outstanding 8,398 8,289
Net income (loss) per share $ 2.96 $ (0.55)
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BRENDLE'S INCORPORATED
Consolidated Balance Sheet
(Unaudited)
(In thousands except per share data)
April 30, January 29, May 1,
1994 1994 1993
Assets
Current Assets:
Cash and temp. cash inves $12,886 $ 34,774 $ 17,958
Accounts receivable 1,420 1,480 1,067
Merchandise inventories 55,878 54,133 82,637
Prepaid inventory 253 299 3,808
Prepaid expenses 1,278 671 958
Total current assets 71,715 91,357 106,428
Property and equipment, less accumulated
depreciation and amortization 10,937 15,767 35,444
Other assets 585 439 666
$83,327 $107,563 $142,538
Liabilities and Shareholders' Equity
Current liabilities:
Accounts Payable
Trade $ 8,422 $ 3,002 $ 5,038
Outstanding Checks (Note #5) 23,244 -- --
Current portion of capitalized lease obligations 1,579 -- --
Current portion of restructuring expenses 509 509 3,686
Accrued compensation 648 508 712
Other accrued liabilities 2,857 2,335 3,791
Total current liabilities 37,259 6,354 13,227
Reorganization notes 332 -- --
Capitalized lease obligations, less current portion 2,603 -- --
Other liabilities 456 -- --
Other deferred credit 219 -- --
Total long-term liabilities 3,610 0 0
Liabilities subject to compromise (Note #6) 4,812 95,749 109,143
Total Liabilities 45,681 102,103 122,370
Shareholders' equity:
Common stock, $1 par value, 20,000,000
shares authorized, 12,769,145, 8,299,454
and 8,289,276 shares issued 12,769 8,299 8,289
Capital in excess of par value 20,905 18,112 18,111
Retained earnings (deficit) 3,882 (20,951) (6,232)
Total shareholders' equity 37,556 5,460 20,168
$83,237 $107,563 $142,538
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BRENDLE'S INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
April 30, May 1,
1994 1993
Operations:
Net income (loss) $24,833 $ (4,598)
Items not requiring (providing) cash:
Depreciation and amortization 879 1,489
Reorganization reserve -- 570
Other -- 7
Debt forgiveness (28,673)
Changes in assets and liabilities:
Accounts receivable 60 5,269
Merchandise inventories (1,745) (24,744)
Prepaid inventory 46 959
Prepaid expenses (607) (91)
Accounts payable and accrued liabilities 6,082 4,435
Reorganization reserve 0 (3,486)
Cash provided (used) by operations 875 (20,190)
Investing Activities:
Net (additions) retirements of property and equip 3,951 3,430
Increase in other assets (146) --
Cash provided by investing activities 3,805 3,430
Financing Activities:
Decrease in liabilities subject
to compromise (50,344)
Outstanding checks 23,244
Increase in long-term liabilities 675
Increase in reorganization notes 332
Decrease in capitalized lease
obligations (475) (348)
Decrease in short term borrowings -- (1,530)
Cash used by financing activities (26,568) (1,878)
Net decrease in cash and
temporary cash invest. $(21,888) $(18,638)
Supplemental disclosure of non-cash financing activities:
During the quarter ended April 30, 1994 the company issued 4,469,191 shares
of common stock valued at $7,263,000 to creditors under the terms of its
Plan of Reorganization and resulted in an increase in capital in excess
of par value of $7,263,000.
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BRENDLE'S INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements
reflect all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the
results of the interim period.
Note 2. In April 1986, four shareholders of the Company
agreed not to transfer or sell their Common Stock to any
unrelated party (as defined) without the written consent
of the other parties to the agreement. In addition, in
the event of the death of one of the four shareholders,
the Company can be required to purchase their Common
Stock at fair value up to the life insurance proceeds,
consisting of policies with a face value of $5,250,000,
$5,000,000, $3,070,000 and $3,000,000, respectively. An
amount equal to the cash surrender value of these
policies at April 30, 1994 and May 1, 1993 of $219,000
and $521,000, respectively, has been shown as an other
deferred credit on the balance sheet with a corresponding
reduction in retained earnings. The Company has taken
out loans against the cash surrender value of these
policies in the sum of $1,840,000 to finance current
capital requirements.
Note 3. Tax refunds resulting from losses incurred are
calculated using tax payments of three prior years. Any
losses in excess of those allowed for carry-back are
carried forward for use as future earnings allow. Tax
loss carry-backs were exhausted during the second quarter
of Fiscal 1992.
Note 4. Effective for the first quarter of Fiscal 1994, the
Company implemented Statement of Financial Accounting Standards
109, "Accounting for Income Taxes," (SFAS 109). SFAS 109 mandates
the use of the liability method to calculate deferred taxes. SFAS
109 permits restatement of earlier years or presentation of the
cumulative effect of the change in the years adopted. The Company
has adopted the Statement prospectively and the adoption does
not impact the Company's financial condition or results of
operations due to the fact that the Company has recorded a
valuation allowance against the deferred tax asset which primarily
results from the Company's net operating loss carry-forwards.
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Note 5. Checks totalling $23,244,000 for payment of undisputed
pre-petition obligations were mailed on April 29, 1994.
Since these checks had not cleared the bank, the amount
was classified under current liabilities as outstanding
checks and included in cash at April 30, 1994.
Note 6. Liabilities subject to compromise include disputed claim
obligations where claim objections have been filed with
the Bankruptcy Court. These claims are expected to be
resolved in the next few months.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Overview:
On November 22, 1992, the Company and its wholly-owned
principal operating subsidiary, Brendle's Stores, Inc. (BSI),
(collectively sometimes referred to as the "Company") filed for
protection under Chapter 11 of the Bankruptcy Code. Under Chapter
11, the Company and BSI, Debtors In Possession, continued to
conduct business in the ordinary course under the protection of the
Bankruptcy Code while a Plan of Reorganization was developed to
restructure and reorganize the debt structure and allow the debtors
to strengthen its financial position.
At the time of the filing of the Petitions, the Company was
operating 51 retail stores in North Carolina, South Carolina,
Virginia, Tennessee and Georgia. The Company reviewed the
operations of each of its stores, and closed twenty-one stores
during the Fiscal year ending January 29, 1994 whose profitability
was not considered by management to be adequate. Eight store
locations were closed in the winter of 1993 and thirteen store
locations were closed in the spring of 1993. The inventory,
fixtures, and real estate (at two of the company-owned stores) that
became available for sale as a result of these closings were sold
to generate cash to help fund the Plan of Reorganization. The
Company also sold its distribution center located in Elkin, NC and
leased back approximately 244,000 of the 388,000 square feet
facility. Proceeds from this sale were also used to help fund the
Plan of Reorganization.
On November 10, 1993, the Company filed a modified Plan of
Reorganization (the "Plan") with the United States Bankruptcy Court
for the Middle District of North Carolina. The Plan was approved
by the Company's creditors and shareholders in December, 1993, and
was confirmed by the Bankruptcy Court by order entered on December
20, 1993.
On April 20, 1994, the Company received Bankruptcy Court
approval for a five-year, $45 million revolving line of credit with
Foothill Capital Corporation to be used to partially fund the Plan
and to provide working capital funds to the Company. See
"Liquidity and Capital Resources." On April 29, 1994, the Company
substantially consummated its Plan of Reorganization by making
payments to creditors in accordance with the Plan and distributing
stock for the benefit of certain unsecured and secured creditors.
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Comparison of Operations
First Quarter Fiscal 1995 Compared to First Quarter Fiscal 1994
Net sales for the three months ended April 30, 1994 were
$25,946,000, a 22.0% decrease from the $33,274,000 for the same
quarter of Fiscal 1994. The sales decrease from the prior year
resulted primarily from operating thirteen fewer stores.
Comparable store sales increased 5.82% compared to the same period
in Fiscal 1994. This sales increase resulted primarily from a
better in-stock position and increased promotional activity
compared to the first quarter of Fiscal 1994.
Other income which consists of miscellaneous non-recurring
items was $31,000 for the first quarter of Fiscal 1995 compared to
$102,000 for the first quarter of Fiscal 1994.
The cost of merchandise sold in the first quarter of Fiscal
1995 was $5,541,000 below the first quarter of Fiscal 1994. The
decrease in cost of merchandise sold was the result of the
$7,328,000 decrease in sales which, as discussed above, was
primarily the result of operating thirteen fewer stores.
Gross margin is calculated by subtracting the cost of
merchandise sold from net revenues. The gross margin percentage of
27.6% for the first quarter of fiscal 1995 increased 0.6% from
27.0% for the same period last year.
Selling, operating and administrative expenses ("SO & A") for
the first quarter of Fiscal 1995 and 1994 were $9,532,000 and
$12,066,000, respectively. This decrease is primarily the result
of operating thirteen fewer stores and the corresponding reduction
of corporate overhead. SO & A expenses, as a percentage of
revenues, increased to 36.7% in the first quarter of Fiscal 1995
compared to 36.2% for the same period last year.
First quarter depreciation and amortization expense for Fiscal
1995 and 1994 was $879,000 and $1,489,000, respectively. Expense
for fixed asset depreciation and amortization is less because the
Company is operating fewer stores.
Interest on capital leases for Fiscal 1995 and Fiscal 1994 was
$111,000 and $226,000, respectively. Interest expense on debt
other than capital leases was $241,000 compared to $1,000 for the
same quarter last year. This increase in interest on debt is
primarily for costs of the Debtor-in-Possession revolving credit
facility which was established in October, 1993 and was replaced
with a $45 million revolving credit facility from Foothill Capital
Corporation.
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Reorganization costs of $246,000 for Fiscal 1995 include
professional fees associated with the Chapter 11 proceedings and
store closing expenses reduced by interest income. Reorganization
costs for Fiscal 1994 of ($157,000) include interest income in
excess of professional fees and store closing expenses. Interest
on short-term investments is included in reorganization costs as
required by AICPA Statement of Position 90-7 (Financial Reporting
by Entities Reorganizing Under the Bankruptcy Code).
Debt forgiveness recorded for the first quarter of Fiscal 1995
was $28,673,000. This amount represents the pre-petition debt of
$35,936,000 that has been forgiven to date under the Plan of
Reorganization offset by 4,469,191 shares of stock valued at
$7,263,000 issued to unsecured creditors in accordance with the
Plan.
Net income for the first quarter of Fiscal 1995 was
$24,833,000 which reflects an extraordinary item of debt
forgiveness as discussed above. Net loss before extraordinary item
for the first quarter of Fiscal 1995 was $3,840,000 compared to
$4,598,000 for the same period last year.
The Company's tax loss carry-backs were exhausted in Fiscal
1992 resulting in the loss of any tax benefit for the first quarter
of Fiscal 1995. The loss carry-forwards will be used as future
earnings allow.
Liquidity and Capital Resources
As a result of the Chapter 11 proceeding, the Company's
liquidity position has been positively affected because the cash
requirements for the payment of scheduled principal payments,
accrued interest, accounts payable, and other liabilities that were
incurred prior to the filing of Chapter 11 Proceeding were, in most
cases, deferred and subsequently settled at a reduced amount under
the Plan.
The Company's cash balance at April 30, 1994 was $12.9
million. Merchandise inventories were $55.9 million at April 30,
1994, compared to $82.6 million at May 1, 1993. The decline in
inventories was primarily the result of closing thirteen stores
since May 1, 1993, offset by a better in-stock position at the
remaining 30 stores.
Current liabilities at April 30, 1994 were $42.0 million
compared with $6.3 million at May 1, 1993. This increase in
current liabilities is the result of including $23.2 million of
outstanding checks from the April 29th payment to creditors;
reclassifying from liabilities subject to compromise, the current
portion of capitalized lease obligations for assumed leases; and,
increased accounts payable trade, the result of more favorable
credit terms from the Company's vendors.
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On April 29, 1994, the Company achieved substantial
consummation of the Plan by making payments to creditors of
approximately $46.0 million. These payments were funded from $30.0
million of cash on hand with the balance from borrowings from the
Company's $45 million Revolving Credit Facility with Foothill
Capital Corporation ("Exit Financing Facility").
On April 20, 1994, the Company received Bankruptcy Court
Approval for a five-year, $45 million Exit Financing Facility. The
Exit Financing Facility will be used to fund the aforementioned
negotiated Plan payments to creditors, with the balance of the
facility to be used to fund working capital requirements, inventory
purchases, capital expenditures, and other general corporate
purposes as the need arises. The Exit Financing Facility includes
restrictions on capital expenditures as well as standard covenants
found in similar agreements. These include two financial ratio
covenants: (1) current ratio, and (2) total liabilities to
tangible net worth ratio. The Company was in compliance with all
covenants as of April 30, 1994.
Under the Exit Financing Facility, the lender agrees to make
revolving loans and issue or guarantee letters of credit for the
Company in an amount not exceeding the lesser of the Borrowing Base
(as defined in the Loan Agreement) or $45.0 million. The Exit
Financing Facility includes a sublimit of $10 million for
documentary and stand-by letters of credit.
The Exit Financing Facility provides that each loan shall bear
interest at a rate of prime plus one and forty-four one hundredths
(1.44) percentage points. Interest on these loans shall be payable
monthly in arrears on the first day of each month. Also under the
Exit Financing Facility, the Company pays an unused line fee for an
amount equal to one-half of one percent (.50%) per annum on the
unused portion of the Exit Financing Facility and a letter of
credit fee equal to 2.5% per annum on the average daily balance of
the aggregate undrawn letters of credit and letter of credit
guarantees outstanding during the immediately preceding month and
certain other fees. The Exit Financing Facility also requires an
annual facility fee equal to one-half of one percent(.50%) of the
maximum amount of the facility payable on each anniversary of the
Facility closing date and a monthly servicing fee of $3,500 per
month. The Company also paid an initial, one-time fee of $450,000
in order to establish the Exit Financing Facility.
The Company's ability to continue as a going concern is
dependent, in part, on the Company's ability to obtain merchandise
on a timely basis from vendors on acceptable credit terms. Since
the filing of the Chapter 11 Proceeding, the Company's ability to
obtain credit through arrangements such as the Exit Financing
Facility terms and credit lines have improved and are approaching
historical levels experienced by the Company. Management of the
Company believes that its ability to obtain credit should continue
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to improve based on the acceptable performance of the Company.
Management further believes the Exit Financing Facility, together
with the cash from operations and vendor credit, should be
adequate to cover working capital requirements and permitted
capital expenditures.
In addition to cash used for operations, approximately
$113,000 was also used for capital expenditures during the
first quarter of Fiscal 1995. The Company anticipates capital
expenditures for Fiscal 1995 primarily for normal facility
maintenance and various projects to improve management information
systems.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On November 22, 1992, the Company and its wholly-owned
principal operating subsidiary, Brendle's Stores, Inc. (BSI),
(collectively sometimes referred to as the "Company") filed for
protection under Chapter 11 of the Bankruptcy Code. Under Chapter
11, the Company and BSI, Debtors In Possession, continued to
conduct business in the ordinary course under the protection of the
Bankruptcy Code while a Plan of Reorganization was developed to
restructure and reorganize the debt structure and allow the debtors
to strengthen its financial position.
On November 10, 1993, the Company filed a modified Plan of
Reorganization (the "Plan") with the United States Bankruptcy Court
for the Middle District of North Carolina. The Plan was approved
by the Company's creditors and shareholders in December, 1993, and
was confirmed by the Bankruptcy Court by order entered on December
20, 1993. On April 29, 1994, the Company substantially consummated
its Plan of Reorganization by making payments to creditors in
accordance with the Plan and distributing stock for the benefit of
certain unsecured and secured creditors.
ITEM 2. CHANGES IN SECURITIES
On April 29, 1994, the date the Plan of Reorganization
was substantially consummated, the Company issued
4,469,201 shares of Common Stock, or 35% of the
outstanding stock, to Arnold Zahn of Zahn and Associates,
Inc., as escrow agent for the Unsecured Creditors,
pending the resolution of certain disputed claims. These
shares were valued at $7,263,000 and brought the total
shares outstanding to 12,769,145.
ITEM 3. DEFAULT UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. None
B. None
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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.
BRENDLE'S INCORPORATED
(Registrant)
(Signature of David R. Renegar)
David R. Renegar
Vice President and
Chief Financial Officer
Date: June 14, 1994
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