<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
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 1-10767
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VALUE CITY DEPARTMENT STORES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-1322832
- ---------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
3241 Westerville Road, Columbus, Ohio 43224 43224
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 471-4722
--------------
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.
Class Outstanding at November 18, 1996
- ------------------------------------ ------------------------------------
Common Stock, Without Par Value 31,717,145 Shares
<PAGE> 2
VALUE CITY DEPARTMENT STORES, INC.
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
Part I. Financial Information (unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets
November 2, 1996 and August 3, 1996 3
Consolidated Statements of Income
Three months ended November 2, 1996
and October 28, 1995 4
Consolidated Statements of Cash Flows
Three months ended November 2, 1996
and October 28, 1995 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information N/A
Signature 11
Item 6. Exhibits and Reports on Form 8-K
Part A: Exhibit 11 Statements regarding computation of Per Share Earnings 12
Exhibit 27 Financial Data Schedule for First Quarter Form 10-Q 13
Part B: Reports on Form 8-K N/A
</TABLE>
page 2
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VALUE CITY DEPARTMENT STORES, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
===============================================================================
<TABLE>
<CAPTION>
November 2, August 3,
1996 1996
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents $ 16,242 $ 10,484
Accounts receivable, net 6,421 4,525
Receivables from affiliates 848 769
Inventories 304,589 261,370
Prepaids and other 6,805 8,569
Deferred income taxes 10,753 8,928
--------- ---------
Total current assets 345,658 294,645
Property and equipment, at cost:
Furniture, fixtures and equipment 135,282 129,081
Leasehold improvements 85,991 78,217
Land and building 5,125 4,100
Capital leases 6,276 8,973
--------- ---------
232,674 220,371
Accumulated depreciation and amortization (90,437) (87,610)
--------- ---------
Property and equipment, net 142,237 132,761
Notes receivable, non-current 2,587 2,613
Other assets 10,007 6,991
--------- ---------
Total assets $ 500,489 $ 437,010
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,810 $ 70,711
Accounts payable to affiliates 10,148 7,402
Demand notes payable 34,200 --
Accrued expenses:
Compensation 5,822 9,056
Taxes 17,025 12,216
Other 24,555 23,587
Current maturities of long-term obligations 10,250 10,836
--------- ---------
Total current liabilities 184,810 133,808
Long-term obligations, net of current maturities 53,636 46,942
Deferred income taxes 3,959 3,888
Excess net assets over cost of acquired business 579 927
Shareholders' equity:
Common shares, without par value; 80,000,000 authorized;
issued, including Treasury Shares, 32,084,345
shares and 32,058,745 shares, respectively 109,656 109,450
Contributed capital 9,735 9,688
Retained earnings 141,206 135,504
Less deferred compensation expense, net (263) (368)
Treasury shares at cost, 368,600 shares (2,829) (2,829)
--------- ---------
Total shareholders' equity 257,505 251,445
--------- ---------
Total liabilities and shareholders' equity $ 500,489 $ 437,010
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
page 3
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VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
================================================================================
<TABLE>
<CAPTION>
Three months ended
--------------------------
November 2, October 28,
1996 1995
------------ ------------
<S> <C> <C>
Net sales, excluding sales of licensed
departments $ 266,076 $ 217,790
Cost of sales (167,619) (134,740)
--------- ---------
Gross profit 98,457 83,050
Selling, general and administrative expenses (93,591) (83,376)
License fees from affiliates, and other operating income 5,301 4,657
--------- ---------
Operating profit 10,167 4,331
Interest expense, net (1,194) (446)
Amortization of excess net assets over cost 348 348
Other income, net 153 40
--------- ---------
Income before income taxes and
minority interest 9,474 4,273
Minority interest in partnerships -- (41)
--------- ---------
Income before income taxes 9,474 4,232
Provision for income taxes (3,772) (1,730)
--------- ---------
Net income $ 5,702 $ 2,502
========= =========
Earnings per share $ 0.18 $ 0.08
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
page 4
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VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
===============================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,702 $ 2,502
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 7,183 5,705
Amortization of excess net assets over cost (348) (347)
Deferred income taxes (1,754) (2,594)
Minority interest in partnerships -- 41
Gain on disposal of property and equipment (153) (40)
Change in working capital, assets and liabilities:
Receivables (1,975) (415)
Inventories (43,219) (33,876)
Prepaids and other (20) 3,589
Accounts payable 14,845 31,888
Accrued expenses 6,503 (163)
-------- --------
Net cash (used in) provided by operating activities (13,236) 6,290
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18,918) (9,862)
Proceeds from sale of property and equipment 20 43
Other assets (3,133) 306
Notes receivable, non-current 26 --
-------- --------
Net cash used in investing activities (22,005) (9,513)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under demand note facility 51,000 8,000
Principal payments of long-term obligations (10,207) (10,189)
Net proceeds from issuance of common shares 206 --
Purchase of treasury shares -- (1,598)
Distributions to partners in minority partnerships, net -- (1,328)
-------- --------
Net cash provided by (used in) financing activities 40,999 (5,115)
-------- --------
Net increase (decrease) in cash and equivalents 5,758 (8,338)
Cash and equivalents, beginning of period 10,484 17,374
-------- --------
Cash and equivalents, end of period $ 16,242 $ 9,036
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
page 5
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VALUE CITY DEPARTMENT STORES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 2, 1996 AND OCTOBER 28, 1995
(unaudited)
==============================================================================
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Value City Department Stores, Inc. ("VCDS") and its wholly owned
subsidiaries. These entities are herein referred to collectively as the
"Company." The Company operates a chain of full-line off-price
department stores, principally under the name "Value City."
The consolidated financial statements as of and for the periods ended
November 2, 1996 and October 28, 1995 are unaudited and are presented
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, the consolidated financial statements should be
read in conjunction with the financial statement disclosures contained
in the Company's 1996 Annual Report. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
necessary (which are of a normal recurring nature) to present fairly the
financial position and results of operations and cash flows for the
interim periods presented, but are not necessarily indicative of the
results of operations for a full fiscal year.
To facilitate comparisons with the current year, certain amounts in
prior year financial statements have been reclassified to conform to the
current year presentation.
2. INCOME TAXES
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes
are recorded to reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each balance sheet date.
3. MINORITY INTEREST IN PARTNERSHIPS
During the quarter ended October 28, 1995, the Company bought the 25%
minority interest in two partnership stores for approximately $1,328,000
representing the net book value of the minority interest in those
partnerships.
4. NOTES PAYABLE AND SENIOR UNSECURED NOTES
The Company has a $100.0 million credit facility with its bank bearing
interest at or below the prime lending rate depending on certain
borrowing elections made by the Company. At November 2, 1996, the prime
rate was 8.25%, borrowings aggregated $84.0 million, $7.6 million of
letters of credit were issued and outstanding for merchandise purchases
and $8.4 million was available under the facility. During the second
quarter, the Company completed a private placement for $50.0 million of
senior unsecured notes and used the proceeds to repay a portion of
demand notes payable. Accordingly, approximately $50.0 million and $33.0
million of demand notes are classified as long-term obligations at
November 2, 1996 and August 3, 1996, respectively. The senior unsecured
notes require principal payments of $2.1 million in December 1997 and
1998 and payments of $9.1 million annually beginning December 1, 1999
through December 1, 2003 and bear interest at an average rate of 7.22%
per annum.
page 6
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
==============================================================================
THREE MONTHS ENDED NOVEMBER 2, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER
28, 1995
Net sales increased from $217.8 million to $266.1 million, an increase
of $48.3 million or 22.2%. New stores contributed an increase in sales
of $19.2 million and stores opened during the prior year contributed
$19.1 million. Comparable store sales increased $5.1 million or 2.3%.
The remaining increase in sales of $4.9 million is the result of the
current quarter beginning and ending one week later than last year's
quarter due to the effect of conforming to the National Retail
Federation's suggested retail calender. In determining comparable
store sales growth, only stores open for like 13-week periods are
included.
Gross profit increased from $83.0 million to $98.5 million, an increase
of $15.5 million, or 18.6%. Expressed as a percentage of sales, gross
profit decreased from 38.1% to 37.0%, due primarily to higher markdowns.
Selling, general and administrative expenses ("SG&A") increased $10.2
million, or 12.3% from $83.4 million to $93.6 million, but decreased as
a percentage of sales from 38.3% to 35.2%. New stores contributed an
increase in expenses of $5.1 million, and stores opened during the prior
fiscal year contributed $6.5 million. All other expenses as a group
decreased by $1.4 million. New store SG&A, as a percentage of sales, is
slightly higher than that of comparable stores, due primarily to
pre-opening expenses and the result of aggressive advertising to develop
name recognition in new markets. This increase in SG&A percentage was
more than offset by the savings achieved in comparable store SG&A,
primarily in the areas of selling payroll and advertising expenses, and
by the leveraging effect of increased sales volume on administrative,
warehousing and distribution costs.
Based upon its experience, the Company estimates the average cost of
opening a new store to range from approximately $5.0 million to $6.5
million, including leasehold improvements, fixtures, inventory and other
costs. Preparations for opening a store generally take between eight and
twelve weeks. The Company charges pre-opening expenses to operations
ratably over the first twelve months of store operations. It has been
the Company's experience that new stores generally achieve profitability
and contribute to net income after the first full year of operations.
Twelve stores opened less than twelve months had a pre-tax operating
profit of $0.4 million for the current three month period, including
$1.7 million of pre-opening amortization expense. This is primarily
attributable to the high grand opening sales volumes for six stores
opened in the current quarter. For the three month period ending
October 28, 1995, seven stores opened less than 12 months had pre-tax
operating losses of $1.5 million, including $1.1 million of
pre-opening amortization expense. These stores have not yet completed
a full second year of operations however based on their results from
operations, for fiscal 1996 and the first quarter, it is expected that
they will contribute to net income in fiscal 1997.
License fees from affiliates and other operating income increased from
$4.7 million to $5.3 million, an increase of $0.6 million or 13.8%, but
decreased as a percentage of sales from 2.1% to 2.0%.
Operating profit increased from $4.3 million to $10.2 million, an
increase of approximately $5.9 million or 134.7%, and increased as a
percentage of sales from 2.0% to 3.8% as a result of the above factors.
Interest expense, net of interest income, increased from $0.4 million to
$1.2 million due primarily to increased short-term borrowings.
Other operating income increased from $40,000 to $153,000, due primarily
to a non cash gain on termination of a capital lease for transportation
equipment.
Income before income taxes increased from $4.2 million to $9.5 million,
an increase of $5.3 million or 123.9%, and increased as a percentage of
sales from 1.9% to 3.6%.
page 7
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
===============================================================================
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $160.8 million at both November 2, 1996 and
August 3, 1996. Current ratios at those dates were 1.87 and 2.20,
respectively.
Net cash used in operating activities totaled $13.2 million for the
three months ended November 2, 1996 while the three months ended October
28, 1995 provided $6.3 million. Net income, adjusted for depreciation
and amortization, provided $12.9 million of operating cash flow for the
three months ended November 2, 1996. This was offset by $28.4 million
representing an increase in inventories net of an increase in accounts
payable of $14.8 million. For the three months ended October 28, 1995,
net income, adjusted for depreciation and amortization, provided $8.2
million of operating cash flow which was partially offset by a $1.9
million increase in inventories net of an increase in accounts payable
of $32.0 million.
Net cash used in investing activities totaled $22.0 million for the 1996
period and $9.5 million for the 1995 period. Capital expenditures for
new stores aggregated $15.6 million, including $1.0 million for the
purchase of land associated with a Spring 1997 store opening. Other
capital expenditures during the quarter include $2.4 million for capital
improvements in existing stores, $0.1 for energy management systems,
$0.4 million for renovations in existing warehouses, $0.1 million for
transportation equipment, and $0.3 million for M.I.S. equipment
upgrades. Other investing activities include cash outlays of $3.1
million primarily for new store lease acquisition costs.
Capital expenditures for the balance of the fiscal year are estimated at
$34.0 million which includes expenditures for four new store openings.
The Company has a $100.0 million credit facility with its bank bearing
interest at or below the prime lending rate depending on certain
borrowing elections made by the Company. At November 2, 1996, the prime
rate was 8.25%, borrowings aggregated $84.0 million, $7.6 million of
letters of credit were issued and outstanding for merchandise purchases
and $8.4 million was available under the facility. During the second
quarter, the Company completed a private placement for $50.0 million of
senior unsecured notes and used the proceeds to repay a portion of the
demand notes payable. Accordingly, approximately $50.0 million and $33.0
million of demand notes are classified as long-term obligations at
November 2, 1996 and August 3, 1996, respectively. The senior unsecured
notes require principal payments of $2.1 million in December 1997 and
1998 and payments of $9.1 million annually beginning December 1, 1999
through December 1, 2003 and bear interest at an average rate of 7.22%
per annum. The Company believes that the cash generated by its
operations, along with the available proceeds from the credit facility
and other sources of financing will be sufficient to meet its future
obligations including capital expenditures.
SEASONALITY
The Company's business is affected by the pattern of seasonality
common to most retail businesses. Historically, the majority of its
sales and operating profit have been generated during the first six
months of its fiscal year, which includes the back-to-school and
Christmas selling seasons.
page 8
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
===============================================================================
INCOME TAXES
Income taxes are computed in accordance with SFAS No. 109, "Accounting
for Income Taxes". The effective tax rate for the three months ended
November 2, 1996 was 39.8%, which represents a decrease of 0.3% from the
year ended August 3, 1996 for anticipated credits from the new Work
Opportunity Tax Credit program. The effective tax rate for the three
months ended October 28, 1995 was 40.9% which represented a decrease of
0.3% from the year ended July 29, 1995.
INFLATION
The results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the
impact of inflation because of the nature of the estimates required,
management believes that the effect of inflation, if any, on the results
of operations and financial condition has been minor.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995)
contained herein or made by management of the Company involve risks and
uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have
affected and in the future could affect the Company's financial
performance and actual results and could cause actual results for 1997
and beyond to differ materially from those expressed or implied in any
such forward-looking statements: changes in consumer spending patterns,
consumer preferences and overall economic conditions, the impact of
competition and pricing, changes in weather patterns, changes in
existing or potential duties, tariffs or quotas, paper and printing
costs, availability of suitable store locations at appropriate terms and
ability to hire and train associates.
page 9
<PAGE> 10
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
VALUE CITY DEPARTMENT STORES, INC.
===============================================================================
A. The Company held its 1996 Annual Meeting of Shareholders on December 3,
1996. Holders of 30,276,581 Common Shares of the Company were present
representing 95% of the Company's 31,715,745 Common Shares issued and
outstanding and entitled to vote at the meeting.
B. The following persons were elected as members of the Company's Board of
Directors to serve until the annual meeting following their election or
until their successors are duly elected and qualified. Each person
received the number of votes for or the number of votes with authority
withheld indicated below.
Name Votes Votes For Withheld
Jon P. Diamond 30,036,054 240,527
Richard Gurian 30,044,354 232,227
George A. Iacono 30,036,100 240,481
Dr. Norman Lamm 30,044,154 232,427
Geraldine Schottenstein 30,036,000 240,581
Jay L. Schottenstein 30,036,190 240,391
Saul Schottenstein 30,036,200 240,381
Robert L. Shook 30,044,454 232,127
Robert M. Wysinski 30,035,900 240,681
C. In addition to the election of directors described above, the proposal
to approve amendments to the Company's 1991 Stock Option Plan passed with
26,362,412 shares voting in favor, 3,725,406 shares voting against and
188,763 shares abstaining.
The proposal to approve amendments to the Company's Non-employee Director
Stock Option Plan passed with 29,045,069 shares voting in favor,
1,044,389 shares voting against and 187,123 shares abstaining.
D. Not applicable.
page 10
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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.
VALUE CITY DEPARTMENT STORES, INC.
(Registrant)
By /s/ Robert M. Wysinski
--------------------------------
Robert M. Wysinski, Senior Vice President,
Chief Financial Officer, Treasurer
and Secretary*
Date: December 13, 1996
- --------------------------------------
- -------------------------------------------------------------------------------
* Mr. Wysinski is the principal financial officer and has been duly authorized
to sign on behalf of the registrant.
page 11
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VALUE CITY DEPARTMENT STORES, INC.
EXHIBIT 11
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
================================================================================
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
------------- -------------
<S> <C> <C>
Weighted average number of common shares outstanding 31,692,343 31,839,220
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at the average market price 362,258 395
----------- -----------
Number of shares for computation of primary earnings per share 32,054,601 31,839,615
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at period end market price 218,992 0
----------- -----------
Number of shares for computation of fully diluted
earnings per share 32,273,593 31,839,615
=========== ===========
Net income for primary and fully diluted earnings per share $ 5,702,000 $ 2,502,000
----------- -----------
Earnings per share - primary and fully diluted $ 0.18 $ 0.08
=========== ===========
</TABLE>
page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-START> AUG-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 16,242
<SECURITIES> 0
<RECEIVABLES> 6,894
<ALLOWANCES> 473
<INVENTORY> 304,589
<CURRENT-ASSETS> 345,658
<PP&E> 232,674
<DEPRECIATION> 90,437
<TOTAL-ASSETS> 500,489
<CURRENT-LIABILITIES> 184,810
<BONDS> 53,636
<COMMON> 109,656
0
0
<OTHER-SE> 147,849
<TOTAL-LIABILITY-AND-EQUITY> 500,489
<SALES> 266,076
<TOTAL-REVENUES> 266,076
<CGS> 167,619
<TOTAL-COSTS> 167,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 1,194
<INCOME-PRETAX> 9,474
<INCOME-TAX> 3,772
<INCOME-CONTINUING> 5,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,702
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
