<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 quarterly period ended May 5, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
Commission file number 0-21296
PACIFIC SUNWEAR OF CALIFORNIA, INC.
CALIFORNIA 95-3759463
- - ---------------------------------------- --------------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
5037 EAST HUNTER AVENUE
ANAHEIM CALIFORNIA 92807
- - ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip code)
(714) 693-8066
- - -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of the registrant's Common stock, par
value $.01 per share, at May 5, 1996 was 5,297,019.
<PAGE> 2
PACIFIC SUNWEAR OF CALIFORNIA, INC.
FORM 10-Q
For the Quarter Ended May 5, 1996
Index
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of May 5, 1996 (unaudited) 3
and February 4, 1996
Statements of Operations (unaudited) for the thirteen weeks
ended May 5, 1996 and April 30, 1995 4
Statements of Cash Flows (unaudited) for the thirteen weeks
ended May 5, 1996 and April 30, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE PAGE 11
</TABLE>
2
<PAGE> 3
PACIFIC SUNWEAR OF CALIFORNIA, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 5, February 4,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,108,619 $ 4,315,842
Accounts receivable 639,896 323,299
Income taxes receivable 88,489 --
Merchandise inventories 18,116,804 15,408,844
Prepaid expenses, includes $1,641,756 and $1,575,311
of prepaid rent, respectively 2,393,744 2,451,170
Deferred taxes 1,160,179 1,160,179
------------ ------------
Total current assets 27,507,731 23,659,334
PROPERTY AND EQUIPMENT:
Leasehold improvements 22,665,509 22,044,879
Furniture, fixtures and equipment 17,567,897 16,667,276
------------ ------------
40,233,406 38,712,155
Less accumulated depreciation and amortization (13,317,139) (12,088,943)
------------ ------------
Net property and equipment 26,916,267 26,623,212
OTHER ASSETS:
Goodwill, net of accumulated amortization of
$272,003 and $265,283, respectively 816,740 823,460
Deposits and other assets 394,658 364,739
------------ ------------
Total other assets 1,211,398 1,188,199
------------ ------------
Total assets $ 55,635,396 $ 51,470,745
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 375,000
Accounts payable 9,533,108 5,268,496
Accrued liabilities, includes $1,729,851 and $1,349,268
of accrued compensation, respectively 3,390,118 2,747,414
Income taxes payable -- 468,661
------------ ------------
Total current liabilities 12,923,226 8,859,571
LONG-TERM DEBT -- 406,250
DEFERRED COMPENSATION 242,134 185,348
DEFERRED RENT 2,856,141 2,724,381
DEFERRED TAXES 985,808 985,808
SHAREHOLDERS' EQUITY:
Common stock, par value $.01; authorized, 15,000,000 shares;
issued and outstanding, 5,297,019 and 5,300,171 shares,
respectively 52,970 53,002
Additional paid-in capital 29,429,177 28,940,869
Retained earnings 9,145,940 9,315,516
------------ ------------
Total shareholders' equity 38,628,087 38,309,387
------------ ------------
Total liabilities and shareholders' equity $ 55,635,396 $ 51,470,745
============ ============
</TABLE>
3
<PAGE> 4
PACIFIC SUNWEAR OF CALIFORNIA, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
------------------------------
May 5, 1996 April 30, 1995
----------- --------------
<S> <C> <C>
Net Sales $27,640,975 $19,477,148
Cost of goods sold, including buying,
distribution, and occupancy costs 20,362,870 14,825,366
----------- -----------
Gross margin 7,278,105 4,651,782
Selling, general and administrative expenses 7,576,340 5,730,411
----------- -----------
Operating loss (298,235) (1,078,629)
Interest income 29,659 31,104
----------- -----------
Loss before income tax benefit (268,576) (1,047,525)
Income tax benefit (99,000) (429,000)
----------- -----------
Net loss $ (169,576) $ (618,525)
=========== ===========
Net loss per common and common equivalent share $ (0.03) $ (0.12)
=========== ===========
Weighted average common and common equivalent
shares outstanding 5,261,540 5,154,918
=========== ===========
</TABLE>
4
<PAGE> 5
PACIFIC SUNWEAR OF CALIFORNIA, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended
------------------------------
May 5, 1996 April 30, 1995
----------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (169,576) $ (618,525)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,234,916 938,163
Change in:
Accounts receivable (316,597) (502,402)
Merchandise inventories (2,707,960) (1,359,982)
Prepaid expenses 57,426 (81,602)
Deposits and other assets (29,919) (933)
Accounts payable 4,264,612 710,753
Accrued liabilities 642,704 (178,286)
Income taxes and deferred income taxes (557,150) (469,900)
Deferred rent 131,760 164,619
Deferred compensation 56,786 101,164
----------- -----------
Net cash provided by (used in) operating activities 2,607,002 (1,296,931)
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investment maturities -- 1,861,537
Investment in property and equipment (1,521,251) (3,384,395)
----------- -----------
Net cash used in investing activities (1,521,251) (1,522,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under loan agreement and
capital lease obligations (781,250) (101,024)
Net principal borrowings under loan agreement -- 1,900,000
Proceeds from exercise of stock options 488,276 49,650
----------- -----------
Net cash (used in) provided by financing activities (292,974) 1,848,626
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 792,777 (971,163)
CASH AND CASH EQUIVALENTS, beginning of period 4,315,842 1,998,235
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,108,619 $ 1,027,072
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 10,685 $ 30,980
Income taxes $ 458,150 $ 40,900
</TABLE>
5
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying financial statements are unaudited except for the February 4,
1996 balance sheet. These statements have been prepared in accordance with
generally accepted accounting principles for the interim financial information
and with the instructions to Form 10-Q and Rule 10-01 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.
The Company's fiscal year is the 52- or 53-week period which ends on the Sunday
closest to the end of January. "Fiscal 1996" is a 52-week period which ends
on February 2, 1997.
In the opinion of management, all adjustments consisting only of normal
recurring entries necessary for a fair presentation have been included. The
preparation of financial statements in conformity with generally accepted
accounting principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported expenses during the reported period. Actual results
could differ from these estimates. The results of operations for the thirteen
weeks ended May 5, 1996 are not necessarily indicative of the results that may
be expected for the fiscal year ending February 2, 1997. For further
information, refer to the financial statements and notes thereto as of and for
the years ended February 4, 1996, January 29, 1995, and January 30, 1994.
NOTE 2 - Net (Loss) Income per Common and Common Equivalent Share
Net (loss) income per common and common equivalent share are based on the
weighted average number of common and common equivalent shares outstanding
during the relevant periods. For the thirteen weeks ended May 5, 1996 and
April 30, 1995 no effect has been given to options outstanding under the
Company's Stock Option Plan as they were not dilutive.
NOTE 3 - Federal and State Income Tax
The combined federal and state income tax benefit were calculated using
estimated effective annual statutory tax rates.
NOTE 4 - Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which will be effective for the Company beginning February 5,
1996. SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The thirteen weeks ended May 5, 1996 as compared to the thirteen weeks ended
April 30, 1995
- - ----------------------------------------------------------------------------
Net sales increased to $27.6 million for the first thirteen weeks of fiscal
1996 from $19.5 million for the first thirteen weeks of fiscal 1995, an
increase of $8.1 million, or 41.5%. Of this $8.1 million increase, $2.1
million is attributable to a 10.5% increase in comparable store net sales in
the first thirteen weeks of fiscal 1996 compared to the comparable thirteen
weeks ended May 7, 1995. Fiscal 1995 was a fifty-three week period ended
February 4, 1996 and fiscal 1996 will be a fifty-two week period ending
February 2, 1997. The extra week in the prior fiscal year caused a change in
the measurement period used in making period to period comparisons. A $.5
million increase in sales is attributable to this one week shift in the fiscal
calendar. In addition, $.6 million was attributable to sales generated by
nine new stores opened in the first thirteen weeks of fiscal 1996 and $4.9
million was attributable to sales generated by stores not yet qualifying as
comparable stores. Stores are deemed comparable stores on the first day of the
first fiscal month following the one year anniversary of their opening. In
the first thirteen weeks of fiscal 1996, the Company continued to expand the
number of stores offering footwear and junior female apparel. Sales of this
merchandise represented approximately 6% of total sales for the first thirteen
weeks of fiscal 1996. No sales of this merchandise were made in the same
period last year. Retail prices of the Company's merchandise remained
relatively unchanged in the first thirteen weeks of fiscal 1996 compared to the
first thirteen weeks of fiscal 1995, and had no significant impact on the net
sales increase for the first thirteen weeks of fiscal 1996.
Gross margin, after buying, distribution and occupancy costs, increased to $7.3
million for the first thirteen weeks of fiscal 1996 from $4.7 million for the
first thirteen weeks of fiscal 1995, an increase of $2.6 million, or 55.3%. As
a percentage of net sales, gross margin increased to 26.4% from 24.1%. Of this
2.3% increase in gross margin as a percentage of net sales, 2.5% was due to a
decrease in occupancy costs as a percentage of net sales. This decrease in
occupancy as a percentage of net sales is primarily related to higher
comparable store net sales. Merchandise margins were unchanged as a
percentage of net sales for the first quarter of fiscal 1996 compared to first
quarter of fiscal 1995, while buying costs increased by .1%.
Selling, general and administrative expenses increased to $7.6 million for the
first thirteen weeks of fiscal 1996 from $5.7 million for the first thirteen
weeks of fiscal 1995, an increase of $1.9 million, or 33.3%. As a percentage
of net sales, these expenses decreased to 27.5% from 29.2%. Of this 1.7%
decrease as a percentage of net sales, 1.8% was due to a decrease in general
and administrative expenses as a percentage of net sales resulting from higher
comparable store net sales and higher total net sales. Offsetting this
decrease was an increase of .1% in store selling expenses as a percentage of
net sales primarily associated with opening nine new stores in the first
thirteen weeks of fiscal 1996.
Net interest income was $30,000 for the first thirteen weeks of fiscal 1996
compared to $31,000 for the first thirteen weeks of fiscal 1995.
An income tax benefit of $99,000 was recorded for the first thirteen weeks
fiscal 1996 compared to an income tax benefit of $429,000 for the first
thirteen weeks of fiscal 1995. The effective income tax rate for the first
thirteen weeks of fiscal 1996 was 36.9% compared to 41.0% for the first
thirteen weeks of fiscal 1995. The smaller income tax benefit rate in the
first quarter of 1996 was primarily attributable to higher non-taxable interest
income in the first quarter of 1995.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from internally generated cash flow,
short-term borrowings and equity financing. The Company's primary capital
requirements have been for the construction of new stores, remodeling,
relocation, and/or expansion of selected stores and financing of inventories.
Net cash provided by (used in) operating activities for the first thirteen
weeks of fiscal 1996 was $2.6 million compared to ($1.3) million for the first
thirteen weeks of fiscal 1995. Working capital at May 5, 1996 was $14.6
million compared to $14.8 million at February 4, 1996, a decrease of $.2
million. The decrease in working capital was primarily due to capital
expenditures for the construction of nine new stores opened in the first
thirteen weeks of fiscal 1996, offset by higher operating cash flows.
Inventories at May 5, 1996 were $18.1 million compared to $15.4 million at
February 4, 1996, an increase of $2.7 million. This increase was related to
the increase in the number of open stores from 182 at February 4, 1996 to 191
at May 5, 1996 and the increase in the number of stores offering footwear and
junior female apparel. The increase in accounts payable of $4.3 million at May
5, 1996 compared to February 4, 1996 was attributable to the increase in
inventories at May 5, 1996, as well as an increase in accounts payable as a
percentage of inventories.
Net cash used in investing activities was $1.5 million for the first thirteen
weeks of fiscal 1996 and for the first thirteen weeks of fiscal 1995. Net cash
invested in property and equipment for the first thirteen weeks of fiscal 1996
was $1.5 million compared to $3.4 million for the first thirteen weeks of
fiscal 1995, due to fewer new stores opened in the first quarter of 1996.
These expenditures related primarily to the construction of new stores. In the
first thirteen weeks of fiscal 1995, the Company used $1.9 million of the $7.5
million in short-term investments available at the beginning of the year.
Net cash (used in) provided by financing activities for the first thirteen
weeks of fiscal 1996 was $(.3) million compared to $1.8 million for the first
thirteen weeks of fiscal 1995. During the first thirteen weeks of 1996 the
Company paid off a term loan with its bank of $.8 million compared to
borrowing $1.9 million in the first thirteen weeks of fiscal 1995. In the
first thirteen weeks of fiscal 1996, the Company received proceeds of $.5
million from the exercise of stock options compared to less than $.1 million in
the same period last year. At May 5, 1996, the Company had $2.3 million in
letters of credit outstanding.
The Company plans to open approximately 16 stores, and remodel or relocate five
or six existing stores during the remainder of fiscal 1996. The Company
estimates that capital expenditures during the remainder of fiscal 1996 will be
approximately $5.0 million.
The Company reviews the operating performance of its stores on an ongoing basis
to determine which stores, if any, to close and records closing costs as stores
are closed or identified to be closed.
Management believes that the Company's working capital, bank loan agreement and
cash flow from operating activities will be sufficient to meet the Company's
operating and capital expenditure requirements through the end of fiscal 1996.
The Company does not believe that inflation has had a material effect on the
results of operations during the past three years. There can be no assurance
that the Company's business will not be affected by inflation in the future.
8
<PAGE> 9
SEASONALITY AND QUARTERLY RESULTS
The Company's business is seasonal by nature, with the Christmas and
back-to-school periods historically accounting for the largest percentage of
annual net sales. The Company's first quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 1995 and 1994, the
Christmas and back-to-school periods together accounted for approximately 36%
of the Company's annual net sales and a higher percentage of the Company's
operating income. In fiscal 1995, approximately 43% of the Company's annual net
sales occurred in the first half of the fiscal year and 57% in the second half,
excluding net sales generated by new stores. The Company's quarterly results
of operations may also fluctuate significantly as a result of a variety of
factors, including the timing of store openings and the amount of revenue
contributed by new stores.
CERTAIN RISKS AND UNCERTAINTIES; FORWARD LOOKING STATEMENTS
The Company's success is largely dependent upon its ability to gauge the
fashion tastes of its customers and provide merchandise that satisfies customer
demand. Any inability to provide appropriate merchandise in sufficient
quantities in a timely manner could have a material adverse effect on the
Company's business, operating results and financial condition.
The preceding Management's Discussion and Analysis contains various "forward
looking statements" within the meaning of section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning
future events, including the following: the planned opening of 16 new stores
and remodeling or relocation of five or six existing stores during the
remainder of fiscal 1996, and the sufficiency of the Company's working capital,
bank loan agreement, and cash flow from operating activities for the Company's
future operating and capital requirements. The Company cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statements,
including, without limitations, the following: decline in demand for the
merchandise offered by the Company; the ability of the Company to locate and
obtain favorable store sites, negotiate acceptable lease terms, obtain adequate
merchandise supply and hire and train employees; the ability of the Company to
gauge the fashion tastes of its customers and provide merchandise that
satisfies customer demand; management's ability to manage the Company's planned
expansion; the unavailability of merchandise from the Company's vendors and
private label sources; the effect of economic conditions; the effect of severe
weather or natural disasters; and the effect of competitive pressures from
other retailers. Results actually achieved thus may differ materially from
expected results in these statements.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings - Not Applicable
Item 2 - Changes in Securities - Not Applicable
Item 3 - Defaults Upon Senior Securities - Not Applicable
Item 4 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 5 - Other Information - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports were filed on form 8-K during the quarter for which
this report is filed.
10
<PAGE> 11
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.
Pacific Sunwear of California, Inc.
(Registrant)
Date: May 29, 1996 /s/ GREG H. WEAVER
----------------------------------
Greg H. Weaver
President, Chief Operating Officer
and Director
Date: May 29, 1996 /s/ CARL W. WOMACK
----------------------------------
Carl W. Womack
Senior Vice President, Chief
Financial Officer and Secretary
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PACIFIC
SUNWEAR OF CALIFORNIA, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 5,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> FEB-05-1996
<PERIOD-END> MAY-05-1996
<CASH> 5,108,619
<SECURITIES> 0
<RECEIVABLES> 639,896
<ALLOWANCES> 0
<INVENTORY> 18,116,804
<CURRENT-ASSETS> 27,507,731
<PP&E> 40,233,406
<DEPRECIATION> (13,317,139)
<TOTAL-ASSETS> 55,635,396
<CURRENT-LIABILITIES> 12,923,226
<BONDS> 0
0
0
<COMMON> 52,970
<OTHER-SE> 38,575,117
<TOTAL-LIABILITY-AND-EQUITY> 55,635,396
<SALES> 27,640,975
<TOTAL-REVENUES> 27,640,975
<CGS> 20,362,870
<TOTAL-COSTS> 7,576,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (29,659)
<INCOME-PRETAX> (268,576)
<INCOME-TAX> (99,000)
<INCOME-CONTINUING> (169,576)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,576)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
