<PAGE>
- --------------------------------------------------------------------------------
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 August 30, 1997.
/ / Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 - For the transition period from _______________ to
_______________.
Commission File No. 0-19972
BRAUN'S FASHIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06 - 1195422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2400 XENIUM LANE NORTH
PLYMOUTH, MINNESOTA 55441
(Address of principal executive offices)
TELEPHONE NUMBER: (612) 551-5000
---------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 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.
YES X NO
------- -------
As of October 1, 1997 -- 4,512,232 shares of Common Stock were outstanding.
The manually signed copy of this report contains 18 pages.
<PAGE>
BRAUN'S FASHIONS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheet --
As of August 30, 1997 and March 1, 1997. . . . . . . . . . . . 3
Consolidated Condensed Statement of Operations --
For the Quarter Ended August 30, 1997 and August 31, 1996. . . 4
Consolidated Condensed Statement of Operations
For the Two Quarters Ended August 30, 1997 and
August 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Condensed Statement of Cash Flows --
For the Two Quarters Ended August 30, 1997 and
August 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial Statements . . . . . 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . .14
Item 6. EXHIBITS AND REPORTS ON FORM 8 - K. . . . . . . . . . . . . . .15
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . .16
2
<PAGE>
PART I. FINANCIAL INFORMATION
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED) (AUDITED)
ASSETS AUGUST 30, MARCH 1,
1997 1997
-------------- --------------
<S> <C> <C>
Current assets --
- Cash and cash equivalents $ 7,348,664 $ 10,913,716
- Accounts receivable, net of allowance for doubtful accounts 631,023 532,331
- Merchandise inventory 12,319,075 9,253,896
- Income tax receivable 903,422 870,498
- Prepaid expenses 264,988 169,668
- Current deferred tax asset 513,954 799,952
-------------- --------------
TOTAL CURRENT ASSETS: 21,981,126 22,540,061
Equipment and improvements, net 11,537,988 10,785,297
Other assets --
- Long-term deferred tax asset 1,198,151 1,198,151
- Other 64,617 113,630
-------------- --------------
TOTAL OTHER ASSETS: 1,262,768 1,311,781
-------------- --------------
TOTAL ASSETS: $ 34,781,882 $ 34,637,139
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
- Accounts payable $ 2,497,396 $ 2,433,652
- Accrued liabilities 3,793,554 4,451,843
- Current maturities of long term debt and
capital lease obligation 239,117 908,957
-------------- --------------
TOTAL CURRENT LIABILITIES: 6,530,067 7,794,452
Long-term liabilities --
- Long-term debt 10,160,443 10,373,662
- Accrued rent obligation 1,040,772 896,253
-------------- --------------
TOTAL LONG-TERM LIABILITIES: 11,201,215 11,269,915
Stockholders' equity --
- Preferred stock-$0.01 par value, 1,000,000 shares
authorized; none outstanding
- Common stock-$0.01 par value, 9,000,000 shares authorized;
4,482,924 and 4,432,588 shares issued and outstanding at
August 30, 1997 and March 1, 1997, respectively 44,829 44,326
- Additional paid-in capital 27,813,512 27,604,043
- Accumulated deficit (10,807,741) (12,075,597)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY: 17,050,600 15,572,772
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $ 34,781,882 $ 34,637,139
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------
AUGUST 30, 1997 AUGUST 31, 1996
------------------- ------------------
<S> <C> <C>
Net sales $ 20,939,042 $ 22,777,144
Merchandise, buying and occupancy 14,178,386 17,290,834
------------- -------------
Gross profit 6,760,656 5,486,310
Selling, general and administrative expenses 5,465,407 5,857,333
Depreciation and amortization 611,065 666,085
------------- -------------
Operating income (loss) 684,184 (1,037,108)
Other expense
- Interest, net (contractual interest for
quarter ended August 31, 1996 -- $336,637) 201,171 146,637
------------- -------------
Income (loss) before reorganization expense,
income taxes and extraordinary gain 483,013 (1,183,745)
Reorganization expense -- 9,070,145
Income tax provision (benefit) 183,545 (717,169)
------------- -------------
Net income (loss) before extraordinary gain 299,468 (9,536,721)
Extraordinary gain, net of tax 8,121 --
------------- -------------
Net income (loss) $ 307,589 $ (9,536,721)
------------- -------------
------------- -------------
Earnings per share:
Net income (loss) before extraordinary gain $ 0.06 $ (2.51)
Extraordinary gain, net of tax -- --
------------- -------------
Net income (loss) $ 0.06 $ ( 2.51)
------------- -------------
------------- -------------
Weighted average number of shares of common
stock and common stock equivalents outstanding 4,817,933 3,793,312
------------- -------------
------------- -------------
</TABLE>
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See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Two Quarters Ended
--------------------------------------
August 30, 1997 August 31, 1996
------------------- ------------------
<S> <C> <C>
Net sales $ 42,780,733 $ 44,281,313
Merchandise, buying and occupancy 28,361,288 32,089,366
-------------- --------------
Gross profit 14,419,445 12,191,947
Selling, general and administrative expenses 10,937,741 11,793,548
Depreciation and amortization 1,217,108 1,428,626
-------------- --------------
Operating income (loss) 2,264,596 (1,030,227)
Other expense
- Interest net (contractual interest for two
quarters ended August 31, 1996 -- $695,700) 401,669 505,700
-------------- --------------
Income (loss) before reorganization expense, income taxes
and extraordinary gain 1,862,927 (1,535,927)
Reorganization expense -- 9,070,145
Income tax provision (benefit) 707,912 (850,998)
-------------- --------------
Net income (loss) before extraordinary gain 1,155,015 (9,755,074)
Extraordinary gain, net of tax 112,841 --
-------------- --------------
Net income (loss) $ 1,267,856 $ (9,755,074)
-------------- --------------
-------------- --------------
Earnings per share:
Net income (loss) before extraordinary gain $ 0.24 $ (2.57)
Extraordinary gain 0.02 --
-------------- --------------
Net income (loss) $ 0.26 $ (2.57)
-------------- --------------
-------------- --------------
Weighted average number of shares of common
stock and common stock equivalents outstanding 4,797,316 3,793,312
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
-----------------------------------------
AUGUST 30, 1997 AUGUST 31, 1996
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities
- Net income (loss) $ 1,267,856 $ (9,755,074)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
- Depreciation and amortization 1,217,108 1,428,626
- Increase (decrease) in accrued rent obligation 144,519 (310,194)
- Extraordinary gain from early extinguishment of debt (182,001) --
- (Gain) loss on disposals of property and equipment, net (3,838) 2,392,892
- (Increase) decrease in deferred tax asset 285,998 --
- Amortization of deferred financing costs -- 30,400
- Provision for lease rejection claims -- 3,316,687
- Write-off of deferred financing costs -- 418,818
Changes in operating assets and liabilities:
- (Increase) decrease in merchandise inventory,
prepaid expenses, receivables and other (3,243,102) 2,910,457
- Increase (decrease) in accounts payable,
accrued liabilities and income taxes payable (594,545) 314,387
-------------- --------------
Net cash provided by (used in) operating activities (1,108,005) 746,999
Cash flows from investing activities --
- Purchase of equipment and improvements (1,980,986) (612,665)
- Proceeds from sale of fixtures and equipment 15,025 36,843
-------------- --------------
Net cash used in investing activities (1,965,961) (575,822)
Cash flows from financing activities --
- Redemption of 12% senior notes (748,000) --
- Principal payments on long-term debt (112,158) (106,622)
- Net borrowings from revolving line of credit -- 2,303,293
- Interest added to principal 159,100 --
- Exercise of stock options 209,972 --
-------------- --------------
Net cash generated (used) by financing activities (491,086) 2,196,671
Net increase (decrease) in cash and cash equivalents (3,565,052) 2,367,848
Cash and cash equivalents at beginning of year 10,913,716 1,543,131
-------------- --------------
Cash and cash equivalents at end of period $ 7,348,664 $ 3,910,979
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
1. BASIS OF PRESENTATION
The financial statements included in this Form 10-Q have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. These
financial statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report on
Form 10-K for the fiscal year ended March 1, 1997.
The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
2. NOTE REDEMPTION
In the first two quarters of fiscal 1998, Braun's Fashions Corporation (the
"Company") purchased a total of $908,000 principal face amount of its 12%
Senior Notes due 2005 at a discount from par. These purchases resulted in
a gain of $112,841, net of tax, for the six months ended August 30, 1997.
These purchases will satisfy the Company's total January 1, 1998 redemption
requirement and a portion of its January 1, 1999 requirement as well. The
remaining scheduled principal payments, including the 3% interest component
added to principal which is due in 2005, due January 1 of each year, is as
follows: 1999 - $564,801, 2000 - $803,902, 2001 - $875,752, 2002 -
$958,207, 2003 - $1,040,074, 2004 - $1,133,443 and 2005 - $6,031,476.
3. NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share". SFAS No. 128 specifies new standards designed
to improve the earnings per share ("EPS") information provided in financial
statements by simplifying the existing computational guidelines, revising
the disclosure requirements and increasing the comparability of EPS data on
an international basis. Some of the changes made to simplify the EPS
computations include: (a) eliminating the presentation of primary EPS and
replacing it with basic EPS, with the principal difference being that the
common stock equivalents are not considered in computing basic EPS, (b)
eliminating the modified treasury stock method and the three percent
materiality provision and (c) revising the contingent share provisions and
the supplemental EPS data requirements. SFAS No. 128 also makes a number
of changes to existing disclosure requirements. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. The Company has not yet determined the impact
of the implementation of SFAS No. 128.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
Braun's Fashions Corporation (the "Company") is a Minneapolis-based regional
retailer of women's specialty apparel, which operates through its wholly-owned
subsidiary, Braun's Fashions, Inc. ("BFI"). As of October 1, 1997, the Company
operated a chain of 179 stores in 20 states in the Midwest and Pacific
Northwest. The Company's stores offer coordinated assortments of moderately
priced sportswear, sweaters, dresses and accessories.
7
<PAGE>
As a result of an extremely competitive environment and in response to the
deteriorating liquidity position brought on by losses at approximately 50 of its
store locations and to facilitate restructuring of its obligations, the Company
filed for protection from its creditors under Chapter 11 of the United States
Bankruptcy Code on July 2, 1996. The Company's plan of reorganization was
confirmed by the Bankruptcy Court on November 22, 1996 and became effective on
December 3, 1996.
As a result of the reorganization, the Company rejected 50 unprofitable store
leases; re-negotiated more favorable lease terms for an additional 46 stores;
negotiated a $10 million working capital line of credit with a new lender;
downsized the distribution center by 35,000 square feet; strengthened the
organization by hiring highly qualified individuals in the key areas of store
operations and merchandise planning and distribution, and eliminated corporate
and field staff associated with the discontinuance of the junior division (Gigi
stores) and the reduced number of stores.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's operating statement data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
QUARTER ENDED TWO QUARTERS ENDED
--------------------- ---------------------
AUG. 30, AUG. 31, AUG. 30, AUG. 31,
1997 1996 1997 1996
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Merchandise, buying and occupancy 67.7 75.9 66.3 72.5
------- --------- ------- ---------
Gross profit 32.3 24.1 33.7 27.5
Selling, general and administrative 26.1 25.7 25.6 26.6
Depreciation and amortization 2.9 2.9 2.8 3.2
------- --------- ------- ---------
Operating income (loss) 3.3 (4.5) 5.3 (2.3)
Interest, net 1.0 0.7 0.9 1.1
------- --------- ------- ---------
Income (loss) before reorganization
expense, income taxes and
extraordinary gain 2.3 (5.2) 4.4 (3.4)
Reorganization expense -- 39.8 -- 20.5
Income tax provision (benefit) 0.9 (3.1) 1.7 (1.9)
------- --------- ------- ---------
Income (loss) before extraordinary gain 1.4 (41.9) 2.7 (22.0)
Extraordinary gain 0.1 -- 0.3 --
------- --------- ------- ---------
Net income (loss) 1.5% (41.9)% 3.0% (22.0)%
------- --------- ------- ---------
------- --------- ------- ---------
</TABLE>
8
<PAGE>
QUARTER ENDED AUGUST 30, 1997 COMPARED TO QUARTER ENDED AUGUST 31, 1996.
Net Sales. Net sales for the quarter ended August 30, 1997, were $20.9 million,
a decrease of 8% from $22.8 million in the quarter ended August 31, 1996. The
decrease in sales was due to operating fewer stores offset by a 14% increase in
same store sales. The same store sales increase was driven by strong customer
acceptance of the Company's casual sportswear which included jumpers, fine gauge
sweaters, wrinkle-free twill pants and novelty knit tops. The Company began
last year's second quarter with 221 stores and then closed 35 stores in the
quarter during its Chapter 11 bankruptcy reorganization (completed in December
1996) to end the period with 186 stores. In this year's second quarter, the
Company opened 8 new stores and finished the period with 178 stores.
GROSS PROFIT. Gross profit, which is net sales less cost of merchandise and
buying and occupancy expenses, was $6.8 million or 32.3% of net sales during the
second quarter of fiscal 1998 compared to $5.5 million or 24.1% of net sales
during the same period in fiscal 1997. Last year's second quarter gross margin
was unusually low due to liquidation of inventory from stores closed during the
reorganization.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $5.5 million from $5.9 million in the
second quarter as selling, general and administrative expenses as a percentage
of total sales remained relatively constant.
OPERATING INCOME (LOSS). Operating income for the quarter ended August 30,
1997, was $684,184 or 3.3% of net sales as compared to an operating loss of $1.0
million in the quarter ended August 31, 1996.
INTEREST, NET. Net interest expense for the second quarter of fiscal 1998
increased to $201,171 from $146,637 in the second quarter of fiscal 1997. In
fiscal 1997 the Company was not required to accrue interest on prepetition debt
after the July 2, 1996 bankruptcy filing. If the Company had been required to
pay interest on its prepetition debt, contractual interest expense for the
quarter ended August 31, 1996 would have totaled $336,637.
REORGANIZATION EXPENSE. The Company recorded approximately $9.1 million of
reorganization expenses during the second quarter of fiscal 1997. These
reorganization expenses included lease rejection claims, loss on disposal of
fixed assets, professional fees, establishment of an inventory impairment
reserve and other bankruptcy related expenses.
INCOME TAXES. Income tax expense for the quarter ended August 30, 1997, was
$183,545 compared to an income tax benefit of $717,169 for the quarter ended
August 31, 1996.
EXTRAORDINARY GAIN. In August 1997, the Company purchased $108,000 principal
face amount of its 12% Senior Notes at a 10% discount from par. This resulted
in the recognition of an extraordinary gain on the early extinguishment of debt,
net of tax, of $8,121.
NET INCOME (LOSS). As a result of the foregoing factors, net income for the
quarter ended August 30, 1997, was $307,589 or 1.5% of net sales compared to a
loss of $9.5 million or 41.9% of net sales for the quarter ended August 31,
1996.
9
<PAGE>
SIX MONTHS ENDED AUGUST 30, 1997 COMPARED TO SIX MONTHS ENDED AUGUST 31, 1996.
NET SALES. Net sales for the six months ended August 30, 1997, were $42.8
million, a decrease of 3% from $44.3 million for the six months ended August 31,
1996. The decrease in sales was due to operating fewer stores offset by a 16%
increase in sales in the 165 continuing stores. The Company began fiscal 1997
with 221 stores and closed 35 stores in the second quarter during its Chapter 11
bankruptcy reorganization (completed in December 1996) to end the period with
186 stores. In fiscal 1998, the Company opened 13 new stores and closed 5
stores to finish the period with 178 stores.
GROSS PROFIT. Gross profit, which is net sales less cost of merchandise and
buying and occupancy expenses, was $14.4 million or 33.7% of net sales during
the first six months of fiscal 1998 compared to $12.2 million or 27.5% of net
sales during the same period in fiscal 1997. The percentage increase in gross
profit was primarily due to closing unprofitable stores whose gross margins were
unusually low, particularly during the fiscal 1997 second quarter liquidation
sales, and lower occupancy costs as a percent of net sales in the continuing
stores.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased to $10.9 million from $11.8 million in the
comparable six month period due to operating fewer stores. Selling, general and
administrative expenses as a percentage of total sales decreased from 26.6% to
25.6%.
OPERATING INCOME (LOSS). Operating income for the six months ended August 30,
1997, was $2.3 million or 5.3% of net sales as compared to an operating loss of
$1.0 million or 2.3% of net sales in the six months ended August 31, 1996.
INTEREST, NET. Net interest expense for the first six months of fiscal 1998
decreased to $401,669 from $505,700 in the first six months of fiscal 1997. In
fiscal 1997 the Company was not required to accrue interest on prepetition debt
after the July 2, 1996 bankruptcy filing. If the Company had been required to
pay interest on its prepetition debt, contractual interest for the six months
ended August 31, 1996 would have totaled $695,700. The decrease in net interest
expense is due to the Company's improved cash flow in the first six months of
fiscal 1998 which resulted in no advances on the line of credit and increased
income from investments.
REORGANIZATION EXPENSE. The Company recorded approximately $9.1 million of
reorganization expenses during the first six months of fiscal 1997. These
reorganization expenses included lease rejection claims, loss on disposal of
fixed assets, professional fees, establishment of an inventory impairment
reserve and other bankruptcy related expenses.
INCOME TAXES. Income tax expense for the six months ended August 30, 1997, was
$707,912 compared to an income tax benefit of $850,998 for the six months ended
August 31, 1996.
EXTRAORDINARY GAIN. In April 1997, the Company purchased $800,000 principal
face amount of its 12% Senior Notes at a 20% discount from par. In August 1997,
the Company purchased an additional $108,000 principal face amount of its New
Notes at a 10% discount from par. These purchases resulted in the recognition
of an extraordinary gain on the early extinguishment of debt, net of tax, of
$112,841.
NET INCOME (LOSS). As a result of the foregoing factors, net income for the six
months ended August 30, 1997, was $1.3 million or 3.0% of net sales compared to
a loss of $9.8 million dollars or 22.0% of net sales for the six months ended
August 31, 1996.
10
<PAGE>
PERFORMANCE OF CONTINUING STORES.
The closing of stores in connection with the Company's Chapter 11 bankruptcy
filing in fiscal 1997 has enabled management to concentrate its efforts on the
continuing stores that the Company believes provide the greatest potential for
ongoing profitability. The following tables set forth the unaudited results of
operations for these 165 continuing stores for the periods indicated.
<TABLE>
<CAPTION>
CONTINUING STORES (DOLLARS IN THOUSANDS)
----------------------------------------
THREE MONTHS ENDED THREE MONTHS ENDED
AUGUST 30, 1997 AUGUST 31, 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 20,113 100.0% $ 17,677 100.0%
Merchandise, buying and occupancy 13,604 67.6 12,583 71.2
------------- ----------- ------------- -----------
Gross profit 6,509 32.4 5,094 28.8
Selling, general & admin. expenses 5,220 26.0 4,792 27.1
Depreciation and amortization 585 2.9 581 3.3
------------- ----------- ------------- -----------
Operating income $ 704 3.5% $ (279) (1.6)%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
SIX MONTHS ENDED SIX MONTHS ENDED
AUGUST 30, 1997 AUGUST 31, 1996
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
Net sales $ 40,951 100.0% $ 35,222 100.0%
Merchandise, buying and occupancy 27,128 66.2 24,193 68.7
------------- ----------- ------------- -----------
Gross profit 13,823 33.8 11,029 31.3
Selling, general & admin. expenses 10,463 25.6 9,642 27.4
Depreciation and amortization 1,171 2.9 1,153 3.3
------------- ----------- ------------- -----------
Operating income $ 2,189 5.3% $ 234 0.6%
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
For the six months ended August 30, 1997, operating income in the 165 continuing
stores increased $2.0 million from the same period in the prior year. The
increase in operating income was primarily due to a 16% sales increase in the
165 continuing stores, and improved gross margins resulting primarily from lower
occupancy costs and reductions in selling, general and administrative expenses
due to closing approximately 50 unprofitable stores during the Company's Chapter
11 bankruptcy proceedings. Management expects that same store sales will
moderate in the third and fourth quarters of fiscal 1998 as comparisons to the
strong prior year results become more difficult.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for liquidity are to fund construction of new
stores and remodelings of certain existing stores, and to finance the purchase
of merchandise inventories and other working capital requirements. Merchandise
purchases vary on a seasonal basis, peaking in the fall. As a result, the
Company's cash requirements historically reach their peak in October and
November. Conversely, cash balances reach their peak in January, after the
holiday season is completed.
Net cash used by operating activities totaled $1.1 million for the first six
months of fiscal 1998 as compared to a net generation of $746,999 for the same
time period in the prior year. As a result of the Company's July 2, 1996
bankruptcy filing, payments on prepetition liabilities were suspended resulting
in a net generation of cash by operating activities for the six months ended
August 31, 1996. The net usage of cash in the first six months of fiscal 1998
resulted from the seasonal change in inventory levels offset by an increase in
cash generated from increased same store sales and reductions in selling,
general and administrative expenses due to closing approximately 50 unprofitable
stores. Cash was used to finance $2.0 million of capital expenditures for the
opening of 13 stores and other miscellaneous capital expenditures. During the
last six months of the fiscal year the Company expects to spend up to an
additional $2 million on capital expenditures opening 3 additional new stores,
remodeling stores and completing other miscellaneous capital additions.
Management expects its cash on hand combined with cash flow from operations to
be sufficient to meet its capital expenditure and working capital requirements
and its other needs for liquidity during the year.
In December 1996, the Company entered into a borrowing agreement with Norwest
Bank Minnesota, National Association (the "Norwest Revolver") expiring April 1,
1999. The Norwest Revolver provides the Company with revolving credit loans and
letters of credit up to $10 million, subject to a borrowing base formula.
Loans under the Norwest Revolver bear interest at Norwest's base rate plus 3/4%
subject to a rate reduction provision based on the Company's performance (as
described in the Norwest Revolver). The interest is payable monthly in arrears.
Due to the Company's financial performance the rate is currently at Norwest's
base rate plus 1/4% or 8 3/4%. The Norwest Revolver carries commitment fees of
1/4% of the difference between $5 million and the average amount outstanding
under the facility (including letters of credit). If the average amount
outstanding under the facility (including letters of credit) is between $5
million and $7.5 million, the commitment fee shall be based on the difference
between $7.5 million and the average amount outstanding under the facility
(including letters of credit) and if the average amount outstanding (including
letters of credit) is in excess of $7.5 million, the commitment fee is on the
difference between $10 million and the average amount outstanding under the
facility (including letters of credit). This facility is secured by
substantially all of the Company's assets. The borrowing base at October 1,
1997, was $9.0 million. As of October 1, 1997, the Company had no borrowings
and outstanding letters of credit in the amount of $3.1 million under the
Norwest Revolver. Accordingly, the availability of revolving credit loans under
the Norwest Revolver was $5.9 million at that date.
In December 1996, the Company issued $10,300,200 of public debt in the form of
12% Senior Notes due January, 2005. The 12% Senior Notes were issued, pursuant
to an Indenture dated as of December 2, 1996, to (i) the holders of the 9%
Senior Notes due January 2001 where each holder received, for each $1,000
principal face amount, (a) 48 shares of common stock in BFC and (b) 12% Senior
Notes in original principal amount of $800 and (ii) the Company's prepetition
banks who received a total of (a) 138,284 shares of common stock in BFC and (b)
$2,313,000 in original principal face amount of the 12% Senior Notes.
12
<PAGE>
The principal amount of the 12% Senior Notes bears interest at the rate of 12%
per annum. Interest at the rate of 9% per annum on the outstanding principal
amount is to be paid monthly on the last day of each calendar month until all
amounts due and owing on the 12% Senior Notes and under the Indenture have been
paid in full. Interest at the rate of 3% per annum on the outstanding principal
amount shall accrue monthly and shall, upon accrual, be treated as principal for
all purposes, including without limitation, the calculation of all interest
payments due thereafter, and shall be payable in full on January 1, 2005.
The 12% Senior Notes are general unsecured senior obligations of the Company.
The Indenture for the 12% Senior Notes contains certain covenants which, among
other things, limit the ability of the Company to incur liens, incur additional
indebtedness, and restrict the Company's ability to declare dividends.
In the first two quarters of fiscal 1998, the Company purchased a total of
$908,000 principal face amount of its 12% Senior Notes at a discount from par.
These purchases will satisfy the Company's total January 1, 1998 redemption and
a portion of its January 1, 1999 redemption as well. The remaining scheduled
principal payments, including interest added to principal which is due in 2005,
due January 1 of each year, is as follows: 1999 - $564,801, 2000 - $803,902,
2001 - $875,752, 2002 - $958,207, 2003 - $1,040,074, 2004 - $1,133,443 and 2005
- - $6,031,476.
Direct imports accounted for approximately 50% of the Company's total purchases
in fiscal 1997. The Company expects the percentage of direct import purchases
to be approximately the same in fiscal 1998. Management believes it has good
working relationships with its foreign as well as its domestic vendors.
Management also believes that other suppliers are available should there be a
disruption in supply from any of its current vendors.
The Company is unaware of any environmental liability that would have a material
adverse effect on the financial position or the results of operations of the
Company.
FORWARD LOOKING INFORMATION
Information contained in this Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of forward-looking terminology such as "may",
"will", "expect", "plan", "anticipate", "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. There are
certain important factors that could cause results to differ materially from
those anticipated by some of these forward-looking statements. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
The factors, among others, that could cause actual results to differ materially
include: consumers' spending and debt levels; the Company's ability to execute
its business plan; the acceptance of the Company's merchandising strategies by
its target customers; the ability of the Company to anticipate marketing trends
and consumer needs; continuity of a relationship with or purchases from major
vendors, particularly those from whom the Company imports merchandise;
competitive pressures on sales and pricing; increases in other costs which
cannot be recovered through improved pricing of merchandise; and the adverse
effect of weather conditions from time to time on consumers' ability or desire
to purchase new clothing.
13
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on July 16, 1997, in Minneapolis,
Minnesota. The Company solicited proxies and filed definitive proxy
statements with the Commission pursuant to Regulation 14A. The
matters voted upon at the meeting and the votes cast were as follows:
Item No. 1 Election of Class 3 Directors
Votes
----------------------------------------------------------------
For Withhold
--- --------
Herbert D. Froemming 3,685,637 23,307
James J. Fuld, Jr. 3,697,089 11,855
Item No. 2 Proposal to adopt a 1997 Stock Incentive Plan to replace
the 1987 Incentive Plan.
Votes
----------------------------------------------------------------
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
1,559,197 154,302 5,059 1,990,386
Item No. 3 Proposal to ratify the appointment of Price Waterhouse LLP
as the Company's independent auditor for the Company's current fiscal
year.
Votes
----------------------------------------------------------------
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
3,700,851 5,796 2,297 0
14
<PAGE>
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Statement Re: Computation of Per Share Earnings
Exhibit 27 -- Financial Data Schedules (submitted for SEC use
only)
(b) Reports on Form 8-K
The following report on Form 8-K was filed with the Securities
and Exchange Commission.
Date of Report Item Reported
-------------- -------------
August 8, 1997 The Company reported the purchase of
Filed August 8, 1997 $800,000 principal face amount of its
12% Senior Notes at a 20% discount from
par and the approval by its shareholders
of the 1997 Stock Incentive Plan to
replace the 1987 Incentive Plan.
15
<PAGE>
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.
Dated: October 8, 1997
BRAUN'S FASHIONS CORPORATION
By /s/ Herbert D. Froemming
---------------------------------------
Herbert D. Froemming
Vice Chairman & Chief
Administrative & Financial Officer
Signing on behalf of the
registrant and as principal
financial officer.
16
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------
AUGUST 30, AUGUST 31,
1997 1996
------------ ---------------
<S> <C> <C>
PRIMARY:
Net income (loss) before extraordinary gain. . . . . . . . . . . $ 299,468 $ (9,536,721)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . 8,121 ---
------------ --------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 307,589 $ (9,536,721)
------------ --------------
------------ --------------
Weighted average common shares outstanding . . . . . . . . . . . 4,462,501 3,793,312
Common stock equivalents: (stock options and warrants) . . . . . 355,432 ---
------------ --------------
Weighted average number of common shares
and common share equivalents outstanding . . . . . . . . . . . . 4,817,933 3,793,312
------------ --------------
------------ --------------
EARNINGS PER SHARE:
Net income (loss) before extraordinary gain. . . . . . . . . . . $ 0.06 $ (2.51)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . --- ---
------------ --------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 0.06 $ (2.51)
------------ --------------
------------ --------------
</TABLE>
The Company's common stock has traded on the NASDAQ National Stock Market under
the symbol "BFCI" since March 31, 1992. Prior to that date there was no public
market for the Company's common stock.
Note: The calculation of fully diluted earnings per share results in the same
earnings per share shown above.
17
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
TWO QUARTERS ENDED
--------------------------------
AUGUST 30, AUGUST 31,
1997 1996
------------ --------------
<S> <C> <C>
PRIMARY:
Net income (loss) before extraordinary gain. . . . . . . . . . . $ 1,155,015 $ (9,755,074)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . 112,841 ---
------------ --------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 1,267,856 $ (9,755,074)
------------ --------------
------------ --------------
Weighted average common shares outstanding . . . . . . . . . . . 4,447,545 3,793,312
Common stock equivalents: (stock options and warrants) . . . . . 349,771 ---
------------ --------------
Weighted average number of common shares
and common share equivalents outstanding . . . . . . . . . . . . 4,797,316 3,793,312
------------ --------------
------------ --------------
EARNINGS PER SHARE:
Net income (loss) before extraordinary gain. . . . . . . . . . . $ 0.24 $ (2.57)
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . 0.02 ---
------------ --------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ (2.57)
------------ --------------
------------ --------------
</TABLE>
The Company's common stock has traded on the NASDAQ National Stock Market under
the symbol "BFCI" since March 31, 1992. Prior to that date there was no public
market for the Company's common stock.
Note: The calculation of fully diluted earnings per share results in the same
earnings per share shown above.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10-Q FOR THE QUARTER ENDED AUGUST 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> AUG-30-1997
<CASH> 7,348,664
<SECURITIES> 0
<RECEIVABLES> 631,023
<ALLOWANCES> 0
<INVENTORY> 12,319,075
<CURRENT-ASSETS> 21,981,126
<PP&E> 23,093,904
<DEPRECIATION> 11,555,916
<TOTAL-ASSETS> 34,781,882
<CURRENT-LIABILITIES> 6,530,067
<BONDS> 10,160,443
0
0
<COMMON> 44,829
<OTHER-SE> 17,005,771
<TOTAL-LIABILITY-AND-EQUITY> 34,781,882
<SALES> 42,780,733
<TOTAL-REVENUES> 42,780,733
<CGS> 28,361,288
<TOTAL-COSTS> 28,361,288
<OTHER-EXPENSES> 12,154,849
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401,669
<INCOME-PRETAX> 1,862,927
<INCOME-TAX> 707,912
<INCOME-CONTINUING> 1,155,015
<DISCONTINUED> 0
<EXTRAORDINARY> 112,841<F1>
<CHANGES> 0
<NET-INCOME> 1,267,856<F1>
<EPS-PRIMARY> 0.26<F1>
<EPS-DILUTED> 0.26<F1>
<FN>
<F1>RESULTS INCLUDE AN EXTRAORDINARY GAIN OF $112,841, OR $0.02 PER SHARE,
RELATED TO THE PURCHASE AT A DISCOUNT FROM PAR OF $908,000 PRINCIPAL FACE
AMOUNT OF THE COMPANY'S 12% SENIOR NOTES DUE 2005.
</FN>
</TABLE>
