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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 November 29, 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 January 2, 1998 -- 4,516,133 shares of Common Stock were outstanding.
This report contains 16 pages.
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BRAUN'S FASHIONS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheet --
As of November 29, 1997 and March 1, 1997. . . . . . . . . . .3
Consolidated Condensed Statement of Operations --
For the Quarter Ended November 29, 1997
and November 30, 1996. . . . . . . . . . . . . . . . . . . . .4
Consolidated Condensed Statement of Operations
For the Three Quarters Ended November 29, 1997
and November 30, 1996. . . . . . . . . . . . . . . . . . . . .5
Consolidated Condensed Statement of Cash Flows --
For the Three Quarters Ended November 29, 1997
and November 30, 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 6. EXHIBITS AND REPORTS ON FORM 8 - K . . . . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2
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PART I. FINANCIAL INFORMATION
BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited) (Audited)
ASSETS NOVEMBER 29, MARCH 1,
1997 1997
------------ ------------
Current assets --
- Cash and cash equivalents $ 9,396,239 $ 10,913,716
- Accounts receivable, net of
allowance for doubtful accounts 1,914,715 532,331
- Merchandise inventory 14,045,820 9,253,896
- Income tax receivable -- 870,498
- Prepaid expenses 367,338 169,668
- Current deferred tax asset 513,954 799,952
------------ ------------
TOTAL CURRENT ASSETS: 26,238,066 22,540,061
Equipment and improvements, net 11,300,004 10,785,297
Other assets --
- Long-term deferred tax asset 1,198,151 1,198,151
- Other 63,337 113,630
------------ ------------
TOTAL OTHER ASSETS: 1,261,488 1,311,781
------------ ------------
TOTAL ASSETS: $ 38,799,558 $ 34,637,139
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities --
- Accounts payable $ 2,246,857 $ 2,433,652
- Accrued liabilities 5,388,014 4,451,843
- Current maturities of long term debt and
capital lease obligation 244,247 908,957
------------ ------------
TOTAL CURRENT LIABILITIES: 7,879,118 7,794,452
Long-term liabilities --
- Long-term debt 10,169,544 10,373,662
- Accrued rent obligation 1,051,298 896,253
------------ ------------
TOTAL LONG-TERM LIABILITIES: 11,220,842 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;
4,516,133 and 4,432,588 shares issued
and outstanding at November 29, 1997
and March 1, 1997, respectively 45,161 44,326
- Additional paid-in capital 28,041,765 27,604,043
- Accumulated deficit (8,387,328) (12,075,597)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY: 19,699,598 15,572,772
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $ 38,799,558 $ 34,637,139
------------ ------------
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See accompanying notes to consolidated condensed financial statements.
3
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
QUARTER ENDED
-------------------------------------
NOVEMBER 29, 1997 NOVEMBER 30, 1996
----------------- -----------------
Net sales $ 29,466,181 $ 27,154,193
Merchandise, buying and occupancy 18,437,708 17,040,833
------------ ------------
Gross profit 11,028,473 10,113,360
Selling, general and administrative expenses 6,245,762 5,575,978
Depreciation and amortization 662,358 580,279
------------ ------------
Operating income 4,120,353 3,957,103
Other expense
- Interest, net (contractual interest for
quarter ended November 30, 1996 -- $316,888) 216,461 26,888
------------ ------------
Income before reorganization expense, income
taxes and extraordinary gain 3,903,892 3,930,215
Reorganization expense reversal --- (899,379)
Income tax provision 1,483,479 ---
------------ ------------
Net income 2,420,413 $ 4,829,594
------------ ------------
------------ ------------
Earnings per share:
Net income $ 0.50 $ 1.12
------------ ------------
------------ ------------
Weighted average number of shares of common
stock and common stock equivalents
outstanding 4,856,687 4,310,099
------------ ------------
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See accompanying notes to consolidated condensed financial statements.
4
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Unaudited)
THREE QUARTERS ENDED
-------------------------------------
NOVEMBER 29, 1997 NOVEMBER 30, 1996
----------------- -----------------
Net sales $ 72,246,914 $ 71,435,506
Merchandise, buying and occupancy 46,798,996 49,130,199
------------ ------------
Gross profit 25,447,918 22,305,307
Selling, general and administrative expenses 17,183,503 17,369,526
Depreciation and amortization 1,879,466 2,008,905
------------ ------------
Operating income 6,384,949 2,926,876
Other expense
- Interest, net (contractual interest
for three quarters ended
November 30, 1996 -- $1,012,588) 618,130 532,588
------------ ------------
Income before reorganization expense, income
taxes and extraordinary gain 5,766,819 2,394,288
Reorganization expense --- 8,170,766
Income tax provision (benefit) 2,191,391 (850,998)
------------ ------------
Net income (loss) before extraordinary gain 3,575,428 (4,925,480)
Extraordinary gain, net of tax 112,841 ---
------------ -------------
Net income (loss) $ 3,688,269 $ (4,925,480)
------------ ------------
------------ ------------
Earnings per share:
Net income (loss) before extraordinary gain $ 0.74 $ (1.26)
Extraordinary gain 0.02 ---
------------ ------------
Net income (loss) $ 0.76 $ (1.26)
------------ ------------
------------ ------------
Weighted average number of shares of common
stock and common stock equivalents
outstanding 4,817,107 3,896,587
------------ ------------
------------ ------------
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See accompanying notes to consolidated condensed financial statements.
5
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BRAUN'S FASHIONS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
THREE QUARTERS ENDED
--------------------------------
NOV. 29, 1997 NOV. 30, 1996
--------------- --------------
Cash flows from operating activities
- Net income (loss) $ 3,688,269 $ (4,925,480)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
- Depreciation and amortization 1,879,466 2,008,905
- Increase (decrease) in accrued rent
obligation 155,045 (300,373)
- Extraordinary gain from early
extinguishment of debt (182,001) ---
- (Gain) loss on disposals of property
and equipment (5,810) 2,392,895
- (Increase) decrease in deferred tax asset 285,998 ---
- Amortization of deferred financing costs --- 30,400
Changes in operating assets and liabilities:
- (Increase) decrease in merchandise
inventory, prepaid expenses, receivables
and other assets (5,451,187) 1,424,787
- Increase (decrease) in accounts payable
and accrued liabilities 749,376 2,656,358
------------ ------------
Net cash provided by operating
activities 1,119,156 3,287,492
Cash flows from investing activities --
- Purchase of equipment and improvements (2,423,312) (720,577)
- Proceeds from sale of fixtures and
equipment 34,949 53,270
------------ ------------
Net cash used in investing activities (2,388,363) (667,307)
Cash flows from financing activities --
- Redemption of 12% Senior Notes (748,000) ---
- Principal payments on capital lease
obligation (170,047) (161,654)
- Net borrowings from revolving line of
credit --- 2,816,200
- Interest added to principal 231,220 ---
- Exercise of stock options 438,557 5,000
------------ ------------
Net cash generated (used) by financing
activities (248,270) 2,659,546
------------ ------------
Net increase (decrease) in cash and cash
equivalents (1,517,477) 5,279,731
Cash and cash equivalents at beginning of year 10,913,716 1,543,131
------------ ------------
Cash and cash equivalents at end of period $ 9,396,239 $ 6,822,862
------------ ------------
------------ ------------
Supplemental cash flow information:
- Debt for equity exchange $ --- $ 2,900,000
- Write-off of deferred financing costs $ --- $ 418,818
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See accompanying notes to consolidated condensed financial statements.
6
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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 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 nine months ended November 29, 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.
After the effective date, all prior period earnings per share data
presented must be restated to conform with the provisions of SFAS No. 128.
The adoption of SFAS No. 128 will not have a material impact on earnings
per share amounts for the first, second or third quarters of fiscal 1998.
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").
7
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As of January 2, 1998, the Company operated a chain of 180 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.
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 its 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.
QUARTER ENDED THREE QUARTERS ENDED
---------------- --------------------
NOV. 29, NOV. 30, NOV. 29, NOV. 30,
1997 1996 1997 1996
------ ------- -------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Merchandise, buying and occupancy 62.6 62.8 64.8 68.8
----- ------ ------ ------
Gross profit 37.4 37.2 35.2 31.2
Selling, general and administrative 21.2 20.5 23.8 24.3
Depreciation and amortization 2.2 2.1 2.6 2.8
----- ------ ------ ------
Operating income 14.0 14.6 8.8 4.1
Interest, net 0.8 0.1 0.8 0.8
----- ------ ------ ------
Income before reorganization
expense, income taxes and
extraordinary gain 13.2 14.5 8.0 3.3
Reorganization expense (reversal) -- (3.3) -- 11.4
Income tax provision (benefit) 5.0 -- 3.1 (1.2)
----- ------ ------ ------
Income (loss) before extraordinary
gain 8.2 17.8 4.9 (6.9)
Extraordinary gain -- -- 0.2 --
----- ------ ------ ------
Net income (loss) 8.2% 17.8% 5.1% (6.9)%
----- ------ ------ ------
----- ------ ------ ------
8
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QUARTER ENDED NOVEMBER 29, 1997 COMPARED TO QUARTER ENDED NOVEMBER 30, 1996.
NET SALES. Net sales for the quarter ended November 29, 1997, were $29.5
million, an increase of 9% from $27.2 million in the quarter ended November 30,
1996. Same store sales increased by 6% on 164 stores operating in the
comparable periods. The Company began last year's third quarter with 186 stores
and then closed 15 stores in the quarter during its Chapter 11 bankruptcy
reorganization (completed in December 1996) to end the period with 171 stores.
In this year's third quarter, the Company opened 3 new stores and closed one
store to finish the period with 180 stores.
GROSS PROFIT. Gross profit, which is net sales less cost of merchandise and
buying and occupancy expenses, was $11.0 million or 37.4% of net sales during
the third quarter of fiscal 1998 compared to $10.1 million or 37.2% of net sales
during the same period in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $6.2 million or 21.2% of sales compared to $5.6
million or 20.5% of sales last year. The percentage increase in selling,
general, and administrative expense was primarily due to increases in store and
office payroll and payroll related costs.
OPERATING INCOME. Operating income for the quarter ended November 29, 1997, was
$4.1 million or 14.0% of net sales as compared to operating income of $4.0
million or 14.6% of sales in the quarter ended November 30, 1996.
INTEREST, NET. Net interest expense for the third quarter of fiscal 1998
increased to $216,461 from $26,888 in the third 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 November 30, 1996 would have totaled $316,888.
REORGANIZATION EXPENSE. In the third quarter last year the Company recorded a
gain of $899,379 related to a reversal of Chapter 11 bankruptcy reorganization
expenses previously recorded in the second quarter. This expense reversal was
the net result of the acceptance by landlords representing 49 rejected store
leases of a cash settlement equal to 25% of their allowed claims partially
offset by professional fees and other bankruptcy related costs.
INCOME TAXES. Income tax expense for the quarter ended November 29, 1997, was
$1.5 million. In the third quarter of last year the Company did not record any
income tax expense, as the Company had incurred a pre-tax loss on a year-to-date
basis.
NET INCOME. As a result of the foregoing factors, net income for the quarter
ended November 29, 1997, was $2.4 million or 8.2% of net sales compared to net
income of $4.8 million or 17.8% of net sales for the quarter ended November 30,
1996. As discussed above the $4.8 million of net income for the quarter ended
November 30, 1996 included a reorganization expense reversal of $899,379 and no
income tax expense.
9
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NINE MONTHS ENDED NOVEMBER 29, 1997 COMPARED TO NINE MONTHS ENDED NOVEMBER 30,
1996.
NET SALES. Net sales for the nine months ended November 29, 1997, were $72.2
million, an increase of 1% from $71.4 million for the nine months ended November
30, 1996. The increase in sales was due to a 12% increase in sales in the 164
continuing stores. The Company began last year with 221 stores and closed 50
stores in the second and third quarters during its Chapter 11 bankruptcy
reorganization (completed in December 1996) to end the period with 171 stores.
In fiscal 1998, the Company opened 16 new stores and closed 6 stores.
GROSS PROFIT. Gross profit, which is net sales less cost of merchandise and
buying and occupancy expenses, was $25.4 million or 35.2% of net sales during
the first nine months of fiscal 1998 compared to $22.3 million or 31.2% 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 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 $17.2 million from $17.4 million in the
comparable nine month period due to operating fewer stores. Selling, general
and administrative expenses as a percentage of total sales decreased from 24.3%
to 23.8%.
OPERATING INCOME. Operating income for the nine months ended November 29, 1997,
was $6.4 million or 8.8% of net sales as compared to operating income of $2.9
million or 4.1% of net sales in the nine months ended November 30, 1996.
INTEREST, NET. Net interest expense for the first nine months of fiscal 1998
increased to $618,130 from $532,588 in the first nine 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 nine months
ended November 30, 1996 would have totaled $1,012,588. The decrease in net
interest expense is due to the Company's improved cash flow in the first nine
months of fiscal 1998 which resulted in no advances on the line of credit and
increased income from short-term investments.
REORGANIZATION EXPENSE. The Company recorded approximately $8.2 million of
reorganization expenses during the first nine 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 nine months ended November 29, 1997,
was $2.2 million compared to an income tax benefit of $850,998 for the nine
months ended November 30, 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 Senior
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
nine months ended November 29, 1997, was $3.7 million or 5.1% of net sales
compared to a net loss of $4.9 million dollars or 6.9% of net sales for the nine
months ended November 30, 1996.
10
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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 provided by operating activities totaled $1.1 million for the first
nine months of fiscal 1998 as compared to $3.3 million 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 during the pendency of the
bankruptcy case resulting in a higher net generation of cash by operating
activities for the nine months ended November 30, 1996. During the first 9
months of this year. Cash was used to finance $2.4 million of capital
expenditures for the opening of 16 stores and other miscellaneous capital
expenditures. During the remainder of the fiscal year the Company expects to
spend approximately $500,000 on capital expenditures. In fiscal 1999 the
Company plans to open 20 to 25 new stores and close 4 to 5 existing stores as
their leases expire. Each typical new store will require approximately
$150,000, net of landlord construction allowances, in capital expenditures.
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.
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 November 29, 1997, was $10.0 million. As of November 29,
1997, the Company had no borrowings and outstanding letters of credit in the
amount of $1.6 million under the Norwest Revolver. Accordingly, the
availability of revolving credit loans under the Norwest Revolver was $8.4
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 of the Company 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 of
the Company and (b) $2,313,000 in original principal face amount of the 12%
Senior Notes.
11
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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 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 increase slightly in fiscal 1998. Management believes it has good working
relationships with its foreign as well as its domestic vendors. A disruption in
supply from its vendors could have a negative impact on the Company's business.
Management further 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.
12
<PAGE>
PART II. OTHER INFORMATION
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
None
13
<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:January 2, 1998
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.
14
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
QUARTER ENDED
--------------------------
NOVEMBER 29, NOVEMBER 30,
1997 1996
------------ ------------
PRIMARY:
Net income. . . . . . . . . . . . . . . . . . $ 2,420,413 $ 4,829,594(1)
----------- -----------
----------- -----------
Weighted average common shares outstanding. . 4,514,833 4,103,137
Common stock equivalents: (stock options
and warrants) . . . . . . . . . . . . . . . . 341,854 206,962
----------- -----------
Weighted average number of common shares
and common share equivalents outstanding. . . 4,856,687 4,310,099
----------- -----------
----------- -----------
EARNINGS PER SHARE:
Net income. . . . . . . . . . . . . . . . . . $ 0.50 $ 1.12(1)
----------- -----------
----------- -----------
QUARTER ENDED
--------------------------
NOVEMBER 29, NOVEMBER 30,
1997 1996
------------ ------------
FULLY DILUTED:
Net income. . . . . . . . . . . . . . . . . . $ 2,420,413 $ 4,829,594(1)
----------- -----------
----------- -----------
Weighted average common shares outstanding. . 4,514,833 4,103,137
Common stock equivalents: (stock options
and warrants) . . . . . . . . . . . . . . . . 341,854 340,804
----------- -----------
Weighted average number of common shares
and common share equivalents outstanding. . . 4,856,687 4,443,941
----------- -----------
----------- -----------
EARNINGS PER SHARE:
Net income per common and common
equivalent share. . . . . . . . . . . . . . . $ 0.50 $ 1.09(1)
----------- -----------
----------- -----------
(1)Includes a gain of $899,379 primarily related to a reversal of reorganization
expense and no income tax expense.
The calculation of fully diluted earnings per share is submitted in accordance
with Regulation S-K Item 601(b)(11) although not required by footnote 2 to
paragraph 14 of APB Opinion No. 15 because it results in less than 3% dilution.
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.
15
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
THREE QUARTERS ENDED
--------------------------
NOVEMBER 29, NOVEMBER 30,
1997 1996
------------ ------------
PRIMARY:
Net income (loss) before extraordinary gain . $ 3,575,428 $ (4,925,480)
Extraordinary gain. . . . . . . . . . . . . . 112,841 ---
----------- ------------
Net income (loss) . . . . . . . . . . . . . . $ 3,688,269 $ (4,925,480)
----------- ------------
----------- ------------
Weighted average common shares outstanding. . 4,469,974 3,896,587
Common stock equivalents: (stock options
and warrants) . . . . . . . . . . . . . . . . 347,133 ---
----------- ------------
Weighted average number of common shares
and common share equivalents outstanding. . . 4,817,107 3,896,587
----------- ------------
----------- ------------
EARNINGS PER SHARE:
Net income (loss) before extraordinary gain . $ 0.74 $ (1.26)
Extraordinary gain. . . . . . . . . . . . . . 0.02 ---
----------- ------------
Net income (loss) . . . . . . . . . . . . . . $ 0.76 $ (1.26)
----------- ------------
----------- ------------
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.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S 10Q FOR THE QUARTER ENDED NOVEMBER 29, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-02-1997
<PERIOD-END> NOV-29-1997
<CASH> 9,396,239
<SECURITIES> 0
<RECEIVABLES> 1,914,715
<ALLOWANCES> 0
<INVENTORY> 14,045,820
<CURRENT-ASSETS> 26,238,066
<PP&E> 23,512,133
<DEPRECIATION> 12,212,129
<TOTAL-ASSETS> 38,799,558
<CURRENT-LIABILITIES> 7,879,118
<BONDS> 10,169,544
0
0
<COMMON> 45,161
<OTHER-SE> 19,654,437
<TOTAL-LIABILITY-AND-EQUITY> 38,799,558
<SALES> 72,246,914
<TOTAL-REVENUES> 72,246,914
<CGS> 46,798,996
<TOTAL-COSTS> 46,798,996
<OTHER-EXPENSES> 19,062,969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 618,130
<INCOME-PRETAX> 5,766,819
<INCOME-TAX> 2,191,391
<INCOME-CONTINUING> 3,575,428
<DISCONTINUED> 0
<EXTRAORDINARY> 112,841<F1>
<CHANGES> 0
<NET-INCOME> 3,688,269<F1>
<EPS-PRIMARY> 0.76<F1>
<EPS-DILUTED> 0.76<F1>
<FN>
<F1> In fiscal 1998, 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 or $.02 per share, for the nine months
ended 11-29-97.
</FN>
</TABLE>
