<PAGE>
FORM 10-Q
__________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ___________________ .
Commission file number 0-21182
-------------
ORCHARD SUPPLY HARDWARE STORES CORPORATION
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4214109
------------------------------ ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6450 Via Del Oro, San Jose, California 95119
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(408) 281-3500
- ---------------------------------------
(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
------- ------
At July 28, 1996 there were 7,542,323 shares of the registrant's Common Stock,
$0.01 par value, outstanding.
Page 1 of 15
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ----------------------------------------------------
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets:
July 28, 1996 and January 28, 1996 3
Condensed Consolidated Statements of Income:
Three and Six Month Periods Ended July 28, 1996
and July 30, 1995 4
Condensed Consolidated Statements of Cash Flows:
Six Month Periods Ended July 28, 1996
and July 30, 1995 5
Notes to Condensed Consolidated Financial
Statements 6
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 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
July 28, January 28,
1996 1996
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 34,329 $ 7,930
Accounts receivable, net 20,642 16,597
Inventories 112,569 116,761
Prepaid expenses and other 9,640 8,391
Assets held for disposal 6,513 6,513
-------- --------
Total current assets 183,693 156,192
PROPERTY AND EQUIPMENT, net 132,479 132,645
OTHER ASSETS, net 15,865 16,699
-------- --------
Total assets $332,037 $305,536
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable, accrued and other liabilities $ 85,022 $77,329
Notes payable 690 684
Current portion of capital leases
and long term debt 2,298 2,024
-------- --------
Total current liabilities 88,010 80,037
CAPITAL LEASES AND LONG-TERM DEBT,
net of current portion 130,396 132,242
-------- --------
Total liabilities 218,406 212,279
-------- --------
STOCKHOLDERS' EQUITY:
Common stock 75 70
Preferred stock 8 8
Additional paid-in-capital 102,091 90,612
Less notes receivable from
sale of common stock (53) (93)
Retained earnings 11,510 2,660
-------- --------
Total stockholders' equity 113,631 93,257
-------- --------
Total liabilities and stockholders' equity $332,037 $305,536
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------------- ---------------------
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $303,052 $270,817 $161,941 $145,465
Cost of goods sold 191,644 172,850 101,738 93,142
-------- -------- -------- --------
Gross margin 111,408 97,967 60,203 52,323
Selling, general and administrative expenses 88,524 79,094 46,835 41,636
Pre-opening expenses 568 1,022 347 27
-------- -------- -------- --------
Operating income 22,316 17,851 13,021 10,660
Interest expense 6,283 6,919 3,016 3,404
-------- -------- -------- --------
Income before provision for income taxes 16,033 10,932 10,005 7,256
Income tax provision 6,583 2,409 4,107 1,655
-------- -------- -------- --------
Net income 9,450 8,523 5,898 5,601
Preferred stock dividends 600 600 300 300
-------- -------- -------- --------
Net income available to common stock $ 8,850 $ 7,923 $ 5,598 $ 5,301
======== ======== ======== ========
Income per common share:
Primary $ 1.18 $ 1.13 $ 0.73 $ 0.75
======== ======== ======== ========
Fully diluted $ 1.07 $ 1.03 $ 0.66 $ 0.67
======== ======== ======== ========
Weighted average number of shares outstanding:
Primary 7,525 7,001 7,684 7,025
======== ======== ======== ========
Fully diluted 8,811 8,302 8,964 8,330
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
------------------------------
July 28, 1996 July 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,450 $ 8,523
Non-cash adjustments to net income-
Depreciation and amortization 5,563 5,292
Loss on asset disposals 19 14
Changes in assets and liabilities-
Increase in accounts receivable (4,045) (2,975)
Decrease in inventories 4,192 6,075
Increase (decrease) in prepaid expenses and other (1,249) 781
Increase in other noncurrent assets (41) (125)
Increase in accounts payable, accrued and other liabilities 7,863 558
------- -------
Total adjustments 12,302 9,620
------- -------
Net cash provided by operating activities 21,752 18,143
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (4,701) (6,524)
Redemption of investments - 3,000
------- -------
Net cash used in investing activities (4,701) (3,524)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 11,141 -
Common stock issued upon exercise of warrants and options 343 -
Proceeds from issuance of notes payable, net 6 67
Payment of notes receivable from sale of capital stock 40 13
Principal payments on capital leases and long-term debt (1,572) (1,306)
Payment of preferred stock dividend (600) (600)
Transaction costs (10) -
------- -------
Net cash provided by (used in) financing activities 9,348 (1,826)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 26,399 12,793
CASH AND CASH EQUIVALENTS, beginning of period 7,930 9,240
------- -------
CASH AND CASH EQUIVALENTS, end of period $34,329 $22,033
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements
5
<PAGE>
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
---------------------
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). 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. However, the Company believes that the
disclosures are adequate to make the information presented not misleading. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto for the year ended January 28,
1996 included in the Company's Form 10-K.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) that
are, in the opinion of management, necessary to state fairly the results for the
periods presented. The results for such periods are not necessarily indicative
of the results to be expected for the full fiscal year.
2. EARNINGS PER SHARE
------------------
Net income per common and equivalent share is computed by dividing net income
available to common stock (net income less preferred stock dividend
requirements) by the weighted average number of common and equivalent shares.
Common and common equivalent shares include common stock issuable upon exercise
of stock options and warrants (using the treasury stock method) less shares
assumed repurchased with the proceeds from the management notes. Common
equivalents included in the weighted average number of shares assume the
conversion of options outstanding under the Nonqualified Stock Option Plan, the
1993 Non-Employee Directors Plan, the 1993 Stock Option Plan and the warrants,
unless antidilutive. Certain options granted to the President are excluded from
the calculation due to their contingent nature.
For purposes of the calculation of earnings per share on a fully-diluted basis,
outstanding shares of convertible preferred stock are assumed to be converted if
dilutive.
3. INCOME TAX PROVISION
--------------------
The effective tax rate for the quarter ended July 28, 1996 reflects the
estimated tax rate for the year ending January 26, 1997 based upon projected
income and other factors and approximates the combined federal and state of
California rates. The rate for the quarter ended July 30, 1995 reflects the
reversal of a previously established valuation allowance for deferred tax
assets, primarily net operating loss carryforwards.
6
<PAGE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Effective January 29, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of". This
pronouncement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An impairment loss is to be recognized when the sum of undiscounted
cash flows is less than the carrying amount of the asset. The adoption of this
pronouncement did not have a material impact on the Company's financial
condition or results of operations.
5. PUBLIC SALE OF COMMON STOCK (THE OFFERING)
------------------------------------------
In March, 1996, the Company received net proceeds of approximately $11.3 million
in connection with the public sale of 500,000 shares of its common stock. The
Company intends to use the net proceeds for general corporate purpose.
Pursuant to the public offering, the Company's largest stockholder also sold
2,375,000 shares and reduced its beneficial ownership from 48% to 18%.
6. SUBSEQUENT EVENTS
-----------------
On August 21, 1996, Sears, Roebuck and Co., through a wholly owned subsidiary,
commenced a tender offer to purchase all outstanding shares of the Company's
common stock at $35.00 per share. Such offer is expected to be consummated on or
after September 19, 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended January
28, 1996 included in the Company's Form 10-K. This Form 10-Q contains forward-
looking statements which involve risks and uncertainties. The Company's actual
results may differ significantly from the results discussed in the forward-
looking statements. Factors that might cause such a difference include, but are
not limited to, those discussed in "Business--Risk Factors" in the Company's
Form 10-K.
On August 21, 1996, Sears, Roebuck and Co., through a wholly owned subsidiary,
commenced a tender offer to purchase all outstanding shares of the Company's
common stock at $35.00 per share. Such offer is expected to be consummated on
or after September 19, 1996.
GENERAL
- -------
The Company opened 14 stores in fiscal 1994 and five stores in fiscal 1995. The
Company plans to open five stores in fiscal 1996. As a result of the Company's
accelerated expansion and entry into Southern California, the Company incurred
substantial store pre-opening expenses amounting to $7.5 million for fiscal 1994
and $2.4 million for fiscal 1995. These pre-opening expenses consist
principally of store merchandising and stocking expenses, personnel recruitment
and training costs and grand-opening advertising and promotional expenses. In
fiscal 1996, the Company expects pre-opening expenses to be approximately $0.4
million to $0.5 million per store.
As the Company implements its new store opening program, operating expenses as a
percent of sales for new stores will initially be higher, adversely affecting
overall operating margins until these new stores achieve sales maturity. The
Company's average store achieves maturity after approximately four years. In
addition, the Company has generally experienced higher marketing, distribution
and occupancy costs in its new stores in the Southern California market. The
Company believes, however, that these higher expenses should be offset by higher
sales at these stores (when these stores achieve maturity), bringing margins for
Southern California stores in line with those for Northern and Central
California stores.
The Company experienced a strong comparable store sales increase in fiscal 1995,
especially in the second half of the year. The Company does not expect to
sustain its rate of comparable store sales growth in the second half of fiscal
1996.
The Company's results of operations exhibit some degree of seasonality.
Generally, the Company's sales and operating income are highest in the second
quarter and lowest in the fourth quarter. This is primarily attributable to
seasonality in sales of garden, nursery and related products which peak at the
beginning of spring/summer gardening season. The Company has experienced losses
in the fourth quarter in the past and may experience losses in that quarter in
the future.
The Company's business can be negatively impacted by adverse weather conditions,
particularly the sales of garden and nursery products which comprised
approximately 27% of the Company's total
8
<PAGE>
sales for fiscal 1995. For example, the Company's results in the first half of
fiscal 1995 were adversely impacted by unusually wet weather in Northern and
Central California, and nursery and garden sales were also negatively affected
during the prolonged drought in California in the early 1990s.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth selected results of operations as percentages of
sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
July 28, July 30, July 28, July 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Gross margin 37.2 36.0 36.8 36.2
Selling general and
administrative expenses 28.9 28.6 29.2 29.2
Pre-opening expense 0.2 0.0 0.2 0.4
-------- -------- -------- --------
Operating income 8.0 7.3 7.4 6.6
Interest expense, net 1.9 2.3 2.1 2.6
-------- -------- -------- --------
Income before provision for
income taxes 6.2 5.0 5.3 4.0
Income tax provision 2.5 1.1 2.2 0.9
-------- -------- -------- --------
Net income 3.6% 3.9% 3.1% 3.1%
======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
- --------------------------------------------------
Sales for the second quarter ended July 28, 1996 were $161.9 million, compared
to $145.5 million in the second quarter of fiscal 1995, an increase of 11.3%.
The increase reflects a 8.1% rise in comparable store sales during the quarter
as well as four new stores opened since the second quarter of fiscal 1995. The
increase in comparable store sales reflects an improving economic climate in
California, the inclusion of sales gains achieved by maturing Orchard stores
opened within the last two years and sales generated through an increased focus
on the commercial customer segment and the Company's private label credit
program.
Gross margin increased $7.9 million from $52.3 million for the second quarter of
fiscal 1995 to $60.2 million for the comparable period this year. Gross margin
as a percent of sales increased from 36.0% for the second quarter of fiscal 1995
to 37.2% for the second quarter of fiscal 1996. The increase in gross margin
percentage is attributable primarily to the reduction of inventory shrinkage.
Management believes that programs instituted at the stores over the last two
years have been beneficial in controlling inventory shrinkage. These programs
have included the installation of tool corrals and electronic merchandise
surveillance and increased employee awareness. Also
9
<PAGE>
contributing to the improvement were improved margins due to a favorable sales
mix and lower warehouse operating costs as a percentage of sales.
Selling, general and administrative expenses for the second quarter of fiscal
1996 were 28.9% of sales compared with 28.6% of sales in the second quarter of
fiscal 1995. Increases as a percentage of sales in advertising expenditures,
bonuses, and credit department costs related to the Company's Club OSH program
were partially offset by reduced store occupancy costs.
Operating income for the second quarter of fiscal 1996 increased $2.4 million or
22.1% to $13.0 million from $10.7 million in last year's second quarter.
Increased sales and gross margin as a percentage of sales were primarily
responsible for the increase in operating income. Pre-opening expenses in the
second quarter of fiscal 1996 of $0.3 million are related to the Yorba Linda,
California store opened in May, 1996.
Interest expense decreased by $0.4 million from $3.4 million for the second
quarter of fiscal 1995 to $3.0 million for the second quarter of fiscal 1996.
Interest on mortgage loans decreased as a result of the reduction in principal
balances and a decreased interest rate on the store mortgage loan due 2002 based
on an annual rate adjustment. In addition, the Company's improved cash position
in fiscal 1996 resulted in reduced borrowing under Orchard Supply's senior
revolving credit facility, as well as increased interest income on temporary
investments.
Income taxes were included in the fiscal 1995 second quarter results at an
effective rate of only 22.8% as compared with a fully taxed rate of 41.0% in
fiscal 1996. The provision for fiscal 1995 reflects the reversal of a previously
established valuation allowance against deferred tax assets, primarily net
operating losses. The valuation allowance attributable to net operating loss
carryforwards was fully reversed in fiscal 1995 and as a result, the effective
tax rates for future periods are expected to approximate the rate for the fiscal
1996 second quarter. See Note 3 to the Condensed Consolidated Financial
Statements.
SIX MONTHS ENDED JULY 28, 1996 AND JULY 30, 1995
- ------------------------------------------------
Sales for the six months ended July 28, 1996 increased by 11.9% to $303.1
million from $270.8 million in the comparable period of fiscal 1995. The
increase is attributable to a 8.6% gain in comparable store sales and the sales
contributed by 4 stores opened since the second quarter of fiscal 1995.
Gross margin increased $13.4 million from $98.0 million for the first six months
of fiscal 1995 to $111.4 million for the comparable period of 1996. As a
percentage of sales gross margin increased from 36.2% for the first six months
of fiscal 1995 to 36.8% for the first six months of fiscal 1996. The increase in
gross margin resulted primarily from reduced inventory shrinkage and warehouse
operating costs as explained in the discussion of the second quarter results.
Selling, general, and administrative expenses increased by $9.4 million from
$79.1 million for the first six months of 1995 to $88.5 million for the first
six months of 1996. These expenses were 29.2% of sales for both periods.
Increases in advertising, bonuses, and credit card department expenses were
offset primarily by decreased base payroll as a percentage of sales.
10
<PAGE>
Operating income increased by $4.5 million from $17.9 million in the first six
months of fiscal 1995 to $22.3 million in the first six months of fiscal 1996.
Pre-opening expenses decreased by $0.5 million from $1.0 million in the first
six months of fiscal 1995 to $0.6 million in the comparable period of fiscal
1996 primarily as a result of one less store opening in the 1996 six month
period. Operating income before pre-opening expenses for the first six months of
1996 increased by $4.0 million or 21.3% from the comparable period of 1995.
Increased sales and higher gross margin percentage were largely responsible for
this increase.
Interest expense decreased by $0.6 million from $6.9 million for the first six
months of fiscal 1995 to $6.3 million for the first six months of fiscal 1996.
Interest on mortgage loans decreased as a result of the reduction in principal
balances and a decreased interest rate on the store mortgage loan due 2002 based
on an annual rate adjustment. In addition, the Company's improved cash position
in fiscal 1996 resulted in reduced borrowing under Orchard Supply's senior
revolving credit facility, as well as increased interest income on temporary
investments.
Income taxes were included in the fiscal 1995 second quarter results at an
effective rate of only 22.0% as compared with a fully taxed rate of 41.0% in
fiscal 1996. The provision for fiscal 1995 reflects the reversal of a previously
established valuation allowance against deferred tax assets, primarily net
operating losses. The valuation allowance attributable to net operating loss
carryforwards was fully reversed in fiscal 1995 and as a result, the effective
tax rates for future periods are expected to approximate the rate for the fiscal
1996 first quarter. See Note 3 to the Condensed Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's liquidity needs arise primarily from the funding of the Company's
capital expenditures, working capital requirements, ongoing expansion program,
and service on indebtedness.
The Company's wholly-owned subsidiary, Orchard Supply, had long-term debt and
capital lease obligations as of July 28, 1996 of $132.8 million, including (i)
$100.0 million of 9 3/8% senior notes due February 15, 2002, (ii) $19.7 million
of store mortgage notes and (iii) $11.7 million of warehouse mortgage notes. In
addition, the Company has up to $40.0 million of revolving credit availability
under Orchard Supply's senior revolving credit facility (the "Financing
Agreement") (with a $10.0 million sublimit for letters of credit) of which no
borrowings and $4.0 million of letters of credit were outstanding at July 28,
1996. Orchard Supply's debt instruments contain financial and operating
covenants including, among other things, requirements that Orchard Supply
maintain certain financial ratios and satisfy certain financial tests and
limitations on Orchard Supply's ability to make capital expenditures, to incur
other indebtedness, and to pay dividends. At July 28, 1996, the Company and
Orchard Supply were in compliance with all covenants contained in such debt
instruments.
The Company's business strategy requires that it maintain broad product lines
and large inventories, however, the effect of this strategy on working capital
is somewhat minimized through the receipt of trade credit. The Company's working
capital is also affected by accounts receivable arising from its proprietary
credit card which had an average monthly balance for fiscal 1995 of $12.5
million. The
11
<PAGE>
Company will fund its working capital needs through a combination of funds from
operations and borrowings under the Financing Agreement. The Financing Agreement
permits borrowings based on percentages of the Company's eligible inventory and
accounts receivable and remains effective through May 1999.
In connection with Orchard's expansion plans, the Company anticipates capital
additions of approximately $0.9 million for furniture, fixtures and equipment
for each new store opened, a portion of which may be acquired under operating
leases. The Company expects that pre-opening expenses for a new store will range
from approximately $0.4 million to $0.5 million. The initial inventory
requirement for new stores, net of trade credit, is estimated at $1.0 million
per store. In the event that the Company is responsible for the renovation or
remodeling of the existing space to be leased, the Company anticipates incurring
additional capital expenditures of approximately $1.0 million to $1.8 million
per store. If the Company elects to purchase the real estate, the capital
expenditure would range from approximately $2.5 million for owned store
improvements constructed on leased land to $4.0 million to $7.0 million if the
entire property were to be owned by the Company.
The Company's capital expenditure plan for fiscal 1996 and 1997 provides for
annual capital expenditures of $19.8 million and $17.0 million, respectively.
This capital expenditure plan includes the expenditures of approximately $4.0
million to $5.0 million annually for the maintenance of existing facilities. The
remainder of the annual budgeted amounts will be used primarily for the opening
of new stores, including fixtures and leasehold improvements with respect to the
new stores, and computer equipment. The Company has historically obtained some
of its equipment through operating leases, and expects to be able to procure
such arrangements in the future. The inability of the Company to procure such
arrangements for its capital expenditure program may have a negative impact on
the ability of the Company to make capital expenditures.
In March 1996, the Company received net proceeds of approximately $11.3 million
in connection with the public sale of 500,000 shares of its common stock. The
Company intends to use the net proceeds of the Offering for general corporate
purposes, including working capital, and to fund its continuing new store
expansion.
The Company believes that funds from operations, together with the proceeds of
the Offering, borrowing availability under the Financing Agreement and financing
through operating leases, will be adequate to fund the Company's operating
requirements and capital expenditure program and meet its debt and dividend
obligations for the next several years.
EFFECT OF INFLATION
- -------------------
The effect of inflation on the Company's result of operations has not been
material in the periods discussed.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The company's Annual Meeting of Stockholders was held on May 23, 1996 to (1)
elect eight Directors to serve until the next Annual Meeting of Stockholders and
until their respective successors are elected and qualified, (2) approve an
amendment to the 1993 Stock Option Plan to increase the number of shares
reserved for issuance thereunder, (3) approve the adoption of the 1996 Non-
Employee Directors Stock Option Plan, and (4) ratify the appointment of Arthur
Andersen & Company as the Company's independent auditors (the "Auditors") for
the fiscal year ending January 26, 1997.
All eight nominees were duly elected. The following sets forth the number of
votes cast for, against, or withheld, as well as the number of abstentions and
broker nonvotes as to each nominee:
<TABLE>
<CAPTION>
AGAINST OR ABSTENTIONS AND
NOMINEE FOR WITHHELD BROKER NONVOTES
------- --- ---------- ---------------
<S> <C> <C> <C>
Mac Allen Culver 6,475,957 399,894 0
Matt Figel 6,476,857 398,994 0
Morton Godlas 6,476,257 399,594 0
William A. Hall 6,476,657 399,194 0
Stephen M. Hilberg 6,476,957 398,894 0
Maynard Jenkins 6,476,957 398,894 0
J. Frederick Simmons 6,476,957 398,894 0
Ronald P. Spogli 6,476,957 398,894 0
</TABLE>
The amendment to the 1993 Stock Option Plan was approved. The following sets
forth the number of votes cast for, against or withheld, as well as the number
of abstentions and broker nonvotes, as to the amendment of the 1993 Stock Option
Plan:
AGAINST OR ABSTENTIONS AND
FOR WITHHELD BROKER NONVOTES
--- ---------- ---------------
4,632,262 1,130,711 1,112,878
The adoption of the 1996 Non-Employee Directors Stock Option Plan was approved.
The following sets forth the number of votes cast for, against or withheld, as
well as the number of abstentions and broker nonvotes, as to the adoption of the
1996 Non-Employee Director Stock Option Plan:
AGAINST OR ABSTENTIONS AND
FOR WITHHELD BROKER NONVOTES
--- ---------- ---------------
5,306,408 404,743 1,164,700
13
<PAGE>
The appointment of the Auditors was duly ratified. The following sets for the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker nonvotes, as to the appointment of the Auditors:
AGAINST OR ABSTENTIONS AND
FOR WITHHELD BROKER NONVOTES
--- ---------- ---------------
6,872,145 1,255 2,451
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number
- --------------
Exhibit 2.1 Agreement and Plan of Merger by and among Orchard Supply Hardware
Stores Corporation, Grove Acquisition Corp., and Sears, Roebuck &
Co., dated as August 14, 1996. Filed as an exhibit to Orchard
Supply Hardware Stores Corportation's Schedule 14D-9 dated August
21, 1996.
Exhibit 10.1 Letter Agreement, dated August 14, 1996, by and between Orchard
Supply Hardware Corporation and Maynard Jenkins. Filed as an
exhibit to Orchard Supply Hardware Stores Corporation's Schedule
14D-9 dated August 21, 1996.
Exhibit 10.2 Employment Agreement, dated as of March 22, 1996, by and between
Orchard Supply Hardware Corporation and Dale D. Ward. Filed as
an exhibit to Orchard Supply Hardware Stores Corporation's
Schedule 14D-9 dated August 21, 1996.
Exhibit 10.3 Stockholder Tender and Option Agreement, dated August 14, 1996,by
and among Grove Acquisition Corp., Sears, Roebuck & Co., FS
Equity Partners II, L.P., FS Equity Partners III, L.P. and FS
Equity Partners International, L.P. Filed as an exhibit to
Orchard Supply Hardware Stores Corporation's Schedule 14D-9 dated
August 21, 1996.
Exhibit 27.1 Financial data schedule for the six months ended July 28, 1996.
Filed herewith.
(b) Reports on Form 8-K.
Current Report on Form 8-K dated August 15, 1996.
14
<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.
ORCHARD SUPPLY HARDWARE STORES CORPORATION
------------------------------------------
Date: September 10, 1996 By: /s/ Maynard Jenkins
--------------------- --------------------------
Maynard Jenkins
Chief Executive Officer
Date: September 10, 1996 By: /s/ Stephen M. Hilberg
--------------------- --------------------------
Stephen M. Hilberg
Chief Financial Officer and
Vice President-Finance
15
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> JUL-28-1996
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0
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