<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 July 13, 1996.
[ ] 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 0-21598
OLD AMERICA STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3487813
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
811 North Collins Freeway
Highway 75 North
PO Box 370
Howe, Texas 75459
(Address of principal executive offices)
(903)532-3000
(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 twelve months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety days.
Yes [ X ] No [ ]
At August 9, 1996, an aggregate of 3,514,500 shares of the registrant's Common
Stock, value of $ .01 each (the "Common Stock"), and 1,012,842 shares of
registrant's Nonvoting Common Stock, value of $ .01 each (the "Nonvoting Common
Stock"), were outstanding.
1
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OLD AMERICA STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
July 13, 1996 and January 31, 1996 3
Condensed Consolidated Statements of Operations -
Twelve weeks and twenty-four weeks ended
July 13, 1996 and July 17, 1995 4
Condensed Consolidated Statements of Cash Flows -
Twenty-four weeks ended
July 13, 1996 and July 17, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (no response required)
Item 2. Changes in Securities (no response required)
Item 3. Defaults Upon Senior Securities (no response required)
Item 4. Submission of Matters to a Vote of Security Holders
(no response required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K (none)
SIGNATURES 10
2
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OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
JULY 13, 1996 JANUARY 31, 1996
--------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 747,181 $ 1,239,117
Receivables, net of allowance 1,977,849 1,067,416
Merchandise inventories 55,203,027 53,002,040
Prepaid expenses and other 1,569,273 1,444,053
----------- -----------
Total current assets 59,497,330 56,752,626
----------- -----------
Property and equipment, at cost, net 17,158,947 17,045,822
Intangible assets and deferred charges,
net 13,807,492 13,778,800
Other assets 472,098 413,830
----------- -----------
$90,935,867 $87,991,078
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $12,267,141 $12,242,614
Accrued salaries and wages 671,500 1,940,484
Other accrued liabilities 3,098,405 2,815,273
Income taxes payable (171,782) 1,425,151
Current obligations under capital
leases 27,304 25,979
Deferred income taxes 552,000 552,000
----------- -----------
Total current liabilities 16,444,568 19,001,501
----------- -----------
Long-term debt 22,430,697 16,750,000
Long-term obligations under capital
leases 15,960 28,670
Deferred income taxes 369,000 369,000
----------- -----------
Total long-term liabilities 22,815,657 17,147,670
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, par value $.01;
6,000,000 shares authorized,
3,505,699 and 3,502,226 shares
issued and outstanding 35,057 35,022
Nonvoting common stock, par value
$.01; 1,500,000 shares authorized;
1,012,842 shares issued
and outstanding 10,128 10,128
Additional paid-in capital 42,287,100 42,258,917
Retained earnings 9,343,357 9,537,840
----------- -----------
Total stockholders' equity 51,675,642 51,841,907
----------- -----------
$90,935,867 $87,991,078
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
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OLD AMERICA STORES, INC.
Condensed Consolidated Statements of Operations (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
------------------------------ ---------------------------
July 13, 1996 July 17, 1995 July 13, 1996 July 17, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $24,934,987 $25,900,499 $52,073,856 $53,551,307
Cost of goods sold (including
occupancy costs) 15,723,535 16,912,297 32,485,695 34,426,454
----------- ----------- ----------- -----------
Gross profit 9,211,452 8,988,202 19,588,161 19,124,853
Selling, general and
administrative expenses 8,638,533 7,899,961 17,764,185 16,133,662
Depreciation expense 614,808 479,971 1,201,887 906,125
Amortization expense 115,867 109,197 241,309 217,194
----------- ----------- ----------- -----------
Earnings (loss) before
interest and taxes (157,756) 499,073 380,780 1,867,872
Interest expense, net 360,301 323,843 698,263 532,514
----------- ----------- ----------- -----------
Income (loss) before
provision for income taxes (518,057) 175,230 (317,483) 1,335,358
Provision (benefit) for
income taxes (205,000) 74,000 (123,000) 566,000
----------- ----------- ----------- -----------
Net income (loss) $ (313,057) $ 101,230 $ (194,483) $ 769,358
=========== =========== =========== ===========
Weighted average shares
outstanding 4,519,521 4,538,380 4,519,775 4,543,786
=========== =========== =========== ===========
Earnings per share:
Net Income (loss) per share $ (0.07) $ 0.02 $ (0.04) $ 0.17
=========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
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OLD AMERICA STORES, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Twenty-four Twenty-four
weeks ended weeks ended
July 13, 1996 July 17, 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ (194,483) $ 769,358
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 1,443,196 1,123,319
Loss/(gain) on sale of equipment (198,841) -
Net change in operating assets and liabilities:
Increase in receivables (910,433) (338,416)
Increase in merchandise inventories (2,200,987) (5,230,080)
Decrease (increase) in prepaid expenses and other (125,220) 600,387
Decrease (increase) in other assets (328,269) 1,255
Increase (decrease) in accounts payable 24,528 (160,825)
Decrease in other accrued liabilities (985,853) (1,163,772)
Decrease in income taxes payable (1,596,933) (33,054)
----------- -----------
Net cash used for operating activities (5,073,295) (4,431,828)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,416,171) (4,159,506)
Proceeds from sale of equipment 300,000 -
----------- -----------
Net cash used for investing activities (1,116,171) (4,159,506)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving loan 17,925,939 8,250,000
Proceeds from sale of equity securities 28,218 40,979
Payments on revolving loan (12,245,242) -
Payments under capital leases (11,385) (26,049)
----------- -----------
Net cash provided by financing activities 5,697,530 8,264,930
----------- -----------
Net decrease in cash (491,936) (326,404)
Cash, beginning of period 1,239,117 1,119,407
----------- -----------
Cash, end of period $ 747,181 $ 793,003
=========== ===========
Cash payments for income taxes $ 1,521,710 $ 589,360
=========== ===========
Cash payments for interest $ 772,442 $ 393,989
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
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OLD AMERICA STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of OLD AMERICA
STORES, INC., a Delaware corporation ("Old America"), and its wholly-owned
subsidiaries, OLD AMERICA STORE, INC., a Texas corporation ("Store"), and OLD
AMERICA WHOLESALE, INC., a Delaware corporation ("Wholesale") (Old America,
Store and Wholesale, collectively, the "Company"). All material intercompany
balances and transactions have been eliminated. The Company is a specialty
retailer of home decorating products and arts and crafts items with 94 operating
retail locations in 25 states throughout the United States as of the end of its
second quarter, July 13, 1996.
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements include all adjustments (consisting
of normal, recurring adjustments) that the Company considers necessary for a
fair presentation, in accordance with generally accepted accounting principles,
of the consolidated financial position of the Company and its subsidiaries at
July 13, 1996, and the results of their operations for the twelve and twenty-
four weeks and cash flows for the twenty-four weeks ended July 13, 1996, and
July 17, 1995. These results are not necessarily indicative of the results to
be expected for the full fiscal years.
The consolidated financial information presented herein should be read in
conjunction with the audited consolidated financial statements and the notes
thereto for the fiscal years ended January 31, 1996 and 1995, included in the
Company's Annual Report on Form 10-K (File No. 0-21598) dated April 11, 1996.
The Company reports its financial results on the basis of thirteen four-
week periods. The second quarter began on April 23, 1996 and ended on July 13,
1996. The first, second and fourth quarters each year include three four-week
periods. The third quarter includes four four-week periods. The actual number
of selling days in each period may vary from year to year. In addition, in
conjunction with the Headquarters conversion to a new computer system, the week
and period end cutoff was changed from Monday to Saturday. This change reduced
the number of selling days by two in the second quarter.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which was effective for the Company beginning February 1, 1996.
SFAS No. 123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require) compensation
cost to be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No. 25 to
its stock-based compensation awards to employees and will disclose the required
pro forma effect on net income and earnings per share.
6
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OLD AMERICA STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted
average number of shares of common stock outstanding. Options issued, when
dilutive, are considered as common stock equivalents for all periods presented
using the treasury stock method.
3. LONG-TERM DEBT
On May 31, 1996, the Company executed an agreement with National Bank of
Canada (the "Agreement") which provides the Company with a three year
$30,000,000 revolving credit facility. The facility allows the Company to
borrow up to 50% of the carrying value of its merchandise inventories. Interest
under the facility is charged at the prime rate or the London Interbank Offering
Rate (LIBOR) plus 2%, at the Company's option. Under terms of the Agreement,
the Company paid the lenders an origination fee of 50 basis points (.5%) at
closing. The Company has also agreed to pay a yearly fee of 37.5 basis points
(.375%) on the unused portion of the revolver. Any draws under the facility are
secured by the assets of the Company. The Company repaid its former lender on
June 5, 1996.
4. OPERATING LEASE
The Company has entered into an operating lease covering certain equipment
and software needed to complete its point-of-sale, merchandising, warehouse and
financial systems installation. This lease, which commenced in March 1996,
is for a five-year period with payments of $66,123 each month. The future
minimum lease payments under this operating lease are as follows:
<TABLE>
<CAPTION>
Year Ending:
<S> <C>
1996 $ 571,700
1997 793,400
1998 793,400
1999 793,400
2000 793,400
Thereafter 227,700
----------
$3,973,000
==========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter 1996 Compared to Second Quarter 1995
- ---------------------------------------------------
Net Sales. Net sales for the second quarter ended July 13, 1996, decreased by
$966,000 or 3.7% to $24,935,000 from $25,900,000 for the quarter ended July 17,
1995. Comparable store sales for the quarter were down 4.6% over the second
quarter in the prior year. Sales results were negatively impacted by Company
management's decision to not repeat a major promotional event that occurred in
July, 1995. In addition, in conjunction with the headquarters conversion to a
new computer system, the week and period end cutoff was changed from Monday to
Saturday. This change reduced the number of selling days by two in the second
quarter.
Gross Profit. Gross profit for the second quarter increased 2.5% or $223,000 to
$9,211,000 or 36.9% of net sales, from $8,988,000 or 34.7% of net sales in 1995.
The 2.2% increase in gross profit as a percent of net sales is primarily related
to an increase in merchandise margin due to a substantial decrease in sales
discounts during the quarter as compared to the prior year. The "Christmas in
July" promotion, a significant sales event last summer, was not repeated.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the second quarter of 1996 increased $739,000 or
9.4% to $8,639,000 or 34.6% of net sales from $7,900,000 or 30.5% of net sales
in 1995. This 4.1% of net sales increase is primarily attributable to an
increase in advertising related to the cost of publishing one free-standing
color insert and moving run-of-press newspaper advertising from mid-week to
Sunday circulation. In addition, labor costs increased during the quarter.
Depreciation Expense. Depreciation expense increased from $480,000 in the
second quarter of 1995, to $615,000 in 1996. This increase is primarily
associated with capitalized remodeling costs incurred since the second quarter
of 1995.
Interest Expense. Interest expense increased from $324,000 in the second
quarter of 1995, to $360,000 in the second quarter of 1996. The growth in
interest expense is due to increased borrowings under the revolving loan
facility to finance the Company's remodeling program partially offset by a
reduced cost of borrowings in the current quarter as compared with fiscal 1995.
Net Income. Net income for the second quarter decreased from $101,000 in the
second quarter of 1995 to a loss of $313,000 for 1996. This net loss equates to
$.07 loss per share based on 4,519,521 weighted average shares outstanding for
the second quarter of 1996, as compared to $0.02 earnings per share for the
second quarter of 1995 based on 4,538,380 weighted average shares outstanding.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for property and equipment amounted to $1,416,000 for
the twenty-four weeks ended July 13, 1996. Such expenditures are related to the
point-of-sale (POS) implementation at the stores and mainframe conversion at
headquarters. The Company has entered into an operating lease covering certain
computer hardware and software necessary to implement POS scanner technology
that is linked to perpetual inventory records maintained at the stock-keeping-
unit level. This system will include the transmission of sales and inventory
data to headquarters on a daily basis. During the second quarter, all store
back-office computers were converted to the new system in conjunction with the
POS rollout. The complete POS installation was completed in two test stores,
with very favorable results. The general store rollout continues on schedule
for completion at the end of the third quarter.
The Company's inventory has increased $2,201,000 from $53,002,000 at
January 31, 1996 to $55,203,000 on July 13, 1996. This increase reflects
additional inventory needed for promotional activities and seasonal Christmas
carryover from fiscal 1995. On July 17, 1995, total inventories were
$50,866,000, representing $547,000 per store (93 stores open) compared to
$587,000 per store (94 stores open) on July 13, 1996.
At July 13, 1996, bank debt was $22,431,000, an increase of $5,681,000 from
January 31, 1996, representing amounts owed under the Company's existing
revolving credit facility. Borrowings made in the first two quarters of 1996
were used to pay management bonuses, federal and state income taxes due and to
fund increases in inventories. The Company has a new revolving credit facility
which replaced its secured credit facility that matured on May 31, 1996. The
new facility provides the Company with a $30 million, three year revolver
bearing interest at Prime or LIBOR plus 2%, at the Company's option. The
Company completed its new facility and repaid its former lender under the
facility on June 5, 1996.
The Company has discontinued negotiations for the acquisition of the stock
of Amber's Stores, Inc. and will open eight to ten new stores during the
remainder of the year. The Company believes that cash from operations, together
with borrowings under the new revolving credit facility, will be sufficient to
fund working capital needs and the addition of new stores scheduled for the
balance of 1996.
9
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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.
OLD AMERICA STORES, INC.
Date: August 23, 1996 By: /s/ Jim D. Schultz
--------------- ----------------------------
Jim D. Schultz
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> APR-23-1996
<PERIOD-END> JUL-13-1996
<CASH> 747,181
<SECURITIES> 0
<RECEIVABLES> 1,977,849
<ALLOWANCES> 0
<INVENTORY> 55,203,027
<CURRENT-ASSETS> 59,497,330
<PP&E> 23,994,478
<DEPRECIATION> 6,835,533
<TOTAL-ASSETS> 90,935,867
<CURRENT-LIABILITIES> 16,444,568
<BONDS> 22,430,697
0
0
<COMMON> 45,185
<OTHER-SE> 51,630,457
<TOTAL-LIABILITY-AND-EQUITY> 90,935,867
<SALES> 24,934,987
<TOTAL-REVENUES> 24,934,987
<CGS> 15,723,535
<TOTAL-COSTS> 9,369,208
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,301
<INCOME-PRETAX> (518,057)
<INCOME-TAX> (205,000)
<INCOME-CONTINUING> (313,057)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (313,057)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
