<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 November 2, 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 December 13, 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.
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OLD AMERICA STORES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
November 2, 1996 and January 31, 1996 3
Condensed Consolidated Statements of Operations -
Sixteen weeks and forty weeks ended November 2, 1996
and November 6, 1995 4
Condensed Consolidated Statements of Cash Flows -
Forty weeks ended November 2, 1996 and
November 6, 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
</TABLE>
2
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OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
NOVEMBER 2, JANUARY 31,
1996 1996
------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 1,629,139 $ 1,239,117
Receivables, net of allowance 1,647,721 1,067,416
Merchandise inventories 66,656,095 53,002,040
Prepaid expenses and other 1,631,499 1,444,053
------------ -----------
Total current assets 71,564,454 56,752,626
Property and equipment, at cost, net 18,684,951 17,045,822
Intangible assets and deferred charges,
net 13,687,108 13,778,800
Other assets 472,491 413,830
------------ -----------
$104,409,004 $87,991,078
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,435,893 $12,242,614
Accrued salaries and wages 1,110,489 1,940,484
Other accrued liabilities 3,653,822 2,815,273
Income taxes payable - 1,425,151
Current obligations under capital
leases 28,226 25,979
Deferred income taxes 135,677 552,000
------------ -----------
Total current liabilities 27,364,107 19,001,501
------------ -----------
Long-term debt 25,542,198 16,750,000
Long-term obligations under capital
leases 7,014 28,670
Deferred income taxes 369,000 369,000
------------ -----------
Total long-term liabilities 25,918,212 17,147,670
------------ -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, par value $.01;
6,000,000 shares authorized,
3,514,500 and 3,502,226 shares
issued and outstanding 35,145 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 42,350,728 42,258,917
Retained earnings 8,730,684 9,537,840
------------ -----------
Total stockholders' equity 51,126,685 51,841,907
------------ -----------
$104,409,004 $87,991,078
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
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OLD AMERICA STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
---------------------------------------------------------------
NOVEMBER 2, NOVEMBER 6, NOVEMBER 2, NOVEMBER 6,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $37,900,615 $39,595,059 $89,984,471 $93,146,366
Cost of goods sold
(including occupancy costs) 24,136,350 24,634,829 56,632,045 59,061,283
----------- ----------- ----------- -----------
Gross profit 13,764,265 14,960,230 33,352,426 34,085,083
Selling, general and
administrative expenses 13,272,305 13,622,929 31,036,490 29,756,591
Depreciation expense 805,726 704,700 2,007,613 1,610,825
Amortization expense 159,031 163,483 400,340 380,677
----------- ----------- ----------- -----------
Earnings (loss) before
interest and taxes (472,797) 469,118 (92,017) 2,336,990
Interest expense, net 569,876 459,034 1,268,139 991,548
----------- ----------- ----------- -----------
Income (loss) before
provision for income taxes (1,042,673) 10,084 (1,360,156) 1,345,442
Provision (benefit) for income taxes (430,000) 2,000 (553,000) 568,000
----------- ----------- ----------- -----------
Net income (loss) (612,673) 8,084 (807,156) 777,442
=========== =========== =========== ===========
Weighted average shares
outstanding 4,526,815 4,500,125 4,521,558 4,519,962
=========== =========== =========== ===========
Earnings per share:
Net income (loss) per share $(0.14) $0.00 $(0.18) $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)
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<TABLE>
<CAPTION>
FORTY WEEKS FORTY WEEKS
ENDED ENDED
NOVEMBER 2, NOVEMBER 6,
1996 1995
-----------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (807,156) $ 777,442
Adjustments to reconcile net income
to net cash used for operating
activities:
Depreciation and amortization 2,407,953 1,991,502
Gain on sale of equipment (198,841) -
Change in deferred income taxes (416,323) -
Changes in assets and liabilities:
Decrease in receivables (580,305) (389,574)
Increase in merchandise
inventories (13,654,055) (17,931,678)
Decrease (increase) in prepaid
expenses and other (187,446) 986,046
Increase in other assets (367,309) (105,277)
Increase in accounts payable 10,193,279 11,839,702
Increase in other accrued
liabilities 8,554 27,349
Decrease in income taxes payable (1,425,151) (492,472)
------------ ------------
Net cash used for operating
activities (5,026,800) (3,296,960)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (3,747,902) (6,162,201)
Proceeds from sale of equipment 300,000 -
------------ ------------
Net cash used for investing
activities (3,447,902) (6,162,201)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving loan 8,792,199 8,960,000
Proceeds from sale of equity
securities 91,934 195,726
Payments under capital leases (19,409) (33,249)
------------ ------------
Net cash provided by financing
activities 8,864,724 9,122,477
------------ ------------
Net increase(decrease) in cash 390,022 (336,684)
Cash, beginning of period 1,239,117 1,119,407
------------ ------------
Cash, end of period $ 1,629,139 $ 782,724
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
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OLD AMERICA STORES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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(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 98 operating
retail locations in 25 states throughout the United States as of the end of its
third quarter, November 2, 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
November 2, 1996, and the results of their operations for the sixteen and forty
weeks and cash flows for the forty weeks ended November 2, 1996, and November 6,
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 third quarter began on July 14, 1996 and ended on November 2,
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)
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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 its lenders (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
Third Quarter 1996 Compared to Third Quarter 1995
- -------------------------------------------------
Net Sales. Net sales for the third quarter ended November 2, 1996, decreased by
$1,748,000 or 4.4% to $37,901,000 from $39,595,000 for the quarter ended
November 6, 1995. Comparable store sales for the quarter were down 5.6% over
the third quarter in the prior year. Sales results were negatively impacted from
significant product liquidation by the Company's largest competitor during the
third quarter. In addition, the Company completed the conversion of all stores
to a new point-of-sale system and instituted new item display configurations
(plan-o-grams). These internal activities diverted attention from store
operations and contributed to the decline in sales from the prior year.
Gross Profit. Gross profit for the third quarter decreased 8.0% or $1,196,000
to $13,764,000 or 36.3% of net sales, from $14,960,000 or 37.8% of net sales in
1995. The 1.5% decrease in gross profit as a percent of net sales is primarily
related to margin compression due to the promotional environment in the crafts
industry.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the third quarter of 1996 decreased $351,000 or 2.6%
to $13,272,000 or 35.0% of net sales from $13,623,000 or 34.4% of net sales in
1995. The 0.6% of net sales increase is primarily attributable to an increase
in advertising related to the cost of publishing free-standing color inserts and
moving certain newspaper advertising from mid-week to Sunday circulation.
Depreciation Expense. Depreciation expense increased from $705,000 in the third
quarter of 1995, to $806,000 in 1996. This increase is primarily associated
with capitalized costs incurred related to the installation of the point-of-sale
system at the stores and new computer hardware and software at the Company's
headquarters.
Interest Expense. Interest expense increased from $459,000 in the third quarter
of 1995, to $570,000 in the third 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 and increases in inventory partially
offset by a reduced cost of borrowings in the current quarter as compared with
fiscal 1995.
Net Income. Net income for the third quarter decreased from $8,000 in the third
quarter of 1995 to a loss of $613,000 for 1996. This net loss equates to a $.14
loss per share based on 4,526,815 weighted average shares outstanding for the
third quarter of 1996, as compared to $0.00 earnings per share for the third
quarter of 1995 based on 4,500,125 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 $3,748,000 for
the forty weeks ended November 2, 1996. Such expenditures are related primarily
to point-of-sale (POS) implementation and leasehold improvements and fixtures
for new stores. 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 includes the transmission of sales and inventory data to
headquarters on a daily basis. During the third quarter, all stores were
converted to the new POS system.
The Company's inventory has increased $13,654,000 from $53,002,000 at
January 31, 1996 to $66,656,000 on November 2, 1996. This increase reflects
additional inventory needed for new stores and increased inventory for
promotional and seasonal activities. On November 6, 1995, total inventories
were $63,568,000, representing $676,000 per store (94 stores open) compared to
$680,000 per store (98 stores open) on November 2, 1996.
At November 2, 1996, bank debt was $25,542,000, an increase of $8,792,000
from January 31, 1996, representing amounts owed under the Company's existing
revolving credit facility. Borrowings made in the first three quarters of 1996
were used to pay management bonuses, federal and state income taxes due, new
store construction 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 will open five 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: December 13, 1996 By: /s/ Jim D. Schultz
----------------- --- ------------------
Jim D. Schultz
Vice President, Secretary,
Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
10
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> JUL-14-1996
<PERIOD-END> NOV-02-1996
<CASH> 1,629,139
<SECURITIES> 0
<RECEIVABLES> 1,647,721
<ALLOWANCES> 0
<INVENTORY> 66,656,095
<CURRENT-ASSETS> 71,564,454
<PP&E> 26,322,054
<DEPRECIATION> 7,637,103
<TOTAL-ASSETS> 104,409,004
<CURRENT-LIABILITIES> 27,364,107
<BONDS> 0
0
0
<COMMON> 45,273
<OTHER-SE> 51,081,412
<TOTAL-LIABILITY-AND-EQUITY> 104,409,004
<SALES> 37,900,615
<TOTAL-REVENUES> 37,900,615
<CGS> 24,136,350
<TOTAL-COSTS> 14,237,062
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 569,876
<INCOME-PRETAX> (1,042,673)
<INCOME-TAX> (430,000)
<INCOME-CONTINUING> (612,673)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (612,673)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> 0
</TABLE>
