<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 April 22, 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 May 29, 1996, an aggregate of 3,505,699 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 -
April 22, 1996 and January 31, 1996 3
Condensed Consolidated Statements of
Operations -
Twelve weeks ended April 22, 1996 and
April 24, 1995 4
Condensed Consolidated Statements of Cash
Flows -
Twelve weeks ended April 22, 1996 and
April 24, 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>
APRIL 22, 1996 JANUARY 31, 1996
---------------------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 839,494 $ 1,239,117
Receivables, net of allowance 1,808,215 1,067,416
Merchandise inventories 52,992,734 53,002,040
Prepaid expenses and other 1,503,571 1,444,053
----------- -----------
Total current assets 57,144,014 56,752,626
----------- -----------
Property and equipment, at cost, net 16,620,206 17,045,822
Intangible assets and deferred charges, 13,678,358 13,778,800
net
Other assets 472,098 413,830
----------- -----------
$87,914,676 $87,991,078
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $12,809,385 $12,242,614
Accrued salaries and wages 648,646 1,940,484
Other accrued liabilities 2,828,743 2,815,273
Income taxes payable 144,253 1,425,151
Current obligations under capital 26,633 25,979
leases
Deferred income taxes 552,000 552,000
----------- -----------
Total current liabilities 17,009,660 19,001,501
----------- -----------
Long-term debt 18,525,000 16,750,000
Long-term obligations under capital 22,317 28,670
leases
Deferred income taxes 369,000 369,000
----------- -----------
Total long-term liabilities 18,916,317 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 9,656,414 9,537,840
----------- -----------
Total stockholders' equity 51,988,699 51,841,907
----------- -----------
$87,914,676 $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
---------------------------------
APRIL 22, 1996 APRIL 24, 1995
---------------------------------
<S> <C> <C>
Net sales $27,138,869 $27,650,807
Cost of sales (including occupancy 16,762,160 17,517,038
costs) ----------- -----------
Gross profit 10,376,709 10,133,769
Selling, general and administrative 9,125,652 8,233,701
expenses
Depreciation expense 587,079 426,154
Amortization of goodwill and intangibles 125,442 107,997
----------- -----------
Income before interest and income taxes 538,536 1,365,917
Interest expense, net 337,962 208,671
----------- -----------
Income before income taxes 200,574 1,157,246
Income taxes 82,000 493,000
----------- -----------
Net income $ 118,574 $ 664,246
=========== ===========
Weighted average shares outstanding 4,520,054 4,543,774
=========== ===========
Earnings per share:
Net income per share $ 0.03 $ 0.15
=========== ===========
</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>
Twelve weeks ended
-------------------------------
April 22, 1996 April 24, 1995
-------------------------------
<S> <C> <C>
Cash Flows from operating activities:
Net Income $ 118,574 $ 664,246
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 712,521 534,151
Net change in operating assets and liabilities:
Decrease (increase) in merchandise inventories 9,306 (3,525,982)
Decrease (increase) in receivables (740,799) 29,883
Decrease (increase) in prepaid expenses (59,518) 339,980
Decrease (increase) in other assets (83,268) 1,255
Increase (decrease) in accounts payable 566,771 (1,667,987)
Increase (decrease) in other liabilities (1,278,368) (1,170,602)
Increase (decrease) in income taxes payable (1,280,898) 222,531
----------- -----------
Net cash used for operating activities (2,035,679) (4,572,525)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net (161,463) (1,143,961)
----------- -----------
Cash flows from financing activities:
Borrowings under revolving loans 7,270,000 5,000,000
Principal payments on revolving loan (5,495,000) -
Payments under capital leases (5,699) (24,832)
Proceeds from issuance of stock 28,218 40,979
----------- -----------
Net cash provided by financing activities 1,797,519 5,016,147
Net increase (decrease) in cash (399,623) (700,339)
Cash, beginning of period 1,239,117 1,119,407
----------- -----------
Cash, end of period $ 839,494 $ 419,068
=========== ===========
</TABLE>
See notes to 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
first quarter, April 22, 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
April 22, 1996, and the results of their operations and cash flows for the
twelve weeks ended April 22, 1996 and April 24, 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 13 four-week
periods. The first quarter began on February 1, 1996 and ended on April 22,
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 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 and warrants
issued are considered as exercised for all periods presented using the treasury
stock method.
3. LONG-TERM DEBT
In April 1996, the Company obtained a binding agreement (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 will pay 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 finalized the new revolving credit facility and
repaid its former lender on June 5, 1996.
4. OPERATING LEASE
The Company has entered into an operating lease for $2,989,000 covering
certain equipment and software needed to complete its point-of-sale,
merchandising, warehouse and financial systems installation. The lease, which
commenced in March 1996, is for a five year period with payments of $58,000 each
month. The future minimum lease payments under this operating lease are as
follows:
<TABLE>
<S> <C>
Year Ending:
1996 $ 524,000
1997 698,000
1998 698,000
1999 698,000
2000 698,000
Thereafter 175,000
----------
$3,491,000
==========
</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
First Quarter 1996 Compared to First Quarter 1995
- - -------------------------------------------------
Net Sales. Net sales for the first quarter ended April 22, 1996 decreased by
$512,000 or 1.9% to $27,139,000 from $27,651,000 for the quarter ended April 24,
1995. Comparable store sales for the quarter were down 2.1% over the first
quarter in the prior year. Sales results were negatively impacted by severe
weather in February and the lack of Spring merchandise in the stores until late
February. These factors contributed to a comparable store decrease in Period 1
of 7.5%. In an attempt to recoup a portion of the sales volume lost in Period
1, the Company advertised aggressively during the remainder of the quarter. The
competitive environment, although more stable than in the previous two quarters,
remained challenging, putting continued pressure on sales throughout the
quarter.
Gross Profit. Gross profit for the first quarter increased 2.4% or $243,000 to
$10,377,000 or 38.2% of net sales, from $10,134,000 or 36.7% of net sales in
1995. The 1.5% increase in gross profit as a percent of net sales is primarily
related to a decrease in the accrual for inventory shrinkage (1.0%) based on
actual physical inventory results in fiscal 1995, reduced freight costs (1.0%)
from improved product distribution techniques, and decreased preopening
amortization (.8%) as compared to the prior year due to the small number of
stores opened in 1995 as compared to fiscal 1994. These increases were
partially offset by store rent (.5%), and lower margins (1.0%) due to product
mix changes and a competitive environment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the first quarter of 1996 increased $892,000 or
10.8% to $9,126,000 or 33.6% of net sales from $8,234,000 or 29.8% of net sales
in 1995. This 3.8% of net sales increase is primarily attributable to an
increase in advertising (2.2%) related to the cost of three free-standing color
inserts that were published during the quarter. In addition, employee insurance
(workers compensation and group health) increased 1.0% during the quarter.
Depreciation Expense. Depreciation expense increased from $426,000 in the first
quarter of 1995, to $587,000 in 1996. This increase in depreciation expense is
primarily due to the net addition of three new stores and the depreciation of
capitalized remodeling costs incurred since the first quarter of 1995.
Interest Expense. Interest expense increased from $209,000 in the first quarter
of 1995, to $338,000 in the first quarter of 1996. The increase is due to
increased borrowings under the revolving loan facility to finance the Company's
remodeling program.
Net Income. Net income for the first quarter decreased from $664,000 in the
first quarter of 1995 to $119,000 for 1996. This net income equates to $.03
earnings per share based on 4,520,054 weighted average shares outstanding for
the first quarter of 1996, as compared to $0.15 earnings per share for the first
quarter of 1995 based on 4,543,774 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 $161,000 which
represents the start of point-of-sale (POS) implementation at the stores and
mainframe conversion at headquarters. The Company has entered into an operating
lease for $2,989,000 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.
The Company expects to begin the rollout of the new system in the summer of
1996, with anticipated completion in the fall.
The Company's inventory has remained constant from the beginning of the
fiscal year to the end of the first quarter. On April 22, 1996, total
inventories were $52,993,000, representing a $564,000 average per store (94
stores), compared to the same per store average at January 31, 1995. Due to
improved distribution techniques implemented during the quarter, inventory
remained unchanged as compared to amounts on hand at January 31, 1996 despite
growth in inventory investment related to Spring merchandise and improvement of
in-stock positions for basic merchandise. Furthermore, carryover of Easter
merchandise was minimal.
At April 22, 1996, bank debt was $18,525,000, an increase of $1,775,000
from January 31, 1996, representing amounts owed under the Company's existing
revolving credit facility. Borrowings made in the first quarter of 1996 were
used to pay management bonuses and federal and state income taxes due. The
Company has negotiated a new revolving credit facility which replaces its
secured credit facility maturing at the end of May 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 is presently negotiating to acquire the stock of Amber's
Crafts, currently in bankruptcy. Amber's operates seventeen stores, thirteen of
which the Company would continue to operate, should the acquisition be
consummated. Assuming completion of this acquisition, Old America would only
open one additional store in fiscal 1996.
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 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: June 5, 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>
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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>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-22-1996
<CASH> 839,494
<SECURITIES> 0
<RECEIVABLES> 1,808,215
<ALLOWANCES> 0
<INVENTORY> 52,992,734
<CURRENT-ASSETS> 57,144,014
<PP&E> 23,162,617
<DEPRECIATION> 6,542,412
<TOTAL-ASSETS> 87,914,676
<CURRENT-LIABILITIES> 17,009,660
<BONDS> 18,916,317
0
0
<COMMON> 45,185
<OTHER-SE> 51,943,514
<TOTAL-LIABILITY-AND-EQUITY> 87,914,676
<SALES> 27,138,869
<TOTAL-REVENUES> 27,138,869
<CGS> 10,376,709
<TOTAL-COSTS> 9,838,173
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 337,962
<INCOME-PRETAX> 200,574
<INCOME-TAX> 82,000
<INCOME-CONTINUING> 118,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 118,574
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
