<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 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 Period Ended June 30, 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 0-22356
FRIEDMAN'S INC.
--------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 58-2058362
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identificaiton No.)
4 West State Street
Savannah, Georgia 31401 31401
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(912) 233-9333
--------------------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 periods 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
----- -----
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceeding Five Years
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by the court.
Yes No
----- -----
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
The number of shares of Registrant's Class A Common Stock $.01
par value per share, outstanding at August 8, 1996 was 12,513,962.
The number of shares of Registrant's Class B common stock of $.01
par value pe share, outstanding at August 8, 1996 was 1,773,582.
<PAGE> 2
Index
FRIEDMAN'S INC.
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Income Statements - Three and nine months ended June 30, 1996 and 1995
Balance Sheets - June 30, 1996 and 1995 and September 30, 1995
Statements of Cash Flows - Nine months ended June 30, 1996 and 1995
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
</TABLE>
<PAGE> 3
FRIEDMAN'S INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
------------------ -------------------
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net merchandise sales . . . . . . . . . . . . $38,788 $28,560 $137,331 $ 96,117
Finance charges and other . . . . . . . . . . 5,858 4,022 17,220 11,257
------- ------- -------- --------
Total revenues . . . . . . . . . . . 44,646 32,582 154,551 107,374
Operating Costs and Expenses:
Cost of goods sold including occupancy,
distribution and buying. . . . . . . . . . 19,657 14,713 68,881 47,955
Selling, general and administrative. . . . . . 14,591 10,509 44,308 31,355
Long term incentive program. . . . . . . . . . 2,100 - 2,100 -
Provision for doubtful accounts. . . . . . . . 4,050 2,716 12,555 7,413
------- ------- -------- --------
40,398 27,938 127,844 86,723
------- ------- -------- --------
Operating income before depreciation
and amortization . . . . . . . . . . . . . . . 4,248 4,644 26,707 20,651
Depreciation and amortization . . . . . . . . . . . 846 647 2,358 1,832
------- ------- -------- --------
Income from operations. . . . . . . . . . . . . . . 3,402 3,997 24,349 18,819
Interest expense . . . . . . . . . . . . . . . . . 656 933 2,352 3,351
------- ------- -------- --------
Income before income taxes and
extraordinary item . . . . . . . . . . . . . . 2,746 3,064 21,997 15,468
Income tax expense . . . . . . . . . . . . . . . . 1,070 1,164 8,578 5,878
------- ------- -------- --------
Net income before extraordinary item . . . . . . . 1,676 1,900 13,419 9,590
Extraordinary item (net of applicable
income taxes of $1,085). . . . . . . . . . . . 1,696 - 1,696 -
------- ------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . $ (20) $ 1,900 $ 11,723 $ 9,590
======= ======= ======== ========
Per share of common stock:
Income before extraordinary
item net of taxes. . . . . . . . . . . . . . . $ 0.13 $ 0.17 $ 1.07 $ 0.94
Extraordinary item net of taxes . . . . . . . . . . $ (0.13) - $ (0.13) -
------- ------- -------- --------
Earnings per share. . . . . . . . . . . . . . . . . $ (0.00) $ 0.17 $ 0.94 $ 0.94
======= ======= ======== ========
Weighted average shares . . . . . . . . . . . . . . 13,027 11,324 12,524 10,184
Number of stores open . . . . . . . . . . . . . . . 277 193 277 193
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 4
FRIEDMAN'S INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
June 30 September 3
------------------- -----------
1996 1995 1995
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 16,478 $ 8,339 $ 8,278
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 64,964 42,991 45,020
Inventories, at cost . . . . . . . . . . . . . . . . . . . . . . . 63,554 43,292 45,175
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 3,585 1,430 3,712
-------- -------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . . 148,581 96,052 102,185
Equipment and improvements, net . . . . . . . . . . . . . . . . . . . . 21,025 14,871 16,904
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,528 3,482 2,649
-------- -------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $171,134 $114,405 $121,738
======== ======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,687 $ 11,432 $ 15,137
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 9,723 5,881 9,269
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . 1,734 812 -
-------- -------- --------
Total current liabilities . . . . . . . . . . . . . . . . . . 26,144 18,125 24,406
-------- -------- --------
Subordinated notes payable to related parties . . . . . . . . . . . . . - 22,369 22,369
Stockholders' Equity:
Preferred stock, par value $.01, 10,000,000 shares authorized
and none issued . . . . . . . . . . . . . . . . . . . . . . . - - -
Class A common stock, par value $.01, 25,000,000 shares
authorized, 12,513,362 issued and outstanding . . . . . . . . 125 64 71
Class B common stock, par value $.01, 7,000,000 shares
authorized, 1,773,582 issued and outstanding. . . . . . . . . 18 56 50
Additional paid-in-capital . . . . . . . . . . . . . . . . . . . . 116,840 58,346 58,560
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . 28,007 15,445 16,282
-------- -------- --------
Total stockholders' equity . . . . . . . . . . . . . . . 144,990 73,911 74,963
-------- -------- --------
Total liabilities and equity . . . . . . . . . . . . . . $171,134 $114,405 $121,738
======== ======== ========
</TABLE>
Note: The balance sheet at September 30, 1995 has been derived from the audited
financial statements at that date but does not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed consolidated financial statements
<PAGE> 5
FRIEDMAN'S INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine months ended
June 30
---------------------
1996 1995
-------- --------
<S> <C> <C>
Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,723 $ 9,590
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 2,358 1,832
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . 12,555 7,413
Changes in assets and liabilities:
Increase in accounts receivable. . . . . . . . . . . . . . . . . . (32,499) (21,352)
Increase in inventories. . . . . . . . . . . . . . . . . . . . . . (18,379) (16,085)
Decrease (increase) in other assets. . . . . . . . . . . . . . . . 1,203 (4,083)
Increase in accounts payable and
accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 6 3,939
Increase in income taxes payable . . . . . . . . . . . . . . . . . 1,734 812
-------- --------
Net cash used in operating
activities . . . . . . . . . . . . . . . . . . . . . . . . (21,299) (17,934)
Investing Activities:
Purchases of equipment and improvements . . . . . . . . . . . . . . . . (6,434) (6,874)
Financing Activities:
Net proceeds from public offering . . . . . . . . . . . . . . . . . . . 57,954 44,837
Repayments of bank borrowings and subordinated debt . . . . . . . . . . (22,369) (12,255)
Proceeds from employee stock purchases and options exercised. . . . . . 348 363
-------- --------
Net cash provided by
financing activities . . . . . . . . . . . . . . . . . . . 35,933 32,945
-------- --------
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,200 8,137
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . 8,278 202
-------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . $ 16,478 $ 8,339
======== ========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE> 6
FRIEDMAN'S INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
June 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
and nine month periods ended June 30, 1996 are not necessarily indicative of
the results that may be expected for the year ending September 30, 1996. For
further information, refer to the financial statements and footnotes thereto
included in the Friedman's Inc. financial report on Form 10-K for the year
ended September 30, 1995.
NOTE B - FINANCING ARRANGEMENTS
On June 4, 1996, the Company issued 2.2 million shares of Class A
Common Stock and a selling shareholder sold an additional 200,000 shares for
$28.25 per share. Proceeds to the Company totalled $58.0 million, net of the
underwriters' discount and expenses. With the proceeds of the offering, the
Company repaid $15.0 million of senior subordinated indebtedness and $7.4
million of junior subordinated indebtedness. The prepayment of the senior
subordinated indebtedness resulted in the payment of a Make Whole Amount of
$1.7 million net of taxes. The Company also repaid $10.5 million of bank debt.
NOTE C - LONG TERM INCENTIVE PROGRAM
The Company's long term incentive program consists of loans to certain
executives, the repayment of which will be forgiven upon the attainment of
specific stock price targets. During the quarter ended June 30, 1996, the
second and third price targets were met ($25.00 and $27.50 per share,
respectively), triggering compensation expense of $2.1 million. The final two
targets are $30.00 and $32.50 per share.
<PAGE> 7
Management's Discussion and Analysis
of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Total revenues, consisting of net merchandise sales and finance
charges and other revenues, increased 37.0% to $44.6 million
for the three months ended June 30, 1996, from $32.6 million for the
three months ended June 30, 1995. Net merchandise sales increased
$10.2 million, or 35.8% compared to the same period in the prior
year. Of the $10.2 million increase in net merchandise sales, $9.1
million, or 89.3% of the increase, is attributable to 23 new stores
and $1.1 million, or 10.7% of the increase, results from sales
increases in comparable stores. The increases in total revenues and
net merchandise sales during the quarter ended June 30, 1996 are
attributable to (i) an increase in the number of stores in operation
to 277 stores at June 30, 1996 from 193 stores at June 30, 1995, and
(ii) an increase in comparable store net merchandise sales of
4.0%. For the nine months ended June 30, 1996, total revenues
increased 43.9% to $154.6 million from $107.4 million for the nine
months ended June 30, 1995. Net merchandise sales increased $41.2
million, or 42.9%, for the nine months period, compared to the
same period in the prior year. Of the $41.2 million increase in
net merchandise sales, $36.2 million, or 87.9% of the increase,
is attributable to 84 net new stores and $5.0 million, or
12.1% of the increase, results from sales increases in comparable
stores. Increases in total revenues and net merchandise sales for
the nine month period ended June 30, 1996 compared with the same
period in the prior year are also attributable to (i) an increase
in the number of stores in operation during the period, and (ii)
an increase in comparable store net merchandise sales of 5.3%.
Finance charges and other revenues increased 45.6% and 53.0% for
the three month and nine month periods ended June 30, 1996,
respectively, compared to the same periods in the prior year
principally due to higher sales levels.
Cost of goods sold, including occupancy, distribution and
buying, for the three months ended June 30, 1996 was $19.7 million or
50.7% of net merchandise sales compared with $14.7 million or 51.5% of
net merchandise sales for the same period in the prior year. This
decrease as a percent of net merchandise sales was primarily the
result of more efficient processing of customer returned merchandise
compared to the same period in 1995. For the nine months ended June
30, 1996, cost of goods sold, including occupancy, distribution and
buying, was $68.9 million, or 50.2% of net merchandise sales compared
with $48.0 million, or 49.9% of net merchandise sales for the same
period in 1995. This increase as a percent of net merchandise sales
was the result of more aggressive merchandise pricing and higher
occupancy costs as a percentage of net merchandise sales compared to
the same period in 1995.
Selling, general and administrative expenses increased 38.8%
to $14.6 million for the three months ended June 30, 1996, from $10.5
million for the three months ended June 30, 1995. As a percentage of
total revenues, selling, general, and administrative expenses
increased to 32.7% of total revenues for the three months ended June
30, 1996 from 32.3% of total revenues in the comparable period in
1995. This increase was attributable primarily to increases in
advertising costs as a percentage of total revenues. For the nine
months ended June 30, 1996, selling, general, and administrative
expenses increased 41.3% to $44.3 million, from $31.4 million for the
nine months ended June 30, 1995. Selling, general, and administrative
expenses decreased to 28.7% of total revenues for the nine months
ended June 30, 1996 from 29.2% of total revenues in the comparable
period in 1995. This decrease was attributable primarily to the
Company's ability to leverage its payroll expense across a larger
volume of sales.
The Company's long term incentive program consists of loans to
certain executives, the repayment of which will be forgiven upon the
attainment of specific stock price targets. During the quarter, the
second and third price targets were met ($25.00 and $27.50 per share,
respectively), triggering compensation expense of $2.1 million. The
final two targets are $30.00 and $32.50 per share.
<PAGE> 8
The provision for doubtful accounts increased 49.1% to $4.0
million for the three months ended June 30, 1996 from $2.7 million for
the same period in the prior year. For the nine months ended June 30,
1996, the provision for doubtful accounts increased 69.4% to $12.6
million from $7.4 million during the same period in the prior year.
The increase in the provision for doubtful accounts for the three and
nine months ended June 30, 1996 is attributable to (i) increased
credit revenues and accounts receivable during the periods arising
from increases in the number of stores in operation and in comparable
store net merchandise sales, and (ii) an increase in the rate of
provision for doubtful accounts as a percent of credit sales.
Depreciation and amortization expenses increased 30.8% to
$846,000 for the three months ended June 30, 1996 compared with
$647,000 for the three months ended June 30, 1995. For the nine months
ended June 30, 1996 depreciation and amortization increased 28.7% to
$2.4 million compared with $1.8 million during the same period in the
prior year. These increases are the result of depreciation of
increased capital expenditures related to new and existing stores.
Interest expense for the three months ended June 30, 1996
decreased 29.7% to $656,000 compared with $933,000 in the same period
in the prior year. For the nine months ended June 30, 1996, interest
expense decreased 29.8% to $2.4 million compared with $3.4 million for
the nine months ended June 30, 1995. The decrease for the three and
nine months ended June 30, 1996 versus the prior year is due
principally to the repayment of bank borrowings and subordinated debt
with the proceeds from the June 1996 stock offering.
Early repayment of the Company's 14.25% Senior Subordinated
Debt resulted in the payment of a make whole amount of $2.8 million
which was recorded as an extraordinary item, net of applicable income
taxes.
Net income and earnings per share for the three months ended
June 30, 1996, excluding the long-term incentive program and
extraordinary item, were $3.0 million and $0.23 per share,
respectively, representing increases of 55.6% and 35.3% over the prior
comparable period. Net income and earnings per share for the nine
months ended June 30, 1996, excluding the long-term incentive program
and extraordinary item, were $14.7 million and $1.17 per share,
respectively, representing increases of 53.3% and 24.5% over the
comparable prior year periods. Net income and earnings per share for
the three and nine months ended June 30, 1996 were impacted by the
following items: (i) a $1.7 million, $0.13 per share extraordinary
item, net of income tax, related to the early retirement of the
Company's 14.25% Senior Subordinated Debt, and (ii) a compensation
program pursuant to which compensation charges are contingent upon
attainment of specific stock price targets. After these charges, the
Company reported break-even net income and earnings per share for the
quarter, and net income of $11.7 million, $0.94 per share, for the
nine months ended June 30, 1996 on 12,524,000 weighted average shares
outstanding versus $9.6 million, $0.94 per share, on 10,184,000
weighted average shares outstanding in the comparable prior year
period.
Liquidity and Capital Resources
On June 4, 1996, the Company issued 2.2 million shares of
Class A Common Stock and a selling shareholder sold an additional
200,000 shares for $28.25 per share. Proceeds to the Company totalled
$58.0 million, net of the underwriters' discount and expenses. With
the proceeds of the offering, the Company repaid $15.0 million of
senior subordinated indebtedness, $7.4 million of junior subordinated
indebtedness, and $10.5 million of bank debt.
The Company maintains similar but distinct credit facility
agreements with two banks, which in the aggregate total $55.0 million.
Interest on both lines is payable quarterly at prime less 0.4% or
alternatively, at the bank's CD rate plus 1.95%, or LIBOR plus 1.25%,
per annum.
Both agreements provide for certain financial covenants and
are secured by inventory and accounts receivable. No amounts were
outstanding under the lines at June 30, 1996.
<PAGE> 9
Part II. Other Information
Item 1. Legal Proceedings
As previously reported, on April 17, 1995, Barbara
Frost et al., Class Action Plaintiffs, filed suit
against the Company and certain other defendants,
alleging violations of the Code of Alabama, and
fraud and conspiracy arising from the sale of
"extended service contracts" in connection with
the credit purchase of consumer goods. On
July 16, 1996, the Company was dismissed from
this case.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
months ended June 30, 1996.
<PAGE> 10
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on
August 14, 1996.
FRIEDMAN'S INC.
By: /s/ John G. Call
---------------------------------------
John G. Call
Senior Vice President - Chief Financial
Officer, Secretary and Treasurer
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
3.1 Registrant's Certificate of Incorporation, as amended
(incorporated by reference from Exhibit 4(a) to the
Registrant's Registration Statement on Form S-8 (File
No. 33-78820) dated May 11, 1994).
3.2 Bylaws of the Registrant (incorporated by reference
from Exhibit 3.2 to the Registrant's Registration
Statement on Form S-1 (File No. 33-67662), and
amendments thereto, originally filed on August 19, 1993).
3.3 Certificate of Amendment to the Registrant's Certificate
of Incorporation, dated March 1, 1995 (incorporated by
reference from Exhibit 3.3 to the Registrant's Registration
Statement on Form S-3 (File No. 33-90386) dated March 17,
1995).
4.1 See Exhibits 3.1, 3.2 and 3.3 for provisions of the
Certificate of Incorporation and Bylaws of the Registrant
defining rights of holders of class A and Class B Common
Stock of the Registrant.
4.2 Form of Class A Common Stock certificate of the
Registrant (incorporated by reference from Exhibit 4.2
to the Registrant's Registration Statement on
Form S-1 (File No. 33-67662), and amendments thereto,
originally filed on August 19, 1993).
11 Statement RE: Computation of Per Share Earnings
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30 June 30
------------------ -----------------
1996 1995 1996 1995
------ ------ ------- ------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Average shares outstanding 12,705 11,117 12,273 9,984
Net effect of dilutive stock options 322 207 251 200
------ ------ ------- ------
Totals 13,027 11,324 12,524 10,184
====== ====== ======= ======
Net income before extraordinary item 1,676 1,900 13,419 9,590
Extraordinary item, net of taxes 1,696 - 1,696 -
------ ------ ------- ------
Net income (loss) $ (20) $1,900 $11,723 $9,590
====== ====== ======= ======
Per share amount before extraordinary item $ 0.13 $ 0.17 $ 1.07 $ 0.94
Extraordinary item, net of taxes $(0.13) $ - $ (0.13) $ -
------ ------ ------- ------
Per share amount $(0.00) $ 0.17 $ 0.94 $ 0.94
====== ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 16,478
<SECURITIES> 0
<RECEIVABLES> 64,964
<ALLOWANCES> 0
<INVENTORY> 63,554
<CURRENT-ASSETS> 148,581
<PP&E> 21,025
<DEPRECIATION> 0
<TOTAL-ASSETS> 171,134
<CURRENT-LIABILITIES> 26,144
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 144,847
<TOTAL-LIABILITY-AND-EQUITY> 171,134
<SALES> 137,331
<TOTAL-REVENUES> 154,551
<CGS> 68,881
<TOTAL-COSTS> 127,844
<OTHER-EXPENSES> 4,710
<LOSS-PROVISION> 12,555
<INTEREST-EXPENSE> 2,352
<INCOME-PRETAX> 21,997
<INCOME-TAX> 8,578
<INCOME-CONTINUING> 13,419
<DISCONTINUED> 0
<EXTRAORDINARY> 1,696
<CHANGES> 0
<NET-INCOME> 11,723
<EPS-PRIMARY> .96
<EPS-DILUTED> .94
</TABLE>
