<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended August 3, 1996
Commission File Number 000-24328
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0771211
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
12100 WEST CENTER ROAD, OMAHA, NEBRASKA 68144
(Address of principal executive offices) (zip code)
(402) 691-4000
(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 ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING 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 a court. YES __X___ NO ______
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class of Common Stock Outstanding at August 3, 1996
--------------------- -----------------------------
Common Stock:
Series A 16,695,000 shares
Series B Option 10,200,000 shares
Page 1 of 30
Exhibit Index Appears At Page 17
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
INDEX TO QUARTERLY REPORT OF CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of
August 3, 1996 and February 3, 1996 3
Consolidated Statements of Operations -
Three Months Ended August 3, 1996
and July 29, 1995
Six Months Ended August 3, 1996
and July 29, 1995 4
Consolidated Statements of Cash Flows -
Six Months Ended August 3, 1996
and July 29, 1995 5 - 6
Notes to Consolidated Financial Statements 7 - 8
Item 2 - Management's Discussion and Analysis 9 - 13
PART II - OTHER INFORMATION
Items 1-4 - None 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
Exhibit Index 17
</TABLE>
Page 2 of 30
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 3, 1996 February 3, 1996
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 424,787 $ 488,012
Accounts receivable, less allowance for doubtful
accounts of $349,422 and $365,037. 1,394,154 928,792
Merchandise inventories 36,732,787 30,786,359
Prepaid expenses and other current assets 2,200,517 2,145,237
------------ ------------
Total current assets 40,752,245 34,348,400
PROPERTY, BUILDINGS AND EQUIPMENT, net 15,703,037 16,681,855
OTHER ASSETS 405,096 978,691
------------ ------------
$ 56,860,378 $ 52,008,946
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings $ 20,075,492 $ 7,690,923
Accounts payable 6,943,027 7,953,024
Accrued expenses 6,104,178 5,118,000
Taxes accrued and withheld 2,378,818 2,252,451
Income taxes payable 206,104 206,104
Current portion of long-term debt 2,728,822 2,779,207
Current maturites of capital lease obligations 1,226,991 1,229,819
------------ ------------
Total current liabilities 39,663,432 27,229,528
LONG-TERM DEBT, net of current portion 3,799,143 4,201,143
CAPITAL LEASE OBLIGATIONS, net of current portion 9,979,519 10,594,328
OTHER LONG-TERM LIABILITIES 591,433 585,765
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock
Series A common stock, $.01 par value; 19,800,000
shares authorized; 19,260,000 shares issued 192,600 176,400
Series B option common stock, $.01 par value; 10,200,000
shares authorized, issued and outstanding 102,000 102,000
Paid-in capital 4,562,886 4,436,526
Retained earnings (1,804,915) 4,683,256
Less: Treasury Stock, at cost, 2,565,000 shares (225,720) -
------------ ------------
Total stockholders' equity 2,826,851 9,398,182
------------ ------------
$ 56,860,378 $ 52,008,946
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 3 of 30
<PAGE> 4
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
<S> <C> <C> <C> <C>
NET SALES $45,771,162 $47,723,159 $87,466,035 $86,081,889
COST OF SALES 29,955,946 31,254,467 57,282,723 56,428,705
----------- ----------- ----------- -----------
Gross Profit 15,815,216 16,468,692 30,183,312 29,653,184
OPERATING AND
ADMINISTRATIVE EXPENSES 18,032,119 16,897,916 35,086,263 32,000,779
----------- ----------- ----------- -----------
Loss from opera (2,216,903) (429,224) (4,902,951) (2,347,595)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (966,118) (1,031,725) (1,787,171) (2,008,186)
Interest income 83,436 - 201,951 20,040
----------- ----------- ----------- -----------
Income (Loss) on life insurance benefits - - - -
(882,682) (1,031,725) (1,585,220) (1,988,146)
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR
INCOME TAX (3,099,585) (1,460,949) (6,488,171) (4,335,741)
PROVISION FOR INCOME TAXES - - - -
----------- ----------- ----------- -----------
NET LOSS $(3,099,585) $(1,460,949) $(6,488,171) $(4,335,741)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $(0.11) $(0.05) $(0.22) $(0.14)
=========== =========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING 28,290,000 30,000,000 29,145,000 30,000,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 4 of 30
<PAGE> 5
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
August 3, 1996 July 29, 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $87,013,424 $85,635,250
Merchandise purchases (64,467,763) (64,089,820)
Cash paid for operating and administrative expenses (31,645,811) (32,723,496)
Interest paid on capital leases (711,061) (785,932)
Interest paid on other debt obligations (657,627) (548,994)
------------- -------------
Net cash used by operating activities
before reorganization items (10,468,838) (12,512,992)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment (512,899) (1,487,438)
Decrease in cash surrender value life
insurance policies - 5,546
------------- -------------
Net cash used in investing activities (512,899) (1,481,892)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving credit line 12,384,569 10,907,752
Payments on obligations under capitalized leases (617,636) (590,192)
Payments to prepetition secured creditors (402,000) (402,000)
Purchase of Treasury Stock (225,720) 0
Payments made under plan of reorganization 220,701 (2,223,351)
------------- -------------
Net cash provided by financing activities 10,918,512 7,692,209
------------- -------------
NET DECREASE IN CASH (63,225) (6,302,675)
CASH, Beginning of period 488,012 6,607,476
------------- -------------
CASH, End of period $ 424,787 $ 304,801
============= =============
</TABLE>
Page 5 of 30
<PAGE> 6
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
August 3, 1996 July 29, 1995
-------------- -------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED BY OPERATING ACTIVITIES:
Net loss ($6,488,171) ($4,335,741)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 1,583,051 1,553,961
Net changes in assets and liabilities:
Accounts receivable (465,362) (627,765)
Merchandise inventory (5,946,428) (5,076,035)
Prepaid expenses (55,280) (3,010,820)
Accounts Payable (1,009,997) (1,130,498)
Other assets 482,263 (251,029)
Other accrued expenses 1,431,086 364,935
------------- ------------
Net cash used by operating activities ($10,468,838) ($12,512,992)
============= ============
</TABLE>
Page 6 of 30
<PAGE> 7
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. MANAGEMENT REPRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. In the opinion of management, all
adjustments necessary for a fair presentation of the results of
operations for the interim periods have been included. All such
adjustments are of a normal recurring nature. Because of the seasonal
nature of the business, results for interim periods are not
necessarily indicative of a full year's operations. The accounting
policies followed by Richman Gordman 1/2 Price Stores, Inc. and
subsidiary (the "Company") and additional footnotes are reflected in
the audited consolidated financial statements contained in the Form
10-K Annual Report of the Company for the fiscal year ended February
3, 1996.
2. DESCRIPTION OF BUSINESS
On October 20, 1993, the Company emerged from Chapter 11 of the United
States Bankruptcy Code pursuant to a confirmed Plan of Reorganization
(the "Plan"). The Company operated 32 1/2 Price Stores as of August
3, 1996 and 29 1/2 Price Stores as of July 29, 1995. The 1/2 Price
concept is to offer first quality, nationally branded merchandise at
half of the conventional department store prices or at half of
manufacturers' suggested retail prices.
3. MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (on a last-in,
first-out, or LIFO basis) or market. Total inventories would have
been higher at August 3, 1996 and February 3, 1996 by approximately
$9,017,977 and $8,615,977, respectively, had the FIFO (first-in,
first-out) method been used to determine the cost of all inventories.
Quarterly LIFO inventory determinations reflect assumptions regarding
fiscal year-end inventory levels and the estimated impact of annual
inflation.
4. INCOME TAXES
As of February 3, 1996 (the Company's most recent tax year-end), the
Company had net operating loss carryforwards of approximately
$15,053,000, which expire through 2010. A valuation allowance has
been provided against this net operating loss benefit until
realization of these benefits becomes more likely than not. No income
tax benefit was recorded for the first and second quarters of fiscal
1996 and 1995 because of the uncertainty of the realization of such
benefits in the future resulting from recent losses.
Page 7 of 30
<PAGE> 8
5. STOCKHOLDERS EQUITY
Should the Company fulfill its minimum obligation to the unsecured
creditors under the Plan, the Company and the former preferred
shareholder's designee have the option to purchase all or a portion of
the 10,200,000 shares of Series B Option Common Stock issued to the
unsecured creditors at a price equal to the fair value of the stock on
February 2, 1998, less the amount of any Excess Cash Balance paid to
the unsecured creditors during the term of the Plan. As of August 3,
1996 there is no excess cash paid to the unsecured creditors. During
fiscal 1995, previous excess cash payments totaling $3,277,224 were
used to fulfill the Company's minimum obligation to the unsecured
creditors.
6. EARNINGS PER SHARE
Earnings per common share were calculated using weighted average
common shares outstanding for all periods presented. For purposes of
the weighted average shares outstanding, all shares to be issued to
certain members of management or to the unsecured creditors during the
term of the Plan are considered outstanding.
7. EXECUTIVE SEVERANCE PAYMENTS
On May 15, 1996, the Company's chief executive officer resigned. In
connection with this resignation, the executive received severance
related payments totaling approximately $373,000, which were expensed
in the second quarter of fiscal 1996. The severance benefits included
the vesting of 1,080,000 shares of the Company's Series A Common Stock
which were to be issued in 1997 and 1998 if certain cash flow goals
were achieved. In addition, approximately $806,000 of prepaid
compensation to the executive paid during fiscal 1995 will not have to
be repaid to the Company and was also expensed in the second quarter
of fiscal 1996.
8. TREASURY STOCK TRANSACTION
In connection with the resignation of the Company's chief executive
officer, the Company purchased the 2,565,000 shares of executive's
stock at a fair market value of $225,720.
Page 8 of 30
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth an analysis of various components of the
Consolidated Statements of Operations as a percentage of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
August 3, 1996 July 29, 1995 August 3, 1996 July 29, 1995
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 65.4 65.5 65.5 65.6
---- ---- ---- ----
Gross Profit 34.6 34.5 34.5 34.4
Operating and
Administrative Expenses 39.4 35.4 40.1 37.2
---- ---- ---- ----
Loss From Operations (4.8) (0.9) (5.6) (2.8)
Interest Expense - Net (2.0) (2.2) (1.8) (2.3)
---- ---- ----- -----
Loss Before Provision For Taxes (6.8) (3.1) (7.4) (5.1)
Provision For Income Taxes - - - -
- - - -
Net Loss (6.8)% (3.1)% (7.4)% (5.1)%
==== ==== ==== ====
</TABLE>
Net Sales for the second quarter of fiscal 1996 decreased approximately
$1,952,000, or 4.1%, compared to net sales for the second quarter of fiscal
1995 due primarily to sales decreases in comparable stores during the period.
Comparable store sales in the second quarter of fiscal 1996 were approximately
$37,994,000 compared to approximately $43,923,000 in the second quarter of
fiscal 1995, a decrease of $5,929,000, or 13.5%.
Page 9 of 30
<PAGE> 10
Net sales for the first six months of fiscal 1996 increased by approximately
$1,384,000, or 1.6%, over sales for the first six months of fiscal 1995. All
of this increase was a result of five new stores opened during fiscal 1996 and
fiscal 1995 which generated approximately $14,861,000 in sales during the first
six months of fiscal 1996, an increase of approximately $11,057,000 over the
same period last year. Comparable store sales during the first six months of
fiscal 1996 were approximately $72,605,000 compared to approximately
$82,278,000 during the first six months of fiscal 1995, a decrease of
approximately $9,673,000, or 11.8%.
The decrease in comparable store sales, for both the quarter and six month
periods, was primarily due to the continuing weaknesses in apparel-related
categories such as Mens, Shoes, Childrens and Misses which all experienced
significant sales decreases during the periods. In addition, the Home
division, which had been experiencing sales increases, had a sales decrease
during the second quarter and first half of fiscal 1996 compared to the same
periods in the prior year.
Management is implementing certain strategic initiatives in response to the
negative comparable store sales trend. The initiatives involve intensifying
the Company's overall offering of department store and specialty store branded
merchandise. This brand intensification effort started in the second quarter
of fiscal 1996. In conjunction with this brand intensification focus, a new
market positioning and advertising strategy has been developed to specifically
address the need to increase market share. The new advertising strategy, which
will be implemented in August of fiscal 1996, shifts advertising dollars from a
100% preprint (8-12 page color folio newspaper insert) effort to a more
diversified format including TV, radio and ROP (ads printed on newspaper page).
The marketing initiative seeks to position the Company as the alternative to
department stores. This is conveyed to the consumer in virtually all its
advertising vehicles through the use of the slogan "Department Store Brands At
1/2 Price Every Day". Management believes that these merchandising, marketing
and advertising strategies will result in the development of a wider customer
base, thus increasing sales.
Gross Profit decreased by approximately $653,000, or 4.0%, for the second
quarter of fiscal 1996 compared to the second quarter of fiscal 1995. The
gross margin dollar decrease was a result of the decline in sales previously
cited. As a percentage of net sales, gross margins were 0.1% higher in the
second quarter of fiscal 1996 compared to the second quarter of fiscal 1995.
Gross profit dollars increased approximately $530,000, or 1.8%, for the first
six months of fiscal 1996 over the first six months of fiscal 1995. As a
percentage of sales, gross profits increased 0.1% in the first six months of
fiscal 1996 compared to the first six months of fiscal 1995.
Page 10 of 30
<PAGE> 11
Operating and Administrative Expenses increased approximately $1,134,000, or
6.7%, for the second quarter of fiscal 1996 compared to the second quarter of
fiscal 1995. As a percentage of net sales, operating and administrative
expenses increased by 4.0%. The increase in expense of approximately
$1,134,000 was the net result of a $927,000 increase in store operating
expenses attributable to non-comparable stores, severance costs of
approximately $1,179,000 related to the Company's former President, $184,000 of
expense savings in the Company's distribution center, and $788,000 of expense
savings from various corporate departments.
Operating and administrative expenses increased approximately $3,085,000, or
9.6%, for the first six months of fiscal 1996 over the first six months of
fiscal 1995. As a percentage of sales, operating and administrative expenses
increased 2.9% in the first six months of fiscal 1996 compared to the first six
months of fiscal 1995. The increase in expense of $3,085,000 was due to
increased store operating expenses for the non-comparable stores opened since
July 29, 1995, and the severance related payments to the Company's former
president.
Interest Expense (Net) decreased by approximately $149,000 for the second
quarter of fiscal 1996 compared to the second quarter of fiscal 1995 and was
approximately $403,000 less for the first six months of fiscal 1996 compared to
the first six months of fiscal 1995. The decrease in interest expense for both
periods was the net result of increases in interest expense on the Company's
revolving line of credit, decreased interest expense on the pre-petition debt
to the Company's unsecured creditors due to principal payments, and increased
interest income generated by the prepayment for merchandise inventory.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary ongoing cash requirements are for operating expenses,
inventory and the minimum payments to the Company's creditors (pursuant to the
Plan). The Company's primary sources of funds for its business activities are
cash from operations and borrowings under its revolving credit facility with
Congress Financial Corporation (Central). In addition, short term trade credit
(normally for 30-day periods) represents a significant source of interim
financing for merchandise inventories. Trade creditors representing
approximately two thirds of all merchandise purchases are extending normal
credit terms. During the first six months of fiscal 1996 approximately one
third of the Company's purchases, primarily from those vendors that factor
their invoices, had to be prepaid because the factor would not extend normal
credit terms to the Company. Management believes the percentage of prepayments
will not increase over the next few months.
Page 11 of 30
<PAGE> 12
The Company has a financing agreement with a financial institution which
provides for revolving credit borrowings and letters of credit of up to $27.5
million (subject to a borrowing base limitation). The rate of interest on
borrowings is prime plus 1.5% payable monthly in arrears. A non-use fee of .5%
per annum is payable monthly in arrears on the unused portion of the facility.
Subsequent to August 3, 1996 the financing agreement was amended to extend the
maturity date to October, 1999 and increase the advance rate on inventory
balances, which has the effect of increasing available borrowings by
approximately $3,000,000. The agreement contains certain restrictions and a
covenant limiting annual cumulative capital expenditures. At the end of the
first six months of fiscal 1996, the Company was in compliance with all such
restrictions and the covenant.
As of August 3, 1996, the Company had approximately $20,075,000 outstanding
under the credit facility, as compared with approximately $7,691,000 at
February 3, 1996. Amounts available under the credit facility at August 3,
1996 totaled approximately $785,000.
During the first six months of fiscal 1996 and 1995, capital expenditures were
approximately $513,000 and $1,487,000, respectively. The following table sets
forth the major categories of capital expenditures for both periods.
<TABLE>
<CAPTION>
TOTAL CAPITAL EXPENDITURES
(IN THOUSANDS)
--------------
FIRST SIX MONTHS
----------------
1996 1995
----------- ------------
<S> <C> <C>
New Stores $ 457 $ 1,289
Distribution Center 21 79
Computer Operations 35 47
All Other 0 72
- --
TOTAL $ 513 $ 1,487
========== ===========
</TABLE>
The Company plans to spend approximately $1.0 million for capital expenditures
in fiscal year 1996, an amount within the Company's cumulative capital
expenditure covenant under the Company's financing agreement. Of this amount,
$0.5 million has been allocated for one new store (opened during March, 1996)
with the balance relating to existing stores, the Distribution Center and the
computer operations. The Company's policy is to negotiate leases wherein the
landlord makes the leasehold improvements. Accordingly, the Company's capital
expenditures to open a store are composed primarily of fixturing at a cost of
approximately $350,000. In addition, new stores typically require an inventory
investment of approximately $1,400,000 which is largely financed by accounts
payable.
Page 12 of 30
<PAGE> 13
The Company had long-term debt and obligations under capital leases of
approximately $13,779,000 at August 3, 1996 and $14,795,000 at February 3,
1996. The Company's ability to satisfy scheduled principal and interest
payments under such obligations is dependent on its cash flow and existing
credit facility.
The Company recognizes that it has a high level of indebtedness, primarily in
the form of line of credit borrowings, creditor debt and capital lease
obligations. Its projections take this fact into account, and the Company
believes that future cash flows, coupled with borrowings on its line of credit,
will be sufficient to cover this level of indebtedness. Management is closely
monitoring liquidity in light of the decrease in comparable store sales and
higher outstanding borrowings on its line of credit. Sales, inventory
purchases, expenses and other items impacting liquidity are being closely
managed to assure that adequate liquidity for operations is maintained. In
addition, management has negotiated an expanded credit facility with its lender
which increases available credit by approximately $3,000,000. Management
believes that with its present operating plan and continued focus on liquidity,
cash flow from operations and the expanded credit facility will be sufficient
to fund capital expenditures, working capital requirements (including
prepayments to vendors not extending terms), creditor and long-term debt
payments.
Management does not believe that its agreement to keep its property free of
certain liens and not to make certain prohibited investments will adversely
affect its liquidity or capital resources.
SEASONALITY AND INFLATION
The company's business is seasonal, with the back-to-school season (July and
August) historically contributing approximately 17% of annual sales and the
Christmas season (November and December) accounting for approximately 28% of
annual sales. Sales and income are also affected by the timing of new store
openings. Although the Company's operations are influenced by general economic
conditions and inflationary pressures, the Company does not believe that
inflation has had a material effect on operations during the past 3 - 5 years.
Page 13 of 30
<PAGE> 14
PART II - OTHER INFORMATION
Items 1 - 4.
There are no items to report.
Item 5. - Other Information
The Series B Option Common Stock is subject to an option to purchase
exercisable by the Company or the Trustee of the R.G. Stock Trust in
1998 (the "Option"). The Option is noted upon the face of the Series
B Option Common Stock certificates. If the Option is exercised, the
holder or holders of shares must sell them for a price equal to the
fair value of the shares, as determined by an independent appraisal on
February 2, 1998, less any payments of Excess Cash Balance (as defined
in the Plan) that have been made to creditors entitled to payment
under the Plan ("Creditors"). Holders of the Series B Option Common
Stock will not have any rights of appraisal similar to dissenters'
rights if they dispute the market value as determined by the
independent appraisal. Payments of Excess Cash Balance would result
in shareholders having to sell their shares for less than fair market
value. Holders of Series B Option Common Stock should note that the
Excess Cash Balance paid to the Creditors, if any, shall be credited
against, and shall reduce the exercise price for, the option whether
or not the holder of any shares of Series B Option Common Stock with
respect to which the option is exercised received such Excess Cash
Balance.
Although with respect to the Company's Fiscal Years ended January 29,
1994, and January 28, 1995, the Company made Excess Cash Balance
payments of $1,444,613 and $1,832,611, respectively, to Creditors, the
Company's cash position during Fiscal Year 1995 was such that all of
the prior Excess Cash Balance payments were utilized to make a portion
of the $5.5 million minimum payment to creditors required for the
Fiscal Year ended February 3, 1996. Therefore, if the Option were
exercised at this date, the Excess Cash Balance payments would result
in no reduction from fair market value in the Option exercise price.
Additional payments of Excess Cash Balance may be created in the next
two Fiscal Years which may reduce the Option exercise price. For any
given Fiscal Year, the Excess Cash Balance is the excess of the
Company's actual year-end cash balance over the Cumulative Plan Cash
Balance for that year. The cumulative total of the Excess Cash
Balance will be reported in the Company's annual and quarterly
financial reports.
Page 14 of 30
<PAGE> 15
PART II - OTHER INFORMATION (CONTINUED)
Item 6 - Exhibits and Reports on Form 8-K.
<TABLE>
<S> <C>
(a) Exhibits
(10)(i)(e) Amendment No. 4 to Credit Agreement between Richman Gordman 1/2
Price Stores, Inc. and Congress Financial Corporation, dated May 6,
1996
(10)(i)(f) Amendment No. 5 to Credit Agreement between Richman Gordman 1/2
Price Stores, Inc. and Congress Financial Corporation, dated
September 12, 1996
(10)(ii)(c) Letter Agreement between Richman Gordman 1/2 Price Stores, Inc. and
Dennis E. Reaves, dated May 15, 1996 modifying Employment
Agreement.
(27) Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
On May 17, 1996, the Registrant filed a Report on Form 8-K,
dated May 15, 1996, with respect to Item 5 thereof. In the
Form 8-K, the Registrant disclosed the resignation of Dennis
E. Reaves, former Director, President and Chief Executive
Officer of the Registrant.
Page 15 of 30
<PAGE> 16
PART II - OTHER INFORMATION
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.
RICHMAN GORDMAN 1/2 PRICE
STORES, INC.
Date:September 16, 1996 By: /s/ Jeffrey J. Gordman
------------------ ---------------------------------
Jeffrey J. Gordman, President and
Chief Executive Officer
Date:September 16, 1996 By: /s/ Roger R. Faust
------------------ ---------------------------------
Roger R. Faust, Senior Vice
President
Chief Financial Officer, Secretary
and Treasurer
Page 16 of 30
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Page
- ------- ----------- ----
<S> <C> <C>
(10)(i)(e) Amendment No. 4 to Credit Agreement between 18 - 20
Richman Gordman 1/2 Price Stores, Inc. and
Congress Financial Corporation, dated May 6, 1996
(10)(i)(f) Amendment No. 5 to Credit Agreement between 21 - 24
Richman Gordman 1/2 Price Stores, Inc. and
Congress Financial Corporation, dated September 12, 1996
(10)(ii)(c) Letter Agreement between Richman Gordman 25 - 28
1/2 Price Stores, Inc. and Dennis E. Reaves,
dated May 15, 1996 modifying Employment
Agreement.
(27) Financial Data Schedule 29 - 30
</TABLE>
Page 17 of 30
<PAGE> 1
EXHIBIT (10)(i)(e)
Amendment No. 4 to Credit Agreement between Richman Gordman
1/2 Price Stores, Inc. And Congress Financial Corporation,
dated May 6, 1996
18 of 30
<PAGE> 2
AMENDMENT NO. 4 TO
INVENTORY FINANCING AGREEMENT AND
ACCOUNTS SECURITY AGREEMENT
May 6, 1996
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Ladies and Gentlemen:
Reference is made to the Inventory Financing Agreement and Accounts
Security Agreement dated as of October 20, 1993, as amended and supplemented
("Loan Agreement") between Congress Financial Corporation (Central)
("Congress") and Richman Gordman 1/2 Price Stores, Inc. ("Borrower"). Terms
used herein and not otherwise defined herein shall have the meaning ascribed to
such terms in the Loan Agreement.
Borrower has requested that Congress agree to amend the Loan Agreement to
(i) increase the amount of the Maximum Credit and (ii) modify the inventory
advance rate, and Congress is willing to do so subject to the terms and
conditions set forth herein.
Accordingly, the Loan Agreement is hereby amended in the following
respects:
1. Section 1.7 of the Loan Agreement is hereby deleted in its entirety
and replaced with the following:
1.7 "Maximum Credit" shall mean the amount of $27,500,000, subject to
reduction by Borrower pursuant to Section 9.2 hereof.
2. The first sentence of Section 2.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
In the absence of an Event of Default and in the absence of an event which
with the passage of time or the giving of notice or both would mature into
an Event of Default and subject to the terms and conditions of this
Agreement as amended by any supplements and riders hereto, you shall make
loans to us from time to time, at our request, of up to
19 of 30
<PAGE> 3
the lesser of (A) thirty-three percent (33%) of the retail
value of Eligible Inventory and (B) fifty-nine percent (59%) of
the cost of Eligible Inventory.
The amendments to the Loan Agreement described herein shall be
effective upon delivery by Borrower to Congress of a counterpart of this
Amendment No. 4 to the Loan Agreement which has been acknowledged and agreed to
by Borrower, along with a restructuring fee of $37,500.
Except as expressly set forth herein, the Loan Agreement shall remain
unmodified and in full force and effect.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By /S/ William H. Bloom
---------------------------------
Its Senior Vice President
---------------------------------
Acknowledged and Agreed to
as of the 6th day of May, 1996.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Roger R. Faust
-----------------------------
Its Senior Vice President
-----------------------------
-2-
20 of 30
<PAGE> 1
EXHIBIT (10)(i)(f)
Amendment No. 5 to Credit Agreement between Richman Gordman
1/2 Price Stores, Inc. And Congress Financial Corporation,
dated September 12, 1996
21 of 30
<PAGE> 2
AMENDMENT NO. 5 TO
INVENTORY FINANCING AGREEMENT
ACCOUNTS SECURITY AGREEMENT
September 12, 1996
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Ladies and Gentlemen:
Reference is made to the Inventory Financing Agreement and Accounts
Security Agreement dated as of October 20, 1993, as previously amended and
supplemented (the "Loan Agreement") between Congress Financial Corporation
(Central)("Congress") and Richman Gordman 1/2 Price Stores, Inc, ("Borrower").
Terms used herein and not otherwise defined herein shall the meaning ascribed
to such terms in the Loan Agreement.
Borrower has requested that Congress agree to amend the Loan Agreement
to (i) extend the maturity of the Loan Agreement and (ii) modify the inventory
advance rate, and Congress is willing to do so subject the terms and conditions
set forth herein.
Accordingly, the Loan Agreement is hereby amended in the following
respects:
1. The first sentence of Section 2.1 of the: Loan Agreement is hereby deleted
in its entirety and replaced with the following:
In the absence of an Event of Default and in the absence of an
event which with the passage of time or the giving of notice or
both would mature into an Event of Default and subject to the
terms and conditions of this Agreement as amended by any
supplements and riders hereto, you shall make loans to us from
time to time, at our request, of up to thirty-six percent (36%)
of the retail value of Eligible Inventory (reduced to twenty
percent (20%) of the retail value of all "clearance items"
constituting Eligible Inventory in an amount not to exceed Six
Million Dollars ($6,000,000) which have been on our Premises
for a period of less than eighteen (18) months); provided that
at no time shall the outstanding loans made pursuant to the
provisions of this section exceed eighty percent (80%) of the
"Net Retail Return" (or the average "Net Retail Return" if
expressed as a range), as determined by the most recently
prepared Inventory Liquidation Sale Analysis of Schottenstein
22 of 30
<PAGE> 3
Richman Gordman 1/2 Price Stores, Inc.
September 12, 1996
Page 2
Capital Group, LLC (the "Net Retail Return"). In the event that at any time the
loans made pursuant to this section exceed the Net Retail Return, as so
determined, Borrower shall be obligated to immediately repay the loans by an
amount necessary to eliminate such excess.
2. The first sentence of Section 9.1 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following:
This Agreement shall become effective upon acceptance by you
and shall continue in full force and effect for a term ending
six (6) years from the date hereof (the "Renewal Date") and
from year to year thereafter unless sooner terminated pursuant
the terms hereof; provided that, on October 20, 1996 we shall
pay to you a fee of $75,000 which fee shall be fully earned as
of September 11, 1995 and on each of October 20, 1997 and
October 20, 1998 we shall pay to you a fee of $75,000 each of
which fee shall be fully earned as of September , 1996, and on
each renewal, including the renewal on the sixth anniversary of
the date hereof, we shall pay to you a renewal fee of
three-tenths percent (.3%) of the Maximum Credit on the date
such renewal becomes effective.
3. Section 9.2 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
If you terminate this Agreement on the occurrence of an Event
of Default or at our request (an "Early Termination") or we
elect to reduce the Maximum Credit (a "Reduction") subject
to the limitations set forth below, in view of the
impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a
reasonable calculation of your lost profits as a remit thereof,
we hereby agree that we shall pay to you, upon the effective
date of such Early Termination or Reduction, a fee equal to
one-half percent (.5%) of any Reduction and one-half percent
(.5%) of the Maximum Credit upon Early Termination; provided
that (i) the Maximum Credit may not be reduced below
$15,000,000 except in the event of an Early Termination and
(ii) each Reduction must be in the amount of $2,500,000 or an
integral multiple thereof.
23 of 30
<PAGE> 4
Richman Gordman 1/2 Price Stores, Inc.
September 12, 1996
Page 3
4. The reference to "$7,500,000" on Line 7, Section 6(v) of Rider 1 to
the Loan Agreement is hereby deleted and replaced with "$5,000,000".
The amendments to the Loan Agreement described herein shall be effective
upon the delivery by Borrower to Congress of a counterpart of this Amendment
No. 5 which has been acknowledged and agreed to by Borrower, along with (i) a
restructuring fee of $10,000, (ii) resolutions of the board of directors of
Borrower pertaining to the subject matter hereof, in form and substance
satisfactory to Congress, and (iii) an opinion of counsel to Borrower,
regarding the subject matter hereof, in form and substance satisfactory to
Congress.
Except as expressly set forth herein, the Loan Agreement shall remain
unmodified and in full force and effect.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By /s/ George Kalesnik, Jr.
---------------------------
Its Senior Vice President
--------------------------
ACKNOWLEDGED AND AGREED TO as of the
12th day of September, 1996.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By /s/ Jeff Gordman
-----------------------------------
Its CEO
----------------------------------
24 of 30
<PAGE> 1
EXHIBIT (10)(ii)(c)
Letter Agreement between Richman Gordman 1/2 Price Stores, Inc.
and Dennis E. Reaves, dated May 15, 1996 modifying
Employment Agreement
25 of 30
<PAGE> 2
Mr. Dennis Reaves
11106 William Plaza
Omaha, Nebraska 68144
May 15, 1996
Paul M. Bass, Jr, Chairman
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Dear Paul:
As you know, Richman Gordman 1/2 Price Stores, Inc. (the "Company") and
I, Dennis Reaves ("Executive"), are parties to an Employment Agreement dated as
of October 1, 1995, as amended by the First Amendment dated January 17, 1996
(the "Agreement"). Executive hereby resigns as a member of the Board of
Directors, President and Chief Executive Officer of the Company effective as of
this date.
As you know, the Agreement contains a number of provisions relative to
Executive's rights and benefits following the end of employment with the
Company. This letter will confirm our mutual agreement to modify certain of
these rights and benefits as specified in this letter. Except as modified, the
Agreement shall remain in effect, including without limitation provisions of
Section 10. Capitalized terms used but not defined below have the meanings
assigned in the Agreement.
The Company and Executive agree as follows:
1. Executive shall retain the cash bonus paid under Section 3(b) of
the Agreement with no refund to the Company.
2. Executive shall be paid Base Salary and benefits under Section 4
through today, including any accrued but unused vacation or sick
leave, in accordance with the Company's normal policies.
3. Executive shall be paid a lump sum payment of the present value of
unpaid Base Salary through February 1, 1997, discounted to present
value to today's date using a factor of six percent (6%).
26 of 30
<PAGE> 3
Paul M. Bass, Jr.
May 15, 1996
Page 2
4. Executive's existing used benefits under Section 4 will continue to be
paid by the Company as due through February 1, 1997. Nevertheless, in
accordance with the Company's February 1, 1997. Nevertheless, in
accordance with the Company's standard policies, Executive will convert
and assume the cost of long-term disability and life insurance after
today's date. The Company will match Executive's deferred 401(k)
contributions up to the limit available to Executive, from the lump sum
salary payment provided in Paragraph 3 above.
5. Executive shall retain the Stock Bonus award of 405,000 shares of the
Company's Class A Common Stock ("Stock") awarded to Executive by the
Board today, and shall be paid the corresponding Tax Bonus authorized
by the Board today.
6. In addition, the Company shall issue to Executive, effective as of the
closing referenced in Paragraph 8 below, the balance of the Stock Bonus
due under Section 3(c)(3) of the Agreement, a total of 1,080,000 shares
of Stock. No Tax Bonus shall be applicable to the Stock Bonus provided
by this Paragraph 5.
7. Executive hereby offers to sell to the Company, and the Company agrees
to purchase, all shares of Stock owned by Executive (including shares
issued as of this date), a total of 2,565,000 shares, for a price of
$.088 per share, for an aggregate purchase price of $225,720.
8. A closing shall take place no later than May 31, 1996, at which the
following shall occur:
a. Executive shall be paid all cash amounts payable under this letter,
net of applicable federal and state deductions;
b. The Company shall issue to Executive all shares required to be
issued hereunder and Executive shall endorse and assign to the
Company Executive's 2,565,000 shares of Stock; and
c. The Company and Executive shall execute and deliver mutual
releases, releasing each other as to any and all obligations or
liabilities arising under the Agreement or otherwise as between the
parties.
27 of 30
<PAGE> 4
Paul M. Bass, Jr.
May 15, 1996
Page 3
9. Executive will work with the new Acting President to assure a smooth
transition and requests the right to use his office and appropriate
secretarial staff during an interim period to be mutually agreed.
I have been privileged to be a member of the Richman Gordman 1/2 Price
organization for many years and extend my best wishes to the Company's Board,
officers and associates.
Very truly yours,
/s/ Dennis E. Reaves
Dennis E. Reaves
RESIGNATION ACCEPTED AND
TERMS AGREED TO:
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
/s/ Paul M. Bass, Jr.
- ---------------------------
Paul M. Bass, Jr., Chairman
28 of 30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 424,787
<SECURITIES> 0
<RECEIVABLES> 1,743,576
<ALLOWANCES> 349,422
<INVENTORY> 36,732,787
<CURRENT-ASSETS> 40,752,245
<PP&E> 48,266,076
<DEPRECIATION> 32,563,039
<TOTAL-ASSETS> 56,860,378
<CURRENT-LIABILITIES> 39,663,432
<BONDS> 13,778,662
0
0
<COMMON> 294,600
<OTHER-SE> 2,532,251
<TOTAL-LIABILITY-AND-EQUITY> 56,860,378
<SALES> 87,466,035
<TOTAL-REVENUES> 87,466,035
<CGS> 57,282,723
<TOTAL-COSTS> 57,282,723
<OTHER-EXPENSES> 35,086,263
<LOSS-PROVISION> 28,300
<INTEREST-EXPENSE> 1,585,220
<INCOME-PRETAX> (6,488,171)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,488,171)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,488,171)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
