<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 May 2, 1998
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 May 2, 1998
--------------------- --------------------------
Common Stock:
Series A 19,260,000 shares
Series B Option 10,200,000 shares
Page 1 of 18
Exhibit index appears on page 16
<PAGE> 2
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of
May 2, 1998 and January 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended
May 2, 1998 and May 3, 1997 4
Consolidated Statements of Cash Flows -
Three Months Ended
May 2, 1998 and May 3, 1997 5
Notes to Consolidated Financial Statements 6 - 7
Item 2 - Management's Discussion and Analysis of 8 - 12
Financial Condition and Results of
Operations
PART II - OTHER INFORMATION
Items 1-4 - None 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
</TABLE>
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<PAGE> 3
Part 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS May 2, 1998 Jan 31, 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 407,391 $ 453,830
Accounts receivable, less allowance for doubtful
accounts of $776,483 and $708,900 1,039,055 1,172,613
Merchandise inventories 24,056,014 21,361,381
Prepaid expenses and other current assets 1,871,653 1,500,062
----------- ------------
Total current assets 27,374,113 24,487,886
PROPERTY, BUILDINGS AND EQUIPMENT, net 12,774,065 12,698,277
OTHER ASSETS 74,328 74,124
----------- ------------
$40,222,506 $37,260,287
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings 10,661,300 2,946,658
Accounts payable 7,571,595 9,478,564
Accrued expenses 4,971,262 5,556,870
Taxes accrued and withheld 2,525,997 2,607,020
Notes Payable 1,756,390 2,100,201
Current maturities of capital lease obligations 1,162,046 1,273,386
----------- ------------
Total current liabilities 28,648,590 23,962,699
CAPITAL LEASE OBLIGATIONS, net of current portion 7,772,721 7,985,563
OTHER LONG-TERM LIABILITIES 435,460 450,011
STOCKHOLDERS' EQUITY:
Common stock
Series A common stock: $.01 par value; 19,800,000
shares authorized; 19,260,000 shares issued 192,600 192,600
Series B common stock: $.01 par value; 10,200,000
shares authorized, issued and outstanding 102,000 102,000
Paid-in capital 4,562,886 4,562,886
Retained earnings (deficit) (1,266,031) 230,248
Less: Treasury stock, at cost, 2,565,000 shares (225,720) (225,720)
----------- ------------
Total stockholders' equity 3,365,735 4,862,014
----------- ------------
$40,222,506 $37,260,287
=========== ============
</TABLE>
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<PAGE> 4
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
May 2, 1998 May 3, 1997
------------- -------------
<S> <C> <C>
NET SALES $ 36,940,829 $ 36,602,742
COST OF SALES 23,923,983 23,954,362
------------- -------------
Gross Profit 13,016,846 12,648,380
LICENSE FEE INCOME 527,000 -
OPERATING AND
ADMINISTRATIVE EXPENSES $(14,467,383) $(15,690,704)
------------- -------------
Loss from operations (923,537) (3,042,324)
INTEREST EXPENSE (572,742) (744,952)
------------- -------------
LOSS BEFORE PROVISION
FOR INCOME TAX (1,496,279) (3,787,276)
PROVISION FOR INCOME TAXES - -
------------- -------------
NET LOSS (1,496,279) (3,787,276)
============= =============
BASIC AND DILUTED LOSS PER COMMON SHARE $(0.06) $(0.14)
============= =============
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 26,895,000 26,895,000
============= =============
</TABLE>
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<PAGE> 5
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
May 2, 1998 May 3, 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,496,279) $ (3,787,276)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 496,000 725,288
Net changes in assets and liabilities:
Accounts receivable 133,558 (246,792)
Merchandise inventory (2,694,633) (2,209,270)
Prepaid expenses and other current assets (371,591) 81,076
Other assets (227,062) -
Accounts payable (1,906,969) (32,099)
Other accrued expenses (585,608) (676,590)
------------ ------------
Net cash used in operating activities (6,652,584) (6,145,663)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (437,505) (180,766)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit borrowing 7,714,642 6,935,073
Payments on obligations under capitalized leases (324,181) (318,504)
Principal payment to prepetition unsecured creditors (200,000) -
Payments on other notes payable (146,811) (202,213)
-
------------ ------------
Net cash provided by financing activities 7,043,650 6,414,356
------------ ------------
NET INCREASE (DECREASE) IN CASH (46,439) 87,927
CASH, Beginning of period 453,830 388,267
CASH, End of period $407,391 $476,194
============ ============
</TABLE>
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<PAGE> 6
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
Annual Report on Form 10-K of the Company for the fiscal year ended January
31, 1998.
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 31 1/2 Price Stores as of May 2, 1998 and 32
on May 3, 1997. The 1/2 Price Store concept is to offer top quality, name
brand merchandise priced at up to one-half of department and specialty
store regular prices every day.
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 (and working
capital and stockholders' equity) would have been higher at May 2, 1998 and
Jan 31, 1998, by approximately $6,348,851 and $6,298,851, 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 cost complements
and the estimated impact of annual inflation.
4. INCOME TAXES
As of January 31, 1998 (the Company's most recent tax year-end), the
Company had net operating loss carryforwards of approximately $28,000,000,
which expire through 2012. 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 in fiscal 1998
and 1997 because of uncertainty of the realization of such benefits in the
future.
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<PAGE> 7
5. SERIES B OPTION
At such time as the Company fulfills its minimum obligation to the
unsecured creditors under the Plan, the Company and the former preferred
shareholder's designee have the first and second option, respectively, to
purchase all or a portion of the 10,200,000 shares of Series B Option
Common Stock at a price equal to the appraised fair value of the stock
determined as of the first business day following the date on which the
final payment to the unsecured creditors is escrowed.
6. EARNINGS PER SHARE
Financial Accounting Standards Board (FASB) Statement No. 128, Earnings Per
Share, requires dual presentation of Basic and Diluted earnings per share
for all periods for which an income statement is presented. Basic earnings
per share are based on the weighted average outstanding common shares during
the period. Diluted earnings per share are based on the weighted average
outstanding common shares and the effects of all dilutive potential common
shares, such as stock options. All prior periods earnings per share have
been restated in accordance with SFAS No. 128.
7. ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, which will be effective in 1998. SFAS
No 131 establishes standards for the way public enterprises report
information about operating segments. The Company currently complies with
most provisions of this statement and any incremental disclosure required
by that statement is expected to be minimal.
In June, 1997, the FASB also issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this standard in the first quarter
of fiscal 1998 had no impact on the Company's financial statements.
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<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's key performance indicators for the first quarter of 1998 in terms
of sales, profitability and liquidity are as follows:
<TABLE>
<CAPTION>
COMPARABLE STORE SALES
- ----------------------
<S> <C>
February, 1998 +13.4%
March, 1998 +5.7%
April, 1998 +23.1%
First Quarter - FY 98 +13.4%
</TABLE>
The Company generated a comparable store sales increase for the first quarter
of 13.4%. This performance is the result of strengthening the portfolio of
name brands, accelerating inventory turnover, improving the in-store
presentation, strengthening the merchandising staff and refocusing the
marketing effort.
<TABLE>
<CAPTION>
PROFITABILITY
- -------------
Key Performance Indicators First Quarter
(dollars in thousands)
1998 1997 Change
---- ---- ------
<S> <C> <C> <C>
Gross margin percentage 35.2% 34.6% 0.6%
Operating and interest expenses, % of Sales 40.7% 44.9% -4.2%
Operating and interest expenses $15,040 $16,436 -8.5%
Operating loss $ (924) $(3,042) $2,118
Net loss $(1,496) $(3,787) $2,291
</TABLE>
Gross margins improved again in the first quarter of 1998, as they did
throughout 1997. This improvement was primarily attributable to achieving a
better initial markup on merchandise purchases. Operating and interest
expenses declined by almost $1.4 million as compared to a year ago, a result of
major cost reductions initiated in 1997.
The Company's net loss for the quarter was reduced to $1,496,000, an
improvement of approximately $2,300,000 over the same period in the prior year.
Achieving sustained profitability is one of the key benchmarks in measuring
our progress toward a full turnaround. On a trailing 12 month basis, the
Company generated net income of almost $1.3 million, a turnaround of nearly
$7.5 million compared to the previous trailing 12 month period.
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<PAGE> 9
<TABLE>
<CAPTION>
LIQUIDITY
- ---------
Key Performance Indicators First Quarter
(dollars in thousands)
1998 1997 % Change
---- ---- --------
<S> <C> <C> <C>
Average unused availability on line of credit $ 10,746 $ 8,600 25.0%
Unused availability at quarter-end 9,411 8,237 14.3%
Average borrowings on line of credit 7,665 10,755 -28.7%
Borrowings on line of credit at quarter-end 10,661 14,216 -25.0%
Cash Flow from Operations (6,653) (6,146) -8.3%
Average investment in inventory, at retail 47,362 56,435 -16.1%
</TABLE>
Borrowings are down significantly and availability is higher in 1998 versus
1997. This improvement is attributable to lower inventory, improved trade
credit and improved profitability. Throughout 1997, unused availability
averaged over $9 million and maintained a minimum level of $5 million. The
Company maintains a line of credit with Congress Financial Corporation
(Central). The line provides for maximum borrowings of $27.5 million, subject
to inventory levels, carries interest at 1% over prime and extends through
October, 1999. The agreement contains no covenants relative to income, cash
flow, net worth, working capital or related financial measures, nor does it
contain an annual clean down provision.
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<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth the components of the Consolidated Statements of
Operations as a percent of sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 64.8% 65.4%
------- -------
Gross Profit 35.2% 34.6%
License Fee Income 1.4% -
Operating and
Administrative Expenses -39.2% -42.9%
------- -------
Loss from operations -2.6% -8.3%
Interest Expense -1.6% -2.0%
------- -------
Loss before provision
For income tax -4.2% -10.4%
Provision for income tax - -
------- -------
Net Loss -4.2% -10.4%
------- -------
</TABLE>
Net Sales for the first quarter of fiscal 1998 increased by $ 338,087 or 0.9%
compared to net sales for the first quarter of fiscal 1997. The comparable
store sales for the first quarter increased by 13.4%. Comparable store sales
exclude sales associated with the shoe business, which was leased out during
the fourth quarter of fiscal 1997. All seven of the Company's merchandise
divisions recorded sales increases during the first quarter. The Company has
recorded comparable store sales increases in 8 of the past 9 months.
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<PAGE> 11
Gross Profit increased by approximately $368,400 or 2.9% for the first fiscal
quarter of 1998 compared to fiscal 1997. Comparable gross margin dollars
(excluding shoes and store openings from both periods) increased by $1,777,582
or 15.8%. The gross margin percentage was 35.2% in the first quarter of 1998
versus 34.6% in 1997.
Operating and Administrative Expenses decreased by $1,223,321 or 7.8% for the
first quarter of fiscal 1998 compared to fiscal 1997. As a percent of net
sales, operating and administrative expenses were 39.2% and 42.9% respectively
for the first quarters of 1998 and 1997. The decease in operating and
administrative expenses is the result of a continued reduction in corporate
office costs, distribution center costs and store payroll.
Interest Expense (Net) decreased by $172,211 for the first quarter of fiscal
1998 compared to fiscal 1997. The decrease in interest expense for the quarter
was a result of decreases in borrowings on the Company's revolving line of
credit.
Net Loss for the first quarter of fiscal 1998 was $1,496,278 compared to
$3,737,276 during the first quarter of fiscal 1997, an improvement of
$2,240,997 or 60.0%.
Liquidity and Capital Resources
The company's liquidity as defined by line of credit borrowings and excess
availability on the line has strengthened versus last year. Availability
as of May 2, 1998 was $9,411,000 compared to $8,200,000 last year, an increase
of 15%. Borrowings on the line of credit as of May 2, 1998 were $10,661,300
compared to $14,216,805 at the same time last year, a decrease of 25.0%.
Several factors have contributed to the Company's improved liquidity. Average
inventories were 16.1% less than last year during the first quarter. Inventory
turnover and gross margin return on inventory have risen steadily over the past
two years. Trade credit has improved significantly over the past year,
resulting in fewer prepayments for merchandise and thereby lowering borrowings.
Finally, expenses have been managed aggressively.
The Company's primary ongoing cash requirements are for operating expenses and
inventory. The Company's primary sources for 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
financing for merchandise inventories. The Company believes its cash flow
sources will be adequate to fund ongoing cash requirements.
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<PAGE> 12
SEASONALITY AND INFLATION
The company's business is seasonal, with the back-to-school season (primarily
August) historically contributing approximately 10% 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 to 5 years.
FORWARD-LOOKING STATEMENTS
In this section of the Report on Form 10-Q, the Company and persons acting on
its behalf have made certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "1995 Act"). These
forward-looking statements are identified as including terms such as "may" ,
"will", "should", "anticipates", "expects", "plans", "intends", or similar
language. Such statements are made in good faith by the Company and such
persons pursuant to the safe-harbor provisions of the 1995 Act. In connection
with these safe-harbor provisions, the Company has identified in its Annual
Reports to Shareholders for the fiscal year ended January 31, 1998 (the "Annual
Report"), important factors which could cause actual results to differ
materially from those contained in any forward-looking statements made by or on
behalf of the Company. The Company further cautions that the factors
identified in the Annual Report are not exhaustive or exclusive. The Company
does not undertake to update any forward-looking statements which may be made
by or on behalf of the Company.
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<PAGE> 13
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 (the
"Option") exercisable by the Company or the Trustee of the R.G. Stock
Trust. 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 (as of the first business day
following the final payment date), 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. There is no Excess Cash Balance nor will there be
any Excess Cash Payments made under the Plan.
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<PAGE> 14
PART II - OTHER INFORMATION (CONTINUED)
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
There are no items to report.
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<PAGE> 15
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: June 15, 1998 By: /s/ Jeffrey J. Gordman
------------- ----------------------
Jeffrey J. Gordman, President and
Chief Executive Officer
Date: June 15, 1998 By: /s/ Michael A. Mallaro
------------- ----------------------
Michael A. Mallaro, Vice President of
Finance, Chief Financial Officer,
Secretary and Treasurer
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<PAGE> 16
EXHIBIT INDEX
Exhibit Description Page
- ------- ----------- ----
(27) Financial Data Schedule 17
16 of 18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 407,391
<SECURITIES> 0
<RECEIVABLES> 1,815,538
<ALLOWANCES> 776,483
<INVENTORY> 24,056,015
<CURRENT-ASSETS> 28,545,629
<PP&E> 47,938,025
<DEPRECIATION> 35,163,960
<TOTAL-ASSETS> 41,394,021
<CURRENT-LIABILITIES> 28,648,591
<BONDS> 7,772,721
0
0
<COMMON> 294,600
<OTHER-SE> 192,808
<TOTAL-LIABILITY-AND-EQUITY> 41,394,021
<SALES> 36,940,829
<TOTAL-REVENUES> 36,940,829
<CGS> 23,923,983
<TOTAL-COSTS> 23,923,983
<OTHER-EXPENSES> 13,940,383
<LOSS-PROVISION> 29,693
<INTEREST-EXPENSE> 572,741
<INCOME-PRETAX> (1,496,279)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,496,279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,496,279)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
