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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 QUARTERLY PERIOD ENDED OCTOBER 31, 1997
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 0-23389
PAPER WAREHOUSE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1612534
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7630 Excelsior Boulevard
Minneapolis, MN 55426
(Address of principal executives offices, including zip code)
(612) 936-1000
(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 NO X
---- ----
Number of shares of Common Stock, $0.01 par value per share outstanding as of
December 29, 1997:
4,557,194
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FORM 10-Q INDEX
PAPER WAREHOUSE, INC.
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Combined/Consolidated Financial Statements (Unaudited) 2
Balance Sheets--October 31, 1997 and January 31, 1997 3
Statements of Earnings--Three months and Nine Months
Ended October 31, 1997 and November 1, 1996 4
Statements of Cash Flows--Nine months ended
October 31, 1997 and November 1, 1996. 5
Notes to Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
PAPER WAREHOUSE, INC.
COMBINED/CONSOLIDATED BALANCE SHEETS
October 31, November 1,
1997 January 31, 1996
(Unaudited) 1997 (Unaudited)
----------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 781,937 357,167 (693,302)
Inventories, Net 13,082,153 9,568,680 10,024,154
Accounts Receivable 272,056 261,424 313,517
Prepaid Expenses & Other
Current Assets 316,008 119,053 684,526
----------- ----------- -----------
Total Current Assets 14,452,154 10,306,324 10,328,896
Property and equipment, net 6,641,929 5,461,219 5,564,226
Other assets, net 499,054 502,639 510,612
Total Assets $21,593,137 16,270,182 16,403,734
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES
CURRENT LIABILITIES
Notes Payable - 5,870,000 3,633,939
Notes Payable - Related Parties 2,136,193 - -
Current Maturities of long-term Debt 22,015 22,015 22,742
Accounts Payable 6,523,124 2,122,285 4,926,873
Current portion capitalized lease 175,689 - -
Accrued Liabilities:
Payroll and related expenses 175,280 268,046 205,322
Accrued Interest 105,189 17,407 42,097
Other 1,078,150 305,433 679,476
----------- ----------- -----------
Total Current Liabilities 10,215,640 8,605,186 9,510,449
Notes Payable 5,000,000 2,136,193 -
Long-term debt less current maturities 3,195,198 3,211,575 3,218,596
Long-term portion of capital lease 402,366 - -
Deferred rent credits & other 640,113 524,694 296,272
----------- ----------- -----------
Total Liabilities 19,453,317 14,477,648 13,025,316
SHAREHOLDERS EQUITY
Serial Preferred Stock,
10,000,000 shares authorized;
none issued or outstanding
Common Stock, $.01 par
value. Authorized 40,000,000
shares; issued and outstanding
2,202,818 shares 22,028 22,028 22,028
Additional Paid In Capital 572,472 572,472 572,472
Retained Earnings 1,545,320 1,198,034 2,783,917
----------- ----------- -----------
Total Stockholders Equity 2,139,820 1,792,534 3,378,417
Total Liabilities & Equity $21,593,137 16,270,182 16,403,734
----------- ----------- -----------
----------- ----------- -----------
See notes to the financial statements.
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PAPER WAREHOUSE, INC.
COMBINED/CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended Three Months Ended
October 31, November 1, October 31, November 1,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ----------- ----------- ------------
Revenue:
Company-owned stores $37,473,747 29,932,778 13,267,942 10,963,118
Franchise related fees 827,540 788,489 285,190 314,611
----------- ---------- ---------- -----------
Total Revenue 38,301,287 30,721,267 13,553,132 11,277,729
Cost and Expenses:
Costs of Goods Sold
and Occupancy Costs 25,013,800 20,504,715 8,745,109 7,558,560
Store Operating Expenses 8,054,837 6,182,284 3,159,360 2,353,545
General Administrative
Expenses 4,014,932 3,196,036 1,388,139 1,123,025
Operating Income 1,217,718 838,232 260,524 242,599
Interest Expense 722,728 579,340 243,707 196,783
----------- ---------- ---------- -----------
Income Before Income Taxes 494,990 258,892 16,817 45,816
Income Taxes 5,038 4,050 - 1,550
----------- ---------- ---------- -----------
Net Earnings $ 489,952 254,842 16,817 44,266
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Pro Forma Net Earnings 303,770 158,002 10,427 27,445
Weighted Average Number of 2,202,818 2,202,818 2,202,818 2,202,818
Shares Outstanding
Pro Forma Net Earnings Per 0.12 0.06 0.00 0.01
Common Share
See notes to the financial statements.
4
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PAPER WAREHOUSE, INC.
COMBINED/CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED
October 31, November 1,
1997 1996
(Unaudited) (Unaudited)
----------- -----------
Cash flows from operating activities:
Net Earnings $ 489,952 254,842
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 836,836 699,487
Gain on sales of property and equipment (1,892) -
Accounts receivable (10,632) 165,648
Prepaid expenses and other current assets (196,956) (552,214)
Inventory (3,513,473) (2,307,396)
Accounts payable 4,400,839 2,316,368
Accrued liabilities 883,151 43,691
----------- -----------
-
Cash flows provided by operations 2,887,825 620,425
Cash flows from investing activities:
Proceeds from sales of property and
equipment 7,807 -
Other assets (37,296) (14,456)
Purchases of property and equipment (1,982,580) (1,039,351)
----------- -----------
Cash flows used in investing activities (2,012,069) (1,053,808)
Cash flows from financing activities:
Principal payments on long-term debt (870,000) (1,130,000)
Payments on installment notes (16,376) (15,359)
Proceeds from capital lease 578,055 -
Distribution of earnings (142,665) -
----------- -----------
Cash flows used in financing activities (450,986) (1,145,359)
Net increase (decrease) in cash 424,770 (1,578,742)
----------- -----------
Cash:
Beginning of period 357,167 885,440
End of period $ 781,937 (693,302)
----------- -----------
----------- -----------
Supplemental disclosures of cash flows:
Cash paid during the period for:
Interest $ 634,946 625,031
Income taxes 5,038 4,050
See notes to financial statements.
5
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NOTES TO FINANCIAL STATEMENTS
PAPER WAREHOUSE, INC.
(1) Basis of Presentation
Paper Warehouse, Inc. (the Company) is a paper and party goods retailer
operating 70 company-owned stores in the states of Minnesota, Missouri, Iowa,
Kansas, Oklahoma, Colorado, and Wisconsin. Paper Warehouse, Inc. also sells
Paper Warehouse franchises through its affiliated company, Paper Warehouse
Franchising, Inc., which became a wholly-owned subsidiary of the Company as
of February 1, 1997. The Company's acquisition of its affiliate was
accounted for as combination of companies under common control. In exchange
for the initial and continuing fees received, the Company provides management
assistance to and gives franchisees the right to use the name "Paper
Warehouse" or "Party Universe."
The financial statements of the Company represent the combined financial
statements of the two affiliates as of and for the fiscal year ended January
31, 1997, and for the three months and nine months ended November 1, 1996 and
on a consolidated basis as of October 31, 1997. The Company's financial
statements have been prepared on the same basis for all periods presented,
whether combined or consolidated. The results of all intercompany
transactions have been eliminated.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the 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 fair presentation have
been included. Interim results may not be indicative of annual results. For
further information, refer to the financial statements and footnotes included
in the Company's report on Form S-1, File No. 333-36911.
(2) Pro Forma Net Income Per Common Share
Pro forma net income per common share is determined by dividing pro forma net
income by the weighted average number of common shares and common share
equivalents outstanding.
The Company will adopt SFAS No. 128, EARNINGS PER SHARE, in the fourth quarter
of the fiscal year ending January 30, 1998. The Company does not expect the
implementation of SFAS No. 128 to have a material impact on earnings per share.
(3) Notes Payable to Bank
The Company has a revolving line of credit agreement with its bank that permits
borrowings up to $7,500,000. Borrowings under the agreement bear interest at
the bank's base rate plus .5% and are secured by all assets of the Company. The
agreement contains restrictive covenants, which among other things, require the
Company to maintain a minimum tangible net worth and minimum current ratios. On
October 1, 1997, the Company amended the agreement to extend the renewal date to
May 31, 1999, and to eliminate the personal guarantee of the Company's majority
stockholder of $1,500,000 of the note.
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(4) Income Taxes --S Corporation Election
Prior to November 28, 1997, the Company was taxed as an S corporation under
the Internal Revenue Code. The Company has agreed to make distributions of
earnings in amounts sufficient to enable stockholders to pay their federal
and state income taxes resulting from pass-through of taxable income as a
result of the S Corporation election.
The Company filed a Form S-1 Registration Statement for an initial public
offering of its common stock on October 1, 1997. Upon completion of such
offering on November 28, 1997, the Company terminated its S Corporation federal
tax status and changed to a C Corporation and, accordingly, will be subject to
federal and certain state income taxes. Prior to such termination, the Company
distributed to its current stockholders all accumulated S Corporation earnings
as of the termination date.
Pro forma net income and pro forma net income per share for the three- month
periods ended October 31, 1997 and November 1, 1996 and the nine-month periods
ended October 31, 1997 and November 1, 1996, have been determined assuming that
the Company had been taxed as a C Corporation for federal and certain state
income tax purposes for such periods.
(5) Related Party Transactions
On January 13, 1997, the Company issued notes payable to the Company's two
primary shareholders for the aggregate amount of $2,136,193. These notes bear
interest at 5.63%, are fully subordinated to all other long-term obligations,
and are due March 5, 1998. These notes were paid in full, with interest, on
November 28, 1997.
(6) Subsequent Event
On December 15, 1997, the Company announced that it had signed a non-binding
Letter of Intent to purchase The Paper Factory from Gibson Greetings, Inc. for
$38.6 million. The Paper Factory, based in Appleton, Wisconsin, currently
operates 190 party goods stores in 40 states under the names of Paper Factory,
Greeting n' More, and Great Party. The proposed transaction is subject to
customary closing conditions, including a due diligence review, execution of a
definitive purchase agreement, financing, third party consents, and regulatory
approvals. If these conditions are satisfied, the transaction is anticipated to
close in late January, 1998. The Company currently plans to finance the
proposed acquisition with debt. There can be no assurance that such financing
will be available on terms acceptable to the Company.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S COMBINED/CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
THERETO WHICH ARE INCLUDED HEREIN. THE COMPANY UTILIZES A 52-53 WEEK FISCAL
YEAR ENDING ON THE FRIDAY NEAREST JANUARY 31 (E.G. FISCAL 1996 ENDED ON
JANUARY 31, 1997).
CERTAIN STATEMENTS CONTAINED IN THIS REPORT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). SEE PART II. OTHER INFORMATION. ITEM 5. -
"STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE."
OVERVIEW
Paper Warehouse is a growing chain of stores specializing in party supplies
and paper goods operating under the names PAPER WAREHOUSE and PARTY UNIVERSE.
The Company completed its initial public offering on November 28, 1997. The
total offering was for 1,778,000 shares of common stock, of which 1,778,000
shares were offered by the Company. Proceeds to the Company, net of offering
expenses, were approximately $11.8 million. On December 24, 1997, the
underwriters partially exercised their over-allotment option and the Company
sold an additional 207,800 shares of common stock. Proceeds to the Company, net
of offering expenses, were approximately $1.4 million. The
7
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proceeds from the sale of common stock were used to retire the Company's
revolving line of credit, prepay Subordinated Debt, and retire indebtedness.
The balance of the proceeds will be used to finance new store openings and
additional growth.
From fiscal 1994 through fiscal 1996, the Company opened 24 new
Company-owned stores and has remodeled 17 existing company-owned stores. As
a result of this expansion and the installation of its POS system, occupancy,
advertising and depreciation expenses have increased as a percentage of
Company-owned store revenue. To finance this expansion and investment in
technology, the Company has increased bank borrowings and issued Subordinated
Indebtedness in addition to using cash generated from operations. As a
result of the increases in expenses outlined above, pro forma net income as a
percentage of total revenues has declined from 3.3% to 1.9% over the period.
Prior to November 28, 1997, the Company elected to be treated for federal
and state income tax purposes as an S corporation under the Internal Revenue
Code of 1986, as amended (the "Code") and comparable state tax laws. As a
result, earnings of the Company have been taxed for federal and state income
taxes as if the Company were subject to federal and state corporate income taxes
for all such periods. This pro forma provision is computed using a combined
federal and state tax income tax rate of 38%.
Total revenue consists of Company-owned store sales and franchise
revenues. Franchise revenues are generated from royalties received on sales,
generally 4% of the store's sales, and initial franchise fees, which are
recognized at the time a store opens. Company-owned stores enter the
comparable store sales base at the beginning of their 13th month of
operations. Stores in which retail square footage is increased more than
50%, or stores which are relocated, are no longer included in the comparable
store sales base until 12 months have passed. Cost of goods sold include the
direct cost of merchandise, plus handling and distribution, coupon costs, and
certain occupancy costs. Store operating expenses include all costs incurred
at the store level, such as advertising, credit card processing fee, and
store payroll. General and administrative expenses include corporate
administrative expense for Company-owned stores and expenses relating to
franchising, primarily payroll, legal, travel and advertising.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 1997, COMPARED TO THREE MONTHS ENDED NOVEMBER 1,
1996
REVENUE. Company-owned store sales increased 21.0% to $13.3 million for the
three months ended October 31, 1997, from $11.0 million for the comparable
period of fiscal 1996. Of this increase, approximately $1.0 million is
attributable to comparable store sales and approximately $1.3 million is
attributable to new and remodeled Company-owned stores. Stores open in the
third quarter of fiscal 1996 had a 10.2% same store sales increase for the third
quarter of fiscal 1997.
Franchise revenue decreased 9.4% to $285,000 for the three months ended October
31, 1997, from $315,000 for the comparable period of fiscal 1996. Initial
franchise fees decreased due to a reduction in franchise store openings in the
three months ended October 31, 1997. The decrease in initial franchise fees was
partially offset by increased royalty payments resulting from higher sales in
the franchise stores.
COST OF GOODS SOLD. Cost of goods sold for the three months ended October 31,
1997 was $8.7 million, or 65.9% of Company-owned stores revenue, as compared to
$7.6 million, or 69.0% of Company-owned
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stores revenues, for the comparable period of fiscal 1996. The decrease as a
percentage of Company-owned store revenues was primarily attributable to a
decrease in the cost of merchandise arising from greater volume discounts and
more favorable pricing from vendors.
STORE OPERATING EXPENSES. Store expenses for the three months ended October 31,
1997 were $3.2 million, or 23.8% of Company-owned store revenue, as compared to
$2.4 million, or 21.5% of Company-owned store revenue, for the comparable period
of fiscal 1996. Tight labor markets and the increase in minimum wage on
September 1, 1997, have increased the average hourly compensation.
Additionally, during this period the Company engaged in more frequent and
extensive advertising.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the three months ended October 31, 1997 were $1.4 million as compared to $1.1
million for the comparable period of fiscal 1996. The increase was primarily
attributable to the increase in senior management and additional lease expense
on new cash registers. By the end of fiscal year 1997 all cash registers will
be year 2000 compliant.
INTEREST EXPENSE. Interest expense increased 23.8% to $244,000, or 1.8% of
total revenue for the three months ended October 31, 1997 from $197,000, or 1.8%
for the comparable period of fiscal 1996. This is the result of increased bank
borrowing necessary to fund the Company's growth. Interest rates have been
stable.
PRO FORMA NET EARNINGS. As a result of the factors discussed above, pro
forma net earnings decreased 62.0% to $10,000, or .1% of total revenue for
the three months ended October 31, 1997, from $27,000, or .2% of total
revenue for the comparable period of fiscal 1996. Pro forma net earnings
includes a provision for federal and state income taxes.
NINE MONTHS ENDED OCTOBER 31, 1997 TO NINE MONTHS ENDED NOVEMBER 1, 1996
REVENUE. The number of Company-owned stores increased to 70 stores at
October 31, 1997, from 64 stores at November 1, 1996. Company-owned store
sales increased 25.4% to $37.5 million for the first nine months of fiscal
1997 from $29.9 million for the comparable period of fiscal 1996. Of this
increase, approximately $2.5 million is attributable to comparable store
sales and approximately $5.1 million is attributable to new and remodeled
Company-owned stores. Comparable store sales increased 9.3% for the nine
months ended October 31, 1997, compared to the prior period.
The number of franchise stores increased to 51 franchise stores at October
31, 1997, from 46 franchise stores at November 1, 1996. Franchise revenue
increased 5.0% to $828,000 for the first nine months of fiscal 1997 from
$788,000 for the comparable period of fiscal 1996. Initial franchise fees
decreased due to a reduction in franchise store openings in the first nine
months of fiscal 1997. The decrease in initial franchise fees was offset by
increased royalty payments resulting from higher sales in the franchise
stores.
COST OF GOODS SOLD. Cost of goods sold for the first nine months of fiscal 1997
was $25.0 million, or 66.8% of Company-owned stores revenue, as compared to
$20.5 million, or 68.7% of Company-owned stores revenues, for the comparable
period of fiscal 1996. The decrease as a percentage of Company-owned store
revenues was primarily attributable to a decrease in the cost of merchandise
arising from greater volume discounts and more favorable pricing from vendors.
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STORE OPERATING EXPENSES. Store expenses for the first nine months of fiscal
1997 were $8.1 million, or 21.5% of Company-owned store revenue, as compared to
$6.2 million, or 20.7% of Company-owned store revenue, for the comparable period
of fiscal 1996. The increase was primarily due to increased advertising and
wages at the store level.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the first nine months of fiscal 1997 were $4.0 million as compared to $3.2
million for the comparable period of fiscal 1996. The increase was primarily
attributable to increase in senior management, corporate employees, and
additional lease expense on new cash registers. By the end of fiscal year
1997 all cash registers will be year 2000 compliant.
INTEREST EXPENSE. Interest expense increased 24.8% to $723,000, or 1.9% of
total revenue for the first nine months of fiscal 1997 from $579,000, or 1.9%
for the comparable period of fiscal 1996. This is the result of increased bank
borrowing necessary to fund the Company's growth. Interest rates have been
stable.
PRO FORMA NET EARNINGS. As a result of the factors discussed above, pro
forma net earnings increased 51.1% to $304,000, or .8% of total revenue for
the first nine months of fiscal 1997, from $158,000, or .5% of total revenue
for the comparable period of fiscal 1996. Pro forma net earnings includes a
provision for federal and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for ongoing operations,
principally inventory, and capital improvements to support the opening of new
Company-owned stores and the remodeling of existing Company-owned stores.
Historically, the Company's primary sources of liquidity have been met by cash
from operations, payment terms from vendors, and borrowing under its revolving
line of credit and the Subordinated Notes.
At October 31, 1997, and November 1, 1996, the Company's working capital was
$4.2 million and $818,000 respectively. Cash provided by operating activities
for the first nine months of fiscal 1997 and fiscal 1996 was $2.9 million and
$620,000 respectively. For these two periods, $3.5 million and $2.3 million,
respectively, was used to increase inventory levels to support new and existing
Company-owned stores.
At October 31, 1996, and November 1, 1996, the Company's accounts payable were
$6.5 million and $4.9 million respectively. The increase in accounts payable
was primarily attributable to increased merchandise inventory. Historically,
the amount of the Company's obsolete inventory has been immaterial.
Net cash used in investing activities for the first nine months of fiscal 1997
and the comparable period of fiscal 1996 was $2.0 million and $1.1 million,
respectively.
Net cash used in financing activities during the first nine months of fiscal
1997 and the comparable period of fiscal 1996 was $451,000 and $1.1 million,
respectively. As of October 31, 1997, and November 1, 1996, the outstanding
balance under the Company's then-existing line of credit was $5.0 million and
$3.6 million, respectively. In November, 1997, the Company paid is revolving
credit facility in full from the proceeds of its initial public offering. The
credit facility expires on May 31, 1999.
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The Company believes that cash generated by operating activities, the net
proceeds from the initial public offering and availability under its credit
facility will be sufficient to finance its current and anticipated operations
and planned capital expenditures at least through fiscal 1998, other than its
proposed acquisition of The Paper Factory. To the extent that the funds
generated from these sources are insufficient to finance the Company's
activities in the short or long term, the Company would need to raise additional
funds through public or private financing. No assurance can be given that
additional financing will be available or that, if available, it will be
available on terms favorable to the Company.
On December 15, 1997, the Company announced that it had signed a non-binding
Letter of Intent to purchase The Paper Factory from Gibson Greetings, Inc. for
$38.6 million. The Paper Factory, based in Appleton, Wisconsin, currently
operates 190 party goods stores in 40 states under the names of Paper Factory,
Greeting n' More, and Great Party. The proposed transaction is subject to
customary closing conditions, including a due diligence review, execution of a
definitive purchase agreement, financing, third party consents, and regulatory
approvals. If these conditions are satisfied, the transaction is anticipated to
close in late January, 1998. The Company currently plans to finance the
proposed acquisition with debt. There can be no assurance that such financing
will be available on terms acceptable to the Company.
PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 25, 1997 the Company commenced an initial public offering (the
"Offering") of 1,778,000 shares of its common stock, par value $.01 per share,
in the United States. The Company's registration statement on Form S-1
(Registration No. 333-36911) with respect to the Offering was declared effective
by the Securities and Exchange Commission on November 20, 1997. All 1,778,000
shares were offered and sold by the Company. As part of the Offering, the
Company and a Shareholder of the Company granted to the underwriters an option
to purchase up to an additional 266,700 shares of common stock to cover
over-allotments, if any. On December 24, 1997, the underwriters partially
exercised their over-allotment option, purchasing an additional 207,800 shares
of common stock from the Company. The offering price of the 1,985,600 shares of
common stock (including the over-allotment) was $7.50 per share. The proceeds
to the Company, after deduction of the underwriting discount and expenses
associated with the Offering, were approximately $13.2 million.
The sole underwriter for the offering was Dain Bosworth Incorporated. As sole
underwriter for the offering, Dain Bosworth received all of the underwriting
commissions and discounts paid by the Company.
ITEM 5: OTHER INFORMATION
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain statements in this Form 10-Q and in future filings by the Company
with the Securities and Exchange Commission, the Company's press releases, and
in oral statements made by or with the approval of an authorized executive
officer constitute "forward-looking statements" within the meaning of the Reform
Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by
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such forward-looking statements. Such factors include, among others, the
following: Risks associated with growth, including risk of opening new stores,
potential need for additional financing, and risk of potential acquisitions;
risk of seasonal and quarterly revenue and operating fluctuations; dependency on
key personnel; risks associated with franchisees; failure to anticipate and/or
respond to merchandising trends; risks associated with a highly competitive
market; implementation of new information systems; dependence on suppliers;
effect of changes in consumer preferences and economic conditions; government
regulation; control by management, possible issuances of preferred stock and
possible anti-takeover effect; dilution and dividend policy; risks associated
with a new public company and the possibility of volatility of stock price. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) LISTING OF EXHIBITS:
EXHIBIT
NUMBER
-------
11 Computation of Net Income per Common Share
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the three months ended October
31, 1997.
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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.
PAPER WAREHOUSE, INC.
Date: January 5, 1998 s/ Yale T. Dolginow
-------------------------------------
Yale T. Dolginow
President and Chief Executive Officer
Date: January 5, 1998 s/ Cheryl W. Newell
-------------------------------------
Cheryl W. Newell
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT 11
COMPUTATION OF PROFORMA NET EARNINGS PER COMMON SHARE
PAPER WAREHOUSE, INC.
(UNAUDITED)
<TABLE>
<CAPTION>
Nine-months ended Three-months Ended
----------------------------- ----------------------------
31-Oct-97 1-Nov-96 31-Oct-97 1-Nov-96
Primary Fully Diluted Primary Fully Diluted
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Proforma Net Earnings $ 303,769 $ 158,002 $ 10,427 $ 27,445
Average Weighted Shares Outstanding 2,202,818 2,202,818 2,202,818 2,202,818
Common Stock Equivalents(a) 324,315 324,315 328,322 328,322
----------- ----------- ----------- -----------
Total common shares and common share
equivalents 2,527,133 2,527,133 2,531,140 2,531,140
----------- ----------- ----------- -----------
Earnings per Share 0.12 0.06 0.00 0.01
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(a) Common share equivalents computed by the "treasury" method.
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED ELSEWHERE IN THIS FORM 10-Q, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1998
<PERIOD-END> OCT-31-1997
<CASH> 782
<SECURITIES> 0
<RECEIVABLES> 272
<ALLOWANCES> 0
<INVENTORY> 13,082
<CURRENT-ASSETS> 14,452
<PP&E> 10,461
<DEPRECIATION> 3,819
<TOTAL-ASSETS> 21,593
<CURRENT-LIABILITIES> 10,216
<BONDS> 8,598
0
0
<COMMON> 22
<OTHER-SE> 2,118
<TOTAL-LIABILITY-AND-EQUITY> 21,593
<SALES> 38,301
<TOTAL-REVENUES> 38,301
<CGS> 25,014
<TOTAL-COSTS> 12,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 723
<INCOME-PRETAX> 495
<INCOME-TAX> 5
<INCOME-CONTINUING> 490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
