SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 3, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-1308
------
STRAWBRIDGE & CLOTHIER
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-1131660
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
801 Market Street
Philadelphia, PA 19107-3199
- ------------------------------------------------------------------------------
(Zip Code)
(215) 629-6460
- ------------------------------------------------------------------------------
(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 .
--- ---
The number of shares of Series A Common Stock, par value $1 per share,
of the registrant outstanding at September 13, 1996 is 10,570,172.
The number of shares of Series B Common Stock, par value $1 per share,
of the registrant outstanding at September 13, 1996 is 66,012.
<PAGE>
Form 10-Q
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
---------------------------------------
INDEX
-----
Page
PART I. FINANCIAL INFORMATION Number
- ------------------------------ ------
Item 1. Financial Statements (unaudited)
Condensed consolidated statement of net assets in
liquidation--August 3, 1996
Condensed consolidated balance sheet--
February 3, 1996
Condensed consolidated statements of operations--
three months and six months ended August 3, 1996 and
July 29, 1995
Condensed consolidated statements of cash flows--six
months ended August 3, 1996 and July 29, 1995
Notes to condensed consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
- ----------
<PAGE>
Form 10-Q
Page 3
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION
(UNAUDITED)
(in thousands)
August 3,
1996
----------
ASSETS
Cash and equivalents $ 10,877
Receivables 2,066
Investment in The May Department Stores Company
common stock 191,100
Income taxes recoverable 28,009
Property, fixtures, and equipment 41,604
Other assets 17,282
--------
290,938
LIABILITIES
Accounts payable 9,210
Accrued expenses and other liabilities 72,103
Debt and capital lease obligations 12,685
Estimated costs during period of liquidation 5,767
--------
99,765
--------
NET ASSETS IN LIQUIDATION $191,173
========
See notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
Page 4
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(GOING CONCERN BASIS)
(in thousands)
February 3,
1996
-----------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 14,253
Accounts receivable, less
allowance ($1,940) 43,118
Merchandise inventories 154,009
Deferred income taxes 3,365
Income taxes recoverable 5,653
Prepaid expenses and other 9,534
--------
TOTAL CURRENT ASSETS 229,932
PROPERTY, FIXTURES AND EQUIPMENT 671,444
Less allowance for depreciation (342,052)
--------
329,392
OTHER ASSETS 16,490
--------
$575,814
========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 63,494
Accrued expenses 30,153
Federal, state and local taxes 3,116
Long-term debt and capital lease
obligations due within one year 13,637
--------
TOTAL CURRENT LIABILITIES 110,400
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS -- due after one year 165,097
ACCRUED RETIREMENT COSTS 48,518
OTHER LIABILITIES 6,740
SERIES PREFERRED STOCK 0
SHAREHOLDERS' EQUITY
Common stock 10,614
Other shareholders' equity 234,445
--------
TOTAL SHAREHOLDERS' EQUITY 245,059
--------
$575,814
========
See notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
Page 5
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
THREE MONTHS SIX MONTHS
ENDED ENDED
--------------------- -----------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
---------- --------- ----------- ----------
Net sales $184,587 $218,551 $ 392,714 $417,176
Other income, net of
other deductions 2,787 539 2,915 1,231
Unrealized gain on investment
in The May Department Stores
Company common stock 12,075 12,075
-------- -------- --------- --------
199,449 219,090 407,704 418,407
Deduct:
Cost of sales, including
occupancy and buying costs 155,093 171,470 316,813 324,630
Selling and administrative
expenses, net of finance
charges 41,808 46,707 84,234 87,854
Depreciation 6,874 7,534 14,798 14,882
Interest 3,701 4,800 7,917 9,005
Provision for doubtful accounts 2,393 2,655 4,865 5,514
Adjustment to liquidation
basis of accounting 57,906 0 57,906 0
-------- -------- --------- --------
267,775 233,166 486,533 441,885
-------- -------- --------- --------
Loss before income taxes (68,326) (14,076) (78,829) (23,478)
Income tax benefit (15,640) (4,997) (19,210) (8,335)
-------- -------- -------- --------
NET LOSS $(52,686) $ (9,079) $(59,619) $(15,143)
======== ======== ======== ========
NET LOSS PER SHARE $(4.96) $(0.86) $(5.61) $(1.45)
======== ======== ======== ========
Cash dividends per share:
Series A Common Stock $0.275 $0.275 $0.55 $0.55
======== ======== ======== ========
Series B Common Stock $0.25 $0.25 $0.50 $0.50
======== ======== ======== ========
Average shares outstanding 10,623 10,498 10,619 10,480
======== ======== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
Page 6
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
SIX MONTHS ENDED
-----------------------
August 3, July 29,
1996 1995
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 23,132 $ 5,670
NET CASH USED IN INVESTING ACTIVITIES
Acquisition of property, fixtures and equipment (5,731) (32,279)
Changes in other assets (403) (135)
-------- --------
TOTAL (6,134) (32,414)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Payment of long-term debt and capital lease
obligations (14,624) (1,578)
Increase in short-term notes payable 0 36,500
Purchase of preferred stock and treasury stock (22) (121)
Proceeds from issuance of common stock 5 627
Cash dividends (5,733) (5,628)
-------- --------
TOTAL (20,374) 29,800
-------- --------
CHANGE IN CASH AND EQUIVALENTS (3,376) 3,056
Cash and equivalents at beginning of period 14,253 1,575
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 10,877 $ 4,631
======== ========
See notes to condensed consolidated financial statements.
<PAGE>
Form 10-Q
Page 7
STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Interim Reporting
- --------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals and those related to adoption of the liquidation basis of accounting
described in Note B) considered necessary for a fair presentation have been
included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on
Form 10-K for the year ended February 3, 1996.
The preparation of financial statements in conformity with generally accepted
accounting principles for interim financial information requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Note B - Liquidation Basis of Accounting
- ----------------------------------------
On July 15, 1996, the Company's shareholders approved a Plan of Reorganization
and Liquidation involving certain transactions with The May Department Stores
Company ("May") and KIMCO Realty Corporation ("KIMCO") and the dissolution of
the Company. The Company will sell, liquidate or otherwise dispose of all
assets not purchased by May or KIMCO and will pay all existing liabilities
that are not assumed by May or KIMCO. As a result, the Company changed its
basis of accounting effective July 15, 1996, to the liquidation basis of
accounting.
As a result of the change in the Company's basis of accounting for its August
3, 1996 financial statements from the going concern basis to the liquidation
basis in accordance with generally accepted accounting principles, assets have
been valued at estimated net realizable value and liabilities have been
reflected at their estimated settlement amounts, including estimated costs to
be incurred during the period of liquidation. The valuations of the assets
and liabilities are based on management estimates and assumptions as of the
date of the financial statements; actual realization of the assets and
settlement of liabilities could be higher or lower than the amounts indicated.
<PAGE>
Form 10-Q
Page 8
Note C - Per Share Data
- -----------------------
Loss per share amounts are based on the weighted average number of shares of
common stock outstanding during the period. Common stock equivalents
(employee stock options) have not been considered as the effect would be
antidilutive.
Note D - Significant Transactions
- ---------------------------------
May Agreement
- -------------
On April 4, 1996, the Company entered into an agreement for the sale of
substantially all of the assets of the Company's Department Store Division in
exchange for May stock and the assumption by May of certain Department Store
Division liabilities. The Company estimates it will receive a total of
4,500,000 shares of May common stock, which is subject to adjustment under the
terms of the agreement. The May shares are being carried at market value
($45.50 per share) in the accompanying Consolidated Statement of Net Assets in
Liquidation. On July 18, 1996, the Company received 3,570,000 shares at
settlement, and an additional 630,000 shares were placed in escrow. The
market value of the remaining 300,000 estimated shares is included in Other
Assets.
<PAGE>
Form 10-Q
Page 9
KIMCO Agreement
- ---------------
On August 28, 1996, the Company closed the sale of 23 of the Company's 26
Clover stores to Kimco Realty Corporation, Kohl's Department Stores, VC
Retailers, Inc., and National Wholesale Liquidators of Philadelphia, Inc. for
$35,500,000. At closing, $11,989,000 of the Company's applicable mortgage
notes, accrued interest, and closing costs were paid, and the Company received
$18,991,000 in cash. An additional $4,520,000 was placed into a claims
administration trust account.
Gordon Brothers Agreements
- --------------------------
On July 10, 1996, the Company entered into agreements with Gordon Brothers
Partners, Inc. ("Gordon Brothers") for the sale of the inventory at all, and
the operation of certain, Clover Stores. In connection with the inventory
sale, the Company received $64.3 million in proceeds. The agreements also
authorize Gordon Brothers to liquidate the Clover fixtures. Proceeds from any
fixture sales will be remitted to the Company after deduction of any
compensation payable to Gordon Brothers.
The Clover locations not sold as part of the KIMCO Agreement referred to above
are being operated by Gordon Brothers. Costs to operate these locations are
being borne by Gordon Brothers through December 31, 1996. If the Company has
not arranged for the sale of the locations, or in the case of the locations
which are leased, the assumption of such leases, by December 31, 1996, Gordon
Brothers will continue to operate such locations and the Company may be
required to purchase any remaining inventory and resume responsibility for
ongoing operating expense. Management is currently negotiating with
third-parties for the sale of these locations or the assumption of the leases,
and Management believes that the costs related to these transactions have been
properly accounted for in the accompanying financial statements.
Note E - Termination of Retiree Health Care Plan
- ------------------------------------------------
In conjunction with the plan of liquidation, the Company terminated its
retiree health care plan effective July 18, 1996. As a result, the Company
recorded a one-time, non-cash gain of $43.6 million in the quarter ended
August 3, 1996. This gain is included in Adjustment to Liquidation Basis in
the accompanying Condensed Consolidated Statement of Operations.
Note F - Income Taxes
- ---------------------
Income taxes recoverable represents amounts expected to be received by the
utilization of available net operating loss carrybacks. The income tax
benefits included in the Condensed Consolidated Statement of Operations
represent the estimated taxes recoverable resulting from the loss incurred
through August 3, 1996.
<PAGE>
Form 10-Q
Page 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
On April 4, 1996, the Company announced that its Board of Directors had
approved agreements for the voluntary dissolution of the Company. See Note B
to the accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS
- ---------------------
Net sales changes in comparison to the comparable periods in the preceding
year were a decrease of 15.5% and 5.9% for the three months and six months
ended August 3, 1996, respectively. Comparable store sales declined 17.6% and
7.0% for the three months and six months August 3, 1996, respectively. Sales
for 1996 were negatively impacted by the closing of the Department Stores on
July 15, 1996 and the Clover Stores on July 10, 1996 in connection with the
May and Kimco transactions. Sales for the prior year were negatively impacted
by a fourteen day public transit strike in the Company's trading area.
<PAGE>
Form 10-Q
Page 11
Costs and expenses as a percentage of sales and the effective tax rates were
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -------------------
8/3/96 7/29/95 8/3/96 7/29/95
------ ------- ------ -------
Cost of sales, including occupancy
and buying costs 84.0 78.5 80.7 77.8
Selling and administrative expenses,
net of finance charges 22.6 21.4 21.4 21.1
Depreciation 3.7 3.4 3.8 3.6
Interest 2.0 2.2 2.0 2.2
Provision for doubtful accounts 1.3 1.2 1.2 1.3
Effective tax rate 22.9 35.5 24.4 35.5
Cost of sales, including occupancy and buying costs, for the three months and
six months ended August 3, 1996, reflect significantly greater markdowns taken
as a result of the May and Kimco transactions. Selling and administrative
expenses net of finance charge income for the three months and six months
ended August 3, 1996, reflect an increase due to new stores opened in fiscal
1995 and a reduction in finance charge income due to the sale of customer
accounts receivable. Last year's results include $3.2 million of costs
incurred in an attempt to acquire six John Wanamaker stores. Depreciation
expense increased due to new stores opened in fiscal 1995. The provision for
doubtful accounts decreased slightly due to revised credit policies instituted
in fiscal 1995. The effective tax rates for the three and six months ended
August 3, 1996 decreased since only benefits available through the utilization
of net operating loss carrybacks were recognized.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Operating activities generated cash flows of $23.1 million of cash for the
six months ended August 3, 1996, compared to $5.7 million in the prior year.
The increase is primarily due to the effects of the sale of Clover
merchandise inventories to Gordon Brothers for $64.3 million as described in
Note D to the financial statements.
Capital expenditures of $5.7 million for the six months ended August 3, 1996
represent amounts paid for projects started in fiscal 1995. Prior year
capital expenditures of $32.3 million included two new Clover stores and a
home furnishings store and other renovation projects. Cash used in financing
activities resulted from payments on long-term debt and capital lease
obligations and payment of cash dividends.
In connection with the Liquidation, the Company entered into a $25 million
revolving credit facility. Advances under the facility are to be used
solely as a liquidity facility to assist in the settlement of liquidation
claims and for working capital purposes. The facility is secured by the
Company's pledge of certain shares of its capital stock of The May
Department Stores Company as well as other property and assets of the
Company. The aggregate liability may not exceed seventy-two percent (72%)
of the shares comprising the collateral.
<PAGE>
Form 10-Q
Page 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On July 15, 1996, the Annual Meeting of Shareholders of Strawbridge & Clothier
was held. The shareholders approved the voluntary dissolution of the Company
in accordance with the following resolution unanimously adopted by the
Company's Board of Directors:
"RESOLVED, that Strawbridge & Clothier be voluntarily dissolved
pursuant to the Plan of Reorganization and Liquidation approved by the
Board of Directors and in accordance with Subchapter H of Chapter 19 of
the Pennsylvania Business Corporation Law of 1988, as amended (the
"PBCL"), and Section 368(a) of the Internal Revenue Code of 1986, as
amended; provided, however, the Board of Directors may determine to
proceed under Section 1975 of the PBCL rather than Subchapter H prior
to the time when articles of dissolution are filed in the Pennsylvania
Department of State, notwithstanding the adoption by the shareholders
of this resolution."
The shareholders also elected the four individuals nominated to the Board of
Directors, each for three year terms and approved the designation of Ernst &
Young LLP as independent auditors. The number of votes cast for and withheld
from the election of each nominee is set forth below. There were no votes
against, abstentions or broker non-votes in the election of directors.
Election of Directors: For Withheld
- ---------------------- --- --------
Issac H. Clothier 31,210,583 2,621,037
Paul E. Shipley 31,210,570 2,621,050
Peter S. Strawbridge 30,555,380 3,276,240
Warren W. White 31,280,263 2,623,357
The number of votes cast for and against, the number of abstentions and the
number of broker non-votes in the approval of the voluntary dissolution of the
Company is as follows: For, 29,764,965; Against, 3,053,345; Abstain, 39,157;
Broker non-votes, 974,153.
The number of votes cast for and against, and the number of abstentions in the
approval of the designation of Ernst & Young LLP is as follows: For,
33,676,357; Against, 18,946; Abstain, 136,317. There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 27 - Financial Data Schedule
<PAGE>
Form 10-Q
Page 13
(b) Reports on Form 8-K
-------------------
None.
SIGNATURE
---------
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.
STRAWBRIDGE & CLOTHIER
-------------------------------------------
Registrant
Date: September 23, 1996
------------------
/s/ Thomas S. Rittenhouse
-------------------------------------------
Thomas S. Rittenhouse
Vice President-Operations,
Administration and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
STRAWBRIDGE & CLOTHIER
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted from
Strawbridge & Clothier's condensed consolidated statement of net assets in
liquidation at August 3, 1996 and Strawbridge & Clothier's condensed
consolidated statement of operations for the six months ended August 3, 1996,
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> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 10,877
<SECURITIES> 191,100
<RECEIVABLES> 2,066
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,291
<PP&E> 41,604
<DEPRECIATION> 0
<TOTAL-ASSETS> 290,938
<CURRENT-LIABILITIES> 99,765
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 191,173
<TOTAL-LIABILITY-AND-EQUITY> 290,938
<SALES> 392,714
<TOTAL-REVENUES> 407,704
<CGS> 316,813
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 105,897
<LOSS-PROVISION> 57,906
<INTEREST-EXPENSE> 7,917
<INCOME-PRETAX> (78,829)
<INCOME-TAX> 19,210
<INCOME-CONTINUING> (59,619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,619)
<EPS-PRIMARY> (5.61)
<EPS-DILUTED> (5.61)
</TABLE>
