FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1998
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 1-7288
THE BOMBAY COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1475223
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Bailey Avenue, Fort Worth, Texas 76107
(Address of principal executive offices) (Zip Code)
(817) 347-8200
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Number of shares outstanding at October 31,
1998
Common stock, $1 par value 37,299,501
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended October 31, 1998
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Page No.
Financial Statements............................................. 3-6
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 7-11
PART II -- OTHER INFORMATION
Exhibits and Reports on Form 8-K................................. 12
Signatures....................................................... 13
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months Ended
Ended
October November October November
31, 1, 31, 1,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $75,878 $71,329 $226,232 $207,303
Costs and expenses:
Cost of sales, buying and store
occupancy costs 56,141 50,363 169,101 151,857
Selling, general and administrative
expenses 24,635 24,538 70,351 69,717
Interest (income), net (311) (452) (1,431) (1,833)
Total costs and expenses 80,465 74,449 238,021 219,741
Loss before income taxes (4,587) (3,120) (11,789) (12,438)
Benefit for income taxes (1,812) (1,219) (4,657) (4,917)
Net loss ($2,775) ($1,901) ($7,132) ($7,521)
Basic earnings per share ($0.07) ($0.05) ($0.19) ($0.20)
Diluted earnings per share ($0.07) ($0.05) ($0.19) ($0.20)
Average common shares outstanding and
dilutive potential common shares 37,525 38,078 37,901 38,050
Cash dividends per common share -- -- -- --
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
October 31, January 31, November 1,
1998 1998 1997
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $9,765 $56,110 $27,618
Inventories 96,776 85,861 94,962
Other current assets 16,912 7,142 19,291
Total current assets 123,453 149,113 141,871
Property and equipment, net 45,474 36,753 37,766
Goodwill, less amortization 519 540 547
Other assets 10,518 9,056 8,114
Total assets $179,964 $195,462 $188,298
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses $22,384 $23,019 $29,648
Accrued payroll and bonuses 1,425 4,390 3,225
Gift certificates redeemable 2,754 3,008 2,182
Total current liabilities 26,563 30,417 35,055
Accrued rent and other
liabilities 6,911 6,807 6,652
Stockholders' equity:
Preferred stock, $1 par value,
1,000,000 shares authorized -- -- --
Common stock, $1 par value,
50,000,000 share
authorized, 38,141,437;
38,114,187 and 38,104,118
shares issued,
respectively 38,141 38,114 38,104
Additional paid-in capital 76,021 75,904 75,894
Retained earnings 38,291 45,423 33,452
Cumulative effect of foreign
currency translation (1,608) (1,203) (859)
Common shares in treasury, at
cost, 841,936; 0 and 0 shares,
respectively (4,355) -- --
Total stockholders' equity 146,490 158,238 146,591
Total liabilities and
stockholders' equity $179,964 $195,462 $188,298
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
<TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
October 31, November 1,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss ($7,132) ($7,521)
Adjustments to reconcile net loss
to net cash from operations:
Depreciation and amortization 7,574 7,499
Deferred taxes and other 9 1,085
Management change cost -- 800
Noncash contributions to employee
benefit plans -- 18
Change in assets and liabilities:
Increase in inventories (11,468) (25,560)
Increase in other current assets (8,752) (7,299)
Decrease in current liabilities (4,803) (2,443)
Increase in noncurrent assets (2,350) (577)
Increase in noncurrent liabilities 166 314
Net cash used by operations (26,756) (33,684)
Cash flows from investing activities:
Purchases of property and equipment (15,981) (2,696)
Sales of property and equipment 379 163
Net cash used by investing activities (15,602) (2,533)
Cash flows from financing activities:
Purchase of treasury stock (4,378) --
Sale of stock to employee benefit plans 108 273
Proceeds from the exercise of employee stock
options 35 266
Net cash provided (used) by financing
activities (4,235) 539
Effect of exchange rate change on cash 248 166
Net decrease in cash and cash equivalents (46,345) (35,512)
Cash and cash equivalents at beginning of period 56,110 63,130
Cash and cash equivalents at end of period $9,765 $27,618
<CAPTION>
Supplemental disclosure of cash flow information:
<S> <C> <C>
Income taxes paid $2,032 $1,656
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Accounting Principles
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of October
31, 1998 and November 1, 1997, and the results of operations and cash flows for
the nine months then ended. The results of operations for the nine month and
three month periods ended October 31, 1998 and November 1, 1997 are not
necessarily indicative of the results to be expected for the full fiscal year.
The consolidated financial statements should be read in conjunction with the
financial statement disclosures contained in the Company's 1997 Annual Report
to Shareholders.
(2) Financing Arrangements
The Company has renewed its unsecured revolving credit agreements with banks,
aggregating $45,000,000, of which $30,000,000 is committed. These credit
facilities, which expire April 13, 1999, are for working capital and letter of
credit purposes, primarily to fund seasonal merchandise purchases, and bear
interest at market rates based on prime.
(3) Comprehensive Income
Effective February 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130").
Comprehensive income is defined as the change in equity (net assets) of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. It includes all changes in equity during
a period except those resulting from investments by owners and distributions to
owners. Comprehensive loss for the three months ended October 31, 1998 and
November 1, 1997 was $2,959,000 and $2,045,000, respectively and for the nine
months ended October 31, 1998 and November 1, 1997 was $7,537,000 and
$7,877,000, respectively.
(4) Stock Buy Back Program
On June 17, 1998, the Company announced that its Board of Directors had
approved a stock buy back program with initial authorization to purchase up to
$10 million of the Company's stock. The shares may be purchased from time to
time, through open market purchases and privately negotiated transactions. As
of October 31, 1998, 846,500 shares had been purchased at a cost aggregating
$4,378,000 of which 4,564 had been sold to the Company's employee stock plans.
(5) Vacation Policy Change
During the third quarter of Fiscal 1998, the Company changed its vacation
policy resulting in a one time, pretax credit of $700,000.
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Note Regarding Forward-Looking Statements
Certain statements in this Form 10-Q under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of The Bombay Company, Inc. ("Company") to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: competition; seasonality; success of operating initiatives; new
product development and introduction schedules; acceptance of new product
offerings; advertising and promotional efforts; adverse publicity; expansion of
the store chain; availability, locations and terms of sites for store
development; changes in business strategy or development plans; availability and
terms of capital; labor and employee benefit costs; changes in government
regulations; risks associated with international business; regional weather
conditions; effect of Year 2000 issues; and other factors referenced in the
Company's 1997 Form 10-K Annual Report.
General
The Bombay Company, Inc. is a specialty retailer which markets traditional and
classic furniture, prints and accessories through its 415 Bombay retail stores
in 42 states in the United States and nine Canadian provinces. To accommodate
the increasing number of products, the Company introduced a large format Bombay
store in late Fiscal 1992. The large format stores average 4,000 square feet,
while the regular stores average 1,800 square feet. Presently, the Company's
store opening program calls for large format stores ranging in size from 2,500
to 3,500 square feet. At October 31, 1998, 248 large format Bombay stores were
in operation, including 153 stores that have been converted from regular stores
since Fiscal 1992.
The largest percentage of the Company's sales and operating income is realized
in the fiscal quarter that includes December (Christmas season). Although the
precise effect of inflation on operations cannot be accurately determined,
management does not believe inflation has a material impact on sales or results
of operations.
Results of Operations
Quarters Ended October 31, 1998 and November 1, 1997
Net sales were $75,878,000 for the quarter ended October 31, 1998 compared to
$71,329,000 for the same period last year, an increase of 6.4%. Same store
sales increased 5% for the comparative periods. Sales increases were primarily
attributed to new management's continued efforts to move through old and
discontinued merchandise.
Cost of sales, including buying and store occupancy costs, was $56,141,000 for
the third fiscal quarter compared to $50,363,000 for the same period last year.
As a percentage of sales, cost of sales increased to 74.0% for the quarter
compared to 70.6% for the prior year period. The 340 basis point decline in
margin is due to lower product margin with no change in
buying and occupancy costs relative to sales. The lower product margins are a
result of the Company's promotional activity in purging old and discontinued
merchandise.
Selling, general and administrative expenses were $24,635,000 or 32.5% of sales
for the quarter compared to $24,538,000 or 34.4% of sales for the comparable
prior year period. The current quarter includes a one time, pretax credit of
$700,000 relating to a change in the Company's vacation policy while last year's
third quarter included an $800,000 pretax charge relating to a management
change. Excluding the non recurring items, selling, general and administrative
expenses increased to $25,335,000 or 33.4% of sales from $23,738,000 or 33.3% of
sales. The lower gross margins on product sales adversely impacted the
Company's ability to leverage selling, general and administrative expenses
particularly related to store payroll. In addition, the quarter to quarter
comparison is negatively affected by preopening costs incurred in connection
with the opening of 13 new or converted stores whereas last year, we opened or
converted only two stores.
Nine Months Ended October 31, 1998 and November 1, 1997
Net sales were $226,232,000 for the nine months ended October 31, 1998 compared
to $207,303,000 for the same period last year. Same store sales increased 9%
for the year to date. Sales increases reflect the aggressive promotional
activity of the second and third quarters this fiscal year.
Cost of sales, including buying and occupancy costs, was $169,101,000 or 74.7%
of sales for the nine months compared to $151,857,000 or 73.3% of sales for the
prior year to date. The 140 basis point decline in margin is due to lower
product margin (300 basis points) partially offset by lower buying and occupancy
costs relative to sales (160 basis points). The lower product margin is a
reflection of the more aggressive promotional sales activity during the second
and third fiscal quarters relative to last year. The percentage decrease in
buying and occupancy costs is due to their relatively fixed nature measured
against sales increases.
Selling, general and administrative expenses were $70,351,000 or 31.1% of sales
for the quarter compared to $69,717,000 or 33.6% of sales for the comparable
prior year period. Excluding the non recurring items, selling, general and
administrative expenses increased to $71,051,000 or 31.4% of sales from
$68,917,000 or 33.2% of sales. The increase in expenses is directly
attributable to costs incurred related to the higher sales volumes with the
largest dollar increase occurring in payroll costs. As a percentage of sales,
however, we have been able to leverage these costs, particularly in payroll and
advertising resulting in a 180 basis point decline.
Liquidity and Capital Resources
The primary sources of liquidity and capital resources are cash flows from
operations and bank lines of credit. Bank lines total $45,000,000, of which
$30,000,000 is committed, under revolving credit agreements expiring April 13,
1999. The bank credit lines are being utilized to support inventory purchases
under letters of credit and may be utilized to fund seasonal inventory
purchases. Letters of credit totaling $11,865,000 were outstanding at October
31, 1998. Based upon available cash balances at October 31, 1998 of over
$9,000,000 and cash forecasts for the year, the Company does not presently
expect to be in a borrowing position at any time during Fiscal 1998.
The store expansion program for the remainder of the fiscal year anticipates
approximately three new stores and two conversions. New stores and conversions
in Fiscal 1998 are in a new design which includes customer-friendly merchandise
displays and updated styling. The Company has also been retrofitting a number
of its existing larger format stores with certain of the more successful
elements of the new design. Capital expenditures for the year to date, totaling
$15,981,000, included 12 new store openings, 14 store conversions and 19
retrofit projects as well as routine purchases of machinery and equipment. The
total estimated capital expenditures for Fiscal 1998 are approximately
$20,000,000. The Company believes that its current cash position, cash flow
from operations and credit line facilities will be sufficient to fund current
operations, its stock buy back and capital expenditure programs.
Year 2000 Conversion
The Company recognizes the need to ensure that it will be prepared for Year 2000
issues and is engaged in an ongoing and comprehensive effort to mitigate such
risks. While the Year 2000 impact on information technology has been addressed
and remediation efforts have been in process since 1997, during fiscal 1998 a
"Y2K" team was developed consisting of key employees representing all functional
areas of the Company to address all other potential areas of Year 2000 impact,
investigate solutions and develop contingency plans. The overall objective of
the Company's efforts to date has been to identify and remediate Year 2000
related conditions that could reasonably be expected to cause a mission critical
failure if not addressed. Efforts related to this objective have focused on a
review of all proprietary and third-party systems and software, as well as an
analysis of the risks inherent in significant business partner and vendor
relationships. The Company's Year 2000 program and associated resources are
primarily directed towards ensuring that the Company will be able to effect
sales, order and receive merchandise, and pay its vendors and employees.
The Company's merchandising system was implemented in 1994 and was designed to
be Year 2000 compliant; however, testing was not performed at that time to
determine its readiness. An eight-tiered project, the Company's most extensive
effort related to Year 2000, to identify and remediate Year 2000 issues with
this software and other ancillary systems began in Summer 1997 and is scheduled
for completion in Fall 1999.
The Company is in the process of replacing the majority of its store environment
software and hardware including the current proprietary point of sale system,
polling and operating systems. Portions of the hardware are already Year 2000
compliant and will remain in use. The new vendor supported store environment
infrastructure is currently undergoing testing in a limited number of
stores and is scheduled for a complete rollout during the second and third
quarters of Fiscal 1999. Those portions of the store environment systems
that are affected by Year 2000 are scheduled for completion in the third
quarter of Fiscal 1999.
The existing financial accounting and reporting software has recently been
upgraded by its vendor. The vendor has certified that, with this upgrade, the
system is Year 2000 compliant.
This year the Company has also implemented new payroll and human resources
systems, each of which is certified by the respective vendor to be Year 2000
compliant and which replaces a non-compliant system.
For those systems which the respective vendor has certified as Year 2000
compliant, the Company is still assessing what additional testing is needed to
ensure their readiness.
The Company is also in the process of contacting its significant business
partners and vendors in an effort to identify those that will not or may not be
Year 2000 compliant. They include landlords, international and domestic vendors
who supply merchandise to the Company for resale, suppliers of services such as
banks and financial services, data processing services, advertising services,
telecommunications services and utilities. The strategy for addressing our
vendors is risk based. Each functional area of the Company is currently engaged
in ranking each of its vendors as "critical", "essential" or "non-essential".
Surveys will be sent primarily to critical and essential vendors with exceptions
made for selected non-critical vendors that may serve in a contingency role. As
vendors who are unable or unwilling to provide certification of Year 2000
readiness are identified, alternatives and contingencies intended to mitigate
Y2K risks perceived to be material will be considered.
Primary attention is being given to the Company's overseas vendors, and
purchasing agents are expected to play a major role in identifying, assessing
and mitigating potential Year 2000 issues that are foreseeable. Significant
emphasis in this area is vital as many of our primary vendors are concentrated
in regions of the world that are commonly perceived to be potentially less
prepared for the Year 2000.
During the year, the Company spent approximately $900,000 on the installation of
its new payroll and human resources systems and has incurred approximately
$700,000 in connection with the design and testing of its new store environment
systems. The Company expects to incur an additional $6,000,000 in Fiscal 1999
in connection with the implementation of the new store environment technology.
In addition to the cost of purchasing and implementing compliant replacement
systems, the Company expects to incur approximately $500,000 in Fiscal 1998 and
approximately $800,000 in Fiscal 1999 for ancillary testing and remediation of
Year 2000 issues, consisting primarily of normal salaries paid to existing
employees through the redirection of internal programming resources. These
costs and expenditures were included in the Company's operating budget and have
not had a material effect on the results of operations, liquidity or financial
position. Purchased hardware, software and the costs of their implementation
are capitalized and amortized over their useful lives while other costs of
remediation associated with the Year 2000 conversion are being expensed as
incurred.
The Company has not yet developed a comprehensive contingency plan to address
situations that may result if the Company is unable to achieve Year 2000
readiness of its critical operations. Development of contingency plans will be
addressed in Fiscal 1999. There can be no assurance that the Company will be
able to develop a contingency plan that will adequately address issues that may
arise in Year 2000 or that the failure to develop such a plan will not have a
material impact on the operations of the Company.
Because of the pervasiveness of potential Year 2000 impact, there can be no
assurance that all associated issues have been fully identified and addressed.
In fact, reliance on the technical skills of employees and independent
contractors and on the representations of third parties are among the factors
that could cause the Company's efforts to be less than fully effective. While
it has realistically examined its exposure to Year 2000 issues and has taken
steps to address those issues over which it has direct control, the Company
acknowledges that there are considerable risks that are beyond its reasonable
control. These risks include the potential failure of domestic and
international utility companies to deliver power, of domestic and international
telecommunications companies to render voice and data services, of financial
institutions to process transactions or transfer funds, and of vendors to
deliver merchandise ordered or to perform services required by the Company.
Additionally, the Company acknowledges that it is vulnerable to the impact that
Year 2000 may have on domestic and international economies to the extent that
such economies may negatively impact the Company's vendors, business partners,
customers or agents. Although the Company believes that it has taken
appropriate and reasonable actions to identify and mitigate risks associated
with the Year 2000 issues that are within it ability to control, there can be no
assurance that its efforts will be fully effective. Furthermore, there can be
no assurance that the systems of other companies and agencies on which the
Company relies will be timely converted or that such failure to convert by
another entity would not have an adverse impact on the Company's operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) No Exhibits have been filed as a part of this report.
(b) No reports on Form 8-K were filed during the quarter ended October 31,
1998.
THE BOMBAY COMPANY, INC. AND SUBSIDIARIES
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.
THE BOMBAY COMPANY, INC.
(Registrant)
/s/ Robert S. Jackson
Robert S. Jackson
Chief Executive Officer
/s/ Elaine D. Crowley
Elaine D. Crowley
Vice President, Finance
and Treasurer
Date: December 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Bombay Company, Inc. quarterly report on Form 10-Q for the nine months
ended October 31, 1998 and is qualified in its entirety by reference to
such 10-Q.
</LEGEND>
<CIK> 0000096287
<NAME> THE BOMBAY COMPANY, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 9765
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 96776
<CURRENT-ASSETS> 123453
<PP&E> 101152
<DEPRECIATION> 55678
<TOTAL-ASSETS> 179964
<CURRENT-LIABILITIES> 26563
<BONDS> 0
0
0
<COMMON> 38141
<OTHER-SE> 108349
<TOTAL-LIABILITY-AND-EQUITY> 179964
<SALES> 226232
<TOTAL-REVENUES> 226232
<CGS> 169101
<TOTAL-COSTS> 239452
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1431)
<INCOME-PRETAX> (11789)
<INCOME-TAX> (4657)
<INCOME-CONTINUING> (7132)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7132)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
