-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASMn1gxQ8d0TOdSjVDaKnjklUYC/eaZTY5FDFVwfTB2X/2wDNM5bjUfapnLq1uea MRb809s1LULl3+n6mvnhfA== 0000076744-97-000014.txt : 19970415 0000076744-97-000014.hdr.sgml : 19970415 ACCESSION NUMBER: 0000076744-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970301 FILED AS OF DATE: 19970414 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAYLESS CASHWAYS INC CENTRAL INDEX KEY: 0000076744 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 420945849 STATE OF INCORPORATION: IA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08210 FILM NUMBER: 97579691 BUSINESS ADDRESS: STREET 1: TWO PERSHING SQ 2300 MAIN ST CITY: KANSAS CITY STATE: MO ZIP: 64108 BUSINESS PHONE: 8162346000 10-Q 1 FORM 10-Q 3/01/97 1 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 March 1, 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 1-8210 PAYLESS CASHWAYS, INC. (Exact Name of Registrant as Specified in Its Charter) Iowa 42-0945849 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) Two Pershing Square 2300 Main, P.O. Box 419466 Kansas City, Missouri 64141-0466 (Address of Principal Executive Offices) (Zip Code) (816) 234-6000 (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 / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 par value, outstanding as of March 31, 1997: Voting -- 37,710,528 shares Non-Voting Class A -- 2,250,000 shares 2 PAYLESS CASHWAYS, INC. PART I -- FINANCIAL INFORMATION Item 1. Financial Statements STATEMENTS OF OPERATIONS (Unaudited) (1) (In thousands, except per share amounts)
Thirteen Weeks Ended ---------------------------------------------------- March 1, February 24, 1997 1996 ---------------------------------------------------- Income Net sales $ 487,550 $ 526,767 Other income 1,205 1,597 ---------------------------------------------------- 488,755 528,364 Costs and Expenses Cost of merchandise sold 348,247 372,916 Selling, general and administrative 138,407 141,405 Provision for depreciation and amortization 12,804 13,184 Interest expense 16,055 15,352 ---------------------------------------------------- 515,513 542,857 ---------------------------------------------------- LOSS BEFORE INCOME TAXES (26,758) (14,493) Federal and state income taxes (18,623) (6,870) NET LOSS $ (8,135) $ (7,623) ==================================================== Net loss per common share (2) $ (.24) $ (.23) ==================================================== Weighted average common shares outstanding 39,959 39,916 ==================================================== See notes to condensed financial statements
3 CONDENSED BALANCE SHEETS (Unaudited) (1)
March 1, November 30, February 24, (In thousands) 1997 1996 1996 --------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,509 $ 425 $ 23,165 Merchandise inventories (3) 386,812 399,010 388,584 Prepaid expenses and other current assets 18,889 22,281 19,896 Income taxes receivable 34,464 15,200 -- Deferred income taxes 13,104 13,681 19,083 --------------------------------------------------------- TOTAL CURRENT ASSETS 461,778 450,597 450,728 OTHER ASSETS Real estate held for sale 16,639 18,529 9,224 Cost in excess of net assets acquired, less accumulated amortization of $107,568 $105,198 and $97,856, respectively 290,910 292,946 322,686 Deferred financing costs 12,867 12,837 11,014 Other 13,626 12,917 15,054 LAND, BUILDINGS AND EQUIPMENT 787,318 782,935 797,795 Allowance for depreciation and amortization (285,808) (277,643) (261,665) --------------------------------------------------------- TOTAL LAND, BUILDINGS AND EQUIPMENT 501,510 505,292 536,130 --------------------------------------------------------- $ 1,297,330 $ 1,293,118 $ 1,344,836 ========================================================= See notes to condensed financial statements
4 CONDENSED BALANCE SHEETS - Continued (Unaudited) (1)
March 1, November 30, February 24, (In thousands) 1997 1996 1996 --------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt $ 18,765 $ 18,340 $ 14,798 Trade accounts payable 107,516 121,891 179,622 Other current liabilities 152,659 172,918 147,090 Income taxes payable 6,249 6,444 5,304 --------------------------------------------------------- TOTAL CURRENT LIABILITIES 285,189 319,593 346,814 LONG-TERM DEBT, less portion classified as current liability (4) 664,572 618,667 614,222 NON-CURRENT LIABILITIES Deferred income taxes 41,729 41,665 59,631 Other 24,177 23,462 23,507 SHAREHOLDERS' EQUITY Preferred Stock, $1.00 par value, 25,000,000 shares authorized; issued: Cumulative Preferred Stock, 406,000 shares, $80,134, $78,563 and $74,032 aggregate liquidation preference, respectively 40,600 40,600 40,600 Common Stock, $.01 par value: Voting, 150,000,000 shares authorized, 37,711,528, 37,709,028, and 37,668,206 shares issued, respectively 377 377 376 Non-Voting Class A, 5,000,000 shares authorized, 2,250,000 shares issued 23 23 23 Additional paid-in capital 487,795 487,728 487,206 Accumulated deficit (247,132) (238,997) (227,543) --------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 281,663 289,731 300,662 --------------------------------------------------------- $ 1,297,330 $ 1,293,118 $ 1,344,836 ========================================================= See notes to condensed financial statements
5 CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (1)
Thirteen Weeks Ended ---------------------------------------------- March 1, February 24, (In thousands) 1997 1996 ---------------------------------------------- Cash Flows from Operating Activities Net loss $ (8,135) $ (7,623) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 12,804 13,184 Deferred income taxes 641 294 Non-cash interest 700 600 Other 851 394 Changes in assets and liabilities (38,376) 20,975 ---------------------------------------------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (31,515) 27,824 Cash Flows from Investing Activities Additions to land, buildings and equipment (6,875) (4,375) Proceeds from sale of land, buildings and equipment 1,985 11,893 Acquisition of business, excluding working capital: Land, buildings and equipment -- (193) Purchase price in excess of net assets acquired (334) (1,351) Increase in other assets (708) (129) ---------------------------------------------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (5,932) 5,845 Cash Flows from Financing Activities Retirements of long-term debt (3,670) (20,079) Proceeds from long-term debt 50,000 9,000 Sale of Common Stock under stock option plan -- 10 Other (799) (395) ---------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 45,531 (11,464) ---------------------------------------------- Net increase in cash and cash equivalents 8,084 22,205 Cash and cash equivalents, beginning of period 425 960 ---------------------------------------------- Cash and cash equivalents, end of period $ 8,509 $ 23,165 ============================================== See notes to condensed financial statements
6 NOTES TO CONDENSED FINANCIAL STATEMENTS Thirteen weeks ended March 1, 1997, and February 24, 1996. (1) The accompanying condensed financial statements have been prepared in accordance with the instructions to Form 10-Q. To the extent that information and footnotes required by generally accepted accounting principles for complete financial statements are contained in or consistent with the audited financial statements incorporated by reference in the Company's Form 10-K for the year ended November 30, 1996, such information and footnotes have not been duplicated herein. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements have been reflected herein. The November 30, 1996, condensed balance sheet has been derived from the audited financial statements as of that date. (2) Net loss per common share has been computed based on the weighted average number of common shares outstanding during the period plus common stock equivalents, when dilutive, consisting of certain stock options and shares issuable under the Director Deferred Compensation Plan, when applicable. For purposes of this computation, net loss was adjusted for dividend requirements on preferred stock. (3) Approximately 82% of the Company's inventories are valued using the LIFO (last-in, first-out) method. Because inventory determination under the LIFO method is only made at the end of each fiscal year based on the inventory levels and costs at that time, interim LIFO determinations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since future estimates of inventory levels and costs are subject to change, interim financial results reflect the Company's most recent estimate of the effect of inflation and are subject to final year-end LIFO inventory amounts. If the FIFO (first-in, first-out) method of inventory accounting had been used by the Company, inventories would have been $25.5 million, $24.3 million and $29.0 million higher than reported at March 1, 1997, November 30, 1996, and February 24, 1996, respectively. (4) Long-term debt consisted of the following:
March 1, November 30, February 24, (In thousands) 1997 1996 1996 ---------------------------------------------------------- Amended Credit Agreement $ 404,000 $ 354,000 $ 335,000 Mortgage loan payable to insurance company 104,358 108,000 118,934 Senior subordinated notes 173,655 173,655 173,655 Other senior debt 1,324 1,352 1,431 ---------------------------------------------------------- 683,337 637,007 629,020 Less portion classified as current liability (18,765) (18,340) (14,798) ---------------------------------------------------------- $ 664,572 $ 618,667 $ 614,222 ==========================================================
7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS - --------------------- INCOME Net sales for the quarter ended March 1, 1997, decreased 7.4% from the same period of 1996 in total and 4.5% on a same-store sales basis. (Same stores are those open one full year.) The sales decline for the first quarter is primarily due to the impact of a large number of competitive warehouse openings in the Company's markets during the past year. Sales were also negatively impacted by the two midweek holidays in December and winter weather in certain markets. Same-store sales to do-it-yourself customers declined 13.0% and same-store sales to professional customers increased 6.1%. Six stores were closed during the first quarter of 1996 and eight additional stores were closed during the fourth quarter of 1996. Those fourteen stores accounted for $17.0 million of sales in the first quarter of 1996. COSTS AND EXPENSES Cost of merchandise sold as a percent of sales was 71.4% and 70.8% for the first quarter of 1997 and 1996, respectively. The increase for the first quarter of 1997 was primarily due to the growth in sales to the professional customer whose merchandise purchases include a higher percentage of commodity goods at margin rates somewhat lower than the Company's average. Selling, general and administrative expenses were 28.4% and 26.8% of sales for the first quarter of 1997 and 1996, respectively. The increase as a percent of sales for the 1997 period was due to lower sales. Selling, general and administrative expenses for the first quarter of 1997 decreased approximately $3.0 million compared to the same period of the prior year. The Company's advertising costs increased approximately $2.8 million compared to the same quarter of 1996, with the introduction of a new television and radio campaign undertaken in the first quarter of 1997. The provision for depreciation and amortization decreased from the first quarter of 1996 due primarily to goodwill written-off, assets written-down and assets removed from service in connection with a third quarter 1996 asset impairment charge and the closing of eight underperforming stores during the fourth quarter of 1996. Interest expense for the first quarter of 1997 increased compared to the same period of 1996 primarily due to higher borrowing levels in 1997. Higher interest rates in 1997 also contributed to the increase in interest expense for the first quarter. The income tax benefit for the first quarter of 1997 was $18.6 million compared to $6.9 million for the first quarter of 1996. The effective tax rates for both periods were different from the 35% statutory rate primarily due to the effect of goodwill amortization, which is non-deductible for income tax purposes. Such tax benefits reflect management's estimates of the annual effective tax rates at the end of each quarter. NET LOSS Net loss for the quarter ended March 1, 1997, was $8.1 million compared to $7.6 million for the same period of 1996. The increase in net loss was primarily the result of decreased same-store sales. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash used in operating activities was $31.5 million for the first quarter of 1997 compared to cash provided by operating activities of $27.8 million for the same period of 1996. The decrease in cash from operating activities was primarily caused by a decrease in other current liabilities and an increase in income taxes receivable. Other current liabilities decreased primarily due to the timing of payroll and insurance payments and a decrease in sales taxes as a result of decreased sales. Income taxes receivable increased due to an $18.6 million income tax benefit for the first quarter of 1997. During the first quarters of 1997 and 1996, the Company used cash of approximately $1.8 million and $3.7 million, respectively, in operating activities related to the execution of the 1996 and 1995 restructuring plans. Due to seasonally lower sales in the winter months, cash flow in the first quarter represents a small amount of annual operating cash flow. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS - Continued Borrowings are available under the Amended Credit Agreement to supplement cash generated by operations. At March 1, 1997, $49.3 million was available for borrowing under the Amended Credit Agreement. At March 1, 1997, working capital was $176.6 million compared to $131.0 million and $103.9 million at November 30, 1996 and February 24, 1996, respectively. The current ratios at March 1, 1997, November 30, 1996, and February 24, 1996, were 1.62 to 1, 1.41 to 1, and 1.30 to 1, respectively. The Company's primary investing activities are capital expenditures for the implementation of the Company's Dual Path strategy, renovation of existing stores, and additional equipment. The Amended Credit Agreement governs the amount of capital expenditures which can be made ($72 million in 1997, $81 million in 1998, $100 million in 1999 and $59 million in 2000). The Company spent approximately $7.2 million and $5.9 million during the first quarter of 1997 and 1996, respectively, for the implementation of the Company's Dual Path strategy, including the acquisition of a door and trim manufacturer during January 1996, renovation of existing stores, and additional equipment. The Company intends to finance the remaining fiscal 1997 capital expenditures of approximately $65 million, consisting primarily of the implementation of the Company's Dual Path strategy, renovation of existing stores and additional equipment, with funds generated from operations and borrowings under the Amended Credit Agreement. During the first quarter of 1996, the Company sold a distribution center in connection with the 1995 restructuring plan, providing approximately $11.9 million of cash proceeds. The Company's most significant financing activity is and will continue to be the retirement of indebtedness. In connection with the sale of the distribution center, discussed above, and in anticipation of selling real estate related to certain closed stores, the Company repaid approximately $16.5 million of related indebtedness during the first quarter of 1996. Although the Company's indebtedness is and will continue to be substantial, management believes that, based upon its analysis of the Company's financial condition, the cash flow generated from operations during the past 12 months and the expected results of operations in the future, cash flow from operations and borrowing availability under the Amended Credit Agreement should provide sufficient liquidity to meet all cash requirements for the next 12 months without additional borrowings. The Amended Credit Agreement contains a number of financial covenants with which the Company must comply. Several of these require that the Company's operating performance improves over the remaining term of the Amended Credit Agreement. Certain of these covenants are detailed in Note B to the Financial Statements contained in the Company's Annual Report for fiscal 1996. Management currently expects that it will achieve compliance with these covenants throughout fiscal 1997. Forward-looking statements included in the subsection entitled "Cost and Expenses" and in this subsection of this Quarterly Report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. There are certain important factors that could cause results to differ materially from those anticipated by some of the statements made above. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: consumer spending and debt levels; interest rates; housing activity, including existing home turnover and new home construction; lumber prices; product mix; sales of real estate held for sale; growth of certain market segments; competitor activities; and an excess of retail space devoted to the sale of building materials. Additional information concerning those and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Form 10-K, copies of which are available from the Company without charge or on the Company's web site, payless.cashways.com. 9 REVIEW BY INDEPENDENT AUDITORS The condensed consolidated financial statements of Payless Cashways, Inc. for the thirteen week periods ended March 1, 1997 and February 24, 1996, have been reviewed by KPMG Peat Marwick LLP, independent auditors. Their report is included in this filing. PART II -- OTHER INFORMATION Item 1. Legal Proceedings. A group of terminated employees and others have filed a lawsuit against the Company and other named defendants in the United States District Court for the Southern District of Iowa. (See the full description of the lawsuit in Item 3-Legal Proceedings contained in the Company's Form 10-K for the year ended November 30, 1996.) The lawsuit was brought in connection with a reduction in force pursuant to a January 1994 restructuring. The suit has asserted a variety of claims including federal and state securities fraud claims, alleged violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, federal and state claims of age discrimination, alleged violations of the Employment Retirement Income Security Act of 1974, and various state law claims including, but not limited to, fraudulent misrepresentation allegations. The Company filed a motion to dismiss the majority of the claims; and Rulings and an Order have been issued with respect thereto, substantially narrowing plaintiff's legal claims by dismissing some age discrimination counts, all federal securities fraud and RICO counts except one each, and all state law counts related to an alleged partnership. The Former Employee's motion for class certification has been denied on all claims except the age discrimination claims. No ruling has been entered on the Former Employee's motion for class certification of certain age discrimination claims. Each of the parties has conducted discovery pursuant to the court's scheduling order and discovery plan. The Company denies any and all claimed liability and is vigorously defending this litigation, but is unable to estimate a potential range of monetary exposure, if any, to the Company or to predict the likely outcome of this matter. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 6. Exhibits and Reports on Form 8-K. a. Exhibits. 4.0 Long-term debt instruments of Payless in amounts not exceeding ten percent (10%) of the total assets of Payless will be furnished to the Commission upon request. 11.1 Computation of per share loss. 15.1 Letter re unaudited financial information - KPMG Peat Marwick LLP. 27.1 Financial data schedule. b. Reports on Form 8-K. No reports on Form 8-K were filed by Payless during the quarter ended March 1, 1997. 10 PAYLESS CASHWAYS, INC 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. PAYLESS CASHWAYS, INC. (Registrant) Date: April 8, 1997 By: s/Stephen A. Lightstone ------------------------------------------ A. Lightstone, Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) EX-11 2 COMPUTATION OF PER SHARE LOSS 1 Exhibit 11.1 PAYLESS CASHWAYS, INC. COMPUTATION OF PER SHARE LOSS - ----------------------------- (In thousands, except per share amounts)
Thirteen Weeks Ended -------------------------------- March 1, February 24, 1997 1997 ------------ ------------ PRIMARY - ------- Net loss $ (8,135) $ (7,623) Less: Preferred stock dividends (1,571) (1,452) ---------- ---------- Net loss attributable to Common Stock $ (9,706) $ (9,075) Weighted average common shares outstanding 39,959 (1) 39,916 (1) ---------- ---------- Net loss per common share $ (.24) $ (.23) ========== ========== FULLY DILUTED - ------------- Net loss attributable to Common Stock $ (9,706) $ (9,075) Weighted average common shares outstanding 39,959 (1) 39,916 (1) ---------- ---------- Net loss per common share $ (.24) $ (.23) ========== ========== (1) Due to a loss being incurred for the period, dilutive common equivalent shares have not been computed as the resulting loss per share would be antidilutive.
EX-15 3 KPMG PEAT MARWICK LETTER RE UNAUDITED FINANCIALS 1 [Letterhead of KPMG Peat Marwick LLP] EXHIBIT 15.1 INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors Payless Cashways, Inc.: We have reviewed the accompanying condensed balance sheets of Payless Cashways, Inc. as of March 1, 1997 and February 24, 1996 and the related condensed statements of operations and cash flows for the thirteen week periods then ended. These condensed financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet of Payless Cashways, Inc. as of November 30, 1996 and the related statements of operations, shareholders' equity and cash flows for the fiscal year then ended (not presented herein); and in our report dated January 13, 1997, we expressed an unqualified opinion on those financial statements. As discussed in note H to the financial statements, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," in fiscal 1996. In our opinion, the information set forth in the accompanying condensed balance sheet as of November 30, 1996 is fairly presented, in all material respects, in relation to the balance sheet from which it has been derived. s/ KPMG Peat Marwick LLP Kansas City, Missouri March 14, 1997 2 [Letterhead of KPMG Peat Marwick LLP] EXHIBIT 15.1 Payless Cashways, Inc. Kansas City, Missouri Gentlemen: With respect to the subject registration statements on Form S-8 and Form S-3, we acknowledge our awareness of the use therein of our report dated March 14, 1997 related to our review of interim financial information. Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Securities Act. s/ KPMG Peat Marwick LLP Kansas City, Missouri March 14, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the March 1, 1997, financial statements and is qualified in its entirety by reference to such financial statements. 1000 3-MOS NOV-29-1997 MAR-01-1997 8509 0 0 0 386812 461778 787318 285808 1297330 285189 664572 0 40600 400 240663 1297330 487550 488755 348247 348247 0 0 16055 (26758) (18623) (8135) 0 0 0 (8135) (.24) 0
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