-----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, V4nVLvICy1gwwpjHHKQFgddVl923A2A5WfLPmJmpigrlf+yRgzSqLD5wF5EVcNAb FN1hU3RlNA9zj246PXIRYg== /in/edgar/work/20000628/0000874385-00-000004/0000874385-00-000004.txt : 20000920 0000874385-00-000004.hdr.sgml : 20000920 ACCESSION NUMBER: 0000874385-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000527 FILED AS OF DATE: 20000628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAG SHOPS INC CENTRAL INDEX KEY: 0000874385 STANDARD INDUSTRIAL CLASSIFICATION: [5945 ] IRS NUMBER: 510333503 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19194 FILM NUMBER: 662133 BUSINESS ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 BUSINESS PHONE: 9734231303 MAIL ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 10-Q 1 0001.txt RAG SHOPS, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended May 27, 2000 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 No. 0-19194 RAG SHOPS, INC. (Exact name of registrant as specified in its charter) DELAWARE 51-0333503 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 111 WAGARAW ROAD HAWTHORNE, NEW JERSEY 07506 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code (973) 423-1303 Indicate by check mark whether the registrant (1) has filed all reports required 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. CLASS OUTSTANDING AT JUNE 23, 2000 Common stock, par value $.01 4,819,883 Page 1 of 11 RAG SHOPS, INC. AND SUBSIDIARIES INDEX Page PART 1 - FINANCIAL INFORMATION Item 1.Financial Statements Condensed consolidated balance sheets - May 27, 2000 (unaudited), May 29, 1999 (unaudited) and August 28, 1999 3 Condensed consolidated statements of income - three and nine months ended May 27, 2000 (unaudited) and May 29, 1999 (unaudited) 4 Condensed consolidated statements of cash flows - nine months ended May 27, 2000 (unaudited) and May 29, 1999 (unaudited) 5 Notes to condensed consolidated financial statements 6-7 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition 8-10 PART II - OTHER INFORMATION Items 1. - 5. 11 Item 6.Exhibits and Reports on Form 8-K 11 SIGNATURES 11 Page 2 of 11
RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (All amounts in thousands) May 27, May 29, August 28, 2000 1999 1999 ---- ---- ---- (Unaudited) (Unaudited) (Note A) ASSETS Current assets: Cash $ 4,764 $ 778 $ 934 Merchandise inventories 23,270 27,262 30,563 Prepaid expenses 608 405 536 Other current assets 163 103 225 Deferred taxes 805 707 805 ------- ------- ------- Total current assets 29,610 29,255 33,063 Property and equipment, net 3,690 4,731 4,490 Other assets 270 307 316 ------- ------- ------- $33,570 $34,293 $37,869 ====== ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable-bank $ - $ - $ 6,570 Accounts payable-trade 5,535 7,851 5,928 Accrued expenses and other current liabilities 2,333 2,355 2,505 Accrued salaries and wages 798 657 605 Income taxes payable 686 503 157 ------- ------- ------- Total current liabilities 9,352 11,366 15,765 Stockholders' equity: Common Stock 48 45 48 Additional paid-in capital 6,285 6,039 6,268 Unamortized restricted stock awards (56) - (207) Retained earnings 18,005 16,843 16,059 Treasury stock, at cost (64) - (64) --------- ----------- -------- Total stockholders' equity 24,218 22,927 22,104 ------ ------ ------ $33,570 $34,293 $37,869 ====== ====== ======
Note A: Derived from the August 28, 1999 audited balance sheet. See notes to the condensed consolidated financial statements. Page 3 of 11
RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (All amounts in thousands, except share data) Three Months Ended Nine Months Ended May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales $22,730 $22,430 $77,408 $74,186 Cost of merchandise sold and occupancy costs 14,677 14,861 49,058 47,448 ------ ------ ------ ------ Gross profit 8,053 7,569 28,350 26,738 ------ ------ ------ ------ Store expenses 5,125 5,179 17,379 16,939 General and administrative expenses 2,581 2,534 8,096 7,858 ------ ------ ------ ------ Total operating expenses 7,706 7,713 25,475 24,797 ------ ------ ------ ------ Income (loss) from operations 347 (144) 2,875 1,941 Interest income (expense), net 62 15 (10) 2 -------- -------- --------- ---------- Income (loss) before income taxes and cumulative effect of change in accounting 409 (129) 2,865 1,943 Income tax provision (benefit) 159 (51) 1,117 758 ------- ---------- ------- ------- Income (loss) before cumulative effect of change in accounting 250 (78) 1,748 1,185 Cumulative effect of change in accounting for merchandise inventories, net of income taxes - - 198 - ---------- --------- ------- ----------- Net income (loss) $ 250 $ (78) $ 1,946 $ 1,185 ======= ========== ======== ======== EARNINGS (LOSS) PER COMMON SHARE: Basic and diluted Income (loss) before cumulative effect of change in accounting $ .05 $ (.02) $ .36 $ .25 Cumulative effect of change in accounting - - .04 - ------- --------- -------- -------- Net income (loss) $ .05 $ (.02) $ .40 $ .25 ======= ========== ======== ========
See notes to the condensed consolidated financial statements. Page 4 of 11
RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands) Nine Months Ended May 27, 2000 May 29, 1999 ------------ ------------ Cash flows from operating activities: Net income $ 1,946 $ 1,185 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,020 1,035 Loss on disposition of property and equipment 14 25 Amortization of restricted stock awards 169 - Cumulative effect of accounting change (325) - Changes in assets and liabilities: (Increase) decrease in: Merchandise inventories 7,618 (803) Prepaid expenses (72) 127 Other current assets 62 (26) Other assets 46 13 Increase (decrease) in: Accounts payable-trade (393) 1,296 Accrued expenses and other current liabilities (141) 379 Accrued salaries and wages 193 39 Income taxes payable 529 259 ------- ------- Net cash provided by operating activities 10,666 3,529 ------ ------ Cash flows from investing activities: Payments for purchases of property and equipment (266) (1,464) ------- ------ Net cash used in investing activities (266) (1,464) --------- ------- Cash flows from financing activities: Proceeds from issuance of note payable-bank 5,805 6,645 Repayments of note payable-bank (12,375) (8,280) Repayments of long-term debt - (548) ---------- -------- Net cash used in financing activities (6,570) (2,183) ------ ------ Net increase (decrease) in cash 3,830 (118) Cash, beginning of period 934 896 ------- ------- Cash, end of period $ 4,764 $ 778 ====== ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 198 $ 50 ======= ======== Income taxes $ 684 $ 372 ======= ========
See notes to the condensed consolidated financial statements. Page 5 of 11 RAG SHOPS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED MAY 27, 2000 AND MAY 29, 1999 NOTE 1 - BASIS OF PRESENTATION The accompanying financial statements are unaudited, but in the opinion of management reflect all adjustments, which include normal recurring accruals necessary for a fair presentation of the consolidated financial statements for the interim period. Since the Company's business is seasonal, the operating results for the three and nine months ended May 27, 2000 are not necessarily indicative of results for the fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission in November 1999. Certain reclassifications have been made to prior year amounts in order to conform with the presentation for the current year. NOTE 2 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ---- ---- ---- ---- Numerator: Income (loss) before cumulative effect of change in accounting $ 250,000 $ (78,000) $1,748,000 $1,185,000 Cumulative effect of change in accounting - - 198,000 - ----------- ------------ ---------- ---------- Net income (loss) $ 250,000 $ (78,000) $1,946,000 $1,185,000 ========== =========== ========= ========= Denominator: Denominator for basic earnings (loss) per share-weighted average shares 4,818,103 4,740,063 4,813,290 4,740,063 Effect of dilutive securities: Employee stock options 140 339 60 11,725 ----------- ----------- ---------- ---------- Denominator for diluted earnings (loss) per share-adjusted weighted average shares and assumed conversions 4,818,243 4,740,402 4,813,350 4,751,788 ========= ========= ========= =========
Page 6 of 11
RAG SHOPS, INC. AND SUBSIDIARIES Three Months Ended Nine Months Ended May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ---- ---- ---- ---- Basic earnings (loss) per share: Income (loss) before cumulative effect of change in accounting $ .05 $ (.02) $ .36 $ .25 Cumulative effect of change in accounting - - .04 - ------------ ------------ ---------- ---------- Net income (loss) $ .05 $ (.02) $ .40 $ .25 ============ ============ ========== ========== Diluted earnings (loss) per share: Income (loss) before cumulative effect of change in accounting $ .05 $ (.02) $ .36 $ .25 Cumulative effect of change in accounting - - .04 - ------------ ------------ ---------- ---------- Net income (loss) $ .05 $ (.02) $ .40 $ .25 ============ ============ ========== ==========
Earnings (loss) per share calculations for the three and nine months ended May 29, 1999 have been adjusted to give retroactive effect to the 5% stock dividend on the Company's common stock declared by the Company on June 28, 1999 which was paid on August 10, 1999 to stockholders of record on July 14, 1999. NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE Effective August 29, 1999, the Company changed its method of calculating ending merchandise inventories under the retail inventory method. Prior to August 29, 1999, the Company utilized an average cost-to-retail ratio to value ending inventory. In fiscal year 2000, the Company began utilizing a method that weights the cost-to-retail ratio using multiple inventory categories. Management believes that this change in accounting improves the measurement of the Company's profitability based upon a changing product mix. The cumulative effect of this accounting change was to increase the Company's first quarter fiscal 2000 profit, net of income taxes, by approximately $198,000. Page 7 of 11 RAG SHOPS, INC. AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The following table sets forth as a percentage of net sales, certain items appearing in the condensed consolidated statements of income for the indicated periods.
Three Months Ended Nine Months Ended May 27, May 29, May 27, May 29, 2000 1999 2000 1999 ---- ---- ---- ---- Net sales 100.0% 100.0% 100.0% 100.0% Cost of merchandise sold and occupancy costs 64.6 66.3 63.4 64.0 ----- ----- ----- ----- Gross profit 35.4 33.7 36.6 36.0 Store expenses 22.5 23.0 22.5 22.8 General and administrative expenses 11.4 11.3 10.4 10.6 ----- ----- ----- ----- Income (loss) from operations 1.5 (.6) 3.7 2.6 Income (loss) before cumulative effect of change in accounting 1.1 (.3) 2.2 1.6 Cumulative effect of change in accounting - - .3 - Net income (loss) 1.1% (.3)% 2.5% 1.6% ==== ==== ==== ====
The Company's net sales increased by $300,000 and $3,222,000 for the three and nine months ended May 27, 2000 representing an increase of 1.3% and 4.3%, respectively, over the comparable prior periods due to new store sales of $357,000 and $3,968,000, respectively, in addition to increases in comparable store sales of $528,000 or 2.4% and $1,185,000 or 1.7%, respectively, over the comparable prior periods, and closed store sales of $585,000 and $1,931,000 for the three and nine month periods, respectively. Gross profit as a percentage of net sales increased by 1.7% for the three months ended May 27, 2000, from the comparable prior period primarily due to a decrease in promotional markdowns and secondarily a result of an improvement in the initial markup of inventory purchases due to an increase in the mix of direct imports, which are more profitable than domestic purchases. Gross profit as a percentage of net sales increased by .6% for the nine months ended May 27, 2000 from the comparable prior period primarily due to an increase in the initial markup, as mentioned above, and secondarily a result of a reduction in promotional markdowns that were partially offset by an increase in occupancy costs. Store expenses decreased by $54,000 and increased by $440,000 for the three and nine months ended May 27, 2000, respectively, from the comparable prior periods. The increase for the nine months ended May 27, 2000 was principally due to an increase in payroll and payroll related expenses that were partially attributable to new stores opened net of closed stores in the prior fiscal year. As a percentage of net sales, store expenses decreased by .5% and .3% for the three and nine months ended May 27, 2000, respectively, over the comparable prior period as these expenses were leveraged against the increase in net sales. General and administrative expenses increased marginally and as a percentage of net sales remained relatively unchanged for the three months ended May 27, 2000, over the comparable Page 8 of 11 RAG SHOPS, INC. AND SUBSIDIARIES prior period. General and administrative expenses increased $238,000 for the nine months ended May 27, 2000 primarily due to an increase in payroll, payroll related expenses and professional fees that were partially offset by a reduction of costs in our distribution center operation. As a percentage of net sales, general and administrative expenses decreased .2% for the nine months ended May 27, 2000 from the comparable prior period as the Company was able to leverage these expenses against the increase in net sales. Interest income, net increased by $47,000 for the three months ended May 27, 2000 from the comparable prior period due to an increase in cash provided by operating activities. Interest expense, net increased by $12,000 for the nine months ended May 27, 2000 from the comparable prior period as a result of higher borrowings on the Company's line of credit in the first fiscal quarter, partially offset by the increase in interest income as previously mentioned. See "Liquidity and Capital Resources". Net income increased by $328,000 for the three months ended May 27, 2000 as compared to the comparable prior period due to increases in comparable stores sales and gross profit, in addition to a decrease in store expenses, that was partially offset by a marginal increase in general and administrative expenses. Net income increased $761,000 for the nine months ended May 27, 2000 compared to the prior period as a result of increases in comparable stores sales, gross profit and the cumulative effect of change in accounting for merchandise inventories, that was partially offset by an increase in operating expenses. Seasonality The Company's business is seasonal, which the Company believes is typical of the retail fabric and craft industry. The Company's highest sales and earnings levels historically occur between September and December. The Company has historically operated at a loss during the fourth quarter of its fiscal year, the June through August summer period. Year to year comparisons of quarterly results and comparable store sales can be affected by a variety of factors, including the timing and duration of holiday selling seasons and the timing of new store openings and promotional markdowns. Liquidity and Capital Resources The Company's primary needs for liquidity are to maintain inventory for the Company's existing stores and to fund the costs of opening new stores, including capital improvements, initial inventory and pre-opening expenses. During the nine months ended May 27, 2000 and the comparable prior period, the Company relied on internally generated funds, short-term borrowings and credit made available by suppliers to finance inventories and new store openings. The Company's working capital has increased $2,960,000 for the nine months ended May 27, 2000 as compared to the August 28, 1999 amount primarily as a result of the Company retaining its net income for this period and a planned reduction in merchandise inventories net of the bank line of credit repayment. The Company maintains a $10 million credit facility with a bank. The credit facility is renewable annually on or before each December 31 and consists of a discretionary unsecured line of credit for direct borrowings and the issuance and refinance of letters of credit. Borrowings under the line of credit bear interest at the bank's prime rate (9.50% at May 27, 2000). The credit facility requires the Company to maintain a compensating balance of $400,000 in addition to certain financial covenants. Historically, the amount borrowed has varied based on the Company's seasonal requirements, generally reaching a maximum amount outstanding during the fourth quarter of each fiscal year. The maximum amount borrowed under the line was $7,490,000 and $2,330,000 for the nine months ended May 27, 2000 and May 29, 1999, respectively. The Company intends to Page 9 of 11 RAG SHOPS, INC. AND SUBSIDIARIES maintain the availability of a line of credit for seasonal working capital requirements and in order to be able to take advantage of future opportunities. Net cash provided by operating activities for the nine months ended May 27, 2000 and May 29, 1999 amounted to $10,666,000 and $3,529,000, respectively, and $266,000 and $1,464,000, respectively, was used for purchases of property and equipment. During the nine months ended May 27, 2000 the Company did not open any new stores, closed three existing stores and was operating sixty-six stores at the end of the period. During the remainder of the fiscal year ending September 2, 2000 the Company anticipates no new store openings, closing one additional store and resume opening new stores in the ensuing fiscal year. Costs associated with the opening of new stores, including capital expenditures, inventory and pre-opening expenses, have approximated $350,000 per store. These costs will be financed primarily from cash provided by operating activities, credit made available by suppliers to finance inventories and, if necessary, from the Company's bank line of credit. However, the Company will redeploy assets of stores being closed to the new stores as opportunities evolve in order to curtail the costs of opening new stores. Impact of the Year 2000 As of the date of this filing the Company has not experienced any disturbances or interruption in its ability to transact business with its suppliers or customers as a result of the year 2000 transition. The Company, however, continues to monitor its systems, suppliers, and customers for any unanticipated issues that have yet to surface. Forward-Looking Statements This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by safe harbors created hereby. Such forward-looking statements include those regarding the Company's future results in light of current management activities, and involve known and unknown risks, including competition within the craft retail industry, weather-related changes in the selling cycle, and other uncertainties (including those risk factors referenced in Company's filings with the Securities and Exchange Commission). Page 10 of 11 RAG SHOPS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Items 1. - 5. Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) During the three months ended May 27, 2000, a Report on Form 8-K dated April 18, 2000 was filed on April 21, 2000 reporting an Item 4 Changes in Registrant's Certifying Accountants. 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. RAG SHOPS, INC. Date: June 26, 2000 /s/ Stanley Berenzweig Stanley Berenzweig Chairman Of The Board and Principal Executive Officer Date: June 26, 2000 /s/ Steven B. Barnett Steven B. Barnett Principal Financial Officer and Principal Accounting Officer Page 11 of 11 EX-27 2 0002.txt FDS 3Q
5 9-MOS SEP-2-2000 AUG-29-1999 MAY-27-2000 4,764,000 0 0 0 23,270,000 29,610,000 15,471,000 11,781,000 33,570,000 9,352,000 0 0 0 48,000 24,170,000 33,570,000 77,408,000 77,408,000 49,058,000 74,533,000 0 0 10,000 2,865,000 1,117,000 1,748,000 0 0 198,000 1,946,000 .40 .40
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