-----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, QDNGDw7MX08h9QQs50fgzh4l/0DyX/eqIv0iUQomro7d9FRYI1/6lgcKGB6XB+xk 4OLomeOqRCRVx48TGq5HRg== 0000874385-01-000001.txt : 20010123 0000874385-01-000001.hdr.sgml : 20010123 ACCESSION NUMBER: 0000874385-01-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001202 FILED AS OF DATE: 20010116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAG SHOPS INC CENTRAL INDEX KEY: 0000874385 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOBBY, TOY & GAME SHOPS [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: 1509420 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 December 2, 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 DECEMBER 2, 2000 Common stock, par value $.01 4,801,583 RAG SHOPS, INC. AND SUBSIDIARIES INDEX Page PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets - December 2, 2000 (unaudited), November 27, 1999 (unaudited) and September 2, 2000 3 Condensed consolidated statements of income - three months ended December 2, 2000 (unaudited) and November 27, 1999 (unaudited) 4 Condensed consolidated statements of cash flows - three months ended December 2, 2000 (unaudited) and November 27, 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 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (All amounts in thousands) December 2, November 27, September 2, 2000 1999 2000 ---- ---- ---- (Unaudited)(Unaudited) (Note A) ASSETS - ------ CURRENT ASSETS: Cash $ 6,314 $ 2,286 $ 1,311 Merchandise inventories 26,086 27,207 27,805 Prepaid expenses 302 226 483 Other current assets 222 329 99 Deferred income taxes 852 805 852 ------ --------- --------- Total current assets 33,776 30,853 30,550 Property and equipment, net 3,770 4,186 3,613 Deferred income taxes 350 212 350 Other assets 63 64 67 ------ ------- --------- TOTAL ASSETS $37,959 $ 35,315 $ 34,580 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Note payable-bank $ - $ 1,145 $ - Accounts payable-trade 8,395 6,417 7,763 Accrued expenses and other current liabilities 2,914 2,872 2,012 Accrued salaries and wages 704 708 893 Income taxes payable 992 835 242 ------ --------- -------- Total current liabilities 13,005 11,977 10,910 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock - - - Common stock 48 48 48 Additional paid-in capital 6,242 6,268 6,242 Unamortized restricted stock awards (10) (151) (12) Retained earnings 18,738 17,237 17,456 Treasury stock, at cost, 26,880 shares (64) (64) (64) ------ ------- ------- Total stockholders' equity 24,954 23,338 23,670 ------ ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,959 $ 35,315 $ 34,580 ====== ======= ======= Note A: Derived from the September 2, 2000 audited balance sheet. See notes to the condensed consolidated financial statements. RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (All amounts in thousands, except share data) Three Months Ended ------------------ December 2, November 27, 2000 1999 Net sales $30,048 $28,186 Cost of merchandise sold and occupancy costs 18,606 17,467 ------ ------ Gross profit 11,442 10,719 ------ ------ Store expenses 6,762 6,288 General and administrative expenses 2,598 2,717 ----- ----- Total operating expenses 9,360 9,005 ------ ----- Income from operations 2,082 1,714 Interest income (expense), net 19 (108) ------ ----- Income before provision for income taxes and cumulative effect of change in accounting principle 2,101 1,606 Provision for income taxes 819 626 ------ ----- Income before cumulative effect of change in accounting principle 1,282 980 Cumulative effect of change in accounting principle, net of income tax effect of $127 - 198 ------ ----- Net income $ 1,282 $ 1,178 ========= ====== Basic and diluted earnings per common share: Income before cumulative effect of change in accounting principle $ .27 $ .20 Cumulative effect of change in accounting principle - .04 --------- ------- Net income $ .27 $ .24 ======== ======= See notes to the condensed consolidated financial statements. RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands) Three Months Ended December 2, November 27, 2000 1999 Cash flows from operating activities: Net income $ 1,282 $ 1,178 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 347 330 Amortization of restricted stock awards 2 56 Cumulative effect of change in accounting - (325) principle Changes in assets and liabilities: (Increase) decrease in: Merchandise inventories 1,719 3,681 Prepaid expenses 181 310 Other current assets (123) (104) Other assets 4 40 Increase (decrease) in: Accounts payable-trade 632 489 Accrued expenses and other current liabilities 902 367 Accrued salaries and wages (189) 103 Income taxes payable 750 678 ----- ----- Net cash provided by operating activities 5,507 6,803 ----- ----- Cash flows from investing activities: Payments for purchases of property and equipment (504) (26) ----- ------ Net cash used in investing activities (504) (26) ----- ------ Cash flows from financing activities: Proceeds from issuance of note payable-bank - 5,305 Repayments of note payable-bank - (10,730) ----- ------ Net cash used in financing activities - (5,425) ----- ------- Net increase in cash 5,003 1,352 Cash, beginning of period 1,311 934 ----- ----- Cash, end of period $ 6,314 $ 2,286 ====== ====== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ - $ 101 ======= ======= Income taxes $ 58 $ 28 ======= ======= See notes to the condensed consolidated financial statements. RAG SHOPS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 2, 2000 AND NOVEMBER 27, 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 periods. Since the Company's business is seasonal, the operating results for the three months ended December 2, 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 included in the Company's Annual Report on Form 10-K for the year ended September 2, 2000 filed with the Securities and Exchange Commission in December 2000. Certain reclassifications have been made to prior year amounts in order to conform to 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 December 2, November 27, 2000 1999 Numerator for basic and diluted earnings per share: Income before cumulative effect of change in accounting principle $ 1,282,000 $ 980,000 Cumulative effect of change in accounting principle, net of income taxes - 198,000 Net income $ 1,282,000 $1,178,000 ========== ========= Denominator: Denominator for basic earnings per share-weighted average shares 4,801,583 4,810,883 Effect of dilutive securities: Employee stock options 3,509 123 ------ ----- Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 4,805,092 4,811,006 ========== ========= RAG SHOPS, INC. AND SUBSIDIARIES Three Months Ended December 2, November 27, 2000 1999 Basic and diluted earnings per share: Income before cumulative effect of change in accounting principle $ .27 $ .20 Cumulative effect of change in accounting principle - .04 Net income $ .27 $ .24 ======= ====== NOTE 3 - Merchandise Inventories Merchandise inventories (which are all finished goods) are stated at the lower of cost (first-in, first-out method) or market as determined by the retail inventory method. Effective August 29, 1999, the Company changed its method of calculating ending merchandise inventories under the retail inventory method. Effective August 30, 1999, 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 net income for the three months ended November 27, 1999 by $198,496 (net of tax effect of $127,000). 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 December 2, November 27, 2000 1999 Net sales 100.0% 100.0% Cost of merchandise sold and occupancy costs 61.9 62.0 ---- ---- Gross profit 38.1 38.0 Store expenses 22.5 22.3 General and administrative expenses 8.7 9.7 ---- --- Income from operations 6.9 6.0 --- --- Income before cumulative effect of change in accounting principle 4.3 3.5 Cumulative effect of change in accounting principle - 0.7 ---- --- Net income 4.3% 4.2% === === The Company's net sales increased by $1,862,000 or 6.6% for the three month ended December 2, 2000 as compared to the three months ended November 27, 1999. The improvement in net sales was due to an increase in sales from stores opened at least one year of $2,376,000 or 8.7%, partially offset by $514,000 for the impact of four stores which closed throughout last fiscal year net of one new store which opened during the first quarter of the current year. Net sales for the three months ended December 2, 2000 benefited from a shift in the accounting calendar that resulted in the historically high sales week after Thanksgiving falling into the first quarter of the current year as compared to the second quarter of the prior year. On a week-for-week aligned basis, sales from stores opened at least one year improved by 1.2%. Gross profit as a percentage of net sales remained relatively constant for the three months ended December 2, 2000 as compared to the three month period ended November 27, 1999. Store expenses increased by $474,000 for the three months ended December 2, 2000 as compared to the three months ended November 27, 1999. The increase was principally due to an increase in payroll and payroll related expenses in support of higher sales and an increase in advertising expenses related to the shift in the accounting calendar. As a percentage of net sales, store expenses increased by only 0.2% for the three months ended December 2, 2000, as compared to the three months ended November 27, 1999 primarily due to the increase in advertising expenses. General and administrative expenses declined by $119,000 and, as a percentage of net sales, declined by 1.0% for the three months ended December 2, 2000, as compared to the three months ended November 27, 1999. The decline in general RAG SHOPS, INC. AND SUBSIDIARIES and administrative expenses was primarily attributable to lower professional fees. As a percentage of net sales, the decrease in general and administrative expenses was principally the result of the lower professional fees and the ability of the Company to leverage expenses against the increase in net sales. Interest income, net increased by $127,000 due to income earned on short-term investments during the three months ended December 2, 2000 as compared to interest expense incurred on our line of credit for the three months ended November 27, 1999. See "Liquidity and Capital Resources". Net income increased by $104,000 for the three months ended December 2, 2000 as compared to the three months ended November 27, 1999 due to increases in comparable stores sales and gross profit, a decrease in general and administrative expenses and an increase in interest income, net, partially offset by higher store expenses and the cumulative effect of change in accounting principle of $198,000 in the prior year. Seasonality The Company's business is seasonal, which the Company believes is typical of the retail craft and fabric 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 three months ended December 2, 2000, the Company relied on internally generated funds and credit made available by suppliers to finance inventories and new store openings. During the three months ended November 27, 1999 the Company also utilized short-term borrowings to finance inventories and new store openings. The Company's working capital increased by $1,131,000 for the three months ended December 2, 2000 as compared to the September 2, 2000 amount, primarily as a result of the Company retaining its net income for this period and reducing its inventory partially offset by increases in trade payables, income taxes payable and accrued expenses. 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 December 2, 2000). The line of credit was renewed in December 2000 for the year 2001. 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 $0 and $7,490,000 for the three months RAG SHOPS, INC. AND SUBSIDIARIES ended December 2, 2000 and November 27, 1999, respectively. The Company intends to 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 three months ended December 2, 2000 and November 27, 1999 amounted to $5,507,000 and $6,803,000, respectively, and used $504,000 and $26,000, respectively, for purchases of property and equipment. During the three months ended December 2, 2000 the Company opened one new store, did not close any existing stores and was operating sixty-six stores at the end of the period. During the remainder of the fiscal year ending September 1, 2001 the Company anticipates two additional new store openings and closing three stores. Costs associated with the opening of new stores, including capital expenditures, inventory and pre-opening expenses have historically 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 re-deploy assets of stores being closed to the new stores as opportunities evolve in order to curtail the costs of opening new stores. 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 11 of 11 [10Q3-00] 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) No reports on Form 8-K have been filed during the quarter for which this report is filed. 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: January 16, 2001 /s/ Stanley Berenzweig --------------------------- Stanley Berenzweig Chairman Of The Board and Principal Executive Officer Date: January 16, 2001 /s/ Stephen Provenzano ---------------------------- Stephen Provenzano Principal Financial Officer and Principal Accounting Officer EX-27 2 0002.txt FDS 1Q
5 3-mos Sep-01-2001 Sep-03-2000 Dec-02-2000 6,314,000 0 0 0 26,086,000 33,776,000 16,197,000 12,427,000 37,959,000 13,005,000 0 0 0 48,000 24,906,000 37,959,000 30,048,000 30,048,000 18,606,000 27,966,000 0 0 (19,000) 2,101,000 819,000 1,282,000 0 0 0 1,282,000 0.27 0.27
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