-----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, PeJhlGzdsGFyuF92qS4WBGaP1ItUX5ZnBd+myxC7p3ZopjxhjOwYgFkojid74NX2 MKqtspqWBYJPoB47RS1ILw== 0000874385-97-000001.txt : 19970109 0000874385-97-000001.hdr.sgml : 19970109 ACCESSION NUMBER: 0000874385-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970108 SROS: NONE 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: 1934 Act SEC FILE NUMBER: 000-19194 FILM NUMBER: 97502467 BUSINESS ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 BUSINESS PHONE: 2014231303 MAIL ADDRESS: STREET 1: 111 WAGARAW RD CITY: HAWTHORNE STATE: NJ ZIP: 07506 10-Q 1 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 November 30, 1996 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 (201) 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 27, 1996 Common stock, par value $.01 4,514,400 Page 1 of 10 RAG SHOPS, INC. AND SUBSIDIARIES INDEX Page PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets - November 30, 1996 (unaudited), December 2, 1995 (unaudited) and August 31, 1996 3 Condensed consolidated statements of income - three months ended November 30, 1996 (unaudited) and December 2, 1995 (unaudited) 4 Condensed consolidated statements of cash flows - three months ended November 30, 1996 (unaudited) and December 2, 1995 (unaudited) 5 Notes to condensed consolidated financial statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 7-9 PART II - OTHER INFORMATION Items 1. - 5. 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 10 Page 2 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (All amounts in thousands) November 30, December 2, August 31, 1996 1995 1996 (Unaudited) (Unaudited) (Note A) ASSETS Current assets: Cash $ 4,297 $ 1,748 $ 821 Merchandise inventories 24,314 23,271 26,280 Prepaid expenses 920 973 345 Other current assets 394 100 474 Deferred taxes 728 674 728 Total current assets 30,653 26,766 28,648 Property and equipment, net 4,369 4,501 4,462 Other assets 416 313 445 $35,438 $31,580 $33,555 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable-bank $ - $ 500 $ 1,130 Accounts payable-trade 7,828 6,195 7,604 Accrued expenses and other current liabilities 2,812 2,923 1,565 Accrued salaries and wages 723 652 583 Income taxes payable 781 368 150 Current portion of long-term debt 645 - 632 Total current liabilities 12,789 10,638 11,664 Deferred taxes 68 133 68 Long-term debt 1,067 - 1,230 Stockholders' equity: Preferred stock - - - Common stock 45 45 45 Additional paid-in capital 6,039 6,039 6,039 Retained earnings 15,430 14,725 14,509 Total stockholders' equity 21,514 20,809 20,593 $35,438 $31,580 $33,555 Note A: Derived from the August 31, 1996 audited balance sheet. See notes to the condensed consolidated financial statements. Page 3 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (All amounts in thousands, except share data) Three Months Ended November 30, December 2, 1996 1995 Net sales $ 26,181 $ 27,782 Cost of merchandise sold and occupancy costs 16,390 17,340 Gross profit 9,791 10,442 Store expenses 5,803 6,548 General and administrative expenses 2,420 2,620 Total operating expenses 8,223 9,168 Income from operations 1,568 1,274 Interest expense 49 80 Income before provision for income taxes 1,519 1,194 Provision for income taxes 598 458 Net income $ 921 $ 736 PER SHARE DATA: Net income per share $ .20 $ .16 Dividends per share $ - $ - Weighted average shares outstanding 4,514,484 4,518,884 See notes to the condensed consolidated financial statements. Page 4 of 10 RAG SHOPS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (All amounts in thousands) Three Months Ended November 30, December 2, 1996 1995 Cash flows from operating activities: Net income $ 921 $ 736 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 365 297 Loss on disposition of property and equipment 7 14 Changes in assets and liabilities: (Increase) decrease in: Merchandise inventories 1,966 4,288 Prepaid expenses (575) (432) Other current assets 80 (8) Other assets 24 - Increase (decrease) in: Accounts payable-trade 224 (1,253) Accrued expenses and other current liabilities 1,247 1,142 Accrued salaries and wages 140 - Income taxes payable 631 368 Net cash provided by operating activities 5,030 5,152 Cash flows from investing activities: Payments for purchases of property and equipment (274) (82) Proceeds from sale of property and equipment - 2 Net cash used in investing activities (274) (80) Cash flows from financing activities: Proceeds from issuance of note payable-bank 7,075 11,535 Repayments of note payable-bank (8,205) (15,770) Repayments of long-term debt (150) - Net cash used in financing activities (1,280) (4,235) Net increase in cash 3,476 837 Cash, beginning of period 821 911 Cash, end of period $ 4,297 $ 1,748 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 59 $ 59 Income taxes $ 117 $ 3 See notes to the condensed consolidated financial statements. Page 5 of 10 RAG SHOPS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED NOVEMBER 30, 1996 AND DECEMBER 2, 1995 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 months ended November 30, 1996 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 con- densed 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 1996. NOTE 2 - ADOPTION OF ACCOUNTING STANDARDS The Company has adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". This Statement establishes accounting standards for the measurement of the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets. This Statement requires that an asset to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's long-lived assets are not impaired based on a review of such assets. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), which is effective for the Company beginning September 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees in Notes to Annual Financial Statements and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share in its annual financial statements. Page 6 of 10 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 November 30, December 2, 1996 1995 Net sales 100.0% 100.0% Cost of merchandise sold and occupancy costs 62.6 62.4 Gross profit 37.4 37.6 Store expenses 22.2 23.6 General and administrative expenses 9.2 9.4 Income from operations 6.0 4.6 Net income 3.5% 2.7% The Company's net sales decreased by $1,601,000 or 5.8% for the three months ended November 30, 1996 over the comparable prior period primarily due to decreases in comparable store sales of $1,108,500 or 4.1% partially offset by new store sales of $497,000. The shift in the Thanksgiving holiday weekend from the penultimate week of the first quarter last year, resulted in one week during the peak selling period between Thanksgiving and Christmas last year, as compared to none this year, since the quarter ended the Saturday immediately following Thanksgiving. The absence of that holiday week in this year's quarter played a significant role in these sales results. Management believes that the marketing plan launched in September 1996 has begun to show positive results due to a reversal of comparable store sales from a decrease of 5.2% in fiscal September 1996 to an increase of 6.4% for the four week period ending the Saturday after Thanksgiving over the comparable prior period. Gross profit percentage decreased by .2% for the three months ended November 30, 1996 from the comparable prior period primarily due to an increase in occupancy costs as a percent to sales of .6%. This amount was partially offset by a .4% decrease in the Company's shrinkage estimate based on the results of the most recent annual physical inventory and continuation of loss prevention methods. Store expenses decreased by $745,000 and as a percentage of net sales decreased by 1.4% for the three months ended November 30, 1996 from the comparable prior period. The decrease in store expenses and as a percentage of net sales was primarily due to a decrease in advertising costs as a result of the accelerated advertising program in the comparable prior period and secondarily due to a decrease in payroll and payroll related expenses. Page 7 of 10 RAG SHOPS, INC. AND SUBSIDIARIES General and administrative expenses decreased by $200,000 and as a percentage of net sales decreased by .2% during the three months ended November 30, 1996 over the comparable prior period. The decrease in general and administrative expenses and as a percentage of net sales was primarily due to a decrease in payroll and payroll related expenses. Interest expense decreased for the three months ended November 30, 1996 from the comparable prior period as a result of cash provided by operating activities. This decrease was partially offset by additional interest on the Company's term loan to finance its point-of-sale cash register software, data collection and computer systems. See "Liquidity and Capital Resources". The effective tax rate for the three months ended November 30, 1996 was estimated at 39.4% as compared to 38.3% for the comparable prior period. This increase is attributed to a higher effective state and local income tax rate. Net income increased by $185,000 for the three months ended November 30, 1996 as compared to the comparable prior period. The increase in net income is due to the decrease in store, general and administrative expenses partially offset by the decrease in gross profit. 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 three months ended November 30, 1996 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 $880,000 for the three months ended November 30, 1996 as compared to the August 31, 1996 amount as a result of the Company retaining its net income for this period. The Company maintains a $10 million credit facility with a bank. The credit facility which is renewable on or before each December 31 has been renewed for 1997 unchanged.The credit facility consists of a discretionary $8,000,000 unsecured line of credit for direct borrowings and the issuance and refinance of letters of credit and a $2,000,000 three (3) year term loan maturing May 1, 1999. Borrowings under the line of credit bear interest at the bank's Page 8 of 10 RAG SHOPS, INC. AND SUBSIDIARIES prime rate (8.25% at November 30, 1996) and under the term loan are fixed at eight percent (8%). 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 $1,460,000 and $4,935,000 for the three months ended November 30, 1996 and December 2, 1995, respectively. The Company intends to maintain the availability of a line of credit for working capital requirements and in order to be able to take advantage of future opportunities and to continue to utilize the term loan to finance its new point-of-sale cash register software, data collection and computer systems ("point-of-sale systems"). The Company will continue to install its point-of-sale systems during the remainder of this fiscal year and anticipates completing installation in all stores by spring 1997. Net cash provided by operating activities for the three months ended November 30, 1996 and December 2, 1995 amounted to $5,030,000 and $5,152,000, respectively, and $274,000 and $82,000, respectively, was used for purchases of property and equipment. As of November 30, 1996 the Company has opened two new stores, closed one and expects to open an additional one to three new stores and close three existing stores during the current 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. Forward-Looking Statements Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statement. These risks and uncertainties include, but are not limited to, changes in customer demand, changes in trends in the fabric and craft industry, changes in competitive pricing for products, the impact of competitor store openings and closings, the availability of merchandise, general economic conditions and other risk factors. Page 9 of 10 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 8, 1997 /s/ Stanley Berenzweig Stanley Berenzweig Chairman Of The Board and Principal Executive Officer Date: January 8, 1997 /s/ Steven B. Barnett Steven B. Barnett Principal Financial Officer and Principal Accounting Officer Page 10 of 10 EX-27 2
5 3-MOS AUG-30-1997 NOV-30-1996 4,297,000 0 0 0 24,314,000 30,653,000 12,149,000 7,780,000 35,438,000 12,789,000 0 0 0 45,000 21,469,000 35,438,000 26,181,000 26,181,000 16,390,000 8,223,000 0 0 49,000 1,519,000 598,000 921,000 0 0 0 921,000 0.20 0.20
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