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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-12188
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DEB SHOPS, INC.
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(Exact name of registrant as specified in its charter)
9401 Blue Grass Road, Philadelphia, PA 19114
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(Address of principal executive offices and zip code)
Pennsylvania 23-1913593
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(State of Incorporation) (IRS Employer Identification No.)
(215) 676-6000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share.
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ______X_____
As of April 10, 2002, 13,634,900 shares of the Company's Common Stock,
par value $.01 per share, were outstanding. The aggregate market value (based
upon the closing price on April 10, 2002) held by non-affiliates was
approximately $122,307,329.
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Definitive Proxy Statement to be filed within 120 days
after the end of the fiscal year in connection with the Annual Meeting to be
held on May 30, 2002 - incorporated in Part III.
Forward-Looking Statements
The Company has made in this report, and from time to time may
otherwise make, "forward-looking statements" (as that term is defined under
federal securities laws) concerning the Company's future operations,
performance, profitability, revenues, expenses and financial condition. This
report includes, in particular, forward-looking statements regarding store
openings and closings and other matters. Such forward-looking statements are
subject to various risks and uncertainties. Actual results could differ
materially from those currently anticipated due to a number of factors. Such
factors may include, but are not limited to, the Company's ability to improve
sales and margins, respond to changes in fashion, find suitable retail locations
and attract and retain key management personnel. Such factors may also include
other risks and uncertainties detailed in the Company's other filings with the
Securities and Exchange Commission.
PART 1
Item 1. Business
- ------- --------
General
Deb Shops, Inc. (the "Company") operates 309 women's and men's
specialty apparel retail stores. The 301 DEB stores offer moderately priced,
fashionable, coordinated women's sportswear, dresses, coats, lingerie,
accessories and shoes for junior and plus sizes. DEB merchandise consists of
clothing and accessories appealing primarily to the fashion-conscious junior and
plus sized female consumers between the ages of 13 and 18. In addition to 296
stores operating under the name "DEB" the Company operates one plus size store
under the name "DEB PLUS" and four outlet stores under the name "CSO." The
outlet stores offer the same merchandise as DEB and DEB PLUS at reduced prices
and serve as clearance stores for slow-moving inventory. Eighty of the DEB
stores contain plus size departments. The Company also operates eight apparel
retail stores under the name "Tops `N Bottoms." Tops `N Bottoms sells moderately
priced men's and women's apparel. Seventeen of the DEB stores contain Tops `N
Bottoms departments.
Merchandising and Marketing
DEB specializes in junior-sized merchandise and offers an extensive
selection of colors and styles. The merchandise is attractively presented in
groups coordinated by color and style to assist customers in locating items of
their choice and creating outfits of their own.
The DEB PLUS division caters to the plus size customer between the ages
of 13 to 18. The merchandise is young looking and the fit is adjusted to the
plus size customer. Prices are affordable and very competitive.
Tops `N Bottoms caters primarily to young men and junior-sized women.
Much of the merchandise is brand named and unisex.
The Company purchases merchandise in volume, sells at popular prices,
and has a policy of early markdowns of slow-moving inventory. A special effort
is made to select and present coordinated outfits on a rotating basis and
featured merchandise is changed approximately twice a week.
-1-
A computerized point-of-sale merchandise data system provides detailed
daily information regarding sales and inventory levels by style, color, class
and department, thereby permitting the Company to analyze market trends and
changing store needs. Since merchandise control statistics are available on a
daily basis, the Company can identify slow-moving merchandise and respond to
customer buying trends when making repurchase decisions and markdown
adjustments. This permits the Company to maintain current and fresh merchandise
in its stores.
The Company experiences the normal seasonal pattern of the retail
apparel industry with its peak sales occurring during the Christmas,
Back-to-School and Easter periods. To keep merchandise fresh and fashionable,
slow-moving merchandise is marked down throughout the year. End-of-season sales
are conducted twice per year (in the second and fourth quarters), in keeping
with the Company's policy of carrying a minimal amount of seasonal merchandise
over from one year to another. At the end of the season, any unsold merchandise
is transferred to the Company's CSO stores.
Stores
During the fiscal year ended January 31, 2002 ("fiscal 2002"), the
Company opened 23 stores (while closing five stores, including one Plus store).
Thirteen of the new stores have Plus departments. The Company also added Plus
departments to three existing DEB stores. The Company currently plans to open
15-25 new stores in the fiscal year ending January 31, 2003 ("fiscal 2003"). The
current plans include the opening of ten to 15 Plus departments in the new
stores. The Company is currently scheduled to close two stores in the first half
of fiscal 2003. The Company plans to continue to evaluate carefully the
profitability of individual stores and close those stores that it believes
cannot become profitable or maintain profitability.
The following table shows apparel store openings and closings for the
last five fiscal years.
Year Ended January 31,
----------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Open at beginning of fiscal year.. 291 285 273 269 285
Opened during fiscal year............ 23 13 17 17 5
Closed during fiscal year............. (5) (7) (5) (13) (21)
------ ------ ------ ------ ------
Open at end of fiscal year........... 309 291 285 273 269
====== ====== ====== ====== =====
-2-
The following table shows the states in which the Company's 309
existing apparel stores are located:
New England East Midwest
Connecticut 4 Delaware 1 Illinois 19
Maine 4 Maryland 9 Indiana 10
Massachusetts 12 New Jersey 16 Iowa 3
New Hampshire 1 New York 33 Kansas 4
Rhode Island 1 Pennsylvania 40 Kentucky 3
Vermont 1 Virginia 13 Michigan 27
------- West Virginia 6 Minnesota 9
23 ------- Missouri 7
118 Nebraska 2
North Dakota 4
Ohio 27
South Dakota 2
Wisconsin 11
------
128
South West
Georgia 1 Arizona 1
North Carolina 3 California 2
Tennessee 4 Colorado 2
------- Idaho 2
8 New Mexico 3
Oklahoma 4
Oregon 5
Texas 6
Utah 3
Washington 3
Wyoming 1
-------
32
DEB stores, which average 6,000 square feet, are located primarily in
enclosed regional malls and selected strip shopping centers. DEB stores with
Tops `N Bottoms or DEB PLUS departments average 8,000 square feet and are
located primarily in enclosed regional malls. Tops `N Bottoms stores are all
located in enclosed regional malls and range in size from 2,400 to 3,400 square
feet. New stores are opened in existing malls, existing mall expansions, new
malls and occasionally strip shopping centers. Factors considered in opening new
stores include the availability of suitable locations and satisfactory lease
terms, both of which are considered essential to successful operations. Key
considerations in selecting sites for new stores include the geographic location
of the center, the demographics of the surrounding area, the principal specialty
and "anchor" stores within the center, expected customer traffic within the
center, and the location of the Company's store within the center itself.
Stores are distinctively designed for customer identification and are
remodeled periodically as necessary. The stores are open during mall operating
hours, which are generally from 10:00 A.M. to 9:30 P.M., Monday through
Saturday, and from Noon to 5:00 P.M. on Sunday.
-3-
Operations
Payments for most of the Company's sales are made in cash or check,
with the balance made with MasterCard, Visa or Discover credit cards. For
customer convenience, the Company provides lay-away plans. The Company's policy
is to permit returns of merchandise for exchange or a full cash or credit
refund, at the customer's preference.
The Company purchases its merchandise from a number of suppliers, both
domestic and foreign, and is not materially dependent on any one supplier. All
merchandise is shipped directly from vendors to the Company's central
distribution facility, where it is inspected and price-marked before being
shipped to the individual stores. The Company distributes its inventory by
common carrier and leased trucks.
The responsibility for managing the Company's stores rests with the
Director of Store Operations and a staff of 40 employees consisting of an
Assistant Director of Store Operations and Regional and District Managers. A
Regional Manager is responsible for an average of six districts. A District
Manager is responsible for an average of 10 stores, each of which is staffed by
a Store Manager and two Assistant Store Managers. The District and Regional
Managers visit the stores regularly to review merchandise levels, content and
presentation, staff training and other personnel issues, store security and
cleanliness and adherence to standard operating procedures.
The merchandising department consists of 43 employees, including the
Senior Vice President, Merchandising; Vice President, Merchandising; Merchandise
Managers and Buyers. The department is responsible for purchasing, pricing
(including markdowns), inventory planning and allocating merchandise among the
stores. The merchandising department's staff is organized in the following
apparel categories: sportswear, dresses, coats, lingerie, hosiery, shoes,
accessories and plus sizes.
At January 31, 2002, the Company had approximately 3,400 employees, 64%
of whom were employed on a part-time basis. The Company has a collective
bargaining agreement with the United Paperworkers International Union,
Philadelphia Local 286 ("UPIU") that expires on December 31, 2004. The UPIU
represents the Company's warehouse employees. The collective bargaining
agreement covers approximately 82 employees. The Company considers its employee
relations to be good.
Competition
The retail sale of apparel is an extremely competitive business with
numerous individual and chain store competitors, including specialty shops as
well as regional and national department store chains. Many of the Company's
competitors are considerably larger than the Company and have substantially
greater financial and other resources.
The primary elements of competition are merchandise style, selection,
quality, display and price, as well as store location and design. The Company
believes that its strategy for the DEB stores of specializing in the junior and
plus size sportswear market and its ability to effect volume purchases are
important elements in its operations. Brand name merchandise is not a
significant factor in the Company's sales.
-4-
Atlantic Books
The Atlantic Books chain was acquired on October 20, 1996, and was sold
on October 16, 2001, effective as of September 30, 2001. For a discussion of the
results of operations of the book business for the period ended September 30,
2001, and the effect of the sale of the book business on the Company, see Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 2. Properties
- ------ ----------
The Company leases all of its stores. The internal layout and fixtures
of each store are designed and constructed under contracts with third parties.
Under most leases, the Company is required to pay, in addition to fixed
minimum rental payments, charges for real estate taxes, common area maintenance
fees, utility charges, insurance premiums, mall association charges and
contingent rentals based upon a percentage of sales in excess of specified
amounts.
The following table shows the current expiration dates of executed
store leases, existing at January 31, 2002. In many cases, the Company has
renewal options.
Calendar Years Number of Leases Expiring
-------------- -------------------------
2002 - 2003........................... 50
2004 - 2005........................... 89
2006 - 2007........................... 66
2008 - 2009........................... 30
2010 - 2011........................... 33
2012 - 2013........................... 21
2014 and thereafter................... 20
---
Total.............. 309
===
The Company leases its warehouse, distribution and office space,
aggregating 280,000 square feet, pursuant to a lease which, as amended, expires
in 2007. This facility is a modern, one-story industrial building situated on
approximately 20 acres in the northeast section of Philadelphia, Pennsylvania.
See Item 13. Certain Relationships and Related Transactions.
With respect to the locations of present stores, see Item 1. Business -
Stores.
Item 3. Legal Proceedings
- ------- -----------------
The Company is subject to legal proceedings, employment issues and
claims that arise in the ordinary course of its business. Management, after
consultation with outside legal counsel, does not believe that the ultimate
disposition of such proceedings will have a materially adverse effect on the
Company's consolidated financial position or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None.
-5-
EXECUTIVE OFFICERS OF THE REGISTRANT
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Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this Report in lieu of being
included in the Definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on May 30, 2002.
The executive officers of the Company, each of whom serves at the
discretion of the Board of Directors, are as follows:
Name Age Position with Company Officer Since
- ---- --- --------------------- -------------
Marvin Rounick 62 Director, President and Chief Executive Officer 1973
Warren Weiner 58 Director, Executive Vice President, Secretary and Treasurer 1973
Allan Laufgraben 63 Senior Vice President, Merchandising 1995
Barry Vesotsky 56 Vice President, Merchandising 1981
Stanley A. Uhr 56 Vice President, Real Estate and Corporate Counsel 1988
Lewis Lyons 48 Vice President, Finance, Chief Financial Officer and
Assistant Secretary 1992
Stephen P. Smith 42 Vice President - Information Systems 1998
Joan M. Nolan 49 Controller 1998
Marvin Rounick has been employed by the Company since 1961. Since 1979,
he has served as President and Chief Executive Officer. Prior to that time, he
served as Vice President, Operations and General Merchandise Manager.
Warren Weiner was employed by the Company from 1965 until 1975. He
rejoined the Company in January 1982, as Executive Vice President, Secretary and
Treasurer.
Allan Laufgraben has been employed by the Company since December 1995,
as Senior Vice President, Merchandising.
Barry Vesotsky has been employed by the Company since 1970. Since 1981,
he has served as Vice President, Merchandising.
Stanley A. Uhr has been employed by the Company since 1987. Since March
1988, he has served as Vice President, Real Estate and Corporate Counsel.
Lewis Lyons has been employed by the Company since 1990. Since May
1993, he has served as Vice President, Finance and Chief Financial Officer and
from October 2, 1995, also as Assistant Secretary.
Stephen P. Smith has been employed by the Company since 1985. From 1985
to 1994, as a programmer and systems analyst; from 1994 to 1995, as Manager -
Information Systems; from 1995 to 1998, as Director - Information Systems and
from May 27, 1998, as Vice President - Information Systems.
Joan M. Nolan has been employed by the Company since November 2, 1998,
as Controller. From July 1997 to July 1998, she was an accounting manager with
Innovest Group, Inc., and from May 1975 to July 1996, she was Assistant to the
Treasurer for Strawbridge & Clothier.
-6-
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
- ------ ------------------------------------------------------------------------
Market Information
The Company's Common Stock is traded on the NASDAQ National Market
under the symbol: DEBS.
The following table sets forth quarterly high and low sales prices for
the two most recent fiscal years.
2002 High Low
- ---- ---- ---
First Quarter $22.700 $15.500
Second Quarter $24.200 $18.000
Third Quarter $25.750 $19.230
Fourth Quarter $26.850 $22.670
2001 High Low
- ---- ---- ---
First Quarter $18.8750 $13.0000
Second Quarter 15.1875 8.5000
Third Quarter 13.6250 9.6875
Fourth Quarter 16.5000 11.1875
Holders
As of April 10, 2002, there were 209 record holders and approximately
2,732 beneficial holders of the Company's Common Stock.
Dividends
The Company paid regular quarterly dividends for each of the two most
recent fiscal years. The per-share amount of the quarterly dividends paid for
fiscal 2001 and the first two quarters of fiscal 2002 was $0.05 and the
per-share amount of the quarterly dividends paid for the last two quarters of
fiscal 2002 was $0.075. The Company also paid a special one-time dividend of
$0.05 per share in the third quarter of fiscal 2002. The Company currently
intends to follow a policy of regular quarterly dividends, subject to earnings,
capital requirements and the operating and financial condition of the Company,
among other factors.
-7-
Item 6. Selected Financial Data
- ------- -----------------------
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.
Deb Shops, Inc. and Subsidiaries
Consolidated Financial Highlights
Year Ended January 31,
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(in thousands, except per share data) 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Net Sales $307,582 $287,263 $270,032 $234,724 $205,066
Gross Margin 107,257 97,206 92,634 70,710 52,723
Operating Income 33,439 34,477 35,566 21,312 8,142
Net Income 23,590 24,841 24,462 15,496 6,637
Net Income Per Common Share - Basic 1.74 1.85 1.84 1.18 .51
Net Income Per Common Share - Diluted 1.73 1.83 1.81 1.17 .51
Weighted Average Shares Outstanding - Basic 13,546 13,379 13,230 13,057 12,845
Weighted Average Shares Outstanding - Diluted 13,629 13,519 13,494 13,215 12,947
Total Assets 195,943 172,916 148,271 119,026 103,495
Capital Lease Obligation - Long-Term --- 301 741 1,099 1,392
Shareholders' Equity 157,958 137,759 114,818 92,157 78,027
Book Value Per Share at Year End 11.59 10.23 8.61 6.98 6.07
Cash Dividends Declared Per Share of
Common Stock .325 .20 .20 .20 .20
Not covered by Report of Independent Auditors.
Item 7.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ---------------------------------------------------------------
Forward-Looking Statements
Deb Shops, Inc. (the "Company") has made in this report, and from time
to time may otherwise make, "forward-looking statements" (as that term is
defined under federal securities laws) concerning the Company's future
operations, performance, profitability, revenues, expenses and financial
condition. This report includes, in particular, forward-looking statements
regarding store openings, closings and other matters. Such forward-looking
statements are subject to various risks and uncertainties. Actual results could
differ materially from those currently anticipated due to a number of factors.
Such factors may include, but are not limited to, the Company's ability to
improve sales and margins, respond to changes in fashion, find suitable retail
locations and attract and retain key management personnel. Such factors may also
include other risks and uncertainties detailed in the Company's other filings
with the Securities and Exchange Commission.
Overview
The Company operates women's specialty retail apparel stores offering
popularly priced, fashionable, coordinated sportswear, dresses, coats, lingerie,
accessories and shoes for junior and plus-sized women. The Company also operates
Tops `N Bottoms stores which sell moderately priced men's and women's apparel.
-8-
Effective as of September 30, 2001, the Company sold the stock of its
subsidiary, Books Management, Inc. ("BMI"). For the eight months ended September
30, 2001, BMI had net sales of $11,897,000 and operating income of $662,000. As
a result of the transaction, the Company recorded a nonrecurring pretax loss of
$7,381,000 ($4,611,000 net of tax, or a loss per share of ($0.34)).
Results of operations for the Company for the fiscal years ended
January 31, 2002 ("fiscal 2002"), 2001 ("fiscal 2001") and 2000 ("fiscal 2000"),
are discussed below on a consolidated basis and separately for the apparel
business to provide relevant information concerning the Company's retail apparel
store business.
Results of Operations - Consolidated
Consolidated net sales increased $20,319,000 (7.1%) to $307,582,000 in
fiscal 2002 from $287,263,000 in fiscal 2001, and increased $17,232,000 (6.4%)
in fiscal 2001 over fiscal 2000. The increases in fiscal 2002 and 2001 were
primarily the result of increased sales in the apparel division.
The changes in net sales, cost of sales, selling and administrative
expenses and operating income are more fully described in the section on the
apparel business that follows.
Other income, principally interest, decreased ($1,364,000) (25.9%) to
$3,901,000 in fiscal 2002 from $5,264,000 in fiscal 2001, and increased
$1,668,000 (46.4%) in fiscal 2001 over fiscal 2000. Other income is offset by
losses on disposition of fixed assets. The decrease in fiscal 2002 was primarily
the result of gradually declining interest rates, partially offset by higher
cash balances and, to a lesser extent, decreased write-offs from the disposition
of fixed assets. The increase in fiscal 2001 was primarily the result of
earnings on higher cash balances, gradually rising interest rates and, to a
lesser extent, decreased write-offs from the disposition of fixed assets.
Income before income taxes decreased ($2,401,000) (6.0%) to $37,340,000
in fiscal 2002 from $39,741,000 in fiscal 2001, and increased $579,000 (1.5%) in
fiscal 2001 over fiscal 2000. The reduction in fiscal 2002 is the result of the
nonrecurring loss from the sale of BMI and a reduction in other income which
offset an increase in operating income before the effect of the nonrecurring
loss. The improvement in fiscal 2001 is comprised of a decrease in operating
income offset by an increase in other income, principally interest. The
effective income tax rate was 36.8% for fiscal 2002, 37.5% for fiscal 2001 and
37.5% for fiscal 2000. The effective income tax rates for fiscal 2002, fiscal
2001 and fiscal 2000 are greater than the statutory federal rate, primarily as
the result of state income tax expense.
Results of Operations - Apparel Business
Net sales increased $26,075,000 (9.7%) to $295,685,000 in fiscal 2002
from $269,610,000 in fiscal 2001, and increased $16,931,000 (6.7%) in fiscal
2001 over fiscal 2000. The increase in fiscal 2002 resulted primarily from an
increase in the number of stores in operation and, to a lesser extent, from an
increase in comparable store sales of 3.8%. The increase in fiscal 2001 resulted
primarily from an increase in the number of stores in operation and, to a lesser
extent, from an increase in comparable store sales of 1.5%. Management continues
to adjust the product mix, pricing and visual merchandising to stimulate sales
further.
-9-
The following table sets forth certain store information:
Store Data(1)
Year Ended January 31,
--------------------------------------------------
2002 2001 2000
---- ---- ----
Stores open at end of the year 309 291 285
Average number in operation during the year 295 290 276
Average net sales per store (in thousands) $1,002 $930 $916
Average operating income per store (in thousands) $138 $121 $128
Comparable store sales(2) - percent change 3.8% 1.5% 13.0%
Cost of sales, including buying and occupancy costs, increased
$14,968,000 (8.5%) to $191,784,000 in fiscal 2002 from $176,816,000 in fiscal
2001, and increased $11,923,000 (7.2%) in fiscal 2001 over fiscal 2000. The
fiscal 2002 and fiscal 2001 increases in cost of sales, including buying and
occupancy costs, are principally due to the increases in net sales. As a
percentage of net sales, these costs were 64.9% for fiscal 2002, 65.6% for
fiscal 2001 and 65.3% for fiscal 2000. For fiscal 2002, the decreased cost of
sales, including buying and occupancy costs, percentage is primarily the result
of increased margins. For fiscal 2001, the increased cost of sales, including
buying and occupancy costs, percentage is the result of decreased margins
principally in the second quarter. Buying and occupancy costs were 15.6%, 15.4%
and 15.4% of net sales for the fiscal years 2002, 2001 and 2000, respectively.
Selling and administrative expenses increased $6,226,000 (11.6%) to
$59,780,000 in fiscal 2002 from $53,553,000 in fiscal 2001, and increased
$4,814,000 (9.9%) in fiscal 2001 over fiscal 2000. The increases in these
expenses for fiscal 2002 and fiscal 2001 are mainly due to increased costs of
personnel and benefits, partially resulting from an increase in the number of
stores and an increase in average sales per store. As a percentage of net sales,
these expenses were 20.2%, 19.9% and 19.3% during fiscal 2002, 2001 and 2000,
respectively.
Depreciation expense decreased ($648,000) to $3,528,000 in fiscal 2002
from $4,176,000 in fiscal 2001, and increased $553,000 in fiscal 2001 over
fiscal 2000. The decrease in fiscal 2002 from fiscal 2001 and the increase in
fiscal 2001 from fiscal 2000 are principally attributable to the accelerated
write-off of leasehold improvements in fiscal 2001.
Operating income increased $5,529,000 (15.8%) to $40,594,000 in fiscal
2002 from $35,064,000 in fiscal 2001, and decreased ($360,000) (1.0%) in fiscal
2001 from fiscal 2000. As a percentage of net sales, operating income was 13.7%
in fiscal 2002, 13.0% in fiscal 2001 and 14.0% in fiscal 2000. In fiscal 2002,
the increase in operating income is primarily the result of the increased
margins. In fiscal 2001, the decrease in operating income is primarily the
result of slower sales growth and a slight decrease in margins.
Liquidity and Capital Resources - Consolidated
As of January 31, 2002, the Company had cash and cash equivalents of
$135,252,000 compared to $111,649,000 as of January 31, 2001, and $90,307,000 as
of January 31, 2000. These funds are invested principally in money market mutual
funds and short-term municipal bonds, all of which are fully insured or
guaranteed by letters of credit. The Company does not invest for trading
purposes. Accordingly, the Company does not believe it has significant exposure
to market risk with respect to its investments.
- ----------------------------
(1) Includes Tops 'N Bottoms stores
(2) Comparable store sales includes stores opened for both periods, in the
current format and location. A store is added to the comparable store base
in its 13 month of operation.
-10-
During the past three fiscal years, the Company internally funded all
of its operating needs, including capital expenditures for the opening of new
stores and the remodeling of existing stores. Total cash provided by operating
activities, for fiscal 2002, 2001 and 2000, was $32,341,000, $28,380,000 and
$30,015,000, respectively. For fiscal 2002, cash provided by operations was the
result of net income adjusted for the nonrecurring loss on the sale of BMI and
noncash charges for depreciation and amortization and changes in operating
assets and liabilities, including an increase in trade accounts payable and
taxes payable offset by an increase in merchandise inventories. For fiscal 2001,
cash provided by operating activities was the result of the fiscal 2001 net
income increased by noncash charges for depreciation and amortization and
changes in operating assets and liabilities, including a decrease in prepaid
expenses and an increase in trade accounts payable offset by an increase in
merchandise inventories. The inventory turnover rate for the apparel business
was approximately 3.2, 3.4 and 3.6 times for fiscal 2002, 2001 and 2000,
respectively.
Net cash used in investing activities was $5,256,000, $4,781,000 and
$7,520,000 for fiscal 2002, 2001 and 2000, respectively. During these fiscal
years, these funds were principally used for the opening of new stores and the
remodeling of existing stores and in fiscal 2002 was partially offset by the
proceeds from the sale of BMI.
Net cash used in financing activities was $3,482,000, $2,258,000 and
$2,417,000 for fiscal 2002, 2001 and 2000, respectively. During these fiscal
years these funds were principally used for the payment of dividends on
preferred and common stock, partially offset by the proceeds from the exercise
of stock options.
The Company believes that internally generated funds will be sufficient
to meet its anticipated capital expenditures, none of which are material, and
current operating needs. The Company leases its retail apparel stores, warehouse
and office building for periods ranging from one to 25 years. The future
commitments for all noncancelable leases are listed by year in Note E to the
consolidated financial statements.
Seasonal Nature of Operations
Approximately 54% and 69% of the Company's net sales and net income
before effect of nonrecurring loss, respectively, for fiscal 2002 occurred
during the last six months, as compared to 54% and 72%, respectively, for the
prior fiscal year. The last six months include the Back-to-School and Christmas
selling seasons. See "Quarterly Financial Information (Unaudited)," and the
preceding discussion on "Results of Operations."
Critical Accounting Policies
Significant accounting policies are described in Note A to the
consolidated financial statements, Summary of Significant Accounting Policies.
Management does not believe that any of its significant accounting policies
require the use of judgments that are inherently subject to significant changes.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
- -------- ---------------------------------------------------------
Please see the first paragraph under the caption "Liquidity and Capital
Resources - Consolidated" in the Annual Report on Form 10-K for a discussion
regarding quantitative and qualitative disclosures about market risk.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
-11-
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Deb Shops, Inc.
We have audited the accompanying consolidated balance sheets of Deb Shops, Inc.
and subsidiaries as of January 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended January 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Deb
Shops, Inc. and subsidiaries at January 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2002, in conformity with accounting principles
generally accepted in the United States.
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 6, 2002
-12-
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended January 31,
-------------------------------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Net Sales $307,582,342 $287,263,105 $270,031,603
------------- ------------- -------------
Costs and Expenses
Cost of sales, including buying
and occupancy costs 200,324,875 190,057,520 177,397,452
Selling and administrative 62,511,260 57,992,175 52,927,297
Depreciation and amortization 3,925,895 4,736,679 4,141,263
Nonrecurring loss on sale of
subsidiary 7,381,152 --- ---
------------- ------------- -------------
274,143,182 252,786,374 234,466,012
------------- ------------- -------------
Operating Income 33,439,160 34,476,731 35,565,591
Other Income, Principally Interest 3,900,582 5,264,089 3,596,343
------------- ------------- -------------
Income Before Income Taxes 37,339,742 39,740,820 39,161,934
Income Tax Provision 13,750,000 14,900,000 14,700,000
------------- ------------- -------------
Net Income $ 23,589,742 $ 24,840,820 $ 24,461,934
============= ============= =============
Net Income Per Common Share
Basic $ 1.74 $ 1.85 $ 1.84
============= ============= =============
Diluted $ 1.73 $ 1.83 $ 1.81
============= ============= =============
Weighted Average Number of
Common Shares Outstanding
Basic 13,546,132 13,378,666 13,230,490
============= ============= =============
Diluted 13,628,621 13,518,653 13,494,006
============= ============= =============
See notes to consolidated financial statements.
-13-
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31,
---------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $135,251,663 $111,648,544
Merchandise inventories 31,041,713 31,017,772
Prepaid expenses and other 2,863,473 3,154,388
Deferred income taxes 1,240,047 1,622,556
------------ -----------
Total current assets 170,396,896 147,443,260
------------ -----------
Property, Plant and Equipment - at cost
Land 150,000 150,000
Buildings 4,347,697 4,347,697
Leasehold improvements 39,058,583 35,034,367
Furniture and equipment 17,025,868 18,357,475
---------- ----------
60,582,148 57,889,539
Less accumulated depreciation and amortization 41,554,322 40,108,200
---------- ----------
19,027,826 17,781,339
---------- ----------
Other Assets
Goodwill, net of accumulated amortization of $1,303,269
in 2001 -- 2,075,813
Deferred income taxes 4,306,068 3,903,101
Other 2,212,223 1,712,223
--------- ---------
Total other assets 6,518,291 7,691,137
--------- ---------
$195,943,013 $172,915,736
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $24,222,316 $ 20,624,227
Accrued expenses and other 9,417,972 10,916,404
Income taxes payable 4,344,448 3,314,659
---------- ------------
Total current liabilities 37,984,736 34,855,290
---------- ------------
Capital Lease Obligation -- 301,117
---------- ------------
Shareholders' Equity
Series A Preferred stock, par value $1.00 per share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common stock, par value $.01 per share:
Authorized - 50,000,000 shares
Issued - 15,688,290 shares 156,883 156,883
Additional paid-in capital 5,864,790 5,864,790
Retained earnings 164,732,974 145,495,311
----------- -----------
170,755,107 151,517,444
Less common treasury shares, at cost -
2002: 2,063,390; 2001: 2,218,390 12,796,830 13,758,115
---------- ----------
157,958,277 137,759,329
----------- -----------
$195,943,013 $172,915,736
============ ============
See notes to consolidated financial statements.
-14-
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock
------------------------------------------------------------------------
Balance January 31, 1999 $460 $156,883 $5,541,944 $101,844,410 ($15,387,113)
Net income 24,461,934
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.20 per share) (2,651,029)
Stock options exercised (209,259) 791,849
Tax benefit from exercise of stock options 322,846
------------------------------------------------------------------------
Balance January 31, 2000 460 156,883 5,864,790 123,390,856 (14,595,264)
Net income 24,840,820
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.20 per share) (2,680,130)
Stock options exercised (1,035) 837,149
------------------------------------------------------------------------
Balance January 31, 2001 460 156,883 5,864,790 145,495,311 (13,758,115)
Net income 23,589,742
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.325 per share) (4,410,593)
Stock options exercised 113,714 961,285
------------------------------------------------------------------------
Balance January 31, 2002 $460 $156,883 $5,864,790 $164,732,974 ($12,796,830)
==== ======== ========== ============ ============
See notes to consolidated financial statements.
-15-
DEB SHOPS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31,
---------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 23,589,742 $ 24,840,820 $24,461,934
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,925,895 4,736,679 4,141,263
Deferred income provision (benefit) 13,000 (56,000) (1,258,000)
Loss on retirement of property, plant and
Equipment 116,274 199,570 222,912
Nonrecurring loss on sale of subsidiary 4,611,152 --- ---
Changes in operating assets and liabilities,
net of disposition of BMI:
(Increase) in merchandise inventories (8,073,992) (4,467,339) (2,616,278)
Decrease (increase) in prepaid expenses & other 164,556 1,064,849 (2,135,952)
Increase in trade accounts payable 5,550,856 3,128,250 1,405,369
(Decrease) increase in accrued expenses & other (1,361,967) (455,946) 4,274,032
Increase (decrease) in income taxes payable 3,805,517 (610,881) 1,520,177
------------ ------------ -----------
Net cash provided by operating activities 32,341,033 28,380,002 30,015,457
------------ ------------ -----------
Cash flows from investing activities:
Purchases of property, plant and equipment (6,264,862) (4,780,694) (7,519,855)
Proceeds from sale of subsidiary, net of cash retained 1,008,769 --- ---
------------ ------------ -----------
Net cash used in investing activities (5,256,093) (4,780,694) (7,519,855)
------------ ------------ -----------
Cash flows from financing activities:
Preferred stock cash dividends paid (55,200) (55,200) (55,200)
Common stock cash dividends paid (4,062,220) (2,680,130) (2,651,029)
Proceeds from exercise of stock options 1,074,999 836,114 582,590
Principal payments under capital lease obligation (439,400) (358,782) (292,956)
------------ ------------ -----------
Net cash used in financing activities (3,481,821) (2,257,998) (2,416,595)
------------ ------------ -----------
Increase in cash and cash equivalents 23,603,119 21,341,310 20,079,007
Cash and cash equivalents at beginning of year 111,648,544 90,307,234 70,228,227
------------ ------------ -----------
Cash and cash equivalents at end of year $135,251,663 $111,648,544 $90,307,234
============ ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on capital lease obligation $ 110,600 $ 191,215 $ 257,044
Income taxes, net $ 12,117,156 $ 13,805,344 $14,171,761
See notes to consolidated financial statements.
-16-
DEB SHOPS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation: The consolidated financial statements of Deb Shops, Inc. (the
"Company") include the accounts of the Company and its subsidiaries, after
elimination of all intercompany transactions and accounts.
Background: The Company retails popularly priced fashion apparel for junior and
plus-sized females and males through 309 stores. The Company's stores are
located in regional malls and strip shopping centers principally located in the
east and midwest regions of the country.
Management Estimates: The preparation of the consolidated financial statements
in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Revenue Recognition: Revenues from merchandise sales are net of returns and
allowances and exclude sales tax.
Inventories: All apparel merchandise inventories are stated at the lower of cost
(first-in, first-out method) or market, as determined by the retail inventory
method.
Property, Plant and Equipment: The provisions for depreciation and amortization
are computed using the straight-line method based upon estimated useful lives of
the assets. Leasehold improvements are depreciated over the lesser of ten years
or the remaining term of the lease. Furniture and equipment is depreciated over
the lesser of seven years or the remaining term of the lease. Gain or loss on
disposition of property, plant and equipment is included in other income.
Depreciation and amortization of property, plant and equipment, which includes
depreciation on a capitalized lease asset, was $3,783,000, $4,522,000 and
$3,927,000, for the years ended January 31, 2002, 2001 and 2000, respectively.
Cost of Sales: Cost of sales includes the cost of merchandise, buying (including
freight costs) and occupancy costs. The cost of handling merchandise is included
in selling and administrative costs.
Statements of Cash Flows: The Company considers all highly liquid investments
with a maturity of less than three months when purchased to be cash equivalents.
Included in cash and cash equivalents at January 31, 2002 is $133,446,000 of
investments in money market mutual funds and short-term municipal bonds. They
are carried at cost, which approximates market.
Reclassifications: Certain amounts from prior periods have been reclassified to
conform with the current presentation.
-17-
- - B - NONRECURRING ITEMS
Effective September 30, 2001, the Company sold the stock of its subsidiary,
Books Management, Inc. ("BMI"). For the eight months ended September 30, 2001,
BMI had net sales of $11,897,000 and operating income of $662,000. As a result
of the transaction, the Company recorded a nonrecurring pretax loss of
$7,381,000 ($4,611,000 net of tax, or a loss per share of ($0.34)).
- - C - EARNINGS PER SHARE
The table below sets forth the reconciliation of the numerators and
denominators of the basic and diluted net income per common share computations.
Year Ended January 31,
-------------------------------------------------------------
2002 2001 2000
-------------------------------------------------------------
Net income $23,589,742 $24,840,820 $24,461,934
Dividends on preferred stock (55,200) (55,200) (55,200)
-------------------------------------------------------------
Income available to
common shareholders $23,534,542 $24,785,620 $24,406,734
=========== =========== ===========
Basic weighted average
number of common
shares outstanding 13,546,132 13,378,666 13,230,490
Effect of dilutive stock options 82,489 139,987 263,516
-------------------------------------------------------------
Diluted weighted average
number of common
shares outstanding 13,628,621 13,518,653 13,494,006
=========== =========== ===========
-18-
- - D - INCOME TAXES
Income tax provision consists of the following components:
Year Ended January 31,
------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------------------
Current:
Federal........................................ $12,132,000 $13,200,000 $13,558,000
State............................................ 1,605,000 1,756,000 2,400,000
----------- ----------- -----------
13,737,000 14,956,000 15,958,000
----------- ----------- -----------
Deferred:
Federal........................................ 10,000 (49,000) (1,058,000)
State............................................ 3,000 (7,000) (200,000)
----------- ----------- -----------
13,000 (56,000) (1,258,000)
----------- ------------ ------------
$13,750,000 $14,900,000 $14,700,000
=========== =========== ===========
A reconciliation of the Company's effective income tax rate with the
statutory federal rate follows:
Year Ended January 31,
------------------------------------------------------
2002 2001 2000
- ----------------------------------------------------------------------------------------------------------
Tax provision at statutory rate $13,069,000 $13,909,000 $13,721,000
State income taxes, net of federal tax 1,045,000 1,128,000 1,464,000
Other (364,000) (137,000) (485,000)
----------- ----------- -----------
$13,750,000 $14,900,000 $14,700,000
=========== =========== ===========
Deferred income taxes reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts. The components of deferred tax assets and liabilities are as
follows:
January 31,
----------------------------------------
2002 2001
- ------------------------------------------------------------------------------------------------
Deferred Tax Assets
Uniform cost capitalization $ 746,000 $ 674,000
Deferred rent 174,000 245,000
Depreciation and amortization 4,340,000 3,757,000
Accrued expenses and other 605,000 1,106,000
----------- -----------
5,865,000 5,782,000
Deferred Tax Liabilities
Prepaid expenses (286,000) (256,000)
Other ( 33,000) ---
----------- -----------
(319,000) (256,000)
----------- -----------
$ 5,546,000 $ 5,526,000
=========== ===========
-19-
- - E - LEASES
The Company leases all of its retail apparel stores for periods ranging
from one to 25 years, including renewal options. In most instances, the Company
pays real estate taxes, insurance and maintenance costs on the leased properties
and contingent rentals based upon a percentage of sales. The warehouse and
office building occupied by the Company is leased from a partnership whose
partners include three of the Company's directors including the President and
Executive Vice President.
The warehouse and office building lease has a net book value of $33,000
at January 31, 2002 and is accounted for as a capital lease with net minimum
rental commitments of $301,000 included in accrued expenses and other. The lease
term is 20 years and requires the Company to pay annual rents, all real estate
taxes, utilities and maintenance costs. Asset amounts are included in buildings
and improvements and are depreciated over 20 years. The lease was originally
scheduled to expire on June 14, 2002, however, the Company has entered into an
amendment which extends the lease for a period of five years through June 14,
2007. This extension will be accounted for as an operating lease upon the
expiration of the initial term of the existing lease.
Interest expense related to the capital lease obligation amounted to
$111,000, $191,000 and $257,000 for the years ended January 31, 2002, 2001 and
2000, respectively, and is included in selling and administrative expenses.
Future minimum rental commitments for all noncancelable leases at
January 31, 2002 are as follows:
Operating
Leases
- --------------------------------------------------------------------------------
2003.................................... $ 21,701,000
2004.................................... 20,409,000
2005.................................... 17,891,000
2006.................................... 15,660,000
2007.................................... 14,381,000
Thereafter........................... 45,944,000
------------
Total minimum rental commitments $135,986,000
============
Total rental expense under operating leases amounted to $25,135,000,
$23,102,000 and $21,624,000 in fiscal 2002, 2001 and 2000, respectively. Such
amounts include contingent rentals based upon a percentage of sales of
$2,532,000, $2,370,000 and $2,729,000 in fiscal 2002, 2001 and 2000,
respectively.
-20-
- - F- STOCK OPTION PLAN
In February 2002, the Company adopted the Deb Shops, Inc. Incentive
Stock Option Plan As Amended and Restated Effective January 1, 2002 (the
"Plan"). The Board of Directors, together with the Company's Stock Option
Committee and Compensation Committees administer the Plan. Under the Plan,
options to purchase up to 3,000,000 shares of the Company's common stock, par
value $.01 per share, may be granted to employees or non-employee directors on
the basis of contributions to the operations of the Company. The price payable
for the shares of common stock under each stock option will be fixed by the
Board or the applicable Committee at the time of grant, but will be no less than
100% of the fair market value of the Company's common stock at the time the
stock option is granted. Options are exercisable commencing one year after the
date of grant, subject to such vesting requirements as the Board or the
applicable Committee may specify. The granted options expire through January
2004. There were 2,155,000 shares reserved for future grant under the Plan as of
January 31, 2002.
Weighted Average
Shares Exercise Price
-------- ----------------
Outstanding, January 31, 1999....................................... 495,800 6.11
Exercised during period.................................. (140,800) (4.71)
-------- -----
Outstanding, January 31, 2000....................................... 355,000 6.11
Canceled during period..................................... (5,000) (7.00)
Exercised during period.................................... (135,000) (6.19)
-------- -----
Outstanding, January 31, 2001....................................... 215,000 6.95
Exercised during period.................................... (155,000) (6.94)
-------- -----
Outstanding, January 31, 2002....................................... 60,000 $7.00
======== =====
Outstanding Options Exercisable Options
------------------- -------------------
Remaining
Exercise Contractual Exercise
Price Number Life Number Price
-------- ------ ----------- ------ --------
$7.00 60,000 2.0 years 60,000 $7.00
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for the Plan. In 1996, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 established a
fair-value-based method of accounting for stock-based compensation plans.
-21-
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model. The model uses the following
assumptions: risk-free interest rate of 4.2%, a volatility factor of 41.7%,
expected dividend yield of 2.9%, and an expected life of five years for the
options. For purposes of pro forma disclosure, the estimated fair value of the
options, $2.34 for the fiscal 1999 grants, is amortized to expense over the
assumed vesting period of the options.
Had the Company recognized compensation cost for the Plan consistent
with the provisions of SFAS No. 123, the Company's net income and basic and
diluted net income per common share would have been adjusted to the following
pro forma amounts:
Year Ended January 31,
------------------------------------------------------------
2002 2001 2000
---- ---- ----
Pro forma net income $23,589,742 $24,649,623 $24,123,119
Pro forma basic net income
per common share $ 1.74 $ 1.84 $ 1.82
Pro forma diluted net income
per common share $ 1.73 $ 1.83 $ 1.79
- - G- COMMITMENTS AND CONTINGENCIES
The Company has an unsecured line of credit in the amount of
$20,000,000 at January 31, 2002. Of this amount, $674,000 was outstanding as
letters of credit for the purchase of inventory.
The Company entered into an employment agreement with a key employee
during fiscal 1996, which was modified and extended in fiscal 1999 and provides
for a base salary plus a bonus of 4% of the improvement in the operating results
of the apparel business. The bonus was applicable through fiscal 2002. The
Company also entered into a bonus agreement with a key employee during fiscal
1996 which provides for a bonus of 2% of the improvement in operating results of
the apparel business. Bonuses of $332,000 and $450,000, in the aggregate, were
earned under the agreements for fiscal 2002 and 2000, respectively. The fiscal
2002 amount is included in accrued expenses on the accompanying consolidated
balance sheet as of January 31, 2002. During fiscal 2002, the Company entered
into a new employment agreement with this key employee and an agreement with
another key employee. One provides for a base salary plus a bonus of 4% of the
improvement in the operating results of the apparel business. The other provides
for a base salary plus a bonus of 2% of the improvement in the operating results
of the apparel business. The agreements are applicable through fiscal 2007.
The Company is subject to legal proceedings, employment issues and
claims that arise in the ordinary course of its business. In the opinion of
management, after consultation with outside legal counsel, the ultimate
disposition of such proceedings will not have a materially adverse effect on the
Company's consolidated financial position or results of operations.
-22-
Deb Shops, Inc.
Quarterly Financial Information
(Unaudited)
First Second Third Fourth
(amounts in thousands except per share data) Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------
Net sales
2002 $70,011 $72,490 $80,465 $84,616
2001 $64,985 $66,019 $73,248 $83,012
Cost of sales, including buying
and occupancy costs
2002 $51,097 $47,523 $57,917 $43,788
2001 $47,408 $44,660 $52,471 $45,519
Net income (loss)
2002 $ 2,974 $ 5,788 ($ 289) $15,117
2001 $ 2,611 $ 4,466 $ 3,946 $13,817
Basic net income (loss) per share
2002 $ .22 $ .43 ($ .02) $ 1.11
2001 $ .19 $ .33 $ .29 $ 1.03
Diluted net income (loss) per share
2002 $ .22 $ .42 ($ .02) $ 1.11
2001 $ .19 $ .33 $ .29 $ 1.02
Cash dividends declared per common share
2002 $ .05 $ .125 $ .075 $ .075
2001 $ .05 $ .05 $ .05 $ .05
-23-
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The required information with respect to each director is contained in
the Company's Definitive Proxy Statement in connection with its Annual Meeting
to be held on May 30, 2002, which is incorporated in this Annual Report on Form
10-K by reference.
The required information with respect to each executive officer is
contained at the end of Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
- -------- ----------------------
The required information with respect to executive compensation is
contained in the Company's Definitive Proxy Statement in connection with its
Annual Meeting to be held on May 30, 2002, which is incorporated in this Annual
Report on Form 10-K by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's Definitive Proxy
Statement in connection with its Annual Meeting to be held on May 30, 2002,
which is incorporated in this Annual Report on Form 10-K by reference.
-24-
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The required information with respect to certain relationships and
related transactions is contained in the Company's Definitive Proxy Statement in
connection with its Annual Meeting to be held on May 30, 2002, which is
incorporated in this Annual Report on Form 10-K by reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------- ---------------------------------------------------------------
Financial Statements and Financial Statement Schedules
Document Page(s)
-------- -------
Report of independent auditors............................. 12
Consolidated statements of operations for
the years ended January 31, 2002, 2001 and 2000... 13
Consolidated balance sheets as of January 31,
2002 and 2001.............................................. 14
Consolidated statements of shareholders'
equity for the years ended January 31, 2002,
2001 and 2000.............................................. 15
Consolidated statements of cash flows for the
years ended January 31, 2002, 2001 and 2000................ 16
Notes to consolidated financial statements................. 17-23
Selected quarterly financial information (unaudited)
for the years ended January 31, 2002 and 2001.............. 24
All schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
-25-
Exhibits
The following exhibits are included with this report or have been
previously filed with the Securities and Exchange Commission pursuant to the
requirements of the Acts administered by the Commission. Each exhibit,
previously filed, is identified by the reference following the listing of such
exhibit, and each is incorporated herein by such reference.
Exhibits identified with an asterisk below denotes a management
contract or executive compensatory plan or arrangement.
Exhibit No. Description of Document
----------- -----------------------
3-1 Restated Articles of Incorporation of the Company, as
amended through May 29, 1984 (1992 Form 10-K, Exhibit
3-1)
3-2 By-Laws of the Company, as amended through July 19,
1990 (1993 Form 10-K, Exhibit 3-2)
10-1 Lease Agreement for property located at 9401 Blue
Grass Road, Philadelphia, Pennsylvania 19114
(Registration No. 2-82222, Exhibit 10-1)
10-1.1 Amendment of Lease Agreement dated January 3, 1999
for property Located at 9401 Blue Grass Road,
Philadelphia, Pennsylvania 19114 (2000 Form 10-K,
Exhibit 10-1.1)
10-2.1 * Insurance Policy for Marvin Rounick and Judy Rounick
(1993 Form 10-K, Exhibit 10-14.1)
10-2.2 * Split Dollar Insurance Agreement dated July 31, 1987
between the Company and Jack A. Rounick and Stuart
Savett, Trustees under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986 (1993 Form
10-K, Exhibit 10-14.2)
10-2.3 * Collateral Assignment dated July 31, 1987 from
Jack A. Rounick and Stuart Savett, Trustees under the
Rounick Family Irrevocable Insurance Trust dated
October 27, 1986, as assignor, and the Company, as
assignee (1993 Form 10-K, Exhibit 10-14.3)
10-2.4 * Agreement of Settlement and General Release dated
May 5, 1998 between Jack A. Rounick and Stuart
Savett, Trustees under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986 and the
Manufacturers Life Insurance Company (Form 10-Q for
the quarter ended October 31, 1999, Exhibit 10-14.4)
-26-
Exhibit No. Description of Document
----------- -----------------------
10-2.5 * Amended and Restated Split Dollar Insurance
Agreement dated July 31, 1998 between the Company and
Jack A. Rounick and Stuart Savett, Trustees under the
Rounick Family Irrevocable Insurance Trust dated
October 27, 1986 (Form 10-Q for the quarter ended
October 31, 1999, Exhibit 10-14.5)
10-2.6 * Amended and Restated Collateral Assignment dated
July 31, 1998 from Jack A. Rounick and Stuart Savett,
Trustees under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986 (Form 10-Q for
the quarter ended October 31, 1999, Exhibit 10-14.6)
10-3.1 * Life Insurance Policy for Warren Weiner and Penny
Weiner (1993 Form 10-K, Exhibit 10-15.1)
10-3.2 * Split Dollar Insurance Agreement dated July 31,
1987 between the Company and Barry H. Frank and
Robert Shein, Trustees under the Weiner Family
Irrevocable Insurance Trust dated October 27, 1986
(1993 Form 10-K, Exhibit 10-15.2)
10-3.3 * Collateral Assignment dated July 31, 1987 from
Barry H. Frank and Robert Shein, Trustees under the
Weiner Family Irrevocable Insurance Trust dated
October 27, 1986, as assignor, and the Company, as
assignee (1993 Form 10-K, Exhibit 10-15.3)
10-3.4 * Agreement of Settlement and General Release dated
May 5, 1998 between Barry H. Frank and Robert Shein,
Trustees under the Weiner Family Irrevocable
Insurance Trust dated October 27, 1986 and the
Manufacturers Life Insurance Company (Form 10-Q for
the quarter ended October 31, 1999, Exhibit 10-15.4)
10-3.5 * Amended and Restated Split Dollar Insurance
Agreement dated July 31, 1998 between the Company and
Barry H. Frank and Robert Shein, Trustees under the
Weiner Family Irrevocable Insurance Trust dated
October 27, 1986 (Form 10-Q for the quarter ended
October 31, 1999, Exhibit 10-15.5)
10-3.6 * Amended and Restated Collateral Assignment dated
July 31, 1998 from Barry H. Frank and Robert Shein,
Trustees under the Weiner Family Irrevocable
Insurance Trust dated October 27, 1986 (Form 10-Q for
the quarter ended October 31, 1999, Exhibit 10-15.6)
10-4 * Deb Shops, Inc. Premium Conversion Plan (1996 Form
10-K, Exhibit 10-19)
10-4.1 * Amendment No. I to Deb Shops, Inc. Premium
Conversion Plan (1998 Form 10-K, Exhibit 10-19.1)
10-5.1 * Deb Shops, Inc. Incentive Stock Option Plan, As
Amended and Restated Effective January 1, 2002 (filed
herewith)
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Exhibit No. Description of Document
----------- ------------------------
10-6 * Employment Agreement dated December 20, 2001
between the Company and Allan Laufgraben (filed
herewith)
10-7 * Employment Agreement dated December 20, 2001
between the Company and Barry Vesotsky (filed
herewith)
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP
Reports on Form 8-K
- -------------------
There were no reports on Form 8-K for the quarter ended January 31,
2002.
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 in the City and County
of Philadelphia, Commonwealth of Pennsylvania, on April 29, 2002.
DEB SHOPS, INC.
(Registrant)
By: /s/ Marvin Rounick
-------------------------
Marvin Rounick, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
/s/ Marvin Rounick April 29, 2002
- -----------------------------------------------------------------
Marvin Rounick, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Warren Weiner April 29, 2002
- -----------------------------------------------------------------
Warren Weiner, Executive Vice President,
Secretary, Treasurer and Director
/s/ Jack Rounick April 29, 2002
- -----------------------------------------------------------------
Jack A. Rounick, Assistant Secretary
and Director
/s/ Ivan Inerfeld April 29, 2002
- -----------------------------------------------------------------
Ivan Inerfeld, Director
/s/ Barry H. Feinberg April 29, 2002
- -----------------------------------------------------------------
Barry H. Feinberg, Director
/s/ Barry H. Frank April 29, 2002
- -----------------------------------------------------------------
Barry H. Frank, Esq., Director
/s/ Lewis Lyons April 29, 2002
- -----------------------------------------------------------------
Lewis Lyons, Vice President, Finance,
Chief Financial Officer and Assistant Secretary
/s/ Joan M. Nolan April 29, 2002
- -----------------------------------------------------------------
Joan M. Nolan
Controller
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