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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM l0-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, 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 Number 0-12188
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DEB SHOPS, INC.
(Exact name of registrant as specified in its charter)
9401 Blue Grass Road, Philadelphia, PA 19114
(Address of principal executive offices and zip code)
Pennsylvania 23-1913593
(State of Incorporation) (I.R.S. Employer Identification No.)
(215) 676-6000
(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
--------------- --------------
As of April 5, 1996, 12,844,680 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 5, 1996) held by non-affiliates was
approximately $16,273,544.
DOCUMENTS INCORPORATED BY REFERENCE
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 22, 1996 -
incorporated in Part III.
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
-----
PART 1
Item 1. Business
General
Deb Shops, Inc. (the "Company") operates 298 women's specialty apparel
retail stores ("Deb") offering moderately priced, fashionable, coordinated
women's sportswear, dresses, coats, lingerie, accessories and shoes for junior
sizes. The Company will introduce plus sizes into approximately one-third of the
chain by May, 1996. Deb merchandise consists of clothing and accessories
appealing primarily to the fashion-conscious junior-sized female consumers
between the ages of 13 and 40. In addition to 292 stores operating under the
name "DEB" and one operating under the name "JOY", the Company operates five
outlet stores under the name "CSO". The outlet stores offer the same merchandise
as DEB and JOY at reduced prices and serve as clearance stores for slow-moving
inventory.
The Company also operates 10 apparel retail stores under the name Tops
'N Bottoms. Tops 'N Bottoms sells moderately priced men's and women's apparel.
Thirty-six of the Deb stores contain Tops 'N Bottoms departments.
In October 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,500,000. Atlantic operates 14 locations, including 11 "Atlantic Book Shops",
which are small limited selection book stores, generally open seasonally in New
Jersey and Delaware shore resort towns. Atlantic Books also operates three much
larger "Atlantic Book Warehouses" which are full-service book stores emphasizing
bargain books. The Atlantic Book Warehouse stores are located in
Montgomeryville, PA, Cherry Hill, NJ and Dover, DE.
In the opinion of management, at the present time, the results of
operations of the Company's book store business are not material to the
Company's consolidated results of operations either (i) when compared to the
Company as a whole or (ii) when compared to the Company's apparel store
business, and therefore, the Company has not separately reported results of
operations of the book store business.
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 in creating outfits of their own.
Tops 'N Bottoms caters primarily to young men and junior-sized women.
Much of the merchandise is brand names and is unisex, capable of being worn by
men or women.
The Company purchases its merchandise in volume, sells it at moderate
prices, and has a policy of early mark-downs 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.
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
-2-
daily basis, the Company can identify slow-moving merchandise and respond to
customer buying trends when making repurchase decisions and mark-down
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 a 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. If unsold at the end of the seasonal sales,
merchandise is transferred to the Company's CSO stores.
Stores
Originally, the business of the Company was located in Pennsylvania and
New Jersey. As the business grew and expanded into other states, the Company
expanded its principal regional focus to include both the northeast and midwest
sections of the United States. During the fiscal year ended January 31, 1996,
Deb opened one additional store (while closing 33 stores). Tops 'N Bottoms
closed one store. Deb also opened two Tops 'N Bottoms departments within Deb
stores. At the present time the Company does not have any new stores or Tops `N
Bottoms departments scheduled to open in fiscal 1997. The Company is currently
scheduled to close nine stores in the first half of fiscal 1997. The Company
plans to continue to carefully evaluate the profitability of individual stores
and close those stores which it believes cannot become profitable or maintain
profitability.
The following table shows store openings and closings for the last five
fiscal years.
Year Ended January 31,
------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Open at beginning
of fiscal year................ 342 365 373 368 341
Opened during fiscal year..... 32 24 11 8 1
Closed during fiscal year..... (9) (16) (16) (35) (34)
---- ---- ---- ---- -----
Open at end of fiscal year.... 365 373 368 341 308
==== ==== ==== ==== ====
-3-
The following table shows the states in which the Company's 308
existing stores are located.
New England East Midwest
Connecticut 2 Delaware 1 Illinois 16
Maine 3 Maryland 6 Indiana 10
Massachusetts 11 New Jersey 12 Iowa 5
Rhode Island 1 New York 36 Kansas 3
-- Pennsylvania 47 Kentucky 6
17 Virginia 13 Michigan 23
West Virginia 7 Minnesota 8
--- Missouri 7
122 Nebraska 1
North Dakota 2
Ohio 27
South Dakota 1
Wisconsin 15
---
124
South West
Alabama 1 California 2
Georgia 1 Colorado 4
Louisiana 1 Idaho 2
South Carolina 1 New Mexico 3
Tennessee 5 Oklahoma 5
-- Oregon 6
9 Texas 7
Utah 2
Washington 5
--
36
Deb stores, which are typically 5,700 square feet, are located
primarily in enclosed regional shopping malls and selected strip centers. Deb
stores with Tops 'N Bottoms departments are typically 8,000 square feet and are
all located in enclosed regional malls. Tops 'N Bottoms stores are all located
in enclosed regional malls and range in size from 2,300 to 3,400 square feet.
New stores are opened in existing malls, existing mall expansions, new malls and
occasionally, strip centers. Factors considered in opening new stores include
the availability of suitable locations and negotiation of 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, when necessary. The stores are open generally from l0:00 A.M. to 9:30
P.M., Monday through Saturday, and from Noon to 5:00 P.M. on Sunday.
-4-
Operations
Payments for most of the Company's sales are made in cash, and the
balance are made with MasterCard, Visa, Discover and the Company's private label
credit cards. For customer convenience, the Company provides lay-away plans. The
Company's policy is to permit returns of merchandise for exchange or for 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 received, 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 thirty-five employees consisting of
Regional and District Supervisors. A District Supervisor is responsible for an
average of ten stores, each of which is staffed by a Store Manager and an
Assistant Store Manager and two Junior Assistant Store Managers. The District
and Regional Supervisors visit the stores regularly to review merchandise
levels, content and presentation, staff training and personnel issues, store
security and cleanliness and adherence to standard operating procedures.
The merchandising department consists of forty-one employees, including
the Senior Vice President, Merchandising, Vice President, Merchandising,
Merchandise Managers and Buyers. The department is responsible for purchasing,
pricing (including mark-downs), 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,
accessories and plus sizes.
At January 31, 1996, the Company had approximately 2,600 employees,
approximately 60% 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) which expires on December 31, 1998. The
UPIU represents the Company's warehouse employees. The collective bargaining
agreement covers approximately 80 employees. The Company considers its employee
relations to be good.
Competition
The retail sale of apparel is a highly competitive business with
numerous individual and chain store competitors, including specialty shops as
well as regional and national department store chains. Many of its 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.
-5-
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 years in which executed store leases
existing at January 31, 1996 expire.
Calendar Years Number of Leases Expiring
-------------- -------------------------
1996 - 1997........................... 57
1998 - 1999........................... 68
2000 - 2001........................... 65
2002 - 2003........................... 62
2004 - 2005........................... 31
2006 - 2007........................... 11
2008 and thereafter................... 14
---
Total............................... 308
===
The Company leases its warehouse, distribution and office space,
aggregating 280,000 square feet, pursuant to a twenty year lease dated and
effective June 15, 1982. This facility is a modern, one story industrial
building situated on approximately 20 acres located in the northeast section of
Philadelphia. See Item 13. Certain Relationships and Related Transactions.
With respect to the locations of present stores, see Item 1.
Business-Stores.
Acquisition of Atlantic Books
On October 20, 1995 (the "Closing Date") the Company acquired
substantially all of the net assets of the Atlantic Book chain for a purchase
price of approximately $4,500,000. The Atlantic Book chain consists of 14 stores
including three full service warehouse stores located in Montgomeryville, PA,
Cherry Hill, NJ and Dover, DE. Atlantic emphasizes convenience, selection and
value. The Company considers the warehouse format to be positioned to capitalize
on today's consumers' demands for these features. Atlantic's main concentration
is in bargain books that are sold at significant discounts from publishers'
original retail prices. Atlantic also offers an extensive selection of
best-sellers and other hardcover and paperback books and magazines. Each
warehouse store is conducive to browsing and shopping, including super-market
style shopping carts for the customer who wants to purchase multiple selections.
The chain trades as Atlantic Books Shops and Atlantic Book Warehouse.
The eleven non-warehouse stores are located in resort areas in Delaware and New
Jersey. These resort stores range in size from 1,000 to 2,000 square feet.
-6-
The warehouse stores range in size from 12,000 to 26,000 square feet. The
warehouse store in Montgomeryville, PA includes the offices for the chain and
general warehouse space as well as the retail store.
The resort stores sell primarily remainder books and some new titles.
The warehouse stores carry a full line of best sellers, new titles, and
magazines in addition to the remainder books.
The Company intends to expand the book chain principally through the
addition of warehouse stores in high traffic areas. The current focus is on
stand alone sites and strip centers for the new stores where appropriate, new
resort stores will also be considered. Current plans call for one new warehouse
store and one new resort store, which will replace two existing resort stores.
Item 3. Legal Proceedings
The Company is involved in certain litigation incidental to the normal
conduct of its business, none of which individually, or in the aggregate,
appears likely to result in materially adverse consequences for the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
-7-
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list
is included as an un-numbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 22, 1996.
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 56 Director, President and
Chief Executive Officer 1973
Warren Weiner 52 Director, Executive Vice
President, Secretary and Treasurer 1973
Allan Laufgraben 57 Senior Vice President, Merchandising 1995
Barry Vesotsky 50 Vice President, Merchandising 1981
Stanley A. Uhr 50 Vice President, Real Estate
Corporate Counsel 1988
Lewis Lyons 42 Vice President, Finance and
Chief Financial Officer 1992
Marvin Waxman 51 Controller 1985
Marvin Rounick has been employed by the Company since 1961. Since 1979,
he has served as the 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. For more than five years prior thereto
he was with Petrie Stores Corporation as Executive Vice President and with
Petrie Retail, Inc. as President and Chief Executive Officer.
Barry Vesotsky has been employed by the Company since 1970. Since 1981,
he has served as Vice President, Merchandising. From 1978 to 1981, he was a
Buyer and Merchandise Manager with the Company.
Stanley A. Uhr has been employed by the Company since 1987, first as
Director of Real Estate and Corporate Counsel and, from March 31, 1988, as Vice
President, Real Estate and Corporate Counsel.
Lewis Lyons has been employed by the Company since 1990, first as
Director of Taxes; from May 20, 1992, as Vice President, Finance; and from May
26, 1993, as Vice President, Finance and Chief Financial Officer.
Marvin Waxman has been employed by the Company in his present capacity
since 1985.
-8-
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 over-the-counter market
(NASDAQ National Market). Symbol: DEBS.
The following table sets forth quarterly high and low sales prices for
the two most recent fiscal years.
1996 High Low
- ---- ---- ---
First Quarter $5.125 $3.750
Second Quarter 4.250 2.875
Third Quarter 4.125 3.375
Fourth Quarter 3.8125 3.250
1995 High Low
- ---- ---- ---
First Quarter $7.250 $6.125
Second Quarter 7.375 6.625
Third Quarter 7.125 4.625
Fourth Quarter 5.375 3.000
Holders
As of April 5, 1996, there were 436 holders of record of the Company's
Common Stock.
Dividends
The Company paid regular quarterly dividends for each of the fiscal
quarters in the two most recent fiscal years. The per share amount of these
dividends was $.05 for each of the fiscal quarters of fiscal 1995 and 1996. The
Company intends to follow a policy of regular quarterly cash dividends, subject
to earnings, capital requirements and the operating and financial condition of
the Company, among other factors.
-9-
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.
Consolidated Financial Highlights
Year Ended January 31,
------------------------------------------------------------------------
(in thousands, except per share and ratio data) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $176,733 $202,938 $221,070 $229,459 $220,337
Cost of Sales, Including Buying
and Occupancy Costs 142,347 162,000 166,569 172,027 163,647
(Loss) Income Before Income Taxes (6,224) (4,619) 7,396 10,352 12,419
Net (Loss) Income (4,224) (2,719) 5,146 7,252 8,594
Net (Loss) Income as a Percent
of Net Sales (2.4%) (1.3%) 2.3% 3.2% 3.9%
Net (Loss) Income Per Common Share (.33) (.21) .33 .46 .55
Total Assets 95,597 106,202 132,932 131,238 127,278
Capital Lease Obligations 1,986 2,040 2,040 2,040 2,040
Shareholders' Equity 80,493 87,383 109,389 107,346 103,187
Book Value per Share at Year End 6.27 6.80 6.98 6.86 6.58
Cash Dividend per Share of Common
Stock .20 .20 .20 .20 .20
Not covered by report of Independent Public Accountants.
-10-
Item 7.
MANAGEMENT'S DISCUSSION & ANALYSIS
OF FINANCIAL CONDITION AND OPERATIONS
Overview
Deb Shops, Inc. (the "Company") operates 298 women's specialty apparel
retail stores offering moderately priced, fashionable, coordinated sportswear,
dresses, coats, lingerie, accessories and shoes for junior sized women. The
Company also operates 10 Tops `N Bottoms stores which sell moderately priced
men's and women's apparel.
In October 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,500,000. Atlantic operates 14 locations, including 11 "Atlantic Book Shops",
which are small limited selection book stores, generally open seasonally in New
Jersey and Delaware shore resort towns. Atlantic Books also operates three much
larger "Atlantic Book Warehouses" which are full-service book stores emphasizing
bargain books. The Atlantic Book Warehouse stores are located in
Montgomeryville, PA, Cherry Hill, NJ and Dover, DE.
Results of operations for the Company for the fiscal year ended January
31, 1996 are presented on a consolidated basis and are segmented to provide
relevant information concerning the Company's retail apparel store business
which is the Company's principal line of business. In the opinion of management,
at the present time, the results of operations of the Company's book store
business are not material to the Company's consolidated results of operations
either (i) when compared to the Company as a whole or (ii) when compared to the
Company's apparel store business, and therefore, the Company has not separately
reported results of operations of the book store business.
Results of Operations - Consolidated
Net sales decreased $26,205,000 (12.9%) from fiscal 1995 to 1996 and
decreased $18,133,000 (8.2%) from fiscal 1994 to 1995. The decrease in net sales
in fiscal 1996 was principally attributable to the decrease in the number of
apparel stores, a decrease in comparable store sales of 10.4%, and continued
customer resistance to product and pricing. The decrease in net sales in fiscal
1995 was principally attributable to continued customer resistance to product
and pricing and a lack of fashion direction in the women's specialty apparel
industry. For further information see "Results of Operations - Apparel
Business".
Net loss increased $1,505,000 (55.4%) from fiscal 1995 to 1996 and
decreased $7,865,000 (152.8%) from fiscal 1994 to 1995. As a percentage of net
sales, the net (loss) income was (2.4%) in fiscal 1996, (1.3%) in fiscal 1995,
and 2.3% in fiscal 1994. The decrease in fiscal 1996 was primarily attributable
to the decrease in total sales offset by a slight increase in margins. The
decrease in fiscal 1995 was primarily attributable to the decrease in total
sales, along with decreased margins as a result of increased competitive
pressures and continued customer resistance. Sales and margins at these levels
are insufficient to cover fixed overhead. The net loss for fiscal 1995 was
partially offset (to the extent of $600,000) by refunds of insurance premiums
received during the quarter ended April 30, 1994. The decrease in net income in
fiscal 1994 was primarily attributable to the continued lack of customer
confidence and increased expenses as a percentage of sales. During the years
-11-
reported, comparable store sales decreased. See "Results of Operations - Apparel
Business". The primary reason for the decrease in comparable store sales was
customer resistance to product and pricing and a lack of fashion direction in
the women's specialty apparel industry. The trend toward lower sales has
continued into the first quarter of fiscal 1997. The trend toward lower
comparable store sales has continued at a decreasing rate into the first quarter
of fiscal 1997.
Cost of sales, including buying and occupancy costs, decreased
$19,653,000 (12.1%) from fiscal 1995 to 1996 and decreased $4,570,000 (2.7%)
from fiscal 1994 to 1995. The decrease in cost of sales, buying and occupancy
costs from fiscal 1995 to 1996 and from fiscal 1994 to 1995 was due to the
decline in average net sales per apparel store and a decline in the average
number of apparel stores in operation. As a percentage of net sales these costs
were 80.5% during fiscal 1996, 79.8% during fiscal 1995, and 75.3% during fiscal
1994. Buying and occupancy costs were 21.6%, 19.7% and 18.0% of sales for the
fiscal years 1996, 1995 and 1994, respectively. These percentage increases
resulted principally from decreased comparable store sales.
Selling and administrative expenses decreased $3,671,000 (8.7%) from
fiscal 1995 to 1996 and $2,255,000 (5.1%) from fiscal 1994 to 1995. The decrease
in selling and administrative expenses for both fiscal years was principally due
to decreases in the number of stores, decreases in sales, and continuing control
over expenses. In addition, the decrease in selling and administrative expenses
from fiscal 1994 to 1995 was due to approximately $600,000 of refunds received
for health and workers' compensation insurance as a result of favorable
experience. As a percentage of net sales, these expenses were 21.9% during
fiscal 1996, 20.9% during fiscal 1995 and 20.2% during fiscal 1994.
The decrease in depreciation and amortization expenses in fiscal 1996
was principally attributed to the write-off of leasehold improvements of closed
stores.
-12-
Results of Operations - Apparel Business
Net sales decreased $29,383,000 (14.5%) from fiscal 1995 to 1996 and
decreased $18,133,000 (8.2%) from fiscal 1994 to 1995. The decrease in net sales
in fiscal 1996 and 1995 was principally attributable to continued customer
resistance to product and pricing and a lack of fashion direction in the women's
specialty apparel industry. The following table sets forth certain per store
information.
Per Store Data(1)
Year Ended January 31,
---------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------
Stores open at end of the period .................... 308 341 368
Average number in operation during the period ....... 334 357 371
Average net sales per store (in thousands) .......... $ 520 $ 568 $ 596
Average net income (loss) per store (in thousands)... ($ 13) ($ 8) $ 14
Comparable Stores Sales2 - Percent Change ........... (10.4%) (7.9%) (5.9%)
- --------
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 13th
month of operation.
-13-
Since fiscal 1993 the Company has trended toward lower sales and since
fiscal 1991 the Company has trended toward lower earnings. Sales have been lower
principally due to lower demand as a result of increased customer resistance to
product and pricing and a lack of fashion direction in the women's specialty
apparel industry. Management has tried and continues to try to adjust the
product mix and pricing philosophy in an attempt to stimulate sales. For fiscal
1997 the Company will introduce plus sizes into approximately one-third of the
chain. In fiscal 1996 the Company introduced shoes into 200 of its locations in
an attempt to generate new business and multiple sales. The addition of shoes
added approximately $4,600,000 to sales for fiscal 1996. In August 1993, the
Company introduced its private label credit card as a means of attempting to
stimulate sales. The credit card also serves as a vehicle for direct mail
contact with the customer. In fiscal 1997 the Company will assess the viability
of this program.
Net loss increased $1,653,000 (60.8%) from fiscal 1995 to 1996 and net
income decreased $7,865,000 (152.8%) from fiscal 1994 to fiscal 1995. As a
percentage of net sales, net (loss) income was (2.5%) in fiscal 1996, (1.3%) in
fiscal 1995 and 2.3% in fiscal 1994. The decrease in fiscal 1996 was primarily
attributable to the decrease in total sales, as discussed above. The decrease in
fiscal 1995 was also the result of decreased margins resulting from increased
competitive pressures. During fiscal 1996 margins increased slightly compared to
a decrease in margins during fiscal 1995 and a small increase in margins during
fiscal 1994. Sales and margins at these levels are insufficient to cover fixed
overhead. The net loss for fiscal 1995 was partially offset (to the extent of
$600,000) by refunds of insurance premiums received during the quarter ended
April 30, 1994. The decrease in fiscal 1994 was primarily attributable to the
continued lack of consumer confidence and increased expenses as a percentage of
sales. During the periods reported, comparable store sales decreased as noted in
the table above. The primary reason for the decreases in comparable store sales
was customer resistance to product and pricing and a lack of fashion direction
in the women's specialty apparel industry. The trend toward lower sales has
continued into the first quarter of fiscal 1997. The trend toward lower
comparable store sales has continued at a decreasing rate into the first quarter
of fiscal 1997.
Cost of sales, including buying and occupancy costs, decreased
$21,810,000 (13.5%) from fiscal 1995 to 1996, and decreased $4,570,000 (2.7%)
from fiscal 1994 to 1995. The decrease in cost of sales, buying and occupancy
costs was principally due to a decline in average net sales per store and a
decline in the average number of stores in operation during the periods. As a
percentage of net sales, these costs were 80.8% during fiscal 1996, 79.8% during
fiscal 1995, and 75.3% during fiscal 1994. For fiscal 1996 the decreased cost of
sales percentage resulted from the decreased need to markdown inventory as a
result of lower inventory levels. For fiscal 1995, the increased cost of sales
percentage resulted principally from higher promotional activity as a result of
increased competitive pressures. Buying and occupancy costs were 21.8%, 19.7%
and 18.0% of sales for the fiscal years 1996, 1995 and 1994, respectively. These
percentage increases resulted principally from decreased sales during the
periods.
-14-
The inventory turn over rate was approximately 3.1 times during fiscal
year ended January 31, 1996 and 2.5 times during the fiscal year ended January
31, 1995.
Selling and administrative expenses decreased $4,310,000 (10.2%) from
fiscal 1995 to 1996, and $2,255,000 (5.1%) from fiscal 1994 to 1995. The
decrease in these expenses for fiscal 1996 and 1994 was mainly due to cost
controls. The decrease in selling and administrative expenses from fiscal 1994
to 1995 was due, in part, to approximately $600,000 of refunds received for
health and workers' compensation insurance as a result of favorable experience.
In addition the decrease in selling and administrative expenses from fiscal 1994
to 1995 was due to a decrease in the number of stores and a decrease in sales.
As a percentage of net sales, these expenses were 21.9% during fiscal 1996,
20.9% during fiscal 1995 and 20.2% during fiscal 1994. The percentage increases
in fiscal 1994, 1995 and 1996 were the result of sales for the period being
insufficient to cover fixed overhead.
The decrease in depreciation expense in fiscal 1996 is principally
attributed to the write-off of leasehold improvements of closed stores.
Liquidity and Capital Resources - Consolidated
During the past three fiscal years the Company funded internally all of
its operating needs, including capital expenditures for the opening of new
apparel stores, remodeling of existing apparel stores, the purchase of the book
business and its related net assets and the acquisition of treasury stock. Total
cash provided by operating activities, for the fiscal years ended January 31,
1996, 1995 and 1994, was $9,897,000, $65,000 and $4,894,000, respectively. For
fiscal 1996 and 1995, the net loss was offset by cash provided by operations as
a result of non-cash charges for depreciation and amortization and decreased
merchandise inventories. For fiscal 1994 cash provided by operating activities
was generated by net income and non-cash charges partially offset by an increase
in merchandise inventories.
Net cash used in investing activities was $5,347,000, $1,735,000 and
$928,000 for the fiscal years ended January 31, 1996, 1995 and 1994,
respectively. In October 1995, the Company acquired substantially all of the net
assets of the Atlantic Book chain for a purchase price of approximately
$4,468,000, which was funded from the Company's internal funds. During fiscal
1995 and 1994, these funds were principally used in the purchase of property,
plant and equipment, net of proceeds from the sale of investments. During fiscal
1995, the Company expended $2.6 million for property and equipment additions to
open 8 new stores and remodel existing stores. During fiscal 1994, the Company
expended $2.7 million for property and equipment additions to open 11 new stores
and remodel existing stores.
Net cash used in financing activities was $3,592,000, $19,334,000 and
$3,175,000 for the fiscal years 1996, 1995 and 1994, respectively. For the
fiscal year ended January 31, 1995, these funds were used for the purchase of
treasury stock and the payment of dividends on preferred and common stock. On
April 4, 1994, the Company purchased the 2,761,800 shares of its common stock
owned by Petrie Stores Corporation at a cash price of $6.05 per share, for a
total cash outlay of approximately $16,800,000, including transaction costs.
That price represented a substantial discount from book value of $6.98 per
share. The purchase price was funded entirely from a portion of the Company's
short-term investments. For the fiscal years ended January 31, 1996 and 1994,
these funds were also used for the payment of dividends on preferred and common
stock.
-15-
As of January 31, 1996, the Company had cash and cash equivalents of
$51,569,000 compared with $50,610,000 at January 31, 1995 and $71,614,000 at
January 31, 1994. Since fiscal 1993, the Company has trended toward lower sales
and since fiscal 1991 the Company has trended toward lower earnings and the
trend toward lower sales is continuing into the first quarter of fiscal 1997.
The Company plans to open a plus sized operation during the first quarter of
fiscal 1997 in approximately one-third of its stores. This will require the
hiring of a buying staff, the remodeling of certain locations, and the
purchasing of inventory. The Company will need to rebuild inventory levels
across its apparel chains after managing those levels down during fiscal 1996.
Other than these items there are no known other trends or commitments, events or
other uncertainties that are reasonably likely to result in the Company's
liquidity increasing or decreasing in any material way. 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.
Income Taxes
The effective income tax (benefit) rate for fiscal 1996, 1995 and 1994
was (32.1%), (41.1%) and 30.4%, respectively. The effective tax rate benefit for
fiscal 1996 is lower than the statutory rate primarily as the result of state
income tax expense. The effective tax rate for fiscal 1995 is higher than the
statutory rate primarily as the result of tax-free interest income. The impact
of adopting SFAS No. 109 was not material to the fiscal 1995 or 1996 financial
statements.
Inflation
Inflation has had little impact on the operating results of the Company
since inflation rates are relatively low and inventory turns are frequent.
Inflation has had no meaningful effect on the other assets of the Company.
Seasonal Nature of Operations
Approximately 54% and (6%) of the Company's net sales and net (loss)
income, respectively, for fiscal 1996 occurred during the last six months as
compared to 55% and (4%) in the prior 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".
-16-
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of Deb Shops, Inc.:
We have audited the accompanying consolidated balance sheets of Deb Shops, Inc.
(a Pennsylvania corporation) and subsidiaries as of January 31, 1996 and 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1996.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 as of January 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1996 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 28, 1996
-17-
Consolidated Statements of Operations
Year Ended January 31,
-----------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
Revenues
Net sales $176,733,372 $202,937,909 $221,070,492
Other income, principally
interest 1,684,560 843,721 1,549,030
------------ ------------- ------------
178,417,932 203,781,630 222,619,522
------------ ------------- ------------
Costs and Expenses
Cost of sales, including buying
and occupancy costs 142,347,035 161,999,660 166,569,448
Selling and administrative 38,643,256 42,314,134 44,569,295
Depreciation and amortization 3,652,046 4,086,707 4,084,283
------------ ------------- ------------
184,642,337 208,400,501 215,223,026
------------ ------------- ------------
(Loss) Income Before Income Taxes (6,224,405) (4,618,871) 7,396,496
Income tax (benefit) provision (2,000,000) (1,900,000) 2,250,000
------------ ------------- ------------
Net (Loss) Income ($ 4,224,405) ($ 2,718,871) $ 5,146,496
============= ============= ============
Net (Loss) Income Per Common Share ($ .33) ($ .21) $ .33
============= ============= ============
Weighted Average Number of Common
Shares Outstanding 12,845,316 13,268,236 15,594,362
============ ============= ============
The notes to consolidated financial statements are an integral part of these
financial statements.
-18-
CONSOLIDATED BALANCE SHEETS
January 31,
---------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $51,569,038 $50,610,195
Merchandise inventories 16,655,946 28,576,374
Prepaid expenses and other 3,890,710 3,920,716
Current deferred income taxes 949,128 1,196,129
------------ ------------
Total current assets 73,064,822 84,303,414
------------ ------------
Property, Plant and Equipment - at cost
Building and improvements 1,982,000 1,982,000
Leasehold improvements 29,611,550 31,198,281
Furniture and equipment 16,135,884 16,647,563
------------ ------------
47,729,434 49,827,844
Less accumulated depreciation and amortization 30,573,512 29,762,281
------------ ------------
17,155,922 20,065,563
------------ ------------
Other Assets
Goodwill, net of accumulated amortization of $71,412 3,146,993 --
Long term deferred income taxes 1,062,212 665,211
Other 1,167,514 1,167,514
------------ ------------
Total other assets 5,376,719 1,832,725
------------ ------------
$ 95,597,463 $106,201,702
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 8,585,210 $11,663,983
Accrued expenses 4,532,801 5,114,260
------------ ------------
Total current liabilities 13,118,011 16,778,243
------------ ------------
Capital Lease Obligation 1,986,267 2,040,408
------------ ------------
Commitments (Notes E and H)
Shareholders' Equity
Series A Preferred stock, par value $1.00 a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued shares-1996: 15,688,290; 1995: 15,688,290 156,883 156,883
Additional paid-in capital 5,541,944 5,541,944
Retained earnings 92,370,321 99,218,862
------------ ------------
98,069,608 104,918,149
Less common treasury shares, at cost -
1996: 2,843,610; 1995: 2,835,345 17,576,423 17,535,098
------------ ------------
80,493,185 87,383,051
------------ ------------
$ 95,597,463 $106,201,702
============ ============
The notes to consolidated financial statements are an integral part of these
financial statements.
-19-
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred Stock Common Stock
------------------- -------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 460 $460 15,688,290 $156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1994 460 460 15,688,290 156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1995 460 460 15,688,290 156,883
---- ---- ---------- --------
Exercise of stock options
Balance January 31, 1996 $460 $460 15,688,290 $156,883
==== ==== ========== ========
Additional
Paid-In Retained Treasury
Capital Earnings Stock
- -------------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 $5,781,244 $102,590,839 $ 1,183,373
Net income -- 5,146,496 --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (3,119,613) --
Issuance of restricted incentive stock, net (114,500) -- (185,405)
---------- ------------ -----------
Balance January 31, 1994 5,666,744 104,562,522 997,968
Net (loss) -- (2,718,871) --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (2,569,589) --
Issuance of restricted incentive stock, net (124,800) -- (171,760)
Purchase of 2,761,800 shares of common stock -- -- 16,708,890
---------- ------------ -----------
Balance January 31, 1995 5,541,944 99,218,862 17,535,098
Net (loss) -- (4,224,405) --
Dividends on preferred stock ($120 per share) -- (55,200) --
Dividends on common stock ($.20 per share) -- (2,568,936) --
Acquisition of treasury stock -- -- 41,325
---------- ----------- -----------
Balance January 31, 1996 $5,541,944 $ 92,370,321 $17,576,423
========== ============ ===========
The notes to consolidated financial statements are an integral part of these
financial statements.
-20-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31,
--------------------------------------------------
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net (loss) income ($ 4,224,405) ($ 2,718,871) $ 5,146,496
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 3,652,046 4,086,707 4,084,283
Issuance of restricted incentive stock, net (41,325) 46,960 70,905
Gain on disposition of investments -- (17,202) --
Deferred income tax benefit (provision) (150,000) 297,789 (74,218)
Loss on retirement of property, plant
and equipment 947,608 835,394 678,908
Change in assets and liabilities:
Decrease (increase) in merchandise inventories 14,337,455 4,196,711 (5,138,950)
Decrease (increase) in prepaid expenses and other 162,696 (1,938,103) 475,778
(Decrease) increase in trade accounts payable (4,108,742) (1,884,985) 1,056,393
(Decrease) in accrued expenses (678,192) (4,954) (883,929)
(Decrease) in income taxes -- (2,834,878) (521,225)
------------ ------------ ------------
Net cash provided by operating activities 9,897,141 64,568 4,894,441
------------ ------------ ------------
Cash flows from investing activities:
Purchase of business and related net assets,
net of cash acquired (Note C) (4,468,016) -- --
Purchase of property, plant and equipment,net (878,590) (2,609,769) (2,669,050)
Proceeds from sale of investments -- 874,874 1,741,500
------------ ------------ ------------
Net cash used in investing activities (5,346,606) (1,734,895) (927,550)
------------ ------------ ------------
Cash flows from financing activities:
Preferred stock cash dividends paid (55,200) (55,200) (55,200)
Common stock cash dividends paid (2,568,936) (2,569,589) (3,119,613)
Repurchase of treasury stock -- (16,708,890) --
Repayment of notes payable (913,415) -- --
Principal payment under capital lease
obligation (54,141) -- --
------------ ------------ ------------
Net cash used in financing activities (3,591,692) (19,333,679) (3,174,813)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents 958,843 (21,004,006) 792,078
Cash and cash equivalents at beginning of
year 50,610,195 71,614,201 70,822,123
------------ ------------ ------------
Cash and cash equivalents at end of year $ 51,569,038 $ 50,610,195 $ 71,614,201
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid (refunded) during
the year for:
Interest on capital lease obligation $ 420,000 $ 444,000 $ 464,000
Income taxes, net ($ 1,441,444) $ 2,602,263 $ 2,707,059
The notes to consolidated financial statements are an integral part of these
financial statements.
-21-
DEB SHOPS, INC.
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 inter-company transactions and accounts.
Background: The Company retails moderately priced fashion apparel for junior
sized females and males through 308 stores. The Company's stores are located in
regional malls and strip centers principally located in the east and mid-western
regions of the country. The Company also operates a chain of 14 book stores
located principally in Pennsylvania, New Jersey and Delaware.
Management Estimates: The preparation of the consolidated financial statements
in conformity with generally accepted accounting principles 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.
Inventories: Merchandise inventories are stated at the lower of cost (first-in,
first-out method) or market, as determined by the retail inventory method.
Accounting for Long-Lived Assets: In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121,
(SFAS No. 121), which established accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company is required to adopt
SFAS No. 121 effective February 1, 1996. The adoption of SFAS No. 121 is not
expected to have a material effect on the Company's financial condition or
results of operations.
Income Taxes: The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that are expected
to be in effect when the differences reverse. Deferred income taxes result
principally from differences in the timing of recognition of overhead in
inventory, deductibility of certain liabilities and depreciation expense.
-22-
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 amortized over the initial term of the
lease. Furniture and equipment is depreciated over seven years or the lease
term, whichever is less. Gain or loss on disposition of property, plant and
equipment is included in other income.
Cost in Excess of Net Assets Acquired (Goodwill): The Company amortizes costs in
excess of fair market value of net assets of businesses acquired using the
straight-line method over a period of fifteen years. Accumulated amortization
was $71,412 at January 31, 1996. The Company evaluates whether changes have
occurred that would require revision of the remaining estimated useful life of
the assigned goodwill or render the goodwill not recoverable.
Net (Loss) Income Per Common Share: Net (loss) income per common share and all
per share amounts are based upon the weighted average common shares outstanding
during each year including the dilutive effect of stock options and restricted
incentive stock.
Statements of Cash Flows: The Company considers all highly liquid investments
with an original maturity of less than three months to be cash equivalents.
Included in cash and cash equivalents at January 31, 1996 is $50,170,000 of
investments in money markets, mutual funds and municipal bonds. They are carried
at cost which approximates market.
- - B -INVESTMENTS
At January 31, 1994, the Company had investments in mutual funds of
$857,672. During the year ended January 31, 1995, all investments were sold.
- - C -ACQUISITION OF BUSINESS
In October 1995, the Company acquired substantially all of the assets
and liabilities of the companies doing business as Atlantic Books for $4,468,016
in cash. The purchase price was allocated to the fair market value of the assets
with $3,213,405 allocated to goodwill. The acquisition was accounted for under
the purchase method of accounting. The following table displays the assets
acquired and liabilities assumed as a result of this acquisition:
Merchandise inventories $2,417,027
Prepaid expenses and other 137,690
Property, plant and equipment 740,011
Goodwill 3,213,405
Trade accounts payable (1,029,969)
Accrued expenses (96,733)
Notes payable (913,415)
-----------
$4,468,016
==========
-23-
- - D -INCOME TAXES
Income tax provision (benefit) consists of the following components:
Year Ended January 31,
-----------------------------------
1996 1995 1994
- ---------------------------------------------------------------------
Current:
Federal........................($2,150,000) ($1,850,000) $2,075,000
State.......................... 300,000 250,000 250,000
----------- ----------- ----------
(1,850,000) ( 1,600,000) 2,325,000
----------- ----------- ----------
Deferred:
Federal........................ (100,000) (250,000) (25,000)
State.......................... (50,000) (50,000) (50,000)
----------- ----------- ----------
(150,000) (300,000) (75,000)
----------- ----------- ----------
($2,000,000) ($1,900,000) $2,250,000
=========== =========== ==========
The tax benefits generated during fiscal years 1996 and 1995 will be
realized by carrying back the loss to income generated during previous years.
The refunds are included in prepaid expenses.
A reconciliation of the Company's effective income tax with the
statutory federal rate follows:
Year Ended January 31,
---------------------------------------
1996 1995 1994
- -------------------------------------------------------------------------
Tax (benefit) at statutory rate.. ($2,116,000) ($1,570,000) $2,515,000
Tax-free income.................. (22,000) (441,000) (563,000)
State income taxes,
net of federal tax............. 165,000 132,000 132,000
Other............................ (27,000) (21,000) 166,000
----------- ------------- ----------
($2,000,000) ($1,900,000) $2,250,000
=========== =========== ==========
The deferred tax effect of temporary differences giving rise to the
Company's deferred tax assets are:
. January 31,
------------------------
1996 1995
- --------------------------------------------------------------------
Deferred Tax Asset
Uniform cost capitalization $ 272,000 $ 443,000
Capital lease obligation 412,000 423,000
Deferred rent 323,000 323,000
Depreciation 650,000 210,000
Accrued expenses 592,000 726,000
---------- -----------
$2,249,000 $2,125,000
Deferred Tax Liabilities
Prepaid Expenses (238,000) (264,000)
----------- -----------
$2,011,000 $1,861,000
=========== ===========
-24-
- - E -LEASES
The Company leases all of its retail 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.
Under the terms of the warehouse and office building lease, the Company
is required to pay annual rentals as reflected under "Capital Lease" in the
lease table below. The lease term is 20 years and requires the Company to pay
all real estate taxes, utilities and maintenance costs. The warehouse and office
building lease has a net book value of $694,000 at January 31, 1996 and is
accounted for as a capital lease. Resulting asset amounts are included in
buildings and improvements and are depreciated over twenty years.
Interest expense related to the capital lease obligation amounted to
$420,000, $444,000 and $464,000 for the years ended January 31, 1996, 1995 and
1994, respectively, and is included in selling and administrative expense.
Future minimum rental commitments for all noncancellable leases at
January 31, 1996 are as follows:
Capital Operating
Lease Leases
- ----------------------------------------------------------------------
1997.................................... $ 550,000 $ 15,835,000
1998.................................... 550,000 14,759,000
1999.................................... 550,000 13,338,000
2000.................................... 550,000 10,896,000
2001.................................... 550,000 9,181,000
Thereafter.............................. 780,000 32,886,000
---------- ------------
Total minimum rental commitments........ 3,530,000 $ 96,895,000
============
Imputed interest........................ (1,543,733)
----------
Present value of net minimum
lease payments........................ $1,986,267
==========
Total rental expense under operating leases amounted to $19,042,814,
$20,003,352 and $20,290,486 in fiscal 1996, 1995 and 1994, respectively. Such
amounts include contingent rentals based upon a percentage of sales of $789,686,
$730,171, and $861,177 in fiscal 1996, 1995 and 1994, respectively.
-25-
- - F -STOCK OPTION PLAN
In January, 1983, the Company adopted an Incentive Stock Option Plan.
This plan expired in January 1993. At its expiration there were 50,460 options
outstanding, all of which expired during fiscal 1994. Effective October 1995,
the Company adopted a new Incentive Stock Option Plan (the Plan), subject to
approval by the shareholders at the annual meeting to be held on May 22, 1996.
The Plan is administered by a Stock Option Committee designated by the Board of
Directors. Under the Plan, a maximum of 2,000,000 shares of the Company's common
stock, par value $.01 per share, may be issued by the Company and sold to
selected key employees on the basis of contribution to the operations of the
Company. The price payable for the shares of Common Stock under each stock
option will be fixed by the 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 Committee may
specify. The granted options expire through January, 2001. During fiscal 1996,
the Company issued 355,000 options to purchase common stock at prices ranging
from $3.25 to $3.50 per share which were the fair market values on the dates of
grant, as summarized below:
Outstanding, beginning of year.................................... --
Granted during period (at $3.25 and $3.50 per share)..... 355,000
Canceled during period................................... --
Exercised during period.................................. --
--------
Outstanding, end of year
(at $3.25 and $3.50 per share)......................... 355,000
========
At January 31, 1996, there were 1,645,000 shares reserved for future
grant.
- - G -RESTRICTED STOCK INCENTIVE PLAN
Effective June 1, 1990, the Company adopted a Restricted Stock
Incentive Plan ("RSIP") administered by the Company's Stock Option Committee.
Under the RSIP a maximum 300,000 shares of the Company's Common Stock may be
awarded as bonuses to key employees. No more than 100,000 shares may be issued
under this plan during any calendar year. Upon grant, the shares shall be
registered in the name of the recipient who shall have the right to vote the
shares and receive cash dividends, but the right to receive the certificates and
retain the shares does not vest until the grantee has remained in the employ of
the Company for a period determined by the Stock Option Committee. At the time
of the vesting, a portion of the shares may be withheld to cover withholding
taxes due on the compensation income resulting from the grant. During fiscal
1996, 1995 and 1994, 8,265, 8,320 and 6,860 shares, respectively, of treasury
stock were withheld to cover withholding taxes. These have been included in the
acquisition of treasury stock and the issuance of restricted incentive stock,
net on the consolidated statements of shareholders' equity.
-26-
In fiscal 1996 no shares were granted under the RSIP plan. During
fiscal 1995 and 1994, 20,000 shares were granted in each of the years under the
RSIP. Compensation expense in the years ended January 31, 1995 and 1994 was
$100,000 and $125,000, respectively. At January 31, 1996 there were 206,000
shares reserved for future grant.
- - H -COMMITMENTS
The Company has an unsecured line of credit aggregating $20,000,000 at
January 31, 1996. Of this amount, $5,020,000 was outstanding as letters of
credit for the purchase of inventory.
The Company entered into a five year agreement with a bank during
fiscal 1994 for the use of a private label credit card bearing the Company's
name. The Company pays a fee based on a percent of sales. Upon termination and
under certain circumstances, the Company may be liable for excess losses
incurred, as defined, on collection of the then outstanding receivables.
-27-
Quarterly Financial Information
(Unaudited)
Amounts in Thousands First Second Third Fourth
Except Per Share Data Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------
Net sales
1996 $39,101 $42,317 $41,672 $53,643
1995 $43,316 $47,294 $49,170 $63,158
Cost of sales, including
buying and occupancy costs
1996 $32,770 $34,612 $35,536 $39,429
1995 $35,100 $36,807 $40,572 $49,521
Net (loss) income
1996 ($ 2,299) ($ 1,652) ($ 2,793) $ 2,520
1995 ($ 1,605) ($ 1,002) ($ 2,313) $ 2,201
Net (loss) income per share
1996 ($ .18) ($ .13) ($ .22) $ .20
1995 ($ .11) ($ .08) ($ .18) $ .17
Cash dividends per share
1996 $ .05 $ .05 $ .05 $ .05
1995 $ .05 $ .05 $ .05 $ .05
-28-
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors of the Registrant
The required information with respect to each director is contained in
the Company's Proxy Statement in connection with its Annual Meeting to
be held on May 22, 1996, which is incorporated in this Form 10-K Annual
Report by reference.
(b) Executive Officers of the Registrant
The required information with respect to each executive officer is
contained at the end of Part I of this Form 10-K.
(c) Family Relationships
Marvin Rounick, President, Chief Executive Officer and a Director, and
Jack A. Rounick, a Director, are brothers.
(d) Other
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any director or executive officer
during the past five years.
Item 11. Executive Compensation
The required information with respect to executive compensation is
contained in the Company's Proxy Statement in connection with its Annual Meeting
to be held on May 22, 1996, which is incorporated in this Form 10-K Annual
Report by reference.
Item 12. Security Ownership of Certain Beneficial Owners & Management
The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's Proxy Statement
in connection with its Annual Meeting to be held on May 22, 1996, which is
incorporated in this Form 10-K Annual Report by reference.
-29-
Item 13. Certain Relationships and Related Transactions
The required information with respect to certain relationships and
related transactions is contained in the Company's Proxy Statement in connection
with its Annual Meeting to be held on May 22, 1996, which is incorporated in
this Form 10-K Annual Report by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Financial Statements and Financial Statement Schedules
Page(s)
-------
Document
Report of independent public accountants...... 17
Consolidated statements of operations for
the years ended January 31, 1996, January 31,
1995 and January 31, 1994..................... 18
Consolidated balance sheets as of January 31,
1996 and January 31, 1995..................... 19
Consolidated statements of shareholders'
equity for the years ended January 31, 1996,
January 31, 1995 and January 31, 1994......... 20
Consolidated statements of cash flows for the
years ended January 31, 1996, January 31, 1995
and January 31, 1994.......................... 21
Notes to consolidated financial statements.... 22-27
Selected quarterly financial data for
the years ended January 31, 1996 and
January 31, 1995.............................. 28
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.
-30-
EXHIBITS
Certain of the following exhibits have been filed with the Securities
and Exchange Commission pursuant to the requirements of the Acts administered by
the Commission. Such exhibits are identified by the references following the
listing of each such exhibit, and are incorporated herein by reference.
Exhibits identified with an asterisk below comprise executive
compensation plans and arrangements.
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)
4-1 * Deb Shops, Inc. Restated Savings and
Protection Plan (1992 Form 10-K, Exhibit 4-1)
4-1.1 * Amendment No. I to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.1)
4-1.2 * Amendment No. II to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.2)
4-1.3 * Amendment No. III to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.3)
4-1.4 * Amendment No. IV to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.4)
4-1.5 * Amendment No. V to Deb Shops, Inc. Restated
Savings and Protection Plan (1994 10-K Exhibit 4-1.5)
4-1.6 * Amendment No. VI to Deb Shops, Inc. Restated
Savings and Protection Plan (1994 Form 10-K, Exhibit
4-1.6)
4-1.7 * Amendment No. VII to Deb Shops, Inc. Restated
Savings and Protection Plan.
4-2 * Employee Savings and Protection Trust Agreement
(Registration No. 2-99124, Exhibit 4-5)
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Exhibit No. Description of Document
- ----------- -----------------------
4-2.1 * Amendment No. I to Employee Savings and Protection
Trust Agreement (Form 10-Q for quarter ended July
31, 1992)
10-1 Lease Agreement for property located at 9401
Blue Grass Road, Philadelphia, Pennsylvania,
19114 (Registration No. 2-82222, Exhibit 10-1)
10-8 Blue Grass Partnership Agreement dated June 15,
1982 (Registration No. 2-82222, Exhibit 10-8)
10-9 Guarantee by Deb Shops, Inc. of payment of
debt obligation of Blue Grass Partnership to
Philadelphia Industrial Development Corporation
Local Development Corporation dated December 16,
1982 (Registration No. 2-82222, Exhibit 10-9)
10-10 Acceptance by Deb Shops, Inc. dated June l8,
1982 to guarantee the $500,000 loan to Blue
Grass Partnership (Registration No. 2-82222,
Exhibit 10-10)
10-14.1 * Insurance Policy for Marvin Rounick and
Judy Rounick (1993 Form 10-K, Exhibit 10-14.1)
10-14.2 * 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)
10-14.3 * 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)
10-15.1 * Life Insurance Policy for Warren Weiner and
Penny Weiner (1993 Form 10-K, Exhibit 10-15.1)
10-15.2 * 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)
10-15.3 * 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)
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Exhibit No. Description of Document
- ----------- -----------------------
10-17 * Restricted Stock Incentive Plan as amended (1995
Form 10-K, Exhibit 10-17)
10-18 Stock Purchase Agreement dated April 4, 1994 between the
Company and Petrie Stores Corporation (1994 Form 10-K
Exhibit 10-18)
10-19 * Deb Shops, Inc. Premium Conversion Plan
10-19.1 * Amendment No. I to Deb Shops, Inc. Premium Conversion
Plan
10-20 * Deb Shops, Inc. 1995 Incentive Stock Option Plan
10-21 * Employment Agreement dated December 1, 1995 between
the Company and Allan Laufgraben
10-22 * Agreement dated January 31, 1996 between the Company
and Barry Vesotsky
11 Computation of Primary Earnings Per Share
22 Subsidiaries of the Company
24-1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended January 31,
1996.
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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 26, 1996.
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 26, 1996
- -----------------------------------------
Marvin Rounick, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Warren Weiner April 26, 1996
- -----------------------------------------
Warren Weiner, Executive Vice President,
Secretary, Treasurer and Director
/s/ Jack Rounick April 26, 1996
- -----------------------------------------
Jack A. Rounick, Assistant Secretary
and Director
/s/ Paul Bachow April 26, 1996
- -----------------------------------------
Paul S. Bachow, Director
/s/ Barry Feinberg April 26, 1996
- -----------------------------------------
Barry H. Feinberg, Director
/s/ Barry Frank, Esq April 26, 1996
- -----------------------------------------
Barry H. Frank, Esq., Director
/s/ Lewis Lyons April 26, 1996
- -----------------------------------------
Lewis Lyons, Vice President, Finance,
Chief Financial Officer
/s/ Marvin Waxman April 26, 1996
- -----------------------------------------
Marvin Waxman, Controller
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