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1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the fiscal year ended January 28, 1995 Commission File No. 1-6695
FABRI-CENTERS OF AMERICA, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-0720629
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 Darrow Road
Hudson, Ohio 44236
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 216-656-2600
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class on Which Registered
- -------------- -----------------------
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
6.25% Convertible Subordinated Debentures Due 2002 New York Stock Exchange
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 of
this Form 10-K. [ ]
As of March 31, 1995, 9,179,817 shares of Common Stock were outstanding and the
aggregate market value of the shares of Common Stock (based upon the closing
price on March 31, 1995 of these shares on the New York Stock Exchange) of the
Registrant held by persons other than affiliates of the Registrant was
approximately $126.4 million.
The exhibit index begins on page 36.
Documents incorporated by reference:
Portions of the following documents are or will be incorporated by reference:
Proxy Statement for 1995 Annual Meeting of Shareholders (Part III)
Sequential page 1 of 42
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PART I
Except as otherwise stated, the information contained in this report
is given as of January 28, 1995, the end of the Registrant's latest fiscal
year. The term "Registrant" or "Company" as used herein refers to
Fabri-Centers of America, Inc. and its subsidiaries.
ITEM 1. BUSINESS
--------
(a) The Registrant, an Ohio corporation with principal offices in
Hudson, Ohio, is a leading national specialty retailer that operates retail
stores in the fabric and craft industry. Although the Company was incorporated
in February 1951, the business conducted by its predecessors began in 1943 when
the first store was opened in Cleveland, Ohio offering fabrics and notions for
sale under the name "Cleveland Fabric Shops."
The Registrant's principal business is conducted in the retail fabric
and craft industry through specialty stores which sell a wide variety of
fashion and decorator fabrics, notions, crafts, patterns and sewing
accessories. On October 2, 1994, the Registrant acquired Cloth World, a
division of Brown Group Inc. This acquisition added 342 stores to the number
of stores being operated at that time. At January 28, 1995, the Registrant
operated 964 stores in 48 states. The majority of the Registrant's stores
currently do business under the names of "Jo-Ann Fabrics," "Cloth World,"
"Jo-Ann Fabrics & Crafts" and "New York Fabrics."
The total number of stores in operation at January 28, 1995 by state
was as follows:
Alabama............................ 6 Montana............................ 2
Alaska............................. 3 Nebraska........................... 1
Arizona............................ 16 Nevada............................. 2
Arkansas........................... 4 New Hampshire...................... 9
California......................... 58 New Jersey......................... 16
Colorado........................... 16 New Mexico......................... 5
Connecticut........................ 15 New York........................... 44
Delaware........................... 3 North Carolina..................... 8
Florida............................ 78 North Dakota....................... 3
Georgia............................ 19 Ohio............................... 96
Idaho.............................. 3 Oklahoma........................... 9
Illinois........................... 52 Oregon............................. 15
Indiana............................ 38 Pennsylvania....................... 59
Iowa............................... 4 Rhode Island....................... 2
Kansas............................. 8 South Carolina..................... 2
Kentucky........................... 8 South Dakota....................... 3
Louisiana.......................... 15 Tennessee.......................... 9
Maine.............................. 4 Texas.............................. 81
Maryland........................... 28 Utah............................... 5
Massachusetts...................... 22 Vermont............................ 4
Michigan........................... 64 Virginia........................... 29
Minnesota.......................... 25 Washington......................... 23
Mississippi........................ 1 West Virginia...................... 9
Missouri........................... 16 Wisconsin.......................... 22
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The following table sets forth the number of stores opened, closed and acquired
by the Registrant during each of the past five fiscal years:
Stores in
Fiscal Stores Stores Stores Operation
Year Opened Closed Acquired at Yearend
------ ------ ------ -------- ----------
1991 97 95 -- 617
1992 121 102 28 664
1993 171 142 -- 693
1994 27 65 -- 655
1995 38 71 342 964
In addition to the 342 Cloth World stores acquired during fiscal 1995,
the Registrant continued its superstore conversion program, opening 38
superstores (over 9,000 square feet) in strip shopping centers, while closing
71 smaller stores. At the end of fiscal 1995, 83% of the Registrant's stores
were superstores. In fiscal 1996, the Registrant expects to open approximately
45 superstores while closing 35 smaller locations.
All but three of the Registrant's stores are located in leased
facilities that average approximately 11,850 square feet. These stores are
located in strip shopping centers, malls and free standing buildings within
selected marketing areas. The Registrant varies its merchandising selection
and inventory levels to conform with the various store layouts.
The Registrant, in general, owns all of the fixtures used in its
stores. All stores are similar in physical layout. The Registrant believes
that it effectively utilizes its selling space and that its equipment is
maintained and suitable for its requirements. It is the Company's policy to
transfer fixtures and inventory from closed stores to its new superstores.
During the fiscal year ended January 28, 1995, the average investment in each
new superstore was approximately $110,000 for leasehold improvements and
additional fixtures and approximately $80,000 for incremental inventory. It is
the Registrant's policy to charge operations for its pre-opening expenses as
incurred, which is generally the same period as the store is opened. Store
pre-opening costs consist chiefly of the cost of training sales personnel,
advertising, stocking and incidental supplies.
Each of the Registrant's stores sells a wide variety of merchandise
primarily for customers to make their own clothing and to complete home
decorating and craft projects. The fabrics that are sold by the Registrant
include woolens, rayons, cottons, laces, synthetics, drapery and home
furnishings and are customarily sold by the yard. Notions sold by the
Registrant include cutting instruments, trimmings, buttons, threads, and
zippers. Crafts sold by the Registrant include seasonal merchandise, craft
supplies, fabric paints, florals and stitchery.
The Registrant had 602 stores in operation for the full fiscal year
ended January 28, 1995, with average sales of $917,000 per store. All items
are sold for cash or through the use of various bank charge plans.
In each of its stores the Registrant employs a manager, assistant
store manager, and full-time and part-time sales associates as required. Each
store is under the supervision of a district manager who in turn reports to a
regional manager.
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Substantially all of the merchandising functions, including
purchasing, allocation, distribution and control, in addition to accounting,
real estate, advertising, and supplies purchasing functions are centralized at
the Registrant's corporate offices. The objective of the Registrant's
centralized control system is to allow each store manager and sales associate
the opportunity to devote maximum effort toward sales of merchandise and
customer service.
The Registrant's centralized human resource department and field
management organization are responsible for recruiting new store managers. A
prospective store manager is assigned to an existing store as a manager-trainee
for several weeks and receives in-depth on-the-job training. In addition,
periodic training seminars are conducted for prospective new managers as well
as existing store managers. Sales associates are trained on the job.
For the three fiscal years ended January 28, 1995, the Registrant's
business resulted from sales of the following principal products:
Fiscal Year Ended
-------------------------------------------------------------
January 28, January 29, January 30,
Principal Product 1995 1994 1993
- ------------------ ----------- ----------- -----------
Fabric 49.2% 47.3% 45.7%
Notions 20.8% 19.1% 21.2%
Crafts 26.3% 29.6% 27.9%
Other 3.7% 4.0% 5.2%
In the fourth quarter of fiscal 1993, the Registrant decided to sell
its retail housewares division, Cargo Express Stores, in order to more fully
concentrate its Management's efforts on its core fabric business. As the
Company was unable to locate a buyer, the decision was made in the fourth
quarter of fiscal 1994 to liquidate this division. The sales information
presented above excludes any effect of this housewares division, which has been
classified as a discontinued operation since fiscal 1993.
(b) The Registrant is a specialty retailer that operates retail
stores in the fabric and craft industry.
(c) The following information is furnished in response to Item 101
(c) and (d) of Regulation S-K.
STATUS OF PRODUCT OR LINE OF BUSINESS. During the last fiscal year,
there has been no public announcement nor is there a public announcement
anticipated, about either a new product line or line of business involving the
investment of a material portion of the Registrant's assets.
SOURCE AND AVAILABILITY OF RAW MATERIALS. There are various sources
of supply available for each category of merchandise sold by the Registrant.
The Registrant has no long-term purchase commitments with any of its suppliers.
The Registrant imports approximately 14.3% of its purchases, which are bought
in United States currency.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND CONCESSIONS. The
Registrant does not own material patents, trademarks, licenses, franchises,
and/or concessions.
SEASONAL BUSINESS. The Company's business exhibits seasonality, which
is typical for most retail
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companies, with much stronger sales in the second half of the year than the
first half of the year. In general, net earnings are highest during the months
of September through December, when sales volumes provide significant operating
leverage. Conversely, net earnings are substantially lower during the
relatively low volume sales months of January through August. Working capital
requirements also fluctuate during the year and reach their highest levels
during the third and fourth fiscal quarters as the Company increases its
inventory in anticipation of its peak selling season.
DEPENDENCE ON SINGLE OR FEW CUSTOMERS. The Registrant is engaged in
the retail sale of merchandise to the general public and, accordingly, no part
of the business of the Registrant is dependent upon a single customer or a few
customers. During the fiscal year ended January 28, 1995, no one store
accounted for more than 1% of total sales.
BACKLOG OF ORDERS. The Registrant is engaged in the retail sale of
merchandise to the general public on a cash and carry basis and, accordingly,
has no backlog of orders.
COMPETITIVE CONDITIONS. The retail fabric and craft industry is
highly competitive. The Registrant's stores compete with other specialty
fabric and craft retailers, craft retailers and mass merchants on the basis of
assortment, price and convenience. Some of the Registrant's competitors,
particularly mass merchants may have greater financial and other resources than
the Registrant. The retail fabric and craft industry is contracting and
consolidating after several years of intense competition. With the acquisition
of Cloth World in fiscal 1995, the Registrant became the leading national
fabric and craft retailer with approximately twice as many stores as each of
the next two largest fabric and craft retail competitors. In addition to its
national competitors, the Registrant also competes with many individual
retailers and regional chains.
RESEARCH AND DEVELOPMENT. During the three fiscal years ended January
28, 1995, the Registrant has not incurred any material expense on research
activities relating to the development of new products or services or the
improvement of existing products or services that were company-sponsored or
customer-sponsored.
ENVIRONMENTAL DISCLOSURE. The Registrant is not engaged in
manufacturing. Accordingly, the Registrant does not believe that compliance
with federal, state and local provisions regulating the discharge of material
into the environment or otherwise relating to the protection of the environment
will have any material effects upon the capital expenditures, earnings or
competitive position of the Registrant.
NUMBER OF EMPLOYEES. The Registrant has approximately 17,600 permanent
full-time and part-time employees, 16,800 of whom work in the Registrant's
retail stores. Additional part-time employees are hired during peak selling
periods. Approximately 300 employees in the Hudson distribution center are
covered by a collective bargaining agreement with the United Steelworkers of
America, Upholstery and Allied Industries Division. This agreement expires in
May 1998. The Registrant considers its relationships with its employees to be
good.
FOREIGN OPERATIONS AND EXPORT SALE. Although the Registrant imports a
significant percentage of its merchandise from foreign countries, the loss of
any sources of supply from any of such foreign countries would not be material
to the business of the Registrant. The Registrant had no export sales.
ITEM 2. PROPERTIES
----------
The Registrant's corporate offices and distribution center are located
in an approximately
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1,400,000 square foot Registrant-owned facility on approximately 120 acres in
Hudson, Ohio. The distribution operations occupy approximately 1,000,000
square feet and an additional 100,000 square feet are used by the Registrant's
corporate offices and a prototype store. The Registrant leases approximately
200,000 square feet of the facility to an unrelated third party and the
remaining square footage is available for lease. The Registrant believes that
the facility will meet its requirements for the foreseeable future. Adjacent
to the Hudson facility, the Registrant owns approximately 150 acres of
undeveloped land, which it holds for sale.
Except as stated elsewhere in this Annual Report, the remaining
properties occupied by the Registrant are leased retail store facilities that
are located primarily in high-traffic shopping centers. All store leases are
operating leases generally for periods up to ten years with renewal options for
up to twenty years. Certain retail store leases contain escalation clauses and
in some cases provide for contingent rents based on a percent of sales in
excess of defined minimums. During the fiscal year ended January 28, 1995, the
Registrant incurred $55,377,000 of expenses for store rentals.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Registrant is not a party to any pending legal proceedings other
than (a) litigation fully covered by insurance or (b) commercial and other
litigation not substantial in number or amount that is normally incidental to
the operation of the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
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Executive Officers of the Registrant
------------------------------------
The information below is included in this report pursuant to
instruction 3 to item 401 (b) of Regulation S-K.
The Executive Officers of the Registrant are as follows:
Name Executive Office Age
- --------------------------- ----------------------------------------------------------- -------
Alan Rosskamm Chief Executive Officer of the Company for more than 5
years, since April 1993, President, and since July 1992,
Chairman of the Board; prior to July 1992, President of the
Company for more than 5 years. 45
Robert Norton Vice Chairman of the Board/Chief Financial Officer since
March 1993; Executive Vice President September 1988 to
March 1993; Chief Financial Officer since September 1987,
and Chief Administrative Officer May 1990 to March 1993, of
the Company. 48
Jane Aggers Executive Vice President, Merchandising and Marketing since
April 1993; Senior Vice President, General Merchandise
Manager since May 1990; Vice President, Fabric
Merchandising since April 1988, of the Company. 46
John Stec Senior Vice President, Real Estate of the Company for more
than 5 years. 70
Frederick Johnson Senior Vice President, Management Information Systems since
March 1992; Vice President, Management Information Systems
from December 1989 to March 1992, of the Company.
48
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
----------------------------------------------------------------
MATTERS
-------
The Registrant's common stock is traded on the New York Stock Exchange
under the ticker symbol FCA. At the close of business on March 31, 1995, the
Registrant had 999 shareholders of record.
The quarterly high and low stock prices for the fiscal years 1995 and
1994 are presented in the table below:
Fiscal Quarter Ended High Low
- ----------------------------------------------------------------------------------------------------
April 30, 1994 $ 17 3/8 $ 15 5/8
July 30, 1994 15 1/2 12 7/8
October 29, 1994 17 7/8 11 3/4
January 28, 1995 17 3/4 14 3/8
Fiscal Quarter Ended High Low
- ----------------------------------------------------------------------------------------------------
May 1, 1993 $ 16 3/8 $ 12 7/8
July 31, 1993 15 12 5/8
October 30, 1993 15 5/8 13
January 29, 1994 19 15 5/8
The Registrant intends to follow a dividend policy of retaining
earnings for the operation and growth of its business. Payment of dividends in
the future will be determined by the Registrant's Board of Directors in light
of appropriate business conditions. The Registrant did not pay dividends on
its common stock during fiscal 1995 and fiscal 1994.
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ITEM 6. SELECTED FINANCIAL DATA
-----------------------
FINANCIAL SUMMARY
Fabri-Centers of America, Inc.
January 28, January 29, January 30, February 1, February 2,
1995 1994 1993 1992 1991
Years ended (52 weeks) (52 weeks) (52 weeks) (52 weeks) (53 weeks)
==================================================================================================================================
(Thousands of dollars, except per share data)
OPERATIONS
Net sales $ 677,279 $ 582,071 $ 574,120 $ 441,978 $ 368,608
Cost of goods sold 378,593 329,950 329,058 233,580 202,758
Selling, general and administrative expenses 271,187 235,439 231,261 177,285 144,104
Interest expense, net 8,418 5,547 5,522 2,870 3,599
Earnings from continuing operations
before income taxes 19,081 11,135 8,279 28,243 18,147
Income taxes 7,347 4,176 3,105 10,166 6,806
Earnings from continuing operations 11,734 6,959 5,174 18,077 11,341
Loss from discontinued operations -- (5,201) (2,994) (564) (117)
Extraordinary item -- -- 2,052 -- --
Cumulative effect of accounting change -- 399 -- -- --
Net earnings $ 11,734 $ 2,157 $ 4,232 $ 17,513 $ 11,224
- ---------------------------------------------------------------------------------------------------------------------------------
DATA PER COMMON SHARE (a)
Earnings from continuing operations
- Primary $ 1.26 $ 0.75 $ 0.54 $ 1.96 $ 1.44
- Fully diluted 1.26 0.75 0.54 1.96 1.44
Average shares and equivalents outstanding 9,343,663 9,284,521 9,631,537 9,198,792 7,891,213
Book value 17.58 16.38 16.00 15.34 10.32
Shares outstanding, net of treasury 9,198,911 9,097,098 9,277,256 9,292,029 7,457,653
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $ 325,706 $ 247,650 $ 255,211 $ 219,734 $ 159,411
Merchandise inventories 290,560 224,803 223,648 183,315 135,242
Property and equipment, net 84,122 75,633 77,914 54,640 33,928
Total assets 427,304 340,373 351,619 284,060 204,593
Current liabilities 127,459 80,195 93,584 97,781 71,959
Long-term debt 70,000 45,500 47,100 40,100 52,100
Convertible subordinated debentures 56,983 56,983 56,983 -- --
Total liabilities 265,585 191,361 203,145 141,537 127,610
Shareholders' equity 161,719 149,012 148,474 142,523 76,983
Working capital 198,247 167,455 161,627 121,953 87,452
Working capital increase 30,792 5,828 39,674 34,501 20,291
- ---------------------------------------------------------------------------------------------------------------------------------
GENERAL STATISTICS (FROM CONTINUING OPERATIONS)
Sales increase 16 % 1 % 30 % 20 % 14 %
Net earnings increase (decrease) 69 % 34 % (71 %) 59 % 27 %
Return on sales:
Before income taxes 2.8 % 1.9 % 1.4 % 6.4 % 4.9 %
After income taxes 1.7 % 1.2 % 0.9 % 4.1 % 3.1 %
Return on average shareholders' equity 7.6 % 4.7 % 3.6 % 16.5 % 15.6 %
Current ratio 2.56 to 1 3.09 to 1 2.73 to 1 2.25 to 1 2.22 to 1
Depreciation 11,945 10,053 8,045 5,627 4,831
Debt to capitalization 44.0 % 40.7 % 41.2 % 22.0 % 40.4 %
Times interest earned (b) 3.3x 3.0x 2.5x 10.8x 6.0x
Number of stores in operation 964 655 693 664 617
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(a) Number of shares outstanding and per share data have been adjusted to reflect the three-for-two stock split in January 1991.
(b) Ratio of pre-tax earnings before interest, discontinued operation, extraordinary item and cumulative effect of accounting
change to net interest expense.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Except where otherwise noted, Management's Discussion and Analysis of
Financial Condition and Results of Operations pertains to the Company's
continuing operations.
On October 2, 1994, the Company acquired substantially all of the
assets of Cloth World, a division of Brown Group Inc. ("Cloth World") for
approximately $97 million in cash and assumed liabilities. The funds used to
acquire Cloth World were provided by internally generated funds and borrowings
under a credit facility. The acquisition has been recorded using the purchase
method, and accordingly, the results of operations of Cloth World have been
included in the Company's consolidated financial statements since the date of
acquisition. The purchase price allocation has been based on preliminary
estimates that may be revised; however, the effect of any revisions on the
results of operations for fiscal 1995 would not be material.
RESULTS OF OPERATIONS
The following table shows the percentage of net sales for the periods
indicated and the percentage change in dollar amounts from period to period of
certain items included in the Consolidated Statements of Income.
Percentage Change
Percentage of Net Sales From Prior Year
-------------------------------------------------------
1995 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0% 16.4% 1.4%
Cost of goods sold 55.9 56.7 57.3 14.7 0.3
Selling, general and administrative
expenses 40.0 40.4 40.3 15.2 1.8
Interest expense, net 1.3 1.0 1.0 51.8 0.5
----- ----- -----
Total expenses 97.2 98.1 98.6 15.3 0.9
----- ----- -----
Earnings from continuing operations before
income taxes, extraordinary item and
cumulative effect of accounting change 2.8 1.9 1.4 71.4 34.5
Income taxes 1.1 0.7 0.5 75.9 34.5
----- ----- -----
Earnings from continuing operations before
extraordinary item and cumulative effect of
accounting change 1.7% 1.2% 0.9% 68.6% 34.5%
===== ===== =====
Net sales for fiscal 1995 increased 16.4%, or $95.2 million, to $677.3
million from $582.1 million in fiscal 1994, largely due to $86.2 million of
sales generated from the Cloth World stores in the last
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seventeen weeks of the year. Fiscal 1995 net sales, excluding the Cloth World
stores, increased $9.0 million, or 1.5%. Comparable store sales, which
decreased during the first half of fiscal 1995, improved during the remainder
of the year achieving an increase on a full-year basis of 1.0% over the prior
year. The increase is primarily attributable to implementing a plan to improve
customer service, enhance store presentation, and expand product assortment.
In fiscal 1995, the Company opened 38 superstores, acquired 342 Cloth World
stores and closed 71 stores, many of which were in overlapping market areas,
ending the year with 964 stores in operation, of which 804 were superstores.
Fiscal 1996 net sales are expected to be significantly higher than in fiscal
1995 due to the acquisition of the Cloth World stores.
Net sales for fiscal 1994 increased 1.4%, or $8.0 million, to $582.1
million compared to $574.1 million in fiscal 1993. The increase is primarily
attributable to sales increases generated from a larger base of superstores
that had been in operation for a full year, offset in part, by a moderation in
sales promotion activity. In fiscal 1994, the Company opened 27 stores and
closed 65 stores, ending the year with 502 superstores compared to 486
superstores at the end of fiscal 1993.
Gross profit as a percentage of net sales was 44.1% in fiscal 1995,
43.3% in fiscal 1994, and 42.7% in fiscal 1993. The improvement in gross
profit margins over the past two years primarily resulted from better
management of product line profitability through reduced levels of promotional
pricing and improved purchasing and inventory management.
Selling, general and administrative expenses as a percentage of net
sales were 40.0% in fiscal 1995, 40.4% in fiscal 1994, and 40.3% in fiscal
1993. The decline from fiscal 1994 to fiscal 1995 resulted from significantly
lower information system development expenses offset in part by higher store
level expenses directed at improving customer service. The increase from
fiscal 1993 to fiscal 1994 was principally the result of higher operating costs
associated with superstores and investment spending for new information systems
offset by lower advertising expenses and cost savings from productivity
improvements in the stores.
Net interest expense was $8.4 million in fiscal 1995, $5.5 million in
fiscal 1994 and $5.5 million in fiscal 1993. The increase in fiscal 1995 was
due primarily to higher interest rates on bank borrowings, in line with the
general increase in short-term interest rates.
The Company's effective income tax rate was 38.5% in fiscal 1995
compared to 37.5% in fiscal 1994 and 1993. The change in effective tax rate
primarily resulted from an increase in the federal corporate income tax rates.
Cargo Express Stores, the Company's retail housewares division, has
been reported as a discontinued operation since fiscal 1993, when the Company
adopted a plan for its sale and recorded an after-tax provision of $1.6
million. In the fourth quarter of fiscal 1994, the Company decided to
liquidate the division and accordingly, an after-tax provision of $5.2 million,
or $0.56 per share, was recorded for the loss on disposal and estimated
operating losses to be incurred through date of disposal. No additional
provision was necessary in fiscal 1995 to complete the liquidation of Cargo
Express.
In the first quarter of fiscal 1994, the Company recorded, as a
cumulative effect of accounting change, a one-time benefit of $0.4 million, or
$0.04 per share, from the adoption of Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes".
In fiscal 1993, an extraordinary gain of $2.1 million, net of income
tax provision of $1.2 million, resulted from the repurchase, at a discount, of
$17.8 million of the Company's 6-1/4% convertible
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subordinated debentures, due March 1, 2002. This extraordinary gain increased
fiscal 1993 earnings by $0.21 per share.
Earnings from continuing operations before extraordinary item and
cumulative effect of accounting change for fiscal 1995 increased 69%, or $4.8
million to $11.7 million from $6.9 million in fiscal 1994.
Management believes that inflation has not had a significant effect on
the growth of net sales or on earnings from continuing operations over the past
three years.
The Company's business exhibits seasonality which is typical for most
retail companies, with much stronger sales in the second half of the year than
the first half of the year. In general, net earnings are highest during the
months of September through December, when sales volumes provide significant
operating leverage. Conversely, net earnings are substantially lower during
the relatively low volume sales months of January through August. Working
capital requirements also fluctuate during the year and reach their highest
levels during the third and fourth fiscal quarters as the Company increases its
inventory in anticipation of its peak selling season.
LIQUIDITY AND CAPITAL RESOURCES
The acquisition of the Cloth World stores significantly impacted the
Company's balance sheet. Total assets increased $86.9 million to $427.3
million, at January 28, 1995, compared to $340.4 million at January 29, 1994.
Working capital increased $30.7 million to $198.2 million, at fiscal year end
1995, compared to $167.5 million at the end of the prior year. The ratio of
current assets to current liabilities declined to 2.6:1 at January 28, 1995
from 3.1:1 at January 29, 1994. Debt to capitalization ratio increased to
44.0% at fiscal year end 1995 from 40.7% at the end of the prior year.
The Cloth World acquisition required a cash payment at closing of
$62.0 million and an additional payment due upon determination of the final
purchase price. A final payment of $3.7 million was made shortly after the end
of fiscal 1995. Even with the cash outlay for the acquisition, the Company
ended fiscal 1995 with only a $24.5 million increase in long-term debt. In
addition, an offsetting $11.5 million was held in short-term investments. The
liquidation of approximately $20 million of incompatible Cloth World inventory,
as well as other operating activities contributed to the $64.3 million of cash
generated from operations in fiscal 1995, a $51.5 million increase over the
prior year.
Capital expenditures were $11.7 million in fiscal 1995, $8.5 million
in fiscal 1994, and $32.3 million in fiscal 1993. The change in expenditures
among the years relates directly to the number of stores opened each year. For
fiscal 1996, the Company expects to open approximately 45 superstores, close
35 smaller stores and convert 300 stores acquired from Cloth World to the
Jo-Ann Fabrics and Crafts store format. Capital expenditures are expected to
be approximately $28 million during fiscal 1996.
As part of the conversion of former Cloth World stores, the product
mix will be expanded to the broader selection of merchandise available in
Jo-Ann Fabrics and Crafts stores. Merchandise inventories are expected to
increase by approximately $30 million from year end 1995 levels.
During fiscal 1995, the Company purchased 45,175 shares of its common
stock for $0.7 million, primarily in the open market. These shares will be
used to satisfy obligations under the Company's benefit plans and for other
corporate purposes. The remaining number of shares that can be acquired
pursuant to prior authorization by the Board of Directors is 997,025.
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The Company has a $200.0 million revolving credit facility with a
group of eight banks that expires on September 29, 1997. The Company may
borrow up to a maximum of $220.0 million, subject to further limitations during
specified time frames, by utilizing funds available under this credit facility
and other lines of credit. As of January 28, 1995, the Company had borrowings
of $70.0 million under the revolving credit facility.
The Company continues to maintain excellent vendor and banking
relationships and has sufficient resources, including unused credit facilities,
to meet its operating needs and fund its capital expenditures for fiscal 1996.
Page 13
14
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
------------------------------------------
The following consolidated financial statements of the Registrant are included
in Part II, Item 8:
Consolidated Balance Sheets - January 28, 1995 and January 29, 1994
Consolidated Statements of Income for the three fiscal years ended January 28,
1995
Consolidated Statements of Shareholders' Equity for the three fiscal years
ended January 28, 1995
Consolidated Statements of Cash Flows for the three fiscal years ended January
28, 1995
Notes to Consolidated Financial Statements
Report of Management
Report of Independent Public Accountants
Page 14
15
CONSOLIDATED BALANCE SHEETS
FABI-CENTERS OF AMERICA, INC.
JANUARY 28, JANUARY 29,
1995 1994
==================================================================================================================================
(Thousands of dollars)
ASSETS
Current assets:
Cash and cash equivalents $ 21,887 $ 7,715
Merchandise inventories 290,560 224,803
Prepaid expenses and other current assets 11,963 11,009
Deferred income taxes 1,296 4,123
---------------- ---------------
Total current assets 325,706 247,650
Property and equipment, at cost:
Land 1,975 1,966
Buildings 20,699 20,052
Furniture and fixtures 77,982 72,088
Leasehold improvements 33,525 26,195
---------------- ---------------
134,181 120,301
Less accumulated depreciation and amortization 50,059 44,668
---------------- ---------------
84,122 75,633
Mortgage receivable 7,676 7,926
Other assets 9,800 9,164
---------------- ---------------
Total assets $ 427,304 $ 340,373
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 96,738 $ 62,309
Accrued expenses 28,043 11,375
Accrued income taxes 2,678 2,954
Net liabilities of discontinued operation - 3,557
---------------- ---------------
Total current liabilities 127,459 80,195
Long-term debt 70,000 45,500
Convertible subordinated debentures 56,983 56,983
Deferred income taxes 9,818 8,499
Other long-term liabilities 1,325 184
Shareholders' equity:
Common stock 989 975
Additional paid-in capital 72,921 70,598
Other (2,556) (1,896)
Retained earnings 99,336 87,602
---------------- ---------------
170,690 157,279
Treasury stock, at cost (8,971) (8,267)
---------------- ---------------
Total shareholders' equity 161,719 149,012
---------------- ---------------
Total liabilities and shareholders' equity $ 427,304 $ 340,373
================ ===============
See notes to consolidated financial statements
Page 15
16
CONSOLIDATED STATEMENTS OF INCOME
FABRI-CENTERS OF AMERICA, INC.
JANUARY 28, JANUARY 29, JANUARY 30,
YEARS ENDED 1995 1994 1993
=============================================================================================================================
(Thousands of dollars, except share and per share data)
Net sales $ 677,279 $ 582,071 $ 574,120
Costs and expenses:
Cost of goods sold 378,593 329,950 329,058
Selling, general and administrative expenses 271,187 235,439 231,261
Interest expense, net 8,418 5,547 5,522
------------- ------------- -------------
658,198 570,936 565,841
------------- ------------- -------------
Earnings from continuing operations before income taxes,
extraordinary item and cumulative effect of accounting
change 19,081 11,135 8,279
Income taxes 7,347 4,176 3,105
------------- ------------- -------------
Earnings from continuing operations before extraordinary item
and cumulative effect of accounting change 11,734 6,959 5,174
Discontinued operations:
Loss from operations, net of tax benefit of $860 - - (1,432)
Provision for loss on disposal, including estimated operating
losses to be incurred through disposal date of $691 and
$1,562 (net of tax benefits of $3,121 and $938 - (5,201) (1,562)
------------- ------------- -------------
- (5,201) (2,994)
------------- ------------- -------------
Earnings before extraordinary item and cumulative effect of
accounting change 11,734 1,758 2,180
Extraordinary item:
Gain on buyback of convertible subordinated debentures
net of tax provision of $1,231 - - 2,052
Cumulative effect of accounting change - 399 -
------------- ------------- -------------
Net earnings 11,734 $ 2,157 $ 4,232
============= ============= =============
Earnings (loss) per common share:
Earnings from continuing operations $ 1.26 $ 0.75 $ 0.54
Loss from discontinued operations - (0.56) (0.31)
------------- ------------- -------------
Earnings before extraordinary item and cumulative effect of
accounting change 1.26 0.19 0.23
Extraordinary item - - 0.21
Cumulative effect of accounting change - 0.04 -
------------- ------------- -------------
Net earnings $ 1.26 $ 0.23 $ 0.44
============= ============= =============
Average shares and equivalents outstanding 9,343,663 9,284,521 9,631,537
See notes to consolidated financial statements
Page 16
17
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FABRI-CENTERS OF AMERICA, INC.
JANUARY 28, JANUARY 29, JANUARY 30,
YEARS ENDED 1995 1994 1993
=============================================================================================================================
(Thousands of dollars)
COMMON STOCK AT STATED VALUE
Balance at beginning of year $ 975 $ 969 $ 962
Exercise of stock options 5 13 7
Issuance of restricted stock awards 10 1 4
Cancellation of restricted stock awards (1) (8) (4)
---------- ---------- ----------
Balance at end of year 989 975 969
- -----------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year 70,598 70,804 67,976
Exercise of stock options 491 1,202 519
Issuance of restricted stock awards 1,636 135 1,580
Cancellation of restricted stock awards (103) (1,747) (481)
Issuance of treasury shares - 6 166
Tax benefit on options exercised 299 198 1,044
---------- ---------- ----------
Balance at end of year 72,921 70,598 70,804
- -----------------------------------------------------------------------------------------------------------------------------
OTHER
Balance at beginning of year (1,896) (3,692) (3,606)
Issuance of restricted stock awards (1,646) (136) (1,584)
Cancellation of restricted stock awards 93 1,011 331
Amortization of restricted stock awards 893 921 1,167
---------- ---------- ----------
Balance at end of year (2,556) (1,896) (3,692)
- -----------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of year 87,602 85,445 81,213
Net earnings 11,734 2,157 4,232
---------- ---------- ----------
Balance at end of year 99,336 87,602 85,445
- -----------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Balance at beginning of year (8,267) (5,052) (4,022)
Repurchase of common stock (704) (3,308) (1,318)
Issuance of treasury shares - 93 288
---------- ---------- ----------
Balance at end of year (8,971) (8,267) (5,052)
- -----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 161,719 $ 149,012 $ 148,474
=============================================================================================================================
See notes to consolidated financial statements
Page 17
18
CONSOLIDATED STATEMENTS OF CASH FLOWS
FABRI-CENTERS OF AMERICA, INC.
JANUARY 28, JANUARY 29, JANUARY 30,
YEARS ENDED 1995 1994 1993
=============================================================================================================================
(Thousands of dollars)
Operating activities:
Net earnings $ 11,734 $ 2,157 $ 4,232
Additions (deductions) not requiring cash:
Extraordinary gain before income tax provision - - (3,283)
Cumulative effect of accounting change - (399) -
Provision for loss on discontinued operation - 8,322 2,500
Cancellation of restricted stock awards (11) (744) (154)
Depreciation and amortization and other noncash expenses 13,978 12,138 11,120
Deferred income taxes 4,146 184 2,943
(Gain) loss on disposal of fixed assets (70) 699 1,042
Working capital changes, net of acquisition of Cloth World:
Merchandise inventories 28,499 (1,155) (40,333)
Prepaid expenses and other current assets 2,905 350 (3,626)
Net liabilities of discontinued operation (3,557) 8,135 (5,292)
Accounts payable 3,921 (17,968) 154
Accrued expenses 3,020 (961) 813
Accrued income taxes (276) 1,983 (5,164)
---------------------------------------------------
Net cash provided by (used for) operating activities 64,289 12,741 (35,048)
Investing activities:
Capital expenditures (11,740) (8,491) (32,295)
Acquisition of Cloth World, net of cash acquired (A) (61,829) - -
Assets held for sale - - 9,453
Mortgage receivable 250 375 (8,301)
Other, net (1,034) 182 519
---------------------------------------------------
Net cash used for investing activities (74,353) (7,934) (30,624)
Financing activities:
Proceeds from long-term debt 89,500 46,000 25,300
Repayment of long-term debt (65,000) (47,600) (18,300)
Proceeds from sale of convertible subordinated debentures, net - - 72,813
Repurchase of convertible subordinated debentures - - (14,049)
Other long-term liabilities (56) (26) (87)
Proceeds from exercise of stock options 496 1,215 526
Repurchase of common stock (704) (3,308) (1,318)
---------------------------------------------------
Net cash provided by (used for) financing activities 24,236 (3,719) 64,885
Net increase (decrease) in cash 14,172 1,088 (787)
Cash and cash equivalents at beginning of year 7,715 6,627 7,414
---------------------------------------------------
Cash and cash equivalents at end of year $ 21,887 $ 7,715 $ 6,627
===================================================
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest $ 8,834 $ 7,584 $ 4,726
Income taxes $ 3,927 $ (3,516) $ 5,725
(A) Acquisition of Cloth World, net of cash acquired
Working capital, other than cash $ (57,154)
Property and equipment (9,540)
Other assets (42)
Payable to Brown Group Inc. 3,710
Other liabilities 1,197
-------------
Net cash used to acquire Cloth World $ (61,829)
=============
See notes to consolidated financial statements
Page 18
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Fabri-Centers of
America, Inc., and its wholly owned subsidiaries (the "Company"). These
statements present the Company's Cargo Express Stores division as a
discontinued operation, which ceased operation in the first quarter of fiscal
1995. Except where otherwise noted, the Notes to Consolidated Financial
Statements pertain to the Company's continuing operations. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with a maturity of three
months or less at the time of purchase. At January 28, 1995, the Company held
cash equivalents of $11.5 million stated at cost. No cash equivalents were
held at January 29, 1994.
FINANCIAL INSTRUMENTS
The Company believes that the carrying value of cash equivalents approximates
their fair value. All other financial instruments are considered to have a
fair value which approximates carrying value at January 28, 1995, unless
otherwise specified.
The Company occasionally enters into interest rate swap and interest
rate cap agreements to hedge against interest rate risk. The interest
differentials from these swaps and caps are recorded as interest expense as
incurred.
STORE OPENING EXPENSES
Store opening expenses are charged to operations as incurred, which is
generally the same period that the store is opened.
PROPERTY AND EQUIPMENT
Depreciation of buildings, furniture and fixtures, and leasehold improvements
is provided principally by the straight-line method. The major classes of
assets and ranges of annual depreciable rates are as follows:
Buildings 2-1/2% - 10%
Furniture and fixtures 6-2/3% - 20%
Leasehold Improvements 6-2/3% - 20%
Maintenance and repair expenditures are charged to expense as incurred and
betterments and major renewals are capitalized.
INTANGIBLE ASSETS
Other assets includes the value assigned for trade names, favorable lease
interest, and other intangible assets acquired in connection with purchased
businesses totalling $4,781,000 and $5,622,000 as of fiscal year end 1995 and
1994, respectively, and are being amortized primarily on a straight-line basis
over 3
Page 19
20
to 20 years. Amortization expense was $841,000, $844,000, and $820,000 in
fiscal 1995, 1994, and 1993, respectively.
RECLASSIFICATIONS
Certain amounts in the fiscal 1994 and fiscal 1993 financial statements have
been reclassified in order to conform with the presentation for fiscal 1995.
STORE INVENTORIES
Store physical inventories are taken on a cycle basis throughout the fiscal
year. Store inventories subsequent to the physical inventory are charged at
cost for shipments of merchandise to the stores and are relieved at cost for
the sale of merchandise.
INCOME TAXES
Effective January 31, 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes." Under SFAS 109, deferred taxes are determined based on
estimated future tax effects of differences between the financial statement and
tax bases of assets and liabilities giving consideration to enacted tax laws.
As permitted by SFAS 109, the Company has elected not to restate the financial
statements for any prior years.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost or market. Approximately 99
percent and 97 percent of inventories were valued using the last-in, first-out
(LIFO) method at January 28, 1995 and January 29, 1994, respectively. The value
of inventories stated on the LIFO method at January 28, 1995 and January 29,
1994 are not materially different from their current cost.
During fiscal 1993, reductions in inventory quantities resulted in the
liquidation of certain LIFO inventory layers. The effect of the liquidation
was to increase net earnings by approximately $320,000, or $0.03 per share in
fiscal 1993. There was no material effect on net earnings from the liquidation
of LIFO inventories in fiscal 1995 or fiscal 1994.
NOTE 3 - MORTGAGE RECEIVABLE
In fiscal 1993, the Company sold its former headquarters and distribution
center to an unrelated third party for cash and a long-term promissory note due
2003. The promissory note bears interest at a rate of 5.5 percent through
April 30, 1995, 6.0 percent from May 1, 1995 through April 30, 1998, 8.0
percent from May 1, 1998 through April 30, 2001 and 9.0 percent thereafter.
This note is secured by a purchase money mortgage.
NOTE 4 - LEASES
Principally all of the Company's retail stores operate out of leased
facilities. All store leases are operating leases generally for periods up to
ten years with renewal options for up to twenty years. Certain leases contain
escalation clauses, and in some cases, provide for contingent rents based on a
percent of sales in excess of defined minimums. The Company in certain
instances is required to pay its prorata share of real
Page 20
21
estate taxes and common area maintenance expenses. The Company also leases
certain store fixtures generally under five-year lease terms.
The following is a schedule of future minimum rental payments under
non-cancelable operating leases as of January 28, 1995:
Minimum
Fiscal Year Rentals
- -------------------------------------------------------------------------------------------------------------
(Thousands of dollars)
1996 $ 66,007
1997 64,174
1998 62,002
1999 58,541
2000 54,691
Thereafter 132,420
-----------
$ 437,835
===========
Rent expense was as follows:
Fiscal Year 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
(Thousands of dollars)
Minimum rentals $ 57,081 $ 49,425 $ 41,735
Contingent rentals 1,286 1,384 2,365
Less:
Sublease rentals (1,397) (1,375) (484)
---------- ---------- -----------
$ 56,970 $ 49,434 $ 43,616
========== ========== ===========
The Company has entered into lease commitments for new stores to be
opened after January 28, 1995. The aggregate minimum rentals applicable to
these locations, which are included in the future minimum rental payments,
amount to $6,309,000.
Page 21
22
NOTE 5 - CAPITAL STOCK
The following table details the common stock activity for fiscal 1995 and
fiscal 1994:
$0.10 Common Stock
-------------------------------------
Shares
Outstanding Shares
Net of Treasury in Treasury
- ---------------------------------------------------------------------------
Balance at January 31, 1993 9,277,256 415,758
Exercise of stock options 123,242 ---
Issuance of restricted stock 10,000 ---
Cancellation of restricted stock (79,750) ---
Treasury stock acquired (233,650) 233,650
--------- -------
Balance at January 29, 1994 9,097,098 649,408
Exercise of stock options 48,988 ---
Issuance of restricted stock 104,000 ---
Cancellation of restricted stock (6,000) ---
Treasury stock acquired (45,175) 45,175
--------- -------
Balance at January 28, 1995 9,198,911 694,583
========= =======
During fiscal years 1995 and 1994, the Company acquired 45,175 and
233,650 shares, respectively, of its common stock to be held in treasury and
used for delivery upon exercise of stock options that have been or may be
granted, for the Company matching contributions to the Employees' Savings and
Profit Sharing Plan, and for other appropriate corporate purposes.
At January 28, 1995 and January 29, 1994, there were 5,000,000 shares
of serial preferred stock, without par value, authorized for issuance, none of
which are outstanding and 75,000,000 shares of common stock authorized for
issuance.
SHAREHOLDERS' RIGHTS PLAN
The Company's Shareholders' Rights Plan, adopted by the Board of Directors on
October 23, 1990 and amended March 9, 1992, issued to the shareholders one
right for each share of common stock outstanding. The rights are exercisable
only if a person or group buys, or announces a tender offer for, 20 percent or
more of the Company's common stock, or the Board of Directors declares a person
or group to be an "adverse person." When exercisable, each right will
initially entitle a holder to purchase one share of the Company's common stock
for $211.50. If at any time after the rights become exercisable, the Company
is acquired in a merger or certain other business transactions occur, each
right would then enable the holder to buy one common share of the acquiring
company, or under certain circumstances, one share of common stock of the
Company, for $1.00. The rights, which do not have voting privileges, expire in
2000, but may be redeemed by action of the Board prior to that time, under
certain circumstances, for $0.01 per right. Until the rights become
exercisable, they have no dilutive effect on earnings per share.
Page 22
23
NOTE 6 - CONVERTIBLE SUBORDINATED DEBENTURES
In March 1992, the Company issued $74,750,000 of 6-1/4 percent convertible
subordinated debentures due March 1, 2002. Interest is payable semi-annually
on March 1 and September 1. The debentures are convertible by a holder into
shares of the Company's common stock at a conversion price of $48-3/4 per
share. These debentures are subject to redemption, at the option of the
Company, in whole or in part, at a redemption price of 104.5 percent of the
principal amount, which decreases in equal increments annually through March 1,
1999, and remains at 100 percent thereafter. The Company had incurred
approximately $1.9 million in debt issuance costs which were deferred and are
being amortized over the ten-year term of the debentures. At January 28, 1995,
the fair value of these debentures was $43,877,000 based upon quoted market
price for the same issue.
During fiscal 1993, the Company repurchased, at a discount,
$17,767,000 of the debentures resulting in an after-tax gain of $2,052,000 or
$0.21 per share, which includes the write-off of unamortized issuance costs of
$435,000.
NOTE 7 - RESTRICTED STOCK AWARDS
During fiscal 1995, the shareholders approved the 1994 Executive Incentive Plan
that succeeds the Executive Incentive Plan that expired January 29, 1994.
Under these plans, 650,250 shares of common stock have been reserved that may
be awarded to executive officers and senior management personnel. For the
fiscal year ended January 28, 1995, 248,250 restricted shares were outstanding
under the plans. The vesting periods for these restricted shares are generally
five years with all rights to such restricted stock terminating without any
payment of consideration by the Company unless the grantee remains in the
continuous employment of the Company throughout the vesting period. Unearned
compensation resulting from the issuance of shares under this plan is being
amortized over the vesting periods and the unamortized portion has been
reflected as a reduction of shareholders' equity. At January 28, 1995, 402,000
shares of common stock are available for future awards under the 1994 Executive
Incentive Plan.
NOTE 8 - STOCK OPTION PLAN
Nonqualified and incentive stock options have been granted to certain officers
and key employees under the Company's 1990 Employee Stock Option and Stock
Appreciation Rights Plan ( the "Plan") at prices not less than fair market
value of the common stock at the date of grant. The Plan also permits the
granting of stock appreciation rights, with respect to all or part of the
common stock subject to any option granted under this plan. The options and
stock appreciation rights become exercisable to the extent of one-fourth of the
optioned shares for each full year of employment following the date of grant
and generally expire ten years after the date of the grant. During fiscal
1995, the Company's shareholders approved an amendment to the Plan which
increased by 750,000 the number of shares with respect to which options may be
granted and limited at 100,000 shares the number of nonqualified options, stock
appreciation rights and incentive stock options which may be granted to any one
individual in any single year.
Page 23
24
The following is a summary of stock option and stock appreciation
rights ("SAR") activity:
Shares Option Price
--------------------------
Options SAR Per Share
- ----------------------------------------------------------------------------------------------------
Outstanding at February 2, 1992 774,617 --- $ 4.75 - $ 46.13
Granted 707,800 --- 10.63 - 41.44
Exercised (36,861) --- 4.75 30.44
Cancelled (126,088) --- 8.42 - 42.01
--------- ---------
Outstanding at January 30, 1993 1,319,468 --- 4.75 - 46.13
Granted 255,500 --- 13.31 - 17.44
Exercised (123,242) --- 4.75 15.83
Cancelled (207,872) --- 8.83 - 46.00
--------- ---------
Outstanding at January 29, 1994 1,243,854 --- 4.75 - 46.13
Granted 328,800 --- 12.69 - 17.44
Exercised (48,988) --- 4.75 17.25
Cancelled (96,239) --- 5.00 - 46.00
--------- ---------
Outstanding at January 28, 1995 1,427,427 --- 4.75 - 46.13
========= =========
Exercisable 661,027 --- 4.75 - 46.13
Reserved for future option and -
SAR grants 695,448 695,448
In addition, under the 1988 Stock Option Plan for Non-Employee
Directors, the Company may grant stock options for up to 150,000 shares of
Company common stock at prices not less than the fair market value of the
common stock at the date of grant. The options become exercisable to the
extent of one-fourth of the optioned shares for each full year of continuous
service after the date of grant and generally expire ten years after the date
of the grant. During fiscal 1995, 20,000 stock options were granted at $14.88
per share and no stock options were exercised. During fiscal 1993, 15,000
stock options were granted at $34.06 per share and 30,000 were exercised at
$5.05. No stock options were granted or exercised during fiscal 1994. At
January 28, 1995, 75,000 stock options remain outstanding, of which 43,750 are
currently exercisable and 40,000 options are reserved for future grants.
NOTE 9 - EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN AND POSTRETIREMENT BENEFITS
The Company sponsors a tax-deferred savings plan whereby eligible employees may
elect quarterly to contribute up to the lesser of 10 percent of annual
compensation or the statutory maximum. The Company makes a 50 percent matching
contribution in the form of Company common stock, up to a maximum employee
contribution of 4 percent of the employee's compensation. Employer
contributions of Company common stock have been made through the issuance of
shares out of the treasury or by purchasing shares on the open market. The
amount of the Company's matching contribution in fiscal year 1995, 1994, and
1993 was approximately $600,000, $516,000 and $536,000, respectively. Plan
assets included 255,781 and 214,162 shares of the Company's common stock at
January 28, 1995, and January 29, 1994, respectively.
Page 24
25
The Company does not provide postretirement health care benefits.
Therefore, Statement of Financial Accounting Standards (SFAS) 106, "Employer's
Accounting for Postretirement Benefits Other Than Pensions," has no impact on
the Company's financial position or results of operations.
NOTE 10 - LONG-TERM DEBT
On September 30, 1994, the Company entered into a $200 million three-year
revolving credit agreement (the Credit Facility) with a group of eight banks
(the Bank Group). The Company pays a facility fee on the revolving credit
commitment amount and pays a commitment fee on the unused portion of the Credit
Facility each of which range from .125 percent to .25 percent based on the
achievement of specified ranges of certain financial covenants. Interest on
borrowings under the Credit Facility is payable at an applicable margin over
prime, federal funds or LIBOR rates. The applicable margin ranges between .5
percent and 2.5 percent, based on the achievement of specified ranges of
certain financial covenants.
The Credit Facility contains certain financial covenants which limit
the Company's capital expenditures and defined leverage ratio, as well as,
require the Company to maintain a minimum defined current ratio, working
capital, tangible net worth, fixed charge coverage ratio and current funded
indebtedness ratio. The maximum allowable combined outstanding debt for the
Credit Facility and additional bank borrowings is $220 million, subject to
limitations of revolving credit borrowings during specified time frames
throughout the commitment period.
The Company has an interest rate cap agreement with one of the banks
in the Bank Group. The interest rate cap establishes a maximum interest rate
payable when the variable rate exceeds a certain rate. At January 29, 1994 the
total notional amount under the interest rate cap was $20 million, having a
capped LIBOR rate of 8 percent, terminating October 7, 1996. The Company has
an interest rate swap agreement under which it pays to the counter-party
interest at a fixed rate of 7.3 percent and the counter-party pays to the
Company at a variable rate based on LIBOR, on a current notional amount of $10
million, terminating October 7, 1996.
During 1995, the Company's weighted average interest rate and weighted
average borrowings under the current and former revolving credit facility were
5.56 percent and $65.6 million, respectively, versus 4.00 percent and $68.0
million during fiscal 1994 and 4.06 percent and $33.6 million during fiscal
1993.
Page 25
26
NOTE 11 - INCOME TAXES
Effective January 31, 1993, the Company adopted SFAS 109, "Accounting for
Income Taxes." The cumulative effect of the accounting change increased net
earnings for fiscal 1994 by $399,000 or $0.04 per share.
The significant components of income tax expense are as follows:
Fiscal Year 1995 1994 1993
- ---------------------------------------------------------------------------
(Thousands of dollars)
Current:
Federal $ 2,763 $ 3,029 $ 112
State and local 438 442 433
-------- -------- --------
3,201 3,471 545
Deferred 4,146 705 2,560
-------- -------- --------
Total income tax expense $ 7,347 $ 4,176 $ 3,105
======== ======== ========
The reconciliation of income tax at the statutory rate to total income tax
expense is as follows:
Fiscal Year 1995 1994 1993
- ------------------------------------------------------------------------
(Thousands of dollars)
Federal income tax at the
statutory rate $ 6,678 $ 3,786 $ 2,815
Effect of:
State and local taxes 285 292 286
Other, net 384 98 4
-------- -------- --------
Provision for income taxes $ 7,347 $ 4,176 $ 3,105
======== ======== ========
Page 26
27
The significant components of the Company's deferred tax assets and liabilities
are as follows:
Asset/(Liability)
--------------------------
Fiscal Year 1995 1994
- ------------------------------------------------------------------------
(Thousands of dollars)
Current
-------------------------------------
Deferred tax assets:
Inventory items $ 893 $ ---
Benefit programs 795 1,202
Reserve for discontinued operations 455 3,309
Other 96 151
--------- --------
2,239 4,662
Deferred tax liabilities:
Basis difference in net assets acquired (631) ---
Real estate taxes (65) (195)
Personal property taxes (126) (271)
Other taxes (121) (73)
--------- --------
(943) (539)
--------- --------
Net current deferred taxes $ 1,296 $ 4,123
========= ========
Non-current
---------------------------------------
Deferred tax assets:
Unearned compensation 982 $ 809
Other 178 180
--------- --------
1,160 989
Deferred tax liabilities:
Depreciation (10,307) (9,455)
Basis difference in net assets acquired (638) ---
Other (33) (33)
--------- --------
(10,978) (9,488)
--------- --------
Net non-current deferred taxes $ (9,818) $ (8,499)
========= ========
The Company did not record any valuation allowances against deferred tax assets
as of January 28, 1995 and January 29, 1994.
NOTE 12 - EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings by the weighted
average number of shares and share equivalents outstanding during each period.
Share equivalents represent the incremental effect from the assumed exercise of
dilutive stock options using the treasury stock method.
Page 27
28
The following table presents information necessary to calculate
primary earnings per share for the periods presented.
Fiscal Year 1995 1994 1993
- ------------------------------------------------------------------------
Shares outstanding:
Weighted average shares
outstanding 9,156,526 9,079,127 9,328,225
Share equivalents 187,137 205,394 303,312
--------- --------- ---------
Primary shares outstanding 9,343,663 9,284,521 9,631,537
========= ========= =========
The computation of fully diluted earnings per share assumes both the
exercise of dilutive stock options as well as the conversion of the Company's
6-1/4% convertible subordinated debentures. For the fiscal years 1995, 1994
and 1993, fully diluted earnings per share are the same as primary earnings
per share due to the computation producing an anti-dilutive result.
NOTE 13 - CLOTH WORLD ACQUISITION
On October 2, 1994, the Company acquired substantially all of the assets of
Cloth World, a division of Brown Group Inc. ("Cloth World") for approximately
$97 million in cash and assumed liabilities. The funds used to acquire Cloth
World were provided by internally generated funds and borrowings under a credit
facility. The acquisition has been recorded using the purchase method, and
accordingly, the results of operations of Cloth World have been included in the
Company's consolidated financial statements since the date of acquisition. The
purchase price allocation has been based on preliminary estimates which may be
revised; however, the effect of any revisions on the results of operations for
fiscal 1995 would not be material.
Cloth World, with fiscal 1994 sales of $224 million, operated 342
specialty fabric stores in 26 states with a concentration in the southern half
of the United States.
Summarized below are the unaudited consolidated results of operations
of the Company, including Cloth World on a pro forma basis, as if Cloth World
had been acquired as of the beginning of the periods presented:
Fiscal Year 1995 1994
- -------------------------------------------------------------------------------
(Thousands of dollars, except per share data)
Net sales $ 817,695 $ 806,137
Earnings from continuing operations before
cumulative effect of accounting change $ 11,466 $ 7,706
Net earnings $ 11,466 $ 2,904
Earnings per common share:
Earnings from continuing operations before
cumulative effect of accounting change $ 1.23 $ 0.83
Net earnings $ 1.23 $ 0.31
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29
The pro forma financial information above is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the Cloth World acquisition been consummated at the
beginning of the periods presented. In addition, they are not intended to be a
projection of future results and do not reflect synergies that might be
achieved from combined operations.
NOTE 14 - DISCONTINUED OPERATION
In December 1993, the Company adopted a plan to liquidate its retail housewares
division, Cargo Express Stores ("Cargo Express"), which has been reported as a
discontinued operation since fiscal 1993, when the Company adopted a plan for
its sale. The net loss related to Cargo Express in fiscal 1993 was $2,994,000,
net of tax benefit, or $0.31 per share, representing operating losses and
additional costs to be incurred through the disposal date. In the fourth
quarter of fiscal 1994, the Company decided to liquidate the division and
accordingly an after-tax provision of $5,201,000, or $0.56 per share, was
recorded primarily for the write-off of fixed assets and estimated costs to
complete the liquidation, including estimated operating losses to be incurred
through the disposal date of $691,000, or $0.07 per share. During the first
quarter of fiscal 1995, the Company completed the liquidation of Cargo Express
which did not require the recognition of any additional gain or loss.
Net sales for Cargo Express were $5,381,000, $51,334,000, and
$39,690,000 for fiscal years 1995, 1994, and 1993, respectively. Assets and
liabilities of the division have been classified on the balance sheets as net
liabilities of discontinued operation. These net liabilities consisted
primarily of inventory, fixed assets, operating liabilities, and accrued losses
to be incurred for the write-off of fixed assets and estimated costs to
complete the liquidation. Interest had been allocated to Cargo Express based
on a calculation considering the Company's cost of capital and the average
working capital and net fixed assets of Cargo Express.
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30
NOTE 15 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
First Second Third Fourth
Fiscal 1995 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------
(Thousands of dollars, except per share data)
Net sales $ 132,676 $ 112,851 $ 175,434 $ 256,318
Gross profit $ 56,252 $ 48,883 $ 79,690 $ 113,861
Net earnings (loss) $ (1,256) $ (5,199) $ 4,075 $ 14,114
Primary earnings (loss) per common share (c) $ (0.13) $ (0.56) $ 0.44 $ 1.50
Fully diluted earnings (loss) per common share (c) $ (0.13) $ (0.56) $ 0.44 $ 1.38
First Second Third Fourth
Fiscal 1994 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------
(Thousands of dollars, except per share data)
Net sales $ 139,751 $ 113,151 $ 147,104 $ 182,065
Gross profit $ 55,951 $ 48,274 $ 66,329 $ 81,567
Earnings (loss) from continuing operations before
cumulative effect of accounting change $ (1,684) $ (5,433) $ 3,536 $ 10,540
Loss from discontinued operation, net of taxes (a) --- --- --- (5,201)
---------- ---------- ---------- ----------
Earnings (loss) before cumulative effect of
accounting change (1,684) (5,433) 3,536 5,339
Cumulative effect of accounting change (b) 399 --- --- ---
---------- ---------- ---------- ----------
Net earnings (loss) $ (1,285) $ (5,433) $ 3,536 $ 5,339
========== ========= ========== ==========
Earnings (loss) per common share: (c) (d)
Earnings (loss) from continuing operations
before cumulative effect of accounting change $ (0.18) $ (0.59) $ 0.38 $ 1.13
Loss from discontinued operation --- --- --- (0.56)
---------- --------- ---------- ----------
Earnings (loss) before cumulative effect of
accounting change (0.18) (0.59) 0.38 0.57
Cumulative effect of accounting change 0.04 --- --- ---
----------- ----------- ----------- ----------
Net earnings (loss) $ (0.14) $ (0.59) $ 0.38 $ 0.57
=========== =========== =========== ==========
(a) Represents the after-tax provision for loss on disposal of $4,510 ($0.49
per share) and estimated after-tax operating losses to be incurred through
the disposal date of $691 ($0.07 per share). See Note 14.
(b) Represents the cumulative effect of the adoption of SFAS 109 "Accounting
for Income Taxes". See Note 11.
(c) Primary and fully diluted earnings per common share calculations for each
quarter are based on the weighted average number of shares and share
equivalents outstanding during each respective quarter. Thus, the sum of
quarterly earnings per share amounts may not necessarily be equal to the
full-year earnings per common share. See Note 12.
(d) Fully diluted earnings per share are the same as primary earnings per
share for each quarter of fiscal 1994 due to the computations of fully
diluted earnings per share producing anti-dilutive results. See Note 12.
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31
REPORT OF MANAGEMENT
TO THE SHAREHOLDERS OF FABRI-CENTERS OF AMERICA, INC.
We have prepared the accompanying consolidated financial statements and related
information included herein for the years ended January 28, 1995, January 29,
1994 and January 30, 1993. The opinion of Arthur Andersen LLP, the Company's
independent public accountants, on those financial statements is included. The
primary responsibility for the integrity of the financial information included
in this annual report rests with management. This information is prepared in
accordance with generally accepted accounting principles, based on our best
estimates and judgements and giving due consideration to materiality.
The Company maintains accounting and control systems which are designed to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, and which produce records adequate for preparation of
financial information. There are limits inherent in all systems of internal
control based on the recognition that the cost of such systems should not
exceed the benefits to be derived. We believe our system provides this
appropriate balance.
The Board of Directors pursues its responsibility for these financial
statements through the Audit Committee, composed exclusively of outside
directors. The committee meets periodically with management, internal auditors
and our independent public accountants to discuss the adequacy of financial
controls, the quality of financial reporting, and the nature, extent and
results of the audit effort. Both the internal auditors and independent public
accountants have private and confidential access to the Audit Committee at all
times.
Alan Rosskamm Robert Norton
Chairman of the Board, Vice Chairman of the Board
President and Chief Executive Officer and Chief Financial Officer
Page 31
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF FABRI-CENTERS OF AMERICA, INC.
We have audited the accompanying consolidated balance sheets of Fabri-Centers
of America, Inc. (an Ohio corporation) and subsidiaries as of January 28, 1995,
and January 29, 1994, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 28, 1995. 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 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 financial statements referred to above present fairly,
in all material respects, the financial position of Fabri-Centers of America,
Inc. and subsidiaries as of January 28, 1995, and January 29, 1994, and the
result of their operations and their cash flows for each of the three fiscal
years in the period ended January 28, 1995 in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Cleveland, Ohio,
March 1, 1995.
Page 32
33
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 as to the Directors of the
Registrant will be incorporated herein by reference to the information set
forth under the caption "Nominees to the Board of Directors" in the
Registrant's definitive proxy statement for its 1995 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be incorporated herein
by reference to the information set forth under the caption "Director's and
Executive Compensation" in the Registrant's definitive proxy statement for its
1995 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 will be incorporated herein
by reference to the information set forth under the captions, "Security
Ownership of Management" and "Security Ownership of Certain Beneficial Owners"
in the Registrant's definitive proxy statement for its 1995 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
Page 33
34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Registrant are
included in Part II, Item 8:
Consolidated Balance Sheets - January 28, 1995 and January 29, 1994
Consolidated Statements of Income for the three fiscal years ended
January 28, 1995
Consolidated Statements of Shareholders' Equity for the three fiscal
years ended January 28, 1995
Consolidated Statements of Cash Flows for the three fiscal years ended
January 28, 1995
Notes to Financial Statements
Report of Independent Public Accountants
2. Financial Statement Schedules
Selected Quarterly Financial Data for the Fiscal Years Ended January
28, 1995, and January 29, 1994 are included in Part II, Item 8
All other schedules have been omitted because the required information is
shown in the consolidated financial statements or notes thereto, because
the amounts involved are not significant or because the required subject
matter is not applicable to the Registrant.
3. Exhibits
See the Exhibit Index at sequential page 36 of this report.
(b) Reports on Form 8-K.
During the quarter ended January 29, 1995, the Registrant filed a report on
Form 8-K/A No. 1 dated December 12, 1994 as an amendment to the Form 8-K dated
October 2, 1994. The Registrant reported under Item 7 ("Financial Statements,
Pro Forma Financial Information and Exhibits") the required financial
statements and pro forma financial information related to the acquisition of
Cloth World, a division of Brown Group Inc. This report also updated and filed
certain documents.
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35
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FABRI-CENTERS OF AMERICA, INC.
By: /s/Alan Rosskamm April 24, 1995
-------------------------------------
Alan Rosskamm
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
----------------------------------- ------------
/s/Alan Rosskamm Chairman of the Board and Director
---------------------
Alan Rosskamm (Chief Executive Officer)
/s/Robert Norton* Vice Chairman and Director
---------------------
Robert Norton (Chief Accounting Officer)
/s/Betty Rosskamm* Director
--------------------
Betty Rosskamm
/s/Alma Zimmerman* Director
--------------------
Alma Zimmerman
/s/Samuel Krasney* Director April 24, 1995
--------------------
Samuel Krasney
/s/Scott Cowen* Director
--------------------
Scott Cowen
/s/Frank Newman* Director
--------------------
Frank Newman
/s/Ira Gumberg* Director
--------------------
Ira Gumberg
The undersigned, by signing his name hereto, does hereby sign this
Form 10-K Annual Report on behalf of the above-named officers and directors of
Fabri-Centers of America, Inc., pursuant to powers of attorney executed on
behalf of each of such officers and directors.
*By: /s/Alan Rosskamm April 24, 1995
--------------------------------
Alan Rosskamm, Attorney-in-Fact
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36
FABRI-CENTERS 0F AMERICA, INC.
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 28, 1995
EXHIBIT INDEX
Official Sequential
Exhibit No. Description Page No.
- ----------------- ----------------------------------------------------------------------- -------------
2 Asset Purchase Agreement among Fabri-Centers of America, Inc., ***
FCA of Ohio, Inc., Brown Group, Inc. and Cloth World, Inc. dated
August 24, 1994
3 (a) Amended Articles of Incorporation *
3 (b) Amended Regulations *
4 (a) Rights Agreement, dated October 23, 1990, by and between the *
Registrant and Ameritrust Company National Association, as
rights agent
4 (b) Form of Indenture, dated as March 13, 1992, between the **
Registrant and Ameritrust Company N.A., as trustee relating to
the 6 1/4% Convertible Subordinated Debentures due March 1, 2002
4 (c) Specimen Certificate for 6 1/4% Convertible Subordinated *
Debentures due March 1, 2002
10 (a) Form of Split Dollar Life Insurance Agreement between the *
Registrant and certain of its officers #
10 (b) Split Dollar Life Insurance Agreement and Assignment between the *
Registrant and Alma Zimmerman dated September 22, 1984 #
10 (c) Fabri-Centers of America, Inc. 1979 Supplemental Retirement *
Benefit Plan as amended #
10 (d) Split Dollar Life Insurance Agreements and Assignments between *
the Registrant and Betty Rosskamm dated October 19, 1984 #
10 (e) Fabri-Centers of America, Inc. Executive Incentive Plan dated *
March 19, 1980 as amended #
10 (f) Form of Employment Agreement between the Registrant and each of *
the following Executive Official Officers: Alan Rosskamm, #
Robert Norton, Donald Richey and Jane Aggers
10 (g) Severance Agreement between the Registrant and James Monroe, Jr. *
dated April 5, 1993 #
10 (h) Fabri-Centers of America, Inc. 1990 Employees Stock Option and *
Stock Appreciation Rights Plan as amended #
Page 36
37
Exhibit Index
-continued-
Official Sequential
Exhibit No. Description Page No.
- ----------------- --------------------------------------------------------------------- ---------------
10 (i) Fabri-Centers of America, Inc. 1988 Stock Option Plan for Non- *
Employee Directors as amended #
10 (j) Credit Agreement dated as of September 30, 1994 among Fabri- @
Centers of America, Inc. as borrower, the Banks which are
Signatories thereto and Society National Bank, as Agent
10 (k) Restated Employment Agreement between Robert L. Norton and ***
Fabri-Centers of America, Inc., dated April 22, 1994 #
11 Computation of Earnings Per Share 38
21 List of Subsidiaries 39
23 Consent of Independent Public Accountants 40
24 Directors and Officers Power of Attorney 41
27 Financial Data Schedule 42
* Incorporated by reference to an Exhibit in the Registrant's
Form 8-K filed with the Commission on December 1, 1993.
** Incorporated by reference to an Exhibit in the Registrant's
Form S-3 filed with the Commission on February 20, 1993.
*** Incorporated by reference to an Exhibit in the Registrant's
Form 8-K filed with the Commission on October 2, 1994.
@ Incorporated by reference to an Exhibit in the Registrant's
Form 8-K/A No. 1 filed with the Commission on December
12, 1994.
# Management contract or compensatory plan or arrangement.
Page 37