UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 28, 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 34-1-10952
DUTY FREE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 52-1292246
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 Copps Hill Road
Ridgefield, Connecticut 06877
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 431-6057
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Common Stock, $.01 par value per share
Name of exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 a definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing price of $13.25 per share for the
registrant's common stock as reported by the New York Stock Exchange as
of March 29, 1996 was approximately $294,342,000.
Number of shares of Common Stock of the registrant outstanding as of
March 29, 1996: 27,268,397 shares.
DOCUMENTS INCORPORATED BY REFERENCE PART
- ----------------------------------- ---------
1996 ANNUAL REPORT TO STOCKHOLDERS I, II, IV
PROXY STATEMENT FOR THE 1996 ANNUAL
MEETING OF STOCKHOLDERS I, III
PART I
ITEM 1. BUSINESS
General
The duty free industry is a multi-billion dollar world-wide
industry. Duty free merchandise generally consists of well-known brands
of luxury goods, such as liquor, perfumes and cosmetics, tobacco
products, gifts and other items which are often subject to high rates of
taxation when sold in domestic markets for domestic consumption. Duty
free merchandise sold in the United States includes imported liquor,
tobacco products and luxury goods, as well as domestic products, sold
free of federal duties, excise taxes and state and local sales taxes.
Such merchandise is also generally exempt, within certain allowances,
from import duties and taxes at the traveler's destination.
The duty free industry developed in the United States after World
War II as international travel increased. This increase encouraged the
development of a system which allows a traveler to buy merchandise free
of all duties and sales and excise taxes imposed on domestically
consumed goods. In general, travelers can save 20% to 60% on the
purchase of duty free merchandise in the United States, compared to the
retail price of the same merchandise in the country of their
destination. Most countries have allowances on the import of duty free
goods. Changes in the duty free allowances of foreign countries or in
the eligibility requirements for duty free purchases, as well as changes
in tax and duty rates imposed by foreign jurisdictions, affect sales of
duty free merchandise in United States duty free shops. As a result of
the generally high taxes and duties imposed in certain foreign
countries, it may be more economical for some travelers to exceed these
allowances and pay the import duties imposed by the country of their
destination.
Sales to the diplomatic community are based on reciprocal
agreements between countries, under which duty free purchasing
privileges are given to foreign diplomats serving in the host country.
In the United States, all orders placed by foreign diplomats for duty
free merchandise must be approved by both the Treasury and State
Departments to confirm the diplomat's eligibility for such purchases.
Duty Free International, Inc. (the "Company") operates in several
distinct markets of the duty free industry. The Company is the leading
operator of duty free stores along the United States/Canada and United
States/Mexico borders, one of the leading operators of duty free and
retail stores in international airports in the United States and Puerto
Rico, and is a prime concessionaire and supplier of merchandise to
international airlines' inflight duty free shops. The Company is also
the largest supplier of duty free merchandise to foreign diplomats in
the United States and is a major supplier of merchandise to merchant and
cruise ships from ports in the Northeast United States and Miami,
Florida.
ORGANIZATION AND OPERATIONS
The Company was formed as a Maryland corporation in 1983 to acquire
19 border stores and one airport store. Since its founding, the Company
has grown to be one of the world's largest chains of duty free stores
operating 166 stores and employing over 2,000 people serving locations
in the United States, Puerto Rico, the Caribbean and on international
airlines' inflight duty free shops. The Company has grown by expanding
into additional airport and United States border locations and by
business acquisitions.
On April 24, 1992, the Company acquired by merger UETA, Inc. ("UETA
Merger") which is the leading operator of duty free stores on the United
States side of the United States/Mexico border. The 30 UETA duty free
stores give the Company a presence at 14 border crossings in the states
of Texas, Arizona and California. The UETA Merger included three duty
free stores at two Texas airports (San Antonio and McAllen) and off-
airport duty free locations in Orlando and Miami, Florida. UETA also
serves cruise and merchant ships in Miami, and serves diplomatic and
wholesale markets from a location in Miami. The acquisition was
accounted for as a pooling of interests with new shares of the Company's
common stock being exchanged for a 100% interest in UETA.
On May 1, 1994, the Company purchased Inflight Sales Group Limited
("Inflight"), and certain non-competition rights, for approximately
$73,300,000. Inflight is the leading concessionaire and supplier of on-
board duty free merchandise to international airlines and is a leading
supplier of amenity kits to international airlines for distribution to
first class and premium class travelers. Inflight currently operates
the on-board duty free concessions for 21 international airlines,
including Delta, Northwest and United Airlines. In addition, through its
exclusive arrangements with certain suppliers, Inflight sells duty free
merchandise to numerous other international airlines. Inflight has
warehouse, distribution and administrative facilities in New York,
Singapore, Hong Kong and the United Kingdom.
During the third quarter of fiscal 1995, the Company undertook a
restructuring plan to improve the Company's profitability. A pre-tax
charge to earnings of $7,571,000 was taken during the year ended January
29, 1995 as a result of restructuring. The implementation of the plan
reduced the Company's workforce by approximately 210 employees and a
total of 23 stores and business locations were closed in fiscal 1995 and
1996. Also, in the third quarter of fiscal 1995, the Company changed
its method of evaluating the recoverability of intangible assets. Under
the new method, fair values of intangible assets are determined based on
the discounted future operating cash flows of the related acquired
operations over the useful life of each intangible asset. Previously,
impairment was measured using undiscounted cash flows. Had the previous
policy remained in effect, there would have been no significant
impairment as of January 29, 1995. The change in accounting for
intangible assets resulted in a write-down of asset value, and a one-
time, pre-tax charge to earnings of $46,002,000 during the year ended
January 29, 1995. The fiscal year 1996 pre-tax amortization charge
associated with the assets written down would have been $3,500,000.
Although the write-down had no impact on the Company's cash position, it
does result in a more appropriate balance sheet valuation of the
remaining goodwill and other intangible assets. The Company took a
$38,935,000 ($1.43 per share) after-tax charge to earnings during the
year ended January 29, 1995 encompassing all costs associated with the
revaluation of its intangible assets, the store and business closures,
and workforce reductions.
The company is organized into four operating divisions: the Border
Division, the Airport Division, the Diplomatic and Wholesale Division
and the Inflight Division.
BORDER DIVISION
The Border Division operates the largest chain of duty free stores
along the United States/Canada and United States/Mexico borders. The
Division operates a total of 66 stores at 44 border crossings.
UETA, Inc. ("UETA" or the "Southern Border Division") operates 30
duty free stores along the Mexican border in the states of Texas,
Arizona and California. The Southern Border Division provides
Mexican/American border traffic with access to luxury items such as
premium watches, fragrances and cosmetics, top quality liquor and
tobacco products, beer, wine, gourmet foods, designer jewelry and other
high quality gifts. UETA is the exclusive duty free distributor on the
United States side of the Mexican border for liquor brands produced by
United Distillers Group (Duty Free) Ltd. Due to the peso devaluation in
December 1994 and the resulting $41,319,000 decrease in sales during
fiscal 1996 when compared to fiscal 1995, UETA reduced its selling,
general and administrative expenses by approximately $5,000,000 during
fiscal 1996 when compared to fiscal 1995. The expense reductions
related primarily to lower employee and other operating expenses
resulting from employee terminations, a reduction in the number of hours
stores were open and reductions of advertising and promotion expenses.
In spite of the peso devaluation, UETA intends to continue to increase
customer awareness of the value of duty free shopping through marketing
and advertising, and to adjust product assortment in order to meet the
preferences of duty free shoppers. Economic factors, such as the value
of the Mexican peso versus the U.S. dollar and the Mexican economy have
had and may continue to have a significant effect on UETA's net sales
and earnings. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's 1996 Annual Report
to Stockholders which is incorporated by reference to this document.)
AMMEX Tax and Duty Free Shops, Inc. and AMMEX Tax and Duty Free
Shops West, Inc. (collectively, "AMMEX" or the "Northern Border
Division") operate 36 duty free and retail stores along the Canadian
border in the states of New York, Vermont, Maine, Washington, Michigan,
Idaho, Montana, North Dakota and Minnesota. The duty free stores sell a
wide variety of quality, brand-name merchandise to individuals traveling
from the United States to Canada, a majority of whom are Canadians
returning home. Retail locations carry groceries, snacks, souvenirs and
gift items. AMMEX also operates currency exchanges and gas stations at
several high volume border locations. AMMEX's objectives have been to
attract a greater percentage of the eligible travelers crossing the
border into Canada and to sell more goods to each customer by
remodelling and expanding stores and through sales training,
merchandising, advertising and promotion. Ammex's comparable store
sales in fiscal 1996 (excluding sales of stores closed under the
restructuring plan and two stores purchased in July 1995) increased by
2.4% when compared to fiscal 1995. The improvement in sales trends from
fiscal 1995 (when there was a 22.1% decrease in sales from fiscal 1994)
was due primarily to the anniversary of the decrease in Canadian taxes
which occurred in the first quarter of fiscal 1995, and an increase in
average transaction spend amounts by customers resulting from Ammex's
marketing and promotion programs. The above was partially offset by the
continued negative trend in Canadian traffic across the United
States/Canada border during fiscal 1996. Economic factors, such as the
continuing economic recession in Canada, selected reductions in Canadian
domestic taxes, and the reduced value of the Canadian dollar versus the
U.S. dollar have had and may have a significant effect upon the Northern
Border Division's net sales and earnings.
AIRPORT DIVISION
Fenton Hill American, Limited (the "Airport Division") operates 100
duty free and retail stores in 14 international airports, and in the
Caribbean and South Florida markets. During fiscal 1996, the Airport
Division opened 16 new stores which included 12 new travel retail stores
at Denver International Airport, three new duty free stores at Boston's
Logan International Airport and an additional duty free store at the San
Juan International Airport. The Airport Division's retail mix currently
includes duty free shops, which sell premium merchandise such as top-
quality liquor and tobacco products and exclusive fragrances and
cosmetics, and specialty stores such as The Athlete's Foot (branded
athletic-wear), Bodyography (natural personal care products), The Sports
Section (regional sports-theme shops), standard news and gift shops, and
bookstores. Additionally, the Airport Division has entered into equity
partnerships and strategic alliances at a number of international
airports which have resulted in the Airport Division being awarded 21
concessions. The Airport Division will attempt to increase the number
of equity partnerships and strategic alliances in the future.
The Airport Division also operates a number of stores not located
in airports. It serves cruise ship passengers and airport bound
customers through 12 shops located in Miami and Orlando, Florida. In
Washington, D.C., the Airport Division operates a retail luxury gift
store which serves the diplomatic community. The Division also operates
12 retail stores on the Caribbean islands of St. Thomas, Aruba, Bonaire,
Curacao and St. Maarten.
During the past several years, the Airport Division has grown
through acquisitions, obtaining new airport concessions and expanding
existing locations. With the potential for expansion of the Division's
current airport stores, as well as for development of other new
specialty retailing concepts, management believes that it will continue
to find opportunities for new airport locations and other airport retail
and duty free businesses. The Airport Division's sales volume and its
overall results of operations can be affected by factors relating to the
airline industry over which the Division has no control, including which
airlines operate at particular terminals, which routes are serviced by
those airlines, levels of airline passenger traffic, and economic and
other conditions affecting the airline industry in general.
DIPLOMATIC AND WHOLESALE DIVISION
The Diplomatic and Wholesale Division is the leading domestic
supplier of duty free merchandise to the foreign diplomatic community in
the United States, principally embassies, consulates and United Nations
missions in Washington, D.C. and New York City. Foreign diplomats with
official status and foreign military personnel in training throughout
the United States can order duty free merchandise directly from the
Division's salespersons or from its catalog. The Diplomatic and
Wholesale Division is also a supplier of merchandise to merchant and
cruise ships from ports in the northeastern United States and Miami.
The Diplomatic and Wholesale Division owns and operates a 110,000
square foot warehouse/distribution center in Glen Burnie, Maryland, and
a new 140,000 square foot warehouse/distribution center in South Miami,
Florida. The new warehouse and distribution center is well-situated to
serve cruise ship requirements from the port of Miami, as well as
supporting the Company's supply needs for its locations in the
Caribbean. During fiscal 1996, the Diplomatic and Wholesale Division
continued to de-emphasize low gross margin sales in order to provide
greater distribution capabilities to the Company's stores, thus
providing more resources for the Company's higher profit operations.
INFLIGHT DIVISION
The Inflight Division ("Inflight") is a leading concession operator
and supplier of on-board duty free merchandise to international airlines
through on-board concessions and wholesale programs, and is a major
supplier of international airlines' first class and premium class
amenity kits. Currently, Inflight operates the on-board duty free
concessions for 21 airlines. The Division's concession programs fully
operate the on-board duty free concessions for airlines. Inflight
purchases products and manages every aspect of duty free sales on the
airlines' flights, including magazine and videotape promotions. With a
percentage of total sales paid in royalties to the airline, this program
provides airlines with a risk-free means of incrementally increasing
their earnings. The Division's wholesale program provides merchandise to
airlines which operate their on-board duty free programs on
international flights. The carrier runs all promotions, manages the
program and owns the inventory which is bought from Inflight. Inflight
has exclusive distribution agreements for certain geographic markets
with many well-recognized names in the luxury products industry,
including Chanel, Christian Dior, Hermes, Mont Blanc, Yves Saint
Laurent, Elizabeth Arden and Lancaster. Additionally, it maintains
warehouse and station locations throughout the U.S., Pacific Rim, Europe
and South America. During fiscal 1996, the Inflight Division was awarded
the contract to operate Air Canada's on-board duty free concession
program beginning March 1, 1996. In the future, Inflight will continue
to pursue other on-board duty free concession contracts with
international airlines not currently served by the Company. The Company
believes Inflight will be a significant contributor to its growth as air
travel and airline competition grows.
The Inflight Division's sales volume and results of operations can
be affected by factors relating to the airline industry over which the
Division has no control, including levels of international airline
passenger traffic, economic and other conditions affecting the airline
industry in general, and the value of foreign currencies versus the U.S.
dollar.
REGULATION
Duty free stores and operations are specifically authorized and
recognized as a separate class of bonded warehouse by the Duty Free
Sales Enterprises Act of 1988, which was enacted by the United States
Congress as part of the Omnibus Trade and Competitiveness Act of 1988.
Duty free merchandise is shipped by domestic and foreign suppliers
"in bond" (without taxes or duties) to bonded warehouses in the United
States. Bonded warehouses are subject to supervision by the United
States Customs Service ("Customs Service") and may only be used to store
merchandise which has not entered the domestic market. Because the
United States collects no taxes or duties on merchandise sold by duty
free stores and other duty free operations, all merchandise shipped from
a bonded warehouse to a duty free store or other duty free location
remains "under bond" and therefore subject to a high degree of
regulation by the Customs Service and by the Bureau of Alcohol, Tobacco
and Firearms (the "Bureau"), each of which are agencies of the United
States Department of the Treasury.
The Bureau also requires corporations to which it issues permits to
notify it in the event of a change in the officers or directors of the
corporate operator or if there is a change in the corporate operator's
ownership. The Bureau requires certain background information on any
stockholder who acquires 10% or more of the common stock of a corporate
operator and will not permit ownership by any such stockholder it deems
unacceptable. The Company therefore has established the right to
require the redemption or the prompt disposition, under certain
circumstances, of all or any portion of the shares of Common Stock owned
by a stockholder which totals to more than 9% of the outstanding Common
Stock.
SUPPLIERS, DISTRIBUTION AND INVENTORY CONTROL
The Company purchases products from numerous vendors, including
manufacturers and distributors. As is typical throughout the duty free
industry, the Company does not have any significant long-term or
exclusive purchase commitments. Management believes that alternative
sources of supply are available for each category of merchandise
purchased by the Company.
Merchandise is generally shipped directly from vendors to the
bonded warehouses and distribution centers located in Glen Burnie,
Maryland, Laredo, Texas and Miami, Florida. However, certain
merchandise is shipped directly to the Company's regional bonded
warehouses and store locations. To control inventory levels, management
uses various automated replenishment systems. Frequent shipments are
then made to the Border, Airport, and Inflight Divisions' warehouses or
stores to assure full stocking levels. Merchandise is delivered daily
by truck to the diplomatic communities in Washington, D.C. and New York
City. The Company's trucks are also used to supply duty free
merchandise to merchant and passenger ships.
Duty free inventory is strictly controlled to comply with Customs
Service regulations. The Company must keep detailed records documenting
the receipt and sale of all duty free merchandise. Failure to maintain
such records may result in the payment of penalties and all taxes and
duties which would have been imposed on the domestic sale of such
merchandise. The Company's computerized inventory control system allows
it to identify product needs, to arrange for prompt reorders from
vendors, and to support compliance with Customs Service record-keeping
requirements. Slow moving products also can be identified and more
appropriate product mixes maintained. Historically, inventory shrinkage
has been minimal due to the Company's inventory system and procedures.
The Company rarely experiences problems with obsolescence, because most
inventory turns frequently and most products have a relatively long
shelf-life.
The Company's suppliers provide significant sales support in a
variety of ways, including in-store displays, gift-with-purchase items,
advertisements, brochures, printed shopping bags, staff training, signs
and sales personnel. In addition, some distributors and manufacturers
rent space in certain duty free stores for the display of transparencies
containing brand-name advertisements. Many suppliers also purchase
advertising space in the catalogs produced by the various divisions.
Some suppliers also rent space in the Company's warehouses and pay a fee
for processing shipments of their merchandise.
ECONOMIC CONDITIONS AND EXCHANGE RATES
The principal customers of the Company are residents of foreign
countries whose purchases of duty free merchandise may be affected by
trends in the economies of foreign countries and changes in the value of
the U.S. dollar relative to their own currencies. Any significant
increase in the value of the U.S. dollar relative to the currencies of
foreign countries, particularly Canada, Mexico and Japan, could have an
adverse impact on the number of travelers visiting the United States and
the dollar amount of duty free purchases made by them from the Company.
A significant increase in gasoline prices or a shortage of fuel may also
reduce the number of international travelers and thereby adversely
affect the Company's sales. In addition, the Company imports a
significant portion of its products from Western Europe and Canada at
prices negotiated either in U.S. dollars or foreign currencies. As a
result, the Company's costs are affected by fluctuations in the value of
the U.S. dollar in relation to major Western European and Canadian
currencies. A decrease in the purchasing power of the U.S. dollar
relative to other currencies causes a corresponding increase in the
purchase price of products. The Company enters into foreign exchange
forward contracts as a hedge against a portion of its exposure to
currency fluctuations on commitments to purchase merchandise.
COMPETITION
The Airport Division can experience significant competition when
negotiating or bidding for new concession leases or renewal of existing
leases in those locations where the operating authority requires such
negotiating or bidding. Competitors bid for the exclusive right to
operate in a particular airport or, in the case of some larger airports,
in a particular airport terminal servicing one or more airlines. The
Company's lease and concession agreements for duty free stores at the
New York City airports are consistent with airport leases in the region
in that they are terminable by the lessor upon 30 days notice, and also
may be subject to re-bid at the end of the operator's lease at which
time sealed bids are submitted by prospective operators or negotiations
are undertaken with the authority. Most of Inflight's concession
contracts are subject to 30 to 120 day cancellation clauses cancelable
by the Company or the airline.
Approximately four other companies operate duty free stores in the
United States along the Canadian border, most of which have historically
remained within specific areas outside of the Company's geographic
regions. A small number of regional duty free companies operate along
the Mexican border and compete with the Company. Large discount chains
that are not duty free operators, such as Price Club and Sam's Club,
compete with the Company for customers crossing the United States/Mexico
border. Approximately 15 companies operate duty free stores at airports
in the United States. The largest such company is Duty Free Shoppers
Group, Ltd., a privately held company and the largest duty free operator
in the world. The Inflight Division has one major competitor which
operates international airlines' on-board duty free concessions. The
majority of international airlines operate their own on-board duty free
concessions. There are a large number of competitors offering wholesale
merchandise to international airlines. The principal competition for
diplomatic sales consists of purchases made directly from European
suppliers. There are no material competitors currently operating in the
principal ports served by the Diplomatic and Wholesale Division except
for Miami, Florida. There are significant competitors which can make
sales to the Company's passenger and merchant vessel customers when
those customers visit ports not served by the Company.
ITEM 2. PROPERTIES
The Border Division operates 66 duty free and retail gift stores at
44 border crossings. Five of the stores are owned and operated by
agents who receive commissions based on sales. The Company owns 38 of
its border stores and leases 23 border stores. The Airport Division
leases 100 store locations. The Company's leases for its stores at the
New York City airports are terminable by the lessor upon 30 days notice.
The leases at certain border and most airport locations provide for base
monthly rentals and typically require payment of additional rent based
on a percentage of sales. Inflight has relatively small warehouse,
distribution and administrative facilities in New York, Singapore, Hong
Kong and the United Kingdom.
The Company owns a 110,000 square foot office/distribution center
near the Baltimore/Washington International Airport in Glen Burnie,
Maryland , leases a 145,000 square foot distribution center in Laredo,
Texas of which 70,000 square feet is subleased, and owns a 140,000
square foot administrative, warehouse and distribution facility in South
Miami, Florida. The Company also owns or leases other smaller regional
warehouse facilities. The Company owns its 33,000 square foot
headquarters in Ridgefield, Connecticut which is partially subleased.
The Company believes its facilities are adequate for current operations.
ITEM 3. LEGAL PROCEEDINGS
The United States Customs Service is investigating the operations
of a subsidiary's bonded warehouse in Seattle, Washington. The Customs
Service has thus far issued 16 notices of liquidated damages in the
aggregate amount of $712,000 relating to alleged violations of customs
rules governing the handling and sale of bonded merchandise.
Certain former stockholders of UETA, Inc. and certain stockholders
of Overseas Trading Corporation (1987) Limited, an affiliate of UETA,
Inc., commenced an action against the Company, certain of its directors
and officers and Goldman, Sachs & Co., which was the financial advisor
to UETA, in the Superior Court, New Castle County, Delaware. In their
complaint which was filed on or about December 19, 1994, plaintiffs
allege that the Company and its officers and directors made false and
misleading statements and omissions in connection with the Company's
issuance of its common stock in connection with its acquisition in April
1992 of UETA, Inc. and of certain assets of Overseas Trading Corporation
(1987) Limited, all in violation of state statutory and common law. The
relief sought includes unspecified amounts of actual and punitive
damages. The Company and its officers and directors intend to defend
this action vigorously. Certain of the plaintiffs in this action had
filed a similar complaint (on or about May 30, 1994) against the same
defendants in the Superior Court of the State of Arizona, Pima County.
This action was dismissed by court order on November 17, 1994, pursuant
to stipulation of the parties, without prejudice to the commencement by
those plaintiffs of an action in the courts of the State of Delaware.
Certain other former stockholders of UETA, Inc. commenced an action
against the Company and Goldman, Sachs & Co. in the District Court,
285th Judicial District, Bexar County, Texas. In their complaint which
was filed on or about June 14, 1994, these plaintiffs also allege that
the Company made false and misleading statements and omissions in
connection with the Company's acquisition of UETA, Inc. and the
Company's issuance of its common stock in connection therewith to these
plaintiffs. The relief sought includes unspecified amounts of actual
and punitive damages and rescission of the transaction and/or
rescissionary damages in an unspecified amount. After a hearing on
November 17, 1994 on the defendants' motion to dismiss the action, the
District Court abated and stayed this action pending the final
determination of the plaintiffs' claims against the defendants in
Delaware. On March 1, 1995, the Texas Court of Appeals, Fourth District
(San Antonio) denied the plaintiffs leave to file a petition for a writ
of mandamus seeking relief from the District Court's order, and on
October 17, 1995, the Supreme Court of Texas denied plaintiff's leave to
file a similar petition for a writ of mandamus. The plaintiffs have
since made a motion before the District Court requesting reconsideration
of its original order. In April 1995, the plaintiffs commenced an
action in the Superior Court, New Castle County, Delaware against the
Company, each of its directors and officers who were named as defendants
in the aforementioned Delaware action and Goldman, Sachs & Co. In their
complaint, the plaintiffs allege against the Company and its officers
and directors essentially the same claims under state statutory and
common law as they have alleged in their Texas action. The relief
sought in this action includes an unspecified amount of damages,
including actual and/or recessionary damages and punitive damages. The
Company and its officers and directors intend to defend these actions
vigorously.
On July 8, 1994, the Company commenced an action against each of
the plaintiffs in the foregoing Arizona and Texas actions in the Court
of Chancery, New Castle County, Delaware for injunctive and declaratory
relief as well as damages based upon their commencement of the above-
referenced actions in the Arizona and Texas state courts, rather than in
the courts of the state of Delaware as stipulated in the agreements
executed in connection with the acquisition of UETA, Inc. The relief
sought by the Company in its complaint also includes a request for an
order enjoining each of the plaintiffs in the foregoing actions from
litigating any claims arising from the acquisition of UETA, Inc. in any
forum other than the courts of the state of Delaware. Motions to
dismiss the Company's complaint have been made by all the defendants
named in this action and the Company moved for summary judgement on
certain of its causes of action.
Currently, the legal proceedings described above are not expected
to have a material effect on the Company's financial condition, results
of operations, liquidity or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Incorporated by reference to the 1996 Annual Report to Stockholders,
page 14.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the 1996 Annual Report to Stockholders,
inside front cover.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
Incorporated by reference to the 1996 Annual Report to Stockholders,
pages 10-14.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the 1996 Annual Report to Stockholders as
set forth in Part IV Item 14, and the supplementary data on the inside
front cover of such annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 2 - 5.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 6 - 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 12 and 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement with respect
to its 1996 Annual Meeting of Stockholders, pages 7 and 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a)
1. Financial Statements (Incorporated by reference to the 1996
Annual Report to Stockholders, pages 15-24 and 9):
- Consolidated Balance Sheets as of January 28, 1996 and
January 29, 1995.
- Consolidated Statements of Operations, Stockholders'
Equity, and Cash Flows for each of the years in the three-
year period ended January 28, 1996.
- Notes to the Consolidated Financial Statements.
- Independent Auditors' Report.
2. Financial Statement Schedules filed as part of this report:
- Independent Auditors' Report.
- Schedule II - Valuation and Qualifying Accounts for each of
the years in the three-year period ended January 28, 1996.
- All other schedules have been omitted because the required
information is not significant or is not applicable.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
3. Exhibits:
2.1 - Second Consent and Amendment, dated as of December 15, 1994,
among Duty Free International, Inc., the Sellers named therein
and the Additional Recipients named therein, amending the Stock
Purchase Agreement, dated as of March 24, 1994, as amended by
the Consent and Amendment, dated as of May 1, 1994, which were
both filed as Exhibits 2.1 and 2.2, respectively, to the
Company's Current Report on Form 8-K dated May 1, 1994. (10)
3.1 - Charter of the Company. (2)
3.2 - By-Laws of the Company as amended to October 18, 1993. (7)
4.1 - Senior Indenture between Duty Free International, Inc. and The
Chase Manhattan Bank, N.A., as trustee, dated as of January 15,
1994. (6)
4.2 - Form of 7% Note Due 2004. (6)
10.1 - Agreement by and between United Distillers Group (Duty Free)
Ltd. and Overseas Trading Corporation. (8)
10.2 - Agreement dated January 1, 1989 by and between United Distillers
Group (Duty Free) Ltd. and Samuel Meisel and Company, Inc. (1)
10.3 - Credit Agreement dated as of May 26, 1995 among Duty Free
International, Inc., the Banks signatory thereto and the Chase
Manhattan Bank, N.A. as agent. (3)
10.4 - 1989 Stock Option Plan for Duty Free International, Inc., and
related form of stock option agreement as amended and restated
effective February 11, 1993 (8) and May 20, 1994 (10)
(compensatory plan).
10.5 - Incentive Compensation Plan (1) (compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free International, Inc.
and Jack Africk.(1)
10.7 - Stockholders Agreement dated as of April 24, 1992 among Duty
Free International, Inc., DFI Group Acquisition Corp., UETA,
Inc., Overseas Trading Corporation (1987) Limited, and each of
the persons and entities listed in Exhibit A thereto. (4)
10.8 - Escrow Agreement dated as of April 24, 1992 among Duty Free
International, Inc., the persons and entities listed in Exhibit
A thereto and The First National Bank of Maryland, as escrow
agent. (4)
10.9 - Agreement and Plans of Merger and Reorganization dated as of
March 16, 1992 by and among UETA, Inc., Overseas Trading
Corporation (1987) Limited, Capin's Duty-Free Warehouse, Inc.,
Duty Free International, Inc. and DFI Group Acquisition Corp.
(4)
12.1 - Ratios of Earnings to Fixed Charges. (3)
13.1 - 1996 Annual Report to Stockholders.(3)
18.1 - Preferability letter regarding change in accounting
principle. (9)
21.1 - Subsidiaries.(3)
23.1 - Consent of KPMG Peat Marwick LLP.(3)
24.1 - Powers of Attorney for Jack Africk, David H. Bernstein, John A.
Couri, Carl Reimerdes and Susan H. Stackhouse. (3)
27.1 - Financial Data Schedule.(3)
Notes: (1) Previously filed as an Exhibit to the Registration
Statement of the Company on Form S-1, File No. 33-27842
declared effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1, File No. 33-43071,
declared effective November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated April 24, 1992.
(5) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1992.
(6) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated January 15, 1994.
(7) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 27, 1993.
(8) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 27, 1993.
(9) Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.
(10) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1995.
(b) Reports on Form 8-K:
(i) The Company did not file a Current Report on Form 8-K
during the quarter ended January 28, 1996.
SIGNATURES
Pursuant to the requirements of Section 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, this
19th day of April, 1996.
DUTY FREE INTERNATIONAL, INC.
By: /s/ Alfred Carfora
---------------------------------
Alfred Carfora
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
- ------------------- ----------------------- --------------
*
- -------------------
Jack Africk Director April 19, 1996
*
- -------------------
David H. Bernstein Director April 19, 1996
/s/ Alfred Carfora
- ------------------- Director, President and
Alfred Carfora Chief Executive Officer April 19, 1996
*
- -------------------
John A. Couri Director April 19, 1996
/s/ Gerald F. Egan Vice President of Finance,
- ------------------- Treasurer, Secretary and
Gerald F. Egan Chief Financial Officer ** April 19, 1996
*
- -------------------
Carl Reimerdes Director, Vice President April 19, 1996
*
- -------------------
Susan H. Stackhouse Director April 19, 1996
* By: /s/ Alfred Carfora
------------------------
Alfred Carfora
Attorney-in-fact
** Principal Financial and Accounting Officer
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
----
Independent Auditors' Report
Schedule II - Valuation and Qualifying Accounts for
the three-year period ended January 28, 1996.
All other 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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Duty Free International, Inc.:
Under date of February 26, 1996, we reported on the consolidated balance
sheets of Duty Free International, Inc. and subsidiaries as of January
28, 1996 and January 29, 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the years
in the three-year period ended January 28, 1996. In connection with our
audits of the aforementioned consolidated financial statements, we have
also audited the related financial statement schedule "Schedule II -
Valuation and Qualifying Accounts". The financial statement schedule is
the responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement schedule based on our
audits.
In our opinion, this financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set
forth therein.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 26, 1996
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Additions
----------------------
Charged to
Balance at Charged to other Balance
beginning costs and accounts- at end of
Description of period expenses describe Deductions(1) period
- ----------------- ---------- ---------- ---------- ------------- ---------
Year ended
January 28, 1996:
Allowance for
doubtful accounts $795,000 $618,000 $ 0 $(678,000) $735,000
---------- ---------- ---------- ------------- ---------
Year ended
January 29, 1995:
Allowance for
doubtful accounts $740,000 $462,000 $280,000(2) $(687,000) $795,000
---------- ---------- ---------- ------------- ---------
Year ended
January 31, 1994:
Allowance for
doubtful accounts $941,000 $240,000 $ 0 $(441,000) $740,000
---------- ---------- ---------- ------------- ---------
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance for doubtful accounts recorded in connection with the
acquisition of Inflight Sales Group Limited on May 1, 1994.
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Sequential
Exhibit Page
No. Description of Exhibit Number
- ------- ---------------------------------------------- ----------
2.1 - Second Consent and Amendment, dated as of
December 15, 1994, among Duty Free
International, Inc., the Sellers named
therein and the Additional Recipients named
therein, amending the Stock Purchase
Agreement, dated as of March 24, 1994, as
amended by the Consent and Amendment, dated
as of May 1, 1994, which were both filed as
Exhibits 2.1 and 2.2, respectively, to the
Company's Current Report on Form 8-K dated
May 1, 1994. (10)
3.1 - Charter of the Company. (2)
3.2 - By-Laws of the Company as amended to October
18, 1993. (7)
4.1 - Senior Indenture between Duty Free
International, Inc. and The Chase Manhattan
Bank, N.A., as trustee, dated as of January
15, 1994. (6)
4.2 - Form of 7% Note Due 2004. (6)
10.1 - Agreement by and between United Distillers
Group (Duty Free) Ltd. and Overseas Trading
Corporation. (8)
10.2 - Agreement dated January 1, 1989 by and between
United Distillers Group (Duty Free) Ltd. and
Samuel Meisel and Company, Inc. (1)
10.3 - Credit Agreement dated as of May 26, 1995
among Duty Free International, Inc., the
Banks signatory thereto and the Chase
Manhattan Bank, N.A. as agent. (3)
10.4 - 1989 Stock Option Plan for Duty Free
International, Inc., and related form of stock
option agreement as amended and restated
effective February 11, 1993 (8) and May 20,
1994 (10) (compensatory plan).
10.5 - Incentive Compensation Plan (1)
(compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free
International, Inc. and Jack Africk.(1)
10.7 - Stockholders Agreement dated as of April 24,
1992 among Duty Free International, Inc., DFI
Group Acquisition Corp., UETA, Inc., Overseas
Trading Corporation (1987) Limited, and each
of the persons and entities listed in Exhibit
A thereto. (4)
10.8 - Escrow Agreement dated as of April 24, 1992
among Duty Free International, Inc., the
persons and entities listed in Exhibit A
thereto and The First National Bank of
Maryland, as escrow agent. (4)
10.9 - Agreement and Plans of Merger and
Reorganization dated as of March 16, 1992 by
and among UETA, Inc., Overseas Trading
Corporation (1987) Limited, Capin's Duty-Free
Warehouse, Inc., Duty Free International, Inc.
and DFI Group Acquisition Corp. (4)
12.1 - Ratios of Earnings to Fixed Charges. (3)
13.1 - 1996 Annual Report to Stockholders. (3)
18.1 - Preferability letter regarding change in
accounting principle. (9)
21.1 - Subsidiaries. (3)
23.1 - Consent of KPMG Peat Marwick LLP. (3)
24.1 - Powers of Attorney for Jack Africk, David H.
Bernstein, John A. Couri, Carl Reimerdes and
Susan H. Stackhouse. (3)
27.1 - Financial Data Schedule. (3)
Notes: (1) Previously filed as an Exhibit to the Registration
Statement of the Company on Form S-1, File No. 33-27842
declared effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's
Registration Statement on Form S-1, File No. 33-43071,
declared effective November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated April 24, 1992.
(5) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1992.
(6) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated January 15, 1994.
(7) Previously filed as an Exhibit to the Company's Current
Report on Form 8-K dated December 27, 1993.
(8) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 27, 1993.
(9) Previously filed as an Exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.
(10) Previously filed as an Exhibit to the Company's Annual
Report on Form 10-K dated April 20, 1995.