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 APRIL 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-21226
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SEAMAN FURNITURE COMPANY, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 11-2751205
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
300 CROSSWAYS PARK DRIVE
WOODBURY, NEW YORK 11797
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (516) 496-9560
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK, $.01 PAR VALUE NASDAQ NATIONAL MARKET
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
- ------
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.[_]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT.
YES X NO
- ------
AS OF JULY 15, 1997, THE AGGREGATE MARKET VALUE OF VOTING STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT WAS $20,578,012 BASED ON THE LAST REPORTED SALE
PRICE OF THE REGISTRANT'S COMMON STOCK ON THE NASDAQ NATIONAL MARKET SYSTEM.
4,536,839 SHARES OF COMMON STOCK WERE OUTSTANDING ON JULY 15, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
LOCATION IN FORM 10-K INCORPORATED DOCUMENT
--------------------- ---------------------
PART III PROXY STATEMENT FOR THE COMPANY'S
CONSISTING OF ITEMS 10, 11, 12 AND 13 1997 STOCKHOLDERS MEETING
1
ITEM 1. BUSINESS
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GENERAL
Seaman Furniture Company, Inc. (the "Company" or "Seaman's") believes
that it is the largest regional specialty furniture retailer in the northeastern
United States in terms of sales and that it has the leading market position in
the greater New York metropolitan area. The Company currently operates a chain
of 41 stores. Of these, 27 are in the New York, New Jersey and Connecticut
Tri-State Area, 8 are in the Philadelphia metropolitan area and 6 are in the
Cleveland/Akron, Ohio metropolitan area. The move into the Cleveland/Akron area,
was the Company's first expansion beyond the Northeast. Seaman's stores sell a
variety of living room, bedroom, dining room and other home furniture and
accessories in contemporary, traditional, country and casual styles. The Company
was incorporated in Delaware in June 1985 as a successor to the business founded
by Julius Seaman, who opened the first "Seaman's" store in Brooklyn, New York in
1933.
Seaman's retailing philosophy targets the broad sector of middle-income,
value-oriented consumers by providing value pricing, quality products, enhanced
customer service, quick delivery and in-store credit. This philosophy is
conveyed to consumers through Seaman's high-impact television, radio and
newspaper advertising.
MARKETING AND MERCHANDISING
Seaman's retailing philosophy is driven by its "narrow and deep"
merchandising strategy. The basis of this strategy is to carry and display in
each store a similar variety of furniture styles and models in a carefully
limited selection of fabrics, colors and finishes pre-selected by Seaman's
buyers. The "narrow and deep" merchandising strategy allows the Company to
purchase merchandise in large quantities at substantial savings to the Company
and, ultimately, the customer. The ability to purchase items in large quantities
also enables the Company to work with its suppliers to customize merchandise so
that the Company can offer items that are often exclusive to its trading area.
Seaman's also is able to offer quick delivery of merchandise to its customers
since less than 2% of Seaman's sales are special order items, with the balance
being items that are usually stocked in Seaman's warehouses. Pricing decisions,
including the timing and amount of promotions and markdowns, are made centrally
by Seaman's management and its buyers.
"The Package(R)" is an important element of Seaman's merchandising
strategy. In the 1970s, Seaman's stores implemented "The Package(R)" concept,
which encourages the purchase of a collection of complementary furniture items
at a significant savings compared to the already competitive prices of the
individual items in the collection. In the stores, furniture is displayed in
model room settings that present the furniture as coordinated collections in a
home environment, which enables customers to more easily envision the furniture
in their own homes, in addition to encouraging the purchase of multiple pieces
of furniture in one transaction. Seaman's mass media advertising campaigns
emphasize the value in this merchandising concept. The majority of the
1
dollar value of all merchandise sold over each of the last three fiscal years
was sold as part of a package of merchandise.
The Company carries contemporary, high-fashion, European-style
furniture, traditional, country and casual styles of furniture in its stores in
order to attract a base of customers with different style preferences. The
Company's store design strategy emphasizes this product mix by tailoring the
environment of each model room setting to the style of the furniture and by
creating distinct sales areas for each style of furniture. The Company currently
displays substantially the same merchandise mix in all of its stores. However,
it makes changes in a particular region's stores' merchandise mix based on local
nuances and preferences reported to the Company by regional and store
management.
The Company believes that it maintains relatively low inventories of
merchandise in relation to its sales by use of its inventory control system in
particular through use of the radio frequency, bar-code system in its 2 largest
warehouses. Seaman's buyers monitor inventory regularly to maintain levels
required by its most recent sales trends. Daily computer reports are available
that show, among other things, sales by category and style of furniture, which
help the Company understand local preferences and market conditions. The Company
takes advantage of rapid merchandise turnover to continually update and refresh
the styles, fabrics, colors and finishes available. Seaman's average inventory
turnover, including store display samples, is approximately five times per year,
which the Company believes is among the highest in its industry.
All of Seaman's stores are generally open seven days a week. Each
location is staffed with trained management and sales personnel who are familiar
with the Company's merchandise, promotions and credit programs. Management
personnel are compensated on a salary and potential bonus basis, and sales
personnel are compensated on a salary and commission basis.
The Company provides a one-year limited warranty on all of the furniture
it sells. Pursuant to this limited warranty, the Company generally replaces or
repairs any defective merchandise or offers a merchandise certificate or refund
at the customer's option. The Company generally requires that its suppliers
stand behind its warranty. The Company could bear the cost, however, if a
supplier did not honor the warranty obligation.
STORE REDESIGN AND RENOVATION
The Company has been redesigning and renovating its existing stores and
designing its new stores to provide a more attractive in-store atmosphere. This
has been achieved by professionally redesigning and redecorating selling space
in existing stores and designing new stores in order to improve the consumer's
shopping experience and to enhance the appearance of displayed merchandise.
Seaman's design strategy focuses on partitioning store selling space to create
multiple room settings that include furniture, lamps and other accessories
suggesting how merchandise might look in the customer's home. Since May 1993,
the Company has invested approximately $4.9 million to renovate its existing
stores, and expects to invest approximately $1 million on store renovations
through fiscal 1998. Currently, 35 of Seaman's 41 stores have been
2
renovated or were initially designed under these new guidelines, and the Company
expects to complete the redesign and renovation of 3 more stores in fiscal 1998.
COMPETITION
All aspects of the retail furniture business are highly competitive.
Business practices such as credit availability, its terms and selection of
merchandise vary widely among the Company's competitors. The Company believes
that the principal areas of competition with respect to its business are price,
delivery time and selection, and that it competes effectively in these areas.
The Company's competitors include individual furniture stores, department and
discount stores and chain stores, some of which have been established in the
same geographic areas as the Company's stores for long periods of time. Some of
the Company's competitors derive revenue from sales of products other than
furniture.
SUPPLIERS
The Company purchases all of its merchandise directly from approximately
170 domestic and foreign suppliers. The Company does not manufacture any of the
furniture it sells. Over the last three fiscal years, no supplier has provided
the Company with merchandise representing more than 6.5% of the Company's
purchases, and the Company is not dependent upon any single supplier for
merchandise. In fiscal 1997, the Company purchased approximately 80% of its
merchandise from 40 of its suppliers. The Company is diversified in all of its
product categories, with a minimum of at least three suppliers in all primary
categories. Although the Company has no long-term contracts or commitments with
any supplier, the Company has had long-term relationships with many of its
suppliers and believes that it is viewed as a valued customer due to its prompt
payment history, its low rate of merchandise returns because of its use of
clearance centers to liquidate slow-selling merchandise and its practice of
purchasing merchandise in large quantities. This ability to purchase items in
large quantities also enables the Company to work with its suppliers to
customize its merchandise in order to offer items that are often exclusive to
its trading area. While management believes that alternative sources of supply
are available for all merchandise purchased, purchases from these alternative
sources may be more costly both with respect to price and payment terms.
Foreign suppliers provide the Company with approximately 30% of its
merchandise. The Company imports merchandise principally from suppliers in
Canada, Italy and the Far East. All of the Company's purchases from foreign
suppliers are based on U.S. dollar values and are paid in U.S. dollars without
adjustments for currency rate fluctuations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Overview."
WAREHOUSING, DISTRIBUTION AND DELIVERY
Seaman's purchasing strategy of pre-selecting and stocking specific
merchandise in its warehouses together with the size of its warehouses enables
the Company to take advantage of purchasing efficiencies and to store large
amounts of certain merchandise in order to ensure quick delivery. The majority
of items sold in Seaman's stores are delivered to the customer within two
3
weeks of the date of the written sale, or in some instances within a few days.
The Company believes that such quick delivery provides it with a distinct
advantage in its competitive markets.
The Company operates three warehouses to store its inventories of
merchandise which are located in Woodbridge, New Jersey (the "Woodbridge
warehouse"), Central Islip, New York (the "Islip warehouse") and Cleveland, Ohio
(the "Cleveland warehouse"). The Woodbridge warehouse, which is approximately
450,000 square feet, is a leased facility. It services Seaman's 7 New Jersey
stores, its 8 Philadelphia area stores and 5 of its New York stores.
Approximately 39% of Seaman's sales in fiscal 1997 were delivered from this
facility. The Islip warehouse is owned and operated by the Company and has
approximately 248,000 square feet that services Seaman's stores in Connecticut
and its remaining New York stores. Approximately 30% of the Company's sales in
fiscal 1997 were delivered from this facility. The Cleveland warehouse, which is
a leased facility, is approximately 100,000 square feet and services the Ohio
stores. Approximately 5% of Seaman's sales were delivered from this facility.
The term on this lease expires on May 30, 1998. See "Properties". The balance of
the inventory is stored with and delivered from either a public warehouse or
certain suppliers who store and deliver goods for the Company. The Company
believes that these warehouses will be sufficient to support Seaman's deliveries
in its existing market areas over the next two fiscal years.
In April 1996 the Company converted its Islip warehouse to a full radio
frequency inventory control system ("RF System"). The Company converted its
Woodbridge warehouse to a similar RF System in August 1996. The Company has no
plans to connect its Cleveland warehouse to an RF System in the near future.
Merchandise is delivered from the Woodbridge, Islip and Cleveland
warehouses to customers by two delivery companies, which acting as agents for
the Company, also collect cash balances due from customers. The Company has
written contracts with the delivery companies whereby the amounts paid by the
Company to these companies vary depending on the volume of merchandise delivered
and the distance traveled. The contracts with these delivery companies are
material to the Company. If one of the delivery companies were to cease doing
business with the Company, the second delivery company could replace it or
another delivery company could be found without a material impact on the
delivery process. It would be difficult, however, to replace both delivery
companies at the same time due to the start-up time necessary to familiarize a
new delivery company with the Company's operations.
The Company also permits customers to pick up some merchandise directly
from its stores, clearance centers and warehouses. Certain merchandise,
particularly store display items, discontinued styles and clearance items, is
delivered directly from Seaman's stores and clearance centers by small
independent truckers.
ADVERTISING AND PROMOTIONS
The Company believes it enjoys widespread name recognition in its
current market areas, primarily due to intensive, ongoing mass media advertising
campaigns utilizing the Company's trademarks "Seaman's(R)," "See Seaman's
First(R)," "Seaman's Plus(R)" and "The Package(R)."
4
Advertising and sales promotions are important parts of Seaman's overall
merchandising strategy, emphasizing the reputation of the Company as a quality
retailer and the value of "The Package(R)" concept of merchandising. See
"Business - Marketing and Merchandising." Approximately 59% of Seaman's
advertising budget for fiscal 1997 was for advertising in major New York,
Philadelphia and Cleveland metropolitan area newspapers and for the distribution
of color circulars in newspapers, while the majority of the remaining 41% was
for local television and radio advertising. Historically, the Company has not
used direct mail as a significant part of its advertising programs.
The Company continues to offer and advertise credit and product
promotions on a regular basis. Seaman's product promotions usually offer
discounted prices on specific individual items and on items that are
merchandised together in "The Package(R)" approach.
One of Seaman's most successful promotions has been its "No/No/No"
campaign, which offers qualifying customers the use of the Company's proprietary
credit card with no down payment (exclusive of sales tax and delivery charges),
deferred payments and interest free terms for a specified period, generally
three to four months, on certain purchases. These promotions not only serve to
bolster sales but have the added effects of providing additional customers for
the Company's credit card program and an increased possibility that customers
will become repeat customers through continued use of their Seaman's credit
card. See "Business - Credit Operations."
INFORMATION SYSTEMS
The Company operates a computer system which was installed in July 1994.
The system integrates Seaman's financial, purchasing and inventory functions and
enables management to access credit, sales and inventory information quickly,
while providing many operating efficiencies for the Company. The Company
installed an RF System in its Islip warehouse in April 1996 and completed
installation of a similar system in its Woodbridge warehouse in August 1996.
CREDIT OPERATIONS
The Company offers its customers the option to make purchases using
cash, the Company's own proprietary credit card or other major credit and charge
cards (MasterCard, Visa, Optima and Discover credit cards and the American
Express card). Unless the Company finances the customer's purchase, the Company
requires a deposit covering sales tax and delivery charges when a sale is made,
with the balance payable upon or prior to delivery of the merchandise.
The Company has provided in-house credit for its customers since the
early 1980s. The Company's proprietary credit card is offered to qualified
customers for the purchase of merchandise at any of Seaman's stores. The Company
currently offers special credit terms to its cardholders on a promotional basis,
such as no down payment on the furniture, deferred payments and interest free
promotions under the "No/No/No" program. See "Business Advertising and
Promotions." Those customers who are approved for credit and utilize the
Company's own proprietary credit card, may spend up to their approved credit
limit on furniture purchases with a
5
nominal down-payment. Convenient, in-store credit approvals for Seaman's
customers are processed in a matter of minutes. The Company uses an outside
service to process applications and provide billing and collection services on
it's credit card.
SEASONALITY AND CYCLICALITY
The Company's business generally is not subject to significant seasonal
variations. However, the Company's business is significantly influenced by the
general economy, consumer confidence and disposable income, and the housing
markets in the areas where its stores are located.
TRADEMARKS
The Company's name is well established in the current markets served by
the Company's stores, and management believes that the reputation of that trade
name is important. The Company and its subsidiaries do not have any material
patents or trademarks, except for the Company's trademarks "The Package(R),"
"See Seaman's First,(R)" "Seaman's Plus(R)" and "Fabric Bond." The Company is in
the process of registering an additional trademark, "The Sensible Way to a
Beautiful Home.(TM)"
EMPLOYEES
As of April 30, 1997, the Company had 1,104 full-time employees. Four
collective bargaining agreements with Local 875 of the International Brotherhood
of Teamsters ("Local 875") are currently in force. Contracts covering the
employment of the New York, New Jersey, Connecticut and Philadelphia sales
staff, the New York, New Jersey, Connecticut, Philadelphia store porters and
certain Islip and Woodbridge warehouse staff are due to expire on January 2,
2000, March 1, 2000, December 29, 1998 and August 15, 1997, respectively. The
Company will commence negotiations with the Local 875 to renew the Woodbridge
contract toward the end of July 1997. Except for the Islip union members, who
receive health coverage from a Company sponsored plan under the collective
bargaining agreements with Local 875 the Company contributes to the union's
welfare and pension funds. For its nonunion employees, the Company provides
health, dental, life and disability insurance coverage. The Company also has a
defined contribution 401(k) savings plan covering nonunion employees. The
Company has never had a strike or work stoppage.
1988 LEVERAGED BUYOUT AND SUBSEQUENT REORGANIZATION
Following an initial public offering of Seaman's common stock in 1985
and a secondary offering in 1986, the Company was taken private in a leveraged
buyout (the "LBO") by affiliates of Kohlberg Kravis Roberts & Co., L.P. in 1988,
incurring debt of approximately $360 million. The Company experienced a
considerable, unanticipated decline in sales volume, operating income and
liquidity in the years 1989 through 1991 due, among other things, to changes in
business philosophy (including cutting merchandise margins, de-emphasizing "The
Package(R)" concept and expanding Seaman's emphasis on sales events in its
advertising) and the debt burden
6
that resulted from the LBO, and was exacerbated further by a significant
economic recession in the United States that was especially severe in the
northeastern United States. Thereafter, the Company filed for bankruptcy
protection under Chapter 11 ("Chapter 11") of the United States Bankruptcy Code
in January 1992. The Company emerged from Chapter 11 proceedings in October
1992, with its outstanding indebtedness having been reduced from approximately
$360 million to approximately $13 million. As part of its Chapter 11
proceedings, the Company adopted "fresh start reporting." Current senior
management of the Company was appointed by the Board of Directors immediately
following Seaman's emergence from Chapter 11 proceedings.
PROPOSAL TO TAKE THE COMPANY PRIVATE
A group consisting of the Company's senior management and majority
stockholders, M. D. Sass Associates, Inc., T. Rowe Price Recovery Fund, L.P.,
and Carl Marks Management Co., submitted a proposal to the Company's Board of
Directors in July 1997 to purchase, through a one-step merger transaction, the
approximately 20% of the Company's outstanding common stock, par value $.01 per
share, not already owned by the group for $24.00 a share. The group's proposal
is subject to certain conditions, including among other things, obtaining
acceptable financing and negotiation of mutually agreeable terms of a definitive
merger agreement. The Company has named a special committee of the board of
directors to review and respond to the proposal but has not established a
timeline for its response.
ITEM 2. PROPERTIES
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The Company currently operates 41 stores: 27 stores in the New York, New
Jersey and Connecticut Tri-State Area, 8 stores in the Philadelphia metropolitan
area and 6 stores in the Cleveland/Akron metropolitan area. Most of Seaman's
stores are located near heavily populated areas, shopping malls or other retail
operations and are near major highways or other major thoroughfares. Seaman's
stores range in size from approximately 10,000 to 47,000 square feet, and most
of each store is devoted to selling space. The average selling space per store
is approximately 23,000 square feet. No store accounted for more than 10% of the
Company's net sales for fiscal 1997.
The opening of the stores in the Cleveland/Akron area was the Company's
initial expansion beyond the Northeast. The Cleveland stores range in size from
approximately 23,000 square feet to 37,000 square feet.
All of Seaman's stores are leased. See Note 7 of the Notes to
Consolidated Financial Statements for information with respect to specific
leases. The terms for the 41 leases expire at various times in the years from
1998 through 2023 with many having options to renew for additional periods.
There can be no assurances that the leases that expire will be renewed or
renegotiated on the same terms.
As discussed above, the Company operates three warehouse facilities: the
Woodbridge, New Jersey warehouse, the Central Islip, New York warehouse and the
Cleveland, Ohio warehouse. The Woodbridge warehouse, which is approximately
450,000 square feet, is leased.
7
This lease expires in 2002 with an option to renew for eight additional years.
The Islip warehouse, which is approximately 248,000 square feet, is owned by the
Company and was financed, in part, by a $6.0 million industrial revenue bond
which was issued by the Town of Islip, New York. On November 8, 1996, the
Company prepaid the industrial revenue bond, which had an outstanding principal
balance of approximately $3.7 million, with proceeds received from Fleet Bank
N.A. in the amount of approximately $6.2 million pursuant to a Mortgage Note
("Note") issued by the Company to Fleet. The Note, payable monthly and maturing
on November 8, 2003, is secured by a Mortgage, Security Agreement and Assignment
of Lease Rights covering the Company's Central Islip Warehouse. The balance of
the proceeds was used to reduce the outstanding borrowing under the Loan
Agreement (as hereinafter defined). The Cleveland warehouse, which is
approximately 100,000 square feet, is leased on a year to year basis. The
Company believes that the Islip, Woodbridge and Cleveland warehouses have
sufficient capacity to support Seaman's near term planned expansion in the
current market areas they serve. See "Business - Warehousing, Distribution and
Delivery."
The Company's executive offices are located in a 40,000 square foot
leased facility located in Woodbury, New York. This lease expires in 2002 with
an option to renew for five additional years. The Company believes that its
executive offices are sufficient to accommodate current anticipated growth.
The Company also owns approximately 16 acres of undeveloped land located
in Bridgeport, New Jersey, which property is being marketed for sale.
ITEM 3. LEGAL PROCEEDINGS
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None.
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
---------------------------
None.
PART II.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MARKETS
-------------------------------------
The Company's common stock, par value $0.01 per share (the "Common
Stock") became listed on the Nasdaq National Market on June 8, 1993. Prior to
that it was quoted on the National Quotation System's "pink sheets." The common
stock closed at $22 3/4 on July 15, 1997.
8
The following table sets forth (as reported by Nasdaq National Market)
for the periods indicated the prices of the common stock.
FISCAL 1997 HIGH LOW CLOSE
----------- ---- --- -----
4th Quarter 20 1/4 19 19 1/2
3rd Quarter 21 1/4 18 1/4 20
2nd Quarter 21 1/4 16 7/8 18 1/2
1st Quarter 19 3/8 16 1/4 16 3/4
FISCAL 1996 HIGH LOW CLOSE
----------- ---- --- -----
4th Quarter 19 3/4 15 18 1/2
3rd Quarter 19 1/2 17 1/2 18 3/8
2nd Quarter 19 3/4 16 3/4 19 3/4
1st Quarter 21 18 3/4 18 3/4
These quotations reflect inter-dealer prices, without retail markups,
markdowns or commissions.
The number of record holders of the Company's Common Stock as of July
15, 1997 was 259. Pursuant to the Company's Amended and Restated Stock Option
Plan, 1,015,595 shares of the Common Stock are subject to outstanding options at
April 30, 1997. See "The Company's Proxy Statement for 1997 Annual Stockholders
Meeting."
The Company has never paid any cash dividends on its stock.
9
ITEM 6. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Amounts in Thousands)
---------------------------------------------------------------------------
Proforma
Year Year Year Year Twelve-month
ended ended ended ended Period ended
April 30, 1997 April 30, 1996 April 30, 1995 April 30, 1994 April 30, 1993 (1)
----------- ------------- ------------ ------------ ------------
Revenues:
Net Sales $251,175 $229,505 $215,857 $170,348 $162,576
Net Finance Charge Income 12,809 14,036 12,364 7,865 8,490
----------- ------------- ------------ ------------ ------------
Total 263,984 243,541 228,221 178,213 171,066
----------- ------------- ------------ ------------ ------------
Operating Costs & Expenses:
Cost of sales, including
Buying and Occupancy costs 167,430 152,982 138,038 112,648 109,904
Selling, General and
Administrative 87,206 83,094 74,691 60,159 63,171
----------- ------------- ------------ ------------ ------------
Total 254,636 236,076 212,729 172,807 173,075
----------- ------------- ------------ ------------ ------------
Income (Loss) from Operations 9,348 7,465 15,492 5,406 (2,009)
Interest Expense (2,247) (1,748) (1,707) (1,854) (1,347)
Interest Income 65 878 561 694 507
Reorganization Charges - - - - (8,033)
----------- ------------- ------------ ------------ ------------
Income (Loss) before Income Tax
and Extraordinary Credits 7,166 6,595 14,346 4,246 (10,882)
Income Tax (Expense)/Benefit (3,081) (2,700) (5,738) 2,694 -
----------- ------------- ------------ ------------ ------------
Income (Loss) before
Extraordinary Credits 4,085 3,895 8,608 6,940 (10,882)
Extraordinary Credits - - - - 353,569
----------- ------------- ------------ ------------ ------------
Net Income $4,085 $3,895 $8,608 $6,940 $342,687
(1) Combines arithmetically the five month period ended September 30, 1992 and
the seven month period ended April 30, 1993. The 1993 twelve-month period
includes five months of activities while the Company operated as a
Debtor-in-Possession and seven months of activities after emergence from
Chapter 11 and debt discharge.
10
The following table sets forth for the periods indicated certain items in
selected financial data as a percentage of sales, and the percentage change
of such items from the indicated prior period.
Percentage of Net Sales Percentage Increase (Decrease)
------------------------------------------------------- ------------------------------
Proforma Year Ended April 30,
Year Year Year Year Twelve-month 1997 1996 1995
ended ended ended ended Period ended vs vs vs
4/30/97 4/30/96 4/30/95 4/30/94 4/30/93 (1) 1996 1995 1994
------------------------------------------------------- ------------------------------
Revenues:
Net Sales 100.0 100.0 100.0 100.0 100.0 9.4 6.3 26.7
Net Finance Charge Income 5.1 6.1 5.7 4.6 5.2 -8.7 13.5 57.2
Cost of sales, including
Buying and Occupancy costs 66.7 66.7 63.9 66.1 67.6 9.4 10.8 22.5
Selling, General and Administrative 34.7 36.2 34.6 35.3 38.9 4.9 11.3 24.2
Income (Loss) from Operations 3.7 3.3 7.2 3.2 -1.3 25.2 -51.8 186.6
Interest Expense -0.9 -0.8 -0.8 -1.1 -0.8 28.5 2.4 -7.9
Interest Income 0.0 0.4 0.3 0.4 0.3 -92.6 56.5 -19.2
Reorganization Charges -- -- -- -- -4.9 -- -- --
Income (Loss) before Income Tax
and Extraordinary Credits 2.8 3.0 6.7 2.5 -6.7 8.7 -54.0 237.9
Income Tax (Expense)/Benefit -1.2 -1.2 -2.7 1.6 -- 14.1 -52.9 313.0
Income (Loss) before
Extraordinary Credits 1.6 1.7 4.0 4.1 -6.7 4.9 -54.8 24.0
Extraordinary Credits -- -- -- -- 217.5 -- -- --
Net Income 1.6 1.7 4.0 4.1 210.8 4.9 -54.8 24.0
(1) Combines arithmetically the five month period ended September 30, 1992 and
the seven month period ended April 30, 1993. The 1993 twelve-month period
includes five months of activities while the Company operated as a
Debtor-in-Possession and seven months of activities after emergence from
Chapter 11 and debt discharge.
11
(Amounts in Thousands)
-----------------------------------------------------------------------------------
at at at at at
April 30, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
----------- ------------ ----------- --------------- --------------
Balance Sheet Data:
Cash & Cash Equivalents $6,423 $3,436 $20,431 $23,512 $26,353
Other Current Assets 103,808 101,142 80,585 68,207 54,455
Current Liabilities 42,724 37,631 43,350 35,841 25,635
Working Capital 67,507 66,947 57,666 55,878 55,173
Total Assets 161,222 159,251 153,334 136,586 113,436
Long-term Debt 12,878 20,085 12,328 12,915 13,278
Stockholders' Equity $105,620 $101,535 $97,656 $87,830 $74,523
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
----------------------------------------------
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with "Selected
Consolidated Financial Information," the Consolidated Financial Statements and
Notes thereto and the other information included elsewhere in this Form 10-K.
The Company's fiscal year ends on April 30. Fiscal years are identified
according to the calendar year in which they end. For example, the fiscal year
ended April 30, 1997 is referred to as "fiscal 1997."
OVERVIEW
The Company is engaged in a single line of business, the retail sale of
residential furniture, and the Company's revenues are principally derived from
such sales. The Company also has a proprietary credit card program which is
operated to promote its furniture business. For fiscal 1997, net finance charge
income from the Company's credit card operations represented 5.1% of net sales.
The Company's most significant category of operating expenses is the
cost of sales, which includes the cost of goods sold, warehousing, distribution
and delivery (net of delivery charges to customers) expenses, rent and
depreciation for the stores and buying staff expenses, including payroll. The
category of selling, general and administrative expenses is the other
significant element in the Company's cost structure. This includes store
(excluding rent and depreciation) expenses, advertising, corporate
administration (excluding buying staff) expenses and the costs of the credit
card program, including write-offs.
The Company imports a substantial amount of merchandise directly from
foreign suppliers. Imported merchandise represented approximately 30% to 35% of
the Company's purchases during the periods discussed herein. The Company pays
for all of such imported merchandise in U.S. dollars based on U.S. dollar prices
fixed at the time of the Company's order. The Company does not issue open
purchase orders as to price and therefore does not bear foreign currency
exchange rate fluctuation risk in connection with such import purchases; that
risk is borne by the Company's suppliers. While foreign currency exchange rates
affect the U.S. dollar prices that suppliers quote to the Company, the Company
is not obligated to purchase merchandise if a supplier seeks to increase the
price established at the time of the Company's order. The Company is able to
purchase replacement merchandise from both domestic and foreign suppliers.
In connection with the LBO in February 1988, the Company incurred debt
of approximately $360 million, which influenced both strategic and day-to-day
management decisions. The Company then experienced a considerable, unanticipated
decline in sales volume, operating income and liquidity in the years 1989
through 1991 due, inter alia, to changes in
13
business philosophy (including, for example, reducing retail gross margin,
de-emphasizing "The Package(R)" concept and expanding Seaman's emphasis on sales
events in its advertising) and the debt burden that resulted from the LBO. The
Company's situation was exacerbated by a significant economic recession that was
especially severe in the northeastern United States. Although the LBO debt was
restructured in November 1989, in December 1991 the Company was facing possible
cross-defaults under its senior and subordinated debt obligations and, in
January 1992, filed for Chapter 11 bankruptcy protection. See "Business - 1988
LBO and Subsequent Reorganization." Shortly after filing for bankruptcy
protection, the Company closed 15 of its then 37 stores. The Company emerged
from Chapter 11 proceedings in October 1992 with its outstanding indebtedness
having been reduced from approximately $360 million to approximately $13
million. As part of its Chapter 11 proceedings, the Company also adopted "fresh
start reporting." Current senior management of the Company was appointed by the
Board of Directors immediately following the Company's emergence from Chapter
11.
For the five months ended September 30, 1992 (during which the Company
operated under Chapter 11 bankruptcy protection), the Company incurred an
operating loss of $3.6 million; for the seven months ended April 30, 1993 (after
the Company had emerged from its Chapter 11 proceedings), the Company had an
operating profit of $1.6 million. For fiscal 1994, the Company's operating
profit was $5.4 million, for fiscal 1995 it was $15.5 million, for fiscal 1996
it was $7.5 million, and for fiscal 1997 it was $9.3 million.
RESULTS OF OPERATIONS
Fiscal Year Ended April 30, 1997 Compared to Fiscal Year Ended April 30, 1996
- -----------------------------------------------------------------------------
Net sales for fiscal 1997 of $251.2 million increased by $21.7 million
(or 9.4%) compared to net sales for fiscal year 1996. The increase resulted
primarily from the full fiscal year sales of nine new stores opened at various
times during fiscal 1996. Comparable store sales for fiscal 1997 were $233.7
million, an increase of $4.2 million (or 1.8%) compared to comparable store
sales of $229.5 million for fiscal 1996.
Net finance charge income of $12.8 million for fiscal 1997 decreased by
$1.2 million (or 8.7%) from fiscal 1996, primarily due to an increased amount of
deferred interest credit promotions in fiscal 1997. Proprietary credit card
sales have grown from 30% of total sales in fiscal 1994 to 39% in fiscal 1997,
having peaked at 46% of total sales in fiscal 1995.
As a result of the foregoing increases, total revenues for fiscal 1997
were $264 million, an increase of $20.4 million (or 8.4%) over the comparable
prior year period.
Cost of sales increased by $14.4 million (or 9.4%) between the two
periods, principally due to the increase in net sales.
Selling, general and administrative expenses increased by $4.1 million
(or 4.9%) between the two periods, principally due to the increase in the
number of stores that were operating throughout fiscal 1997.
14
As a result of the foregoing, income from operations was $9.3 million
for fiscal 1997 compared to $7.5 million for fiscal 1996.
Net interest expense of $2.2 million for fiscal 1997 increased $1.3
million (150.8%) from $870,000 for fiscal 1996. This is primarily attributed to
decreased interest income due to the Company's lower cash balances during the
fiscal year despite having a higher cash balance at year end and to increased
interest expense associated with the revolving credit line entered into in April
1996 and increased capital lease interest expense.
The provision for income taxes for fiscal 1997 is based upon an
effective income tax rate of 43% as compared to 41% for fiscal 1996. As of April
30, 1997, the Company had a long-term deferred tax asset of $10.8 million and a
current deferred tax asset of $5.0 million. The long-term deferred tax asset is
primarily related to operating losses that occurred following the LBO. There are
limitations on the time periods during which these deferred tax assets can be
used and on the amounts that the Company can use each year. See Note 4 of Notes
to Consolidated Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1997
was $4.1 million compared to net income of $3.9 million for fiscal 1996.
Fiscal Year Ended April 30, 1996 Compared to Fiscal Year Ended April 30, 1995
- -----------------------------------------------------------------------------
Net sales for fiscal 1996 of $229.5 million increased by $13.6 million
(or 6.3%) compared to net sales for fiscal year 1995. The increase resulted from
the opening of nine new stores commencing in September 1995. Comparable store
sales for fiscal 1996 were $204.8 million, a decrease of $11.1 million (or
- -5.1%) compared to comparable store sales of $215.9 million for fiscal 1995.
Management believes that this decrease is primarily attributable to the weak
sales environment in the furniture industry and severe winter weather conditions
in the Company's markets.
Net finance charge income of $14.0 million for fiscal 1996 increased by
$1.7 million (or 13.5%) from fiscal 1995, primarily due to an increase in the
average accounts receivable balance in fiscal 1996 compared to fiscal 1995.
Since the Company instituted the "Seaman's Plus(R)" credit card in April 1994,
proprietary credit sales grew from 30% of total sales in fiscal 1994 to 46% in
fiscal 1995 and have more recently leveled off at 40% in fiscal 1996.
As a result of the foregoing increases, total revenues for fiscal 1996
were $243.5 million, an increase of $15.3 million (or 6.7%) over the comparable
prior year period.
Cost of sales increased by $14.9 million (or 10.8%) between the two
periods, principally due to the increase in net sales, the opening of nine new
stores and a warehouse, and decreased gross margins due to the competitive
retail environment.
15
Selling, general and administrative expenses increased by $8.4 million
(or 11.3%) between the two periods, principally due to the opening of nine
stores and an increase in the allowance for bad debts due to the higher customer
accounts receivable balance. The Company also incurred increased advertising
expenses due to its entrance into a new market.
As a result of the foregoing, income from operations was $7.5 million
for fiscal 1996 compared to $15.5 million for fiscal 1995.
Net interest expense of $870,000 for fiscal 1996 decreased as compared
to fiscal 1995 due to increased interest income attributed to higher cash
balances. The Company's interest expense primarily consists of interest on its
capital leases and on the mortgage it holds for its Islip warehouse.
The provision for income taxes for fiscal 1996 is based upon an
effective income tax rate of 41%. As of April 30, 1996, the Company had a
long-term deferred tax asset of $11.9 million and a current deferred tax asset
of $5.7 million. The long-term deferred tax asset is primarily related to
operating losses that occurred following the LBO. There are limitations on the
time periods during which these deferred tax assets can be used and on the
amounts that the Company can use each year. See Note 4 of Notes to Consolidated
Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1996
was $3.9 million compared to net income of $8.6 million for fiscal 1995.
Fiscal Year Ended April 30, 1995 Compared to Fiscal Year Ended April 30, 1994
- -----------------------------------------------------------------------------
Net sales for fiscal 1995 of $215.9 million increased by $45.5 million
(or 26.7%) compared to net sales for fiscal year 1994. Of such increase, $16.1
million resulted from the opening of five new stores commencing in September
1994 and the balance was primarily attributable to the implementation of new
management strategies, including a redirected advertising focus and an increased
emphasis on the Company's credit card operations, including the implementation
of the "Seaman's Plus(R)" credit card. Comparable store sales for fiscal 1995
were $198.2 million, an increase of $28.3 million (or 16.7%) compared to
comparable store sales of $169.9 million for fiscal 1994. Management believes
that this increase is primarily attributable to the redirected advertising
focus, customer acceptance of the "Seaman's Plus(R)" credit card, the ongoing
store redesign and renovation program and the use of a broadened merchandise mix
in the Company's stores.
Finance charge income of $12.4 million for fiscal 1995 increased by $4.5
million (or 57.2%) from fiscal 1994, primarily due to an increase in sales made
on the "Seaman's Plus(R)" credit card of $16.0 million in fiscal 1995 compared
to fiscal 1994. Sales made on the "Seaman's Plus(R)" credit card increased to
approximately 46% of net sales in fiscal 1995 from approximately 30% of net
sales in fiscal 1994.
As a result of the foregoing increases, total revenues for fiscal 1995
were $228.2 million, an increase of $50.0 million (or 28.1%) over the comparable
prior year period.
16
Cost of sales increased by $25.4 million (or 22.5%) between the two
periods, principally due to the increase in net sales, but decreased as a
percentage of net sales from 66.1% for fiscal 1994 to 63.9% for fiscal 1995. The
decrease as a percentage of net sales was primarily due to the Company's
operating leverage, which supported the increase in net sales without
corresponding increases in fixed operating costs (in particular, warehousing
expenses), and an improvement in retail gross margin.
Selling, general and administrative expenses increased by $14.5 million
(or 24.2%) between the two periods, principally due to the opening of five
stores and an increase in the allowance for bad debts due to the higher customer
accounts receivable balance. As a percentage of net sales, however, selling,
general and administrative expenses decreased from 35.3% for fiscal 1994 to
34.6% for fiscal 1995. The decrease as a percentage of net sales was principally
due to operating leverage, in particular with respect to advertising and
corporate administration expenses. Additionally, the Company maintained cost
controls while continuing to increase its net sales volume.
As a result of the foregoing, income from operations improved to $15.5
million for fiscal 1995 compared to $5.4 million for fiscal 1994.
Net interest expense of $1.2 million for fiscal 1995 remained constant
as compared to fiscal 1994. The Company's interest expense primarily consists of
interest on its capital leases and on the mortgage it holds for its Islip
warehouse.
The provision for income taxes for fiscal 1995, is based upon an
effective income tax rate of 40%. As of April 30, 1995, the Company had a
long-term deferred tax asset of $13.4 million and a current deferred tax asset
of $5.6 million. The long-term deferred tax asset is primarily related to
operating losses that occurred following the LBO. There are limitations on the
time periods during which these deferred tax assets can be used and on the
amounts that the Company can use each year. In fiscal 1994, the Company recorded
a non-recurring income tax benefit of $4.2 million, which was principally a
result of the utilization of tax operating loss carryforwards. See Note 7 of
Notes to Consolidated Financial Statements.
As a result of the foregoing, the Company's net income for fiscal 1995
was $8.6 million compared to net income of $6.9 million for fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, the Company had working capital of $67.5 million. The
Company's principal sources of liquidity are earnings before income taxes,
depreciation and amortization, and borrowings, if any, under the $40 million
Revolving Credit and Security Agreement (the "Loan Agreement") with the Bank of
New York Commercial Corporation and Fleet Bank, N.A. (as Successor-by-Merger to
NatWest Bank N.A.) as lenders (the "Lenders"). The Company's principal uses of
cash are working capital needs, capital expenditures and debt service
obligations,
17
including capitalized lease costs.
The Company's cash and cash equivalents increased in fiscal 1997 but had
decreased in fiscal 1996, 1995 and 1994. Without the proceeds from the Loan
Agreement, the Company could experience negative cash flows principally because
of potential increases in the customer accounts receivable balances, capital
expenditures and potential increases in inventory to support higher sales
volume.
The Company's working capital increased from $66.9 million at April 30,
1996 to $67.5 million at April 30, 1997. Cash and cash equivalents increased
from $3.4 million at April 30, 1996 to $6.4 million at April 30, 1997. As of
April 30, 1997, the Company had stockholders' equity of $105.6 million. The
Company's largest asset at such date was accounts receivable of $68.9 million
(net of bad debt reserves). At April 30, 1997, $2 million was outstanding under
the Loan Agreement consisting primarily of letters of credit. At April 30, 1997,
the Company had $12.9 million in long term debt, consisting of capitalized lease
obligations and a mortgage in connection with its Central Islip, New York
warehouse facility. See "Properties."
The Company entered into the $40 million Loan Agreement on April 29,
1996. The term of the Loan Agreement is three years. The Loan Agreement includes
provisions for issuance of up to $5 million aggregate amount of letters of
credit. The Company granted to the Lenders a security interest in the Company's
customer receivables and all General Intangibles as defined in the Loan
Agreement. The loan agreement contains covenants and provisions which are
customary for a secured revolving credit facility. The funds available under the
Loan Agreement will be used primarily for capital expenditures and general
corporate purposes.
At the same time that the Company entered into the Loan Agreement, it
redeemed certain receivables- backed securities designated "8.10% Class A Credit
Card Participation Certificates, Series 1995-1" in the amount of $20 million,
from a third party investor not affiliated with the Company. These Certificates
were issued in April 1995 by the Seaman Furniture Credit Card Master Trust which
originated by Seaman Receivables Corporation, a wholly owned special purpose
finance subsidiary of the Company.
Capital expenditures during fiscal 1994, fiscal 1995, fiscal 1996 and
fiscal 1997 were $4.5 million, $6.5 million, $8 million and $2.9 million,
respectively. Capital expenditures during fiscal 1995, 1996 and 1997 were
principally for new store openings, store renovations and a radio frequency
system for the Islip and Woodbridge warehouses. See "Business - Store Redesign
and Renovation."
Unless a customer is making a purchase using the Company's proprietary
credit card, the Company generally requires customers to make a down payment
(generally 30% of the sales price) at the time an order is placed, with the
balance payable upon or prior to delivery of the merchandise. The percentage of
sales paid with cash, check or major credit cards (for which customers are
generally required to provide a down payment absent a special promotion) has
changed from approximately 54% in fiscal 1995 to approximately 60% in fiscal
1996 and 1997. The balance of the Company's sales for each of such periods was
financed internally from working capital on the Company's proprietary credit
card.
18
Customer deposits at April 30, 1995, April 30, 1996 and April 30, 1997
were $7.5 million, $9.3 million and $8.5 million, respectively. The relatively
low level of customer deposits on a given date compared to net sales for a
period reflects both the Company's quick delivery policy and customer use of the
Company's proprietary credit card. If the Company generates more sales with the
Company's proprietary credit card, the level of customer deposits is not
expected to change in tandem with changes in net sales.
When the Company opens a new store in an existing market, it is able to
leverage its fixed costs for advertising and corporate administration to cover
the new store. While its fixed costs for distribution may not increase (if there
is existing warehouse capacity), increased expansion even in existing markets
will ultimately lead to increased distribution costs. As the Company opens
stores in new markets, however, the Company's fixed costs for distribution,
advertising and corporate administration are likely to increase as existing
warehousing facilities are not likely to be able to service new, geographically
distant markets; existing advertising programs will not promote the Company and
its merchandise in such new markets; and new personnel will likely be needed to
manage the new market areas. However, additional expansion in a new market area
should not result in greater fixed costs as the new warehouse facilities,
advertising programs and administrative framework should be sufficient to
support reasonable, planned expansion in such markets. In addition, as the
Company expands into urban areas that are less populated than the greater New
York metropolitan area, and as the Company opens stores in suburban areas in new
and existing markets, the Company expects average sales per store and sales per
square foot of selling space to be less than that of existing stores due to
differences in population density and size of local market.
The Company currently expects that the borrowings under the Loan
Agreement together with the cash from operations, will be sufficient to meet the
Company's planned capital expenditures, long-term debt (composed of capital
lease obligations and principal on the Company's mortgage and repayments on the
revolving line) and currently anticipated working capital requirements through
the end of fiscal 1999 without consideration of uncertainties surrounding the
going private proposal being considered by the Company. See "Business - Proposal
to take the Company Private."
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
With the exception of the historical information contained in this
report, the matters described herein contain forward-looking statements that
involve risk and uncertainties including but not limited to economic and
competitive factors outside of the control of the Company. These factors more
specifically include: competition form other retail stores, continuing strong
economic conditions, especially in the northeastern United States and the
Company's ability to identify consumer preferences with regard to its
merchandise mix. Forward-looking statements are typically identified by the
words "believe," "expect," "anticipate" "intend," "estimate," and similar
expressions. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates.
19
INFLATION
Inflation has not had a material impact on the Company's operating and
occupancy costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Index to Financial Statements and Exhibits, which appears on Page
F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
PART III.
---------
Information required by Item 10 "Directors and Executive Officers of the
Registrant," Item 11 "Executive Compensation," Item 12 "Security Ownership of
Certain Beneficial Owners and Management" and Item 13 "Certain Relationships and
Related Transactions" of Regulation S-K are herein incorporated by reference to
the Proxy Statement for the 1997 Annual Meeting of Stockholders of The Company.
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 10-K
------------------------
(a) Financial Statements
--------------------
See Index to Financial Statements and Schedules which appears on page
F-1 hereof.
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K on July 10, 1997 regarding the
proposal by the Company's senior management and majority stockholders to take
the Company private for $24 a share.
(c) Exhibits
--------
The exhibits listed on the Exhibit Index following the signature page
hereof are filed herewith in response to this Item.
20
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.
SEAMAN FURNITURE COMPANY, INC.
By: /s/ Alan Rosenberg
--------------------------------------
Alan Rosenberg, President and
Chief Executive Officer
Date: July 25, 1997
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.
/s/ Alan Rosenberg
- ---------------------------------------------------------
Alan Rosenberg, President, Chief Executive Officer Date: July 25, 1997
and Director
/s/ Peter McGeough
- ---------------------------------------------------------
Peter McGeough, Executive Vice President, Chief Financial Date: July 25, 1997
and Administrative Officer
/s/ Steven H. Halper
- ---------------------------------------------------------
Steven H. Halper, Executive Vice President, Date: July 25, 1997
Chief Operating Officer and Secretary
/s/ Coleen A. Colreavy
- ---------------------------------------------------------
Coleen A. Colreavy, Vice President, Corporate Controller Date: July 25, 1997
and Chief Accounting Officer
21
SIGNATURES
----------
/s/ Barry J. Alperin
- -----------------------------------------
Barry J. Alperin, Director Date: July 25, 1997
/s/ Kim Z. Golden
- -----------------------------------------
Kim Z. Golden, Director Date: July 25, 1997
/s/ Leo Peraldo
- -----------------------------------------
Leo Peraldo, Director Date: July 25, 1997
/s/ James B. Rubin
- -----------------------------------------
James B. Rubin, Director Date: July 25, 1997
/s/ Robert C. Ruocco
- -----------------------------------------
Robert C. Ruocco, Director Date: July 25, 1997
22
EXHIBIT INDEX
-------------
Exhibit
No. Description
- ---- -----------
*2 First Amended Joint Plan of Reorganization dated July 21, 1992.
*3.1 Amended and Restated Certificate of Incorporation effective as of
February 12, 1993.
*3.2 Amended and Restated By-Laws effective as of February 12, 1993.
4.1(a) Article IV and VI of the Amended and Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.1 filed as part
of the Registration Statement on Form 10 filed by the Company on
February 13, 1993) and Articles II and VI of the Amended and Restated
By-Laws (incorporated by reference to Exhibit 3.2 filed as part of the
Registration Statement on Form 10 filed by the Company on February 13,
1993).
4.3 Amended and Restated 1992 Stock Option Plan (incorporated by reference
to Exhibit 4.3 filed as part of the Registration Statement on Form S-8
filed by the Company on February 4, 1994.
**10.1 (a) Delivery Service Agreement dated as of September 12, 1994 between
the Company and Merchants Home Delivery Service, Inc.
(b) Delivery Service Agreement dated as of May 12, 1993 between
the Company and Joseph Eleto Transfer, Inc.
**10.2 Lease Agreement dated June 14, 1991 between the Company and Mack
Woodbridge Industrial.
***10.3 (a) Employment Agreement dated as of May 1, 1995 between the Company
and Alan Rosenberg.
(b) Employment Agreement dated as of May 1, 1995 between the Company
and Steven H. Halper.
(c) Employment Agreement dated as of May 1, 1995 between the Company
and Peter McGeough.
*10.4 1992 Stock Option Plan.
10.5 Form of Nonqualified Stock Option Agreement.
23
10.6 **(a) Agreement dated as of August 16, 1994 between the Company and
Local 875 affiliated with the International Brotherhood of Teamsters,
Warehousemen and Helpers of America.
**(b) Agreement dated as of January 1995 between the Company and
Local 875 affiliated with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America.
(c) Agreement dated as of January 3, 1997 between the Company and
Local 875 affiliated with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America.
(d) Agreement dated as of March 1, 1997 between the Company and
Local 875 affiliated with the International Brotherhood of Teamsters,
Chauffeurs, Warehousemen and Helpers of America.
24
*10.7 Form Indemnification Agreement.
10.8 Pooling and Servicing Agreement dated as of
March 15, 1995, among Seaman Receivables
Corporation, as transferor, Seaman Furniture
Company, Inc. as servicer, and the Bank of New
York, as trustee. (Incorporated by reference to
Exhibit 10.1 filed as part of the Current Report
on Form 8-K filed by the Company on April 22,
1995).
10.9 Revolving credit and Security Agreement dated as
of April 29, 1996 with the Bank of New York
Credit Corp. and NatWest Bank N.A. as Co-
Lenders. (Incorporated by reference to Exhibit 7
filed as part of the current report on Form 8-K
filed by the Company on May 14, 1996).
21 Subsidiaries.
* Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the Registration Statement on Form 10 filed by the
Company on February 13, 1993.
** Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the 10-K filed by The Company on July 28, 1995.
*** Incorporated by reference to the exhibit with the corresponding exhibit
number filed as part of the 10-K filed by The Company on July 30, 1996.
25
SEAMAN FURNITURE COMPANY, INC. AND
SUBSIDIARIES
- -----------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS
ENDED APRIL 30, 1997, 1996 AND 1995
AND INDEPENDENT AUDITORS' REPORT
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
Index to Financial Statements and Schedules
Page No.
--------
Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets, for the Years Ended
April 30, 1997 and 1996 F-3
Statements of Consolidated Operations, for the
Years Ended April 30, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity, for the
Years Ended April 30, 1997, 1996 and 1995 F-5
Statements of Consolidated Cash Flows, for the
Years Ended April 30, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Schedules:
SCHEDULES OMITTED
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information called for
is shown in the financial statements or notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
- -----------------------------
The Board of Directors and Shareholders
Seaman Furniture Company, Inc.:
We have audited the accompanying consolidated balance sheets of Seaman Furniture
Company, Inc. and Subsidiaries (collectively, the "Company") as of April 30,
1997 and 1996 and the related statements of consolidated operations,
stockholders' equity and consolidated cash flows for each of the three fiscal
years in the period ended April 30, 1997. These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at April 30, 1997 and 1996 and the results of their operations and their
cash flows for the three fiscal years in the period ended April 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
June 27, 1997, except for Note 9,
for which the date of our report
is July 9, 1997
F-2
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1997 AND 1996 (IN THOUSANDS)
- --------------------------------------
ASSETS NOTES 1997 1996
- ------ ----- ---- ----
CURRENT ASSETS:
Cash and cash equivalents 2 $ 6,423 $ 3,436
Accounts receivable (less allowance for
doubtful accounts of $8,104 and
$8,983, respectively) 2,6 68,916 65,716
Merchandise inventories 2 28,782 27,796
Prepaid expenses and other current assets 1,133 1,921
Deferred income tax benefit 4 4,977 5,709
--------- ---------
Total current assets 110,231 104,578
PROPERTY AND EQUIPMENT - at cost: 2
Land 2,324 2,724
Buildings and improvements 15,145 15,145
Furniture, fixtures and office equipment 13,519 13,199
Leaseholds and leasehold improvements 17,084 15,992
--------- ---------
Total 48,072 47,060
Less - Accumulated depreciation and
amortization (16,681) (13,909)
--------- ---------
Property and equipment - net 31,391 33,151
PROPERTY FINANCED BY
CAPITAL LEASES (less accumulated
amortization of $3,777 and $3,366,
respectively) 2,3 4,727 5,138
Deferred Income Tax Benefit 4 10,834 11,935
OTHER ASSETS (principally deposits) 4,039 4,449
--------- ---------
TOTAL $ 161,222 $ 159,251
========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY NOTES 1997 1996
- -------------------- ----- ---- ----
CURRENT LIABILITIES:
Accounts payable - trade $ 13,167 $ 11,022
Accrued expenses and other 19,947 16,670
Current portion of long-term debt 3 1,123 673
Customer deposits 2 8,487 9,266
--------- ---------
Total current liabilities 42,724 37,631
--------- ---------
LONG-TERM DEBT 3 12,878 20,085
--------- ---------
COMMITMENTS AND
CONTINGENCIES 7
STOCKHOLDERS' EQUITY:
Common stock-$.01 par value;
authorized 15,000,000 shares;
issued 5,004,575 shares
at April 30, 1997 50 50
Additional paid-in capital 5 86,817 86,817
Retained earnings 24,310 20,225
--------- ---------
111,177 107,092
Less: Treasury Stock, at cost
(467,534 shares at April 30, 1997 and 1996) (5,557) (5,557)
--------- ---------
Stockholders' equity - net 105,620 101,535
--------- ---------
TOTAL $ 161,222 $ 159,251
========= =========
See Notes to Consolidated Financial Statements.
F-3
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS EXCEPT PER COMMON SHARE AMOUNTS)
- -------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
NOTES APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
----- -------------- -------------- --------------
REVENUES:
Net sales 2 $ 251,175 $ 229,505 $ 215,857
Net finance charge income 12,809 14,036 12,364
---------- ---------- ---------
Total 263,984 243,541 228,221
---------- ---------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales, including buying and occupancy costs 167,430 152,982 138,038
Selling, general and administrative 2 87,206 83,094 74,691
---------- ---------- ---------
Total 254,636 236,076 212,729
---------- ---------- ---------
INCOME FROM OPERATIONS 9,348 7,465 15,492
INTEREST EXPENSE (2,247) (1,748) (1,707)
INTEREST INCOME 65 878 561
---------- ---------- ---------
INCOME BEFORE PROVISION
FOR INCOME TAXES 7,166 6,595 14,346
PROVISION FOR INCOME TAXES 4 (3,081) (2,700) (5,738)
---------- ---------- ---------
NET INCOME $ 4,085 $ 3,895 $ 8,608
========== ========== =========
NET INCOME PER COMMON SHARE 2 $ 0.82 $ 0.78 $ 1.68
========= ========== =========
Weighted average common and common
equivalent shares outstanding 4,991,875 4,979,152 5,129,441
========== ========== ==========
See Notes to Consolidated Financial Statements.
F-4
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS)
- -------------------------------------------------
COMMON STOCK ADDITIONAL
---------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
--------- ---------- ---------- ---------- -----------
Balances at May 1, 1994 5,002,500 $ 50 $ 82,594 $ 7,722 $ (2,536)
Issued common stock 2,075 19
Repurchase of treasury stock (3,005)
Reversal of Valuation Allowance for deferred
tax assets originating prior to emergence
from Chapter 11 4,204
Net income for the year ended April 30, 1995 8,608
--------- ---------- ---------- ---------- ----------
Balances at April 30, 1995 5,004,575 50 86,817 16,330 (5,541)
Repurchase of treasury stock (16)
Net income for the year ended April 30, 1996 3,895
--------- ---------- ---------- ---------- ----------
Balances at April 30, 1996 5,004,575 50 86,817 20,225 (5,557)
Net income for the year ended April 30, 1997 4,085
--------- ---------- ---------- ---------- ----------
Balances at April 30, 1997 5,004,575 $ 50 $ 86,817 $ 24,310 $ (5,557)
========== ========== ========== ========== ==========
See Notes to Consolidated Financial Statements.
F-5
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS)
- ------------------------------------------------
Year Ended Year Ended Year Ended
April 30, 1997 April 30, 1996 April 30, 1995
-------------- -------------- -----------------
OPERATING ACTIVITIES:
Net income $ 4,085 $ 3,895 $ 8,608
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and writedown of land 5,118 4,156 3,143
Deferred income taxes 1,833 1,369 613
Provision for bad debts 9,797 12,716 8,739
Changes in certain assets and liabilities:
Accounts receivable (12,997) (7,367) (35,954)
Merchandise inventories (986) (4,373) (4,021)
Prepaid expenses and other assets 1,198 (1,415) (1,820)
Accounts payable 2,145 422 1,367
Accrued expenses and other 3,277 (7,991) 5,336
Customer deposits (779) 1,764 890
-------- -------- --------
Net cash provided by (used in) operating activities 12,691 3,176 (13,099)
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of equipment (2,947) (7,998) (6,472)
-------- -------- --------
FINANCING ACTIVITIES:
Securitization of accounts receivable -- (20,000) 20,000
Borrowings (Repayments) under Debt obligations 1,659 (587) (505)
Purchase of Treasury Stock -- (16) (3,005)
(Repayments) Borrowings on lines of credit (8,416) 8,430 --
-------- -------- --------
Net cash (used in) provided by financing activities (6,757) (12,173) 16,490
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,987 (16,995) (3,081)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 3,436 20,431 23,512
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,423 $ 3,436 $ 20,431
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
- ------------------------
Interest paid $ 870 $ 448 $ 401
======== ======== ========
Income taxes paid $ 983 $ 2,220 $ 3,596
======== ======== ========
See Notes to Consolidated Financial Statements.
F-6
SEAMAN FURNITURE COMPANY, INC. AND SUBSIDIARIES
- -----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS
Seaman Furniture Company, Inc. (the "Company"), a Delaware corporation, is
one of the largest regional specialty furniture retailers in the
Northeastern United States. As of April 30, 1997, the Company operated a
chain of 38 stores in the greater New York, Philadelphia and Cleveland
metropolitan areas. The Company was incorporated in 1985 as a successor to
the business founded by Julius Seaman, who started the business in
Brooklyn in 1933.
2. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
---------------------------
statements include the accounts of Seaman Furniture Company, Inc. and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
SALES AND CUSTOMER DEPOSITS - Sales are recorded upon the delivery of
---------------------------
merchandise to customers. Customer deposits are recorded as a liability
until delivery of the merchandise to customers or until the deposit is
forfeited. Income from forfeited deposits is recorded using estimates
determined from the Company's experience with prior forfeitures.
CASH EQUIVALENTS - Cash equivalents consist of highly liquid investments
----------------
primarily in commercial paper and certificates of deposit, all of which
have a maturity of three months or less. All securities, which are held to
maturity, are stated at cost, adjusted for previous amortized or discount
accreted, if any. The Company has the intent and ability to hold such
securities to maturity. As of April 30, 1997 and 1996, the Company did not
hold any available-for-sale securities. Interest earned on investment
securities is included in interest income.
ACCOUNTS RECEIVABLE - Accounts receivable consist principally of
-------------------
interest-bearing amounts due from retail customers under financing
agreements which provide for monthly payments over various terms,
substantially all of which are between 24 and 33 months. Accounts
receivable installments due in more than one year are included in current
assets in accordance with standard industry practices. It is not
practicable to determine the amount of such installments.
The activity in the allowance for doubtful accounts for each of the
periods presented follows (in thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
Balance, beginning of period $ 8,983 $ 8,786 $ 5,494
Provision 9,797 12,716 8,739
Write-offs (13,039) (14,558) (6,987)
Recoveries 2,363 2,039 1,540
--------- -------- --------
Balance, end of period $ 8,104 $ 8,983 $ 8,786
========= ======== ========
F-7
FINANCE CHARGE INCOME
Gross finance charge revenue and the related expense are as follows:
April 30,
1997 1996 1995
--------- -------- --------
Finance charge revenues $ 12,980 $ 16,078 $ 12,495
Finance expenditures 171 2,042 131
--------- -------- --------
Net finance charge income $ 12,809 $ 14,036 $ 12,364
========= ======== ========
MERCHANDISE INVENTORIES - The Company values its inventories under the
-----------------------
first-in, first-out cost flow assumption.
PROPERTY AND EQUIPMENT - Property and equipment is stated at cost less
----------------------
accumulated depreciation and amortization. Depreciation of buildings and
improvements and furniture, fixtures and office equipment is computed
using the straight-line method over their estimated useful lives which
are: buildings and improvements, 30 to 31.5 years and furniture, fixtures
and office equipment, 5 to 10 years. Leaseholds and leasehold improvements
are amortized over the terms of the related leases or their estimated
useful lives, whichever are shorter. In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 121
("SFAS 121"), "Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets To Be Disposed Of". SFAS 121 prescribes the accounting
treatment for long-lived assets, identifiable intangibles and goodwill
related to those assets when there are indications that the carrying
values of those assets may not be recoverable. The adoption of SFAS 121
did not have a material effect on the Company's results of operations or
its financial position at April 30, 1997.
PROPERTY FINANCED BY CAPITAL LEASES - Property financed by capital leases
-----------------------------------
is amortized on the straight-line basis over the shorter of their
estimated useful lives or the remaining terms of the leases.
INCOME TAXES - The Company follows the provisions of Statement of
------------
Financial Accounting Standards No. 109. "Accounting for Income Taxes"
("SFAS No. 109"), which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been included in the company's financial statements or tax returns. Under
this method, deferred tax assets and liabilities are determined based on
the differences between the financial accounting and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse.
OPERATING LEASES - Rent expense relating to stores which are classified as
----------------
operating leases due to the terms of the respective leases is recognized
on the straight-line method.
STORE OPENING EXPENSES - Expenses (other than those relating to capital
----------------------
improvements) associated with new store openings are charged to operations
in the period in which such expenses are incurred.
NET INCOME PER SHARE- Net income per share is based on the weighted
--------------------
average number of common and common equivalent shares outstanding during
the period. Employee stock options are considered to be common stock
equivalents and, accordingly, the calculation includes approximately
454,834, 442,111 and 455,981 common stock equivalent shares
F-8
using the treasury stock method for the years ended April 30, 1997, 1996
and 1995, respectively. Also, the weighted average common and common
equivalent shares outstanding used to calculate net income per share were
4,991,875, 4,979,152, and 5,129,441 for fiscal 1997, 1996 and 1995,
respectively.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
--------------------------
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to prior
-----------------
consolidated financial statements to conform with the April 30, 1997
presentation.
DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS - Management of the
-------------------------------------------------
Company believes that the fair value of the Company's financial
instruments approximates their recorded value due to the short maturities
of these instruments as of April 30, 1997 and 1996.
3. LONG-TERM DEBT
LONG-TERM DEBT - At April 30, 1997 and 1996, long-term debt, consisted of
--------------
the following in thousands of dollars:
APRIL 30,
---------------------
1997 1996
--------- -------
Industrial Revenue Bonds (A) $ - $ 3,962
Fleet Mortgage (A) 5,819 -
Revolving Credit Agreement (B) 14 8,430
Capital Leases (C) 8,168 8,366
-------- ---------
Total 14,001 20,758
-------- ---------
Less:
Current portion 1,123 673
-------- ---------
Long-term debt $ 12,878 $ 20,085
======== =========
(A)FLEET MORTGAGE/INDUSTRIAL REVENUE BOND - On November 8, 1996, the
--------------------------------------
Company entered into a $6,187,500 mortgage loan with a bank to
refinance a $6,000,000 Town of Islip Development Bond ("IDA") held by
the bank. Approximately $3,738,000 was outstanding on the IDA as of the
transaction date. The Company is obligated to pay equal monthly
installments of approximately $73,660 through November 1, 2003. The
interest rate on such agreement was 8.49 percent at April 30, 1997. The
loan is collateralized by land and a building in Central Islip, NY with
a carrying value of approximately $11 million at April 30, 1997.
(B)REVOLVING TERM LOAN AGREEMENT - On April 26, 1996, the Company entered
-----------------------------
into a revolving term loan agreement with two banks, under which the
banks were committed to lend up to $40 million to the Company. The
Company is obligated to pay a commitment fee of .25 percent per annum
of the unused balance under these agreements. Borrowings under these
agreements bear interest at variable rates based upon the net income of
the Company, as defined in the agreement. Interest on these borrowings
was 9.0 percent at April 30, 1997.
F-9
The loan agreements contain certain covenants which include (i)
maintenance of certain financial ratios; (ii) maintenance of certain
amounts of net income, working capital and net worth; (iii) limitations
on capital expenditures; (iv) limitations on the payment of dividends;
(v) limitations on other indebtedness; (vi) restrictions on the
disposal of assets; and (vii) limitations on corporate reorganizations.
At April 30, 1997, the Company was in compliance with each of the
covenants mentioned above.
(C)CAPITAL LEASES - The obligations relative to capital leases at April
--------------
30, 1997 relate to two store leases and are payable in varying monthly
installments.
LONG-TERM MATURITIES - Long-term obligations are scheduled to mature as
--------------------
follows (in thousands of dollars):
YEAR ENDED APRIL 30, AMOUNT
--------------------------- ---------
1998 $ 2,376
1999 2,513
2000 2,593
2001 2,656
2002 2,723
Thereafter 16,586
---------
Total 29,447
Less interest on capital leases 15,447
---------
Total $ 14,000
=========
4. INCOME TAXES
The Company records deferred tax assets or liabilities at the end of each
period which is determined using the currently enacted tax rate expected
to apply to taxable income in the periods in which the deferred tax asset
or liability is expected to be settled or realized.
The income tax provision is as follows (in thousands of dollars):
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
-------------- -------------- --------------
Current:
Federal $1,067 $ 911 $3,821
State & Local 553 420 1,304
Deferred 1,461 1,369 613
------ ------ ------
Total $3,081 $2,700 $5,738
====== ====== ======
The Company's effective income tax rate differs from the Federal statutory
rate. The reasons for this difference are as follows (dollar amounts in
thousands):
YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 APRIL 30, 1996 APRIL 30, 1995
---------------------- ---------------------- -------------------
AMOUNT % AMOUNT % AMOUNT %
------ ---- -------- --- ------- ----
Federal statutory rate $2,436 34.0 $2,243 34.0 $4,878 34.0
Increases (reductions) due to:
State & local taxes - net of
Federal income tax benefit 645 9.0 457 7.0 860 6.0
------ ---- ------ ---- ------ ----
Effective rate $3,081 43.0 $2,700 41.0 $5,738 40.0
====== ==== ====== ==== ====== ====
F-10
The significant elements of gross deferred tax assets and liabilities at
April 30, 1997 and 1996 are as follows (dollar amounts in thousands):
APRIL 30, 1997 APRIL 30, 1996
-------------------- --------------------
DEFERRED TAX DEFERRED TAX
ASSETS/(LIABILITIES) ASSETS/(LIABILITIES)
-------------------- --------------------
Allowance for doubtful accounts $ 3,734 $ 4,193
Allowances for obsolete and
slow-moving inventories 1,300 1,489
Customer deposit forfeitures 5 72
Other (62) (45)
-------- --------
Total current portion 4,977 5,709
-------- --------
Capital leases 1,421 1,367
Accelerated depreciation (570) (1,132)
Other 815 487
Net operating loss carryforwards 9,168 11,213
-------- --------
Noncurrent portion 10,834 11,935
-------- --------
Total $ 15,811 $ 17,644
======== ========
At April 30, 1997, the Company had Federal tax loss carryforwards
aggregating approximately $21 million, which expire in 2007. Net operating
loss carryforwards of approximately $3 million were utilized during the
fiscal year ended April 30, 1997.
5. SHAREHOLDERS' EQUITY
The Company's amended and restated Certificate of Incorporation provides
that the authorized capital stock of the Company consists of 15 million
shares of Common Stock, par value $.01 per share.
The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Holders
of common stock are entitled to receive ratably such dividends as may be
declared by the Board of Directors out of funds legally available
therefor.
STOCK OPTIONS
-------------
The Company has a compensatory stock option plan (the "Plan") which
provides for the issuance of incentive or non-qualified stock options to
certain senior executives and other executives. The aggregate options
which may be granted under the Plan is 1,500,000. The Plan is administered
by the Compensation Committee of the Company's Board of Directors.
Under the Plan, the Company grants options at the approximate fair market
value. The Company's stock options become exercisable over varying terms,
as specified by the Compensation Committee. The options granted to certain
senior executives (see Note 7) are exercisable in full any time after the
granting date. The options granted to other executives vest over a two- or
three-year period. Stock options are subject to forfeiture in certain
circumstances.
F-11
The Company continues to account for the Option Plan using the intrinsic
value method in accordance with Accounting Principles Board No. 25,
"Accounting For Stock Issued To Employees" and its related
interpretations. Effective with fiscal 1997, the Company is subject to the
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting For Stock-Based Compensation" ("SFAS 123"). SFAS 123
established a fair value method of calculating compensation expense
related to stock-based compensation plans, and requires the disclosure of
the pro forma effects of recording such expense. Under SFAS 123, the fair
value of stock-based awards to employees is calculated through the use of
option pricing models, even though such models were developed to estimate
the fair value of freely tradable, fully transferable options without
vesting restrictions, which significantly differ from the Company's stock
option awards. These models also require subjective assumptions, including
future stock price volatility and expected time to exercise, which greatly
affect the calculated values. The Company's calculations were made using
the Black-Scholes option pricing model with the following assumptions:
Volatility Rate 5%
Risk-Free Interest Rate 9%
Dividend Rate 0%
Expected Term of Option In Years 5 years
On a pro forma basis, net income and earnings per common share for fiscal
1997 and 1996 would have been $3,941 and $.79 and $3,895 and $.78,
respectively.
A summary of activity under the Company's stock option plans for the year
ended April 30, 1997 is as follows:
NUMBER OF EXERCISE
SHARES PRICE RANGE
---------- -----------------
Balance - May 1, 1993 555,555 $5.01
Granted 37,000 $9.00
---------- =================
Balance - April 30, 1994 592,555 $ 5.01 - $ 9.00
========== =================
Granted 93,000 $12.50 - $18.75
Exercised (2,075) $9.00
---------- -----------------
Balance - April 30, 1995 683,480 $ 5.01 - $18.75
========== =================
Granted 322,500 $20.50 - $35.00
Exercised (10,041) $ 9.00 - $12.50
Canceled (19,734) $20.50
---------- -----------------
Balance - April 30, 1996 976,205 $ 5.01 - $35.00
========== =================
Granted 213,000 $18.125-$28.00
Exercised (2,400) $ 9.00
Cancelled (169,710) $20.50 - $35.00
---------- -----------------
Balance - April 30, 1997 1,017,095 $ 5.01 - $28.00
========== =================
6. SALE OF ACCOUNTS RECEIVABLE
In April 1995, the Company entered into an agreement with a third party to
sell, with limited recourse, $20 million of its eligible, as defined,
trade accounts receivable. The rate associated with that agreement was 8.1
percent per annum. In April 1996, the Company redeemed and terminated the
1995 series of Class A Securitization Certificates in the amount of $20
million.
F-12
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
----------------
The Company is obligated under various noncancelable operating leases
covering stores and two warehouses which provide for minimum rentals plus,
in certain instances, real estate taxes, other expenses and additional
rentals based on sales levels. Future minimum lease payments under these
operating leases are as follows (in thousands of dollars):
YEAR ENDING APRIL 30, AMOUNT
--------------------- ------
1998 $ 14,134
1999 14,321
2000 13,999
2001 13,576
2002 13,001
2003 - 2007 37,485
2008 - 2012 14,389
2013 - 2017 4,875
2018 - 2022 2,232
2023 155
---------
Total $ 128,167
=========
RENT EXPENSE
------------
Rent expense for operating leases aggregated approximately $13,697,000,
$13,197,000, $10,883,000 (net of sub-lease income of approximately
$507,000, $541,000 and $495,000) for the years ended April 30, 1997, 1996
and 1995, respectively. These amounts include additional rental payments
of approximately zero, $12,000 and $51,000, respectively, which are based
on store sales.
RETIREMENT PLANS
----------------
The Company has a defined contribution pension plan which is qualified
under Section 401(k) of the Internal Revenue Code. Such plan is available
to substantially all employees not covered by collective bargaining
agreements. The Company may make contributions to match a portion of
participant contributions.
The Company also participates in a multi-employer union-sponsored pension
plan. Information concerning benefits and assets available to pay benefits
for this plan is not available. Under the Employee Retirement Income
Security Act of 1974, as amended, an employer, upon withdrawal from a
multi-employer plan, is required to continue funding its proportionate
share of the plan's unfunded vested benefits, if any. The Company has no
current intention of withdrawing from the plan.
Total expenses related to these plans aggregated approximately $1,751,000,
$1,658,000 and $1,497,000, respectively, for the years ended April 30,
1997, 1996 and 1995.
LITIGATION
----------
The Company is involved in various proceedings incidental to the normal
course of their business. Management does not expect that any of such
proceedings will have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-13
EMPLOYMENT AGREEMENTS
---------------------
The Company, in May 1995, renewed its three-year employment agreements
with certain senior executives of the Company. Such employment agreements,
all of which terminate in April 1998, required first year annual
compensation in the aggregate of $770,000 with annual increases subject to
a Consumer Price Index formula, as defined in the agreements, or the
discretion of the Board of Directors.
Also, such executives were granted 165,000, 55,000 and 30,000 options
during fiscal 1997, 1996 and 1995, respectively to purchase shares of
common stock issuable pursuant to the 1992 Stock Option Plan, which was
adopted by the Company. Such options vest over a three-year period.
In addition, during a prior year, such executives were granted 555,555
options (at the then fair values) to purchase shares of common stock
issuable pursuant to the 1992 Stock Option Plan, which was adopted by the
Company. Such options vest at the sole discretion of the Board of
Directors, but in any event, no later than ten years from the date of
grant. Approximately one-half of such options were issued and fully vested
at the date of grant. Subsequent thereto, an additional 23,150 and 162,035
options became vested in June 1994 and May 1995, respectively. At April
30, 1997, 92,591 options remained unvested.
8. QUARTERLY FINANCIAL DATA (UNAUDITED)
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1997 QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------- -------- --------- -------- -------- -----------
Sales $62,659 $ 63,722 $63,294 $ 61,500 $251,175
Gross Margin $20,361 $ 21,138 $21,249 $ 20,997 $ 83,745
Net Income $ 445 $ 1,059 $ 968 $ 1,613 $ 4,085
Net Income Per Share $ 0.09 $ 0.21 $ 0.19 $ 0.33 $ 0.82
YEAR ENDED FIRST SECOND THIRD FOURTH
APRIL 30, 1996 QUARTER QUARTER QUARTER QUARTER TOTAL
--------------------- -------- --------- -------- -------- -----------
Sales $57,468 $ 57,966 $56,292 $ 57,779 $229,505
Gross Margin $19,927 $ 19,885 $18,048 $ 18,663 $ 76,523
Net Income $ 1,534 $ 1,504 $ 335 $ 522 $ 3,895
Net Income Per Share $ 0.31 $ 0.30 $ 0.07 $ 0.10 $ 0.78
Quarterly and total year earnings per share are calculated independently
based on the weighted average number of shares and share equivalents
outstanding during each period.
9. SUBSEQUENT EVENT
On July 9, 1997, the Company announced that it has received a proposal
from a group consisting of its senior management and majority stockholders
to purchase, through a one-step merger transaction, the approximately 20%
of the Company's outstanding Common Stock, par value $.01 per share, owned
by the public for $24.00 per share.
F-14
10. SUPPLEMENTAL INFORMATION
Advertising expense for the years ended April 30, 1997, 1996 and 1995 was
approximately $23,581,000, $23,273,000, and $20,097,000, respectively.
* * * * * *
F-15