UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: FEBRUARY 3, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _________________
Commission file number: 1-8057
L. LURIA & SON, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-0620505
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5770 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 557-9000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
SHARES OF COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
(Title of Class)
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. [ ]
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at April 18, 1996 (computed by reference to the
last reported sale price of the registrant's Common Stock on the New York Stock
Exchange on such date): $26,439,631.
Number of shares outstanding of each of the registrant's classes of Common
Stock at April 18, 1996: 4,082,986 shares of Common Stock, $.01 par value per
share; 1,340,528 shares of Class B Common Stock, $.01 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934, as amended, which will be
filed with the Commission subsequent to the date hereof, (the "Proxy
Statement"), are incorporated by reference into Part III of this Form 10-K.
PART I
ITEM 1. BUSINESS
GENERAL
L. LURIA & SON, INC., (the "Company") is a specialty discount retailer
operating 43 stores throughout the State of Florida as of February 3, 1996. The
Company sells a broad line of jewelry, watches, kitchenware, and giftware
merchandise. In addition, the Company sells housewares, small appliances,
consumer electronics, home furnishings, luggage, cameras and other merchandise.
The Company intends to eliminate certain lines of merchandise in fiscal 1997 and
concentrate on jewelry, giftware and kitchenware. Merchandise is advertised
primarily by direct mail flyers and newspaper inserts. In addition, the Company
advertises on radio and television. The majority of the Company's stores display
samples, with inventories of such items being maintained in warehouse areas
adjoining each store, although the Company has opened eleven superstores where
the merchandise is available to the customer on a self service basis. The
Company maintains a central distribution facility at its headquarters in Miami
Lakes, Florida, and until April, 1996 maintained a satellite distribution
facility in Orlando, Florida, which service all of its stores.
The Company was incorporated in Florida in November, 1976 and is the
successor, through combinations of affiliated companies, to a general wholesale
merchandise business established in 1898. The Company discontinued its wholesale
operations in 1970 and, since that time, has conducted a specialty retail
business exclusively. Unless the context indicates otherwise, the term "Company"
refers to L. Luria & Son, Inc. and its predecessors.
MERCHANDISING
During the fiscal years 1996, 1995 and 1994, the principal categories of
merchandise sold by the Company, and as a percentage of total net sales of the
Company, were as follows:
PERCENT OF NET SALES
1996 1995 1994
---- ---- ----
Jewelry and watches.............................................................. 40% 37% 38%
Consumer electronics, cameras and home
office......................................................................... 16% 20% 22%
Housewares, home furnishings, luggage and
juvenile....................................................................... 28% 28% 26%
Tabletop, giftware, clocks, and other............................................ 16% 15% 14%
--- --- ---
100% 100% 100%
=== === ===
Profit margins vary among the items sold, with jewelry and watches
accounting for the highest relative contribution to the Company's gross margin.
The Company purchases loose diamonds and other precious stones and standard
mountings or mountings fabricated to its specifications. Gems are then set in
mountings at the Company's facilities or are subcontracted to others for
setting. The Company accepts special jewelry orders and offers in-house repairs,
sizing, and engraving services in connection with its jewelry sales.
The Company's inventory increases prior to the Fall selling season. The
increase generally is financed through working capital, credit advanced by
suppliers on normal trade terms, and short-term borrowings. The Company
purchases merchandise from approximately 2,000 suppliers, no one of which
accounted for more than 5% of the total purchases during the fiscal year ended
February 3, 1996. The Company has no long-term purchase commitments with any of
its suppliers and believes that alternative sources of supply are available for
each category of merchandise carried.
A substantial part of the Company's jewelry inventory consists of diamonds
and gold, the market values of which are subject to fluctuations in the world
markets. The Company continuously monitors those markets in an effort to
anticipate price changes and adjusts its purchasing practices and selling prices
in order to minimize its inventory exposure. The Company has not incurred any
material loss due to a decline in market values of diamonds and gold.
2
The Company's purchasing is done from the Company's headquarters in Miami
Lakes. Virtually all merchandise is delivered directly to the Company's
distribution facility located in Miami Lakes and is distributed on a daily basis
to the stores on Company trucks.
MARKETING
The Company's principal promotional efforts are made through color flyers
distributed to persons on the Company's mailing list, as well as color inserts
in newspapers circulated within the Company's markets. The Company also conducts
television, radio, and newspaper advertising.
The Company's business is affected by the same pattern of seasonality as
retail businesses in general. For the fiscal year ended February 3, 1996,
approximately $70 million (41%) of the Company's annual sales occurred in the
fourth quarter ended February 3, 1996, while the Company's net sales were
approximately $38 million (22%) in the first quarter; $34 million (19%) in the
second quarter; and $31 million (18%) in the third quarter. The percentage of
sales occurring in the above mentioned quarters of the fiscal year ended
February 3, 1996 is comparable with the percentage of sales in each quarter of
the Company's five most recent fiscal years.
In fiscal 1996 each of the Company's stores contain a selling area and a
contiguous warehouse facility. The Company displays in the showrooms certain
merchandise as samples in each store's selling area, and the store's warehouse
is stocked with inventory in all merchandise categories. Other items are
displayed in bulk allowing the customer to more quickly select and purchase the
merchandise. For inventory stocked in the store warehouse, a customer's order is
electronically transmitted to the store warehouse from the selling floor where
the order is processed. The ordered merchandise is then dispatched to the
customer pick-up counter adjacent to the selling area, where payment is received
and the merchandise is delivered. In fiscal 1997, the Company intends to convert
an average of 7,000 square feet of contiguous warehouse space of its catalogue
showroom stores into selling space.
In fiscal 1993, the Company opened its first superstore. In fiscal 1994, the
Company renovated another store into a superstore and opened two new
superstores, in fiscal 1995 the Company opened five new superstores, and in
fiscal 1996 the Company opened two new superstores. The new design, which
displays more of the merchandise on the selling floor rather than in the
adjoining warehouse, features mass displays, self-service merchandise, shopping
carts and check-out counters, along with an enlarged jewelry display and selling
area. During fiscal year 1994, the Company took a restructuring charge of $5.5
million to replace twelve existing showrooms with superstores and to close one
showroom and two jewelry mall stores. In fiscal year 1996, the Company closed
six showrooms and one jewelry mall store. At the end of fiscal 1996 the Company
operated eleven superstores, 31 showrooms, and one jewelry mall store.
EMPLOYEES
The number of employees fluctuates seasonally and reaches its peak during
the Christmas season and its lowest point during the summer months. At February
3, 1996 the Company had approximately 1,258 full-time employees and
approximately 415 permanent part-time employees. During the 1995 Christmas
season, the Company employed approximately 1,095 additional part-time employees.
None of the employees are covered by a collective bargaining agreement.
TRADEMARKS
The Company registered the mark "Luria's", the stylized mark "Luria's", the
mark with the Luria's logo and "LURIA'S, NOW YOU'VE THOUGHT OF EVERYTHING!" with
the Patent and Trademark office. In order to maintain the registrations, the
Company must file a declaration stating that the mark is in use between the
fifth and sixth anniversary of the registration date. Assuming the declaration
of use is filed, the service mark will be valid for a period of ten (10) years
and can be renewed thereafter. The Company believes that registration of the
marks is important to protect the ability to use the marks.
COMPETITION
The retail merchandise business is highly competitive. The Company competes
with a variety of other retail merchandisers, including department, discount,
variety, specialty and catalog showroom stores and warehouse clubs. Many of the
competitors have national sales organizations which are larger and have greater
financial resources than the Company. To the best of the Company's knowledge,
only one competitor, a national chain, operates stores of a similar nature to
those of the Company. This competitor has 49 stores in the State of Florida.
Additionally, the Company also competes with jewelry and giftware and specialty
discount retailers of various sizes in various locations throughout the Florida
market area.
3
The Company does not maintain charge accounts; however, it does extend
credit to its customers through a private label credit card. The Company accepts
all major credit cards.
ITEM 2. PROPERTIES
All of the Company's stores are located in Florida. All but six of the
Company's stores are leased to the Company under long-term leases, two of which
are with certain officers and former officers of the Company or their immediate
families. Reference is made to the information set forth in the Section entitled
"Certain Transactions with Management" in the Company's definitive Proxy
Statement which will be filed with the Commission subsequent to the date hereof
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Proxy Statement").
Three of the Company's stores were built on land subject to long-term land
leases at an aggregate cost of approximately $2.6 million, one of those stores
is closed and has not been sublet. Three stores were built on land owned by the
Company.
The leases for the stores and land expire at various dates ranging from 1997
to 2043. All but eight of the leases are subject to renewal options at the
option of the Company at either identical or increased rents. Most of the
renewal options are for five- or ten-year terms; in some cases, the Company has
one such option and in others it has several (up to six) successive options.
During the fiscal year ended February 3, 1996, total rental (excluding real
estate taxes and common area maintenance) expense incurred by the Company for
all of its stores and capital equipment leases was approximately $11.4 million.
For further information concerning the Company's rental obligations under
its long-term leases, reference is made to the information set forth in Note 5
of "Notes to Financial Statements".
All of the stores are air conditioned, concrete block structures, with a
contiguous warehouse. Store sites have been selected after consideration of such
factors as the geographic size of the market area, traffic patterns, population
density, average family income and existing competition.
The executive and administrative offices of the Company and its central
distribution facility are located in Miami Lakes, Florida, on 8.87 acres of land
owned by the Company. The facilities, which were built to the Company's
specifications, comprise approximately 40,000 square feet of office space and
approximately 163,000 square feet of distribution and warehousing space.
Approximately 92,000 square feet of office and warehouse space is collateral
for an industrial revenue bond due in 2001, with a principal balance of
approximately $ 1.0 million at February 3, 1996.
ITEM 3. LEGAL PROCEEDINGS
On November 30, 1995 the Company announced that a Florida Circuit Court jury
had returned a verdict of $13.8 million in favor of the Company in a case in
which the Company alleged that its competitor, Service Merchandise Company, had
tortiously interfered with the Company's business relationship and business
rights at the Sawgrass Mills Shopping Center in Broward County, Florida. The
Company had executed a letter of intent with the shopping center's landlord, had
successfully negotiated a formal lease, but was unable to obtain execution of
the formal lease by the landlord. The jury decided in favor of the Company in
both of its theories: that the letter of intent was a binding contract with
which Service Merchandise had intentionally interfered and that, at the very
least, the letter of intent created a business relationship with which Service
Merchandise had intentionally and wrongfully interfered. The trial judge has
denied various post-trial motions and entered final judgment in favor of the
Company. Service Merchandise has indicated that it will appeal from the final
judgment.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None - not applicable.
4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock has been listed on the New York Stock Exchange
(symbol: LUR) since December, 1994. The following table reflects the high and
low sales prices based on the New York Stock Exchange and the American Stock
Exchange.
FISCAL 1996 FISCAL 1995 FISCAL 1994
- ---------------------------------------------------------------------------------------------------------------------------
First Quarter High-Low $8 7/8 $6 $14 7/8 $8 7/8 $13 3/4 $10 1/4
Second Quarter High-Low $7 3/8 $5 3/4 $ 9 7/8 $7 5/8 $13 $10 1/2
Third Quarter High-Low $7 1/4 $5 1/8 $ 8 3/8 $6 5/8 $12 7/8 $11 1/4
Fourth Quarter High-Low $6 1/2 $4 1/8 $ 7 5/8 $6 1/8 $15 1/2 $10 3/4
Yearly High-Low $8 7/8 $4 1/8 $14 7/8 $6 1/8 $15 1/2 $10 1/4
- ---------------------------------------------------------------------------------------------------------------------------
The Company has followed the policy of reinvesting earnings in the business
and consequently has not paid any cash dividends. At the present time, no change
in this policy is under consideration by the Board of Directors. The payment of
cash dividends in the future will be determined by the Board of Directors in
light of future existing conditions, including the Company's earnings, financial
requirements, opportunities for reinvesting earnings, business conditions and
other factors.
On February 3, 1996, the number of shareholders of record of Common Stock
and Class B Stock was 1,082 and 19, respectively. The Company's Class B Stock is
not listed on the New York Stock Exchange or otherwise publicly traded.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except earnings per common share)
Years Ended
February 3, January 28, January 29, January 30, February 1,
1996 (1) 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTED INCOME STATEMENT DATA
Net sales $173,272 $210,654 $242,281 $235,567 $207,581
Gross margin 40,202 58,520 65,658 62,185 58,521
Restructuring charge -- -- 5,494 -- --
Income(loss) from operations (24,833) 733 2,314 4,746 2,290
Net(loss) income (18,972) 155 1,395 2,927 936
Earnings (loss) per common share $(3.50) $.03 $.26 $.55 $.18
SELECTED BALANCE SHEET DATA
Current assets $71,342 $ 98,381 $109,323 $107,826 $100,520
Current liabilities 46,307 52,375 53,964 50,816 46,656
Working capital 25,035 46,006 55,359 57,010 53,864
Total assets 114,349 139,024 139,975 136,805 131,919
Long-term debt and obligations under capital leases 791 976 1,156 1,362 2,440
Shareholders' equity 64,797 83,778 83,572 81,680 78,639
Number of stores at end of fiscal year 43 48 50 50 53
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) 53 week year
</FN>
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this document.
GENERAL
The jewelry and giftware retail industry historically has been cyclical,
fluctuating with general economic cycles. During economic downturns, the jewelry
and giftware retail industry tends to experience greater declines than the
general economy. Management believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior and confidence, the level of personal discretionary spending, interest
rates and consumer credit availability. Jewelry and giftware purchases are
generally discretionary and are often deferred during times of economic
uncertainty.
In view of the intense promotional environment of the Company's business,
as well as a generally weak retail environment, management has devised a
strategy which includes the following: (i) limited unit growth for the new
fiscal year; (ii) reduction of advertising expenditures; (iii) a reduction on a
store by store basis, of controllable expenses; (iv) a transitioning from a
catalog showroom retailer to a jewelry, giftware and kitchenware retailer; and
(v) entering into a sale-leaseback arrangement with respect to its three owned
stores.
The Company operated eleven superstores, 31 catalog showrooms and one
jewelry mall store as of the fiscal year ended February 3, 1996. The Company
opened two superstores and closed six catalog showrooms and one jewelry mall
store during fiscal 1996.
RESULTS AND OPERATIONS
The following table sets forth the Company's results of operations
expressed as a percentage of net sales for the periods indicated:
PERCENT OF NET SALES
FISCAL YEARS ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
---------------------------------------------------
Net sales ........................................................ 100.0% 100.0% 100.0%
Cost of goods sold, buying and warehouse costs ................... 76.8 72.2 72.9
-------------- ------------- -------------
Gross margin...................................................... 23.2 27.8 27.1
Operating expenses................................................ 37.5 27.5 23.9
Restructuring charge.............................................. -- -- 2.2
-------------- ------------- -------------
Income (loss) from operations..................................... (14.3) .3 1.0
Interest, expense, net............................................ .6 .2 --
-------------- ------------- -------------
Income (loss before income taxes)................................. (14.9) .1 1.0
--------------
Provision for income taxes........................................ 4.0 .0 .4
-------------- ------------- -------------
Net income (loss)................................................. (10.9)% .1% .6%
============== ============= =============
Change in same store sales(1)..................................... (11.2) (13.0) 6.3
============== ============= =============
<FN>
(1) Same store sales are calculated by excluding the net sales of a store
for any month of one period if the store was not open during the same month of
the prior period. A store opened at any time during a month is deemed to have
been opened on the first day of that month.
</FN>
COMPARISON OF FISCAL 1996 TO FISCAL 1995
Net Sales. Net sales for fiscal 1996 were approximately $173.3 million, a
decrease of 17.7% from fiscal 1995 and 11.2% decrease on a same store basis. The
Company believes that the lower net sales were the result of closing stores,
softening demand in catalog showroom stores, strong competition in the general
merchandise categories and a generally weak retail environment. The Company's
business is highly seasonal, with a significant portion of its sales occurring
in the fourth
6
quarter. Fourth quarter net sales accounted for 40.6% and 41.1% of total net
sales in fiscal 1996 and fiscal 1995, respectively. Fourth quarter sales for
fiscal 1996 decreased 18.6% when compared to fourth quarter of fiscal 1995.
During fiscal years 1996 and 1995, jewelry sales represented 40.0% and 37.0%,
respectively, of the Company's overall sales. The Company believes that jewelry
sales as a percent of total sales will continue at approximately the current
rate in the next fiscal year. The impact of inflation on sales was not
significant. In fiscal 1996 the effect of the 53rd week is not deemed
significant.
Gross Margins. The Company's gross margin varies depending on individual
product margins, the overall sales mix and the aggressiveness of sales
promotions. Gross margins decreased in fiscal 1996 to 23.2% from 27.8% in the
prior year primarily due to merchandise from closed stores being discounted,
reduced purchases of new lines because of the efforts to reduce the overall
inventory levels, increased cost of inventory acquisition due to reduced
purchases without concomitant reduction in purchasing and distribution
departments and increased promotional activity.
Operating Expenses. The Company's operating expenses increased $7.2 million
in fiscal 1996 to 37.5% from 27.5% in fiscal 1995. This percentage increase was
primarily due to decreased net sales, as well as an increase in net advertising
expense of approximately $5.8 million mainly due to decreased cooperative
advertising.
Restructuring Charge. In the fourth quarter of 1994, the Company recorded a
$5.5 million restructuring charge to implement its superstore strategy. The
restructuring charge covered the replacement of twelve existing showrooms with
jewelry and gift superstores and the closing of one showroom and two jewelry
mall stores. The charge includes the cost of retiring fixed assets, estimated
lease liabilities and costs of closing the showrooms.
In fiscal 1996, $2.2 million of the balance of the reserve was used to
close or relocate six catalog showrooms and to close one jewelry mall store. The
Company has included approximately $1.1 million in operating expense in fiscal
year 1996 for closed stores.
The Company also discontinued its annual merchandise catalog in fiscal year
1996.
Interest Expense. Interest expense for fiscal 1996 was $1.1 million
compared to $0.5 million in fiscal 1995, or a 120% increase, as a result of
increased borrowings to fund operating activities.
Net Loss. Net loss in fiscal 1996 was $19.0 million or $3.50 per share. The
loss was due to lower net sales, reduced gross margins and increased operating
and interest expenses.
COMPARISON OF FISCAL 1995 TO FISCAL 1994
Net Sales. Net sales for fiscal year 1995 were approximately $211 million,
a decrease of 13% from fiscal 1994 and a 13% decrease on a same store basis. The
Company believes that the lower net sales were the result of reduced advertising
expenditures, substantially reduced percent off promotions, increased
competition and a softening consumer demand in the South Florida market. The
Company's business is highly seasonal, with a significant portion of its sales
occurring in the fourth quarter. Fourth quarter net sales accounted for 41.1%
and 43.0% of total net sales in fiscal 1995 and fiscal 1994, respectively.
Fourth quarter net sales for fiscal 1995 decreased 17% when compared to fourth
quarter of fiscal 1994. The impact of inflation on sales was not significant.
Gross Margin. Overall, gross margins increased in fiscal 1995 to 27.8% from
27.1% in the prior year, primarily due to substantially reduced percent off
promotions. During fiscal years 1995 and 1994, jewelry sales represented 37.1%
and 37.9%, respectively, of the Company's overall sales.
Operating Expenses. In fiscal 1995 the Company's operating expenses as a
percent of net sales increased to 27.5% from 23.9% [25.1% before one time
insurance proceeds received in settlement for Hurricane Andrew] in fiscal 1994.
Operating expenses decreased $3.0 million in fiscal 1995 compared to fiscal 1994
after adjusting for the insurance proceeds. The reduction in operating expenses
was not sufficient to offset the decrease in sales and accordingly operating
expenses as a percent of sales increased. Significant reductions were achieved
in advertising, payroll and store expenses, which offset increases in occupancy
and depreciation expenses. Preopening expenses were $.8 million in fiscal 1995.
Restructuring Charge. During the fourth quarter of fiscal 1994, the Company
closed one of its catalog showrooms (charging $.4 million against the
restructuring reserve), opened two new superstores and remodeled an existing
store to the new superstore format. During fiscal 1995, the Company opened five
new superstores and closed six catalog showrooms and one jewelry mall store
resulting in charge to the reserves of $2.8 million.
7
Net Income. Net income in fiscal 1995 was $155,000 or $.03 per share. The
lower net income was due primarily to lower net sales of $31.6 million, a 13.1%
decrease, and operating expenses of 27.5% versus 23.9% in the prior year (25.1%
after adjusting for the insurance proceeds) which offset the impact of higher
gross margin rates. Net income in fiscal 1994 was $1.4 million, or $.26 per
share.
FINANCIAL CONDITION
The Company had cash and cash equivalents of $4.9 million at February 3,
1996 (fiscal year 1996), compared to $11.1 million at January 28, 1995 (fiscal
year 1995). Working capital at February 3, 1996 was $25.0 million compared to
$46.0 million at the end of the prior fiscal year. Net cash used by operating
activities was approximately $3.7 million primarily due to the net operating
loss of $19.0 million, and a decrease in accounts payable ($11.8 million) and
partially offset by a decrease in inventory ($22.8 million). This compares to
cash flow from operating activities of $8.7 million in fiscal 1995 due to a
decrease in inventory and an increase in accounts payable partially offset by a
decrease in accrued liabilities. In fiscal year 1994 $0.3 million was provided
by operating activities and was principally an increase in inventory offset by
an increase in accounts payable, accrued liabilities and restructuring expenses.
Net Capital expenditures were approximately $2.2 million, $14.7 million and
$7.9 million in fiscal 1996, 1995 and 1994, respectively. Capital expenditures
are primarily made for land, buildings, leasehold improvements and furniture and
fixtures for new and remodeled superstores. In fiscal 1996 two superstores were
opened. In fiscal 1995, five superstores were opened. The planned capital
expenditures for 1997 are approximately $6.0 million. The Company's management
believes that cash provided by operating activities and access to the capital
markets at competitive rates will be adequate to fund its capital expenditure
requirements during the next fiscal year.
Subsequent to the end of fiscal year 1996 the Company entered into a
secured revolving credit arrangement providing up to $40.0 million. The line
available to the Company is based on the value of inventory. The Company feels
this line of credit is adequate for its working capital needs during the next
fiscal year.
CHANGE IN SHAREHOLDERS' EQUITY
All shares of Common Stock acquired by the Company are retired and returned
to unissued stock in the year acquired.
NEW ACCOUNTING PRONOUNCEMENTS
Adoption of Statement of Financial Accounting Standards No. 121 "Accounting
for Impairment of Long-Lived Assets to be Disposed of" in fiscal 1996 has not
had a significant impact on the Company's financial position or results of
operation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report ............................................. 9
Management Report ........................................................ 10
Balance Sheets ........................................................... 11
Statements of Operations ................................................. 12
Statements of Shareholders' Equity ....................................... 12
Statements of Cash Flows ................................................. 13
Notes to Financial Statements ............................................ 14
8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
Miami Lakes, Florida
We have audited the accompanying balance sheet of L. Luria & Son, Inc. as of
February 3, 1996, and the related statements of operations, cash flows and
shareholders' equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of L. Luria & Son, Inc. as of February 3, 1996
and the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Certified Publc Accountants
Miami, Florida
April 22, 1996
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
We have audited the accompanying balance sheet of L. Luria & Son, Inc. as of
January 28, 1995, and the statements of operations, shareholders' equity and
cash flows for each of the years on the two-year period ended January 28, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of L. Luria & Son, Inc. as of
January 28, 1995, and the results of its operations and its cash flows for each
of the years in the two-year period ended January 28, 1995 in conformity with
generally accepted principles.
KPMG Peat Marwick LLP
March 24, 1995
9
To Our Shareholders:
The Management of L. Luria & Son, Inc. is responsible for the integrity and
objectivity of the financial information presented in this Annual Report.
Management has prepared the financial statements in accordance with generally
accepted accounting principles, which involve the use of estimates and judgments
where appropriate.
To meet its responsibility, management maintains a comprehensive system of
internal controls to assure the proper authorization of transactions, the
safeguarding of assets, and the reliability of the financial records. This
system can provide only reasonable, not absolute, assurance that errors and
irregularities can be prevented or detected. The concept of reasonable assurance
is based on the recognition that the cost of a system of internal controls must
be related to the benefits derived.
The Audit Committee of the Board of Directors, which consists of three members,
is composed solely of members of the Board of Directors who are not officers or
employees of the Company. The Audit Committee is responsible for the general
oversight of the Company's system of internal control and financial reporting.
The Committee consults regularly with management and meets as often as necessary
with the independent accountants to review the scope and results of their work.
The accounting firm of Deloitte & Touche LLP has performed an independent audit
of the Company's fiscal 1996 financial statements and has issued an unqualified
opinion as to the fairness of the financial information contained therein.
L. Luria & Son, Inc.
10
BALANCE SHEETS
- --------------------------------------------------------------------------------
FEBRUARY 3, JANUARY 28,
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1996 1995
---- ----
ASSETS
Current Assets
Cash and cash equivalents $4,941 $11,100
Accounts receivable 1,129 1,634
Income tax receivable 3,392 0
Inventories 60,087 82,931
Prepaid expenses 1,037 2,716
Deferred taxes 756 0
-------- --------
Total current assets 71,342 98,381
-------- --------
Property and Equipment
Land 7,033 7,033
Buildings 14,420 14,279
Furniture and equipment 27,092 26,023
Leasehold improvements 25,627 25,812
Construction in progress 325 340
-------- --------
Total 74,497 73,487
-------- --------
Less accumulated depreciation (36,194) (33,058)
-------- --------
Property - net 38,303 40,429
-------- --------
Deferred Taxes 4,466 0
Other assets 238 214
-------- --------
Total $114,349 $139,024
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable
Trade $31,054 $43,397
Other 4,425 3,876
Accrued liabilities 7,004 4,361
Taxes payable 1,779 535
Current portion of long-term debt 206 206
Deferred taxes 1,839 0
-------- --------
Total current liabilities 46,307 52,375
-------- --------
Long-term debt 791 976
Deferred taxes and other liabilities 2,454 1,895
Commitments and contingencies
Shareholders' equity
Preferred stock, $1 par value, 5,000,000 shares authorized; no shares issued -- --
Common stock, $.01 par value, 14,000,000 shares authorized;
4,100,274 shares issued and outstanding at February 3, 1996; and
3,991,780 shares issued and outstanding at January 28, 1995 41 39
Class B common stock $.01 par value 6,000,000 shares authorized;
1,346,634 shares issued and outstanding at February 3, 1996; and
1,434,534 shares issued and outstanding at January 28, 1995 13 14
Additional paid-in capital 18,220 18,230
Retained earnings 46,523 65,495
-------- --------
Total shareholders' equity 64,797 83,778
-------- --------
Total $114,349 $139,024
======== ========
The accompanying notes to the financial statements are an integral part of these
statements.
11
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended
----------------------------------------------------------------
(Dollars in thousands - February 3, January 28, January 29,
except earnings (loss) per common share) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $173,272 $210,654 $242,281
Cost of goods sold, buying and warehousing costs 133,070 152,134 176,623
-------- -------- --------
Gross margin 40,202 58,520 65,658
Operating expenses 65,035 57,787 57,850
Restructuring charge -- -- 5,494
-------- -------- --------
Income (loss) from operations (24,833) 733 2,314
Interest expense - net 1,096 497 79
-------- -------- --------
Income (loss) before income taxes (25,929) 236 2,235
Provision (benefit) for income taxes (6,957) 81 840
-------- -------- --------
Net income (loss) $(18,972) $ 155 $ 1,395
======== ======== ========
Earnings (loss) per common share $ (3.50) $ .03 $ .26
======== ======== ========
The accompanying notes to the financial statements are an integral part of these
statements.
STATEMENTS OF SHAREHOLDERS' EQUITY
Class B
Common Stock Common Stock Additional Common
--------------- -------------- Paid-in Retained Stock in
(In thousands) Shares Amount Shares Amount Capital Earnings Treasury
- -------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1993 3,691 $ 37 1,673 $ 16 $ 17,682 $ 63,945 $ 0
401(k) Plan contribution 9 126
Conversion of Class B stock 246 2 (246) (2)
Treasury shares acquired (7) (88)
Retirement of treasury stock (88) 88
Stock Bonus Plan awards 1 23
Stock Options exercised 47 436
Net income 1,395
----- ----- ----- ----- --------- --------- -------
Balance, January 29, 1994 3,987 $ 39 1,427 $ 14 $ 18,179 $ 65,340 $ 0
401(k) Plan contribution 19 130
Conversion of Class B stock (8) 8
Treasury shares acquired (7) (92)
Retirement of treasury stock (92) 92
Stock Bonus Plan awards 1 13
Net income 155
----- ----- ----- ----- --------- --------- -------
Balance, January 28, 1995 3,992 $ 39 1,435 $ 14 $ 18,230 $ 65,495 $ 0
401(k) Plan contribution 21 102
Conversion of Class B stock 88 2 (88) (1)
Treasury shares acquired (1) (112)
Retirement of treasury stock (112) 112
Stock Bonus Plan awards
Net loss (18,972)
----- ----- ----- ----- --------- --------- -------
Balance, February 3, 1996 4,100 $ 41 1,347 $ 13 $ 18,220 $ 46,523 $ 0
===== ===== ===== ===== ========= ======== =======
The accompanying notes to the financial statements are an integral part of these
statements.
12
STATEMENTS OF CASH FLOWS
Years Ended
February 3, January 28, January 29,
(DOLLARS IN THOUSANDS) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ (18,972) $ 155 $ 1,395
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,982 4,311 3,933
Deferred taxes (benefit) (4,189) 612 (1,664)
Stock contributions to benefit plans 102 130 126
Write-off disposed property against
restructuring reserve 1,128 268 --
Write-off for disposal of property 297 -- 2,081
(Increase) decrease in other assets (24) 130 217
(Increase) decrease in accounts receivable
and income tax receivable (2,887) 643 351
(Increase) decrease in inventories 22,844 4,539 (9,570)
(Increase) decrease in prepaid expenses 1,679 (511) 235
Increase (decrease) in accounts payable (11,794) 3,847 1,074
Increase (decrease) in accrued liabilities,
taxes payable and other liabilities 4,125 (5,419) 2,090
----------- --------- ----------
Net cash provided by (used in) operating activities (3,709) 8,705 268
----------- --------- ----------
Cash flows from investing activities:
Additions to property (2,153) (14,700) (7,903)
----------- --------- ----------
Net cash used in investing activities (2,153) (14,700) (7,903)
----------- --------- ----------
Cash flows from financing activities:
Borrowings under line of credit agreements 24,700 23,100 16,500
Repayments of borrowings
under line of credit agreements (24,700) (23,100) (16,500)
Repayments of long-term debt (185) (197) (223)
Stock plan activity -- 13 459
Treasury shares acquired (112) (92) (88)
----------- --------- ----------
Net cash provided by (used in) financing activities (297) (276) 148
----------- --------- ----------
Net decrease in cash and cash equivalents (6,159) (6,271) (7,487)
Cash and cash equivalents, beginning of year 11,100 17,371 24,858
----------- --------- ----------
Cash and cash equivalents, end of year $ 4,941 $ 11,100 $ 17,371
=========== ========= ==========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 1,207 $ 740 $ 252
Income taxes paid (refunded) $ (1,017) $ 1,224 $ 3,320
=========== ========= ==========
The accompanying notes to the financial statements are an integral part of these
statements.
13
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL - L. Luria & Son, Inc. (the "Company") operates in a single
business segment, the specialty discount retail industry. The Company reports on
a 52-53 week year ending the Saturday nearest January 31. Fiscal year 1996
consisted of 53 weeks and 1995 and 1994 consisted of 52 weeks. The Company sells
a broad line of jewelry, watches, kitchenware, and giftware merchandise. In
addition, the Company sells housewares, small appliances, consumer electronics,
home furnishings, luggage, cameras and other merchandise.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities during the
reported period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
with original maturities of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of FIFO (first in, first
out) cost or market.
PROPERTY AND EQUIPMENT - Property is stated at cost. Depreciation and
amortization are provided on the straight-line method over the estimated useful
lives of the assets, or where applicable, the terms of the respective leases, as
follows:
Buildings.......................... 30 - 45 years
Leasehold improvements............. 10 years
Furniture and equipment............ 10 years
Computer and office equipment...... 5 years
Interest on borrowed funds is capitalized during construction of property.
During the fiscal years ended February 3, 1996, January 28, 1995 and, January
29, 1994, $44, $97, and $11 of interest was capitalized, respectively.
ADVERTISING AND START-UP COSTS - Advertising costs are charged to expense
when incurred. The Company and its vendors participate in cooperative
advertising programs in which the vendors reimburse the Company for a portion of
advertising costs. Advertising expense, net of vendor reimbursements, for fiscal
years 1996, 1995 and 1994 were $12,968, $7,138 and $9,366, respectively. Costs
related to the opening of new stores are charged to operations in the fiscal
year to which they pertain.
INCOME TAXES - The company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred tax
liabilities are recognized for future taxable amounts and deferred tax assets
are recognized for future deductions, as well as net operating loss
carryforwards, tax credits and other tax benefits. A valuation reserve is
recognized to reduce net deferred tax assets to amounts that are more likely
than not to be realized. At February 3, 1996 and January 28, 1995, the Company
recorded a net deferred tax asset of $2,294 and net deferred tax liability of
$1,895, respectively. No valuation allowance has been recorded against the
February 3, 1996 net deferred tax asset because management believes that it is
more likely than not that the assets will be realized based on projected
profitability and other specific transactions.
EARNINGS PER COMMON SHARE - Earnings per common share were computed by
dividing net income by the weighted average number of shares of common stock and
Class B common stock ("Class B stock") outstanding during the year. The weighted
average number of shares used in the computations were 5,417,000, 5,410,000 and
5,380,000 for fiscal years ended 1996, 1995 and 1994, respectively. Option
shares are antidilutive, therefore they have not been included for earnings per
share calculations.
NEW ACCOUNTING PRONOUNCEMENTS -The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of" which established accounting standards for
the impairment of long-lived assets and certain identifiable intangibles related
to those assets to be held and used and for disposal of long-lived assets and
certain intangibles. Long-lived assets and certain identifiable intangibles to
be held and used by a company are required to be reviewed for impairment
whenever events or changes in circumstances indicate that
14
the carrying amount of an asset may not be recoverable. Measurement of an
impairment loss for long-lived assets and certain identifiable intangibles to be
disposed of are to be reported generally at the lower of the carrying cost
amount or fair value less cost to sell. Adoption of SFAS No. 121 did not have a
significant impact on the Company's financial position or results of operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosure About Fair
Value of Financial Instruments" requires disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the Balance Sheet of the Company, for which it is practical to
estimate the fair value. There are no significant differences in the carrying
value and the fair value of the financial instruments reported on the Balance
Sheets presented.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with current year presentation.
2. INVENTORIES
Inventories at February 3, 1996 and January 28, 1995 are summarized as
follows:
1996 1995
---- ----
Jewelry............................... $32,620 $43,067
General Merchandise................... $27,467 39,864
------- -------
Total................................ $60,087 $82,931
======= =======
The Company allocates certain buying and warehousing costs to its
inventories in order to match these costs with related revenues. During fiscal
years 1996, 1995 and 1994, allocated buying and warehousing costs amounted to
$7,411, $7,495, and $7,070, respectively. Buying and warehousing costs remaining
in inventory at February 3, 1996 and January 28, 1995 were approximately $4,386
and $4,708, respectively.
3. RESTRUCTURING CHARGE
The Company recorded a restructuring charge of $5,494 in the fourth
quarter of 1994 to support the implementation of its superstore strategy. The
charge covers the cost of replacing twelve existing showrooms with superstores
and the closing of one showroom and two jewelry mall stores. The components of
the charge include the cost of retiring fixed assets, estimated lease
liabilities and the cost of closing the showrooms and jewelry stores. During the
fourth quarter of 1994, the Company closed one of its catalog showrooms
(charging $410 against the restructuring reserve), opened two new superstores
and remodeled an existing store to the new superstore format. During fiscal
1995, the Company opened five new superstores and closed six catalog showrooms
and one jewelry mall store resulting in a charge to the reserve of $2,835.
Approximately $2,185 of the reserve was charged in fiscal year 1996 to close or
relocate seven catalog showrooms and to close one jewelry mall store. The
Company has included approximately $1.1 million in operating expenses in fiscal
year 1996 for closed stores.
The Company's restructuring charge was based on a series of estimates, and
the final actual costs could vary from these estimates, depending on certain
factors, principally the Company's ability to sublease, assign or sell closed
locations on acceptable terms.
4. INCOME TAXES
The components of the provision for income taxes are as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
Current
Federal $(3,094) $ (501) $ 2,179
State 325 (30) 325
------- -------- -------
Total (2,769) (531) 2,504
------- -------- -------
Deferred (4,188) 612 (1,664)
Total $(6,957) $ 81 $ 840
======= ======== =======
15
A reconciliation of the Federal statutory rate and the Company's effective tax
rate is as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
US federal tax rate (35.0)% 34.0% 34.0%
Effect of:
State income taxes,
net of federal
Income tax benefit 3.9 6.3 3.6
Graduated rate benefit 1.0 (5.3) --
Other 3.3 (.7) --
---- ---- ----
Effective tax rate (26.8)% 34.3% 37.6%
==== ==== ====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at February 3, 1996 are
presented as follows:
February 3, January 28,
1996 1995
----------- -----------
Deferred tax assets:
Excess of financial statement basis in reserves over tax $ 756 $ 1,019
Carryforward tax benefits 4,466
------ -------
Total gross deferred tax assets $5,222 $ 1,019
------ -------
Deferred tax liabilities:
Property, plant & equipment $1,089 $ 1,465
Inventory costs 1,431 1,271
Other 408 178
------ -------
Total gross deferred tax liabilities $2,928 $ 2,914
------ -------
Net deferred tax asset (liability) $2,294 $(1,895)
====== =======
5. LEASES AND RELATED PARTY TRANSACTIONS
Substantially all of the Company's stores and certain equipment are leased
under long-term leases and accounted for as operating leases. Two of the stores
are leased from related parties. Total rental expense is as follows:
Fiscal Years Ended
1996 1995 1994
---- ---- ----
Related parties $ 205 $ 152 $ 198
Other 11,156 8,385 8,290
------- ------ ------
Total $11,361 $8,537 $8,488
======= ====== ======
Future minimum payments on all non-cancelable operating leases in effect at
February 3, 1996 are as follows:
Related
Party
Fiscal Year Leases Other Total
- ------------------------------------------------------------
1997 $205 $ 7,131 $ 7,336
1998 205 6,416 6,621
1999 134 6,119 6,253
2000 -- 5,839 5,839
2001 -- 5,548 5,548
Thereafter -- 42,299 42,299
- ------------------------------------------------------------
Total $544 $73,352 $73,896
==== ======= =======
16
Certain leases are on a net rental basis and include real estate taxes,
insurance and other items as additions to the minimum annual rental. Certain
other leases include provisions for additional rentals based on gross annual
sales in excess of stipulated amounts and increases for real estate taxes,
insurance and other items which exceeded amounts stated in the leases.
Contingent rent expense was immaterial. The majority of the leases are renewable
at slightly escalated rates at the Company's option.
6. EMPLOYEE BENEFIT PLANS
In 1981, the Board of Directors and shareholders adopted a Stock Option
Plan (the "Plan") granting options to purchase in the aggregate 203,000 shares
of Common Stock to officers and key employees of the Company at the discretion
of the Compensation and Stock Option Committee of the Board of Directors. In
July, 1987, the Plan was amended to provide for grants of both incentive stock
options and non-qualified stock options. All option shares become exercisable in
part beginning two years after date of grant and the term of such options does
not exceed ten years from the date of grant. The Plan expired in October 1991.
In 1992, the Board of Directors and shareholders approved the 1992 Stock Option
Plan (the "1992 Plan") granting options to purchase an aggregate of up to
350,000 shares of Common Stock to officers and key employees of the Company at
the discretion of the Compensation and Stock Option Committee of the Board of
Directors. The terms and conditions of the 1992 Plan are essentially the same as
the Plan. Options are exercisable at the discretion of the Compensation and
Stock Option Committee of the Board of Directors. Certain option shares granted
become exercisable in part beginning two years after the date of grant while
other option shares granted are excercisable one year from the date of grant. In
1993, the Board of Directors and shareholders approved an increase to 500,000 in
the number of shares of Common Stock reserved for grant under the 1992 Plan and
approved the Directors Stock Option Plan ("Directors Plan"). The Directors Plan
grants to non-employee Directors options to purchase an aggregate of up to
70,000 shares of Common Stock. Options are granted at the fair market value at
date of grant. The Directors Plan provides for the annual issuance of options to
purchase 1,000 shares to each Director after each annual meeting provided the
Company recognizes a net profit during the preceding fiscal year. In 1996, the
Board of Directors approved the 1996 Stock Option Plan (the "1996 Plan")
granting options to purchase an aggregate of up to 500,000 shares of Common
Stock to officers and key employees of the Company at the discretion of the
Compensation and Stock Option Committee of the Board of Directors. The terms and
conditions of the 1996 Plan are essentially the same as The Plan. Options are
excercisable at the discretion of the Compensation and Stock Option Committee of
the Board of Directors. The options which have been granted under the 1996 Plan
become excercisable immediately after the date of grant.
Changes in the number of shares subject to option and option prices are
summarized as follows:
Number
of Shares Option Prices
- -------------------------------------------------------------
Balance, January 30, 1993 297,500 $ 6.75 - 9.125
Granted 72,500 $11.00 - 12.75
Expired/Canceled (25,004) $ 6.75 - 9.125
Exercised (47,461) $ 6.75 - 7.875
Balance, January 29, 1994 297,535 $ 6.75 - 12.75
Granted 120,000 $ 7.50 - 9.625
Expired/Canceled (22,500) $ 9.25 -11.875
Balance, January 28, 1995 395,035 $ 6.75 - 12.75
Granted 557,000 $4.375 - 7.125
Expired/Canceled (196,668) $6.125 - 12.75
- -------------------------------------------------------------
Balance, February 3, 1996 755,367
- -------------------------------------------------------------
Available for future grant
At February 3, 1996 278,000
- -------------------------------------------------------------
The Stock Bonus Plan (the "Bonus Plan") authorizes awards in the aggregate
of 100,000 shares of Common Stock to officers and key employees of the Company
at the discretion of the Compensation and Stock Option Committee of the Board of
Directors. This Bonus Plan, which expires on April 1, 1999, provides that shares
of Common Stock awarded to any employee shall be delivered to such employee in
equal yearly installments for a period of three years commencing two years after
the date of such award. In fiscal 1990, stock awards for an aggregate of 8,500
shares of Common Stock were made under the Bonus Plan, of which awards for 4,000
shares have expired and the remaining 4,500 shares were distributed. In fiscal
1996 a stock award was made for 5,000 shares of Common Stock under the Bonus
Plan.
17
On September 20, 1991, the Board of Directors approved a formula for
awarding a bonus to the President (the "President's Bonus") which authorizes a
bonus to be awarded to the President in the event that the Company's profit
before taxes is equal to or greater than $5,000. The formula is effective for
five (5) fiscal years beginning February 2, 1992.
The Company has a Tax Deferred Savings Plan (the "401(k) Plan") which
covers substantially all full-time employees with over one year of service.
Contributions to the 401(k) Plan are at the discretion of the Board of
Directors. In fiscal 1996, 1995 and 1994, 21,394, 18,756, and 8,804 of the
Company's shares of Common Stock were contributed to the 401(k) Plan,
respectively.
7. LONG-TERM DEBT
An industrial revenue bond is payable in annual principal installments of
$150 plus monthly interest payments at market rates which approximate 65% of the
prime rate. The industrial revenue bond is collateralized by property with a
carrying value at February 3, 1996 of approximately $2,800, representing the
Company's executive offices, central warehouse and certain land.
Future maturities of long-term debt outstanding at February 3, 1996 are as
follows:
Fiscal Year Amount
----------- ------
1997 $ 150
1998 150
1999 150
2000 150
2001 150
2002 and thereafter 226
------
Total $ 976
======
During fiscal year 1996, the Company had available $40 million under two
lines of credit with interest payable at LIBOR plus a margin based on a formula
not to exceed 1%. As of February 3, 1996, no amounts were outstanding under the
lines of credit. The new line of credit contains certain covenants regarding net
worth and other operating measures. One of the revolving lines of credit expired
in January 1996 and included certain restrictive covenants regarding financial
ratios. The Company terminated the remaining line of credit in February 1996 and
entered into a new $40 million secured facility. The amount available under the
new revolving line is based on the value of inventory.
8. SHAREHOLDERS' EQUITY
The Company offers terminating participants of the Tax Deferred Savings
Plan the ability to sell their shares of the Company's Common Stock to the
Company at the market price. Any shares which are repurchased by the Company are
returned to authorized but unissued in the fiscal year acquired. During fiscal
1996, 1995 and 1994 terminating participants' shares acquired were approximately
1,000, 7,000 and 7,000 shares respectively.
The Class B Stock differs from the outstanding Common Stock in certain
ways. Holders of Class B Stock are entitled to ten votes per share on each
matter that is submitted to shareholders for approval and entitled to elect 75%
of the Board of Directors. The Common Stock is entitled to a cash dividend
preference, such that each share of Class B Stock will be entitled to 90% of any
cash dividend to which each share of Common Stock is entitled, in the event a
cash dividend is declared.
9. HURRICANE EVENT
The Company's operations including sales, margin and expenses, were
impacted by Hurricane Andrew, which struck South Florida in August, 1992. The
Company filed a claim under its business interruption insurance policy for
profits lost as a result of the effects of the hurricane. During fiscal year
1994, the Company received approximately $1,200 in full settlement of the claim,
which is included as an offset to operating expenses.
In addition, during fiscal year 1994, the Company received approximately
$790 representing the excess of the insurance proceeds over the book value of
the property destroyed and additional costs incurred as a result of the
hurricane. The Company also obtained a $1,000 settlement in connection with the
delay in the reconstruction of a store destroyed by the hurricane. These amounts
are also included as offsets to operating expenses in the financial statements.
18
10. COMMITMENTS AND CONTINGENCIES
On November 30, 1995 the Company announced that a Florida Circuit Court
jury had returned a verdict of $13.8 million in favor of the Company in a case
in which the Company alleged that its competitor, Service Merchandise Company,
had tortiuously interfered with the Company's business relationship and business
rights at the Sawgrass Mills Shopping Center in Broward County, Florida. The
Company had executed a letter of intent with the shopping center's landlord, had
successfully negotiated a formal lease, but was unable to obtain execution of
the formal lease by the landlord. The jury decided in favor of the Company in
both of its theories: that the letter of intent was a binding contract with
which Service Merchandise had intentionally interfered and that, at the very
least, the letter of intent created a business relationship with which Service
Merchandise had intentionally and wrongfully interfered. The trial judge has
denied various post-trial motions and entered final judgment in favor of the
Company. Service Merchandise has indicated that it will appeal from the final
judgment. No award amount has been reflected in the financial statements.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, the
disposition of these matters will not have a material adverse effect on the
financial condition of the Company.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except earnings (loss) per common share)
Fiscal Year First Second Third Fourth
February 3, 1996 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
Net sales $37,902 $33,840 $31,150 $70,380
Gross margin 11,049 9,328 6,220 13,605
Net income (loss) (982) (1,954) (5,285) (10,751)
Earnings (loss) per common share $ (.18) $ (.36) $ (.97) $( 1.99)
Fiscal Year First Second Third Fourth
January 28, 1995 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------
Net sales $44,201 $42,303 $37,697 $86,453
Gross margin 12,561 9,881 10,764 25,314
Net income (loss) (310) (1,528) (1,533) 3,526
Earnings (loss) per common share $ (.06) $ (.28) $ (.28) $ .65
The fiscal 1996 fourth quarter loss included a reduction in gross margin of
$11,700. This reduction was principally attributable to a $4,700 loss of gross
profit on reduced volume, shrinkage and inventory valuation adjustments of
approximately $3,000, and lower gross margin on realized sales due to increased
promotional activity.
Advertising in the fourth quarter was $2,900 higher in fiscal 1996 than the
same period in fiscal 1995. In the fourth quarter of fiscal 1996 the Company
included $1,090 as additional operating expense for closed stores.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Information relating to the change in the Company's accountants is incorporated
by reference from the Current Report on Form 8-K, as amended by Form 8-K/A,
filed with the Commission on December 13, 1995 and December 20, 1995,
respectively.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
19
ITEM 11. EXECUTIVE COMPENSATION
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference. The
information included in the Proxy Statement pursuant to Rule 401(i), (k) and (l)
is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be included in this section will be contained in the
Company's definitive proxy materials and incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the Index set forth on
page 8 of this Annual Report on Form 10(k).
(a)(2) Financial Statement Schedules
None
(a)(3) Exhibits
3(a) Restated Articles of Incorporation (incorporated by
reference to Exhibit 3(a) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1987).
3(b) By-Laws, as amended (incorporated by reference to Exhibit
(3(a) of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1987).
10(a) Loan and Security Agreement by and between L. Luria & Son,
Inc. and Foothill Capital Corporation dated as of February
22, 1996.
10(b) Lease Agreement, dated May 23, 1969, between the Company
and Leonard Luria, David Brawer, Bernard C. Gross relating
to the premises at 980 S.W. First Street, Miami, Florida,
as modified by Modification of Lease dated July 1, 1972
and First Modification of Lease, dated as of September 15,
1978 (incorporated by reference to Exhibit 13(d) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(d) Lease Agreement, dated September 1, 1973, between the
Company and GLL Associates, relating to the premises at
6411 Taft Street, Hollywood, Florida, as modified by
Modification of Lease dated September 15, 1978
(incorporated by reference to Exhibit 13(h) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(e) Profit Sharing Trust Agreement of the Company, as amended
(incorporated by reference to Exhibit 11(a) to the
Company's Registration Statement on Form S-1 (Registration
No. 2-62646) filed with the Securities and Exchange
Commission on September 22, 1978).
10(g)(1) Non-Qualified Stock Option Plan of the Company, as amended
(incorporated by reference to Exhibit 5(b) to Amendment
No. 1 to the Company's Registration Statement on Form S-1
(Registration No. 2-62646)
20
filed with the Securities and Exchange Commission on
October 31, 1978).
10(g)(2) Stock Option Plan of the Company, as amended,
(incorporated by reference to Exhibit 10(g)(2) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1988).
10(g)(3) 1992 Stock Option Plan, as amended (incorporated by
reference to Exhibit 10(g)(3) of the Company's Annual
Report on Form 10-K for the fiscal year ended January 29,
1994).
10(g)(4) 1996 Stock Option Plan.
10(h) Stock Bonus Plan of the Company (incorporated by reference
to Exhibit 10(h) of the Company's Report on Form 10-Q for
the fiscal quarter ended July 31, 1989).
10(i)(1) 1991 Discretionary Bonus Formula for the President of the
Company (incorporated by reference to Exhibit 10(i) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1993).
10(j) 1993 Directors' Stock Option Plan (incorporated by
reference to Exhibit 10(j) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994).
10(k) Form of Indemnification Agreement (incorporated by
reference to Exhibit 10(k) of the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994).
10(l) Letter Agreement, dated January 4, 1993, between Harry J.
Diven, Jr., Director, and the Company, granting stock
option (incorporated by reference to Exhibit 10(l) of the
Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1994).
10(m) Employment Agreement with Gerald Nathanson.
21. Subsidiaries of Registrant.
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
21
Management employee contracts, compensatory plans and other
arrangements included as part of the exhibits referred to above are as follows:
10(e) Profit Sharing Trust Agreement of the Company, as amended.
10(g)(1) Non-Qualified Stock Option Plan of the Company, as
amended.
10(g)(2) Stock Option Plan of the Company, as amended.
10(g)(3) 1992 Stock Option Plan, as amended.
10(g)(4) 1996 Stock Option Plan.
10(h) Stock Bonus Plan of the Company.
10(i)(1) 1991 Discretionary Bonus Formula for the President of the
Company.
10(j) 1993 Directors' Stock Option Plan.
10(m) Employment Agreement with Gerald Nathanson.
22
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.
L. LURIA & SON, INC.
By: /s/ GERALD NATHANSON
-------------------------
Gerald Nathanson,
Chief Executive Officer
Dated: April 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ LEONARD LURIA April 30, 1996
------------------------------------------
LEONARD LURIA, Chairman of the Board
/s/ GERALD NATHANSON April 30, 1996
------------------------------------------
GERALD NATHANSON, Chief Executive Officer
and Director
/s/ PETER LURIA April 30, 1996
------------------------------------------
PETER LURIA, President, Chief Operating
Officer and Director
/s/ THOMAS A. FLOERCHINGER April 30, 1996
------------------------------------------
THOMAS A. FLOERCHINGER, Senior Vice President, Chief
Financial Officer and Principal Accounting Officer
23
SIGNATURES
SIGNATURE AND TITLE DATE
/s/ HARRY J. DIVEN, JR. April 30, 1996
-----------------------------------------
HARRY J. DIVEN, JR., Director
/s/ SYDNEY A. LURIA April 30, 1996
-----------------------------------------
SYDNEY A. LURIA, Director
/s/ EDWIN D. MARKS April 30, 1996
-----------------------------------------
EDWIN D. MARKS, Director
April __, 1996
-----------------------------------------
JORGEN PETERSEN, Director
April __, 1996
-----------------------------------------
JEREMY SERWER, Director
/s/ CYNTHIA COHEN TURK April 30, 1996
-----------------------------------------
CYNTHIA COHEN TURK, Director
24
EXHIBIT INDEX
10(a) Loan and Security Agreement by and between L. Luria &
Son, Inc. and Foothill Capital Corporation dated as of
February 22, 1996.
10(g)(4) 1996 Stock Option Plan.
10(m) Employment Agreement with Gerald Nathanson.
21 Subsidiaries of Registrant.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of KPMG Peat Marwick, LLP
27.1 Financial Data Schedule
25