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 1, 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: 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 15, 1997 (computed by reference to the
last reported sale price of the registrant's Common Stock on the New York Stock
Exchange on such date): $6,674,869.
Number of shares outstanding of each of the registrant's classes of Common
Stock at April 15, 1997: 5,486,792 shares of Common Stock, $.01 par value per
share; 670 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 28 stores throughout the State of Florida as of February 1, 1997. The
Company sells a broad line of jewelry, watches, kitchenware, fragrances, bath
and body products and giftware merchandise. In addition, the Company sells
housewares, small appliances, consumer electronics, home furnishings, luggage,
cameras and other merchandise. The Company concentrates on jewelry, giftware and
kitchenware. Merchandise is advertised primarily by newspaper and radio. In
addition, the Company advertises on television and through color inserts in
newspapers. In the fall of Fiscal 1997, the Company completed its conversion of
its stores from primarily a catalog showroom to the new selling format whereby
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. (see PROPERTIES)
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 1997, 1996 and 1995, 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
1997 1996 1995
---- ---- ----
Jewelry and watches................................44% 40% 37%
Consumer electronics, cameras and home
office............................................8% 16% 20%
Housewares, home furnishings, luggage and
juvenile.........................................10% 28% 28%
Tabletop, giftware, clocks, and other..............38% 16% 15%
--- ---- ----
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, 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 orders for jewelry and offers in-house
repairs, sizing, and engraving services in connection with its jewelry sales.
The Company's inventory typically increases prior to the Fall selling
season. The increase is generally financed through working capital, credit
advanced by suppliers on normal trade terms, and short-term borrowings. The
Company purchases merchandise from approximately 2,400 suppliers, no one of
which accounted for more than 5% of the total purchases during the fiscal year
ended February 1, 1997. 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.
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 newspaper and
radio within the Company's markets. The Company also conducts television
advertising, and color inserts in newspapers for events and holidays.
The Company's business is affected by the same pattern of seasonality as
retail businesses in general. For the fiscal year ended February 1, 1997,
approximately $41 million (34%) of the Company's annual sales occurred in the
fourth quarter ended February 1, 1997, while the Company's net sales were
approximately $29 million (24%) in the first quarter; $28 million (23%) in the
second quarter; and $24 million (19%) in the third quarter.
In fiscal 1993, the Company opened its first superstore as part of its plan
to implement the self-service selling format. 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
checkout counters, along with an enlarged jewelry display and selling area.
During the fiscal year ended February 1, 1997, the Company converted an average
of 7,000 square feet of contiguous warehouse space of each of its catalog
showroom stores into selling space and eliminated the catalog format. This
completed the conversion to the new self-service format, whereby a customer may
browse and select the merchandise desired, place it in their shopping cart and
pay for it at the checkout counter.
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
1, 1997, the Company had approximately 960 full-time employees and approximately
400 permanent part-time employees. Additionally, in conjunction with the closing
of 17 stores in the fourth quarter of the fiscal year ended February 1, 1997,
pursuant to an agreement with Gordon Brothers, approximately 500 of the
Company's employees were utilized by Gordon Brothers. Gordon Brothers reimbursed
the Company for the compensation expenses of these employees. During the 1996
Christmas season, the Company employed approximately 670 additional part-time
employees. None of the employees are covered by a collective bargaining
agreement.
As of March 20, 1997 the Company had approximately 860 employees compared
to approximately 1,360 at February 1, 1997.
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.
The Company does not maintain charge accounts; however, it extended credit
to its customers through a private label credit card which was discontinued in
fiscal 1997. The Company accepts all major credit cards.
ITEM 2. PROPERTIES
All of the Company's 28 stores are located in Florida and are leased to the
Company under long-term leases. 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. During the fiscal year ended February 1, 1997, the Company entered into
a sale-leaseback arrangement with respect to these three stores.
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 1, 1997, 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 $6.7 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 6
of "Notes to Financial Statements".
All of the stores are air conditioned, concrete block structures, with
contiguous warehouse facilities. 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, that as of February 1, 1997 was owned by the Company. The facility is
comprised of approximately 40,000 square feet of office space and approximately
163,000 square feet of distribution and warehousing space. As part of the
Company's plans to address its working capital needs, the Company sold the
distribution and headquarters facility in Miami Lakes for $5.6 million during
the first quarter of fiscal 1998. At February 1, 1997, a reserve of
approximately $1.4 million was established for the loss on the sale of the
facilities, which includes the write-down of assets held for sale. The Company
is currently leasing the Miami Lakes facility and is in the process of acquiring
reduced space for its administrative and warehouse operations.
At February 1, 1997, approximately 92,000 square feet of office and
warehouse space was collateral for an industrial revenue bond due in 2001. As of
February 1, 1997 the principal balance of the bond was approximately $850,000.
Utilizing the proceeds from the sale of the distribution and headquarters
facility, the Company paid the bond in full in March, 1997.
The Company closed 17 stores in the fourth quarter of the fiscal year ended
February 1, 1997. In conjunction with the closing of stores, the Company is
currently negotiating with its landlords to terminate the leases. During April,
1997, three of the closed stores leases have been terminated.
ITEM 3. LEGAL PROCEEDINGS
During the first quarter of fiscal 1998, the Company settled a 1993 lawsuit
against Service Merchandise Co., Inc. for $1.8 million. No award amount has been
reflected in the Company's financial statements as of February 1, 1997.
In March, 1997, the IRS completed its examination of the Company's 1992,
1993, 1994 and 1995 federal tax returns and determined the Company did not owe
any additional taxes or penalties. The IRS had challenged certain deductions
that would have resulted in additional taxes of approximately $4.0 million, plus
interest and penalties.
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.
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 1997 FISCAL 1996 FISCAL 1995
- -----------------------------------------------------------------------------------------------------------------
HIGH LOW HIGH LOW HIGH LOW
------------------- -------------------- ---------------------
First Quarter High-Low $ 5 3/4 $ 4 1/8 $ 8 7/8 $ 6 $14 7/8 $8 7/8
Second Quarter High-Low $ 5 $ 3 7/8 $ 7 3/8 $ 5 3/4 $ 9 7/8 $7 5/8
Third Quarter High-Low $ 5 5/8 $ 3 1/4 $ 7 1/4 $ 5 1/8 $ 8 3/8 $6 5/8
Fourth Quarter High-Low $ 3 1/2 $ 2 1/4 $ 6 1/2 $ 4 1/8 $ 7 5/8 $6 1/8
YEARLY HIGH-LOW $ 5 3/4 $ 2 1/4 $ 8 7/8 $ 4 1/8 $14 7/8 $6 1/8
- --------------------------------------------------------------------------------------------------------------
The Company has not paid any cash dividends. Under the Company's current
revolving credit agreement, the Company is prohibited from paying any dividends
(in cash or property, other than capital stock) without prior written consent
from its lender. 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 1, 1997, the number of shareholders of record of Common Stock
and Class B Stock was 1,046 and 8, 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)
FISCAL YEARS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 30, JANUARY 30,
1997 1996(1) 1995 1994 1993
------------- ------------- ------------- ------------- -------------
SELECTED INCOME STATEMENT DATA
Net sales $ 121,566 $ 173,272 $ 210,654 $ 242,281 $235,567
Gross Margin 27,139 40,202 58,520 65,658 62,185
Restructuring charge - - - 5,494 -
(Loss) income from operations (45,742) (24,833) 733 2,314 4,746
Net (loss) income before cumulative
effect of change in accounting principle (49,201) (18,972) 155 1,395 2,927
Cumulative effect of change in
accounting principle (4,386) - - - -
Net (loss) income (53,587) (18,972) 155 1,395 2,927
(Loss) earnings per common share before
cumulative effect of change in accounting principle $ (9.03) $ (3.50) $ 0.03 $ 0.26 $ 0.55
Cumulative effect of change in accounting principle (0.80) - - - -
Net (loss) earnings per common share (9.83) (3.50) 0.03 0.26 0.55
Pro forma net (loss) income(2) $ (18,650) $ (525) $ 1,384 $ 2,923
Pro forma net (loss) earnings per share(2) (3.44) (0.10) 0.26 0.55
SELECTED BALANCE SHEET DATA
Current assets $ 55,924 $ 71,342 $ 98,381 $ 109,323 $ 107,826
Current liabilities 64,930 46,307 52,375 53,964 50,816
Working capital (9,006) 25,035 46,006 55,359 57,010
Total assets 77,859 114,349 139,024 139,975 136,805
Long-term debt - 791 976 1,156 1,362
Shareholders' equity 11,317 64,797 83,778 83,572 81,680
Number of stores at end of fiscal year 28 43 48 50 50
- ----------------
(1) 53 week year
(2) the proforma inforomation represents the net (loss) income and net (loss)
earnings per common share if the change in accounting principle, effective
February 4, 1996 had been applied in prior fiscal years.
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 through utilization of
more effective media; (iii) reduction on a store by store basis, of controllable
expenses; (iv) purchasing high margin products to increase the Company's profit
margin and (v) use of loss leaders to increase store traffic.
During the fiscal year ended February 1, 1997, the Company announced a plan
to address its working capital needs, which included the closing and liquidation
of underperforming stores and selling the Company's distribution and
headquarters facility. In December of 1996, the Company entered into an
agreement with Gordon Brothers to conduct store closing sales at 17 stores.
Pursuant to the agreement, the Company was paid approximately $10.0 million for
the inventory in the 17 stores. In March, 1997 the store closing sales were
complete. The Company incurred approximately $12.5 million of expense in
connection with the closing of the 17 stores. In March, 1997, the Company sold
its distribution and headquarters facility for $5.6 million. The Company has
recorded a reserve of $1.4 million in connection with the sale of the facility,
which include the write-down of assets held for sale. In addition, during fiscal
1997 and the first quarter of fiscal 1998, the Company made several changes in
management, including the appointment of a new Chairman of the Board of
Directors, Chief Executive Officer, Chief Financial Officer, and Vice President
of Store Operations.
As of February 1, 1997, the Company operated 28 stores, of which 12 are
superstores. The Company opened one superstore and closed sixteen catalog
showrooms and one jewelry mall store during fiscal 1997.
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 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- -------------- -----------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold, buying and warehousing costs 77.7 76.8 72.2
------------- -------------- -----------------
Gross margin 22.3 23.2 27.8
Operating expenses
Selling, general and administrative expenses 48.5 37.4 27.5
Store closings 10.3 0.1 -
Sale of distribution and headquarters facilities 1.1 - -
------------- -------------- -----------------
Total operating expenses 59.9 37.5 27.5
------------- -------------- -----------------
(Loss) income from operations (37.6) (14.3) 0.3
Interest expense, net 1.8 0.6 0.2
------------- -------------- -----------------
(Loss) income before income taxes and cumulative effect (39.4) (14.9) 0.1
Provision (benefit) for income taxes 1.0 (4.0) -
------------- -------------- -----------------
Net (loss) income before cumulative effect (40.4) (10.9) 0.1
Cumulative effect of change in accounting 3.6 - -
============= ============== =================
Net (loss) income (44.0)% (10.9)% 0.1%
============= ============== =================
Change in same store sales(1) (26.3)% (11.2)% (13.0)%
------------- -------------- -----------------
(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.
COMPARISON OF FISCAL 1997 TO FISCAL 1996
NET SALES. Net sales for the fiscal year ended February 1, 1997 were
approximately $121.6 million, a decrease of approximately 29.8% from fiscal year
ended February 3, 1996 and 26.3% decrease on a same store basis. The Company
believes that the lower net sales and same store sales were primarily
attributable to (i) the late rollout of the Company's newly remodeled store
merchandise strategy, (ii) the closing of 17 stores in the fourth quarter of
fiscal 1997, (iii) changes in advertising programs, (iv) the realignment and
redistribution of jewelry inventory resulting in limited selection of jewelry
inventory at various times and at various stores during the month of October,
1997, which adversely affected third and fourth quarter sales, (v) greater
discounts and promoted products sold at lower margins as the Company reduced its
inventory in significant categories in preparation for new product lines and
(vi) strong competition in the general merchandise categories. 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 33.8% and 40.6% of
total net sales in fiscal 1997 and fiscal 1996, respectively. Fourth quarter
sales for fiscal 1997 decreased 41.7% when compared to fourth quarter of fiscal
1996. During fiscal years 1997 and 1996, jewelry sales represented 43.6% and
40.5%, respectively, of the Company's overall sales. 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 1997 to 22.3% from 23.2% in the
prior year primarily due to merchandise from closed stores being discounted and
reduced purchases of new lines because of the efforts to reduce the overall
inventory levels.
OPERATING EXPENSES. The Company's operating expenses increased $7.8 million
in fiscal 1997 to 59.9% of net sales from 37.5% of net sales in fiscal 1996.
This percentage increase was primarily due to reduced nets sales of
approximately $51.7 million compared to fiscal 1996, combined with approximately
$12.5 million in expenses related to the closing of 17 stores in the fourth
quarter of fiscal 1997, $1.4 million in estimated expenses related to the sale
of the Miami Lakes distribution and headquarters facility in the first quarter
of fiscal 1998, partially offset by approximately $4.1 million and $1.0 million
reduction in advertising expense and equipment lease expense, respectively.
INTEREST EXPENSE. Interest expense, net for fiscal 1997 was approximately
$2.2 million compared to $1.1 million in fiscal 1996, or a 100% increase due to
increased borrowings required to fund operating activities.
INCOME TAXES. Income tax expense for the fiscal year ended February 1, 1997
was $1.3 million compared to an income tax benefit of $7.0 million for the
fiscal year ended February 3, 1996. The recognition of income tax expense in
fiscal 1997 is directly related to the write-off of deferred tax assets, offset
partially by a reduction in deferred tax liability.
NET LOSS. Net loss in fiscal 1997 was $53.6 million or $9.83 per share. The
loss was due to lower net sales, reduced gross margins and increased operating
and interest expenses.
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
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 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 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. In addition, the Company included approximately $1.1 million in
operating expenses in fiscal year 1996 for closed stores.
The Company discontinued its annual merchandise catalog in fiscal year
1996.
INTEREST EXPENSE. Interest expense, net 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.
FINANCIAL CONDITION
This report contains forward-looking statements that are subject to risks
and uncertainties, including but not limited to risks associated with the
repositioning of the Company and its strategic initiatives. Additional
discussions of factors that could cause actual results to differ materially
from management's projections, forecasts, estimates, anticipations and
expectations are contained in the Company's Current Report on Form 8-K, dated
December 17, 1996.
The Company had cash and cash equivalents of approximately $1.6 million at
February 1, 1997 (fiscal year 1997), compared to $4.9 million at February 3,
1996 (fiscal year 1996). The Company had a deficiency in working capital of $9.0
million at February 1, 1997 and had working capital of $25.6 million at February
3, 1996. Net cash used by operating activities was approximately $25.0 million
primarily due to the net operating loss of $53.6 million, partially offset by a
decrease in inventories of $15.2 million, an increase in accrued liabilities of
$5.9 million, depreciation expense of $1.5 million and a $2.2 million write-off
for the disposal of property, net. This compares to cash used in operating
activities of $3.7 million in fiscal year 1996 which was primarily due to the
net operating loss of $19.0 million and a decrease in both accounts payable and
accrued expenses, offset by a $22.8 million decrease in inventories.
Net capital expenditures were approximately $4.2 million and $2.2 million,
in fiscal 1997 and 1996, respectively. Capital expenditures are primarily made
for land, buildings, leasehold improvements and furniture and fixtures for new
and remodeled superstores. The increase in capital expenditures is primarily due
to the Company's completion of the remodeling of its stores as part of its
strategic plan to eliminate the catalog showroom selling format. In addition,
the Company opened one superstore during fiscal 1997. In fiscal 1996, two
superstores were opened.
In February 1996 the Company entered into a revolving credit agreement
secured by substantially all assets of the Company. The amount of credit
available under the revolving credit agreement is based on the value of the
Company's inventory. At February 1, 1997, there were borrowings outstanding
under the revolving credit agreement of approximately $17.0 million, letters of
credit outstanding of approximately $1.9 million, and the unused availability
under the revolving credit agreement was approximately $2.4 million. At February
1, 1997, the Company was not in compliance with three of the borrowing
covenants. The Company has received waivers of the covenants from the lender.
The Company and the lender agreed that, effective December 15, 1996, the maximum
borrowings under the credit agreement shall be $30.0 million.
The Company has incurred substantial operating losses during the past two
fiscal years which has (i) decreased stockholders' equity by over $72,000, (ii)
caused a deficiency in working capital and (iii) caused the Company to be in
violation of certain terms and covenants of its credit agreement (see Note 9 of
Notes to Financial Statements). During fiscal 1997, the Company announced a plan
to address its working capital needs. The Company has begun to implement such
plan, which included the closing and liquidation of seventeen under-performing
stores in the fourth quarter of fiscal 1997 and the sale of its distribution and
headquarters facility in the first quarter of fiscal 1998. The strategic plan
also includes the reduction of operating expenses consistent with the reduced
store count, including the reduction of labor costs, the reduction of
advertising expenditures through utilization of more effective media, and a
change in merchandising strategy, including purchasing higher margin products to
increase the Company's profit margin and the use of loss leaders to increase
store traffic. In addition, the Company is continuing to analyze its operations
in order to identify other opportunities for profit margin improvement and
expense reductions.
Management believes that the short-term and long-term working capital and
capital expenditure needs of the Company will be met only if the Company's
operating results significantly improve in the near future. The achievement of
an improvement in the Company's operating results, as well as its ability to
operate as a going concern, will depend on, among other things, the short-term
and long-term success of the Company's strategic plan discussed above, the
successful renegotiation of the terms of its credit agreement or obtaining other
credit facilities, the continued support of the Company's numerous providers of
goods and services, the competitive environment, the prevailing economic
climate, the ability of the Company to adapt to these conditions, and the
successful negotiations with landlords to terminate lease agreements related to
the closing of its under-performing stores. No assurances can be given that the
Company can successfully implement its strategic plan or obtain the additional
sources of funds in the future.
CHANGE IN SHAREHOLDERS' EQUITY
All shares of Common Stock acquired by the Company are retired and returned
to unissued stock in the year acquired.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Reports...................................... 13 - 14
Management Report.................................................. 15
Balance Sheets..................................................... 16
Statements of Operations........................................... 17
Statements of Shareholders' Equity................................. 18
Statements of Cash Flows........................................... 18
Notes to Financial Statements...................................... 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
Miami Lakes, Florida
We have audited the accompanying balance sheets of L. Luria & Son, Inc. as of
February 1, 1997 and February 3, 1996, and the related statements of operations,
cash flows and shareholders' equity for each of the two years in the period
ended February 1, 1997. 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, such financial statements present fairly, in all material
respects, the financial position of L. Luria & Son, Inc. as of February 1, 1997
and February 3, 1996 and the results of its operations and its cash flows for
each of the two years in the period ended February 1, 1997 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1997, the Company changed
its method of accounting for certain buying and warehousing costs from
capitalization to a direct charge to operations.
The accompanying financial statements for the year ended February 1, 1997 have
been prepared assuming that the Company will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has incurred
substantial losses from operations, has a deficiency in working capital, and is
unable to comply with certain terms of its credit agreement. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
April 25, 1997
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
L. Luria & Son, Inc.
We have audited the accompanying statements of operations, shareholders' equity
and cash flows of L. Luria & Son, Inc. for the year 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 audit.
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 results of its operations and its cash flows of L.
Luria & Son, Inc. for the year ended January 28, 1995 in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
March 24, 1995
To Our Shareholders:
The Management of 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 1997 and fiscal 1996 financial statements and has issued
an unqualified opinion as to the fairness of the financial information contained
therein with explanatory paragraphs regarding (i) the Company's change in
accounting for certain buying and warehousing costs and (ii) the Company's
ability to continue as a going concern.
L. Luria & Son, Inc.
L. Luria & Son, Inc.
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3,
(Dollars in thousands except per share amounts) 1997 1996
-------------- --------------
ASSETS
Current Assets
Cash and cash equivalents $ 1,568 $ 4,941
Accounts receivable 2,519 1,129
Income tax receivable - 3,392
Inventories 44,884 60,087
Prepaid Expenses 2,277 1,037
Assets held for sale 4,676 -
Deferred taxes - 756
-------------- --------------
Total current assets 55,924 71,342
-------------- --------------
Property and Equipment
Land - 7,033
Buildings 1,631 14,420
Furniture and equipment 24,542 27,092
Leasehold improvements 19,189 25,952
-------------- --------------
Total 45,362 74,497
Less accumulated depreciation (25,152) (36,194)
-------------- --------------
Property and equipment, net 20,210 38,303
Deferred taxes - 4,466
Other assets 1,725 238
-------------- --------------
Total assets $ 77,859 $ 114,349
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short term borrowings $ 16,973 $ -
Current liabilities
Accounts payable
Trade 31,232 31,054
Other 1,944 4,425
Accrued liabilities and taxes payable 13,931 8,783
Current portion of long-term debt 850 206
Deferred taxes - 1,839
-------------- --------------
Total current liabilities 64,930 46,307
-------------- --------------
Long-term debt - 791
Deferred taxes and other liabilities 1,612 2,454
Shareholders' equity
Preferred stock, $1 par value, 5,000,000 share authorized; no shares issued
Common stock, $.01 par value, 14,000,000 shares authorized; 54 41
5,486,792 shares issued and outstanding at February 1, 1997 and
4,100,274 shares issued and outstanding at February 3, 1996
Class B common stock, $.01 par value, 6,000,000 shares authorized; - 13
320 shares issued and outstanding at February 1, 1997 and 1,346,634
shares issued and outstanding at February 3, 1996
Additional paid-in capital 18,327 18,220
(Deficit) Retained earnings (7,064) 46,523
-------------- --------------
Total shareholders' equity 11,317 64,797
-------------- --------------
Total liabilities and shareholders' equity $ 77,859 $ 114,349
============== ==============
The accompanying notes to the financial statements are an integral part of these statements
L. Luria & Son, Inc.
STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------
YEARS ENDED
------------------------------------------------
(Dollars in thousands, FEBRUARY 1, FEBRUARY 3, JANUARY 28,
(loss) earnings per common share) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
Net sales $ 121,566 $ 173,272 $ 210,654
Cost of goods sold, including buying and warehousing costs
for 1996 and 1995 94,427 133,070 152,134
------------- -------------- -------------
Gross margin 27,139 40,202 58,520
Operating expenses
Selling, general and administrative expenses 59,016 63,945 57,787
Store closings 12,494 1,090 -
Loss on assets held for sale 1,371 - -
------------- -------------- -------------
Total operating expense 72,881 65,035 57,787
------------- -------------- -------------
(Loss) Income from operations (45,742) (24,833) 733
Interest expense, net 2,188 1,096 497
------------- -------------- -------------
(Loss) Income before income taxes and cumulative
effect of change in accounting principle (47,930) (25,929) 236
Provision (benefit) for income taxes 1,271 (6,957) 81
------------- -------------- -------------
(Loss) Income before cumulative effect of change
in accounting principle (49,201) (18,972) 155
Cumulative effect of change in accounting principle 4,386 - -
------------- -------------- -------------
Net (loss) income $ (53,587) $ (18,972) $ 155
============= ============== =============
(Loss) earnings per common share before cumulative
effect of change in accounting principle $ (9.03) $ (3.50) $ 0.03
Cumulative effect of change in accounting principle (0.80) - -
------------- -------------- -------------
Net (loss) earnings per common share $ (9.83) $ (3.50) $ 0.03
============= ============== =============
The accompanying notes to the financial statements are an integral part of these statements.
L. Luria & Son, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------
CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL (DEFICIT)
------------ ------------ PAID-IN RETAINED
(IN THOUSANDS) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 1994 3,987 $ 39 1,427 $ 14 $ 18,179 $ 65,340
401(k) Plan contribution 19 130
Conversion of Class B stock (8) 8
Common shares acquired and retired (7) (92)
Stock Bonus Plan awards 1 13
Net income 155
----------- --------- ----------- ----------- -------------- -------------
Balance, January 28, 1995 3,992 39 1,435 14 18,230 65,495
401(k) Plan contribution 21 102
Conversion of Class B stock 88 2 (88) (1)
Common shares acquired and retired (1) (112)
Net loss (18,972)
----------- --------- ----------- ----------- -------------- -------------
Balance, February 3, 1996 4,100 41 1,347 13 18,220 46,523
401(k) Plan contribution 35 88
Conversion of Class B stock 1,347 13 (1,347) (13)
Stock Bonus Plan awards 5 19
Net loss (53,587)
----------- --------- ----------- ----------- -------------- -------------
Balance, February 1, 1997 5,487 $ 54 - $ - $ 18,327 $ (7,064)
=========== ========= =========== =========== ============== =============
The accompanying notes to the financial statements are an integral part of these statements.
L. Luria & Son, Inc.
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net (loss) income $ (53,587) $ (18,972) $ 155
Adjustments to reconcile net income to net cash used in
(provided) by operating activities:
Depreciation 3,683 3,982 4,311
Deferred taxes (benefit) 2,294 (4,189) 612
Stock contributions to benefit plans 88 102 130
Write-off disposed property against
restructuring reserve - 1,128 268
Write-off for disposal of property 2,187 297 -
Gain on sale of property (87) - -
(Increase) decrease in other assets 185 (24) 130
(Increase) decrease in accounts receivable and
income tax receivable 2,002 (2,887) 643
(Increase) decrease in inventories 15,203 22,844 4,539
(Increase) decrease in prepaid expenses (1,240) 1,679 (511)
Increase (decrease) in accounts payable (2,303) (11,794) 3,847
Increase (decrease) in accrued liabilities,
taxes payable and other liabilities 5,922 4,125 (5,419)
------------- ------------- -------------
Net cash (used in) provided by operating activities (25,653) (3,709) 8,705
------------- ------------- -------------
Cash flows from investing activities:
Additions to property, net (4,607) (2,153) (14,700)
Proceeds from sale of property 372 - -
------------- ------------- -------------
Net cash used in investing activities (4,235) (2,153) (14,700)
------------- ------------- -------------
Cash flows from financing activities:
Borrowings under line of credit agreement 162,994 24,700 23,100
Repayments of borrowings under line
of credit agreement (146,021) (24,700) (23,100)
Repayments of long-term debt (147) (185) (197)
Stock plan activity 19 - 13
Proceeds from sale leaseback 9,670 - -
Common shares acquired and retired - (112) (92)
------------- ------------- -------------
Net cash provided by (used in) financing activities 26,515 (297) (276)
------------- ------------- -------------
Net decrease in cash and cash equivalents (3,373) (6,159) (6,271)
Cash and cash equivalents, beginning of year 4,941 11,100 17,371
------------- ------------- -------------
Cash and cash equivalents, end of year $ 1,568 $ 4,941 $ 11,100
============= ============= =============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amounts capitalized) $ 2,085 $ 1,207 $ 740
Income taxes paid (refunded) $ (7,270) $ (1,017) $ 1,224
============= ============= =============
The accompanying notes to the financial statements are an integral part of these statements
NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) YEARS ENDED FEBRUARY 1,
1997, FEBRUARY 3, 1996 AND JANUARY 28, 1995
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 1997,
consisted of 52 weeks, 1996 and 1995 consisted of 53 weeks and 52 weeks
respectively. The Company sells a broad line of jewelry, watches, kitchenware,
fragrances, bath and body products, and giftware merchandise. In addition, the
Company sells housewares, small appliances, consumer electronics, home
furnishings, luggage, cameras and other merchandise.
GOING CONCERN - The Company has incurred substantial operating losses
during the past two fiscal years which has (i) decreased stockholders' equity by
over $72,000, (ii) caused a deficiency in working capital and (iii) caused the
Company to be unable to comply with certain terms and covenants of its credit
agreement without waivers from the lender or amending such agreement (see Note
9). During fiscal 1997, the Company announced a plan to address its working
capital needs. The Company has begun to implement such plan, which included the
closing and liquidation of seventeen under-performing stores in the fourth
quarter of fiscal 1997 and the sale of its distribution and headquarters
facility in the first quarter of fiscal 1998. The strategic plan also includes
the reduction of operating expenses consistent with the reduced store count,
including the reduction of labor costs, the reduction of advertising
expenditures through utilization of more effective media, and a change in
merchandising strategy, including purchasing higher margin products to increase
the Company's profit margin and the use of loss leaders to increase store
traffic. In addition, the Company is continuing to analyze its operations in
order to identify other opportunities for profit margin improvement and expense
reductions.
Management believes that the short-term and long-term working capital and
capital expenditure needs of the Company will be met only if the Company's
operating results significantly improve in the near future. The achievement of
an improvement in the Company's operating results, as well as its ability to
operate as a going concern, will depend on, among other things, the short-term
and long-term success of the Company's strategic plan discussed above, the
successful renegotiation of the terms of its credit agreement or obtaining other
credit facilities, the continued support of the Company's numerous providers of
goods and services, the competitive environment, the prevailing economic
climate, the ability of the Company to adapt to these conditions, and the
successful negotiations with landlords to terminate lease agreements related to
the closing of its under-performing stores. No assurances can be given that the
Company can successfully implement its strategic plan or obtain the additional
sources of funds in the future.
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.
CHANGE IN ACCOUNTING METHOD - Effective February 4, 1996, the Company
changed its method of accounting for certain buying and warehousing costs. The
Company believes that this change provides a better measurement of operating
results given the changes in the Company's operations, including the reduction
in the size of operations, the anticipated sale of certain facilities, the
excess capacity of the existing distribution and headquarters facility and
management's intent to operate a significantly smaller distribution facility.
The warehouse and buying costs that were capitalized to inventory as of February
3, 1996 are reflected in the 1997 statement of operations as a cumulative effect
of a change in accounting of $4,386. Beginning in the fiscal year ended January
25, 1997, such buying and warehousing costs are expensed as incurred and
included in operating expenses in the statement of operations.
If the change in accounting had been applied to the years ended February 3,
1996 and January 28, 1995, the pro forma net loss and net loss per common share
would have been as follows:
FISCAL YEARS ENDED
FEBRUARY 3, JANUARY 28,
1996 1995
-------------- --------------
Net (loss) income
As reported $ (18,972) $ 155
Pro forma $ (18,650) $ (525)
Net (loss) earnings per
common share
As reported $ (3.50) $ 0.03
Pro forma $ (3.44) $ (0.10)
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 lives 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 1, 1997, February 3, 1996 and, January
28, 1995, $58, $44, and $97 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 1997, 1996 and 1995 was $8,864, $12,968 and $7,138, 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.
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 5,449,000, 5,417,000 and
5,410,000 for fiscal years ended 1997, 1996 and 1995, respectively. Option
shares are generally antidilutive, therefore they have not been included in
earnings per share calculations.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" which
establishes 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 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.
ACCOUNTING FOR STOCK BASED COMPENSATION - SFAS No. 123, "Accounting for
Stock Based Compensation", encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to account for stock-based compensation to employees using
the intrinsic value method as prescribed by the Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options issued to
employees are measured as the excess, if any, of the fair value of the Company's
stock at the date of grant over the amount an employee must pay for the stock.
SFAS No. 123 requires companies using the intrinsic value method to make certain
proforma disclosures using the fair-value method. The Company's financial
position and results of operations for the fiscal year ended February 1, 1997
have not been impacted by this accounting treatment.
FAIR VALUE OF FINANCIAL INSTRUMENTS - SFAS No. 107, "Disclosures 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 Sheets 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 market 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 1, 1997 and February 3, 1996 are summarized as
follows:
1997 1996
------- -------
Jewelry............................... $26,172 $32,620
General Merchandise................... $18,712 $27,467
------- -------
Total................................ $44,884 $60,087
======= =======
3. STORE CLOSINGS AND SALE OF DISTRIBUTION AND HEADQUARTERS FACILITY
During the fiscal year ended February 1, 1997, the Company closed seventeen
stores. In connection therewith, $12,494 was charged to operations consisting of
the following:
Loss on liquidation of inventories $ 4,361
Estimated future occupancy costs
subsequent to closing of stores 4,156
Other 3,977
--------
Total $ 12,494
========
These charges are based on a series of estimates and final actual results
could vary from these estimates, depending on certain factors, particularly the
settlement of future carrying costs for the closed stores.
The Company also sold its distribution and headquarters facility in March,
1997. The estimated loss of $1,371 on the sale of this facility has been
recorded as a charge to operating expenses in the year ended February 1, 1997
and the fair value of the facility, net of costs to sell, is reflected on the
balance sheet as Assets held for sale.
In the fiscal year ended February 3, 1996, the Company included $1,090 in
operating expenses applicable to closed stores.
4. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
FISCAL YEARS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
-------------- -------------- --------------
Current
Federal $ (1,023) $ (3,094) $ (501)
State - 325 (30)
-------------- -------------- --------------
Total (1,023) (2,769) (531)
Deferred 2,294 (4,188) 612
============== ============== ==============
Total $ 1,271 $ (6,957) $ 81
============== ============== ==============
A reconciliation of the Federal statutory rate and the Company's effective tax
rate is as follows:
FISCAL YEARS ENDED
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- ------------- ------------
US federal tax rate (35.0)% (35.0)% 34.0%
Effect of:
State income taxes
net of federal
income tax benefit - 3.9 6.3
Valuation allowance 35.4 - -
Graduated benefit 1.0 1.0 (5.3)
Other 1.0 3.3 (0.7)
============= ============= ============
Effective tax rate 2.4% (26.8)% 34.3%
============= ============= ============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at February 1, 1997 are
presented as follows:
FEBRUARY 1, FEBRUARY 3,
1997 1996
-------------- --------------
Deferred tax assets:
Excess of financial statement basis in reserves over tax $ 2,515 $ 756
Carryforward tax benefits 16,406 4,466
Other 594 -
------------- ------------
Total gross deferred tax assets $ $
19,515 5,222
-------------- --------------
Deferred tax liabilities
Property, plant & equipment $ 803 $ 1,089
Inventory costs - 1,431
Other - 408
-------------- --------------
Total gross deferred tax liabilities $ 803 $ 2,928
Valuation allowance (18,712) -
============== ==============
Net deferred tax asset $ 0 $ 2,294
============== ==============
As of February 1, 1997, the Company had net operating loss carryforwards
available to offset future taxable federal income of approximately $44,000. The
use of the net operating loss has a 15 year carryforward period which will
expire in the fiscal year ending 2012.
5. ACCRUED LIABILITIES AND TAXES PAYABLE
Accrued liabilities and taxes payable at February 1, 1997 and February 3, 1996
are as follows:
FEBRUARY 1, FEBRUARY 3,
1997 1996
-------------- -------------
Closed stores $ 4,506 $ 1,302
Taxes Payable 3,649 1,779
Other 5,776 5,702
-------------- -------------
Total $ 13,931 $ 8,783
============== =============
6. LEASE 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
FEB 1, 1997 FEB 3, 1996 JAN 28, 1995
----------- ----------- ------------
Former shareholders $ 152 $ 205 $ 152
Other 5,699 11,156 8,385
------- -------- -------
Total $ 5,851 $ 11,361 $ 8,537
======= ========= =======
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 not significant. The majority of the leases are
renewable at slightly escalated rates at the Company's option.
Future minimum payments on all non-cancelable operating leases in effect at
February 1, 1997 are as follows:
FORMER
SHAREHOLDERS CONTINUING CLOSED
FISCAL YEAR LEASES OPERATIONS STORES TOTAL
- ----------------------------------------------------------------------------------------
1998 $ 38 $ 3,569 $ 2,379 $ 5,986
1999 - 3,679 2,150 5,829
2000 - 3,698 1,868 5,566
2001 - 3,683 1,577 5,260
2002 - 3,746 1,413 5,159
Thereafter - 27,538 11,344 38,882
--------- ---------- ---------- ----------
Totals $ 38 $ 45,913 $ 20,731 $ 66,682
========= ========== ========== ==========
The Company is in the process of negotiating the termination of closed
store leases. During April, 1997, three of the leases related to closed stores
have been terminated.
7. RELATED PARTY TRANSACTIONS
During the year ended February 1, 1997, the Company purchased merchandise
from two companies that are controlled by certain current officers, directors
and shareholders. The amount purchased and paid during fiscal 1997 was
approximately $4.0 million.
8. EMPLOYEE BENEFIT PLANS
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. Options are granted 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 exercisable 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
granted at the discretion of the Compensation and Stock Option Committee of the
Board of Directors.
The fair value of each option was estimated on the date of grant, using the
Black-Scholes option-pricing model using the following assumptions; risk-free
interest rate of 7%, expected lives of 5 years, volatility of 73%, and no
dividend yield. The difference between compensation cost as measured in
accordance with SFAS No. 123 and APB No. 25 is not material.
Changes in the number of shares subject to option and option prices are
summarized as follows:
1995 1996 1997
-------------------------- -------------------------- --------------------------
SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE SHARES WEIGHTED-AVERAGE
OPTIONS (000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
- ------- ------ ---------------- ------ ---------------- ------ ----------------
Outstanding at beginning of year 297 $ 9 395 $ 9 755 $ 7
Granted 120 9 557 5 185 5
Forfeited 22 10 197 5 722 7
------ ------ ------
Outstanding at end of year 395 $ 9 755 $ 7 218 $ 6
====== ====== ======
Options exercisable at year-end 207 203 91
Weighted-average fair value of
options granted during the year $6.23 $3.06 $2.88
The following table summarized information about stock options outstanding at February 1, 1997.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 02/01/97 CONTRACTUAL LIFE EXERCISE PRICE AT 02/01/97 EXERCISE PRICE
(000) (000)
- --------------- ----------- ---------------- ---------------- ----------- -----------------
$ 4 to 7 182 5 $ 5 56 $ 4
$ 9 to 12 36 1.6 $10 36 $10
----------- ----------
$ 4 to 12 218 4.5 $ 6 91 $ 7
=========== ==========
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
1997 a stock award was made for 5,000 shares of Common Stock under the Bonus
Plan.
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 1997, 1996, and 1995, 35, 21 and 19 of the Company's shares
of Common Stock were contributed to the 401(k) Plan, respectively.
9. LONG-TERM DEBT
The Company has a revolving line of credit in the amount of $40,000, which
expires in June, 1998. Borrowings under the revolving line of credit are
collateralized by substantially all of the assets of the Company and bear
interest at a per annum rate equal to one percentage point above the reference
rate. At February 1, 1997, the applicable rate was 9.25%. The Company's
revolving line of credit agreement contains restrictions that prohibit the
Company from, among other things, paying cash dividends and purchasing and
selling certain assets without the consent of the lender. In addition, financial
covenants have been incorporated into the agreement , requiring the Company to
maintain certain financial ratios and financial performance. At February 1,
1997, the Company is in violation of three covenants of the agreement and has
obtained a waiver from the lender. However, the Company is presently unable to
meet the covenants on an ongoing basis without waivers from the lender or
amending the agrement. Accordingly, the balance of $16,973 outstanding under the
revolving line of credit at February 1, 1997 is included in current liabilities.
In addition, the Company and the lender have agreed to reduce the maximum
borrowings under the revolving line of credit to $30,000.
An industrial revenue bond, bearing interest at a rate of approximately 65%
of the prime rate, in the amount of $850 at February 1, 1997 and $997 at
February 3, 1996, collateralized by the Company's distribution and headquarters
facility, is classified as a current liability at February 1, 1997 due to the
sale of such facility in March, 1997 (Note 3).
10. 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
1997, 1996 and 1995 terminating participants' shares acquired were approximately
0, 1,000 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, with the exception of the
election 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.
11. COMMITMENTS AND CONTINGENCIES
In February, 1997, the Company settled a lawsuit against Service
Merchandise Co., Inc. for $1,800. No award amount has been reflected in the
Company's 1997 financial statements.
At February 1, 1997, the Company has outstanding unused letters of credit
in the amount of $2,400.
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.
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except loss per common share)
AS PREVIOUSLY REPORTED AS RESTATED(1)
------------------------------------------- ----------------------------------------
FISCAL YEAR FIRST SECOND THIRD FIRST SECOND THIRD FOURTH
FEBRUARY 1, 1997 QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
- ------------------------------ ------------------------------------------- ----------------------------------------------------
Net Sales $ 29,369 $ 27,552 $ 23,581 $ 29,369 $ 27,552 $ 23,581 $ 41,064
Gross Margin 8,308 6,690 3,454 7,956 6,358 3,351 9,474
Net loss before
cumulative effect of change (2,662) (3,893) (16,785) (3,014) (4,225) (16,888) (25,074)
Cumulative effect of change
in accounting principle,net - - - (4,386) - - -
------------- -------------- -------------- ------------ ------------ ------------ ----------
Net loss (2,662) (3,893) (16,785) (7,400) (4,225) (16,888) (25,074)
============= ============== ============== ============ ============ ============ ==========
Loss per common share
before cumulative effect (0.49) (0.71) (3.08) (0.55) (0.78) (3.10) (4.60)
Cumulative effect of change
in accounting principle - - - (0.80) - - -
============= ============== ============== ============ ============ ============ ==========
Net loss per common share $ (0.49) $ (0.71) $ (3.08) $ (1.35) $ (0.78) $ (3.10) $ (4.60)
============= ============== ============== ============ ============ ============ ==========
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 loss (982) (1,954) (5,285) (10,751)
------------- --------------- -------------- -------------
Net loss per common share $ (0.18) $ (0.36) $ (0.97) $ (1.99)
============= =============== ============== =============
(1) The losses for the first, second and third quarters of the year ended
February 1, 1997 have been restated to reflect the change in accounting method
as stated previously in Note 1, "Summary of Significant Accounting Policies".
The fiscal 1997 fourth quarter loss included a reduction in gross margin of
$4,131 which is primarily due to reduced sales due to the closing of 17 stores
during the fourth quarter of fiscal 1997 combined with greater discounts and
promoted products sold at lower margins. In addition, the Company's operating
expenses include $12,494 in expenses related to the closing of 17 stores in the
fourth quarter of fiscal 1997 and $1,371 in expenses related to the write-down
of the Miami Lakes distribution and headquarters facility.
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, as well as lower gross margins on realized sales due to
increased promotional activity.
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.
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
2(a) Real Estate Purchase and Sale Contract between CNL Realty
Advisors, Inc. and L. Luria & Son, Inc. for 4900 W. Kennedy
Blvd., Tampa, Florida 33609 (incorporated by reference to
Exhibit 2.1 of the Company's 8-K filed with the Securities
Exchange Commission on July 12, 1996).
2(b) Exhibit 2.2 Real Estate Purchase and Sale Contract between CNL
Realty Advisors, Inc. and L. Luria & Son, Inc. for 11905 S.
Dixie Highway, South Miami, Florida 33156 (incorporated by
reference to Exhibit 2.2 of the Company's 8-K filed with the
Securities Exchange Commission on July 12, 1996).
2(c) Real Estate Purchase and Sale Contract between CNL Realty
Advisors, Inc. and L. Luria & Son, Inc. for 2 Miracle Mile,
Coral Gables, Florida 33146 (incorporated by reference to
Exhibit 2.3 of the Company 8-K filed with the Securities
Exchange Commission on July 12, 1996).
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
(incorporated by reference to Exhibit 10(a) of the Company's
Annual Report on Form 10-K for the fiscal year ended February 3,
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) 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 (incorporated by reference to Exhibit
10(g)(4) of the Company'a Annual Report on Form 10-K for the
fiscal year ended February 3, 1996).
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(n) Employment Agreement with Peter Luria (incorporated by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
for the thirteen weeks ended November 2, 1996).
10(o) Employment Agreement with Rachmil Lekach (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the thirteen weeks ended November 2, 1996).
18. Letter regarding change in accounting principles.
21. Subsidiaries of Registrant (incorporated by reference to Exhibit
22 of the Company's Annual Report on Form 10-K for the fiscal
year ended February 3, 1996).
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
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(n) Employment Agreement with Peter Luria.
10(o) Employment Agreement with Rachmil Lekach.
(b) There were two reports on Form 8-K filed with the SEC in the fourth
quarter of fiscal 1997. A Form 8-K was filed on December 17, 1996
regarding earnings and strategic direction. A Form 8-K was filed on
January 10, 1997 regarding an agency agreement with Gordon Brothers
Partners,Inc. with respect to the store closing sales.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Zecurities
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/ RACHMIL LEKACH
------------------------
Rachmil Lekach
Chief Executive Officer
Dated: May 2, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Zecurities 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/ ILIA LEKACH May 2, 1997
- --------------------------------------
Ilia Lekach, Chairman of the Board
/s/ RACHMIL LEKACH May 2, 1997
- --------------------------------------
Rachmil Lekach, Chief Executive Officer
and Director
/s/ PETER LURIA May 2, 1997
- --------------------------------------
Peter Luria, President and Director
/s/ ALBERT FRIEDMAN May 2, 1997
- --------------------------------------
Albert Friedman, Executive Vice President,
Chief Financial Officer and Director
/s/ HARRY J. DIVEN JR May 2, 1997
- --------------------------------------
Harry J. Diven, Jr., Director
/s/ ERWIN ZAFIR May 2, 1997
- --------------------------------------
Erwin Zafir, Director
/s/ JOEL EIDESTEIN May 2, 1997
- --------------------------------------
Joel Eidelstein, Director
/s/ FRED FUHRMANN May 2, 1997
- --------------------------------------
Fred Fuhrmann, Director
EXHIBIT INDEX
18. Letter regarding change in accounting principles.
23(a) Consent of Deloitte & Touche LLP.
23(b) Consent of KPMG Peat Marwick, LLP
27.1 Financial Data Schedule