FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period __________ to ___________
Commission file number: 0-1636
The Valley Fair Corporation
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 22-1727148
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
260 Bergen Turnpike, Little Ferry, New Jersey 07643
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (201) 440-4000
Securities Registered Pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to section 12 (g) of the Act:
Common Stock ($.30 Par Value) Over-The-Counter
----------------------------- ----------------
(Title of class) Name of exchange on
which registered
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 the disclosure of delinquent filers pursuant to Item
405 of Regulation S-X is not contained herein, and will not be contained, to the
best of the 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 [ X ]
<PAGE>
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of the filing.
$612,482 as of April 1, 1996
----------------------------
Indicate the number of shares outstanding of each the registrant's classes of
common stock, as of the latest practical date.
As of April 1, 1996 there were 367,964 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the part
of the Form 10-K (e.g., Part II, etc.) into which the document is incorporated:
(1) Any annual report to security holders; (2) Any proxy or information
statement, and (3) Any prospectus filed pursuant to Rule 424 (b) or (c) under
the Securities Act of 1933. The listed documents should be clearly described for
identification purposes (e.g., annual report to security holders for fiscal year
ended January 28, 1996). (1) Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A of the
Securities Exchange Act on or about May 6, 1996.
Part III Page Number of
Item Definitive Proxy
Number Statement.
- ------ ----------
10. Directors and Executive Officers 2 - 3
11. Executive Compensation 4
12. Security Ownership of Certain 2 - 3
Beneficial Owners and Management
13. Certain Relationships and Related 4
Transactions
Except as specifically incorporated herein by reference, the above mentioned
Definitive Proxy Statement is not deemed filed as part of this report.
<PAGE>
PART I
Item 1 - Business
(a) General Development of Business.
The Valley Fair Corporation ("Valley Fair") was incorporated under the laws
of the state of Delaware on June 13, 1955. The Valley Fair Corporation together
with its subsidiary, L. F. Widmann, Inc. (collectively called the "Registrant"
or the "Corporation") is engaged in the business of operating retail discount
stores and variety stores.
During its fiscal year ended January 28, 1996, ("1996 fiscal year") the
Corporation continued to operate two discount department stores in New Jersey.
In addition, the Corporation presently operates, through its wholly owned
subsidiary, L.F. Widmann, Inc., 127 retail locations, including 67 departments
in stores controlled by its "Parent", Schottenstein Stores Corporation.
(b) Financial Information About Industry Segments.
The Corporation's operations consist of a single line of business.
(c) Narrative Description of Business.
The Corporation currently operates through a combination of owned and
licensed departments, two "full line" discount department stores, under the name
"Valley Fair", in the State of New Jersey. The stores sell soft goods such as
men's and women's clothing, hard goods such as hardware, stationery and health
and beauty aids, as well as grocery items in a full line supermarket situated at
one of the store locations. Each store is free-standing and offers an in-depth
selection of nationally advertised brand products.
Through its wholly owned subsidiary, L. F. Widmann, Inc., the Corporation
currently operates 127 retail health and beauty aid variety stores, including 67
licensed departments in Value City Department Stores controlled by its parent
Schottenstein Stores Corporation. The stores sell non-prescription proprietary
drugs, tobacco and other sundries (including greeting cards, stationery,
electronics, toys and small appliances), cosmetics and hair goods and other
products.
The merchandise consists mostly of nationally advertised brand products, as
well as private label merchandise.
During the last three years no single class of similar products has
accounted for ten percent of the Corporation's revenues.
The Corporation does not own any patents, trademarks, licenses, franchises
or concessions, other than licenses to operate departments in two stores owned
by others. Those licenses are not material to the Corporation's operations.
<PAGE>
The Corporation purchases from its suppliers on normal trade credit terms.
The Corporation sells at retail for cash and accepts certain charge cards.
Because of the retail nature of the Corporation's business, the Company is
not dependent upon a single customer or a few customers and no single customer
accounts for 10 percent or more of the Corporation's sales. Likewise, the
Corporation does not have a significant backlog of orders.
The Corporation is not materially affected by federal, state or local
regulations relating to the discharge of materials into the environment or
otherwise relating to the protection of the environment. During the last few
fiscal years adequate heating and cooling was available at all of the
Corporation's locations. The Corporation is not engaged in any manufacturing
operations, so processing fuels are not required.
The Corporation's operations are not generally seasonal except for an
increase in sales during the Christmas season.
The Corporation operates in geographical areas in which retail operations
are highly competitive. Competition is based upon price, quality, selection and
service.
The Corporation competes directly with several types of retailers,
including full line department stores, discount department stores, specialty
shops, discount houses, supermarkets, pharmacies, and variety stores. Many of
the Corporation's direct competitors are national or regional chains and have
greater financial resources than the Corporation. Due to the number and variety
of competitors, the Corporation is unable to determine its competitive position.
The Corporation's discount department store operations employ approximately
250 persons, of whom approximately 150 are employed full time. Substantially all
of such employees are unionized except for supervisory personnel. The
Corporation considers its labor relations to be satisfactory. Widmann has
approximately 440 employees of whom approximately 330 are employed full time.
Except for approximately 90 warehouse personnel, Widmann's employees are not
unionized. Widmann considers its labor relations to be satisfactory.
The Corporation does not have sales to customers in foreign countries.
<PAGE>
Item 2 - Properties
Registrant's two discount department stores are operated at free standing
facilities. These units are one story buildings and information concerning each
facility is summarized as follows:
APPROXIMATE LEASE
LOCATION SQUARE FEET EXPIRATION
-------- ----------- ----------
Chancellor Ave. 140,000 Owned
Irvington, N.J.
Bergen Turnpike 135,000 February 1, 2004
Little Ferry, N.J. (With 2 Ten Year
Options)
Widmann leases space at 124 locations at which it operates health and
beauty aid variety stores, in similar cities and towns in central and western
Pennsylvania, Ohio, New Jersey, Tennessee, Michigan, Kentucky, Indiana,
Virginia, West Virginia, Maryland, Delaware, and New York. The size of the
leased properties generally range from 800 to 8,000 square feet, with the
average size being approximately 3,000 square feet. These leases, including
renewal option periods, expire on dates ranging from April 1996 through January
31, 2025.
In 1980, Widmann purchased 5.54 acres of land in the Clinton County
Industrial Park, located in McElhattan, Pennsylvania. Originally, a building
containing 43,000 square feet was constructed, and subsequently it was expanded
by an additional 30,000 square feet. It is currently in use as headquarters and
distribution center.
In addition, L. F. Widmann, Inc. owns the following store locations:
426 Bellefonte Avenue, Lock Haven, Pa.
Seventh Street and Huron Ave., Renovo, Pa.
849-851 Diamond Street, Williamsport, Pa.
Item 3 - Legal Proceedings
The Corporation is not a party to any material litigation other than
routine litigation arising in the ordinary course of business.
Item 4 - Submission of Matters to a Vote ofSecurity Holders
None.
<PAGE>
PART II
Item 5 - Market for the Registrant's Common Stock and Related Security
Holder Matters
The Corporation's Common Stock is traded principally in the
over-the-counter market.
Effective May 7, 1984 the Board of Directors approved that the Corporation
reduce the number of authorized shares of common stock from 20,000,000 to
666,666 and increase the par value per share of its common stock from $.01 per
share to $.30 per share. In connection therewith, the Corporation converted each
outstanding share of common stock of $.01 par value per share into one-thirtieth
(1/30th) of a share of common stock of $.30 par value per share. Fractional
shares were not issued. Instead the Corporation paid cash for fractional shares,
based on market value of $.625 per share for the former share.
The table below represents the high and low bid price for the Corporation's
Common Stock during the quarters of fiscal 1996 and 1995. These prices represent
quotations between dealers in securities, and do not include commissions and do
not necessarily represent actual transactions.
1996 High Bid Low Bid
---- -------- -------
First Quarter 26.00 26.00
Second Quarter 26.00 26.00
Third Quarter 26.00 26.00
Fourth Quarter 26.00 26.00
1995
----
First Quarter 26.00 26.00
Second Quarter 26.00 26.00
Third Quarter 26.00 26.00
Fourth Quarter 26.00 26.00
No dividends were paid in the reporting period. Long term debt agreements
that expire May 8, 1996, include certain restrictive covenants which, among
other things, prohibit the Corporation from declaring any dividends (except
stock dividends).
The number of holders of record of the Corporation's Common Stock as of
January 28, 1996 was 1,164.
<PAGE>
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
January 28 January 29 January 30 January 31 January 26
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(52 weeks) (52 weeks) (52 weeks) (53 weeks) (52 weeks)
(000's omitted, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales excluding
licensee departments $68,035 $70,659 $69,877 $66,945 $64,148
Net income 1 26 725 632 1,338
Per share of common
stock
Net income $ .00 $ .07 $ 1.97 $ 1.71 $ 3.63
At year end
Total assets $34,031 $35,784 $36,889 $34,513 $35,217
Long-term debt 233 702 11,099 9,767 10,274
Working capital 14,710 14,845 25,228 22,848 22,665
Stockholders' equity 18,468 18,469 18,447 17,728 17,108
</TABLE>
<PAGE>
Item 7 - Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
RESULTS OF OPERATIONS
FISCAL 1996 VS. 1995
The consolidated statements of income for fiscal 1996 and 1995 are
comprised of 52 week periods. Net sales decreased $2,624,000, or 3.7% to
$68,035,000 in fiscal 1996. The decrease in net sales was primarily attributable
to increased competition, while adverse economic uncertainties continued to
affect consumer buying patterns. Competitive factors continue to affect sales
growth and are being evaluated and addressed through emphasis on customer
service and promotional activities. Management continues to monitor individual
store locations for their contributions to the overall company profit plan (See
Liquidity and Capital Resources). Tenant license revenue was approximately
$59,000 (1.2%) more than the prior fiscal year.
Gross profit as a percentage of sales was 31.4% in fiscal 1996 as compared
to 30.4% for fiscal 1995, resulting from an increase of promotional merchandise
purchased at favorable and liquidated values and an improvement in the estimates
used to allocate overhead to warehouse inventory.
Selling, general and administrative expenses decreased by 1.3% in fiscal
1996 as compared to a 4% increase in fiscal 1995. The $330,000 decrease in
fiscal 1996 was primarily the result of decreased depreciation and payroll tax
expense. The decrease in depreciation expense was a result of assets becoming
fully depreciated. The decrease in payroll tax expense was a result of a
reduction in the unemployment compensation rate. Selling, general and
administrative expenses as a percentage of net sales increased 1% in fiscal 1996
compared to fiscal 1995 (i.e. 37.1% in fiscal 1996 versus 36.1% in fiscal 1995).
Interest expense in fiscal 1996 increased approximately $168,000 compared
to fiscal 1995, a 20% increase. The increase in expense is attributable to an
increase in the borrowings outstanding during 1996, along with higher rates
during 1996.
The effective tax rate for fiscal 1996 was 98% compared to (160%) in fiscal
1995. A further analysis of these changes can be found in the notes to the
consolidated financial statements.
<PAGE>
FISCAL 1995 VS. 1994
The consolidated statements of income for fiscal 1995 and 1994 are
comprised of 52 week periods. Net sales increased $782,000, or 1% to $70,659,000
in fiscal 1995. The increase in net sales was partially attributable to the
addition of 1 new store. Sales of new store openings (net of closings) were
approximately $326,000. Same store sales increased a modest $456,000 in fiscal
1995, as new stores opened in the prior year matured, with competition and
economic uncertainties continuing to effect consumer buying patterns. The
Company expects same store sales to increase modestly as the economy improves.
Competitive factors continue to affect sales growth and are being evaluated and
addressed through emphasis on customer service and promotional activities.
Management continues to monitor individual store locations for their
contributions to the overall company profit plan. Tenant license revenue was
approximately $250,000 (5.4%) more than the prior fiscal year, which was the
result of the expansion and addition of tenant departments.
Gross profit as a percentage of sales was 30.4% in fiscal 1995 as compared
to 31.4% for fiscal 1994, resulting from a significant decrease of promotional
merchandise purchased at favorable and liquidated values.
Selling, general and administrative expenses increased by 4.0% and 9.1% in
fiscal 1995 and 1994, respectively. The $973,000 increase in fiscal 1995 was
primarily the result of increased salaries and employee benefits. Several
factors contributed to the increase in salaries and benefits including salaries
associated with new store openings, additional supervisory positions as well as
annual pay increases. Selling, general and administrative expenses as a
percentage of net sales increased .9% in fiscal 1995 compared to fiscal 1994
(i.e. 36.1% for fiscal 1995 versus 35.2% in fiscal 1994).
Interest expense in fiscal 1995 increased approximately $135,000 compared
to fiscal 1994, a 19% increase. The increase in expense is principally
attributable to higher rates during 1995.
The effective tax rate for fiscal 1995 was (160%) compared to 44% in fiscal
1994. A further analysis of these changes can be found in the notes to the
consolidated financial statements.
<PAGE>
LIQUIDITY AND FINANCIAL RESOURCES
As of January 28, 1996, the Company's cash and cash equivalent balance was
$3,609,000. The Company's principal sources of liquidity are cash available from
operations and available borrowings from bank agreements. During 1995, the
Company entered into a revolving credit agreement with a new bank. Working
capital amounted to $14,710,000 at January 28, 1996 compared to $14,845,000 at
January 29, 1995, a decrease of $135,000. The current ratio at January 28, 1996
and January 29, 1995 was 2 to 1.
In March 1996, the Company decided to close 16 of its unprofitable L.F.
Widmann, Inc. stores. As a result of these closings, the Company anticipates a
$835,000 charge to operations in the first quarter of fiscal 1997. Approximately
76% of the charges represents the expected loss on the liquidation of the
inventories at these locations.
The Company believes that its fiscal 1996 working capital needs, capital
expenditures and debt repayments can be funded from operations and available
credit lines.
NEW ACCOUNTING STANDARDS
The Company adopted a new accounting standard for disclosures about fair
value of financial instruments (FAS 107) in fiscal 1996. This new standard did
not affect the financial position of the Company.
As discussed more fully in Note 1 to the consolidated financial statements,
the Company adopted a new accounting standard for income taxes (SFAS 109) in the
first quarter of fiscal 1994. This new standard did not significantly impact the
financial statements of the Company.
The Financial Accounting Standards Board (FASB) has established a new
accounting standard relating to the accounting for the impairment of long-lived
assets (FAS 121). FAS 121 is effective for fiscal years beginning after December
15, 1995. It is anticipated that this new standard will not affect the financial
position of the Company.
INFLATION
Although not significant, inflation continues to cause increases in product
and occupancy costs. The effects of these cost increases are minimized by
increased selling prices and operating efficiencies.
<PAGE>
Item 8 - Financial Statements
INDEX TO FINANCIAL STATEMENTS
Consolidated financial statements
Independent Auditors' Reports
Alpern, Rosenthal & Company
KPMG Peat Marwick LLP
Consolidated Balance Sheets - January 28, 1996 and
January 29, 1995
Consolidated Statements of Income for the Years Ended January 28, 1996,
January 29, 1995 and January 30, 1994
Consolidated Statements of Stockholders' Equity for the Years Ended January
28, 1996, January 29, 1995 and January 30, 1994
Consolidated Statements of Cash Flows for the Years Ended January 28, 1996,
January 29, 1995 and January 30, 1994
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditors' Report
Board of Directors and Stockholders
The Valley Fair Corporation
Little Ferry, New Jersey
We have audited the accompanying consolidated balance sheets of The Valley
Fair Corporation (a subsidiary of Schottenstein Stores Corporation) and
subsidiary as of January 28, 1996 and January 29, 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 1996 and 1995 financial statements referred to above
present fairly, in all material respects, the financial position of The Valley
Fair Corporation and subsidiary as of January 28, 1996 and January 29, 1995, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
March 22, 1996
<PAGE>
[GRAPHIC -- COMPANY LOGO]
KPMG Peat Marwick LLP
225 Market Street
Suite 300
P.O. Box 1190
Harrisburg, PA 17108-1190
Independent Auditor's Report
Board of Directors and Shareholders
The Valley Fair Corporation:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows for the year ended January 30, 1994 of The
Valley Fair Corporation (a subsidiary of Schottenstein Stores Corporation) and
subsidiary. In connection with our audit of the consolidated financial
statement, we have also audited the financial statement schedule listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and their cash
flows for the year ended January 30, 1994 of The Valley Fair Corporation and
subsidiary in conformity with generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
April 8, 1994
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents ...................... $ 3,608,605 $ 3,652,566
Accounts receivable
Trade ........................................ 711,188 507,766
Affiliate - Note 2 ........................... 128,912 395,705
Merchandise inventories ........................ 23,955,006 25,436,852
Prepaid expenses ............................... 582,341 460,404
Deferred income taxes - Note 8 ................. 443,000 455,000
----------- -----------
Total Current Assets ...................... 29,429,052 30,908,293
----------- -----------
Property and Equipment - At cost - Notes 3, 5, and 6 11,235,334 11,060,919
Less: Accumulated depreciation and amortization 6,969,475 6,481,586
----------- -----------
Total Property and Equipment - Net ........ 4,265,859 4,579,333
----------- -----------
Other Assets ........................................ 336,174 296,605
----------- -----------
Total Assets .............................. $34,031,085 $35,784,231
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable - bank - Note 5 ..................... $ 9,710,300 $ 9,375,000
Current maturities of long-term debt - Note 6 .... 65,010 423,949
Accounts payable
Trade .......................................... 2,911,974 4,025,734
Affiliate - Note 2 ............................. 405,764 362,102
Accrued liabilities - Note 4 ..................... 1,626,208 1,876,157
----------- -----------
Total Current Liabilities ................... 14,719,256 16,062,942
Long-term Liabilities
Long-term debt - less current maturities - Note 6 233,569 701,861
Deferred income and security deposits ............ 113,081 105,435
Deferred income taxes - Note 8 ................... 497,000 445,000
----------- -----------
Total Liabilities ........................... 15,562,906 17,315,238
Commitments and Contingencies - Notes 7 and 10 ...... -- --
Stockholders' Equity
Common stock, par value $.30 per share;
authorized 666,666 shares, issued and outstanding
367,983 in 1996 and 368,053 shares in 1995 ...... 110,395 110,416
Additional paid-in capital ....................... 802,754 804,553
Retained earnings ................................ 17,555,030 17,554,024
----------- -----------
Total Stockholders' Equity .................. 18,468,179 18,468,993
----------- -----------
Total Liabilities and Stockholders' Equity .. $34,031,085 $35,784,231
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
- --------------------------------------------------------------------------------
For the Years Ended January 28, 1996, January 29, 1995, and January 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales - Excluding license
departments .............................. $ 68,034,924 $ 70,659,304 $ 69,877,040
Cost of Sales ............................. 46,690,549 49,173,119 47,956,839
------------ ------------ ------------
Gross Profit ....................... 21,344,375 21,486,185 21,920,201
Tenant Department License
Revenue and Other (related parties -
1996 - 47%, 1995 - 47%, 1994 - 48%) ...... 4,962,810 4,903,342 4,653,509
------------ ------------ ------------
26,307,185 26,389,527 26,573,710
Selling, General and
Administrative Expenses (related parties -
1996 - 13%, 1995 - 14%, 1994 - 15%) ...... 25,214,754 25,542,116 24,569,319
------------ ------------ ------------
Income from Operations ............. 1,092,431 847,411 2,004,391
Interest Expense .......................... 1,005,425 837,405 701,926
------------ ------------ ------------
Income Before
Income Taxes ...................... 87,006 10,006 1,302,465
Provision for (Recovery of)
Income Taxes - Note 8 .................... 86,000 (16,000) 577,400
------------ ------------ ------------
Net Income ................................ $ 1,006 $ 26,006 $ 725,065
============ ============ ============
Net Income Per Common Share ............... $ .00 $ .07 $ 1.97
============ ============ ============
Weighted Average Shares Outstanding ....... 368,030 368,309 368,598
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
- --------------------------------------------------------------------------------
For the Years Ended January 28, 1996, January 29, 1995, and January 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance - January 31, 1993 . $ 110,525 $ 814,577 $ 16,802,953 $ 17,728,055
Purchase and retirement of
199 shares .............. (60) (5,612) -- (5,672)
Net income ............... -- -- 725,065 725,065
------------ ------------ ------------ ------------
Balance - January 30, 1994 . 110,465 808,965 17,528,018 18,447,448
Purchase and retirement of
164 shares .............. (49) (4,412) -- (4,461)
Net income ............... -- -- 26,006 26,006
------------ ------------ ------------ ------------
Balance - January 29, 1995 . 110,416 804,553 17,554,024 18,468,993
Purchase and retirement of
70 shares ............... (21) (1,799) -- (1,820)
Net income ............... -- -- 1,006 1,006
------------ ------------ ------------ ------------
Balance - January 28, 1996 . $ 110,395 $ 802,754 $ 17,555,030 $ 18,468,179
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
For the Years Ended January 28, 1996, January 29, 1995, and January 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash Provided by (Used for)
Operating Activities
Net income ............................ $ 1,006 $ 26,006 $ 725,065
Noncash items included in net income
Depreciation and amortization ....... 632,487 884,655 849,276
Deferred income taxes ............... 64,000 (301,000) 208,400
Changes in
Accounts receivable ............... 63,371 (223,211) 66,236
Merchandise inventories ........... 1,481,846 (412,949) (2,172,428)
Accounts payable and
accrued expenses ................. (1,320,047) 288,261 273,359
Other items ....................... (153,861) (77,365) (90,215)
----------- ----------- -----------
Net Cash Provided by (Used for)
Operating Activities ............ 768,802 184,397 (140,307)
----------- ----------- -----------
Cash Used for Investing Activities
Acquisitions of property and equipment (319,012) (472,948) (533,219)
----------- ----------- -----------
Cash Provided by (Used for)
Financing Activities
Note payable - bank ................... 335,300 (625,000) 2,250,000
Proceeds from long-term debt .......... -- 27,064 2,037,820
Payments of long-term debt ............ (827,231) (433,940) (3,063,342)
Purchase and retirement of common stock (1,820) (4,461) (5,672)
----------- ----------- -----------
Net Cash Provided by (Used for)
Financing Activities ............ (493,751) (1,036,337) 1,218,806
----------- ----------- -----------
Increase (Decrease) in Cash
and Cash Equivalents ................... (43,961) (1,324,888) 545,280
Cash and Cash Equivalents -
Beginning of year ...................... 3,652,566 4,977,454 4,432,174
----------- ----------- -----------
Cash and Cash Equivalents -
End of year ............................ $ 3,608,605 $ 3,652,566 $ 4,977,454
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows (Continued)
- --------------------------------------------------------------------------------
For the Years Ended January 28, 1996, January 29, 1995, and January 30, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
Supplemental Disclosures of Cash Flow Information
<S> <C> <C> <C>
Cash Paid During the Year for
Interest ........................ $1,091,984 $ 735,859 $ 701,926
========== ========== ==========
Income taxes .................... $ 154,852 $ 353,040 $ 320,100
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
THE VALLEY FAIR CORPORATION AND SUBSIDIARY
Notes to the Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
A. Reporting Entity and Nature of Business
The consolidated financial statements include the accounts of The Valley
Fair Corporation (Valley Fair) and its wholly-owned subsidiary, L.F. Widmann,
Inc. (Widmann), collectively referred to as "The Company". All material
intercompany transactions have been eliminated in consolidation. The majority
of the Company's stock (93%) is controlled by Schottenstein Stores
Corporation and affiliated companies (the Parent).
Valley Fair currently operates, through a combination of owned and
licensed departments, two discount stores in the state of New Jersey. The
stores sell apparel, shoes, hard goods, e.g., hardware, stationery, health
and beauty aids, as well as food items in a full-line supermarket at one
location.
Widmann currently operates and licenses 127 retail health and beauty aid
stores primarily in Pennsylvania and also in 11 other Mid-Atlantic and
Mid-Western States. The stores sell non-prescription proprietary drugs,
tobacco, greeting cards, stationery, electronics, toys, small appliances,
cosmetics, hair care products and other household items.
The Company, excluding licensed departments, is in one segment of
business - retail sales to the general public.
The Company's fiscal year ends on the Sunday closest to January 31. The
fiscal years ended January 28, 1996, January 29, 1995 and January 30, 1994
contained 52 weeks.
B. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
C. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. Approximately 49%
and 37% of cash and cash equivalents as of January 28, 1996 and January 29,
1995, respectively, were held in bankers acceptances. Substantially all of
the remaining cash and cash equivalents were maintained in accounts with two
banks.
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
D. Merchandise Inventories
Merchandise inventories are valued at the lower of cost (first-in,
first-out basis) or market determined by the retail inventory method for store
inventories and an average cost method for the warehouse inventory.
During 1996, the Company improved the estimates used to allocate overhead
to warehouse inventory. As a result of this change, overhead cost allocated to
inventory was approximately $340,000 greater than if the old estimates had been
used.
E. Property and Equipment
Depreciation is provided by the straight-line method over the estimated
useful lives of assets.
Maintenance and repairs which are not considered to extend the useful
lives of assets are charged to operations as incurred. Additions and
improvements are capitalized. Upon sale or retirement, the cost of assets and
related allowances are removed from the accounts and any resulting gains or
losses are included in other income (expense).
F. Store Opening and Closing Costs
Expenditures of a non-capital nature incurred prior to the opening of a
new store are charged to operations as incurred. Costs of closing a store are
expensed in the year in which the store is closed.
G. Income Taxes
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due and deferred taxes
relating to temporary differences. The primary differences are in the basis of
property and equipment and deferred compensation between financial and income
tax reporting. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. Deferred
taxes also are recognized for operating losses and tax credits that are
available to offset future Federal and state taxable income. (See also Note 8.)
H. Reclassifications
Certain reclassifications have been made to the 1995 and 1994 financial
statements in order to conform to 1996 presentations.
<PAGE>
Note 1 - Summary of Significant Accounting Policies (Continued)
I. Net Income Per Common Share
Net income per common share has been computed based on the weighted
average number of shares of common stock outstanding during the periods.
Note 2 - Transactions with Affiliates
Valley Fair has entered into license agreements for tenant departments with an
affiliated company of its Parent. The consolidated statements of income include
rental income earned from these licenses with affiliated companies of
approximately $2,347,000 in 1996, $2,312,000 in 1995 and $2,243,000 in 1994.
Widmann's has entered into agreements to lease tenant retail space from an
affiliated company of Schottenstein Stores Corporation. Rents are based on a
percentage of sales. The related rental expense (Note 7) incurred was
approximately $2,195,000 in 1996, $2,329,000 in 1995, and $2,498,000 in 1994. In
addition, Widmann is charged approximately 2.9% of sales in those stores as
reimbursement for certain store operating expenses.
The accounts receivable and payable - affiliate are a result of the above
transactions.
The Company was charged $125,000 per year in 1996, 1995, and 1994 by the Parent
for certain administrative services provided.
Note 3 - Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
----------- -----------
<S> <C> <C>
Land ............................................... $ 569,590 $ 569,590
Buildings .......................................... 2,613,334 2,613,334
Fixtures and equipment ............................. 5,571,284 5,491,143
Automobiles and trucks ............................. 675,004 742,012
Leasehold improvements ............................. 1,806,122 1,644,840
----------- -----------
11,235,334 11,060,919
Less: Accumulated depreciation and amortization ... 6,969,475 6,481,586
----------- -----------
$ 4,265,859 $ 4,579,333
=========== ===========
</TABLE>
<PAGE>
Note 4 - Accrued Liabilities
Accrued liabilities consist of:
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
---------- ----------
<S> <C> <C>
Deferred compensation .................. $1,004,128 $ 985,000
Payroll and vacation ................... 315,271 337,001
Insurance .............................. 281,577 172,567
Other .................................. 25,232 381,589
---------- ----------
$1,626,208 $1,876,157
========== ==========
</TABLE>
Note 5 - Note Payable - Bank
During 1996, the Company entered into a $14,000,000 unsecured revolving
credit agreement with a new bank. Borrowings under this arrangement bear
interest at either a Euro-rate or prime at the Company's option. Substantially
all the line was subject to a Euro-rate, which was 7.31% at January 28, 1996.
The weighted average interest rate at January 28, 1996 and January 29, 1995 was
7.43% and 8.38%, respectively.
The agreement also contains several financial covenants including minimum net
worth, minimum working capital, and minimum pre-tax interest coverage.
Note 6 - Long-term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
----------- -----------
<S> <C> <C>
Mortgage notes payable, Pennsylvania
Industrial Development Authority,
interest ranging from 3 to 4%, due
August 1996 and September 2003,
collateralized by a first mortgage on
the property and building, guaranteed
by the Parent Company. .......................... $ 269,161 $ 324,178
Various other installment notes payable ............ 29,418 82,611
</TABLE>
<PAGE>
Note 6 - Long-term Debt (Continued)
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
---------- ----------
<S> <C> <C>
Bank mortgage and note payable, paid in full
during 1996 ..................................... -- 719,021
---------- ----------
298,579 1,125,810
Less: Current maturities ........................ 65,010 423,949
---------- ----------
Long-term Debt ................................... $ 233,569 $ 701,861
========== ==========
</TABLE>
Approximate maturities of debt are as follows:
1997 $ 65,000
1998 41,000
1999 33,000
2000 33,000
2001 34,000
Thereafter 93,000
-----------
$ 299,000
===========
Note 7 - Leases
The Company leases retail store locations and delivery vehicles under
operating leases. Store leases provide for base rentals and the payment of
additional rentals based on sales levels, at certain locations (see also Note
2). In addition, the Company is typically responsible under its leases for real
estate taxes, insurance, maintenance and advertising.
Rent expense charged to operations under these types of arrangements were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals ...................... $1,240,000 $1,148,000 $1,941,000
Contingent rentals - primarily
related party (Note 2) .............. 2,732,000 2,731,000 2,498,000
---------- ---------- ----------
Total rent expense ................ $3,752,000 $3,879,000 $4,439,000
========== ========== ==========
</TABLE>
<PAGE>
Note 7 - Leases (Continued)
Valley Fair also leases certain retail facilities to various tenants under
operating and sublet lease arrangements. The amounts received under tenant
sub-lease agreements, included below, were approximately $1,861,000 in 1996,
$2,133,000 in 1995 and $1,982,000 in 1994. The rental income under tenant lease
and sub-lease arrangements, included in tenant revenue, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals ................ $2,398,000 $2,355,000 $2,508,000
Contingent rentals ............. 1,672,000 1,672,000 1,367,000
---------- ---------- ----------
Total rental income .......... $4,070,000 $4,027,000 $3,875,000
========== ========== ==========
</TABLE>
At January 28, 1996, the approximate minimum rental commitments and tenant
income from sub-lease agreements and other operating leases is as follows:
<TABLE>
<CAPTION>
Tenant Income
-----------------------------
Operating Sub- Operating
Fiscal Leases Leases Leases
------ ---------- ---------- ----------
<S> <C> <C> <C>
1997 $ 809,000 $1,237,000 $1,001,000
1998 602,000 252,000 218,000
1999 451,000 42,000 37,000
2000 360,000 16,000 5,000
2001 308,000 16,000 3,000
Thereafter 1,101,000 -- --
---------- ---------- ----------
$3,631,000 $1,563,000 $1,264,000
========== ========== ==========
</TABLE>
Note 8 - Income Taxes
In 1994, the Company adopted the provisions of FASB 109, Accounting for
Income Taxes, effective February 1, 1993. The cumulative effect of the change in
accounting principle had no significant effect on the 1994 financial statements.
<PAGE>
Note 8 - Income Taxes (Continued)
The provision for (recovery of) income taxes for the years ended January 28,
1996, January 29, 1995 and January 30, 1994 consisted of the following:
<TABLE>
<CAPTION>
January 28 January 29 January 30
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Currently payable $ 22,000 $ 285,000 $ 600,000
Deferred expense (benefit) 64,000 (301,000) (22,600)
----------- ----------- ----------
$ 86,000 ($ 16,000) 577,400
=========== ========== =======
</TABLE>
The Company has net operating losses totalling approximately $453,000
available to offset future state taxes. These losses expire in various years,
depending on state tax laws.
The reconciliation of income tax expense (benefit) at the statutory Federal
rate to the reported income tax expense is as follows:
<TABLE>
<CAPTION>
January 28 January 29 January 30
1996 1995 1994
---- ------ ----
<S> <C> <C> <C>
Federal statutory tax rate 34.0% 34.0% 34.0%
State income taxes - net of Federal
tax benefit 6.0 5.8 6.6
Adjustment to deferred tax asset
and liability for enacted changes
in tax laws and rates -- -- 3.7
Non-deductible (taxable) items - net 58.0 (199.8) --
---- ------ ----
98.0% (160.0%) 44.3%
==== ====== ====
</TABLE>
<PAGE>
Note 8 - Income Taxes (Continued)
The significant components of deferred income tax expense (benefit) for the
years ended January 28, 1996 and January 29, 1995 and January 30, 1994 are as
follows:
<TABLE>
<CAPTION>
January 28 January 29 January 30
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Property and equipment .................. $ 53,000 ($160,000) $ --
Prepaid expenses ........................ 20,000 (51,000) --
Deferred compensation ................... (8,000) (14,000) --
State net operating loss
carryforward ........................... (1,000) (41,000) --
Other ................................... -- (35,000) (56,500)
Adjustment to deferred tax assets
and liabilities for enacted changes
in tax laws and rates .................. -- -- 33,900
--------- --------- ---------
$ 64,000 ($301,000) ($ 22,600)
========= ========= =========
</TABLE>
The deferred income tax liabilities (assets) were as follows at January 28,
1996 and January 29, 1995:
<TABLE>
<CAPTION>
January 28 January 29
1996 1995
--------- ---------
<S> <C> <C>
Property and equipment - depreciation ............ $ 498,000 $ 445,000
Prepaid expenses ................................. 157,000 137,000
Vacation accrual ................................. (88,000) (88,000)
Inventory reserve ................................ (62,000) (62,000)
Deferred compensation ............................ (402,000) (394,000)
State net operating loss carryforward ............ (42,000) (41,000)
Other ............................................ (7,000) (7,000)
--------- ---------
Net Deferred Tax Liability (Asset) ........ $ 54,000 ($ 10,000)
========= =========
Reflected on the balance sheet as
Current deferred asset ......................... ($443,000) ($455,000)
Noncurrent deferred liability .................. 497,000 445,000
--------- ---------
Net Deferred Tax Liability (Asset) ........ $ 54,000 ($ 10,000)
========= =========
</TABLE>
<PAGE>
Note 9 - Retirement and Savings Plan
The Company has a defined contribution retirement plan which covers
substantially all of its employees. The Plan is a cash deferred arrangement
described in Internal Revenue Code Section 401(k). The Company's contribution to
the Plan was $100,000 each in 1996, 1995, and 1994.
The Plan provides that employees of the Company may elect to defer a certain
portion of their compensation and contribute to the Plan. The Corporation makes
discretionary contributions as prescribed by the Plan.
Note 10 - Contingencies
The Company is a defendant in various legal actions and claims arising in the
ordinary course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that such litigation
and claims will be resolved without material effect on the Company's financial
condition or will be covered by the Company's liability insurance.
Note 11 - Financial Instruments
The Company has several financial instruments, none of which are held for
trading purposes. The Company estimates that the fair value of all financial
instruments at December 31, 1995, does not differ materially from the aggregate
carrying values of its financial instruments recorded in the accompanying
balance sheet. The fair value amounts have been estimated by the Company using
available market information and appropriate valuation methodologies.
Considerable judgement is required in interpreting market data to develop the
estimates of fair value and, accordingly, the estimates are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange.
Note 12 - Subsequent Event
In March 1996, the Company decided to close 16 unprofitable Widmann stores.
As a result of these closings, the Company expects to have a charge to
operations of approximately $835,000 in the first quarter of fiscal 1997. This
charge includes approximately $635,000 of anticipated writedowns in inventories
to liquidation value.
<PAGE>
Item 9 - Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
In December 1994, the Corporation terminated KPMG Peat Marwick LLP as
independent auditors for the Corporation for the fiscal year ended January 29,
1995 and engaged Alpern, Rosenthal & Company.
The independent auditor's report on the financial statements of the
Corporation for fiscal 1994 did not contain an adverse opinion or disclaimer as
to uncertainty, audit scope or accounting principles. The decision to change
accountants was approved by the Board of Directors.
In connection with the fiscal year ended January 30, 1994 and the subsequent
interim period through December 15, 1994, there was no disagreement with KPMG
Peat Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure, or audit scope or procedures which, if not resolved to the
satisfaction of KPMG Peat Marwick LLP, would have caused KPMG Peat Marwick LLP
to make reference to the subject matter of the disagreement in its report.
<PAGE>
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information required by this Item relating to directors and nominees for
election as directors at the Company's Annual Meeting of Shareholders to be held
on June 19, 1996 is incorporated herein by reference to the information under
the caption "Election of Directors" on pages 2 and 3 of the Corporation's
definitive Proxy Statement (the 1996 Proxy Statement) filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934. The information required by this Item relating to executive
officers is incorporated herein by reference to the 1996 Proxy Statement on page
2 and page 3.
Item 11 - Executive Compensation
The information required by this Item is incorporated herein by reference to
the information under the caption "Management Compensation" on page 4 of the
1996 Proxy Statement.
Item 12 - Security Ownership of Certain Beneficial Financial Owners
and Management
The information required by this Item is incorporated herein by reference to
the information under the caption "Voting Securities and Principal Holders
Thereof" on pages 1, 2 and 3 of the 1996 Proxy Statement.
Item 13 - Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
information under the caption "Transactions with Management" on page 4 of the
1996 Proxy Statement.
<PAGE>
Part IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) (1) The following financial statements are included in Part II, Item 8:
Reports of Independent Certified Public Accountants
Consolidated Financial Statements:
Consolidated Balance Sheets - January 28, 1996 and January 29, 1995
Consolidated Statements of Income for Years Ended January 28, 1996,
January 29, 1995 and January 30, 1994
Consolidated Statements of Stockholders' Equity for Years Ended January
28, 1996, January 29, 1995 and January 30, 1994
Consolidated Statements of Cash Flows for Years Ended January 28, 1996,
January 29, 1995 and January 30, 1994
Notes to Consolidated Financial Statements
(2) The following financial schedule for the periods 1996, 1995 and 1994 is
submitted herewith:
Schedule II - Valuation and Qualifying Accounts IV-2
All other schedules are omitted because they are not required,
inapplicable, or the information is otherwise shown in the financial
statements or notes thereto.
(B) Reports on Form 8-K (No Reports filed)
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Balance at Charged to Balance at
Beginning Costs and Deductions End of
of Period Expenses Describe Period
------- ------- ------- -------
<S> <C> <C> <C> <C>
Year Ended January 28,
1996
Allowance for
doubtful accounts ........ $17,978 $ -- $ -- $17,978
======= ======= ======= =======
Year ended January 29,
1995
Allowance for
doubtful accounts ........ $20,733 $ -- $ 2,755(1) $17,978
======= ======= ======= =======
Year ended January 30,
1994
Allowance for
doubtful accounts ....... $20,262 $ 471 $ -- $20,733
======= ======= ======= =======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
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 under-signed, thereunto duly authorized.
By: /S/ ROSS N. ALFIERI
--------------------------
Ross N. Alfieri
Treasurer and
Assistant Secretary
DATE: April 24, 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.
/S/ JAY L. SCHOTTENSTEIN
- -------------------------------------------- April 24, 1996
Jay L. Schottenstein, Chairman of the Board
/S/ ERWIN LEHR
- -------------------------------------------- April 24, 1996
Erwin Lehr, President and Director
/S/ THOMAS R. KETTELER
- -------------------------------------------- April 24, 1996
Thomas R. Ketteler, Secretary and Director
/S/ ROSS N. ALFIERI
- -------------------------------------------- April 24, 1996
Ross N. Alfieri, Treasurer and Director
