<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM l0-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1995
----------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- -------------------------
Commission File Number 0-12188
--------------------------------------------------
DEB SHOPS, INC.
(Exact name of registrant as specified in its charter)
9401 Blue Grass Road, Philadelphia, PA 19114
(Address of principal executive offices and zip code)
Pennsylvania 23-1913593
(State of Incorporation) (I.R.S. Employer Identification No.)
(215) 676-6000
(Registrant's telephone number, including area code)
____________________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:Common
Stock, par value $.01 per share.
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
----- -----
As of April 7, 1995, 12,844,680 shares of the Company's Common Stock,
par value $.01 per share, were outstanding. The aggregate market value (based
upon the closing price on April 7, 1995) held by non-affiliates was
approximately $13,352,652.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed within 120 days after the end of the fiscal
year in connection with the Annual Meeting to be held on May 24, 1995 -
incorporated in Part III.
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. X
-----
<PAGE> 2
PART 1
------
Item 1. Business
General
Deb Shops, Inc. (the "Company") operates 330 women's specialty apparel
retail stores ("Deb") offering moderately priced, fashionable, coordinated
women's sportswear, dresses, coats, lingerie, accessories and shoes for junior
sizes. Deb merchandise consists of clothing and accessories appealing primarily
to the fashion-conscious junior-sized female consumers between the ages of 13
and 40. In addition to 324 stores operating under the name "DEB" and one
operating under the name "JOY", the Company operates five outlet stores under
the name "CSO". The outlet stores offer the same merchandise as DEB and JOY at
reduced prices and serve as clearance stores for slow-moving inventory.
The Company also operates 11 apparel retail stores under the name Tops
'N Bottoms. Tops 'N Bottoms sells moderately priced men's and women's apparel.
Thirty-four of the Deb stores contain Tops 'N Bottoms departments.
Merchandising and Marketing
Deb specializes in junior-sized merchandise and offers an extensive
selection of colors and styles. The merchandise is attractively presented in
groups coordinated by color and style to assist customers in locating items of
their choice and in creating outfits of their own.
Tops 'N Bottoms caters primarily to young men and junior-sized women.
Much of the merchandise is brand names and is unisex, capable of being worn by
men or women.
The Company purchases its merchandise in volume, sells it at moderate
prices, and has a policy of early mark-downs of slow-moving inventory. A special
effort is made to select and present coordinated outfits on a rotating basis and
featured merchandise is changed approximately twice a week.
A computerized point of sale merchandise data system provides detailed
daily information regarding sales and inventory levels by style, color, class
and department, thereby permitting the Company to analyze market trends and
changing store needs. Since merchandise control statistics are available on a
daily basis, the Company can identify slow-moving merchandise and respond to
customer buying trends when making repurchase decisions and mark-down
adjustments. This permits the Company to maintain current and fresh merchandise
in its stores.
The Company experiences the normal seasonal pattern of the retail
apparel industry with its peak sales occurring during the Christmas,
Back-to-School and Easter periods. To keep merchandise fresh and fashionable,
slow-moving merchandise is marked down throughout the year. End-of-season sales
are conducted twice a year (in the second and fourth quarters), in keeping
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with the Company's policy of carrying a minimal amount of seasonal merchandise
over from one year to another. If unsold at the end of the seasonal sales,
merchandise is transferred to the Company's CSO stores.
Stores
Originally, the business of the Company was located in Pennsylvania and
New Jersey. As the business grew and expanded into other states, the Company
expanded its principal regional focus to include both the northeast and midwest
sections of the United States. During the fiscal year ended January 31, 1995,
Deb opened seven additional stores (while closing 34 stores). Tops 'N Bottoms
opened one store and closed one store. Deb also opened sixteen Tops 'N Bottoms
departments within Deb stores. At the present time the Company has scheduled one
new store and one Tops 'N Bottoms department for the first half of fiscal 1996.
The Company is currently scheduled to close eight stores in the first half of
fiscal 1996. The Company plans to continue to carefully evaluate the
profitability of individual stores and close those stores which it believes
cannot become profitable or maintain profitability.
The following table shows store openings and closings for the last five
fiscal years.
Year Ended January 31,
------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Open at beginning
of fiscal year................ 316 342 365 373 368
Opened during fiscal year..... 37 32 24 11 8
Closed during fiscal year..... (11) (9) (16) (16) (35)
--- --- --- --- ---
Open at end of fiscal year.... 342 365 373 368 341
=== === === === ===
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The following table shows the states in which the Company's 341 existing
stores are located.
New England East Midwest
Connecticut 2 Delaware 1 Illinois 16
Maine 3 Maryland 6 Indiana 14
Massachusetts 13 New Jersey 15 Iowa 6
Rhode Island 1 New York 40 Kansas 3
-- Pennsylvania 50 Kentucky 6
19 Virginia 13 Michigan 24
West Virginia 7 Minnesota 10
--- Missouri 7
132 Nebraska 1
North Dakota 2
Ohio 30
South Dakota 1
Wisconsin 16
---
136
South West
Alabama 1 California 3
Arkansas 1 Colorado 4
Georgia 2 Idaho 2
Louisiana 1 New Mexico 3
North Carolina 1 Oklahoma 5
South Carolina 1 Oregon 7
Tennessee 5 Texas 10
-- Utah 2
12 Washington 6
--
42
Deb stores, which are typically 6,200 square feet, are located primarily
in enclosed regional shopping malls and selected strip centers. Deb stores with
Tops 'N Bottoms departments are typically 8,300 square feet and are all located
in enclosed regional malls. Tops 'N Bottoms stores are all located in enclosed
regional malls and range in size from 2,300 to 3,400 square feet. New stores are
opened in existing malls, existing mall expansions, new malls and occasionally,
strip centers. Factors considered in opening new stores include the availability
of suitable locations and negotiation of satisfactory lease terms, both of which
are considered essential to successful operations. Key considerations in
selecting sites for new stores include the geographic location of the center,
the demographics of the surrounding area, the principal specialty and "anchor"
stores within the center, expected customer traffic within the center, and the
location of the Company's store within the center itself.
Stores are distinctively designed for customer identification and are
remodeled, when necessary. The stores are open generally from l0:00 A.M. to 9:30
P.M., Monday through Saturday, and from Noon to 5:00 P.M. on Sunday.
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Operations
Payments for most of the Company's sales are made in cash, and the
balance are made with MasterCard, Visa, Discover and the Company's private label
credit cards. For customer convenience, the Company provides lay-away plans. The
Company's policy is to permit returns of merchandise for exchange or for a full
cash or credit refund, at the customer's preference.
The Company purchases its merchandise from a number of suppliers, both
domestic and foreign, and is not materially dependent on any one supplier. All
merchandise is shipped directly from vendors to the Company's central
distribution facility, where it is received, inspected and price-marked before
being shipped to the individual stores. The Company distributes its inventory by
common carrier and leased trucks.
The responsibility for managing the Company's stores rests with the Vice
President, Store Operations and a staff of forty-one employees consisting of
Regional and District Supervisors. A District Supervisor is responsible for an
average of ten stores, each of which is staffed by a Store Manager and an
Assistant Store Manager and two Junior Assistant Store Managers. The District
and Regional Supervisors visit the stores regularly to review merchandise
levels, content and presentation, staff training and personnel issues, store
security and cleanliness and adherence to standard operating procedures.
The merchandising department consists of thirty-six employees, including
the Vice President, Merchandising, Merchandise Managers and Buyers. The
department is responsible for purchasing, pricing (including mark-downs),
inventory planning and allocating merchandise among the stores. The
merchandising department's staff is organized in the following apparel
categories: sportswear, dresses, coats, lingerie, hosiery and accessories.
The Company stresses promotion from within its organization. All of the
current District and Regional Supervisors and the Vice President, Store
Operations, have been promoted in this manner.
At January 31, 1995, the Company had approximately 3,000 employees,
approximately 60% of whom were employed on a part-time basis. The Company has a
collective bargaining agreement with the United Paperworkers International
Union, Philadelphia Local 286 (UPIU) which expires on December 31, 1995. The
UPIU represents the Company's warehouse employees. The collective bargaining
agreement covers approximately 80 employees. The Company considers its employee
relations to be good.
Competition
The retail sale of apparel is a highly competitive business with
numerous individual and chain store competitors, including specialty shops as
well as regional and national department store chains. Many of its competitors
are considerably larger than the Company and have substantially greater
financial and other resources.
The primary elements of competition are merchandise style, selection,
quality, display and price, as well as store location and design. The Company
believes that its strategy for the Deb stores of specializing in the junior
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sportswear market and its ability to effect volume purchases are important
elements in its operations. Brand name merchandise is not a significant factor
in the Company's sales.
Item 2. Properties
The Company leases all of its stores. The internal layout and fixtures
of each store are designed and constructed under contracts with third parties.
Under most leases, the Company is required to pay, in addition to fixed
minimum rental payments, charges for real estate taxes, common area maintenance
fees, utility charges, insurance premiums, mall association charges and
contingent rentals based upon a percentage of sales in excess of specified
amounts.
The following table shows the years in which executed store leases
existing at January 31, 1995 expire.
Calendar Years Number of Leases Expiring
-------------- -------------------------
1995 - 1996........................... 37
1997 - 1998........................... 60
1999 - 2000........................... 85
2001 - 2002........................... 73
2003 - 2004........................... 44
2005 - 2006........................... 23
2007 and thereafter................... 19
---
Total............................ 341
===
The Company leases its warehouse, distribution and office space,
aggregating 280,000 square feet, pursuant to a twenty year lease dated and
effective June 15, 1982. This facility is a modern, one story industrial
building situated on approximately 20 acres located in the northeast section of
Philadelphia. See Item 13. Certain Relationships and Related Transactions.
With respect to the locations of present stores, see Item 1.
Business-Stores.
Item 3. Legal Proceedings
The Company is involved in certain litigation incidental to the normal
conduct of its business, none of which individually, or in the aggregate,
appears likely to result in materially adverse consequences for the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an un-numbered Item in Part I of this Report in lieu of being
included in the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 24, 1995.
The executive officers of the Company, each of whom serves at the
discretion of the Board of Directors, are as follows.
Name Age Position with Company Officer Since
---- --- --------------------- -------------
Marvin Rounick 55 Director, President and
Chief Executive Officer 1973
Warren Weiner 51 Director, Executive Vice
President, Secretary/Treasurer 1973
Barry Vesotsky 49 Vice President, Merchandising 1981
Traci Jan Morrow 45 Vice President, Store Operations 1980
Stanley A. Uhr 49 Vice President, Real Estate
Corporate Counsel 1988
Lewis Lyons 41 Vice President, Finance and
Chief Financial Officer 1992
Marvin Waxman 50 Controller 1985
Marvin Rounick has been employed by the Company since 1961. Since 1979,
he has served as the President and Chief Executive Officer. Prior to that time,
he served as Vice President, Operations and General Merchandise Manager.
Warren Weiner was employed by the Company from 1965 until 1975. He
rejoined the Company in January, 1982, as Executive Vice President, Secretary
and Treasurer.
Barry Vesotsky has been employed by the Company since 1970. Since 1981,
he has served as Vice President, Merchandising. From 1978 to 1981, he was a
Buyer and Merchandise Manager with the Company.
Traci Jan Morrow has been employed by the Company since 1977. Since
1980, she has been Vice President, Store Operations.
Stanley A. Uhr has been employed by the Company since 1987, first as
Director of Real Estate and Corporate Counsel and, from March 31, 1988, as Vice
President, Real Estate and Corporate Counsel.
Lewis Lyons has been employed by the Company since 1990, first as
Director of Taxes; from May 20, 1992, as Vice President, Finance; and from May
26, 1993, as Vice President, Finance and Chief Financial Officer. For more than
five years prior thereto he was a Tax Manager in the accounting firm of
Goldenberg/Rosenthal, Philadelphia, Pennsylvania.
Marvin Waxman has been employed by the Company in his present capacity
since 1985.
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<PAGE> 8
PART II
Item 5. Market for the Registrant's Common
Stock and Related Stockholder Matters
Market Information
The Company's Common Stock is traded on the over-the-counter market
(NASDAQ National Market). Symbol: DEBS.
The following table sets forth quarterly high and low sales prices for
the two most recent fiscal years.
1995 High Low
- - ---- ---- ---
First Quarter $7.250 $6.125
Second Quarter 7.375 6.625
Third Quarter 7.125 4.625
Fourth Quarter 5.375 3.000
1994 High Low
- - ---- ---- ---
First Quarter $9.00 $7.25
Second Quarter 8.00 5.75
Third Quarter 7.50 5.50
Fourth Quarter 7.50 5.75
Holders
As of April 7, 1995, there were 497 holders of record of the Company's
Common Stock.
Dividends
The Company paid regular quarterly dividends for each of the fiscal
quarters in the two most recent fiscal years. The per share amount of these
dividends was $.05 for each of the fiscal quarters of fiscal 1994 and 1995. The
company intends to follow a policy of regular quarterly cash dividends, subject
to earnings, capital requirements and the operating and financial condition of
the Company, among other factors.
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<PAGE> 9
Item 6. Selected Financial Data
The following selected financial data are derived from the consolidated
financial statements of the Company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included herein.
Deb Shops, Inc.
Consolidated Financial Highlights
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------------------------------------
(in thousands, except per share and ratio data) 1995 1994 1993 1992 1991
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $202,938 $221,070 $229,459 $220,337 $212,258
Cost of Sales, Including Buying
and Occupancy Costs 162,000 166,569 172,027 163,647 150,260
(Loss) Income Before Income Taxes (4,619) 7,396 10,352 12,419 20,418
Net (Loss) Income (2,719) 5,146 7,252 8,594 13,573
Net (Loss) Income as a Percent
of Net Sales (1.3%) 2.3% 3.2% 3.9% 6.4%
Net (Loss) Income Per Common Share (.21) .33 .46 .55 .88
Total Assets 106,202 132,932 131,238 127,278 117,043
Capital Lease Obligations 2,040 2,040 2,040 2,040 2,040
Shareholders' Equity 87,383 109,389 107,346 103,187 96,942
Book Value per Share at Year End 6.80 6.98 6.86 6.58 6.23
Cash Dividend per Share of Common
Stock .20 .20 .20 .20 .20
</TABLE>
Not covered by report of Independent Public Accountants.
-8-
<PAGE> 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Operations
RESULTS OF OPERATIONS
Net sales decreased $18,133,000 (8.2%) from fiscal 1994 to 1995 and
decreased $8,388,000 (3.7%) from fiscal 1993 to 1994. The decrease in net sales
in fiscal 1995 was principally attributable to continued customer resistance to
product and pricing and a lack of fashion direction in the women's specialty
apparel industry. The decrease in net sales in fiscal 1994 was attributable
principally to adverse weather conditions in the first quarter of fiscal 1994
and a continued lack of customer confidence. The following table sets forth
certain per store information.
Per Store Data(1)
Year Ended January 31,
----------------------
1995 1994 1993
Stores open at end of the period 341 368 373
Average number in operation during the period 357 371 367
Average net sales per store (in thousands) $568 $596 $625
Average net (loss) income per store
(in thousands) ($ 8) $ 14 $ 20
Comparable Store Sales(2) -- Percent Change (7.9%) (5.9%) (1.5%)
- - -------------
(1) Includes Tops 'N Bottoms stores
(2) Comparable store sales includes stores opened for both periods, in the
current format and location. A store is added to the comparable store base
in its 13th month of operation.
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Since fiscal 1993 the Company has trended toward lower sales and since
fiscal 1991 the company has trended toward lower earnings. Sales have been lower
principally due to lower demand as a result of increased customer resistance to
product and pricing and a lack of fashion direction in the women's specialty
apparel industry. Management has tried and continues to try to adjust the
product mix and pricing philosophy in an attempt to stimulate sales. For fiscal
1996 the Company will introduce shoes into 200 of its locations, in an attempt
to generate new business and multiple sales. In August 1993, the Company
introduced its private label credit card as a means of attempting to stimulate
sales. The credit card also serves as a vehicle for direct mail contact with the
customer.
Net income decreased $7,865,000 (152.8%) from fiscal 1994 to 1995 and
decreased $2,105,000 (29.0%) from fiscal 1993 to 1994. As a percentage of net
sales, the net (loss) income was (1.3%) in fiscal 1995, 2.3% in fiscal 1994, and
3.2% in fiscal 1993. The decrease in fiscal 1995 was primarily attributable to
the decrease in total sales, as discussed above, along with decreased margins as
a result of increased competitive pressures. Sales and margins at these levels
are insufficient to cover fixed overhead. The net loss for fiscal 1995 was
partially offset (to the extent of $600,000) by refunds of insurance premiums
received during the quarter ended April 30, 1994. The decrease in fiscal 1994
was primarily attributable to the continued lack of consumer confidence and
increased expenses as a percentage of sales. The decrease in 1993 was primarily
attributable to a lack of consumer confidence, a decrease in other income
(principally interest) and increased expenses. During the fourth quarter of
fiscal 1995 margins decreased compared to a small increase in margins during the
fourth quarter of fiscal 1994 and fiscal 1993. During the periods reported,
comparable store sales decreased as noted in the table above. The primary reason
for the decreases in comparable store sales was customer resistance to product
and pricing and a lack of fashion direction in the women's specialty apparel
industry. The trend toward lower sales and lower comparable store sales has
continued into the first quarter of fiscal 1996.
Cost of sales, including buying and occupancy costs, decreased
$4,570,000 (2.7%) from fiscal 1994 to 1995 and decreased $5,457,000 (3.2%) from
fiscal 1993 to 1994. The principal reason for the dollar decrease from fiscal
1994 to 1995 and from fiscal 1993 and 1994 was the decrease in sales. As a
percentage of net sales these costs were 79.8% during fiscal 1995, 75.3% during
fiscal 1994, and 75.0% during fiscal 1993. The increased cost of sales
percentage resulted principally from higher promotional activity as a result of
increased competitive pressures. Buying and occupancy costs were 19.7%, 18.0%
and 17.6% of sales for the fiscal years 1995, 1994 and 1993 respectively. These
percentage increases resulted principally from decreased comparable store sales.
Selling and administrative expenses decreased $2,255,000 (5.1%) from
fiscal 1994 to 1995 and $112,000 (0.3%) from fiscal 1993 to 1994. The decrease
in selling and administrative expenses from fiscal 1994 to 1995 was due, in
part, to approximately $600,000 of refunds received for health and workers'
compensation insurance as a result of favorable experience. In addition the
decrease in selling and administrative expenses from fiscal 1994 to 1995 was due
to a decrease in the number of stores and a decrease in sales.
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<PAGE> 12
The decrease in these expenses for fiscal 1994 was mainly due to cost controls.
As a percentage of net sales, these expenses were 20.9% during fiscal 1995,
20.2% during fiscal 1994 and 19.5% during fiscal 1993. The percentage
increases in fiscal 1994 and 1995 were the result of sales for the period
being insufficient to cover fixed overhead.
The increase in depreciation expense in fiscal 1995 and 1994 is
principally attributed to the remodeling and expanding of the Company's stores.
LIQUIDITY AND CAPITAL RESOURCES
During the past three fiscal years, the Company has funded internally
all of its operating needs, including capital expenditures for the opening of
new stores, the purchase of new cash registers, remodeling of existing stores,
the purchase of computer equipment and the acquisition of Treasury Stock.
Total cash provided by operating activities for the fiscal years ended
January 31, 1995, 1994, and 1993 was $65,000, $4,894,000 and $16,707,000,
respectively derived principally from operating income for the fiscal years
ended January 31, 1994 and 1993. For fiscal 1995 the net loss was offset by cash
provided by operations as a result of non cash charges for depreciation and
decreased merchandise inventories. For fiscal 1994 cash provided by operating
activities was reduced by lower income and $5,000,000 from increased merchandise
inventories.
Net cash used in investing activities was $1,735,000, $928,000 and
$6,295,000 for the fiscal years ended January 31, 1995, 1994 and 1993,
respectively. These funds were principally used in the purchase of property,
plant and equipment. During fiscal 1995 and 1994, these funds were net of
proceeds from the sale of investments. During fiscal 1995, the Company expended
$2.6 million for property and equipment additions to open 8 new stores and
remodel existing stores. During fiscal 1994, the Company expended $2.7 million
for property and equipment additions to open 11 new stores and remodel existing
stores. During fiscal 1993, the Company expended $6.3 million for property and
equipment additions to open 24 new stores, remodel existing stores and purchase
new cash registers.
Net cash used in financing activities was $19.3 million, $3.2 million
and $3.2 million for the fiscal years ended January 31, 1995, 1994 and 1993,
respectively. For the fiscal year ended January 31, 1995 these funds were used
for the purchase of treasury stock and the payment of dividends on preferred and
common stock. On April 4, 1994 the Company purchased the 2,761,800 shares of its
Common Stock owned by Petrie Stores Corporation at a cash price of $6.05 per
share, for a total cash outlay of approximately $16,800,000 including
transaction costs. That price represented a substantial discount from book value
of $6.98 per share. The purchase price was funded entirely from a portion of the
Company's short-term investments. For the fiscal years ended January 31, 1994
and 1993 these funds were also used for the payment of dividends on preferred
and common stock.
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<PAGE> 13
As of January 31, 1995, the Company had cash and cash equivalents of
$50,610,000 compared with $71,614,000 at January 31, 1994 and $70,822,000 at
January 31, 1993. Since fiscal 1993, the Company has trended toward lower sales
and since fiscal 1991 the Company has trended toward lower earnings and these
trends are continuing into the first quarter of fiscal 1996. There are no known
other trends or commitments, events or other uncertainties that are reasonably
likely to result in the Company's liquidity increasing or decreasing in any
material way. The Company believes that internally generated funds will be
sufficient to meet its anticipated capital expenditures, none of which are
material, and current operating needs.
INCOME TAXES
The effective income tax rate for fiscal 1995, 1994 and 1993 was
(41.1%), 30.4% and 30.0% , respectively. The effective tax rate benefit for
fiscal 1995 is higher than the statutory rate primarily as a result of tax-free
interest income. The effective tax rate for fiscal 1994 and 1993 is lower than
the statutory rate primarily as the result of tax-free interest income.
Effective February 1, 1993, The Company adopted Financial Accounting Standard
No. 109 (SFAS No. 109) ,"Accounting for Income Taxes". The impact of adopting
SFAS No. 109 was not material to the fiscal 1994 or 1995 financial statements.
INFLATION
Inflation has little impact on the operating results of the Company
since inflation rates are relatively low and inventory turns are frequent.
Inflation has had no meaningful effect on the other assets of the Company.
SEASONAL NATURE OF OPERATIONS
Approximately 55% and (4%) of the Company's net sales and net (loss)
income respectively for fiscal 1995 occurred during the last six months as
compared to 57% and 118% in the prior year. The last six months include the
Back-to-School and Christmas selling seasons. See "Quarterly Financial
Information (Unaudited)", and the preceding discussion on "Results of
Operations".
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Item 8. Financial Statements and Supplementory Data
Report of Independent
Public Accountants
To the Board of Directors
of Deb Shops, Inc.:
We have audited the accompanying consolidated balance sheets of Deb Shops, Inc.
(a Pennsylvania corporation) and subsidiaries as of January 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended January 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Deb
Shops, Inc. and subsidiaries as of January 31, 1995, and 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended January 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Philadelphia, PA
February 27, 1995
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<PAGE> 15
Deb Shops, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31,
-----------------------------------------------
1995 1994 1993
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales $202,937,909 $221,070,492 $229,458,920
Other income, principally interest 843,721 1,549,030 1,378,954
------------- ------------- -------------
203,781,630 222,619,522 230,837,874
------------- ------------- -------------
Costs and Expenses
Cost of sales, including buying
and occupancy costs 161,999,660 166,569,448 172,026,589
Selling and administrative 42,314,134 44,569,295 44,681,350
Depreciation and amortization 4,086,707 4,084,283 3,778,171
------------- ------------- -------------
208,400,501 215,223,026 220,486,110
------------- ------------- -------------
(Loss) Income Before Income Taxes (4,618,871) 7,396,496 10,351,764
Income tax (benefit) provision (1,900,000) 2,250,000 3,100,000
------------- ------------- -------------
Net (Loss) Income ($ 2,718,871) $ 5,146,496 $ 7,251,764
============= ============= =============
Net (Loss) Income Per Common Share ($ .21 $ .33 $ .46
============= ============= =============
Weighted Average Number of Common
Shares Outstanding 13,268,236 15,594,362 15,585,966
============= ============= =============
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
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<PAGE> 16
Deb Shops, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 31,
-------------------------------
1995 1994
- - -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $50,610,195 $71,614,201
Investments -- 857,672
Merchandise inventories 28,576,374 32,773,085
Prepaid expenses and other 3,920,716 2,331,524
Current deferred income taxes 1,196,129 847,218
------------ ------------
Total current assets 84,303,414 108,423,700
------------ ------------
Property, Plant and Equipment - at cost
Building and improvements 1,982,000 1,982,000
Leasehold improvements 31,198,281 31,360,536
Furniture and equipment 16,647,563 17,128,001
------------ ------------
49,827,844 50,470,537
Less accumulated depreciation and amortization 29,762,281 28,092,642
------------ ------------
20,065,563 22,377,895
------------ ------------
Other Assets
Long term deferred income taxes 665,211 963,000
Other 1,167,514 1,167,514
------------ ------------
Total other assets 1,832,725 2,130,514
------------ ------------
$106,201,702 $132,932,109
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $11,663,983 $13,548,968
Accrued expenses 5,114,260 5,119,214
Income taxes -- 2,834,878
------------ ------------
Total current liabilities 16,778,243 21,503,060
------------ ------------
Capital Lease Obligation 2,040,408 2,040,408
------------ ------------
Commitments (Note D and G)
Shareholders' Equity
Series A Preferred stock, par value $1.00 a share:
Authorized - 5,000,000 shares
Issued and outstanding - 460 shares,
liquidation value $460,000 460 460
Common stock, par value $.01 a share:
Authorized - 25,000,000 shares
Issued shares-1995: 15,688,290; 1994: 15,688,290 156,883 156,883
Additional paid-in capital 5,541,944 5,666,744
Retained earnings 99,218,862 104,562,522
------------ ------------
104,918,149 110,386,609
Less common treasury shares, at cost -
1995: 2,835,345; 1994: 85,225 17,535,098 997,968
------------ ------------
87,383,051 109,388,641
------------ ------------
$106,201,702 $132,932,109
============ ============
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-15-
<PAGE> 17
Deb Shops, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------------------------------
Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 31, 1992 460 $460 15,688,290 $156,883
Exercise of stock options
---- ---- ---------- --------
Balance January 31, 1993 460 460 15,688,290 156,883
Exercise of stock options
---- ---- ---------- --------
Balance January 31, 1994 460 460 15,688,290 156,883
Exercise of stock options
---- ---- ---------- --------
Balance January 31, 1995 $460 $460 15,688,290 $156,883
==== ==== ========== ========
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-In Retained Treasury
Capital Earnings Stock
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance January 31, 1992 $5,846,044 $98,511,360 $1,327,303
Net income 7,251,764
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.20 per share) (3,117,085)
Issuance of restricted incentive stock, net (64,800) (143,930)
---------- ----------- -----------
Balance January 31, 1993 5,781,244 102,590,839 1,183,373
Net income 5,146,496
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.20 per share) (3,119,613)
Issuance of restricted incentive stock, net (114,500) (185,405)
---------- ----------- -----------
Balance January 31, 1994 5,666,744 104,562,522 997,968
Net (loss) (2,718,871)
Dividends on preferred stock ($120 per share) (55,200)
Dividends on common stock ($.20 per share) (2,569,589)
Issuance of restricted incentive stock, net (124,800) (171,760)
Purchase of 2,761,800 shares of common stock (Note H) 16,708,890
---------- ----------- -----------
Balance January 31, 1995 $5,541,944 $99,218,862 $17,535,098
========== =========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-16-
<PAGE> 18
Deb Shops, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31,
-----------------------------------------------
1995 1994 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ($2,718,871) $5,146,496 $7,251,764
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 4,086,707 4,084,283 3,778,171
Issuance of restricted incentive stock, net 46,960 70,905 79,130
Gain on disposition of investments (17,202)
Deferred income tax benefit (provision) 297,789 (74,218) (200,000)
Loss on retirement of property, plant
and equipment 835,394 678,908 766,564
Change in assets and liabilities:
Decrease (increase) in merchandise inventories 4,196,711 (5,138,950) 6,582,529
(Increase) decrease in prepaid expenses and
other (1,938,103) 475,778 (1,353,417)
(Decrease) increase in trade accounts payable (1,884,985) 1,056,393 (2,469,142)
(Decrease) increase in accrued expenses (4,954) (883,929) 1,563,377
(Decrease) increase in income taxes (2,834,878) (521,225) 707,824
----------- ----------- -----------
Net cash provided by operating activities 64,568 4,894,441 16,706,800
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment,net (2,609,769) (2,669,050) (6,295,386)
Proceeds from sale of investments 874,874 1,741,500 --
----------- ----------- -----------
Net cash used in investing activities (1,734,895) (927,550) (6,295,386)
----------- ----------- -----------
Cash flows from financing activities:
Preferred stock cash dividends paid (55,200) (55,200) (55,200)
Common stock cash dividends paid (2,569,589) (3,119,613) (3,117,085)
Repurchase of treasury stock (16,708,890) -- --
----------- ----------- -----------
Net cash used in financing activities (19,333,679) (3,174,813) (3,172,285)
----------- ----------- -----------
(Decrease) increase in cash and cash equivalents (21,004,006) 792,078 7,239,129
Cash and cash equivalents at beginning of year 71,614,201 70,822,123 63,582,994
----------- ----------- -----------
Cash and cash equivalents at end of year $50,610,195 $71,614,201 $70,822,123
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on capital lease obligation $ 444,000 $ 464,000 $ 475,000
Income taxes $ 2,602,263 $ 2,707,059 $ 3,032,701
</TABLE>
The notes to consolidated financial statements are an integral part of these
financial statements.
-17-
<PAGE> 19
DEB SHOPS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - A -SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Consolidation: The consolidated financial statements of Deb Shops, Inc. (the
Company) include the accounts of the Company and its subsidiaries, after
elimination of all inter-company transactions and accounts.
Inventories: Merchandise inventories are stated at the lower of cost (first-in,
first-out method) or market, as determined by the retail inventory method.
Investments: In May, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", (SFAS No. 115). SFAS No. 115
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The Company adopted SFAS No. 115 effective February 1, 1994. The
adoption of SFAS No. 115 did not have a material effect on the Company's
financial condition or results of operations.
Income Taxes: The liability method is used in accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that are expected
to be in effect when the differences reverse. Deferred income taxes result
principally from differences in the timing of recognition of overhead in
inventory, deductibility of certain liabilities and depreciation expense.
Property, Plant and Equipment: The provisions for depreciation and amortization
are computed using the straight-line method based upon estimated useful lives of
the assets. Leasehold improvements are amortized over the initial term of the
lease. Furniture and equipment is depreciated over seven years or the lease
term, whichever is less. Gain or loss on disposition of property, plant and
equipment is included in other income.
Net (Loss) Income Per Common Share: Net (loss) income per common share and all
per share amounts are based upon the weighted average common shares outstanding
during each year including the dilutive effect of stock options and restricted
incentive stock.
Statements of Cash Flows: The Company considers all highly liquid investments
with an original maturity of less than three months to be cash equivalents.
Included in cash and cash equivalents at January 31, 1995 is $48,295,000 of
investments in mutual funds, money markets and municipal bonds. They are carried
at cost which approximates market.
-18-
<PAGE> 20
- - - B -INVESTMENTS
At January 31, 1994, the Company had investments in mutual funds of
$857,672. During the year ended January 31, 1995, all investments were sold.
- - - C -INCOME TAXES
Income tax provision (benefit) consists of the following components:
Year Ended January 31,
----------------------------------
1995 1994 1993
- - ---------------------------------------------------------------------
Current:
Federal........................($1,850,000) $2,075,000 $3,000,000
State.......................... 250,000 250,000 300,000
----------- ---------- ----------
(1,600,000) 2,325,000 3,300,000
----------- ---------- ----------
Deferred:
Federal........................ (250,000) (25,000) (150,000)
State.......................... (50,000) (50,000) (50,000)
----------- ---------- ----------
(300,000) (75,000) (200,000)
----------- ---------- ----------
($1,900,000) $2,250,000 $3,100,000
=========== ========== ==========
The tax benefit generated during fiscal year 1995 will be realized by
carrying back the loss to income generated during previous years.
A reconciliation of the Company's effective income tax with the
statutory federal rate follows:
Year Ended January 31,
-------------------------------------
1995 1994 1993
- - -----------------------------------------------------------------------
Tax (benefit) at statutory rate.. $1,570,000) $2,515,000 $3,520,000
Tax-free income.................. (441,000) (563,000) (588,000)
State income taxes,
net of federal tax............. 132,000 132,000 165,000
Other............................ (21,000) 166,000 3,000
----------- ---------- ----------
($1,900,000) $2,250,000 $3,100,000
=========== ========== ==========
-19-
<PAGE> 21
Effective February 1, 1993, the Company adopted Financial Accounting
Standards No. 109 (SFAS No. 109) "Accounting for Income Taxes". The impact of
adopting SFAS No. 109 was not material to the fiscal 1995, 1994 or 1993
financial statements.
The deferred tax effect of temporary differences giving rise to the
Company's deferred tax assets are:
January 31,
----------------------------------
1995 1994
- - ------------------------------------------------------------------------------
Deferred Tax Asset
- - ------------------
Uniform cost capitalization $ 443,000 $ 546,000
Capital lease obligation 423,000 446,000
Deferred rent 323,000 345,000
Depreciation 210,000 172,000
Accrued expenses 726,000 607,000
---------- ----------
2,125,000 2,116,000
Deferred Tax Liabilities
- - ------------------------
Prepaid Expenses (264,000) ( 306,000)
---------- ----------
$1,861,000 $1,810,000
========== ==========
- - - D -LEASES
The Company leases all of its retail stores for periods ranging from one
to 25 years, including renewal options. In most instances, the Company pays real
estate taxes, insurance and maintenance costs on the leased properties and
contingent rentals based upon a percentage of sales. The warehouse and office
building occupied by the Company is leased from a partnership whose partners
include three of the Company's directors including the President and Executive
Vice President.
Under the terms of the warehouse and office building lease, the Company
is required to pay annual rentals as reflected under "Capital Lease" in the
lease table below. The lease term is 20 years and requires the Company to pay
all real estate taxes, utilities and maintenance costs. The warehouse and office
building lease has a net book value of $793,000 at January 31, 1995 and is
accounted for as a capital lease. Resulting asset amounts are included in
building and improvements and are depreciated over twenty years.
Interest expense related to the capital lease obligation amounted to
$444,000, $464,000, $475,000, for the years ended January 31, 1995, 1994 and
1993, respectively, and is included in selling and administrative expense.
-20-
<PAGE> 22
Future minimum rental commitments for all noncancellable leases at
January 31, 1995 are as follows:
Capital Operating
Lease Leases
- - ----------------------------------------------------------------------
1996.................................... $ 550,000 $ 19,156,000
1997.................................... 550,000 18,202,000
1998.................................... 550,000 16,786,000
1999.................................... 550,000 15,012,000
2000.................................... 550,000 12,417,000
Thereafter.............................. 1,330,000 35,353,000
---------- ------------
Total minimum rental commitments........ 4,080,000 $116,926,000
============
Imputed interest........................ (2,039,592)
----------
Present value of net minimum
lease payments........................ $2,040,408
==========
Total rental expense under operating leases amounted to $20,003,352,
$20,290,486 and $21,383,050 in fiscal 1995, 1994 and 1993, respectively. Such
amounts include contingent rentals based upon a percentage of sales of $730,171,
$861,177 and $926,771 in fiscal 1995, 1994 and 1993, respectively.
- - - E -STOCK OPTION PLAN
In January 1983, the Company adopted an Incentive Stock Option Plan. The
plan is administered by a Stock Option Committee designated by the Board of
Directors. Under the plan, a maximum of 1,000,000 shares of the Company's common
stock, par value $.01 per share, may be issued by the Company and sold to
selected key employees on the basis of contribution to the operations of the
Company. The price payable for the shares of common stock under each stock
option will be fixed by the Committee at the time of grant, but will be no less
than 100% of the fair market value of the Company's common stock at the time the
stock option is granted. Options are exercisable 50% per year cumulatively
commencing after the first year after date of grant. There were 50,460 options
outstanding on January 31, 1993 which expired during fiscal 1994. At January 31,
1995 there were 294,210 shares reserved for future grant.
- - -F-RESTRICTED STOCK INCENTIVE PLAN
Effective June 1, 1990, the Company adopted a Restricted Stock Incentive
Plan ("RSIP") administered by the Company's Stock Option Committee. Under the
RSIP a maximum 300,000 shares of the Company's common stock may be awarded as
bonuses to key employees. No more than 100,000 shares may be issued under this
plan during any calendar year. Upon grant, the shares shall be registered in the
-21-
<PAGE> 23
name of the recipient who shall have the right to vote the shares and receive
cash dividends, but the right to receive the certificates and retain the shares
does not vest until the grantee has remained in the employ of the Company for a
period determined by the Stock Option Committee. At the time of the vesting, a
portion of the shares may be withheld to cover withholding taxes due on the
compensation income resulting from the grant.
During each of fiscal 1995 and 1994, 20,000 shares were granted under
the plan. Compensation expense in the years ended January 31, 1995 and 1994 was
$100,000 and $125,000, respectively. At January 31, 1995 there were 206,000
shares reserved for future grant. During fiscal 1995 and 1994, 8,320 and 6,860
shares, respectively, of treasury stock were withheld to cover withholding
taxes. These have been included in the issuance of restricted incentive stock,
net on the consolidated statements of shareholders' equity.
- - -G-COMMITMENTS
The Company has an unsecured line of credit aggregating $20,000,000 at
January 31, 1995. Of this amount, $8,069,000 was outstanding as letters of
credit for the purchase of inventory.
The Company entered into a five year agreement with a bank during fiscal
1994 for the use of a private label credit card bearing the Company's name. The
Company pays a fee based on a percent of sales. Upon termination and under
certain circumstances, the Company may be liable for excess losses incurred, as
defined, on the collection of the then outstanding receivables.
-22-
<PAGE> 24
Deb Shops, Inc.
Quarterly Financial Information
(Unaudited)
<TABLE>
<CAPTION>
Amounts in Thousands First Second Third Fourth
Except Per Share Data Quarter Quarter Quarter Quarter
- - ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
1995 $43,316 $47,294 $49,170 $63,158
1994 $43,613 $51,693 $53,476 $72,288
Cost of sales, including
buying and occupancy costs
1995 $35,100 $36,807 $40,572 $49,521
1994 $35,120 $38,726 $41,546 $51,177
Net (loss) income
1995 ($ 1,605) ($ 1,002) ($ 2,313) $ 2,201
1994 ($ 1,446) $ 515 ($ 19) $ 6,096
Net (loss) income per share
1995 ($ .11) ($ .08) ($ .18) $ .17
1994 ($ .09) $ .03 $ -- $ .39
Cash dividends per share
1995 $ .05 $ .05 $ .05 $ .05
1994 $ .05 $ .05 $ .05 $ .05
</TABLE>
-23-
<PAGE> 25
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
(a) Directors of the Registrant
The required information with respect to each director is contained in
the Company's Proxy Statement in connection with its Annual Meeting to
be held on May 24, 1995, which is incorporated in this Form 10-K Annual
Report by reference.
(b) Executive Officers of the Registrant
The required information with respect to each executive officer is
contained at the end of Part I of this Form 10-K.
(c) Family Relationships
Marvin Rounick, President, Chief Executive Officer and a Director, and
Jack A. Rounick, a Director, are brothers.
(d) Other
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any director or executive officer during
the past five years.
Item 11. Executive Compensation
The required information with respect to executive compensation is
contained in the Company's Proxy Statement in connection with its Annual Meeting
to be held on May 24, 1995, which is incorporated in this Form 10-K Annual
Report by reference.
Item 12. Security Ownership of Certain Beneficial Owners & Management
The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's Proxy Statement
in connection with its Annual Meeting to be held on May 24, 1995, which is
incorporated in this Form 10-K Annual Report by reference.
-24-
<PAGE> 26
Item 13. Certain Relationships and Related Transactions
The required information with respect to certain relationships and
related transactions is contained in the Company's Proxy Statement in connection
with its Annual Meeting to be held on May 24, 1995, which is incorporated in
this Form 10-K Annual Report by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
Financial Statements and Financial Statement Schedules
Page(s)
-------
Document
Report of independent public accountants............. 13
Consolidated statements of operations for
the years ended January 31, 1995, January 31,
1994 and January 31, 1993............................ 14
Consolidated balance sheets as of January 31,
1995 and January 31, 1994............................ 15
Consolidated statements of shareholders'
equity for the years ended January 31, 1995,
January 31, 1994 and January 31, 1993................ 16
Consolidated statements of cash flows for the
years ended January 31, 1995, January 31, 1994
and January 31, 1993................................. 17
Notes to consolidated financial statements........... 18-22
Selected quarterly financial data for
the years ended January 31, 1995 and
January 31, 1994..................................... 23
All schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
-25-
<PAGE> 27
EXHIBITS
Certain of the following exhibits have been filed with the Securities
and Exchange Commission pursuant to the requirements of the Acts administered by
the Commission. Such exhibits are identified by the references following the
listing of each such exhibit, and are incorporated herein by reference.
Exhibits identified with an asterisk below comprise executive
compensation plans and arrangements.
Exhibit No. Description of Document
- - ---------- -----------------------
3-1 Restated articles of Incorporation of the Company,
as amended through May 29, 1984 (1992 Form 10-K,
Exhibit 3-1)
3-2 By-Laws of the Company, as amended through
July 19, 1990 (1993 Form 10-K, Exhibit 3-2)
4-1 * Deb Shops, Inc. Restated Savings and
Protection Plan (1992 Form 10-K, Exhibit 4-1)
4-1.1 * Amendment No. I to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.1)
4-1.2 * Amendment No. II to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.2)
4-1.3 * Amendment No. III to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.3)
4-1.4 * Amendment No. IV to Deb Shops, Inc. Restated
Savings and Protection Plan (1992 Form 10-K,
Exhibit 4-1.4)
4-1.5 * Amendment No. V to Deb Shops, Inc. Restated
Savings and Protection Plan (1994 10-K Exhibit 4-1.5)
4-1.6 * Amendment No. VI to Deb Shops, Inc. Restated
Savings and Protection Plan (1994 Form 10-K, Exhibit
4-1.6)
4-2 * Employee Savings and Protection Trust Agreement
(Registration No. 2-99124, Exhibit 4-5)
4-2.1 * Amendment No. I to Employee Savings and Protection
Trust Agreement (Form 10-Q for quarter ended July
31, 1992)
10-1 Lease Agreement for property located at 9401
Blue Grass Road, Philadelphia, Pennsylvania,
19114 (Registration No. 2-82222, Exhibit 10-1)
-26-
<PAGE> 28
Exhibit No. Description of Document
- - ---------- -----------------------
10-8 Blue Grass Partnership Agreement dated June 15,
1982 (Registration No. 2-82222, Exhibit 10-8)
10-9 Guarantee by Deb Shops, Inc. of payment of
debt obligation of Blue Grass Partnership to
Philadelphia Industrial Development Corporation
Local Development Corporation dated December 16,
1982 (Registration No. 2-82222, Exhibit 10-9)
10-10 Acceptance by Deb Shops, Inc. dated June l8,
1982 to guarantee the $500,000 loan to Blue
Grass Partnership (Registration No. 2-82222,
Exhibit 10-10)
10-11 * Deb Shops, Inc. Incentive Stock Option Plan
(Registration No. 2-82222, Exhibit 10-11)
10-11(a) * First Amendment to the Incentive Stock Option
Plan (Registration No. 33-11983, Exhibit 4-1(a))
10-11(b) * Amendment dated February 1, 1988 to Incentive
Stock Option Plan (1993 Form 10-K, Exhibit 10-11(b))
10-14.1 * Insurance Policy for Marvin Rounick and
Judy Rounick (1993 Form 10-K, Exhibit 10-14.1)
10-14.2 * Split Dollar Insurance Agreement dated July
31, 1987 between the Company and Jack A. Rounick
and Stuart Savett, Trustees under the Rounick
Family Irrevocable Insurance Trust dated October
27, 1986 (1993 Form 10-K, Exhibit 10-14.2)
10-14.3 * Collateral Assignment dated July 31, 1987
from Jack A. Rounick and Stuart Savett,
Trustees under the Rounick Family Irrevocable
Insurance Trust dated October 27, 1986, as
assignor, and the Company, as assignee
(1993 Form 10-K, Exhibit 10-14.3)
10-15.1 * Life Insurance Policy for Warren Weiner and
Penny Weiner (1993 Form 10-K, Exhibit 10-15.1)
10-15.2 * Split Dollar Insurance Agreement dated July 31,
1987 between the Company and Barry H. Frank and
Robert Shein, Trustees under the Weiner Family
Irrevocable Insurance Trust dated October 27,
1986 (1993 Form 10-K, Exhibit 10-15.2)
-27-
<PAGE> 29
Exhibit No. Description of Document
- - ---------- -----------------------
10-15.3 * Collateral Assignment dated July 31, 1987 from
Barry H. Frank and Robert Shein, Trustees under
the Weiner Family Irrevocable Insurance Trust
dated October 27, 1986, as assignor, and the
Company, as assignee (1993 Form 10-K, Exhibit 10-15.3)
10-17 * Restricted Stock Incentive Plan as amended
10-18 Stock Purchase Agreement dated April 4, 1994 between
the Company and Petrie Stores Corporation (1994 Form 10-K
Exhibit 10-18)
11 Computation of Primary Earnings Per Share
22 Subsidiaries of the Company
24-1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
Reports on Form 8-K
There were no reports on Form 8-K for the quarter ended January 31,
1995.
-28-
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized in the City and County
of Philadelphia, Commonwealth of Pennsylvania, on April 26, 1995.
DEB SHOPS, INC.
(Registrant)
By: /s/ Marvin Rounick
----------------------------
Marvin Rounick, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated.
/s/ Marvin Rounick April 26, 1995
- - -----------------------------------------
Marvin Rounick, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Warren Weiner April 26, 1995
- - -----------------------------------------
Warren Weiner, Executive Vice President,
Secretary, Treasurer and Director
/s/ Jack Rounick April 26, 1995
- - -----------------------------------------
Jack A. Rounick, Assistant Secretary
and Director
/s/ Paul Bachow April 26, 1995
- - -----------------------------------------
Paul S. Bachow, Director
/s/ Barry Feinberg April 26, 1995
- - -----------------------------------------
Barry H. Feinberg, Director
/s/ Barry Frank, Esq April 26, 1995
- - -----------------------------------------
Barry H. Frank, Esq., Director
/s/ Lewis Lyons April 26, 1995
- - -----------------------------------------
Lewis Lyons, Vice President, Finance,
Chief Financial Officer
/s/ Marvin Waxman April 26, 1995
- - -----------------------------------------
Marvin Waxman, Controller
-29-
<PAGE> 31
EXHIBIT 10-17
DEB SHOPS, INC.
RESTRICTED STOCK INCENTIVE PLAN
AS AMENDED
1. Purpose. The Deb Shops, Inc. Restricted Stock Incentive Plan (the
"Plan") is intended to reward and provide incentives to officers and other key
employees of Deb Shops, Inc., a Pennsylvania corporation (the "Company") and its
subsidiaries who are in a position to contribute materially to the long-term
success of the Company, to increase their interest in the Company's welfare and
to aid in attracting and retaining employees of outstanding ability.
2. Administration. The Plan shall be administered by a committee, which
may be the Stock Option Committee which presently administers the Company's
Incentive Stock Option Plan, consisting of three or more members of the Board,
as may be designated by the Board from time to time (the "Committee"). Members
of the Committee shall not be eligible to receive grants under the Plan. The
Committee shall have full power and authority, not inconsistent with the Plan,
(i) to select the Eligible Employees, as defined herein, who may receive grants
under the Plan ("Participants"), (ii) to determine the amount of each such
grant, (iii) to determine the terms and conditions applicable to the issuance,
vesting and termination of the grants, (iv) to interpret the Plan and the grants
made hereunder, (v) to adopt, amend and rescind rules and regulations for the
administration of the Plan and of the grants and its own acts and proceedings,
and (vi) to make all other determinations under the Plan. All such actions of
the Committee shall be conclusive and binding on all interested parties.
3. Shares Available For Grant. Except as provided in Section 7, herein,
the total number of shares of the $.01 par value common stock (the "Shares") of
the Company which may be issued pursuant to this Plan shall not be more than
300,000, and the total number of shares which may be issued in any calendar year
shall not be more than 100,000.
4. Eligibility. The persons who are eligible to receive grants in
accordance with the Plan shall be full-time salaried officers and other key
employees ("Eligible Employees") as the Committee shall select. Directors who
are not full-time salaried employees are not eligible to receive grants. The
Committee may from time to time establish additional eligibility requirements
for participation in the Plan.
5. Grant of Stock Awards.
The Committee shall have the authority to award Shares to Eligible
Employees by grant (a "Grant") upon such terms and conditions as it shall
establish, subject in all events to the following limitations, restrictions and
provisions of general application:
(1) Except as expressly provided below, the Shares awarded by a
Grant shall not be sold, transferred, assigned, pledged or otherwise
-30-
<PAGE> 32
disposed of by the Participant during the period or periods established
by the Committee (each such period, a "Restricted Period"). The
Committee may establish different Restricted Periods applicable to such
number of the Shares evidenced by a single Grant as it deems appropriate
and may, in its sole discretion, reduce length of any Restricted Period
as to any outstanding Grant. However, no Restricted Period shall be, or
be reduced to, a term of less than 185 days from the date of the Grant.
(2) The Shares awarded by a Grant shall be issued as of the date of
the Grant and the certificate evidencing such Shares shall be delivered
by the Company to the Participant within a reasonable period of time
after the applicable Restricted Period expires. During the Restricted
Period, the Participant shall be entitled to vote and to receive cash
dividends on the Shares. Shares issued as a consequence of stock
dividends, splits or reclassification shall be issued subject to the
same limitations, restrictions and provisions applicable to the Shares
with respect to which they are to be issued.
(3) In the event of termination of employment of a Participant
holding a Grant, except termination by reason of death or disability,
ownership of the Shares subject to any Restricted Period at the date of
termination and all rights therein shall be forfeited to the Company.
(4) In the event of termination of employment of a Participant
during a Restricted Period by reason of death or by the Company by
reason of disability, the Participant or his heirs, as the case may be,
shall be entitled to receive a certificate evidencing that portion of
Shares covered by each outstanding Grant and subject to any Restricted
Period at the date of termination, which shall be determined by
multiplying the total number of all such Shares covered by each such
Grant by a fraction, the numerator of which shall be the number of days
of employment from the date of the Grant to the date of termination, and
the denominator of which shall be the number of days from the date of
the Grant to the date of expiration of the last to expire of the
Restricted periods applicable to the same Grant.
(5) The effect of approved leaves of absence on the running of
applicable Restricted Periods shall be determined by the Committee,
provided, however, that no Restricted Period shall lapse during an
approved leave of absence unless expressly so provided by the Committee.
-31-
<PAGE> 33
(b) Grants shall be evidenced by agreements in such form as the
Committee shall from time to time determine, which agreements shall not be
inconsistent with the applicable terms and condition of the Plan and shall
contain such other provisions as the Committee deems advisable. Each Grant
agreement shall set forth the number of Shares to be granted under such
agreement.
6. Other Provisions.
(a) The Plan shall become effective on June 1, 1990 (the "Effective
Date").
(b) The Plan shall remain in effect until all Shares issued under
the Plan have vested or the Grants have terminated, prior to vesting of all
Shares granted, under the terms of the Plan, provided that Grants under the Plan
must be awarded within ten (10) years from the Effective Date.
(c) Notwithstanding the provisions of Section 6 (b), the Board of
Directors may terminate the Plan at any time, but no such action by the Board of
Directors shall adversely affect the rights of Participants under Grants
outstanding under the Plan.
(d) No Shares issued pursuant to the Plan shall be sold or
distributed by a Participant until all appropriate listing, registration and
qualification requirements and consents and approvals have been obtained, free
of any condition unacceptable to the Board of Directors.
(e) No right to receive Shares pursuant to the Plan shall be
assignable or transferable by a Participant except (unless otherwise expressly
provided herein) by will or by the laws of descent and distribution.
(f) Whenever Shares are to be issued or delivered in satisfaction of
Grants hereunder, the Company shall have the right to require the Participant to
remit an amount sufficient to satisfy federal. state and local withholding taxes
prior to delivery of any certificate for such Shares. The Participant may remit
the taxes, at his or her option, by (i) check payable to the Company, (ii)
authorizing the Company to withhold from any other cash amounts due or which
become due from the Company to the Participant an amount equal to such taxes
required to be withheld by the Company, or (iii) subject to approval by the
Committee in its sole discretion, by authorizing the Company to withhold that
number of Shares having a market value not in excess of the amount of such
taxes, or any combination of (i), (ii) and (iii), provided that the election to
have Shares withheld must be made, in the case of officers or directors, in
writing on a date which is (A) at least six months prior to the date of
incurrence of the tax liability or (B) in the ten-day "window period" beginning
on the third day following the release of the Company's quarterly or annual
summary statement of sales and earnings, as provided in Rule 16b-3(e)(3) under
the Securities Exchange Act of 1934, as amended.
(g) No fractional Shares shall be issued pursuant to the Plan.
(h) All Shares forfeited pursuant to Section 5 shall be available
for further grant upon such expiration and forfeiture.
-32-
<PAGE> 34
7. Antidilution Provisions. Except as otherwise expressly provided
herein, the following provisions shall apply to all Shares authorized for
issuance and granted under the Plan:
(a) In the event of a stock dividend. stock split, or other
subdivision, reclassification or combination of the shares of Common Stock of
the Company, the number of Shares authorized under the Plan, and the number of
Shares then subject to Restricted Periods under a Grant, will be adjusted
proportionately.
(b) In the event that the outstanding shares of Common Stock of the
Company are, after the Effective Date, changed or converted into, exchanged or
exchangeable for, a different number or kind of shares or other securities of
the Company or of another corporation, by reason of a reorganization, merger,
consolidation or combination, appropriate adjustment shall be made by the
Committee in the number and kind of shares for which Grants may be made or may
have been awarded under the Plan, to the end that the proportionate appropriate
adjustment shall be made by the Committee in the number and kind of shares for
which Grants may be or may have been awarded under the Plan, to the end that the
proportionate interests of Participants shall be maintained as before the
occurrence of such event; provided, however, that in the event of any
contemplated transaction which may constitute a change in control of the
Company, the Committee, with the approval of a majority of the members of the
Board of Directors who are not then Participants, may modify any and all
outstanding Grants so as to accelerate, as a consequence of or in connection
with such transaction, the vesting of a Participant's unqualified ownership of
Shares subject to a Grant.
8. Amendments. All amendments to the Plan shall be in writing and shall
be effective when approved by the Board of Directors; provided, however, that no
amendment (i) materially increasing the benefits accruing to Participants under
the Plan or (ii) increasing the number of Shares authorized or available under
the Plan or (iii) changing the category of employees eligible to participate in
the Plan or (iv) continuing the Plan in effect beyond the time established in
Section 6 (b) shall be effective without the prior approval of the shareholders
of the Company.
-33-
<PAGE> 35
EXHIBIT 11
DEB SHOPS, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average shares outstanding 13,268,236 15,594,362 15,584,291 15,551,454 15,464,717
Net effect of dilutive stock
options and restricted
incentive stock based
on the treasury
stock method -- -- 1,675 17,203 15,888
------------ ------------ ------------ ------------ ------------
13,268,236 15,594,362 15,585,966 15,568,657 15,480,605
============ ============ ============ ============ ============
Net (loss) income ($ 2,718,871) $ 5,146,496 $ 7,251,764 $ 8,594,014 $ 13,572,621
Preferred dividends 55,200 55,200 55,200 55,200 55,200
------------ ------------ ------------ ------------ ------------
($ 2,774,071) $ 5,091,296 $ 7,196,564 $ 8,538,814 $ 13,517,421
============ ============ ============ ============ ============
Per common share amount ($ .21) $ .33 $ .46 $ .55 $ .88
============ ============ ============ ============ ============
</TABLE>
<PAGE> 36
EXHIBIT 22
Subsidiaries of
DEB SHOPS, INC.
A Pennsylvania corporation(1)
<TABLE>
<S> <C> <C>
Deb Shops, Inc., Deb of Kentucky, Inc., Deb of Rhode Island, Inc.,
a New Jersey corporation a Kentucky corporation a Rhode Island corporation
Joy Shops, Inc., Deb Shops of Louisiana, Inc., Deb of South Carolina, Inc.,
a Pennsylvania corporation a Louisiana corporation South Carolina corporation
Joy Shops, Inc., Deb of Maine, Inc., Deb of South Dakota, Inc.,
a Delaware corporation a Maine corporation a South Dakota corporation
D.B. Interest, Inc., Deb Shops of Maryland, Inc., Deb of Tennessee, Inc.,
a Delaware corporation a Maryland corporation a Tennessee corporation
D.B. Know, Inc., Deb of Massachusetts Inc., Deb of Texas, Inc.,
a Delaware corporation a Massachusetts corporation a Texas corporation
D.B. Royalty, Inc., Deb of Michigan, Inc., Deb of Utah, Inc.,
a Delaware corporation a Michigan corporation a Utah corporation
Deb Shops of Alabama, Inc., Deb Shops of Minnesota, Inc., Deb of Virginia, Inc.,
an Alabama corporation a Minnesota corporation a Virginia corporation
Deb of Arkansas, Inc., Deb Shops of Missouri, Inc., Deb of Washington, Inc.,
an Arkansas corporation a Missouri corporation a Washington corporation
Deb of California, Inc., Deb of Nebraska, Inc., Deb of West Virginia, Inc.,
a California corporation a Nebraska corporation a West Virginia corporation
Deb of Colorado, Inc., Deb of New Hampshire, Inc., Deb of Wisconsin, Inc.,
a Colorado corporation a New Hampshire corporation a Wisconsin corporation
Deb of Connecticut, Inc., Deb of New Mexico, Inc., Tops 'N Bottoms of New York, Inc.
a Connecticut corporation a New Mexico corporation a New York corporation
Deb of Delaware, Inc., Deb of New Jersey, Inc.,
a Delaware corporation a New Jersey corporation
Deb Fashions of Florida, Inc., Deb of New York, Inc.,
a Florida corporation a New York corporation
Deb Shops of Georgia, Inc., Deb Shops of North Carolina, Inc.,
a Georgia corporation a North Carolina corporation
Deb Shops of Idaho, Inc., Deb of North Dakota, Inc.,
an Idaho corporation a North Dakota corporation
Deb of Illinois, Inc., Deb Shops of Ohio, Inc.,
an Illinois corporation an Ohio corporation
Deb of Indiana, Inc., Deb of Oklahoma, Inc.,
an Indiana corporation an Oklahoma corporation
Deb Shops of Iowa, Inc., Deb of Oregon, Inc.,
an Iowa corporation an Oregon corporation
Deb of Kansas, Inc., Deb of Pennsylvania, Inc.,
a Kansas corporation a Pennsylvania corporation
</TABLE>
- - -------------
(1) All subsidiaries are owned 100% by Deb Shops, Inc., except D.B. Royalty,
Inc. which is owned 100% by Joy Shops, Inc., a Delaware corporation.
<PAGE> 37
EXHIBIT 24-1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated February 27, 1995 included in this Form 10-K, into the Company's
previously filed Registration Statement File No. 33-11983.
/s/ Arthur Andersen, LLP
------------------------
ARTHUR ANDERSEN, LLP
Philadelphia, Pa
April 25, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-END> JAN-31-1995
<CASH> 50,610,195
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 28,576,374
<CURRENT-ASSETS> 84,303,414
<PP&E> 49,827,844
<DEPRECIATION> 29,762,281
<TOTAL-ASSETS> 106,201,702
<CURRENT-LIABILITIES> 16,778,243
<BONDS> 0
460
0
<COMMON> 156,883
<OTHER-SE> 104,760,806
<TOTAL-LIABILITY-AND-EQUITY> 106,201,702
<SALES> 202,937,909
<TOTAL-REVENUES> 203,781,630
<CGS> 121,961,835
<TOTAL-COSTS> 208,400,501
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,618,871)
<INCOME-TAX> (1,900,000)
<INCOME-CONTINUING> (2,718,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,718,871)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
