UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended January 26, 1997
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission File Number 34-1-10952
DUTY FREE INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 52-1292246
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation organization)
63 Copps Hill Road Ridgefield, Connecticut 06877
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 431-6057
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Common Stock, $.01 par value per share
Name of exchange on which registered: New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in a 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 Number of shares of Common Stock of the registrant outstanding as
of March 31, 1997: 27,308,380 shares.
Page 1 of 54
Exhibit Index Begins on Page 17
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of $14.625 per share for the
registrant's common stock as reported by the New York Stock Exchange as of March
31, 1997 was approximately $337,451,000.
DOCUMENTS INCORPORATED BY REFERENCE Part
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1997 ANNUAL REPORT TO STOCKHOLDERS I, II, IV
PROXY STATEMENT FOR THE 1997 ANNUAL
MEETING OF STOCKHOLDERS I, III
<PAGE>
PART I
ITEM 1. BUSINESS
General
The duty free industry is a multi-billion dollar world-wide
industry. Duty free merchandise generally consists of well-known brands of
luxury goods, such as liquor, perfumes and cosmetics, tobacco products, gifts
and other items which are often subject to high rates of taxation when sold in
domestic markets for domestic consumption. Duty free merchandise sold in the
United States includes imported liquor, tobacco products and luxury goods, as
well as domestic products, sold free of federal duties, excise taxes and state
and local sales taxes. Such merchandise is also generally exempt, within certain
allowances, from import duties and taxes at the traveler's destination.
The duty free industry developed in the United States after
World War II as international travel increased. This increase encouraged the
development of a system which allows a traveler to buy merchandise free of all
duties and sales and excise taxes imposed on domestically consumed goods. In
general, travelers can save 20% to 60% on the purchase of duty free merchandise
in the United States, compared to the retail price of the same merchandise in
the country of their destination. Most countries have allowances on the import
of duty free goods. Changes in the duty free allowances of foreign countries or
in the eligibility requirements for duty free purchases, as well as changes in
tax and duty rates imposed by foreign jurisdictions, affect sales of duty free
merchandise in United States duty free shops. As a result of the generally high
taxes and duties imposed in certain foreign countries, it may be more economical
for some travelers to exceed these allowances and pay the import duties imposed
by the country of their destination.
Duty Free International, Inc. (the "Company") operates in
several distinct markets of the duty free industry. The Company is the leading
operator of duty free stores along the United States/Canada and United
States/Mexico borders, one of the leading operators of duty free and retail
stores in international airports in the United States and Puerto Rico, and is a
prime concessionaire and supplier of merchandise to international airlines'
inflight duty free shops. The Company is also the largest supplier of duty free
merchandise to foreign diplomats in the United States and is a major supplier of
merchandise to merchant and cruise ships from ports in the Northeast United
States and Miami, Florida.
Sales to the diplomatic community are based on reciprocal
agreements between countries, under which duty free purchasing privileges are
given to foreign diplomats serving in the host country. In the United States,
all orders placed by foreign diplomats for duty free merchandise must be
approved by both the Treasury and State Departments to confirm the diplomat's
eligibility for such purchases.
Organization and Operations
The Company was formed as a Maryland corporation in 1983 to
acquire 19 border stores and one airport store. Since its founding, the Company
has grown to be one of the world's largest chains of duty free stores operating
approximately 176 stores and employing over 2,000 people serving locations in
the United States, Puerto Rico, the Caribbean and on international airlines'
inflight duty free shops. The Company has grown by expanding into additional
airport and United States border locations, and by business acquisitions.
The Company is organized into four operating divisions: the
Border Division, the Airport Division, the Diplomatic and Wholesale Division and
the Inflight Division.
<PAGE>
Border Division
The Border Division operates the largest chain of duty free
stores along the United States/Canada and United States/Mexico borders. The
Division operates a total of 67 stores.
UETA, Inc. ("UETA" or the "Southern Border Division") operates
31 duty free stores along the Mexican border in the states of Texas, Arizona and
California. The Southern Border Division provides Mexican/American border
traffic with access to luxury items such as premium watches, fragrances and
cosmetics, top quality liquor and tobacco products, beer, wine, gourmet foods,
designer jewelry and other high quality gifts. UETA is the exclusive duty free
distributor on the United States side of the Mexican border for liquor brands
produced by United Distillers Group (Duty Free) Ltd. The Southern Border
Division intends to continue to increase customer awareness of the value of duty
free shopping through marketing and advertising, and to adjust product
assortment in order to meet the preferences of duty free shoppers. In fiscal
1998, UETA will open its first store on the Mexican side of the United
States/Mexico border. Economic factors, such as the value of the Mexican peso
versus the U.S. dollar and the Mexican economy have had and will continue to
have a significant effect on UETA's net sales and earnings.
AMMEX Tax and Duty Free Shops, Inc. and AMMEX Tax and Duty Free
Shops West, Inc. (collectively, "AMMEX" or the "Northern Border Division")
operates 36 duty free and retail stores along the Canadian border in the states
of New York, Vermont, Maine, Washington, Michigan, Idaho, Montana, North Dakota
and Minnesota. The duty free stores sell a wide variety of quality, brand-name
merchandise to individuals traveling from the United States to Canada, a
majority of whom are Canadians returning home. Retail locations carry groceries,
snacks, souvenirs and gift items. The Northern Border Division also operates
currency exchanges and gas stations at several high volume border locations.
AMMEX's objectives have been to attract a greater percentage of the eligible
travelers crossing the border into Canada and to sell more goods to each
customer by remodeling and expanding stores and through sales training,
merchandising, advertising and promotion. Economic factors, such as the Canadian
economy, certain Canadian domestic taxes, and the value of the Canadian dollar
versus the U.S. dollar have had and will continue to have a significant effect
upon the Northern Border Division's net sales and earnings.
Airport Division
Fenton Hill American, Limited (the "Airport Division") operates
109 duty free and retail stores in 14 international airports, and in the
Caribbean and South Florida markets. During fiscal 1997, the Airport Division
opened an additional seven stores at Chicago's O'Hare International Airport, and
opened a 5,000 square-foot duty free store at the new Delta Flight Center at the
John F. Kennedy International Airport in New York. The Airport Division's retail
mix currently includes duty free shops, which sell premium merchandise such as
top-quality liquor and tobacco products and exclusive fragrances and cosmetics,
and specialty stores such as The Athlete's Foot (branded athletic-wear),
Bodyography (natural personal care products), The Sports Section (regional
sports-theme shops), news and gift shops, bookstores and gourmet food and
confectionery outlets.
The Airport Division also operates a number of stores not
located in airports. It serves cruise ship passengers and airport bound
customers through 12 shops located in Miami and Orlando, Florida. In Washington,
D.C., the Airport Division operates a luxury gift store which serves the
diplomatic community. This division also operates 12 retail stores on the
Caribbean islands of St. Thomas, Aruba, Bonaire, Curacao and St. Maarten.
During the past several years, the Airport Division has grown
through acquisitions, obtaining new airport concessions and expanding existing
locations. With the potential for expansion of the Company's current airport
stores, as well as for development of other new specialty retailing concepts,
the Company believes that it will continue to find opportunities for new airport
locations and other airport retail and duty free businesses. The Airport
Division's sales volume and its overall
<PAGE>
results of operations can be affected by factors relating to the airline
industry over which the Company has no control, including which airlines operate
at particular terminals, which routes are serviced by those airlines, levels of
airline passenger traffic, and economic and other conditions affecting the
airline industry in general.
Diplomatic and Wholesale Division
The Diplomatic and Wholesale Division is the leading domestic
supplier of duty free merchandise to the foreign diplomatic community in the
United States, principally embassies, consulates and United Nations missions in
Washington, D.C. and New York City. Foreign diplomats with official status and
foreign military personnel in training throughout the United States can order
duty free merchandise directly from the division's salespersons or from its
catalog. The Diplomatic and Wholesale Division is also a supplier of merchandise
to merchant and cruise ships from ports in the northeastern United States and
Miami.
The Diplomatic and Wholesale Division owns and operates a
110,000 square foot warehouse/distribution center in Glen Burnie, Maryland, and
a 140,000 square foot warehouse/distribution center in South Miami, Florida.
During fiscal 1997, the Diplomatic and Wholesale Division continued to
de-emphasize low gross margin sales in order to provide greater distribution
capabilities to the Company's stores, thus providing more resources for the
Company's higher profit operations.
Inflight Division
The Inflight Division ("Inflight") is a leading concession
operator and supplier of on-board duty free merchandise to international
airlines through on-board concessions and wholesale programs, and is a major
supplier of international airlines' first class and premium class amenity kits.
Currently, Inflight operates the on-board duty free concessions for 24 airlines.
Inflight`s concession programs fully operate the on-board duty free concessions
for airlines. Inflight purchases products and manages every aspect of duty free
sales on the airlines' flights, including magazine and videotape promotions.
With a percentage of total sales paid in royalties to the airline, this program
provides airlines with a risk-free means of incrementally increasing their
earnings. The division's wholesale program provides merchandise for duty free
programs which airlines run on their international flights. The carrier runs all
promotions, manages the program and owns the inventory which is bought from
Inflight. Inflight has exclusive distribution agreements for various parts of
the world with many world recognized brand names in the luxury products
industry, including Chanel, Christian Dior, Hermes, Mont Blanc, Yves Saint
Laurent, Elizabeth Arden and Lancaster. Additionally, it maintains warehouse and
station locations throughout the U.S., Pacific Rim, Europe and South America. In
fiscal 1997, the Inflight Division began operating the on-board duty free
concession programs for Air Canada and Canadian International. In the future,
the Company will continue to pursue other on-board duty free concession
contracts with international airlines not served by the Company. The Company
believes Inflight will be a significant contributor to its growth as air travel
grows and airlines continue to outsource non-core services.
The Inflight Division's sales volume and results of operations
can be affected by factors relating to the airline industry over which the
Company has no control, including levels of international airline passenger
traffic, economic and other conditions affecting the airline industry in
general, and the value of foreign currencies versus the U.S. dollar.
<PAGE>
Regulation
Duty free stores and operations are specifically authorized and
recognized as a separate class of bonded warehouse by the Duty Free Sales
Enterprises Act of 1988, which was enacted by the United States Congress as part
of the Omnibus Trade and Competitiveness Act of 1988.
Duty free merchandise is shipped by domestic and foreign
suppliers "in bond" (without taxes or duties) to bonded warehouses in the United
States. Bonded warehouses are subject to supervision by the United States
Customs Service ("Customs Service") and may only be used to store merchandise
which has not entered the domestic market. Because the United States collects no
taxes or duties on merchandise sold by duty free stores and other duty free
operations, all merchandise shipped from a bonded warehouse to a duty free store
or other duty free location remains "under bond" and therefore subject to a high
degree of regulation by the Customs Service and by the Bureau of Alcohol,
Tobacco and Firearms (the "Bureau"), each of which are agencies of the United
States Department of the Treasury.
The Bureau also requires corporations to which it issues
permits to notify it in the event of a change in the officers or directors of
the corporate operator or if there is a change in the corporate operator's
ownership. The Bureau requires certain background information on any stockholder
who acquires 10% or more of the common stock of a corporate operator and will
not permit ownership by any such stockholder it deems unacceptable. The Company
therefore has established the right to require the redemption or the prompt
disposition, under certain circumstances, of all or any portion of the shares of
Common Stock owned by a stockholder which totals to more than 9% of the
outstanding Common Stock.
Suppliers, Distribution and Inventory Control
The Company purchases products from numerous vendors, including
manufacturers and distributors. As is typical throughout the duty free industry,
the Company does not have any significant long-term or exclusive purchase
commitments. Management believes that alternative sources of supply are
available for each category of merchandise purchased by the Company.
Merchandise is generally shipped directly from vendors to the
bonded warehouses and distribution centers located in Glen Burnie, Maryland,
Laredo, Texas and Miami, Florida. However, certain merchandise is shipped
directly to the Company's regional bonded warehouses and store locations. To
control inventory levels, management uses various automated replenishment
systems. Frequent shipments are made to the Border, Airport, and Inflight
Divisions' warehouses or stores to assure fully stocked displays and stockrooms.
Merchandise is delivered daily by truck to the diplomatic communities in
Washington, D.C. and New York City. The Company's trucks are also used to supply
duty free merchandise to merchant and passenger ships.
Duty free inventory is strictly controlled to comply with
Customs Service regulations. The Company must keep detailed records documenting
the receipt and sale of all duty free merchandise. Failure to maintain such
records may result in payment of penalties and all taxes and duties which would
have been imposed on the domestic sale of such merchandise. The Company's
computerized inventory control system allows it to identify product needs, to
arrange for prompt reorders from vendors, and to support compliance with the
Customs Service record-keeping requirements. Slow moving products also can be
identified and more appropriate product mixes maintained. The Company rarely
experiences problems with obsolescence, because most inventory turns frequently
and most products have a relatively long shelf-life.
The Company's suppliers provide significant sales support in a
variety of ways, including in-store displays, gift-with-purchase items,
advertisements, brochures, printed shopping bags, staff training, signs and
sales personnel. In addition, some distributors and manufacturers rent space in
certain duty free stores for the display of transparencies containing product
advertisements.
<PAGE>
Many suppliers also purchase advertising space in the catalogs produced by the
various divisions. Some suppliers also rent space in the Company's warehouses
and pay a fee for processing shipments of their merchandise.
Economic Conditions and Exchange Rates
The principal customers of the Company are residents of foreign
countries whose purchases of duty free merchandise may be affected by trends in
the economies of foreign countries and changes in the value of the U.S. dollar
relative to their own currencies. Any significant increase in the value of the
U.S. dollar relative to the currencies of foreign countries, particularly Canada
and Mexico, could have an adverse impact on the number of travelers visiting the
United States and the dollar amount of duty free purchases made by them from the
Company. A significant increase in gasoline prices or a shortage of fuel may
also reduce the number of international travelers and thereby adversely affect
the Company's sales. In addition, the Company imports a significant portion of
its products from Western Europe and Canada at prices negotiated either in U.S.
dollars or foreign currencies. As a result, the Company's costs are affected by
fluctuations in the value of the U.S. dollar in relation to major Western
European and Canadian currencies. A decrease in the purchasing power of the U.S.
dollar relative to other currencies causes a corresponding increase in the
purchase price of products. The Company enters into foreign exchange forward
contracts as a hedge against a portion of its exposure to currency fluctuations
on commitments to purchase merchandise.
Competition
The Airport Division can experience significant competition
when negotiating or bidding for new concession leases or renewal of existing
leases in those locations where the operating authority requires such
negotiating or bidding. Competitors bid for the exclusive right to operate in a
particular airport or, in the case of some larger airports, in a particular
airport terminal servicing one or more airlines. The Company's lease and
concession agreements for duty free stores at the New York City airports are
consistent with airport leases in the region in that they are terminable by the
lessor upon 30 days notice, and also may be subject to re-bid at the end of the
operator's lease at which time sealed bids are submitted by prospective
operators or negotiations are undertaken with the authority. Most of Inflight's
concession contracts are subject to 30 to 120 day cancellation clauses
exercisable by the Company or the airline.
Approximately four other companies operate duty free stores in
the United States along the Canadian border. A small number of regional duty
free companies operate along the Mexican border and compete with the Company.
Large discount chains that are not duty free operators, such as Price Club and
Sam's Club, compete with the Company for customers crossing the United
States/Mexico border. Approximately 15 companies operate duty free stores at
airports in the United States. The largest such company is Duty Free Shoppers
Group, Ltd. which is the largest duty free operator in the world. The Inflight
Division has one major competitor operating international airlines' on-board
duty free concessions. The majority of international airlines operate their own
on-board duty free concessions. There are a large number of competitors offering
wholesale merchandise to international airlines. The principal competition for
diplomatic sales consists of purchases made directly from European suppliers.
There are no material competitors currently operating in the principal ports
serviced by the Diplomatic and Wholesale Division except for Miami, Florida.
There are significant competitors which can make sales to the Company's
passenger and merchant vessel customers when those customers visit ports not
serviced by the Company.
<PAGE>
ITEM 2. PROPERTIES
The Border Division operates 67 duty free and retail stores.
Five of the stores are owned and operated by agents who receive commissions
based on sales. The Company owns 39 of its border stores and leases 23 border
stores. The Airport Division leases 109 store locations. The Company's leases
for its stores at the New York City airports are terminable by the lessor upon
30 days notice. The leases at certain border and most airport locations provide
for base monthly rentals and typically require payment of additional rent based
on a percentage of sales. Inflight has relatively small warehouse, distribution
and administrative facilities in New York, Singapore, Hong Kong and the United
Kingdom.
The Company owns a 110,000 square foot office/distribution
center near the Baltimore/Washington International Airport in Glen Burnie,
Maryland , leases a 145,000 square foot distribution center in Laredo, Texas,
and owns a 140,000 square foot administrative, warehouse and distribution
facility in South Miami, Florida. The Company also owns or leases other smaller
regional warehouse facilities. The Company owns its 33,000 square foot
headquarters in Ridgefield, Connecticut which is partially subleased. The
Company believes its facilities are adequate for current operations.
ITEM 3. LEGAL PROCEEDINGS
Certain former stockholders of UETA, Inc. and certain
stockholders of Overseas Trading Corporation (1987) Limited, an affiliate of
UETA, Inc., commenced an action against the Company and certain of its directors
and officers, in the Superior Court, New Castle County, Delaware. In their
complaint which was filed on or about December 19, 1994, plaintiffs allege that
the Company and its officers and directors made false and misleading statements
and omissions in connection with the Company's issuance of its common stock in
connection with its acquisition in April 1992 of UETA, Inc. and of certain
assets of Overseas Trading Corporation (1987) Limited, all in violation of state
statutory and common law. The relief sought includes unspecified amounts of
actual and punitive damages. The Company and its officers and directors intend
to defend this action vigorously. Certain of the plaintiffs in this action had
filed a similar complaint (on or about May 30, 1994) against the same defendants
in the Superior Court of the State of Arizona, Pima County. This action was
dismissed by court order on November 17, 1994, pursuant to stipulation of the
parties, without prejudice to the commencement by those plaintiffs of an action
in the courts of the State of Delaware.
Certain other former stockholders of UETA, Inc. commenced an
action against the Company in the District Court, 285th Judicial District, Bexar
County, Texas. In their complaint which was filed on or about June 14, 1994,
these plaintiffs also allege that the Company made false and misleading
statements and omissions in connection with the Company's acquisition of UETA,
Inc. and the Company's issuance of its common stock in connection therewith to
these plaintiffs. The relief sought includes unspecified amounts of actual and
punitive damages and rescission of the transaction and/or rescissionary damages
in an unspecified amount. On April 24, 1996, the District Court dismissed the
action. The plaintiffs have appealed this order to the Texas Court of Appeals,
Fourth District (San Antonio). In April 1995, the plaintiffs commenced an action
in the Superior Court, New Castle County, Delaware against the Company and each
of its directors and officers who were named as defendants in the aforementioned
Delaware action. In their complaint, the plaintiffs allege against the Company
and its officers and directors essentially the same claims under state statutory
and common law as they have alleged in their Texas action. The relief sought in
this action includes an unspecified amount of damages, including actual and/or
recessionary damages and punitive damages. The Company and its officers and
directors intend to defend these actions vigorously.
<PAGE>
On July 8, 1994, the Company commenced an action against each
of the plaintiffs in the foregoing Arizona and Texas actions in the Court of
Chancery, New Castle County, Delaware for injunctive and declaratory relief as
well as damages based upon their commencement of the above-referenced actions in
the Arizona and Texas state courts, rather than in the courts of the state of
Delaware as stipulated in the agreements executed in connection with the
acquisition of UETA, Inc. The relief sought by the Company in its complaint also
includes a request for an order enjoining each of the plaintiffs in the
foregoing actions from litigating any claims arising from the acquisition of
UETA, Inc. in any forum other than the courts of the state of Delaware. Motions
to dismiss the Company's complaint have been made by all the defendants named in
this action and the Company moved for summary judgment on certain of its causes
of action.
Currently, the legal proceedings described above are not
expected to have a material effect on the Company's financial condition, results
of operations, liquidity or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to the 1997 Annual Report to Stockholders, page 13.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the 1997 Annual Report to Stockholders, inside
front cover.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Incorporated by reference to the 1997 Annual Report to Stockholders, pages
10-13.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the 1997 Annual Report to Stockholders as set forth
in Part IV Item 14, and the supplementary data on the inside front cover of such
annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's Proxy Statement with respect to its
1997 Annual Meeting of Stockholders, pages 2 - 4.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy Statement with respect to its
1997 Annual Meeting of Stockholders, pages 5 - 9.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy Statement with respect to its
1997 Annual Meeting of Stockholders, pages 11 and 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's Proxy Statement with respect to its
1997 Annual Meeting of Stockholders, page 7.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)
1. Financial Statements (Incorporated by reference to the 1997 Annual
Report to Stockholders, pages 14-24 and 9):
- Consolidated Balance Sheets as of January 26, 1997 and January 28,
1996.
- Consolidated Statements of Operations, Stockholders' Equity,
and Cash Flows for each of the years in the three-year period
ended January 26, 1997.
- Notes to the Consolidated Financial Statements.
- Independent Auditors' Report.
2. Financial Statement Schedules filed as part of this report:
- Independent Auditors' Report.
- Schedule II - Valuation and Qualifying Accounts for each of
the years in the three-year period ended January 26, 1997.
- All other schedules have been omitted because the required
information is not significant or is not applicable.
<PAGE>
3. Exhibits:
3.1 - Charter of the Company.(2)
3.2 - By-Laws of the Company as amended to October 18, 1993. (5)
4.1 - Senior Indenture between Duty Free International, Inc.
and The Chase Manhattan Bank, N.A., as trustee, dated as of
January 15, 1994.(5)
4.2 - Form of 7% Note Due 2004. (4)
10.1 - Agreement by and between United Distillers Group (Duty Free) Ltd.
and Overseas Trading Corporation. (6)
10.2 - Agreement dated January 1, 1989 by and between United Distillers
Group (Duty Free) Ltd. and Samuel Meisel and Company, Inc.(1)
10.3 - Credit Agreement dated as of May 26, 1995 among Duty Free
International, Inc., the Banks signatory thereto
and the Chase Manhattan Bank, N.A. as agent. (7)
10.4 - 1989 Stock Option Plan for Duty Free International, Inc.,
and related form of stock option agreement as amended and
restated effective February 11, 1993 (6) and May 20, 1994 (8)
(compensatory plan).
10.5 - Incentive Compensation Plan (1) (compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free International, Inc.
and Jack Africk.(1)
12.1 - Ratios of Earnings to Fixed Charges. (3)
13.1 - 1997 Annual Report to Stockholders.(3)
21.1 - Subsidiaries.(3)
23.1 - Consent of KPMG Peat Marwick LLP.(3)
24.1 - Powers of Attorney for Jack Africk, David H. Bernstein, John A.
Couri, Carl Reimerdes, Susan H. Stackhouse, Stephen M. Waters, and
Lowell P. Weicker, Jr. (3)
27.1 - Financial Data Schedule.(3)
Notes: (1) Previously filed as an Exhibit to the Registration Statement
of the Company on Form S-1, File No. 33-27842 declared
effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 33-43071, declared effective
November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current Report
on Form 8-K dated January 15, 1994.
(5) Previously filed as an Exhibit to the Company's Current Report
on Form 8-K dated December 27, 1993.
<PAGE>
(6) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 27, 1993.
(7) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 19, 1996.
(8) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 20, 1995.
(b) Reports on Form 8-K:
(i) The Company did not file a Current Report on Form 8-K during the
quarter ended January 26, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 18th day of April,
1997.
DUTY FREE INTERNATIONAL, INC.
By: /s/ Alfred Carfora
----------------------
Alfred Carfora
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director April 18, 1997
-----------------------
Jack Africk
* Director April 18, 1997
-----------------------
David H. Bernstein
/s/ Alfred Carfora Director, President and Chief April 18, 1997
--------------------- Executive Officer
Alfred Carfora
* Director April 18, 1997
-----------------------
John A. Couri
/s/ Gerald F. Egan Vice President of Finance, April 18, 1997
------------------- Treasurer, Secretary and Chief
Gerald F. Egan Financial Officer**
* Director, Vice President April 18, 1997
------------------------
Carl Reimerdes
* Director April 18, 1997
----------------------------
Susan H. Stackhouse
* Director April 18, 1997
--------------------------
Stephen M. Waters
* Director April 18, 1997
-------------------------------
Lowell P. Weicker, Jr.
*By: /s/ Alfred Carfora
Alfred Carfora
Attorney-in-fact
</TABLE>
**Principal Financial and Accounting Officer
<PAGE>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
----
Independent Auditors' Report 15
Schedule II - Valuation and Qualifying Accounts for
the three-year period ended January 26, 1997. 16
All other 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Duty Free International, Inc.:
Under date of February 28, 1997, we reported on the consolidated balance sheets
of Duty Free International, Inc. and subsidiaries as of January 26, 1997 and
January 28, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended January 26, 1997. In connection with our audits of the
aforementioned consolidated financial statements, we have also audited the
related financial statement schedule "Schedule II - Valuation and Qualifying
Accounts". The financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 28, 1997
<PAGE>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Charged to
Balance at Charged to other Balance at
beginning costs and accounts- end of
Description of period expenses describe Deductions(1) period
----------- --------- -------- -------- ------------- ------
<S> <C> <C> <C> <C> <C>
Year ended January 26, 1997:
Allowance for
doubtful accounts $735,000 $1,228,000 $ -- $(1,327,000) $636,000
======== ========== =========== =========== ========
Year ended January 28, 1996:
Allowance for
doubtful accounts $795,000 $ 618,000 $ -- $ (678,000) $735,000
======= ======= ============ ========= =======
Year ended January 29, 1995:
Allowance for
doubtful accounts $740,000 $ 462,000 $280,000 (2) $ (687,000) $795,000
======= ======= ======= ========= =======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Allowance for doubtful accounts recorded in connection with the acquisition
of Inflight Sales Group Limited on May 1, 1994.
<PAGE>
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
No. Description of Exhibit Number
<S> <C> <C>
3.1 - Charter of the Company.(2)
3.2 - By-Laws of the Company as amended to October 18, 1993. (5)
4.1 - Senior Indenture between Duty Free International, Inc. and The
Chase Manhattan Bank, N.A., as trustee, dated as of January 15,
1994. (5)
4.2 - Form of 7% Note Due 2004. (4)
10.1 - Agreement by and between United Distillers Group (Duty Free) Ltd.
and Overseas Trading Corporation. (6)
10.2 - Agreement dated January 1, 1989 by and between United Distillers
Group (Duty Free) Ltd. and Samuel Meisel and Company, Inc.(1)
10.3 - Credit Agreement dated as of May 26, 1995 among Duty Free
International, Inc., the Banks signatory thereto and the Chase
Manhattan Bank, N.A. as agent. (7)
10.4 - 1989 Stock Option Plan for Duty Free International, Inc., and
related form of stock option agreement as amended and restated
effective February 11, 1993 (6) and May 20, 1994 (8) (compensatory
plan).
10.5 - Incentive Compensation Plan (1) (compensatory plan).
10.6 - Indemnity Agreement by and between Duty Free International, Inc.
and Jack Africk.(1)
12.1 - Ratios of Earnings to Fixed Charges. (3) 19
13.1 - 1997 Annual Report to Stockholders.(3) 20 - 45
21.1 - Subsidiaries.(3) 46
23.1 - Consent of KPMG Peat Marwick LLP.(3) 47
24.1 - Powers of Attorney for Jack Africk, David H. Bernstein, John A.
Couri, Carl Reimerdes, Susan H. Stackhouse, Stephen M. Waters, and
Lowell P. Weicker, Jr. (3) 48 - 54
27.1 - Financial Data Schedule.(3) N/A
</TABLE>
<PAGE>
Notes: (1) Previously filed as an Exhibit to the Registration Statement
of the Company on Form S-1, File No. 33-27842 declared
effective May 11, 1989.
(2) Previously filed as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 33-43071, declared effective
November 29, 1991.
(3) Filed herewith.
(4) Previously filed as an Exhibit to the Company's Current Report
on Form 8-K dated January 15, 1994.
(5) Previously filed as an Exhibit to the Company's Current Report
on Form 8-K dated December 27, 1993.
(6) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 27, 1993.
(7) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 19, 1996.
(8) Previously filed as an Exhibit to the Company's Annual Report
on Form 10-K dated April 20, 1995.
Exhibit 12.1
DUTY FREE INTERNATIONAL, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
<TABLE>
<CAPTION>
Year Ended January
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes $34,080 $25,389 ($31,149) $43,082 $49,786
Adjustments:
Interest expense on borrowed funds 8,444 8,658 8,878 1,495 1,044
Interest portion of rental expense
(deemed to be one-third of rental expense) 11,929 9,591 8,620 7,990 7,842
Amortization of deferred financing costs 161 185 185 31 25
Undistributed earnings of less than
50% owned investees (472) (270) (100) (214) (170)
----- ---- ----- ----- -----
Earnings available for fixed charges/(Deficit) 54,142 43,553 (13,566 ) 52,384 58,527
------- ------- -------- ------- -------
Fixed Charges:
Interest expense on borrowed funds 8,444 8,658 8,878 1,495 1,044
Interest capitalized - - 309 - -
Interest portion of rental expense 11,929 9,591 8,620 7,990 7,842
Amortization of deferred financing costs 161 185 185 31 25
--- ---- ---- --- --
20,534 18,434 17,992 9,516 8,911
------- ------- -------- ------- -------
Earnings to cover fixed charges/(Deficit) $33,608 $25,119 ($31,558) $42,868 $49,616
======= ======= ========= ======= =======
Ratio of earnings to fixed charges 2.64 2.36 N/A(1) 5.50 6.57
======= ======= ========= ======= =======
</TABLE>
(1) Earnings available for fixed charges needed to bring the ratio to 1.00 was
$17,992.
ANNUAL REPORT 97
Duty Free International, Inc. and Subsidiaries
SELECTED CONSOLIDATED FINANCIAL DATA -- 10 YEARS (Dollars in thousands, except
per share amounts)
<TABLE>
<CAPTION>
Fiscal year ended January 1997 1996 1995(1) 1994 1993(2) 1992(3) 1991 1990 1989 1988(4)
- ------------------------- ---- ---- ------- ---- ------- ------- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings Statement Data:
Net Sales $570,895 $515,058 $501,761 $376,436 $361,823 $346,635 $262,962 $258,944 $229,687 $141,978
Net sales increase percent 10.8% 2.7% 33.3% 4.0% 4.4% 31.8% 1.6% 12.7% 61.8% N/A
Gross profit 249,162 218,885 200,374 147,740 146,425 138,749 93,820 83,512 62,788 39,706
Gross profit -- percent
of net sales 43.6% 42.5% 39.9% 39.2% 40.5% 40.0% 35.7% 32.3% 27.3% 28.0%
Selling, general and
administrative expenses 214,032 192,913 177,895 113,365 101,401 95,406 67,194 59,985 45,121 31,492
Selling, general and
administrative expenses --
percent of net sales 37.5% 37.5% 35.5% 30.1% 28.0% 27.5% 25.6% 23.2% 19.6% 22.2%
Restructuring expenses -- -- 7,571 -- -- -- -- -- -- --
Revaluation of intangible
assets -- -- 46,002 -- -- -- -- -- -- --
Operating income (loss) 39,653 30,346 (26,722) 39,535 49,647 47,577 29,715 26,221 19,984 9,528
Operating income (loss) --
percent of net sales 6.9% 5.9% (5.3%) 10.5% 13.7% 13.7% 11.3% 10.1% 8.7% 6.7%
Operating income (loss)--
percentage change 30.7% N/A N/A (20.4%) 4.4% 60.1% 13.3% 31.2% 109.7% N/A
Earnings (loss) before
income taxes 34,080 25,389 (31,149) 43,082 49,786 48,765 32,542 26,200 19,301 8,815
Effective income tax rate 37.0% 37.0% (20.4%) 36.4% 39.0% 35.7% 31.6% 33.3% 32.1% 43.3%
Net earnings (loss) 21,470 15,996 (24,802) 27,393 30,373 31,364 22,268 17,483 13,101 5,001
Net earnings (loss) --
percent of net sales 3.8% 3.1% (4.9%) 7.3% 8.4% 9.0% 8.5% 6.8% 5.7% 3.5%
Earnings (loss) per share $0.79 $0.59 $(0.91) $1.01 $1.08 $1.19 $0.85 $0.78 $0.71 $0.30
Weighted average number
of shares outstanding
(000's) 27,282 27,251 27,224 27,204 28,142 26,462 26,314 22,385 18,562 16,556
Dividends per common share $0.24 $0.20 $0.20 $0.20 $0.15 -- -- -- $0.025 --
Return on stockholders'
equity 9.8% 7.7% (11.5%) 12.5% 14.3% 17.7% 17.6% 22.3% 37.5% 28.0%
<PAGE>
January 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $142,117 $121,291 $113,996 $204,118 $ 90,630 $119,353 $103,209 $ 98,844 $ 29,348 $ 21,121
Current ratio 3.2 3.2 2.7 7.0 3.3 3.9 3.1 3.3 1.5 1.4
Total asset 415,348 390,708 387,142 387,600 255,819 269,911 200,557 173,153 103,867 83,689
Long-term obligations 123,604 122,238 118,891 121,821 9,629 11,797 14,054 14,253 8,379 7,257
Stockholders' equity 227,715 212,482 201,151 231,861 207,343 216,447 137,875 115,830 41,183 28,737
Number of shares
outstanding (000's) 27,303 27,270 27,244 27,238 27,122 28,429 26,269 26,262 18,512 18,512
Percent of total debt to
total capitalization 34.3% 36.2% 37.1% 34.2% 4.1% 5.2% 13.7% 15.7% 23.8% 35.8%
Book value per share $8.34 $7.79 $7.38 $8.51 $7.64 $7.61 $5.25 $4.41 $2.22 $1.55
</TABLE>
- -------------
(1) Inflight Sales Group Limited was purchased on May 1, 1994.
(2) Expenses incurred in effecting the merger of UETA, Inc. and Duty Free
International were $4,389,000, or $0.16 per share, which were charged to the
financial results in fiscal 1993.
(3) The Company acquired 16 duty free stores and related businesses along the
Western United States/Canada border on February 1, 1991. (4) UETA was formed
in May 1987. The financial information for fiscal 1988 includes partial year
results for UETA.
QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
First Second Third Fourth Year
----- ------ ----- ------ ----
Fiscal 1997:
Net sales $117,979 $140,754 $158,662 $153,500 $570,895
Gross profit 50,801 62,976 71,205 64,180 249,162
Net earnings 2,182 6,009 7,539 5,740 21,470
Earnings per share $0.08 $0.22 $0.28 $0.21 $0.79
Fiscal 1996:
Net sales $109,348 $130,359 $145,181 $130,170 $515,058
Gross profit 46,161 56,341 62,098 54,285 218,885
Net earnings 1,466 4,516 5,719 4,295 15,996
Earnings per share $0.05 $0.17 $0.21 $0.16 $0.59
<PAGE>
COMPANY PROFILE
Duty Free International, Inc. operates one of the world's largest
chains of travel-related stores. Founded in 1983 and publicly held since 1989,
DFI has become a diversified retailer through both acquisitions and internal
expansion. The Company now operates approximately 176 stores and employs more
than 2,000 people. Headquartered in Ridgefield, Connecticut, DFI is divided into
four operating divisions: Airport, Border (AMMEX and UETA), Inflight and
Diplomatic/Wholesale.
AMMEX operates 36 duty free locations on the United States border with
Canada, while UETA operates 31 stores at crossings between the United States and
Mexico. DFI serves 14 international airports throughout the United States,
including New York's John F. Kennedy and La Guardia, Chicago's O'Hare, Boston's
Logan, and Denver, as well as several in the Caribbean islands. DFI is also a
major supplier of duty free merchandise to foreign diplomats in New York and
Washington, D.C., as well as to ships engaged in international travel and trade
in the ports of the northeastern United States and Miami.
With its vast product assortment, the Company reaches millions of
travelers from around the world every day. The duty free stores sell
high-quality, brand-name merchandise, such as liquor, tobacco products,
fragrances and luxury gifts, free of all duties as well as sales and excise
taxes. Duty Free specializes in the sale of premium products and typically
offers savings of 20% to 60%, depending on the shopper's home market.
DUTY FREE LOCATIONS
INTERNATIONAL LOCATIONS
Caribbean, Hong Kong, Puerto Rico
Singapore, United Kingdom
<PAGE>
LETTER TO SHAREHOLDERS:
Fiscal 1997 was another year of solid progress for our Company. Not
only did sales and earnings exceed fiscal 1996 results by a considerable margin,
but also quarterly numbers moved on an uninterrupted upward path. These
gratifying results were achieved through a selective expansion of our retail
locations, a significantly extended product line and continued firm control over
costs.
Operating Results
On a year-to-year sales gain of 10.8%, net income increased 34.2% in
fiscal 1997. Revenues rose from $515,058,000 a year earlier to $570,895,000, due
in large part to stellar results at the Airport Division. Thanks to the leverage
provided by our relatively fixed-cost base, net income jumped from $15,996,000
to $21,470,000, and earnings per share rose to $0.79 versus $0.59 in the prior
year.
At fiscal year-end, assets totaled $415,348,000, working capital was
$142,117,000, stockholders' equity equaled $227,715,000, and the ratio of total
debt to total capitalization was 34.3%.
The Year in Review
Fiscal 1997 began on a positive note, with all Divisions showing higher
rates of growth, except Diplomatic/Wholesale, where a shift in emphasis to the
more profitable diplomatic business has dampened sales. These encouraging trends
continued throughout the year, with the Airport and Inflight Divisions standout
performers and a noteworthy turnaround in the Southern Border operation.
Quarterly highlights include the Airport Division's addition of seven
new stores at Chicago's O'Hare International Airport in the first three months
of the fiscal year, the opening of the 5,000-square-foot Delta Flight Center
shop at John F. Kennedy International Airport in New York in the second quarter,
and an increase to seven stores in the San Juan International Airport in the
fourth quarter. As well, in the final three months of the fiscal year, the
Company introduced two new brand-name concepts: Sony Signature Shop and Coach
Leather. At the same time, comparable-store sales gains continued to increase.
Contributing to the Inflight Division's strong results were two new
duty free airline concessions that became effective in the first and second
quarters. Here, too, comparable-store sales exceeded our expectations. In
October, the Inflight Division, together with its airline partner, United
Airlines, was the proud recipient of the prestigious Frontier Duty Free Award
for Inflight Operator of the Year.
The final three months of fiscal 1997 showed the strongest revenue gain
of the year -- almost 18% -- with increases of 20% or more recorded by Airport,
Inflight and the Southern Border. The latter enjoyed the dual benefits of higher
volume and relative stability of the Mexican peso against the U.S. dollar.
<PAGE>
Other developments of note during the year include the promotion of
Steven D. Zurcher to the position of President of the AMMEX Tax and Duty Free
Shops, Inc. during the first quarter. Steve was formerly Executive Vice
President of AMMEX and has been with the Company since 1989. We believe his
leadership will strengthen the Northern Border operations.
We are also delighted to announce the election to the Company's Board
of Directors of former Connecticut Governor Lowell P. Weicker, Jr., in the
fourth quarter. Governor Weicker's experience in the private and public sectors,
including the U.S. Congress in both the House and the Senate, will be of great
value to Duty Free International in the years ahead.
Looking Ahead
Results for fiscal 1997 demonstrate convincingly that our strategy of
prudent expansion of retail locations, combined with streamlined operations, is
bearing fruit and has set the stage for long-term growth in sales and
profitability.
The expansion of our Airport Division facilities coincided with an
increase in international travel. We believe the attractive value of the U.S.
dollar versus European currencies is partly responsible and will continue to
benefit this Division. At the same time, DFI is offering a much broader product
line and new branded shops. We expect an extension of the strong gains in this
Division and will diligently pursue further profitable airport concessions and
high-quality merchandise lines.
Building on our well-established on-board duty free concession business
in the Americas and our global supply infrastructure, we continue to pursue
appropriate prospects for inflight programs worldwide. Air carriers are
increasingly finding it profitable to outsource such services, and Inflight has
no equal in this area.
<PAGE>
The Border Division should maintain the improvement in sales shown in
fiscal 1997, leading to more profitable operations both short- and long-term.
The decline in gasoline and convenience store sales that has hampered AMMEX
(Northern Border) should flatten out by the end of the first quarter of fiscal
1998. And, with a benign macroeconomic environment in Canada, comparable-store
sales for the core duty free business should pick up. At UETA, we plan further
expansion and will soon open our first store on the Mexican side of the Southern
Border.
We believe the managing-down of the wholesale aspects of the
Diplomatic/Wholesale Division is complete and that this operation is now at a
sustainable level. Diplomatic sales remain satisfactory and profitable.
We intend to remain the foremost duty free and travel-related retailer
in the industry by seeking promising avenues of growth, increasing efficiency,
and offering a widening selection of high-quality products at attractive prices.
Our strategy remains to increase average spending per customer, maintain a
low-cost structure, and pursue acquisitions. In this way, we expect to achieve
our goal of a billion dollars in sales by the end of this decade and to reward
the loyalty of our shareholders, our employees, our customers and our vendors.
We thank all of you for your continued support.
Sincerely,
Alfred Carfora
President and Chief Executive Officer
March 24, 1997
<PAGE>
Results for fiscal 1997 demonstrate convincingly that our strategy of
prudent expansion of retail locations, combined with streamlined
operations, is bearing fruit and has set the stage for
long-term growth in sales and profitability.
LEADING THE DUTY FREE AND TRAVEL RETAILING INDUSTRY
WE INTEND to remain the foremost duty free and travel-related retailer
in the industry by seeking promising avenues of growth, increasing efficiency,
and offering a widening selection of high-quality products at attractive prices.
OUR STRATEGY remains to increase average spending per customer,
maintain a low-cost structure, and pursue acquisitions. In this way, we expect
to achieve our goal of a billion dollars in sales by the end of this decade.
AIRPORT DIVISION
DFI's excellent fiscal 1997 performance was spearheaded by the Airport
Division, which operates as Fenton Hill American Limited and accounts for about
22% of total corporate revenues. Following the addition of 16 new stores in
fiscal 1996 in the international airports of Denver, Boston and San Juan, in
fiscal 1997 the Division obtained a further seven stores in Terminal 1 and
Terminal 3 at Chicago's O'Hare International Airport. It also opened a
5,000-square-foot duty free store at the new Delta Flight Center at the John F.
Kennedy International Airport in New York. As well, we now have seven duty free
shops in the San Juan International Airport. These additional facilities
combined with an expanded product line led to an impressive 22% gain in sales
for the year, from $102,548,000 in fiscal 1996 to $125,530,000.
Fenton Hill's success stems from a diversified portfolio of retail
outlets, which we continually upgrade while increasing our mix of concepts --
Coach Leather and Sony Signature Shop boutiques are the latest to be added. Our
duty free shops sell high-quality, brand-name merchandise, such as liquor,
tobacco products, fragrances and luxury gifts. Other retailing businesses
include standard news and gift shops, as well as bookstores. Among our specialty
outlets are shops concentrating on American-made items, regional sports-theme
shops (The Sports Section), natural personal-care boutiques (Bodyography), and
branded athletic footwear shops (the Athlete's Foot). We also offer gourmet food
and confectionery outlets.
<PAGE>
BORDER DIVISION
The Border Division should maintain the improvement in sales shown in
fiscal 1997, leading to more profitable operations both short- and long-term.
Border North
Duty free sales at AMMEX were quite satisfactory in fiscal 1997. An
emphasis on selling techniques continued to raise the average transaction spend,
overcoming flat traffic trends, and same-store duty free sales were up. While
these encouraging results were offset to some extent by a decline in the
lower-margin gas and convenience store sales, overall the Northern Border showed
a 3.3% gain in annual revenues, from $77,710,000 to $80,284,000. AMMEX's
performance this year is reflective of the much more stable economic conditions
that currently prevail in Canada. Continuation or improvement of these economic
conditions will positively impact future results of this Division.
AMMEX's focus this coming year will be to continue improving its
capture rate and increasing its average transaction spend. Expanded assortments
of merchandise, coupled with a keen pricing strategy, will attract many new
customers.
Border South
The restructuring of UETA operations over the past couple of years, as
well as store upgrades, contributed to a sharp turnaround in the Southern
Border, with an especially strong 25% gain in the fourth quarter. Revenues were
up 17% for the full year, from $103,283,000 to $120,802,000 -- 21% of overall
corporate sales. Since the Company's costs are relatively fixed in the Southern
Border, higher volume sharply benefits operating margins. Two new locations were
added in Texas during the year, and we plan further expansion in fiscal 1998,
including our first duty free store in Mexico.
UETA sells luxury items, such as premium watches, fragrances,
cosmetics, select liquor and tobacco products, beer, wine, gourmet foods,
designer jewelry and other high-quality gifts, along the United States/Mexican
border.
<PAGE>
DIPLOMATIC/WHOLESALE DIVISION
Diplomatic/Wholesale Division
To maximize returns on our assets, we have been refocusing the
Diplomatic/Wholesale Division for some time now. As a result, the operation
accounts for approximately 10% of the Company's sales. Revenues for fiscal 1997
were $54,826,000 compared with $60,249,000 a year ago. Sales to the diplomatic
community continue to do well, and this accent on higher margin business is
improving profitability. By managing down the low profit margin business in this
Division, we have increased our capacity to distribute merchandise to our
ever-expanding chain of stores.
The Division remains the foremost supplier of duty free luxury items to
U.S.-based foreign diplomats and a major supplier to international merchant and
passenger ships.
INFLIGHT DIVISION
Acquired only two years ago, the Division now accounts for
approximately one-third of total revenues. Inflight is a principal operator of
on-board, duty-free merchandise programs for international airlines. In
testimony to its leadership and the excellence of its service, Inflight, along
with its airline partner, United Airlines, was named Inflight Retailer of the
Year in fiscal 1997. Inflight is a full service duty free concessionaire for the
world's leading airlines, offering high-quality luxury merchandise to their
passengers. The Company also supplies wholesale merchandise to airline-run duty
free programs and manufactures and markets amenity kits for international air
carriers' first- and premium-class passengers.
As air travel and airline competition increase and as carriers
recognize the benefits of a risk-free outsourcing arrangement, Inflight
concession programs will account for a greater percentage of the Company's
corporate sales.
Two new airline concessions were implemented this year. Air Canada in
March was followed by a second contract with Canadian International Airlines in
July, lifting the Division's rate of sales growth to 20% in the fourth quarter.
For the full year, the gain was 10.6%, from $171,268,000 to $189,453,000. Our
distribution warehouses and station locations throughout the United States,
South America, Europe and the Pacific Rim provide the infrastructure to pursue
opportunities to provide full on-board, duty free programs throughout the world.
Within the new year, DFI plans to establish a marketing presence in Europe to
manage accounts in that area and better penetrate the European market.
<PAGE>
REPORT OF MANAGEMENT
To Our Shareholders:
The management of Duty Free International, Inc. has prepared the
financial statements and related information contained in this Annual Report.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles and using estimates, where appropriate,
based on the judgments of management. Management is responsible for the
integrity and objectivity of the financial statements and other financial
information included in this report. To meet this responsibility, management
maintains a system of internal accounting procedures and controls to provide
reasonable assurance that assets are safeguarded and that transactions are
properly executed and recorded by qualified personnel. The system of procedures
and controls is regularly reviewed by officers, key employees of the Company and
the Company's Internal Audit department.
The Audit Committee of the Board of Directors is composed solely of
outside directors. The Committee meets periodically and, when appropriate,
separately, with representatives of the independent auditors, personnel from the
Company's Internal Audit department and officers of the Company to review their
activities. The independent auditors have full and free access to the Audit
Committee and meet with it to discuss auditing, financial reporting and other
matters.
The Audit Committee recommends, and the Board of Directors appoints,
the independent auditors.
Alfred Carfora Gerald F. Egan
President and Vice President Finance and
Chief Executive Officer Chief Financial Officer
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Duty Free International, Inc.:
We have audited the accompanying consolidated balance sheets of Duty
Free International, Inc. and subsidiaries as of January 26, 1997 and January 28,
1996 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the years in the three-year period ended January 26,
1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Duty Free
International, Inc. and subsidiaries as of January 26, 1997 and January 28, 1996
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 26, 1997, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 28, 1997
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1997 Compared with 1996
Net earnings were $21,470,000, or $0.79 per share, for the year ended
January 26, 1997, an increase of $5,474,000, or 34.2%, from $15,996,000, or
$0.59 per share, for the year ended January 28, 1996. The 34% increase in net
earnings was due primarily to increased operating earnings by the Company's
Southern Border and Airport Divisions. The increase in the Southern Border
Division's operating earnings was due primarily to a 17% increase in sales,
resulting primarily from the stabilization of the Mexican economy, while
selling, general and administrative expenses increased by only 3.4%. The Airport
Division's operating earnings increased significantly due to a 22.4% increase in
net sales, primarily from new airport locations in New York, Chicago,
Philadelphia and Puerto Rico, and improved operating margins resulting primarily
from a decrease in payroll and related expenses as a percent of sales.
Below are explanations of significant variances from the prior year by
income statement line item.
Net Sales
The following table sets forth, for the fiscal periods indicated, the
net sales and the percentage of total net sales for each of the Company's
divisions and the period to period change in such sales (in thousands, except
for percentages):
<TABLE>
<CAPTION>
Fiscal Year Ended Increase/(Decrease)
----------------------------------------- Fiscal
Divisional Net Sales January 26, 1997 January 28, 1996 1997 vs. 1996
- -------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Border:
Southern $120,802 21.2% $103,283 20.0% $17,519 17.0%
Northern 80,284 14.1 77,710 15.1 2,574 3.3%
Inflight 189,453 33.2 171,268 33.3 18,185 10.6%
Airport 125,530 22.0 102,548 19.9 22,982 22.4%
Diplomatic and Wholesale 54,826 9.5 60,249 11.7 (5,423) (9.0%)
-------- ---- -------- ---- -------
$570,895 100.0% $515,058 100.0% $55,837 10.8%
======== ===== ======== ===== =======
</TABLE>
<PAGE>
The 17.0% increase in the Southern Border Division sales was due
primarily to the improvement of the Mexican peso/U.S. dollar exchange rate and
the Mexican economy stabilizing during fiscal 1997. The Southern Border
Division's operating results in fiscal 1996 suffered from the significant
negative effects on the Mexican economy of the peso devaluation in December
1994. The Northern Border Division's sales increased by 3.3% due primarily to an
8.8% increase in duty free sales resulting from the purchase of two duty free
stores in July 1995, and an increase in the average amount spent per transaction
by customers, which the Company attributes to the division's sales training
programs and other marketing efforts. The net sales increase was achieved in
spite of a 22.9% decrease in lower margin retail and gas sales as a result of
the Northern Border Division discontinuing a policy of giving customers a higher
exchange rate than the prevailing market rate for Canadian dollars when they
were exchanged for U.S. dollars. The intention of this program was to increase
higher margin duty free sales, which did not occur sufficiently, thus this
program was discontinued early in fiscal 1997. The Inflight Division's sales
increased by 10.6% due primarily to sales from the new airline concession
contracts with Air Canadian and Canadian International and an increase in sales
from the division's South American airline concessions. The sales to concession
customers were partially offset by a decrease in wholesale sales to airlines,
including Air Canada and Canadian International which were wholesale customers
of the Inflight Division before Inflight was awarded their concession contracts.
The Airport Division's sales increased by 22.4% due primarily to new store
openings in fiscal 1996 and 1997. Diplomatic and Wholesale Division sales,
excluding sales of the two locations sold in fiscal 1996 as part of the
restructuring plan, were comparable with the prior year. The Diplomatic and
Wholesale Division continued its program of decreasing low margin wholesale
sales; however, the wholesale sales decrease was offset by an increase in sales
to cruise ships.
Cost of Sales and Gross Profit
Gross profit, as a percentage of net sales, increased to 43.6% during
fiscal 1997 from 42.5% during fiscal 1996. The increase was due primarily to
increases in the Inflight, Airport and Northern Border Division's duty free
sales, all of which have gross profit margins higher than the Company's average
gross profit margin, and a decrease in lower margin, wholesale, gas and Northern
Border retail sales, all of which have gross profit margins lower than the
Company's average gross profit margin. The above was partially offset by an
increase in the Southern Border Division's sales as a percentage of the
Company's total sales. The Southern Border Division has gross profit margins
that are lower than the Company's average gross profit margin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net
sales, were 37.5% for both fiscal 1997 and 1996. A decrease in payroll and
related expenses, as a percentage of net sales, during the current year was
offset by an increase in commission expenses paid to airlines resulting from an
increase in the Inflight Division's concession sales, and an increase in base
rent and rent based on sales due to store openings in fiscal 1996 and 1997.
Gain (Loss) on Foreign Currency Transactions
The Company's gain on foreign currency transactions was $342,000 for
fiscal 1997 versus a loss of $487,000 for fiscal 1996. The increase in income
from foreign currency transactions was due primarily to the Northern Border
Division discontinuing its policy of giving customers a higher exchange rate
than the prevailing market rate for Canadian dollars when they were exchanged
for U.S. dollars, and the Company increasing the percentage of foreign currency
denominated purchases covered by foreign exchange forward contracts during
fiscal 1997 when compared to fiscal 1996.
<PAGE>
Other Non-Operating Income
Other non-operating income decreased by $1,231,000 from $1,529,000
during fiscal 1996 to $298,000 during fiscal 1997. The decrease was due
primarily to an increase in minority partners' interest in consolidated
partnership's income during fiscal 1997 when compared to fiscal 1996. The
Company entered into new partnership agreements at various new airport locations
during fiscal 1996 and 1997.
Income Taxes
Income taxes, as a percentage of earnings before income taxes, was
37.0% for both fiscal 1997 and 1996.
<PAGE>
Fiscal 1996 Compared with 1995
Net earnings were $15,996,000, or $0.59 per share, for the year ended
January 28, 1996, an increase of $1,863,000, or 13.2%, from $14,133,000, or
$0.52 per share, for the year ended January 29, 1995 before restructuring and
revaluation charges. A total pre-tax charge to earnings of $53,573,000
($38,935,000 after tax) was taken in the year ended January 29, 1995. This
charge included $7,571,000 for restructuring expenses and a write-down of
intangible asset value of $46,002,000 resulting from a change to a fair value
method of evaluating the recoverability of intangible assets (a more detailed
explanation is provided in notes 16 and 17 to the consolidated financial
statements). The increase in net earnings from the prior year, excluding the
restructuring and revaluation charges in the prior year, reflects the successful
execution of the Company's cost containment programs as well as sales increases
by the Inflight, Airport and Northern Border Divisions. The Inflight Division's
operating earnings increased significantly for fiscal 1996 when compared to the
prior year due to sales increases resulting from increases in the number of
travelers on-board international flights served by the Company and an increase
in the average amount of duty free merchandise purchased from the Company by
travelers on-board international airlines. The Inflight Division's gross profit
percentage increased for fiscal 1996 when compared to the prior year due
primarily to a significant increase, in absolute dollars and as a percentage of
the Division's total sales, in duty free sales made on-board international
airlines, which generally have higher profit margins than sales of amenity kits
and wholesale sales to airlines. The Inflight Division's financial results for
the year ended January 29, 1995 included only three quarters, because Inflight
was purchased on May 1, 1994. The Northern Border Division's operating earnings
for fiscal 1996 increased significantly from the prior year due primarily to
expense reductions resulting from the restructuring plan implemented in fiscal
1995, a decrease in amortization expense resulting from the intangible asset
revaluation in fiscal 1995, and the Company's continued efforts to increase the
average amount of duty free merchandise purchased from the Company by customers.
The above was partially offset by the continued negative trend in traffic across
the United States/Canada border during fiscal 1996. The Airport Division's
operating earnings increased significantly due primarily to an increase in sales
resulting from an increase in foreign travelers shopping at the Company's
airport locations, new store openings, the closing of unprofitable locations
under the restructuring plan, and a decrease in amortization expense resulting
from the intangible asset revaluation. During the third and fourth quarters of
fiscal 1996, the Airport Division's sales and operating earnings were adversely
impacted by the severe hurricanes on the Caribbean islands of St. Thomas and St.
Maarten.
The increases in operating earnings for the Inflight, Northern Border
and Airport Divisions were partially offset by a substantial decrease in the
Southern Border Division's sales and operating earnings resulting from the
significant devaluation of the Mexican peso versus the U.S. dollar in December
1994. The drop in the value of the peso destabilized the Mexican economy and
increased the costs of the Company's products for Mexican customers. The
Southern Border Division reduced its selling, general and administrative
expenses by approximately $5,000,000 during fiscal 1996 when compared to the
prior year. However, these expense reductions were more than offset by a
$41,319,000 decrease in the Southern Border Division's net sales. The expense
reductions related primarily to lower employee and other operating expenses
resulting from employee terminations, a decrease in the number of hours stores
were open, and reductions of advertising and promotional expenses. The
Division's sales decline was 22% in the fourth quarter of fiscal 1996 versus
declines of 37%, 34% and 23% in the first three quarters of 1996 versus the same
periods in fiscal 1995.
Below are explanations of significant variances from the prior year by
income statement line item.
Net Sales
The following table sets forth, for the fiscal periods indicated, the
net sales and the percentage of total net sales for each of the Company's
divisions and the period to period change in such sales (in thousands, except
for percentages):
<TABLE>
<CAPTION>
Fiscal Year Ended Increase/(Decrease)
----------------------------------------- Fiscal
Divisional Net Sales January 28, 1996 January 29, 1995 1996 vs. 1995
- -------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Border:
Southern $103,283 20.0% $144,602 28.8% $(41,319) (28.6%)
Northern 77,710 15.1 73,631 14.7 4,079 5.5%
Inflight 171,268 33.3 121,890 24.3 49,378 40.5%
Airport 102,548 19.9 92,887 18.5 9,661 10.4%
Diplomatic and Wholesale 60,249 11.7 68,751 13.7 (8,502) (12.4%)
-------- ---- -------- ---- --------
$515,058 100.0% $501,761 100.0% $ 13,297 2.7%
======== ===== ======== ===== ========
</TABLE>
<PAGE>
The significant decrease in the Southern Border Division's sales was
due to the devaluation of the Mexican peso versus the U.S. dollar in December
1994 which destabilized the Mexican economy and increased the costs of the
Company's products for Mexican customers. The Inflight Division's sales
increased by 9.5% during the last three quarters of fiscal 1996 when compared to
the same period in the prior year (Inflight was purchased at the beginning of
the second quarter in fiscal 1995). This increase was due primarily to an
increase in the number of foreign travelers on-board international flights
served by the Company and an increase in the average amount of duty free
merchandise purchased from the Company by travelers on-board international
airlines during fiscal 1996. The Northern Border Division's comparable store
sales (excluding sales of stores closed under the restructuring plan and two
stores purchased in July 1995) increased by 2.4% for fiscal 1996 when compared
to the prior year. The improvement in sales trends for the Northern Border
Division from fiscal 1995 (when there was a 22.1% decrease in sales from fiscal
1994) was due primarily to the anniversary of the decrease in Canadian tobacco
taxes which occurred in the first quarter of fiscal 1995, and increases in
average transaction spend amounts by customers resulting from the Division's
marketing and promotion programs. The above was partially offset by the
continued negative trend in Canadian traffic across the United States/Canada
border during fiscal 1996. The Airport Division's sales increase was due
primarily to an increase in the number of foreign travelers shopping at the
Company's airport locations during fiscal 1996, and store openings at Denver
International Airport, Boston's Logan International Airport and San Juan
International Airport in Puerto Rico during fiscal 1996. The above was partially
offset by sales decreases due to store closings under the Company's
restructuring plan and the effects of the severe hurricanes at the Company's St.
Thomas and St. Maarten locations. The Diplomatic and Wholesale Division's sales,
excluding locations sold in fiscal 1996 as part of the Company's restructuring
plan and a business purchased in the latter part of fiscal 1995, decreased by
23.3% during fiscal 1996 when compared to fiscal 1995 due primarily to the
Company continuing to de-emphasize what would have been relatively low gross
margin sales in this Division. Net sales of all the stores and businesses closed
or sold under the restructuring plan were $4,757,000 and $13,931,000 for fiscal
1996 and fiscal 1995, respectively.
Cost of Sales and Gross Profit
Gross profit, as a percentage of net sales, increased to 42.5% during
fiscal 1996 from 39.9% during fiscal 1995. The increase was due primarily to
increases in the Inflight, Airport and Northern Border Divisions' net sales and
gross profit margins, and significant decreases in the Southern Border and
Diplomatic and Wholesale Divisions' net sales. The Inflight, Airport and
Northern Border Divisions have significantly higher gross profit margins than
the Southern Border and Diplomatic and Wholesale Divisions. The Inflight
Division's gross profit percentage increased during fiscal 1996 when compared to
the prior year due primarily to a significant increase, in absolute dollars and
as a percentage of the Division's total sales, in duty free sales made on-board
international airlines, which generally have higher gross profit margins than
amenity kit and wholesale sales to airlines.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net
sales, increased to 37.5% in fiscal 1996 from 35.5% in fiscal 1995. The increase
was due primarily to the following factors:
o A significant increase in the Inflight Division's net sales in fiscal 1996,
as a percentage of the Company's total sales, when compared to the prior year
(Inflight was purchased May 1, 1994). The Inflight Division has selling,
general and administrative expenses, as a percentage of net sales, higher
than the Company average due primarily to commission expenses paid to
airlines.
o An increase in the Airport Division's net sales in fiscal 1996, as a
percentage of the Company's total sales, when compared to the prior year. The
Airport Division's operating expenses, as a percentage of net sales, are
higher than the Company's other divisions due to rents based on sales and
other variable expenses.
o Significant decreases in the Southern Border Division's net sales in fiscal
1996 versus the prior year. The Southern Border Division has selling, general
and administrative expenses, as a percentage of net sales, significantly
lower than the Company average. The Company reduced the Southern Border
Division's selling, general and administrative expenses by approximately
$5,000,000 during fiscal 1996 when compared to the prior year. However, these
expense reductions were more than offset by a $41,319,000 decrease in the
Division's net sales during fiscal 1996 when compared to fiscal 1995. The
expense reductions related primarily to lower employee and other operating
expenses resulting from employee terminations, a reduction in the number of
hours stores are open, and reductions of advertising and promotion expenses.
The restructuring plan and the revaluation of intangible assets in the
third quarter of fiscal 1995 reduced the Company's selling, general and
administrative expenses by approximately $10,400,000 during fiscal 1996 when
compared to fiscal 1995.
Interest Income
Interest income decreased by $960,000 during fiscal 1996 when compared
to fiscal 1995. The decrease was due primarily to a decrease in funds available
for investment during the first part of fiscal 1996 when compared to the prior
year resulting from the purchase of Inflight in fiscal 1995 for approximately
$73,300,000, and more of the Company's investment portfolio being in tax-exempt
municipal bonds during fiscal 1996 which have lower pre-tax yields than taxable
bonds.
Income Taxes
Income taxes, as a percentage of earnings before income taxes, were
37.0% for both fiscal 1996 and fiscal 1995 when the charges and tax benefits
from the intangible revaluation and restructuring are excluded from the results
for fiscal 1995.
Restructuring
During the third quarter of fiscal 1995, management undertook a
restructuring plan which included the closing or sale of 23 stores and business
locations, and the consolidation of administrative and warehouse operations. All
of the stores and business locations were closed or sold during fiscal 1995 and
fiscal 1996. A pre-tax charge to earnings of $7,571,000 was taken during fiscal
1995 as a result of the restructuring. There were no material adjustments to
restructuring expenses during fiscal 1996 or 1997. See note 16 to the
consolidated financial statements for further detail.
<PAGE>
Revaluation of Intangible Assets
In the third quarter of fiscal 1995, the Company changed its method of
evaluating the recoverability of intangible assets. In fiscal 1995, fair values
of intangible assets were determined based on the estimated discounted future
operating cash flows of the related acquired operations over the life of each
intangible asset. Prior to fiscal 1995, impairment was measured using
undiscounted cash flows. The projected financial results of each operation were
based on management's best estimate of expected future operating cash flows.
Discount rates reflected the risk associated with each operation, based on the
type of business, geographic location and other matters, in relation to risk
free investments. During the third quarter of fiscal 1995, management determined
that cash flow from certain acquired businesses would be below the expectations
set by management when the business acquisitions were completed. Accordingly,
the Company reduced the carrying amount of its intangible assets by $46,002,000.
See note 17 to the consolidated financial statements for further detail.
Regulation and Economic Factors Affecting
the Duty Free Industry
The Company's sales and gross profit margins are affected by factors
specifically related to the duty free industry. Most countries have allowances
on the import of duty free goods. Decreases in the duty free allowances of
foreign countries or stricter eligibility requirements for duty free purchases,
as well as decreases in tax and duty rates imposed by foreign jurisdictions
(particularly in Canada and Mexico) could have a negative effect on the
Company's sales and gross profit margins. Conversely, increases could have a
positive effect on the Company's sales and gross profit.
The principal customers of the Company are residents of foreign
countries whose purchases of duty free merchandise may be affected by trends in
the economies of foreign countries and changes in the value of the U.S. dollar
relative to their own currencies. Any significant increase in the value of the
U.S. dollar relative to the currencies of foreign countries, particularly Canada
and Mexico, could have an adverse impact on the number of travelers visiting the
United States and the dollar amount of duty free purchases made by them from the
Company. A significant increase in gasoline prices or a shortage of fuel may
also reduce the number of international travelers and thereby adversely affect
the Company's sales. In addition, the Company imports a significant portion of
its products from Western Europe and Canada at prices negotiated either in U.S.
dollars or foreign currencies. As a result, the Company's costs are affected by
fluctuations in the value of the U.S. dollar in relation to major Western
European and Canadian currencies. A decrease in the purchasing power of the U.S.
dollar relative to other currencies causes a corresponding increase in the
purchase price of products. The Company enters into foreign exchange forward
contracts as a hedge against a portion of its exposure to currency fluctuations
on commitments to purchase merchandise.
Liquidity and Capital Resources
The Company has a $75,000,000 revolving line of credit and letter of
credit facility with various banks expiring in May 1998. Borrowings under the
agreement bear interest at a rate selected by the Company based on the prime
rate, federal funds rate or the London Interbank Offered Rate. The credit
facility contains covenants which require, among other things, maintenance of
minimum tangible net worth, as defined, and certain financial ratios. As of
January 26, 1997, the Company had issued letters of credit for $10,844,000 and
had available borrowings of $50,000,000. There were no borrowings under the
facility during the years ended January 26, 1997 and January 28, 1996.
Currently, the Company has no plans to make any borrowings under the facility.
The Company's primary liquidity and capital requirements for fiscal
1998 will be working capital needs, primarily inventory and receivables,
purchases of property and equipment and dividend payments. During fiscal 1998,
the Company expects to spend approximately $12,500,000 on capital expenditures,
make approximately $6,600,000 of dividend payments and make approximately
$1,093,000 of debt payments. Working capital was $142,117,000 as of January 26,
1997, an increase of $20,826,000 from $121,291,000 as of January 28, 1996. The
Company believes its existing funds, cash provided by operations and available
borrowings will be sufficient to meet its current liquidity and capital
requirements.
<PAGE>
STOCK PRICES AND DIVIDENDS
The Company's common stock trades on the New York Stock Exchange under
the ticker symbol "DFI." The approximate number of holders of record of shares
of common stock, excluding the number of beneficial owners whose securities are
held in street name, was 294 as of March 3, 1997.
The following table sets fourth the high and low reported sales prices
for the common stock as reported by the New York Stock Exchange:
High Low
---- ---
Fiscal 1997:
First quarter $15-1/8 $11-3/4
Second quarter 17-1/4 13-1/4
Third quarter 16 13-1/8
Fourth quarter 17-7/8 13-1/8
Fiscal 1996:
First quarter $ 8-7/8 $ 7
Second quarter 10-5/8 7-3/8
Third quarter 15-3/4 9
Fourth quarter 16-3/4 13-1/8
Cash dividends declared were approximately $6,536,000, or $0.24 per
share, and $5,450,000, or $0.20 per share, for the years ended January 26, 1997
and January 28, 1996. The Company intends to pay quarterly dividends of $0.06
per share during fiscal 1998.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
January 26, January 28, January 29,
Fiscal year ended 1997 1996 1995
- ----------------- ---- ---- ----
Net sales $570,895 $515,058 $501,761
Cost of sales 321,733 296,173 301,387
-------- -------- --------
Gross profit 249,162 218,885 200,374
Advertising, storage and other
operating income 4,523 4,374 4,372
-------- -------- --------
253,685 223,259 204,746
Selling, general and
administrative expenses 214,032 192,913 177,895
Restructuring expenses (note 16) -- -- 7,571
Revaluation of intangible assets
(note 17) -- -- 46,002
-------- -------- --------
Operating income (loss) 39,653 30,346 (26,722)
-------- -------- --------
Other income (expense):
Interest income 2,231 2,659 3,619
Interest expense (8,444) (8,658) (8,878)
Gain (loss) on foreign
currency transactions 342 (487) (556)
Other, net 298 1,529 1,388
-------- -------- --------
(5,573) (4,957) (4,427)
-------- -------- --------
Earnings (loss) before
income taxes 34,080 25,389 (31,149)
Income tax expense (benefit)
(note 5) 12,610 9,393 (6,347)
-------- -------- --------
Net earnings (loss) $ 21,470 $ 15,996 $(24,802)
======== ======== ========
Earnings (loss) per share $0.79 $0.59 $(0.91)
======== ======== ========
See accompanying notes to the consolidated financial statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
(in thousands)
January 26, January 28,
1997 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 36,483 $ 36,228
Short-term investments, at cost (note 3) 12,331 12,747
Receivables:
Trade receivables, less allowance for
doubtful accounts of $636 in 1997 and
$735 in 1996 21,872 19,254
Other 16,407 8,753
-------- --------
38,279 28,007
-------- --------
Merchandise inventories 108,724 90,472
Prepaid expenses and other current assets
(note 5) 10,329 9,825
-------- --------
Total current assets 206,146 177,279
Long-term investments, at cost (note 3) 8,930 10,550
Property and equipment, net (note 4) 96,718 92,413
Goodwill less accumulated amortization of
$6,788 in 1997 and $4,442 in 1996
(notes 2 and 17) 64,134 65,731
Other intangible assets less accumulated
amortization of $11,405 in 1997 and
$8,538 in 1996 (note 17) 21,412 24,246
Other assets, net (note 5) 18,008 20,489
-------- --------
$415,348 $390,708
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (note 7) $ 1,093 $ 2,053
Accounts payable 28,024 25,193
Other current liabilities (note 6) 34,912 28,742
------ ------
Total current liabilities 64,029 55,988
Long-term debt, excluding current maturities
(note 7) 117,742 118,418
Other liabilities 5,862 3,820
----- -----
Total liabilities 187,633 178,226
======= =======
Stockholders' equity (notes 8 and 9): Common stock, par value $.01 per share.
Authorized 75,000,000 shares; 27,303,044
issued and outstanding shares in 1997
and 27,270,124 shares in 1996 273 273
Additional paid-in capital 80,515 80,302
Foreign currency translation adjustments 86 --
Retained earnings 146,841 131,907
------- -------
Total stockholders' equity 227,715 212,482
======= =======
Commitments and contingencies
(notes 12, 13, 14 and 15) ------- -------
$415,348 $390,708
======== ========
See accompanying notes to the consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Foreign
Additional currency Total
Common Stock paid-in translation Retained stockholders'
Shares Amount capital adjustments earnings equity
------ ------ ------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994 27,238 $272 $80,321 $(340) $151,608 $231,861
Dividends ($0.20 per share) -- -- -- -- (5,445) (5,445)
Exercise of common stock options 34 -- 236 -- -- 236
Common stock purchased and retired (28) -- (436) -- -- (436)
Change in foreign currency translation adjustments -- -- -- (263) -- (263)
Net loss -- -- -- -- (24,802) (24,802)
------ ---- ------ --- ------- -------
Balance at January 29, 1995 27,244 272 80,121 (603) 121,361 201,151
Dividends ($0.20 per share) -- -- -- -- (5,450) (5,450)
Exercise of common stock options 26 1 181 -- -- 182
Change in foreign currency translation adjustments -- -- -- 603 -- 603
Net earnings -- -- -- -- 15,996 15,996
------ ---- ------ --- ------- -------
Balance at January 28, 1996 27,270 273 80,302 -- 131,907 212,482
Dividends ($0.24 per share) -- -- -- -- (6,536) (6,536)
Exercise of common stock options 37 -- 373 -- -- 373
Change in foreign currency translation adjustments -- -- -- 86 -- 86
Other (4) -- (160) -- -- (160)
Net earnings -- -- -- -- 21,470 21,470
------ ---- ------ --- ------- -------
Balance at January 26, 1997 27,303 $273 $ 80,515 $86 $146,841 $227,715
====== ==== ======== === ======== ========
See accompanying notes to the consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
January 26, January 28, January 29,
Fiscal year ended 1997 1996 1995
- ----------------- ---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 21,470 $ 15,996 $(24,802)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment 8,790 8,236 6,642
Other amortization 5,858 5,741 8,008
Provision for (benefit of) deferred income taxes (465) 2,892 (13,222)
Revaluation and write-off of assets -- -- 48,405
Minority partners' interest in
consolidated partnerships' income 2,509 935 813
Changes in operating assets and liabilities, net of effects
of acquisitions accounted for by the purchase method:
Accounts receivable (10,722) 134 4,727
Merchandise inventories (16,443) 5,967 10,015
Prepaid expenses and other current assets (18) 254 991
Deposits -- (1,810) --
Accounts payable 2,831 (5,768) (3,012)
Income taxes payable 4,468 -- (2,863)
Accrued restructuring expenses (970) (2,276) 4,586
Other current liabilities 3,036 (1,390) 3,820
Other (760) (135) (777)
------ ------ ------
Net cash provided by operating activities 19,584 28,776 43,331
------ ------ ------
Cash flows from investing activities:
Proceeds from maturities of investments 10,644 34,470 50,103
Purchases of investments (8,608) (35,152) (32,225)
Additions to property and equipment (12,859) (11,710) (31,230)
Acquisitions of businesses, accounted for by the
purchase method, net of cash acquired -- (5,050) (72,526)
Investments in and advances to affiliates (429) (420) (3,363)
Other (237) 188 1,819
------- ------- -------
Net cash used in investing activities (11,489) (17,674) (87,422)
------- ------- -------
Cash flows from financing activities:
Payment of long-term borrowings and notes payable (2,342) (3,760) (14,464)
Dividends paid (6,273) (5,450) (5,445)
Other 775 (62) (1,271)
------ -------- --------
Net cash used in financing activities (7,840) (9,272) (21,180)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 255 1,830 (65,271)
Cash and cash equivalents at beginning of year 36,228 34,398 99,669
-------- -------- --------
Cash and cash equivalents at end of year $ 36,483 $ 36,228 $ 34,398
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 26, 1997, January 28,1996 and January 29, 1995
(1) Summary of Significant Accounting Policies and Other Matters
Business -- Duty Free International, Inc. and its subsidiaries (the Company)
are engaged principally in the sale of tax and duty free merchandise, such as
spirits, tobacco, perfume and gift items.
Principles of consolidation -- The consolidated financial statements include
the accounts of the Company, its wholly-owned subsidiaries and affiliates in
which the Company has a majority interest or control. All significant
intercompany balances and transactions have been eliminated in consolidation.
Fiscal year -- The Company is on a 4-5-4 week fiscal calendar with its
fiscal year ending on the last Sunday of January. The fiscal years ended January
26, 1997, January 28, 1996 and January 29, 1995 are referred to hereafter as
fiscal 1997, fiscal 1996 and fiscal 1995, respectively.
Cash equivalents -- For purposes of the statements of cash flows, the
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
Investments in debt and equity securities-- The Company's investments in
debt and equity securities, except for investments accounted for under the
equity method and investments in consolidated subsidiaries, are classified in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Upon
purchase, management considers the maturity and other characteristics of each
investment and its asset-liability management policies and classifies each
investment appropriately; such classifications are reassessed at each reporting
date.
Fair values of financial instruments -- Information regarding fair values of
investments in debt securities, long-term debt and foreign exchange forward
contracts is set forth in notes 3, 7 and 15 to the financial statements. Fair
values of other financial instruments, such as receivables and payables,
approximates carrying values.
Merchandise inventories -- Merchandise inventories are stated at the lower
of cost or market. Cost is determined using the first-in, first-out (FIFO)
method.
Property and equipment -- Property and equipment are stated at cost.
Depreciation and amortization are calculated using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the lease terms or estimated useful lives of the
assets. Maintenance and repairs are charged to expense as incurred.
Goodwill -- Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is amortized on a straight-line basis over 30
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
life can be recovered through discounted future operating cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the risk associated with each operation, based on the type of
business, geographic location and other matters in relation to risk free
investments. The assessment of the recoverability of goodwill will be impacted
if estimated future operating cash flows are not achieved.
<PAGE>
Other intangible assets -- Other intangible assets consist principally of
operating rights and non-competition agreements. The operating rights are being
amortized over 2 to 25 years; the non-competition agreements are being amortized
over the terms of such agreements (5 to 15 years) and other intangible assets
are being amortized over the estimated useful lives of the related assets (5 to
30 years) using the straight-line method.
Impairment of long-lived assets and long-lived assets to be disposed of --
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
January 29, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future net undiscounted
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. Adoption of this Statement did not have a
material impact on the Company's financial position, results of operations, or
liquidity.
Prior to the adoption of SFAS No. 121, recoverability of assets to be held
and used was measured by comparing the carrying amount of an asset to the future
net discounted cash flows expected to be generated by the asset. This method was
used regarding the revaluation of intangible assets during fiscal 1995 (see note
17). The change in fiscal 1997 to the method required by the adoption of SFAS
No. 121 did not have any impact on the Company's financial position, results of
operations, or liquidity.
Advertising expense -- The Company expenses advertising costs the first time
advertising takes place. Advertising expense was approximately $4,500,000,
$3,000,000 and $4,000,000 during fiscal 1997, 1996 and 1995, respectively.
Foreign currency transactions-- Exchange gains and losses from transactions
of domestic operations in foreign currencies and commissions earned from the
Company's currency exchange activities are included in other income.
The functional currency for certain of the Company's foreign operations is
the local currency. The translation of the foreign currencies into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using average
rates of exchange prevailing during the year. Adjustments resulting from such
translation are included as a separate component of stockholders' equity.
Income taxes -- Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized based on the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
<PAGE>
Earnings per share -- Earnings per share are based on the weighted average
number of shares of common stock outstanding during each year. The numbers of
shares used in the computations were 27,282,000, 27,251,000 and 27,224,000 for
fiscal 1997, 1996 and 1995, respectively. Common shares issuable upon exercise
of stock options are excluded from the computation because their effect is not
material.
Accounting for stock based compensation -- The Company has elected to
measure compensation costs for stock options using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25 with pro forma disclosure
of net income and earnings per share as if the fair value based method of
accounting prescribed by SFAS No. 123 had been applied.
Foreign Exchange Forward Contracts -- The value of foreign exchange forward
contracts, taken as hedges of existing assets or liabilities, are included in
the carrying amount of those assets or liabilities and are ultimately recognized
in income as part of those carrying amounts. Gains and losses related to
qualifying hedges of firm commitments are deferred and are recognized in income
or adjustments of carrying amounts when the hedged transactions occur.
Use of Estimates -- Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Reclassifications -- Certain amounts for fiscal 1996 and 1995 have been
reclassified to conform to the presentation for fiscal 1997.
<PAGE>
(2) Acquisitions
On May 1, 1994, the Company purchased Inflight Sales Group Limited
(Inflight), and certain non-competition rights, for approximately $73,300,000.
The purchase price exceeded the fair value of the net assets acquired by
$65,000,000. Inflight is the leading concessionaire and supplier of on-board
duty free merchandise to international airlines. The acquisition was accounted
for by using the purchase method and, accordingly, the purchase price has been
allocated to the related acquired assets and assumed liabilities based on their
respective fair values. The consolidated statement of earnings for the year
ended January 29, 1995 includes the results of operations of Inflight from its
acquisition date.
Supplemental cash flow information regarding acquisitions is as follows (in
thousands):
1996 1995
---- ----
Fair value of assets acquired $ 9,833 $114,771
Cash paid (5,050) (72,526)
------ -------
Liabilities assumed $ 4,783 $ 42,245
======== ========
(3) Investment in Debt Securities
Management reviewed the classification of its security portfolio as of
January 26, 1997 and January 28, 1996 and determined that all securities are
"held-to-maturity securities." The fair values of the Company's investments in
debt securities are as follows (in thousands):
<TABLE>
<CAPTION>
January 26, Gross Gross January 26,
1997 Unrealized Unrealized 1997
Carrying Holding Holding Fair
Amount Gains Losses Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Securities maturing within one year:
Corporate debt securities $ 3,185 $100 $ (15) $ 3,270
Debt securities issued by
states of the United States
and political subdivisions
of the states 9,146 40 (16) 9,170
------ --- --- ------
Total short-term investments 12,331 140 (31) 12,440
------ --- --- ------
Securities maturing after one
through three years:
Debt securities issued by
states of the United
States and political
subdivisions of the states 8,930 20 (168) 8,782
------- ---- ----- -------
Total investments $21,261 $160 $(199) $21,222
======= ==== ===== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
January 28, Gross Gross January 28,
1996 Unrealized Unrealized 1996
Carrying Holding Holding Fair
Amount Gains Losses Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Securities maturing within one year:
Corporate debt securities $ 5,705 $33 $(31) $ 5,707
Debt securities issued by
states of the United States
and political subdivisions
of the states 6,662 59 (22) 6,699
Debt securities issued by
the U.S. Treasury and
other U.S. government
corporations and agencies 380 -- (2) 378
------ --- ---- ------
Total short-term investments 12,747 92 (55) 12,784
------ --- ---- ------
Securities maturing after one
through four years:
Debt securities issued by
states of the United States
and political subdivisions
of the states 10,550 -- (20) 10,530
------ --- ---- -------
Total investments $23,297 $92 $(75) $23,314
======= === ==== =======
</TABLE>
The Company did not sell any investment securities during fiscal 1997 and 1996.
(4) Property and Equipment
Property and equipment are summarized as follows (in thousands):
1997 1996
---- ----
Land $ 19,496 $ 19,234
Buildings 50,201 49,491
Leasehold improvements 26,967 20,217
Furniture and fixtures 18,251 16,409
Equipment and vehicles 30,163 27,766
-------- -------
145,078 133,117
Less accumulated depreciation and amortization 48,360 40,704
-------- --------
Net property and equipment $ 96,718 $ 92,413
======== ========
(5) Income Taxes
Income tax expense (benefit) consists of the following (in thousands):
Current Deferred Total
------- -------- -----
1997:
Federal $10,987 $ (462) $10,525
State 1,116 (44) 1,072
Foreign 972 41 1,013
------- -------- -------
$13,075 $ (465) $12,610
======= ======== =======
1996:
Federal $ 4,280 $ 2,568 $ 6,848
State 815 489 1,304
Foreign 1,406 (165) 1,241
-------- -------- -------
$ 6,501 $ 2,892 $ 9,393
======== ======== =======
1995:
Federal $ 5,065 $(10,083) $(5,018)
State 1,100 (2,116) (1,016)
Foreign 710 (1,023) (313)
-------- -------- -------
$ 6,875 $(13,222) $(6,347)
======== ======== =======
<PAGE>
The income tax expense (benefit) is reconciled to the amount computed by
applying the Federal corporate tax rates to earnings (loss) before income taxes
as follows (in thousands):
1997 1996 1995
---- ---- ----
Income tax (benefit) at statutory
rate of 35% $11,928 $8,886 $(10,902)
State income taxes, net of
federal tax benefit 697 848 (660)
Tax exempt income (422) (384) (450)
Revaluation of intangible assets -- -- 6,144
Other, net 407 43 (479)
------- ------ --------
$12,610 $9,393 $ (6,347)
======= ====== ========
The consolidated earnings before income taxes, by domestic and foreign
sources, was $22,846,000 and $11,234,000, respectively, for fiscal 1997. The
consolidated earnings before income taxes, by domestic and foreign sources, was
$16,425,000 and $8,964,000, respectively, for fiscal 1996. The consolidated
earnings (loss) before income taxes, by domestic and foreign sources, was a loss
of ($38,583,000)and income of $7,434,000, respectively, for fiscal 1995.
At January 26, 1997, the net current and net non-current deferred income tax
assets were $5,555,000 and $6,648,000, respectively. At January 28, 1996, the
net current and net non-current deferred income tax assets were $3,129,000 and
$8,609,000, respectively. Such amounts are included in "prepaid expenses and
other current assets" and "other assets, net," respectively, on the consolidated
balance sheets as of January 26, 1997 and January 28, 1996. Management has
determined, based on the Company's history of prior operating earnings and its
expectations for the future, that taxable income of the Company will more likely
than not be sufficient to fully recognize these deferred tax assets and,
accordingly, no valuation allowance has been established as of January 26, 1997.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following (in thousands):
1997 1996
------ --------
Deferred tax assets:
Intangible amortization $ 6,511 $ 8,500
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 1,718 1,473
Restructure liability 1,371 1,908
Depreciation and capitalized interest 284 --
Net operating loss carryforwards 413 750
Other 3,407 1,701
------- -------
Gross deferred tax assets 13,704 14,332
------- -------
Deferred tax liabilities:
Inventories, to conform UETA's accounting
method from LIFO to FIFO (365) (1,168)
Depreciation and capitalized interest -- (98)
Other (1,136) (1,328)
------- -------
Gross deferred tax liabilities (1,501) (2,594)
------- -------
Net deferred tax asset $12,203 $11,738
======= =======
<PAGE>
The Company paid income taxes of approximately $7,256,000, $5,120,000 and
$9,370,000 during fiscal 1997, 1996 and 1995, respectively.
(6) Other Current Liabilities
Other current liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Airline and other commissions $ 5,997 $ 2,844
Incentive compensation plan 2,897 3,000
Income tax payable 4,468 --
Other 21,550 22,898
------- -------
$34,912 $28,742
======= =======
</TABLE>
(7) Long-Term Debt
Long-term debt consists of the following (in thousands, except for percentage
amounts):
1997 1996
---- ----
7% senior bonds, 7.06% effective rate, due
January 15, 2004, $115,000 face amount,
less unamortized discount of $320 and $366 $114,680 $114,634
Other 4,155 5,837
-------- --------
118,835 120,471
Less current maturities 1,093 2,053
-------- --------
Long-term debt, excluding current maturities $117,742 $118,418
======== ========
The approximate annual maturities of long-term debt are as follows (in
thousands):
1998 $1,093
1999 1,093
2000 1,093
2001 876
2004 114,680
--------
$118,835
========
The fair value of long-term debt, including current maturities, was
$116,280,000 and $115,650,000 as of January 26, 1997 and January 28, 1996,
respectively. The fair value of long-term debt, including current maturities,
was estimated based on quoted market values.
The Company paid interest on short-term and long-term borrowings of
approximately $8,483,000, $8,658,000 and $9,277,000 during fiscal 1997, 1996 and
1995, respectively.
(8) Dividends
During the fourth quarter of fiscal 1996, the Company's Board of Directors
increased the Company's quarterly dividend by 20% to $0.06 per share.
(9) Stock Option Plans
An aggregate of 4,640,000 shares of common stock were reserved for issuance
pursuant to nonqualified stock options. Approximately 2,080,000 shares were
available for grant at January 26, 1997. Options are exercisable from the grant
date to ten years from the date of grant.
<PAGE>
The Company applies APB Opinion No. 25 and related interpretations when
accounting for stock options. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock option plans been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands, except for earnings per share amounts):
1997 1996
---- ----
Net income:
As reported $21,470 $15,996
Pro forma $21,334 $15,978
Earnings per share:
As reported $0.79 $0.59
Pro forma $0.78 $0.59
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 1997 and 1996: dividend yield of 1.75%;
expected volatility of 40%; risk-free interest rate of 6.5%; and expected lives
of 6 years. The weighted average fair value of options granted during fiscal
1997 and 1996 was $6.02 and $4.05, respectively.
Pro forma net income reflects only options granted in fiscal 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 for fiscal 1996 and 1997 is not reflected in the pro forma
net income amounts presented above, because compensation cost is reflected over
the options' vesting period of three years and compensation cost for options
granted prior to January 30, 1995 are not considered.
A summary of the status of the Company's stock option plans as of January
26, 1997, January 28, 1996 and January 29, 1995, and changes during the years
ended on those dates is presented below:
Number Weighted Average
of Shares Exercise Price
--------- --------------
January 31, 1994 935,765 $20.06
Granted 1,376,050 $12.53
Exercised (33,566) $ 7.07
Forfeited (73,728) $18.88
---------
January 29, 1995 2,204,521 $15.53
Granted 37,000 $ 9.99
Exercised (26,574) $ 8.72
Forfeited (122,486) $16.87
---------
January 28, 1996 2,092,461 $15.46
Granted 271,500 $14.36
Exercised (37,381) $10.00
Forfeited (37,262) $13.06
---------
January 26, 1997 2,289,318 $15.45
=========
Options exercisable
January 29, 1995 871,127 $18.40
January 28, 1996 1,200,185 $16.88
January 26, 1997 1,646,421 $16.35
<PAGE>
The following table summarizes information about stock options outstanding
at January 26, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Avg.
Range of Remaining Weighted Avg. Weighted Avg.
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------ ----------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 6.875-$ 9.875 86,364 4.1 years $ 8.18 69,365 $ 7.79
$ 10.75 -$16.125 1,523,404 8.0 years $12.87 897,506 $12.62
$ 20.875-$27.375 679,550 5.2 years $22.16 679,550 $22.16
--------- ---------
$ 6.875-$27.375 2,289,318 7.0 years $15.45 1,646,421 $16.35
========= =========
</TABLE>
(10) Retirement Savings Plan
The Company has a retirement savings plan covering substantially all
nonunion employees meeting minimum service requirements set forth in the plan.
Annual contributions made to the plan by the Company are at the discretion of
the Board of Directors, subject to certain limitations, as defined in the plan.
The retirement savings plan includes a 401(k) deferred compensation plan
covering substantially all nonunion employees. Employees are permitted, within
limitations imposed by tax law, to make pre-tax contributions to the plan
pursuant to salary reduction agreements. The Company is required to make
matching contributions to the plan based on a percentage of employee
contributions to the 401(k) deferred compensation plan. Retirement savings plan
costs amounted to approximately $928,000, $919,000 and $1,245,000 for fiscal
1997, 1996 and 1995, respectively.
(11) Business Segments
The Company's principal business is the retail sale of tax and duty free
merchandise, such as spirits, tobacco, perfume and gift items. The Company also
wholesales these products. In the financial information by business segment
shown below, operating income represents net sales less cost of sales and an
allocation of certain selling, general and administrative expenses as determined
by management. There are no identifiable assets used exclusively in the
wholesale operation and the amounts allocable thereto would not be significant.
Accordingly, segment information for identifiable assets, depreciation and
capital expenditures is not presented.
Segment information is as follows (in thousands):
1997 1996 1995
---- ---- ----
Total revenue:
Retail operations $518,323 $454,467 $430,182
Wholesale operations 52,572 60,591 71,579
-------- -------- --------
$570,895 $515,058 $501,761
-------- -------- --------
Operating income:
Retail operations $ 36,658 $ 26,949 $ 22,988
Wholesale operations 2,995 3,397 3,863
Restructuring expenses -- -- (7,571)
Revaluation of intangible assets -- -- (46,002)
Other income (expense) (5,573) (4,957) (4,427)
-------- -------- --------
Earnings (loss) before income taxes $ 34,080 $ 25,389 $(31,149)
======== ======== ========
Management continues to de-emphasize high volume, lower margin sales
transactions. Revenues from wholesale operations relate principally to such
transactions from the Company's Diplomatic and Inflight Divisions.
<PAGE>
(12) Operating Leases
The Company and its subsidiaries are obligated under noncancellable
operating leases for warehouse, store and office facilities at various
locations. Certain of the leases provide for renewals for various periods and
most leases require the Company to pay all operating expenses and additional
rent based upon sales. Leases at several airport locations are terminable by the
lessor upon thirty days notice.
Approximate future minimum rentals, under noncancellable operating
leases, with initial or remaining terms of one year or more are as follows (in
thousands):
1998 $ 24,219
1999 23,338
2000 20,758
2001 15,493
2002 13,784
Thereafter 43,771
--------
$141,363
========
<PAGE>
Rental expense consists of the following (in thousands):
1997 1996 1995
---- ---- ----
Minimum rentals $18,172 $15,044 $14,961
Additional rentals based on sales 17,578 13,575 10,755
Other 38 155 144
------- ------- -------
$35,788 $28,774 $25,860
------- ------- -------
(13) Legal Proceedings
Several former stockholders of UETA, Inc. have commenced actions against
the Company and certain of its officers and directors alleging, among other
things, that the defendants made misleading statements and omissions about the
Company's business in connection with its acquisition of UETA, Inc. The relief
sought includes an unspecified amount of damages. The Company and its officers
and directors believe they have meritorious defenses to the allegations made
against them and intend to defend the suits vigorously.
The Company is a party to several other unrelated pending legal
proceedings and claims. Although the outcome of such proceedings and claims
cannot be determined with certainty, the Company believes that the final
outcomes should not have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
(14) Line of Credit and Letter of Credit Facility
The Company has a $75,000,000 revolving line of credit and letter of
credit facility with various banks expiring in May 1998. Borrowings under the
agreement bear interest at a rate selected by the Company based on the prime
rate, federal funds rate or the London Interbank Offered Rate. The credit
facility contains covenants which require, among other things, maintenance of
minimum tangible net worth, as defined, and certain financial ratios. As of
January 26, 1997, the Company had issued letters of credit for approximately
$10,844,000 under the facility and had available borrowings of $50,000,000.
There were no borrowings under the facility during the years ended January 26,
1997 and January 28, 1996. Currently, the Company has no plans to make any
borrowings under the facility.
(15) Foreign Exchange Forward Contracts
The only financial derivatives used by the Company are foreign exchange
forward contracts. The Company enters into foreign exchange forward contracts to
minimize the currency exchange risk associated with purchasing merchandise in
currencies other than the United States dollar. The amount of foreign currency
purchased by foreign exchange forward contracts is based on unfilled purchase
orders for, and anticipated levels of, merchandise required to support expected
sales levels. Currency rates are monitored against a corporate target rate which
is used by management in developing business plans. All currency techniques
employed by the Company must be approved by the Company's Board of Directors and
management. The Company's foreign exchange forward contracts are held for
purposes other than trading. The Company does not engage in foreign currency
speculation.
Merchandise purchases hedged by foreign exchange forward contracts are
valued by using the exchange rate of the applicable foreign exchange forward
contract and recognized as part of cost of goods sold when the merchandise is
sold. The Company had approximately $20,772,000 of foreign exchange forward
contracts outstanding at January 26, 1997 to purchase British pounds, French
francs, Swiss francs and Deutsche marks. The contracts outstanding at January
26, 1997 mature at various dates in fiscal 1998. The fair value of these
contracts was approximately $20,088,000 at January 26, 1997. Fair values were
estimated by obtaining quotes from banks assuming all contracts were purchased
on January 26, 1997.
<PAGE>
(16) Restructuring Expenses
During the third quarter of fiscal 1995, management undertook a
restructuring plan which included the closing or sale of 23 stores and business
locations, and the consolidation of administrative and warehouse operations. As
of January 26, 1997, all of the stores and business locations have been closed
or sold. The Company closed 14 unprofitable or marginally profitable stores at
secondary crossings along the United States/Canada border in fiscal 1995. The
closings were prompted by the Company's experience with declining sales on the
northern border during the summer of 1994. Initially, the Company had believed
that its Northern Border Division sales had been adversely affected in fiscal
1993 and 1994 by cyclical factors such as unusually inclement weather and the
Canadian economic recession, as well as the reduced purchasing power of the
Canadian dollar. Its experience of further significant reductions in sales
during 1994's important summer sales season, following the Canadian government's
substantial reduction in tobacco taxes in February 1994, led it to conclude that
the changes in sales on the Northern Border were to be of a more long-term
nature. Seven unprofitable Airport Division retail locations were closed in
fiscal 1996, which included all five of the Company's stores in Toronto, Canada
and two other smaller specialty stores at airports in Bangor, Maine and
Burlington, Vermont. These stores were closed due to projected sales levels not
being sufficient to cover fixed operating costs. Two wholesale operations in
Seattle, Washington and Carson, California were sold in fiscal 1996 due to the
Company de-emphasizing wholesale sales, and the Company's ability to service
wholesale customers from other locations. The Company also eliminated regional
manager positions in the Northern Border Division, and consolidated warehouse
and administrative operations of other divisions into the Company's 140,000
square-foot distribution and administrative center in Miami, Florida. The
restructuring plan reduced the Company's store and administrative workforce by
approximately 210 people.
A pre-tax charge to earnings of $7,571,000 was taken during fiscal 1995
as a result of the restructuring. There were no material adjustments to
restructuring expenses during fiscal 1996 or 1997. Restructuring costs included
the following (in thousands):
Termination of property leases $1,262
Abandonment of leasehold improvements
and other fixed assets 1,026
Severance and other related payments 3,559
Cumulative currency translation adjustments
related to foreign operations closed 615
Write-down of inventory below cost 503
Other 606
------
$7,571
======
The following methods were used to calculate the restructuring charges:
o Termination of property leases -- based on amounts due under terminated lease
agreements.
o Abandonment of leasehold improvements and other fixed assets -- net book
value of leasehold improvements and other fixed assets that cannot be
transferred to other stores\locations or sold. The Company does not expect to
receive any material proceeds from sales of the leasehold improvements and
other fixed assets.
o Severance and other related payments -- based on severance and other
agreements with employees. Severance amounts were based on years of service
and paid over the number of pay weeks owed the employees. Severance payments
also include health insurance costs for terminated employees, which were
based on the number of employees terminated and the average cost per employee
for health insurance coverage for one year, less premiums to be paid by
terminated employees.
o Cumulative currency translation adjustments related to foreign operations
closed -- relates to the Company's Toronto airport operations, and is based
on the January 29, 1995 U.S. dollar/Canadian dollar exchange rate. These
operations were closed in February 1995. o Write-down of inventory below cost
-- estimate of expected sales below cost for close-out sales.
The Company expected to pay approximately $5,427,000 in cash relating
to the restructuring. Approximately $2,144,000 of the restructuring costs
related to non-cash write-offs of recorded assets. The Company has paid
approximately $4,087,000 during fiscal 1997, 1996 and 1995 relating to
restructuring obligations which consisted of $2,913,000 for employee severance
and other arrangements, $922,000 to terminate property leases and rent for
closed stores, and $252,000 for other miscellaneous expenses. As of January 26,
1997, remaining payments of approximately $1,340,000 are expected to be made for
obligations incurred pursuant to the restructuring plan.
Net sales of the stores closed and businesses sold under the
restructuring plan were $4,757,000 and $13,931,000 for fiscal 1996 and 1995,
respectively. Operating losses of the stores closed and businesses sold under
the restructuring plan were $137,000 and $2,508,000 for fiscal 1996 and 1995,
respectively.
<PAGE>
(17) Revaluation of Intangible Assets
In the third quarter of fiscal 1995, the Company changed its method of
evaluating the recoverability of intangible assets. In fiscal 1995, fair values
of intangible assets were determined based on the estimated discounted future
operating cash flows of the related acquired operations over the life of each
intangible asset. Prior to fiscal 1995, impairment was measured using
undiscounted cash flows. The projected financial results of each operation were
based on management's best estimate of expected future operating cash flows.
Discount rates reflected the risk associated with each operation, based on the
type of business, geographic location, and other matters, in relation to risk
free investments. During the third quarter of fiscal 1995, management determined
that cash flow from certain acquired businesses would be below the expectations
set by management when the business acquisitions were completed. Accordingly,
the Company reduced the carrying amount of its intangible assets by $46,002,000
during fiscal 1995. Because the change in accounting principle was inseparable
from the change in estimate, it was accounted for as a change in estimate. Had
the previous method remained in effect, there would have been no significant
impairment at January 29, 1995. Below is a more detailed explanation of the
material asset revaluation write-downs during fiscal 1995.
The Company acquired various duty free and related businesses along the
United States/Canada border from November 1990 through June 1993, which included
the purchase of 16 duty free stores and related businesses along the United
States/Canada border on February 1, 1991, and other smaller acquisitions.
Subsequent to the acquisitions, the financial results of these operations, and
the Northern Border Division as a whole, have been significantly below the
expectations set by management when the acquisitions were completed, due
primarily to reduced travel across the United States/Canada border and
substantial price reductions on tobacco products in the Canadian domestic market
as a result of a decrease in Canadian taxes on tobacco products in fiscal 1995.
Management determined that travel across the United States/Canada border would
not increase substantially from fiscal 1995 levels, due primarily to the fact
that travel across the border did not increase as the Canadian economy improved
in fiscal 1995, and that reduced Canadian tobacco prices and taxes would
continue to have a negative effect on duty free operations along the border. The
projected financial results of the businesses acquired along the United
States/Canada border based on a five percent long-term growth rate from
estimated fiscal 1995 financial results over 30 years and using a 20% discount
rate (the same discount rate used by the Company and its appraisers when
acquiring the businesses), resulted in a significant decrease in the fair value
and carrying amount of intangible assets related to these acquisitions.
Accordingly, the Company reduced the carrying amount of its Northern Border
intangible assets by $30,839,000 during fiscal 1995.
<PAGE>
On May 7, 1993, the Company acquired a 75 percent interest in Bared
Jewelers of the Virgin Islands ("Bared Jewelers"). Bared Jewelers operates three
stores in the primary shopping area of St. Thomas, U.S.V.I. Since the
acquisition, the operations of Bared Jewelers have not achieved the sales and
earnings projections prepared at the time of the acquisition, due primarily to a
decrease in the number of cruise ship travelers to St. Thomas. Management
determined that the number of cruise ship travelers to St. Thomas would not
increase significantly from fiscal 1995 levels, because of an increase in the
number of ports at other Caribbean locations and throughout the world serviced
by the cruise ship industry. The projected results for the operations acquired
in the Bared Jewelers acquisition based on a five percent long-term growth rate
from estimated fiscal 1995 financial results over the length of the related
leases, using a 15% discount rate (the same discount rate used by the Company
and its appraisers when acquiring Bared Jewelers), resulted in a significant
decrease in the fair value and carrying amount of intangible assets related to
this acquisition. Accordingly, the Company reduced the carrying amount of its
Bared Jewelers intangible assets by $7,813,000 during fiscal 1995.
The remaining $7,350,000 write-down of intangible assets during fiscal
1995 related to five Airport and Diplomatic and Wholesale Division acquisitions.
These write-downs were a result of the Company using the discounted cash flow
method for evaluating the recoverability of intangible assets during fiscal
1995, the Company revising cash flow projections for these businesses due to the
Company de-emphasizing wholesale sales in fiscal 1995, and projected results for
smaller Airport Division acquisitions being below the expectations set by
management when the acquisitions were completed. The discount rates used were
between 15% and 20% and were the same rates used by the Company and its
appraisers when acquiring the businesses.
The intangible asset revaluation write-down during fiscal 1995 by type
of intangible asset and division was as follows (in thousands):
Diplomatic
Northern and
Border Airport Wholesale
Division Division Division Total
-------- -------- -------- -----
Goodwill $ 7,880 $ 3,734 $3,229 $14,843
Non-competition
agreements 13,201 835 -- 14,036
Purchase options 2,238 1,200 -- 3,438
Operating rights/
leaseholds 7,354 4,939 -- 12,293
Other 166 1,226 -- 1,392
------- ------- ------ -------
$30,839 $11,934 $3,229 $46,002
======= ======= ====== =======
DIRECTORS AND EXECUTIVE OFFICERS
Jack Africk (1)(2)(3)(4)
Chairman,
Evolution Consulting Group, Inc.
David H. Bernstein (1)(2)
Chairman of the Executive Committee
Former Chairman of the Board
Alfred Carfora (1)(2)
President and Chief Executive Officer
John A. Couri (1)(2)(5)
Consultant,
Former Chairman of the Board
Heribert Diehl (1)(3)(4)
Managing Director,
Gebr. Heinemann
John Edmondson
Executive Vice President and
Chief Operating Officer
Gerald F. Egan
Vice President Finance,
Chief Financial Officer,
Treasurer and Secretary
<PAGE>
Carl Reimerdes (1)(2)(5)
Vice President
Susan H. Stackhouse (1)
President,
Fenton Hill Florida, Inc.
Stephen M. Waters (1)(3)(4)
Managing Partner,
Compass Partners International, L.L.C.
Lowell P. Weicker, Jr. (1)
Former U.S. Senator 1970-1988
Former Governor of
State of Connecticut 1991-1995
Visiting Professor, University of Virginia
- -------------------
(1) Member of Board of Directors
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Compensation Committee
(5) Member of Nominating Committee
CORPORATE DATE
Corporate Headquarters
63 Copps Hill Road
Ridgefield, Connecticut 06877
Tel. no. (203) 431-6057
Fax no. (203) 438-1356
Principal Subsidiaries
AMMEX Tax and
Duty Free Shops, Inc.
President: Steven D. Zurcher
63 Copps Hill Road
Ridgefield, Connecticut 06877
Fenton Hill American, Limited
President: Carl Reimerdes
B-3 East
Airport Industrial Office Park
145 Hook Creek Boulevard
Valley Stream, New York 11581
Tel. no. (516) 256-3000
Inflight Duty Free Shop, Inc.
President: Peter Cathey
63 Copps Hill Road
Ridgefield, Connecticut 06877
Samuel Meisel and Company, Inc.
President: Robert T. Weitz
6691 Baymeadow Drive
Glen Burnie, Maryland 21060
Tel. no. (410) 787-1414
<PAGE>
UETA, Inc.
President: Ramon Bosquez
3407 N.E. Parkway
San Antonio, Texas 78212
Tel. no. (210) 828-8382
General Counsel
Lawrence Caputo, Esquire
63 Copps Hill Road
Ridgefield, Connecticut 06877
Annual Meeting
Shareholders are cordially invited to attend the Company's Annual Meeting which
will be held at 10:00 a.m., May 22, 1997, at the:
Renaissance Harborplace Hotel
202 East Pratt Street
Baltimore, Maryland
Form 10-K
Shareholders may obtain a copy of the Company's annual report filed with the
Securities and Exchange Commission (Form 10-K) free of charge by writing to:
Dyan C. Cutro
Vice President Investor Relations
645 Madison Avenue, 6th Floor
New York, New York 10022
Tel. no. (212) 754-5900
Stock Exchange Listing
New York Stock Exchange
Ticker Symbol: DFI
Shareholder Inquiries
Questions involving financial information about the Company should be addressed
to:
Dyan C. Cutro
Vice President Investor Relations
645 Madison Avenue, 6th Floor
New York, New York 10022
Tel. no. (212) 754-5900
Transfer Agent and Registrar
Chase Mellon Shareholder Services
450 West 33rd Street, 15th Floor
New York, New York 10178
Outside Legal Counsel
Morgan, Lewis and Bockius
101 Park Avenue
New York, New York 10178
Independent Auditors
KPMG Peat Marwick LLP
111 South Calvert Street
Baltimore, Maryland 2120
Duty Free International, Inc.
63 Copps Hill Road
Ridgefield, Connecticut 06877
Exhibit 21.1
------------
DUTY FREE INTERNATIONAL, INC.
SIGNIFICANT SUBSIDIARIES AND
JURISDICTIONS OF INCORPORATION
Jurisdiction of
Incorporation
-------------
Samuel Meisel and Company, Inc. Maryland
Ammex Tax & Duty Free Shops, Inc Delaware
Ammex Warehouse Company, Inc. New York
Fenton Hill America, Ltd. Maryland
Ammex Tax & Duty Free Shops West, Inc. Maryland
UETA of Texas, Inc. Delaware
Inflight Duty Free Shops, Inc. New York
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
The Board of Directors
Duty Free International, Inc.
We consent to incorporation by reference in the Registration Statement (Form
S-8, No. 33-31123) of Duty Free International, Inc. of our reports dated
February 28, 1997 with respect to the consolidated financial statements of Duty
Free International, Inc. and subsidiaries as of January 26, 1997 and January 28,
1996 and for each of the years in the three-year period ended January 26, 1997
and the related financial statement schedule, which reports appear or are
incorporated by reference in the January 26, 1997 Annual Report on Form 10-K
filed by Duty Free International, Inc.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
April 22, 1997
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that Jack Africk constitutes and
appoints each of Alfred Carfora and David H. Bernstein with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Jack Africk
---------------
Jack Africk
STATE OF Maryland
ss
CITY/COUNTY OF Anne Arundel
I HEREBY CERTIFY that on this 24th day of March, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Gregory George King
-----------------------
Notary Public
My Commission Expires: 10/3/98
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that David H. Bernstein constitutes
and appoints each of Alfred Carfora and John A. Couri with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ David H. Bernstein
----------------------
David H. Bernstein
STATE OF Maryland
ss
CITY/COUNTY OF Anne Arundel
I HEREBY CERTIFY that on this 24th day of March, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Gregory George King
-----------------------
Notary Public
My Commission Expires: 10/3/97
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that John A. Couri constitutes and
appoints each of Alfred Carfora and David H. Bernstein with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ John A. Couri
-----------------
John A. Couri
STATE OF Maryland
ss
CITY/COUNTY OF Anne Arundel
I HEREBY CERTIFY that on this 24th day of March, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Gregory George King
-----------------------
Notary Public
My Commission Expires: 10/3/97
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that Carl Reimerdes constitutes and
appoints each of Alfred Carfora and David H. Bernstein with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Carl Reimerdes
------------------
Carl Reimerdes
STATE OF New York ss
CITY/COUNTY OF Nassau
I HEREBY CERTIFY that on this 25th day of March, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Lois L. Kouroumousis
------------------------
Notary Public
Lois L. Kouroumousis
Notary Public, State of New York
No. 30-4776471
Qualified in Nassau County
My Commission Expires: 1/31/98
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Susan H.Stackhouse constitutes
and appoints each of Alfred Carfora and David H. Bernstein with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Susan H. Stackhouse
-----------------------
Susan H. Stackhouse
STATE OF Florida
ss
CITY/COUNTY OF Orange
I HEREBY CERTIFY that on this 4th day of April, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Mary Lou Donnelly
---------------------
Notary Public
Commission #CC 515469
My Commission Expires: 12/4/99
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that Stephen M. Waters constitutes and
appoints each of Alfred Carfora and David H. Bernstein with full power of
substitution, or either one of them, acting severally, the true and lawful
agents and attorneys-in-fact (the "Attorneys") of the undersigned, with full
power and authority in said Attorneys, to sign in my name and on my behalf as a
Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Stephen M. Waters
---------------------
Stephen M. Waters
STATE OF New York ss
CITY/COUNTY OF New York
I HEREBY CERTIFY that on this 31st day of March, 1997, before me, the
subscriber, personally appeared Jack Africk who made oath in due form of law
that the matters and facts stated herein are true to the best of his knowledge,
information and belief.
/s/ Debra Ann Dalbora
---------------------
Notary Public
My Commission Expires: 6/30/98
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that Lowell P. Weicker, Jr.
constitutes and appoints each of Alfred Carfora and John A. Couri with full
power of substitution, or either one of them, acting severally, the true and
lawful agents and attorneys-in-fact (the "Attorneys") of the undersigned, with
full power and authority in said Attorneys, to sign in my name and on my behalf
as a Director and/or Officer of Duty Free International, Inc. (the Company), an
Annual Report on Form 10-K, and any and all Amendments thereto, to be filed with
the Securities and Exchange Commission pursuant to the Securities Exchange Act
of 1934, as amended. I hereby ratify and confirm all acts taken by such agents
and attorneys-in-fact, pursuant to the authority herein conferred.
/s/ Lowell P. Weicker, Jr.
--------------------------
Lowell P. Weicker, Jr.
STATE OF Virginia
ss
CITY/COUNTY OF Alexandria
I HEREBY CERTIFY that on this 3rd day of March, 1997, before me, the
subscriber, personally appeared Lowell P. Weicker, Jr. who made oath in due form
of law that the matters and facts stated herein are true to the best of his
knowledge, information and belief.
/s/ Marcella Stanfar
--------------------
Notary Public
My Commission Expires: 1/31/2001
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 26, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820756
<NAME> DUTY FREE INTERNATIONAL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-26-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> JAN-26-1997
<CASH> 36,483
<SECURITIES> 12,331
<RECEIVABLES> 22,508
<ALLOWANCES> 636
<INVENTORY> 108,724
<CURRENT-ASSETS> 206,146
<PP&E> 145,078
<DEPRECIATION> 48,360
<TOTAL-ASSETS> 415,348
<CURRENT-LIABILITIES> 64,029
<BONDS> 117,742
0
0
<COMMON> 273
<OTHER-SE> 227,442
<TOTAL-LIABILITY-AND-EQUITY> 415,348
<SALES> 570,895
<TOTAL-REVENUES> 575,418
<CGS> 321,733
<TOTAL-COSTS> 321,733
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,228
<INTEREST-EXPENSE> 8,444
<INCOME-PRETAX> 34,080
<INCOME-TAX> 12,610
<INCOME-CONTINUING> 21,470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,470
<EPS-PRIMARY> 0.79
<EPS-DILUTED> 0.79
</TABLE>
