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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 4, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission 1-10767
VALUE CITY DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-1322832
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
3241 Westerville Road, Columbus, Ohio 43224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 471-4722
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 the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
<TABLE>
<CAPTION>
Class Outstanding at June 10, 1996
- - ------------------------------- ----------------------------
<S> <C>
Common Stock, Without Par Value 31,682,945 Shares
</TABLE>
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VALUE CITY DEPARTMENT STORES, INC.
TABLE OF CONTENTS
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PAGE NO.
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PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheets
May 4, 1996 and July 29, 1995 3
Consolidated Statements of Income
Three months and nine months ended May 4, 1996
and April 29, 1995 4
Consolidated Statements of Cash Flows
Nine months ended May 4, 1996
and April 29, 1995 5
Notes to the Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Signatures 11
Item 6. Exhibits and Reports on Form 8-K
Part A: Exhibit 10.48 Asset Purchase Agreement, dated as of April 24, 1996, between
the Company, as buyer and Steinbach Stores, Inc., a subsidiary
of SSC, as seller, regarding the Seaview, Shore Mall, Paramus
and Manalapan, NJ Stores 12
Exhibit 11 Statements regarding computation of Per Share Earnings 25
Exhibit 27 Financial Data Schedule For Third Quarter Form 10-Q 27
Part B: Reports on Form 8-K N/A
</TABLE>
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VALUE CITY DEPARTMENT STORES, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
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=============================================================================================
MAY 4, JULY 29,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 14,205 $ 17,374
Accounts receivable, net 4,388 3,422
Receivables from affiliates 924 1,240
Inventories 260,668 219,476
Prepaids and other 6,970 9,583
Deferred income taxes 10,771 6,844
--------- ---------
Total current assets 297,926 257,939
Property and equipment, at cost:
Furniture, fixtures and equipment 128,358 115,281
Leasehold improvements 66,150 55,470
Capital leases 2,607 2,607
--------- ---------
197,115 173,358
Accumulated depreciation and amortization (89,783) (76,837)
--------- ---------
107,332 96,521
Notes receivable - non current 2,619 653
Other assets 7,755 6,774
--------- ---------
Total assets $ 415,632 $ 361,887
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 83,488 $ 49,605
Demand note payable 9,000 --
Accounts payable to affiliates 7,230 5,862
Accrued expenses 41,168 37,564
Current maturities of long-term obligations 10,879 10,796
--------- ---------
Total current liabilities 151,765 103,827
Long-term obligations, net of current maturities 10,168 20,853
Deferred income taxes 3,319 2,926
Minority interest in partnerships -- 1,363
Excess net assets over cost of acquired business 1,274 2,317
Shareholders' equity:
Common shares, without par value; 80,000,000 authorized;
issued and outstanding, including Treasury shares,
32,050,745 109,385 109,385
Contributed capital 9,704 9,704
Retained earnings 133,357 113,786
Less deferred compensation expense, net (511) (1,043)
Treasury shares, 368,600 and 148,900, at cost (2,829) (1,231)
--------- ---------
Total shareholders' equity 249,106 230,601
--------- ---------
Total liabilities and shareholders' equity $ 415,632 $ 361,887
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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======================================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 4, APRIL 29, MAY 4, APRIL 29,
1996 1995 1996 1995
13 WEEKS 13 WEEKS 40 WEEKS 39 WEEKS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales, excluding sales of licensed
departments $ 207,620 $ 183,375 $ 721,800 $ 660,306
Cost of sales (131,437) (115,154) (451,010) (409,770)
--------- --------- --------- ---------
Gross profit 76,183 68,221 270,790 250,536
Selling, general and administrative expenses (79,434) (77,261) (252,333) (232,774)
License fees from affiliates, and other operating income 4,340 3,950 13,829 12,770
Restructuring charge -- -- -- (300)
--------- --------- --------- ---------
Operating profit (loss) 1,089 (5,090) 32,286 30,232
Interest income (expense), net 13 (679) (637) (1,312)
Amortization of excess net assets over cost 348 348 1,043 1,103
Other income, net 4 -- 47 3
--------- --------- --------- ---------
Income (loss) before income taxes and
minority interest 1,454 (5,421) 32,739 30,026
Minority interest in partnerships -- 4 (41) (243)
--------- --------- --------- ---------
Income (loss) before income taxes 1,454 (5,417) 32,698 29,783
(Provision) Benefit for income taxes (556) 2,225 (13,127) (11,936)
--------- --------- --------- ---------
Net income (loss) $ 898 $ (3,192) $ 19,571 $ 17,847
========= ========= ========= =========
Earnings (loss) per share $ 0.03 $ (0.10) $ 0.62 $ 0.56
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VALUE CITY DEPARTMENT STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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==========================================================================================
NINE MONTHS ENDED
------------------------
MAY 4, APRIL 29,
1996 1995
40 WEEKS 39 WEEKS
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,571 $ 17,847
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 17,323 12,528
Amortization of excess net assets over cost (1,043) (1,103)
Deferred income taxes (3,534) 1,556
Minority interest in partnerships 41 243
Gain on disposal of fixed assets (47) (3)
Provision for restructuring, net -- 300
Change in working capital, assets and liabilities:
Receivables (650) (369)
Inventories (41,192) (31,111)
Prepaids and other (502) (3,074)
Accounts payable 35,251 (2,091)
Accrued expenses 3,552 1,721
-------- --------
Net cash provided by (used in) operating activities 28,770 (3,556)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,203) (20,618)
Proceeds from sale of property and equipment 50 27
Other assets (1,292) (179)
Notes receivable - non current (1,966)
-------- --------
Net cash used in investing activities (27,411) (20,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under demand note facility 9,000 24,000
Principal payments under long-term debt obligations (10,602) (10,533)
Distributions to partners in minority partnerships, net (1,328) (245)
Proceeds from the issuance of common shares -- 31
Purchase of common shares (1,598) (1,231)
-------- --------
Net cash provided by (used in) financing activities (4,528) 12,022
-------- --------
Net decrease in cash and equivalents (3,169) (12,304)
Cash and equivalents, beginning of period 17,374 30,666
-------- --------
Cash and equivalents, end of period $ 14,205 $ 18,362
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
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VALUE CITY DEPARTMENT STORES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED MAY 4, 1996 AND APRIL 29, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The Company operates a chain of full-line off-price department stores,
principally under the name "Value City". The accompanying consolidated
financial statements include the accounts of Value City Department Stores,
Inc. ("VCDS") and its wholly owned subsidiaries. These entities are herein
referred to collectively as the "Company".
The consolidated financial statements as of and for the periods ended May
4, 1996 and April 29, 1995 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, the consolidated financial statements should be read in
conjunction with the financial statement disclosures contained in the
Company's 1995 Annual Report. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
necessary (which are of a normal recurring nature) to present fairly the
financial position and results of operations and cash flows for the interim
periods presented, but are not necessarily indicative of the results of
operations for a full fiscal year.
To facilitate comparisons with the current period, certain amounts in prior
year financial statements have been reclassified to conform to the current
year presentation.
2. FISCAL YEAR
In 1996, the Company changed its fiscal year end to the Saturday closest to
July 31 to conform to the National Retail Federation's suggested fiscal
calendar. Therefore, the month of January 1996 had five rather than four
weeks, and fiscal year 1996 will have 53 rather than 52 weeks.
3. INCOME TAXES
Income taxes are provided for based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes". Deferred income taxes are recorded to
reflect the tax consequences on future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at
each balance sheet date.
4. RESTRUCTURING CHARGE
At January 28, 1995, the Company recognized $0.3 million of net expenses
for certain employee termination benefits and other costs relating to
closing a store in western Pennsylvania pursuant to its lease expiration on
March 31, 1995. Actual payments have approximated $0.3 million.
5. NOTES RECEIVABLE
To facilitate acquisitions of two store leases, the company advanced funds
to two third party landlords in exchange for notes receivable bearing
interest at various levels above the bank prime lending rate with
maturities from two to seven years. The notes are collateralized by the
properties under lease.
6. SHAREHOLDERS' EQUITY
On December 21, 1994, the Board of Directors authorized the purchase of up
to $5.0 million of the Company's common shares through December 31, 1995.
Through such date, the Company acquired 368,600 shares at an average price
of $7.67 per share for a total of $2,828,626.
7. MINORITY INTEREST IN PARTNERSHIPS
During the quarter ended October 28, 1995, the Company bought the 25%
minority interest in two partnership stores for approximately $1,328,000
based on the net book value of the minority interests in those
partnerships.
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
THREE MONTHS ENDED MAY 4, 1996 COMPARED TO THREE MONTHS ENDED APRIL 29, 1995
Net sales increased from $183.4 million to $207.6 million, an increase of
$24.2 million or 13.2%. For the current thirteen week period, new store
sales aggregated $12.6 million , offset by $2.1 million for two stores
closed in fiscal 1995. Comparable store sales for the calendar thirteen
week period increased $7.2 million or 3.9%. During the current fiscal year,
the company changed its fiscal year end to the Saturday closest to July 31.
This resulted in the current thirteen week period beginning and ending one
week later than last year's thirteen week period, which contributed a net
increase of $6.5 million in sales.
Gross profit increased from $68.2 million to $76.2 million, an increase of
$8.0 million, or 11.7%. Expressed as a percentage of sales, gross profit
decreased from 37.2% to 36.7%, due primarily to slightly higher markdowns.
Selling, general and administrative expenses increased approximately $2.2
million or 2.8% from $77.3 million to $79.4 million and decreased 3.8% as a
percentage of sales from 42.1% to 38.3%. Salaries and related benefit costs
decreased from $40.4 million to $40.2 million, a decrease of $0.2 million,
which resulted in 2.7% of the selling, general and administrative expense
decrease expressed as a percentage of sales. This decrease is largely
attributable to tighter expense controls over store and home office
payroll. Advertising expenses decreased from $7.0 million to $6.9 million,
a decrease of $0.1 million or 0.5% of sales. Delivery expense decreased
from $1.2 million to $0.6 million, a decrease of $0.6 million or 0.4% of
sales due in part to increased efficiencies in our routing logistics.
Supplies expense decreased from $3.2 million to $2.9 million, a decrease of
$0.3 million, or 0.3% of sales. Rent, utilities and other occupancy costs
increased from $14.0 million to $15.4 million, an increase of $1.4 million,
but decreased as of percentage of sales from 7.6% to 7.4%, or 0.2%.
Preopening expenses increased from $0.6 million to $1.1 million, an
increase of $0.4 million, or 0.1% of sales. Professional fees increased
from $0.3 million to $0.7 million, an increase of $0.4 million, or 0.2% of
sales, due primarily to increased use of third party warehouse processing
services. Depreciation expense increased from $3.9 million to $4.2 million,
an increase of $0.3 million, but decreased as a percentage of sales from
2.1% to 2.0%, or 0.1%. All other expenses as a group increased $0.9 million
and increased 0.1% as a percentage of sales.
Based upon its past experience, the Company estimates the average cost of
opening a new store to range from approximately $5.0 million to $6.0
million, including leasehold improvements, fixtures, inventory and other
costs. Preparation of a store for opening generally takes between eight and
12 weeks. The company charges preopening expenses of an non recurring
nature to operations ratably over the first twelve months of store
operations. It has been the Company's experience that new stores generally
achieve profitability and contribute to net income after the first year of
operations. Seven stores opened less than twelve months contributed a
pre-tax net operating loss of $1.1 million for the current three month
period including $1.0 million of preopening amortization. Six stores
opened less than twelve months during last year's three month period
had pre-tax net operating losses of $1.2 million, including $0.6 million
of preopening amortization.
License fees from affiliates and other operating income increased from $4.0
million to $4.3 million and decreased as a percentage of sales from 2.2% to
2.1%.
Operating profit increased from a loss of $5.1 million to a profit of $1.1
million, an increase of $6.2 million as a result of the above factors
Interest expense, net of interest income, decreased $0.7 million, due in
part to increased interest income, as well as reduced average borrowings.
Income before income taxes increased from a loss of $5.4 million to a
profit of $1.5 million and increased as a percentage of sales from (3.0)%
to 0.7%.
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
NINE MONTHS ENDED MAY 4, 1996 COMPARED TO NINE MONTHS ENDED APRIL 29, 1995
Net sales increased from $660.3 million to $721.8 million, an increase of
$61.5 million or 9.3%. Due to the change in the Company's fiscal year, the
nine month period ended May 4, 1996 had forty rather than thirty-nine
weeks. Sales during the additional week aggregated $18.0 million. New
stores contributed a net increase in sales of $59.7 million. These
increases were partially offset by $9.1 million for two stores closed in
fiscal 1995. Comparable store sales for the thirty-nine week period
decreased $7.1 million or 1.1%.
Gross profit increased from $250.5 million to $270.8 million, an increase
of $20.3 million, or 8.1%. Expressed as a percentage of sales, gross profit
decreased from 37.9% to 37.5% due primarily to increased markdowns.
Selling, general and administrative expenses increased approximately $19.6
million, or 8.4% from $232.8 million to $252.3 million and decreased 0.3%
as a percentage of sales from 35.3% to 35.0%. Salaries and related benefit
costs increased from $120.7 million to $125.3 million, an increase of $4.6
million but decreased as a percentage of sales from 18.3% to 17.4% or 0.9%.
Advertising expenses increased from $24.3 million to $27.5 million, an
increase of $3.2 million, or 0.1% of sales. Preopening expense increased
from $1.1 million to $3.1 million, an increase of $2.0 million, or 0.3% of
sales. Professional fees increased from $1.7 million to $3.2 million, an
increase of $1.5 million or 0.2% of sales. Depreciation expense increased
from $11.7 million to $13.4 million, an increase of $1.7 million, or 0.1%
of sales. Rent, utilities and other occupancy costs increased from $40.7
million to $45.5 million, an increase of $4.8 million, or 0.2% of sales.
All other expenses as a group increased $1.8 million, but decreased 0.3% as
a percentage of sales.
License fees from affiliates and other operating income increased from
$12.8 million to $13.8 million and remained flat as a percentage of sales
at 1.9% .
At January 28, 1995, the Company recognized $0.3 million of net expenses
for certain employee termination benefits and other costs relating to
closing a store in western Pennsylvania pursuant to its lease expiration on
March 31, 1995. Actual payments have approximated $0.3 million.
Seven stores opened less than twelve months contributed a pre-tax net
operating loss of $1.6 million during the current nine month period
including $2.6 million of preopening amortization. Six stores opened less
than twelve months during last year's nine month period contributed a
pre-tax net operating loss of $1.1 million, including $1.1 million of
preopening amortization.
Operating profit increased from $30.2 million to $32.3 million, an increase
of $2.1 million or 6.8%, and decreased as a percentage of sales from 4.6%
to 4.5% as a result of the above factors.
Interest expense, net of interest income, decreased from $1.3 million to
$0.6 million and decreased as a percentage of sales from 0.2% to 0.1%.
Income before income taxes increased from $29.8 million to $32.7 million,
an increase of $2.9 million or 9.8%, and remained flat as a percentage of
sales at 4.5%.
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $146.2 million at May 4, 1996 compared to $162.3
million at April 29, 1995. Current ratios at those dates were 2.0 and 2.3,
respectively.
Net cash provided by (used in) operating activities totaled $28.8 million
and $(3.6) million for the nine months ended May 4, 1996 and April 29,
1995, respectively. Inventories were $260.7 million at May 4, 1996 compared
to $219.5 million at July 29, 1995. The $41.2 million increase in inventory
was the net result of a $14.0 million increase in inventory for new stores,
a $31.0 million increase in merchandise in transit and a net reduction in
comparable store and warehouse inventories of $3.8 million.
Net cash used in investing activities totaled $27.4 million for the 1996
period and $20.8 million for the 1995 period. Capital expenditures for the
1996 period include approximately $13.3 million for new stores, $4.8
million for renovations in existing stores, $0.6 million for energy
management systems, $3.7 million for renovations and equipment in
existing warehouses, $0.2 million for transportation equipment and $1.6
million for M.I.S. equipment upgrades and new systems. Capital expenditures
were offset by $0.1 million of proceeds from the sales of property and
equipment. Other investing activities include cash outlays of $2.0 million
under a note receivable agreement and $1.3 million primarily for new store
lease acquisition costs and purchases of point-of-sale equipment to be used
for future store openings.
Capital expenditures for the balance of the fiscal year are currently
estimated at $16.0 million, which includes estimated expenditures for new
store openings.
The Company has a $50.0 million credit facility with its bank bearing
interest at or below the prime lending rate depending on certain borrowing
elections made by the Company. At May 4, 1996, the prime rate was 8.25%,
and there were borrowings of $9.0 million and $8.8 million of letters of
credit issued and outstanding for merchandise purchases leaving $32.2
million available under the facility. The Company believes that the cash
generated by its operations, along with proceeds available from a credit
facility, will be sufficient to meet its future obligations including
capital expenditures.
On December 21, 1994, the Board of Directors authorized the purchase of up
to $5.0 million of the Company's common shares through December 31, 1995.
Pursuant to this plan, the Company acquired 368,600 shares at an average
price of $7.67 per share for a total of $2.8 million.
SEASONALITY
The Company's business is highly seasonal as a result of increased consumer
demand in the back-to-school and Christmas seasons. The first half of each
fiscal year accounts for a major portion of the Company's annual sales and
operating profit, which are particularly concentrated in the Christmas
selling season.
FISCAL YEAR
In 1996, the Company changed its fiscal year end to the Saturday closest to
July 31 to conform to the National Retail Federation's suggested fiscal
calendar. Therefore, the month of January 1996 had five rather than four
weeks, and fiscal year 1996 will have 53 rather than 52 weeks.
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VALUE CITY DEPARTMENT STORES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
INCOME TAXES
Income taxes are computed in accordance with SFAS No. 109, "Accounting for
Income Taxes". The effective tax rates for the three month periods ended
May 4, 1996 and April 29, 1995 was 38.2% and 41.1%, respectively. The
decline in the rate for the current period resulted from the allocation of
taxable income to the various taxing jurisdictions. The effective tax rates
for the nine month periods ended May 4, 1996 and April 29, 1995 were 40.1%.
INFLATION
The results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation because of the nature of the estimates required, management
believes that the effect of inflation, if any, on the results of operations
and financial condition has been minor.
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SIGNATURE
Pursuant to the requirements 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.
VALUE CITY DEPARTMENT STORES, INC.
(Registrant)
By /s/ Robert M. Wysinski
------------------------------------------
Robert M. Wysinski, Senior Vice President,
Chief Financial Officer, Treasurer
and Secretary *
Date: June 14, 1996
- - ---------------------------
- - -------------------------------------------------------------------------------
* Mr. Wysinski is the principal financial officer and has been duly authorized
to sign on behalf of the registrant.
Page 11
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Exhibit 10.48
ASSET PURCHASE AGREEMENT
This is an Agreement ("Agreement"), dated as of April 24, 1996, between Value
City Department Stores, Inc., an Ohio corporation ("Buyer"), and Steinbach
Stores, Inc., an Ohio corporation ("Seller"). Buyer and Seller agree as follows:
SECTION 1. SALE OF ASSETS
Seller hereby agrees, upon the terms and subject to the conditions set forth in
this Agreement, to sell, assign, transfer and deliver to Buyer the leasehold
interests, leasehold improvements, furniture and fixtures owned and used by it
(the "Department Store Assets") in the operation of the department stores (the
"Department Stores") listed in Exhibit A to this Agreement, and, as
consideration therefor, Buyer agrees to assume Seller's obligations under
existing, leases or to enter into new leases and to pay Seller cash
consideration as set forth in Exhibit A.
SECTION 2. CLOSING
The Closing of the sale and purchase of each Department Store shall be held as
soon as practicable after the later of (a) liquidation by Steinbach of its
inventory and termination of its operations at that Department Store and (b) the
satisfaction or waiver by the parties of all of the conditions precedent to
Closing set forth in this Agreement. Each Closing shall take place at the
offices of Porter, Wright, Morris & Arthur, 41 South High Street, Columbus,
Ohio, or at such other place as shall be agreed to by the parties. Each Closing
may occur independent of any other Closing and no Closing with respect to any
Department Store shall be a condition
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precedent to the Closing with respect to any other Department Store. At each
Closing Seller shall deliver to Buyer those instruments of sale, assignment and
conveyance, and Buyer shall enter into such leases or lease assumption
agreements and shall deliver such cash consideration as is specified in Exhibit
A.
SECTION 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio and has the corporate power and authority to carry on its business as and
where it is now being conducted.
3.2 SELLER'S AUTHORITY. The execution, delivery and performance of this
Agreement by Seller has been duly and validly authorized and approved by
Seller's Board of Directors and shareholders.
3.3 INFORMATION AND DOCUMENTS. Seller has delivered or will deliver to
Buyer or has made or will make available for Buyer's inspection originals or
true and complete copies of all leases, easements, agreements and other
documents pursuant to which it owns and operates the Department Stores and its
books and records pertaining to the operation of the Department Stores.
3.4 PROPERTY RIGHTS. Seller owns the property used by it in the
operation of the Department Stores and has valid and enforceable leasehold
interests in the Department Store property leased by it, in each case free and
clear of all liens and encumbrances.
3.5 COMPLIANCE WITH LAWS. The Department Stores are in compliance in
all material respects with all applicable laws, statutes, rules, regulations,
ordinances, orders or other
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requirements of federal, state or local governmental authorities ("Legal
Requirements"). There is no pending, or to Seller's knowledge, threatened
investigation or proceeding before or by any court or governmental authority of
any alleged violation of any Legal Requirement affecting any of the Department
Stores. Without limiting the generality of the foregoing, Seller is not in
violation of any applicable federal, state or local law, rule, regulation, or
order (collectively "Environmental Laws") relating to air, water, noise
pollution, employee health and safety, or the production, storage labeling,
transportation or disposition of waste or hazardous or toxic substances
(collectively "Hazardous Substances"). The Seller has not, and to the best of
its knowledge no other person has, stored any hazardous substances on, beneath
or about any of the premises located on or around the Department Stores, except
in compliance with all applicable environmental laws. Seller knows of no
condition relating to or resulting from the release or discharge of any
hazardous substances into the soil, surface waters, ground waters, drinking
water supplies, navigable waters, land, surface, or subsurface strata, which has
resulted in or could result in any damage, loss, cost, expense, claim, demand,
order or liability to or against the Buyer by any governmental authority or
other third party relating to or resulting from the operation of the Department
Stores or otherwise related to the leased or owned property, irrespective of the
cause of such condition. Seller has not received any notice from any
governmental authority or private or public entity advising Seller that it is
potentially responsible for response costs with respect to a release or
threatened release of any hazardous substances. To the best of Seller's
knowledge, there are no polychlorinated biphenyls or any asbestos located on or
within the premises on which the Department Stores are located, except for
asbestos at the Bergen Mall store. Buyer acknowledges that it is aware of the
presence of asbestos at that store and accepts that store notwithstanding the
presence of asbestos.
3
<PAGE> 4
3.6 MECHANICS LIENS; CONDEMNATION PROCEEDINGS. No unpaid improvements
have been made or materials furnished to the real estate within 60 days prior to
the date of this Agreement which would form the basis of a mechanic's or
materialman's lien against the real estate or, in the event there has been such
work performed or materials delivered which have not been paid, Seller agrees to
pay the same and indemnify and save Buyer harmless therefrom. Seller has not
received notice of any pending or threatened condemnation proceedings or notice
of any special assessments against the real estate or any part thereof.
3.7 NO CONFLICT. The execution of this Agreement does not, and
performance thereof will not, conflict with or violate the provisions of
Seller's Articles of Incorporation, Seller's Code of Regulations, any lease,
reciprocal easement agreement, indenture, note, mortgage or other agreement to
which Seller is a party or by which it or its property is bound, and no such
lease or agreement prohibits the operation by Buyer of any Department Store as
an "off-price" store. Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) violate or
conflict with any provisions of any law, rule, regulation, order, judgment,
decree or ruling of any governmental authority applicable to Seller, or (ii)
require any consent, approval, filing or notice under any provision of law.
3.8 CONSENTS; PRE-CLOSING RENT AND-TAXES. Insofar as any agreement
requires consent by a lessor, lender, mortgagee, or other person, Seller shall
have obtained such consent before the closing. Seller shall pay all rent, taxes
and other obligations with respect to the operation of each Department Store and
attributable to periods or transactions through March 31, 1996.
4
<PAGE> 5
3.9 NON-ASSUMPTION OF LIABILITY. Buyer does not assume any liability or
obligation of Seller, present or future, with respect to any Department Store or
otherwise, except as expressly provided for in this Agreement and in each new
Lease between Buyer and the owner of Department Store premises or in an
Assignment and Assumption Agreement with respect to an existing lease.
3.10 OPERATION OF THE DEPARTMENT STORES PRIOR TO CLOSING; TERMINATION
OF SELLER'S BUSINESS. Seller shall have the right, between the date of this
Agreement and the Closing with respect to each Department Store, to continue to
occupy and to operate that Department Store. Seller agrees that it will
terminate its operation of the Department Stores, including the liquidation of
all inventory, termination of all persons employed in the Department Stores and
vacation of the premises, as soon as reasonably practicable, and in no event
later than May 31, 1996. Prior to Closing, the operation of each Department
Store will be at Seller's sole risk and for Seller's account.
3.11 MAINTENANCE OF DEPARTMENT STORES; COMMITMENTS. Prior to Closing
Seller shall maintain each Department Store in good condition and repair. Seller
shall not enter into any agreement or make any commitment with respect to any of
the Department Stores without Buyer's prior written consent.
3.12 SELLER'S EMPLOYEES. Seller will comply, in connection with the
termination of the Department Store employees, with the applicable requirements
of the federal Worker Adjustment and Retraining Notification Act ("WARN Act")
and any state laws equivalent thereto. Seller shall issue any required notices
sufficiently in advance of the termination of Seller's business in each
Department Store to permit the Closing with respect to that Department Store to
occur as provided herein.
5
<PAGE> 6
3.13 LITIGATION AND INVESTIGATIONS. There are no actions, suits,
claims, demands, legal or administrative proceedings or governmental
investigations pending or, to the best knowledge of Seller, threatened against
or affecting Seller, or any of the Department Store Assets, nor any judgments,
decrees, orders, rulings or injunctions to which Seller is a party or affecting
any of the Department Store Assets which may have a material and adverse effect
on or relate in any way to the transactions contemplated in this Agreement
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER
Buyer represents and warrants to Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of Ohio.
4.2 BUYER'S AUTHORITY. The execution, delivery and performance of this
Agreement by Buyer has been duly and validly authorized by Buyer's Board of
Directors. Shareholder approval is not required for Buyer to enter into this
Agreement and to perform its obligations hereunder.
4.3 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the consummation by Buyer of the transactions contemplated hereby will
violate or conflict with the provisions of Buyer's Articles of Incorporation,
Buyer's Code of Regulations, any lease, reciprocal easement agreement,
indenture, note, mortgage or other agreement to which Buyer is a party or by
which it or its property is bound, or (1) violate or conflict with any
provisions of any law, rule, regulation, order, judgment, decree or ruling of
any governmental authority applicable to Buyer, or (ii) require any consent,
approval, filing or notice under any provision of law.
4.4 LITIGATION AND INVESTIGATIONS. There are no actions, suits, claims,
demands,
6
<PAGE> 7
legal or administrative proceedings or governmental investigations pending or,
to the best knowledge of Buyer, threatened against or affecting Buyer, nor any
judgments, decrees, orders, rulings or injunctions to which the Buyer is a party
which may have a material and adverse effect on or relate in any way to the
transactions contemplated in this Agreement.
Section 5. Conditions Precedent to Buyer's Obligations
The obligations of Buyer under this Agreement are subject to the fulfillment, by
the date of each Closing, of each of the following conditions unless waived in
writing, by Buyer.
5.1 SELLER'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller set forth herein (which shall survive the Closing) shall be
true and correct as of the date hereof and shall be deemed to be made again at
and as of the Closing date and shall then (except as affected by transactions
contemplated hereby) be true and correct; and Buyer shall have received a
certificate, dated the Closing date, signed by Seller's President, certifying to
the fulfillment of this condition.
5.2 CONSENTS AND PAYMENTS. Seller shall have obtained all such consents
and made all such payments as are referred to in Section 3.8 hereof.
5.3 TERMINATION OF SELLER'S DEPARTMENT STORE OPERATION. Seller shall
have terminated its operations in the Department Store including, without
limitation, the removal of all inventory and the termination or relocation of
all Employees. The Department Store shall be in good condition and repair.
Seller shall obtain and furnish to Buyer an "estoppel certificate" in form and
substance satisfactory to Buyer from the lessor of the Department Store.
5.4 AUTHORITY. This Agreement and the transactions contemplated hereby
shall have been approved by Buyer's Board of Directors or a committee thereof
authorized to do so.
7
<PAGE> 8
Such approval shall include approval by not less than a majority of the
independent members of Buyer's Board of Directors.
SECTION 6. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
All obligations of the Seller under this Agreement are subject, at its option,
to the fulfillment, by the date of each Closing, of each of the following
conditions, unless waived in writing by Seller.
6.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. Buyer's
representations and warranties contained in this Agreement shall be deemed to
have been made again at and as of the Closing Date and shall then be true in all
material respects.
6.2 DUE PERFORMANCE. Buyer shall have performed and complied with all
the terms and conditions required by this Agreement to be performed or complied
with by it before the Closing.
6.3 AUTHORITY. This Agreement, and the transactions contemplated
hereby, shall have been approved by Seller's Board of Directors and
shareholders.
SECTION 7. INDEMNIFICATION
7.1 INDEMNIFICATION OF BUYER. Seller agrees to indemnify Buyer against
any loss, damage or expense (including reasonable attorney's fees) suffered by
Buyer resulting from (1) any breach by the Seller of this Agreement (2) any
inaccuracy in or breach of any of the representations, warranties or covenants
of Seller herein and (3) any claim arising out of any employee relationship with
Seller, any claim based upon death, personal injury or property damage arising
out of any occurrence at a Department Store, any claim based upon any
noncompliance or alleged non-compliance by Seller with or violation of any Legal
Requirement,
8
<PAGE> 9
and any claim based upon non-compliance or alleged non-compliance with any lease
or other agreement pertaining to the operation of any Department Store, in each
case during the period prior to the Closing, with respect to that Department
Store. No loss, damage or expense shall be deemed to have been sustained by
Buyer to the extent of insurance proceeds paid to Buyer as a result of the event
giving rise to such right to indemnification.
7.2 INDEMNIFICATION OF SELLER. Buyer agrees to indemnify Seller against
any loss, damage or expense (including reasonable attorney's fees) suffered by
Seller resulting from (1) any breach by Buyer of this Agreement or (2) any
inaccuracy in or breach of any of the representations, warranties or covenants
of Buyer herein.
7.3 DEFENSE OF CLAIMS. Upon obtaining knowledge thereof, a party
seeking indemnification ("indemnitee") shall promptly notify the party against
which indemnification is sought ("indemnitor") of any claim which has given or
could give rise to a right of indemnification under this Agreement. If the right
of indemnification relates to a claim asserted by a third party against the
indemnitee, the indemnitor shall have the right to employ counsel acceptable to
indemnitee to conduct the defense of any such claim. So long as the indemnitor
is defending any such claim in good faith, the indemnitee will not settle such
claim. If the indemnitor does not elect to defend any such claim, the indemnitee
shall have the right to settle such claim.
SECTION 8. TERMINATION
This Agreement may be terminated (1) by mutual consent in writing, (2) by either
the Seller or Buyer if there has been a material misrepresentation or material
breach of any warranty or covenant by the other party or if the conditions
precedent to the Closing have not been satisfied (or waived by the appropriate
party(s)) on or before May 1, 1996.
9
<PAGE> 10
SECTION 9. GENERAL PROVISIONS
9.1 FURTHER ASSURANCES. At any time, and from time to time, after the
Closing Date, each party will execute such additional instruments and take such
action as may be reasonably requested by the other party to confirm or perfect
title to any property transferred hereunder or otherwise to carry out the intent
and purposes of this Agreement.
9.2 WAIVER. Any failure on the part of either party hereto to comply
with any of its obligations, agreements or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
9.3 BROKERS. Each party represents to the other party that no broker or
finder has acted for it in connection with this Agreement, and agrees to
indemnify and hold harmless the other party against any fee, loss or expense
arising out of claims by brokers or finders employed or alleged to have been
employed by it.
9.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or sent by
prepaid first-class registered or certified mail, return receipt requested, as
follows:
Buyer:
Value City Department Stores, Inc.
3241 Westerville Road
Columbus, Ohio 43224
Attn: Robert Wysinski, Vice President,
Treasurer and Secretary
With a Copy to:
William G. Martin
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
10
<PAGE> 11
Seller:
Steinbach Stores, Inc.
1800 Moler Road
Columbus, Ohio 43207
Attn.: Thomas R. Ketteler, Vice President
with a copy to:
William G. Martin
Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215
9.5 HEADINGS. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of Ohio without regard to principles of
conflicts of laws.
9.7 ASSIGNMENT. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns; provided,
however, that any assignment by either party of its rights under this Agreement
without the written consent of the other party shall be void.
9.8 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11
<PAGE> 12
Attest:_______________________ Value City Department Stores, Inc.
____________________________ By:________________________________
Asst. Secretary BUYER
Attest:_______________________ Steinbach Stores, Inc.
____________________________ By:________________________________
Secretary SELLER
12
<PAGE> 13
EXHIBIT A
TO
ASSET PURCHASE AGREEMENT
Dated as of March 22, 1996
between
VALUE CITY DEPARTMENT STORES, INC.
and
STEINBACH STORES, INC.
<TABLE>
<CAPTION>
STORE LEASE
IDENTIFICATION IDENTIFICATION CONSIDERATION
<S> <C> <C>
Store #44 Lease dtd. 5/16/69 between Assumption of lease;
Bergen Mall Alstores Realty Corporation $2,000,000 for leasehold
Route 4 East & Forrest Ave. and Ohrbach's, Inc., as interest; $270,000 for
Paramus, NJ amended leasehold improvements
(and other property)
Store #57 Lease dtd. 12/17/71 between Assumption of lease; $-0-
Shore Mall Trustees U/A for Joint for leasehold interest;
Black Horse Pike Business Adventure and $460,000 for leasehold
Route 322 Steinbach Company, Inc., improvements (and other
Egg Harbor Twp., NJ 08232 as amended property)
Store #56 Lease dtd. 12/31/68 between Assumption of lease; $-0-
Manalapan Shopping Center Levitt and Sons, Incorporated for leasehold interest;
Route 9 and Syrus Rd. and Supermarkets General $490,000 for leasehold
Englishtown, NJ 07726 Corporation improvements (and other
property)
Store #57 Lease dtd. 11/25/94 between Assumption of lease;
Seaview Square Mall Seaview Square, Inc. and $460,000 for leasehold
Routes 35 and 60 Supermarkets General interest; $175,000 for
Ocean, NJ 07712 Corporation leasehold improvements
(and other property)
</TABLE>
13
<PAGE> 1
VALUE CITY DEPARTMENT STORES, INC.
EXHIBIT 11
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended
------------------------------
May 4, April 29,
1996 1995
13 weeks 13 weeks
------------ -----------
<S> <C> <C>
Weighted average number of common shares outstanding 31,682,145 31,940,801
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at the average market price 116,212 14,310
------------ ------------
Number of shares for computation of primary earnings per share 31,798,357 31,955,111
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at period end market price 152,766 33,909
------------ ------------
Number of shares for computation of fully diluted
earnings per share 31,951,123 31,989,020
============ ============
------------ ------------
Net income (loss) for primary and fully diluted earnings per share $ 898,000 $ (3,192,000)
------------ ------------
Earnings (loss) per share - primary and fully diluted $ 0.03 $ (0.10)
============ ============
</TABLE>
Page 25
<PAGE> 2
VALUE CITY DEPARTMENT STORES, INC.
EXHIBIT 11
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine months end
----------------------------
May 4 April 29,
1996 1995
40 weeks 39 weeks
----------- -----------
<S> <C> <C>
Weighted average number of common shares outstanding 31,734,503 32,008,575
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at the average market price 38,988 35,691
----------- -----------
Number of shares for computation of primary earnings per share 31,773,491 32,044,266
Add net shares issuable pursuant to stock option plans less
shares assumed repurchased at period end market price 50,922 11,303
----------- -----------
Number of shares for computation of fully diluted
earnings per share 31,824,413 32,055,569
=========== ===========
Net income for primary and fully diluted earnings per share $19,571,000 $17,847,000
----------- -----------
Earnings per share - primary $ 0.62 $ 0.56
=========== ===========
Earnings per share - fully diluted $ 0.61 $ 0.56
=========== ===========
</TABLE>
Page 26
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-03-1996
<PERIOD-START> JUL-30-1995
<PERIOD-END> MAY-04-1996
<EXCHANGE-RATE> 1
<CASH> 14205
<SECURITIES> 0
<RECEIVABLES> 4951
<ALLOWANCES> 563
<INVENTORY> 260668
<CURRENT-ASSETS> 297926
<PP&E> 197115
<DEPRECIATION> 89783
<TOTAL-ASSETS> 415632
<CURRENT-LIABILITIES> 151765
<BONDS> 10168
0
0
<COMMON> 109385
<OTHER-SE> 139721
<TOTAL-LIABILITY-AND-EQUITY> 415632
<SALES> 721800
<TOTAL-REVENUES> 721800
<CGS> 451010
<TOTAL-COSTS> 451010
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 283
<INTEREST-EXPENSE> 637
<INCOME-PRETAX> 32698
<INCOME-TAX> 13127
<INCOME-CONTINUING> 19571
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19571
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.61
</TABLE>
