<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required] for the fiscal
year ended January 28, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] for the
transition period from __________ to _____________
COMMISSION FILE NO. 0-20327
AMBER'S STORES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1985340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12092 FORESTGATE
DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 889-1199
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.[x]
As of April 26, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was approximately $574,000 based upon the
closing price of the Registrant's Common Stock on such date, as reported by
Investor's Business Daily. However, due to the uncertainties involved in
connection with the Registrant's bankruptcy proceedings described herein, the
Registrant believes that the market value, if any, of the Common Stock, is
indeterminable. As of April 26, 1996, the registrant had 5,496,800 shares of
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement in connection with its
1996 Annual Meeting of Shareholders, to be filed with the Commission pursuant
to Regulation 14A, are incorporated by reference into Part III of this report.
<PAGE> 2
AMBER'S STORES, INC.
INDEX TO FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 28, 1996
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ITEM 1. Business 1
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
ITEM 5. Market for Registrant's Common Equity and Related Shareholder
Matters 7
ITEM 6. Selected Consolidated Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 14
PART III
ITEM 10. Directors and Executive Officers of the Registrant 15
ITEM 11. Executive Compensation 15
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 15
ITEM 13. Certain Relationships and Related Transactions 15
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
GENERAL
Amber's Stores, Inc. (the "Company" or "Amber's") is a specialty retailer of
arts and crafts products and related merchandise used chiefly for craft and
hobby projects, home decorating and personalized gifts. The Company operates
14 retail stores, with eight stores in Texas, three in Louisiana, two in
Missouri, and one in Mississippi. The Company operates three additional stores
that it is in the process of closing. See "Properties". The Company was
incorporated in 1984 under the laws of the State of Texas.
On September 8, 1995 (the "Petition Date"), Amber's Stores, Inc. (the
"Company") filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Court. Under the protection of Chapter 11, the Company is
managing its affairs and operating its business as a debtor-in-possession. As
a debtor-in-possession, the Company is authorized to operate its business, but
may not engage in transactions outside of the normal course of business without
approval of the Bankruptcy Court.
On January 19, 1996, the Company filed an amended Plan of Reorganization (the
"Plan") consensual with the Committee of Unsecured Creditors. The Plan
contemplated that the existing security holders would receive, in exchange for
their existing shares and upon additional contributions of cash, all of the new
common stock of the reorganized Company. If sufficient additional cash is not
contributed by existing shareholders, all of the new common stock of the
reorganized Company would be issued to the unsecured creditors. Following
approval of the Disclosure Statement, the Company solicited votes with respect
to the Plan, and the Plan was approved by the unsecured creditors and
shareholders of the Company. However, the confirmation hearing on the Plan was
postponed by the Bankruptcy Court pending a review of a proposal made on May 2,
1996, by Old America Stores, Inc. ("Old America") to acquire substantially all
assets of the Company (the "Old America Proposal"). Although terms of the Old
America Proposal are not yet definitive, it is contemplated that Old America
would pay bankruptcy administrative costs, post-petition liabilities, secured
claims and six cents on the dollar to unsecured creditors. Holders of the
Company's outstanding common stock would receive nothing for the interests in
the Company. See "Legal Proceedings" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
BUSINESS STRATEGY
The Company is a retailer of arts and crafts and decorative items. The
Company's stores are designed around a superstore concept that provides ample
space to display a broad selection of over 25,000 different items. The
superstore format also enables the Company to display a variety of completed
arts and crafts projects and decorative products designed to stimulate customer
interest and promote opportunities for additional sales.
TARGET MARKET
The Company's merchandise and services appeal primarily to women aged 25 to 55
with above average discretionary income. Amber's stores are typically located
along major shopping corridors in high visibility strip shopping centers or
adjacent to regional shopping malls that are in trade areas having a minimum
population of 60,000 and an above average household income. These locations
typically contain high profile anchor stores that draw a large number of
customers to the area. The Company has selected its sites by analyzing
appropriate demographic data, including the population and estimated household
income of the trade area to be served through the proposed location.
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MERCHANDISING STRATEGY
Product Selection. The Company's merchandising strategy is to offer an
extensive selection of competitively priced arts and crafts items with
particular emphasis on silk flowers, custom picture framing, wearable art, art
supplies, home decorating supplies, children's crafts, hobby items and
promotional and seasonal items.
Amber's stores provide the following products and services:
o Silk flowers and associated ribbons, wreaths, display containers and other
flower-arranging accessories, as well as home decorating supplies.
o Creative craft materials, including candles and candlemaking products,
stained glass, doll making products and doll accessories, macrame, beads,
sequins and container decorating.
o Picture framing materials and services, including ready-made frames and
custom framing in a wide variety of sizes and styles. The picture framing
department endeavors to offer customers extensive selection, competitive
prices, high quality service and quick turnaround.
o Art supplies for both the professional and amateur.
o Wearable crafts, such as T-shirts, sweatshirts, caps, scarves, sneakers and
other items that can be decorated or personalized with craft paints,
appliques and other applied craft products.
o Soft crafts, including fabrics, yarns, embroidery, needlepoint,
cross-stitch, quilt batting, stitchery, latch hook and doilies.
o Items used for children's craft projects.
o Hobby items, including model airplanes, ships and cars, as well as toy
trains, dolls and doll houses and model paints and glues.
In addition to the categories described above, the Company regularly features
seasonal merchandise and year-round promotional items.
The following table shows sales by the largest departments as a percentage of
total sales for the three most recent fiscal years:
<TABLE>
<CAPTION>
Department 1994 1995 1996
----------- ---- ---- ----
<S> <C> <C> <C>
Silk flowers, home decorating and related items 31% 35% 39%
Seasonal and promotional 18 19 13
Picture framing materials and services and art supplies 17 18 20
Wearable crafts 14 11 11
Creative craft materials 10 9 8
Other 10 8 9
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Multiple Component Projects. The Amber's merchandising concept also emphasizes
the prominent display of completed craft and decorating projects incorporating
multiple items that may be purchased at the store to create the projects. The
display of such completed projects is designed to stimulate gift and decorating
ideas and customer traffic to the appropriate departments of the store. In
addition, Amber's stores offer craft classes to provide creative gift and
decorating suggestions.
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<PAGE> 5
Advertising. The Company advertises through television, radio and newspaper.
Over the last three fiscal years, the Company's overall advertising expense,
including certain expenses incurred in connection with the Company's franchise
operations, has averaged approximately 8.3% of net sales. Advertising expenses
increase significantly during the Fall selling season to coincide with the
seasonality of the Company's business.
THE STORES
The Company operates 14 retail stores and is in the process of closing three
additional stores. During fiscal 1996 and the first quarter of fiscal 1997,
the Company completed the closing of 22 stores. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations". Amber's stores
range in size from approximately 12,864 to 32,760 square feet, with most
containing at least 18,000 square feet. Square footage is the area for which
minimum rent and other charges are measured pursuant to lease agreements.
The stores are generally open from 10:00 a.m. to 9:00 p.m. Monday through
Saturday and from 11:00 a.m. to 6:00 p.m. on Sunday. The Company accepts cash,
checks and Mastercard, Visa, American Express and Discover credit cards.
Amber's follows a policy of refunding the purchase price to any customer if the
customer is not satisfied with the purchase. To date, such refunds have not
had a material adverse effect on the Company's results of operations.
FRANCHISE OPERATIONS
Of the Company's 14 continuing stores, two are operated as Ben Franklin Crafts
stores. In 1990, a former subsidiary that has subsequently been merged into
the Company entered into a franchise agreement with Ben Franklin Crafts, Inc.
("BFC") pursuant to which the subsidiary opened a Ben Franklin Crafts store in
Joplin, Missouri. Under the terms of the agreement, the Company is required to
pay to BFC a weekly royalty fee equal to 2 1/2% of the store's net revenues,
with a minimum annual royalty fee of $25,000. BFC has the right to require the
Company to contribute up to 2% of weekly retail net revenues to an advertising
cooperative fund for national and regional advertising provided by BFC. The
Company is required to contribute 1/2% of weekly retail net revenues of the
franchise store to this fund. In addition, the Company is required to spend at
least 2 1/2% of the store's net revenues each year on local advertising and
promotion. In this franchise agreement and the other franchise agreements
discussed below, the Company agreed not to open an Amber's store within 25
miles of a Ben Franklin Crafts store that the Company operates.
Also in 1990, a former subsidiary that has subsequently been merged into the
Company entered into an Area Development Agreement (the "Area Development
Agreement") with BFC pursuant to which BFC granted to the subsidiary the
exclusive right until March 1995 to develop and operate four franchise stores
within specified areas in the vicinity of New Orleans, Louisiana (the
"Exclusive Area"). In 1992, a former subsidiary of the Company that has
subsequently been merged into the Company entered into a franchise agreement
with BFC to open the first of such stores, located in Metairie, Louisiana. In
1993, a second location was opened in Chalmette, Louisiana, and subsequently
closed in April 1996. The terms of these franchise agreements are
substantially similar to the terms of the franchise agreement relating to the
Joplin, Missouri, store. Under the Area Development Agreement, if the Company
was unable to open any or all of the remaining franchise stores (for reasons
other than BFC's default under the Area Development Agreement or its inability
to find financing reasonably satisfactory to the Company), the Company was to
pay to BFC certain fees, but such fees would not in any event exceed $100,000.
As of April 1996, the Company has not opened the remaining franchise stores in
the Exclusive Area. However, no fee to BFC has been accrued as adequate sites
and financing have not been located.
The Company became associated with Ben Franklin Stores, Inc. ("BFS"), an
affiliate of BFC, primarily to obtain financing. In connection with the
Company's initial franchise agreements with BFC, the parent company of BFS
provided the Company with $500,000 in term financing in fiscal 1991. The
Company
3
<PAGE> 6
competes on a limited basis with Ben Franklin Crafts stores owned by others;
however, the Company's Amber's stores do not compete with the Ben Franklin
Crafts stores operated by the Company. At present, two of the Company's 14
stores are located within the immediate trade area of Ben Franklin Crafts
stores operated by others.
The Company has filed a motion in the Bankruptcy Court to reject the Ben
Franklin franchise agreements and the Area Development Agreement and to modify
the lease agreements related to the two Ben Franklin franchise stores so that
the Company has the ability to convert these stores to the "Amber's" name and
eliminate the payment of franchise fees to BFC. See "Legal Proceedings".
PURCHASING; DISTRIBUTION AND INVENTORY CONTROL
Purchasing. The Company has a centralized purchasing department that purchases
merchandise from over 250 vendors. Management believes that while the loss of
a few of these vendors would not have a material effect on the Company's
business, if a significant number of them ceased doing business with the
Company because of the Company's failure to timely pay invoices or for other
reasons, such action would have a material adverse effect on the Company's
business. See "Management's Discussion and Analysis--Liquidity and Capital
Resources".
The Company purchases merchandise primarily from domestic suppliers (including
distributors that import goods from the Far East). As is customary in the
industry, the Company does not have any long-term or exclusive contracts with
any suppliers. The Company believes that alternate sources of merchandise are
readily available at comparable prices.
Distribution and Inventory Control. Store managers are responsible for
ordering merchandise for their respective stores. Each store manager is
expected to monitor and manage store inventory throughout the year and conduct
a physical inventory at least once a year. Store managers may stock store
inventory by ordering merchandise from the Company's pre-approved merchandise
checklist.
The Company leases an office of approximately 7,500 square feet in Dallas,
Texas, under a lease that expires in March 2001. The Company previously leased
a 280,000 square foot distribution center in Dallas, Texas, which was closed in
July 1995. The Company currently uses a third-party facility for its
distribution needs.
SERVICE MARK
The Company has the sole right to use the service mark "Amber's" for retail
store services, which mark has been registered with the United States Patent
and Trademark Office. All rights with respect to the mark are fully reserved.
COMPETITION
The retail arts and crafts industry is highly competitive. The Company's
competition ranges from local specialty craft stores to regional and national
arts and crafts chains to discount stores and mass merchandisers, many of which
have greater financial and other resources than the Company. Several regional
and national arts and crafts chains employ merchandising concepts similar to
Amber's, including Michaels Stores, MJDesigns, Hobby Lobby, Old America Stores,
and Ben Franklin Crafts stores operated by others. The Company has received a
proposal from Old America Stores, Inc. to acquire substantially all of the
assets of the Company. See "Legal Proceedings" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
4
<PAGE> 7
EMPLOYEES
As of April 28, 1996, Amber's had 222 full-time employees and 241 part-time
employees. Of the total employees, 19 were executive and administrative
personnel and the remainder were store-level management and staff personnel.
Employees other than senior management and regional, store and assistant store
managers are compensated on an hourly basis. Amber's typically hires 15 to 30
employees to operate a store, including cashiers, customer service employees,
framing employees, one to three department managers, one assistant manager and
one store manager. The number of employees in each store has usually been
adjusted in response to that store's sales levels.
Store managers are responsible for the operation and profitability of their
respective stores, including hiring store personnel, ordering store
merchandise, and controlling and managing inventory. Pricing of merchandise is
primarily controlled by senior management. Compensation for store managers
consists of a base salary and a potential annual bonus based on the store's
performance (including maximizing store profits and minimizing store inventory
carrying costs). Amber's also employs two district managers who are
responsible for overseeing the operation and profitability of each of the
stores in their region.
The Company is subject to the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime and other working conditions. A significant
number of the Company's personnel are paid at rates related to federal and
state minimum wage requirements and, accordingly, increases in the minimum wage
will increase the Company's labor cost. The enactment of future legislation
covering, among other matters, mandated health insurance, could also have a
significant effect on the Company. No Amber's employee is presently affiliated
with a union. No labor union has attempted to organize at the Company, nor is
any such organizational effort anticipated. The Company believes that its
relations with its employees are good.
EXECUTIVE OFFICERS
Set forth below is certain information regarding the executive officers of the
Company:
<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
Ron Craft 51 Chairman of the Board
Neal W. Stevens 58 President and Chief Executive Officer
J. Lamar Roberts 34 Vice President--Finance, Chief Financial Officer, Assistant Secretary and
Treasurer
</TABLE>
Ron Craft. Mr. Craft has served as a director of the Company since 1984 and
Chairman of the Board since 1992. Mr. Craft served as President of the
Company from 1984 to 1995, Chief Executive Officer from 1992 to 1995, and
Treasurer from 1985 to 1992.
Neal W. Stevens. Mr. Stevens joined the Company in January 1996 as President
and Chief Executive Officer. During the approximately 20 years prior to
joining the Company, Mr. Stevens founded and served as President of
Neighborhood Variety Stores dba Crafts & Stuff, based in Vero Beach, Florida.
Mr. Stevens started his prior business as a Ben Franklin variety store
franchise, and expanded the business to a 12 store chain.
J. Lamar Roberts. Mr. Roberts, a certified public accountant, joined the
Company in 1992 as its Vice President-- Finance, Chief Financial Officer,
Assistant Secretary and Treasurer. Prior to joining the Company, Mr. Roberts
was employed by Ernst & Young LLP from 1988 to 1992, most recently as an Audit
Manager.
Officers are elected annually by the Board of Directors and serve at its
discretion.
5
<PAGE> 8
ITEM 2. PROPERTIES.
The Company currently operates 14 stores ranging in size from approximately
12,864 to 32,760 square feet, with most containing at least 18,000 square feet.
Three other stores (one in Texas, one in Missouri, and one in Louisiana) are
being liquidated, with closing expected to occur by the end of July 1996. All
of the Company's stores are located in leased facilities, the majority of which
have primary lease terms ranging from five to ten years. Store leases
generally provide for yearly minimum rental paid in equal monthly installments
plus the payment of other charges, such as real estate taxes, which are often
subject to escalation clauses. In addition, the majority of store leases
require payments of a percentage of net sales in excess of specified net sales
levels.
ITEM 3. LEGAL PROCEEDINGS.
On September 8, 1995, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court, Northern District of Texas, Dallas Division (the "Bankruptcy
Court"). Under protection of Chapter 11, the Company is managing its affairs
and operating its business as a debtor-in-possession.
On January 19, 1996, the Company filed its amended Plan of Reorganization
consensual with the Committee of Unsecured Creditors. The Plan contemplated
that the existing security holders would receive, in exchange for their
existing shares and upon additional contributions of cash, all of the new
common stock of the reorganized Company. If sufficient additional cash is not
contributed by existing shareholders, all of the new common stock of the
reorganized Company would be issued to the unsecured creditors. Following
approval of the Disclosure Statement, the Company solicited votes with respect
to the Plan, and the Plan was approved by the unsecured creditors and
shareholders of the Company. However, the confirmation hearing on the Plan was
postponed by the Bankruptcy Court pending a review of a proposal made on May 2,
1996, by Old America Stores, Inc. ("Old America") to acquire substantially all
assets of the Company (the "Old America Proposal"). Although terms of the Old
America Proposal are not yet definitive, it is contemplated that Old America
would pay bankruptcy administrative costs, post-petition liabilities, secured
claims and six cents on the dollar to unsecured creditors. Holders of the
Company's outstanding common stock would receive nothing for the interests in
the Company.
The Old America Proposal is contingent upon (i) completion by Old America of
its due diligence investigation of the Company, (ii) approval by the Boards of
Directors of the Company and Old America, and (iii) acceptance by the Company's
creditors. The Company is currently in discussions with Old America regarding
the Old America Proposal and the Committee of Unsecured Creditors has
indicated its support of the Old America Proposal.
In addition to the foregoing, the Company is a defendant from time to time in
routine lawsuits incidental to its business. Except for the proceeding
discussed above which are pending in the Bankruptcy Court, the Company believes
that none of such current proceedings, individually or in the aggregate, will
have a material adverse effect on the operations or financial position of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders of the Company during
the fourth quarter of the fiscal year ended January 28, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.
The Common Stock of the Company is traded on the "over-the-counter" market
under the symbol "ABRS." Public trading of the Common Stock commenced August
21, 1992. Prior to that date, there was no public market for the Common Stock.
The following table sets forth, for the periods indicated, the high and low
closing sales prices for the Common Stock, as reported by NASDAQ through the
second quarter of fiscal 1996 and by Bloomberg subsequent to the Company's
delisting from NASDAQ in August 1995.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended January 29, 1995:
First Quarter $ 5 1/4 $ 3
Second Quarter 3 1/4 1 3/4
Third Quarter 2 1/4 1 5/8
Fourth Quarter 2 1/2 1
Fiscal Year Ended January 28, 1996
First Quarter 1 1/32 3/4
Second Quarter 31/32 1/4
Third Quarter 5/8 1/16
Fourth Quarter .15 .01
</TABLE>
As of May 7, 1996, there were approximately 122 record holders of the Common
Stock.
The Company has never paid cash dividends. Management presently intends to
retain any earnings for the operation of the Company's business and does not
anticipate paying cash dividends in the foreseeable future. The terms of the
Company's revolving credit facility with its principal lender currently
prohibit the payment of dividends.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------------
1992 1993 1994 1995 1996
---------- -------- --------- -------- ----------
(In thousands, except per share and certain store data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 26,118 $ 42,186 $ 61,839 $ 65,694 $ 41,185
Cost of sales and occupancy expense 16,600 26,903 44,871 51,073 35,913
-------- -------- --------- -------- --------
Gross profit 9,518 15,283 16,968 14,621 5,273
Selling, general and administrative expense 7,183 11,135 19,728 23,272 17,901
Provision for store closings -- -- -- 4,048 6,300
--------- -------- --------- -------- --------
Operating income (loss) 2,335 4,148 (2,760) (12,699) (18,928)
Interest (expense) income, net (233 ) (114) 4 (829) (1,372)
Other income 112 150 325 284 232
-------- -------- --------- -------- --------
Income (loss) before reorganization items
and income taxes 2,214 4,184 (2,431) (13,244) (20,068)
Reorganization items -- -- -- -- 564
--------- -------- --------- -------- --------
Income (loss) before income taxes 2,214 4,184 (2,431) (13,244) (20,632)
Provision (benefit) for income taxes 794 1,524 (939) (1,113) --
-------- -------- --------- -------- --------
Net income (loss) $ 1,420 $ 2,660 $ (1,492) $(12,131) $(20,632)
======== ======== ========= ======== ========
Income (loss) per share $ .41 $ .65 $ (.28) $ (2.21) $ (3.75)
Weighted average common and
common equivalent shares outstanding 3,500 4,086 5,396 5,497 5,497
STORE DATA:
Stores open at end of period 13 24 38 39 20(2)
Comparable store net sales increase (decrease) (1) 14.8% 8.4% (7.6)% (14.9)% (32.0)%
Average store net sales, stores open full period $ 2,064 $ 2,249 $ 2,059 $ 1,686 $ 1,224
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1992 1993 1994 1995 1996
--------- -------- --------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 3,501 $ 9,698 $ 16,004 $ 3,822 $ 1,112
Total assets 7,508 19,489 34,463 32,211 10,753
Total long-term debt 2,027 -- -- -- --
Shareholders' equity (deficit) 2,239 12,266 20,812 8,681 (11,951)
</TABLE>
- --------------
(1) Comparable store net sales increases (decrease) have been calculated using
net sales of stores that were open for all of both periods being compared.
(2) Three stores were closed in April 1996; three additional stores will be
closed by the end of July 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The Company is a specialty retailer of arts and crafts products and related
merchandise used chiefly for craft and hobby projects, home decorating and
personalized gifts. Key factors affecting sales include the number of stores
in operation and their relative maturities, new store openings and
acquisitions, location of stores and the customer demographics of their
surrounding areas, merchandise pricing, selection and promotion, competition
and seasonal factors.
Primarily as a result of liquidity constraints and declining store sales, the
Company filed a Voluntary Petition for Relief under Chapter 11 of the Code on
September 8, 1995. Under the protection of Chapter 11, the Company is managing
its affairs and operating its business as a debtor-in-possession. As a
debtor-in-possession, the Company is authorized to operate its business, but
may not engage in transactions outside of the normal course of business without
approval of the Bankruptcy Court. See "Liquidity and Capital Resources".
On January 19, 1996, the Company filed an amended Plan of Reorganization (the
"Plan") consensual with the Committee of Unsecured Creditors. The Plan
contemplated that the existing security holders would receive, in exchange for
their existing shares and upon additional contributions of cash, all of the new
common stock of the reorganized Company. If sufficient additional cash is not
contributed by existing shareholders, all of the new common stock of the
reorganized Company would be issued to the unsecured creditors. Following
approval of the Disclosure Statement, the Company solicited votes with respect
to the Plan, and the Plan was approved by the unsecured creditors and
shareholders of the Company. However, the confirmation hearing on the Plan was
postponed by the Bankruptcy Court pending a review of a proposal made on May 2,
1996, by Old America Stores, Inc. ("Old America") to acquire substantially all
assets of the Company (the "Old America Proposal"). Although the terms of the
Old America Proposal are not yet definitive, it is contemplated that Old
America would pay bankruptcy administrative costs, post-petition liabilities,
secured claims and six cents on the dollar to unsecured creditors. Holders of
the Company's outstanding common stock would receive nothing for their
interests in the Company.
The consolidated financial statements have been prepared using accounting
principles applicable to a going concern, which assumes realization of assets
and settlement of liabilities in the normal course of business. The
appropriateness of using the going concern basis is dependent upon, among other
things, confirmation of a Plan of Reorganization, the ability to comply with
debtor-in-possession financing agreements, future profitable operations, and
the ability to generate sufficient cash from operations to meet obligations.
The final Plan of Reorganization may require additional material adjustments to
asset values and liabilities which could result from asset disposals or
liquidation of liabilities at amounts different than presently reflected in the
accompanying consolidated financial statements.
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RESULTS OF OPERATIONS
The following table sets forth certain items in the consolidated statements of
operations expressed as percentages of net sales for the years indicated:
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales and occupancy expense 72.5 77.7 87.2
----- ----- -----
Gross profit 27.5 22.3 12.8
Selling, general and administrative expense 31.9 35.4 43.5
Provision for store closings 0.0 6.2 15.3
----- ----- -----
Operating loss (4.4) (19.3) (46.0)
Interest expense, net 0.0 (1.3) (3.3)
Other income 0.5 .4 .6
----- ----- -----
Loss before reorganization items and income tax benefit (3.9) (20.2) (48.7)
Reorganization items 0.0 0.0 1.4
----- ----- -----
Loss before income tax benefit (3.9) (20.2) (50.1)
Income tax benefit (1.5) (1.7) 0.0
----- ----- -----
Net loss (2.4)% (18.5)% (50.1)%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED JANUARY 28, 1996, COMPARED TO FISCAL YEAR ENDED JANUARY 29,
1995
Net sales in fiscal 1996 were $41,185,000, compared to $65,694,000 for fiscal
1995, a decrease of $24,509,000, or 37.3%, due primarily to a decrease in
comparable store sales and the closing of nineteen stores, nine of which closed
in June 1995, one of which closed in September 1995 and nine of which closed in
December 1995. Sales for the 20 remaining stores open at fiscal year-end
accounted for $24,479,000 of the total sales for fiscal 1996. Sales for
comparable stores (stores open during the entire period of both fiscal years)
decreased $11,504,000 or 32.0%. The nineteen stores that closed accounted for
a decrease in sales of $13,005,000. Management believes the decrease in
comparable store sales for the continuing stores was primarily attributable to
the disruption in the flow of merchandise shipments from vendors due to the
Company's liquidity constraints. As a result, the Company believes sales were
adversely affected by lower than desirable in-stock positions on everyday basic
merchandise and will continue to be so affected until regular merchandise
shipments are restored and customer traffic is rebuilt (see "Liquidity and
Capital Resources").
Cost of sales and occupancy expense increased 9.5%, as a percentage of sales,
due to a 5.9% reduction in gross margin achieved on merchandise sold and a 3.6%
increase in occupancy costs. This increase in occupancy costs is attributable
to lower average sales per store spread over relatively fixed rental expenses.
Management believes the decrease in gross margin on merchandise sold was due to
merchandise sales being skewed more to promotional items and the clearance of
discontinued and overstocked items, compared to everyday basic merchandise,
which generally have better margins, as a result of the lower than desirable
in-stock positions on staple merchandise. Management expects gross margins on
merchandise sold to continue to be lower than desirable until the stores are
better stocked with basic merchandise and as the Company runs additional
special promotions to rebuild customer traffic.
Selling, general and administrative expense decreased to $17,901,000 (43.5% of
net sales) in fiscal 1996 from $23,272,000 (35.4% of net sales) in fiscal 1995.
The decrease of $5,371,000 was due primarily to a decrease in the number of
stores in operation, a reduction in corporate overhead and the elimination of
the Company's distribution center in July 1995. Store expenses decreased
$3,995,000 primarily as a result of the store closings. Distribution center
overhead decreased $880,000 due to a decrease in costs as the Company completed
the closing of its distribution center in July. The Company is now outsourcing
its distribution needs to third party wholesalers. Corporate overhead
decreased $496,000 primarily due to a
10
<PAGE> 13
decrease in corporate salaries from a reduction in staffing, partially offset
by an increase of $496,000 in professional fees related primarily to management
assistance provided in the Company's revitalization efforts. Selling, general
and administrative expense increased as a percentage of net sales due to the
decline in comparable store sales.
The Company has closed or is in the process of closing six of its 20 stores.
As a result, the Company has recorded a provision in the fourth quarter of
fiscal 1996 that includes a writedown of fixtures in the stores to net
realizable value, the writedown of inventory to the lower of cost or market in
accordance with the Company's retail method of accounting, and the lease
termination and other costs associated with closing the stores.
Interest expense increased $543,000 in fiscal 1996, compared to the prior year
due to an increase in the use of the Company's revolving credit facility and a
$250,000 charge to write off the remaining unamortized loan fees related to the
Company's line of credit with its former lender.
The Company has recognized no tax benefit for fiscal 1996 due to full use of
its net operating loss carryback potential.
FISCAL YEAR ENDED JANUARY 29, 1995, COMPARED TO FISCAL YEAR ENDED JANUARY 30,
1994
Net sales in fiscal 1995 were $65,694,000 compared to $61,839,000 in fiscal
1994, an increase of $3,855,000, or 6.2%, due to the increase in the number of
stores in operation. One store was opened during fiscal 1995, and 14 stores
were opened during fiscal 1994. Net sales for these 15 stores increased total
sales in fiscal 1995 by $11,184,000. Net sales for the nine closing stores
were $11,520,000 in fiscal 1995. Net sales for comparable stores (stores open
during the entire period of both fiscal years) decreased $7,338,000, or 14.9%.
Management believes the decrease in comparable store sales was attributable to
a number of factors, including the entrance of new competition in certain
markets and issues associated with rapid expansion of the Company. The
substantial increase in the number of stores, and the subsequent lower than
expected performance of these and existing stores, placed significant demands
on the Company's working capital, management and staff. The Company's rapid
expansion led to a high turnover in store operations management and the
merchandising staff, and a dilution of the Company's top management resulting
from the expanded store base. Because of these problems, merchandising and
buying decisions have been more challenging. The failure to respond
effectively to these challenges, changing trends and new competition has
adversely affected sales, with a resulting decline in inventory turns. The
increase in the average aging of trade payables, as a result of the declining
sales trends and borrowing base limitations under the Company's revolving
credit facility, caused most vendors to slow or suspend merchandise shipments
to the Company. As a result, the Company believes sales have been adversely
affected by lower than desirable in-stock positions on everyday basic
merchandise and will continue to be so affected until regular merchandise
shipments are restored. See "--Liquidity and Capital Resources".
Cost of sales and occupancy expense increased 5.2%, as a percentage of net
sales, for fiscal 1995 compared to fiscal 1994 due to a 3.0% increase in
occupancy costs and a 2.2% reduction in gross margin achieved on merchandise
sold. The increase in occupancy costs, as a percentage of net sales, is
attributable to lower average sales per store spread over relatively fixed
rental expenses. Management believes the decrease in gross margin on
merchandise sold was due to merchandise sales emphasis being placed on seasonal
and promotional items, as compared to everyday basic merchandise that generally
has better margins, because of the lower than desirable in-stock positions on
such basic merchandise. In addition, management believes fourth quarter
markdowns were significant due to the excess inventories of Christmas and Fall
seasonal merchandise. The fourth quarter writedown of seasonal merchandise not
sold and carried over in the stores amounted to approximately $446,000.
Management expects gross margins on merchandise sold to continue to be lower
than desirable until the stores are better stocked with basic merchandise. In
addition, special promotions to reduce excess inventory in the first quarter
and store liquidation sales in the nine closing stores are expected to have a
negative effect on gross margins.
11
<PAGE> 14
Selling, general and administrative expense increased to $23,272,000 (35.4% of
net sales) in fiscal 1995 from $19,728,000 (31.9% of net sales) in fiscal 1994.
The increase of $3,544,000 was due primarily to increased payroll costs and
advertising expense associated with the greater number of stores in operation
the full year of fiscal 1995 compared to fiscal 1994 and an increase in
corporate infrastructure to support the new stores. Payroll costs increased
$1,598,000, primarily due to an increase in the corporate staff to support the
Company's growth and the expansion of the Company's distribution center.
Advertising expense increased $871,000 due to the greater number of stores in
operation for the full fiscal year. Selling, general and administrative
expense increased, as a percentage of net sales, faster than the total increase
in net sales due to the decline in comparable store sales and lower than
expected sales for newer stores. In response to the sales performance and the
closing of nine stores, corporate and distribution center staffing and payroll
costs are being reduced. However, if same store sales declines continue to be
significant, selling, general and administrative expense could continue to
increase as a percentage of net sales.
In fiscal 1996, the Company closed nine of its 39 stores. As a result, the
Company recorded a provision in the fourth quarter of fiscal 1995 that includes
a writedown of fixtures in the stores to net realizable value, the writedown of
inventory to the lower of cost or market in accordance with the Company's
retail method of accounting, and the lease termination and other costs
associated with closing the stores.
The Company incurred $829,000 in net interest expense in fiscal 1995, compared
to the prior year, in which the Company generated net interest income. Such
change is due to use of the revolving credit facility in fiscal 1995, which was
used only on a very limited basis in fiscal 1994.
In fiscal 1995, the Company recognized an income tax benefit as a result of the
net operating loss. The Company's effective tax rate in fiscal 1995 was lower
than the statutory rate due to full use of its net operating loss carryback
potential.
SEASONALITY
The Company's business is seasonal, with its highest sales levels occurring in
its third and fourth fiscal quarters. This period, which includes the Fall,
Halloween, Thanksgiving and Christmas seasons, has accounted for an average of
approximately 60% of the Company's net store sales during the two fiscal years
prior to fiscal 1996. The first and second fiscal quarters have historically
generated lower than average net sales.
Year to year comparisons of quarterly net store sales are affected by a variety
of factors, including the time of store closings, the timing and duration of
holiday selling seasons, weather conditions and the timing of new store
openings and acquisitions and promotional markdowns. The following table shows
net store sales and gross profits for the Company in each fiscal quarter during
fiscal 1994, 1995 and 1996.
<TABLE>
<CAPTION>
FISCAL YEAR 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ----------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales (In thousands, except %)
1994 $10,978 17.3% $11,122 18.3% $15,302 24.8% $24,429 39.6%
1995 $15,299 23.3% $13,245 20.2% $15,254 23.2% $21,896 33.3%
1996 $12,763 31.0% $11,307 27.5% $ 8,625 20.9% $ 8,490 20.6%
Gross profit
1994 $ 4,066 37.0% $ 3,824 34.4% $ 5,255 34.3% $ 3,823 15.6%
1995 $ 5,046 33.0% $ 3,655 27.6% $ 3,677 24.1% $ 2,243 10.2%
1996 $ 1,794 14.1% $ 2,772 24.5% $ 973 11.3% $ (266) (3.1)%
</TABLE>
12
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's current primary need for financing is to maintain inventory for
the Company's existing stores. The Company relies on borrowings from banks,
internally generated funds and credit made available by vendors to finance its
inventory.
The Company has historically increased its inventory levels throughout the
Spring and early Fall, with inventories peaking in late October in anticipation
of the fourth fiscal quarter selling period. Trade credit, arising from the
willingness of the Company's vendors to grant extended payment terms for
inventory purchases, represents a significant source of financing for
inventories. Due to borrowing base limitations and declining sales trends, the
average aging of the Company's trade payables increased. Delayed vendor
payments caused most vendors to slow or suspend merchandise shipments to the
Company, which had a material adverse effect on the Company's operations.
In May 1995, the Company proposed a five year payout plan to its vendors for
overdue trade payables, referred to as the "Amber's Unsecured Creditors
Repayment Plan" and, in conjunction with such Plan, the Company attempted to
negotiate the restoration of regular shipments of merchandise to the Company's
stores. Although unsecured creditors representing over 70% of the Company's
total outstanding payables assented to this out-of-court repayment plan,
several creditors continued demands and pursued litigation against the Company.
Due to the Company's continued decline in store sales, its lack of borrowing
capacity under its existing credit facility, and the resulting reduction or
interruption in inventory shipments to the Company, combined with the demands
and lawsuits filed by unsecured creditors unwilling to support the Company's
Unsecured Creditors Repayment Plan, the Company concluded that such Repayment
Plan was not feasible. As a result, on September 8, 1995, the Company filed a
voluntary petition under Chapter 11 of the Code in the Bankruptcy Court. The
Chapter 11 case was determined by the Company to be the most effective means
for the Company to restructure its operations. On September 13, 1995, the
Company filed with the Bankruptcy Court its Plan of Reorganization under
Chapter 11 of the Code. On January 19, 1996, the Company filed an amended Plan
of Reorganization (the "Plan") consensual with the Committee of Unsecured
Creditors. The Plan contemplated that the existing security holders would
receive, in exchange for their existing shares and upon additional
contributions of cash, all of the new common stock of the reorganized Company.
If sufficient additional cash is not contributed by existing shareholders, all
of the new common stock of the reorganized Company would be issued to the
unsecured creditors. Following approval of the Disclosure Statement, the
Company solicited votes with respect to the Plan, and the Plan was approved by
the unsecured creditors and shareholders of the Company. However, the
confirmation hearing on the Plan was postponed by the Bankruptcy Court pending
a review the Old America Proposal discussed above. The final Plan may require
additional material adjustments to asset values and liabilities which could
result from asset disposals or liquidation of liabilities at amounts different
than presently reflected in the accompanying consolidated financial statements.
Additionally, there can be no assurance that the Company's Plan will be
successful.
The Company entered in to a three-year revolving credit facility effective
September 22, 1995, with Norwest Bank, N.A. ("Norwest") providing for
borrowings up to $10 million, subject to certain borrowing base restrictions.
The "debtor-in-possession" financing arrangement was approved by the
Bankruptcy Court and replaced the Company's existing $15 million facility. The
Norwest credit facility provides the Company with a higher borrowing capacity
and is secured by a lien on substantially all assets of the Company. The
facility is used to provide working capital and to secure the bank in the
issuance of letters of credit requested by the Company. Advances bear interest
on the principal amount outstanding at a rate equal to the lender's prime rate
plus 2.25%. The agreement requires the Company to pay a commitment fee on the
unborrowed amount at a rate of .5% per annum. Under the terms of the
agreement, the Company is required to comply with certain financial and
nonfinancial covenants, including a prohibition of the payment of dividends and
limitation on capital expenditures. As of May 7, 1996, the Company had
borrowings under the facility totaling $6,072,000 on a borrowing base of
$6,250,000.
13
<PAGE> 16
During fiscal 1994, 1995 and 1996, the Company had net cash provided by (used
in) operating activities of ($8,132,000), ($9,396,000) and $5,201,000,
respectively. Cash used in operating activities for fiscal 1994 was used
primarily to support the inventories in new stores and was financed with the
proceeds from the Company's common stock offering in April 1993. Cash used in
operating activities for fiscal 1995 was primarily a result of the net loss and
a reduction in accounts payable, and was financed with borrowings from the
Company's revolving credit facility. Cash provided by operating activities for
fiscal 1996 was due primarily to the reduction in inventory from store closings
and an increase in trade payables offset by the Company's net loss. The cash
provided by operating activities in fiscal 1996 funded the reduction in the
Company's revolving credit facility. During fiscal 1994, 1995 and 1996, the
Company used $2,937,000, $1,243,000 and $163,000 in cash, respectively, to
purchase property and equipment. Additions to property and equipment in fiscal
1994 primarily included expenditures related to 14 new store openings. These
expenditures were financed with the proceeds from the Company's common stock
offering in April 1993. Additions to property and equipment in fiscal 1995
primarily included expenditures related to the opening of one new store, the
relocation of an existing store, the relocation of the Company's distribution
center and corporate office, and the enhancement of the Company's management
information systems. These expenditures were financed with borrowing from the
Company's revolving credit facility. Additions to property and equipment in
fiscal 1996 primarily included expenditures related to the relocation of the
Company's corporate office. Management anticipates opening no new stores in
the current fiscal year, and as discussed above, the Company will complete the
closing of three additional stores by the end of July 1996.
UNCERTAINTIES DUE TO BANKRUPTCY PROCEEDINGS
Due to the uncertainties arising in connection with the postponement of the
confirmation hearing on the Plan and the Old America Proposal, the Company is
currently unable to predict its needs for liquidity and capital resources on
either a short term or long term basis. The uncertainties inherent in the
bankruptcy process and the Company's recurring losses from operations raise
substantial doubt about the Company's ability to continue as a going concern.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements, together with the report of independent
auditors, are included on pages 20 through 30 of this document. Financial
statement schedules have been omitted because the required information is
contained in the consolidated financial statements or related notes, or such
information is not applicable.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
14
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company is set forth in the
Proxy Statement to be delivered to shareholders in connection with the
Company's 1996 Annual Meeting of Shareholders (the "Proxy Statement"), under
the headings "Election of Directors", which information is incorporated herein
by reference. The name, age and position of each executive officer of the
Company is set forth under the heading "Executive Officers" in Item 1 of this
report, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Management Compensation," which information is
incorporated herein by reference. Information contained in the Proxy Statement
under the captions "Management Compensation--Report of the Compensation
Committee of the Board of Directors on Executive Compensation and--Stock
Performance Chart" is not incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners and
management is set forth in the Proxy Statement under the heading "Principal
Shareholders and Management Ownership," which information is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the heading "Certain Transactions,"
which information is incorporated herein by reference.
15
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial statements:
The financial statements filed as a part of this report are listed
in the Index to Consolidated Financial Statements on page 19.
(2) Financial statement schedules:
All financial statement schedules have been omitted as the required
information is contained in the Consolidated Financial Statements or
the requirement is not applicable.
(3) Exhibits
The exhibits filed as a part of this report are listed under
"Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
3.1 Restated Articles of Incorporation of the Registrant(2)
3.2 Restated Bylaws of the Registrant(2)
4.1 Specimen Common Stock Certificate(2)
10.1 Ben Franklin Crafts, Inc. Standard Franchise Agreement dated
April 6, 1990, between Ben Franklin Crafts, Inc. and JAAR Craft,
Inc. (subsequently merged into the Registrant)(2)
10.2 Owner's Guaranty and Assumption of Franchisee's Obligations dated
April 6, 1990, executed by the Registrant for the benefit of Ben
Franklin Crafts, Inc.(2)
10.3 Ben Franklin Crafts, Inc. Area Development Agreement dated April 6,
1990, between Ben Franklin Crafts, Inc. and JAAR Craft, Inc.(2)
10.4 First Amendment to Ben Franklin Crafts, Inc. Area Development
Agreement dated January 3, 1993, between Ben Franklin Crafts, Inc.
and JAAR Craft, Inc.(2)
10.5 Owner's Guaranty and Assumption of Developer's Obligations dated
April 6, 1990, executed by the Registrant for the benefit of Ben
Franklin Crafts, Inc.(2)
10.6 Ben Franklin Crafts, Inc. Standard Franchise Agreement dated March
2, 1992, between Ben Franklin Crafts, Inc. and JAAR Craft of
Louisiana, Inc. (subsequently merged into JAAR Craft, Inc.)(2)
10.7 Ben Franklin Crafts, Inc. Standard Franchise Agreement dated
August 11, 1993, between Ben Franklin Crafts, Inc. and JAAR Craft,
Inc.(1)
10.8 Registrant's 1992 Stock Option Plan, as amended(1)
10.9 Form of Indemnity Agreement entered into between the Registrant
and each of its directors and officers(2)
10.10 Loan Agreement dated as of July 31, 1992, between the Registrant
and NationsBank of Texas, N.A.(2)
10.11 First Amendment to Loan Agreement dated October 16, 1992(4)
10.12 Second Amendment to Loan Agreement dated January 24, 1994(1)
10.13 Renewal Promissory Note dated January 24, 1994, of the Registrant
to NationsBank of Texas, N.A.(1)
10.14 Security Agreement dated January 24, 1994, between Amber's
Marketing, Inc. and NationsBank of Texas, N.A.(1)
16
<PAGE> 19
10.15 Security Agreement dated January 24, 1994, between Amber's
Licensing Co. and NationsBank of Texas, N.A.(1)
10.16 Guaranty dated January 24, 1994, executed by Amber's Marketing,
Inc. for the benefit of NationsBank of Texas, N.A.(1)
10.17 Guaranty dated January 24, 1994, executed by Amber's Licensing Co.
for the benefit of NationsBank of Texas, N.A.(1)
10.18 Third Amendment to Loan Agreement effective as of January 31, 1994(1)
10.19 Renewal Promissory Note effective as of January 31, 1994, of the
Registrant to NationsBank of Texas, N.A.(1)
10.20 Fourth Amendment to Loan Agreement effective as of July 31, 1994(6)
10.21 Asset Purchase Agreement dated September 23, 1992, among the
Company and G&R Crafts, Inc., G&R Graham Enterprises, Ltd., G&R
Merchandising, Inc., and High Plains Variety, Inc. and Tommy
Graham and Carroll Rexrode(3)
10.22 Agreement Not to Compete between the Company and Tommy Graham dated
October 16, 1992(3)
10.23 Agreement Not to Compete between the Company and Carroll Rexrode
dated October 16, 1992(3)
10.24 Separation Payment Agreement between the Company and Tracy J.
Mandart, Jr. dated September 28, 1993(5)
10.25 Financing Agreement dated October 3, 1994, between the Registrant
and The CIT Group/Business Credit, Inc.(7)
10.26 Security Agreement dated October 3, 1994, between JAAR Craft, Inc.
and The CIT Group/Business Credit, Inc.(7)
10.27 Trademark Security Agreement dated October 3, 1994, between
Amber's Stores, Inc. and The CIT Group/Business Credit, Inc.(7)
10.28 Trademark Security Agreement dated October 3, 1994, executed by
Amber's Licensing Co. in favor of The CIT Group/Business Credit,
Inc.(7)
10.29 Guaranty dated October 3, 1994, executed by JAAR Craft, Inc.,
Amber's Marketing, Inc., Craft Marketing, Inc. and Amber's
Licensing Co. in favor of The CIT Group/Business Credit, Inc.(7)
10.30 Waiver and Amendment letter dated November 22, 1994, between the
Registrant and The CIT Group/Business Credit, Inc.(7)
10.31 Consulting Agreement dated March 10, 1995 between the Registrant
and Wimmer Associates, Inc.(8)
10.32 Employment Agreement dated as of March 10, 1995 between the
Registrant and J. Lamar Roberts(9)
10.33 Employment Agreement dated as of March 10, 1995 between the
Registrant and J. Lynn Kitchens(9)
10.34 Employment Agreement dated as of March 10, 1995 between the
Registrant William L. Grimes(9)
10.35 Forbearance Agreement dated April 11, 1995 between the Registrant
and The CIT Group/Business Credit, Inc.(8)
10.36 Forbearance Agreement dated as of June 1, 1995 between the
Registrant and The CIT Group/Business Credit, Inc.(10)
10.37 Forbearance Agreement dated July 1, 1995 between the Registrant
and The CIT Group/Business Credit, Inc.(11)
10.38 Debtor-in-Possession Revolving Credit and Security Agreement dated
as of September 18, 1995, between the Registrant and Norwest Bank
Minnesota, N.A.(12)
10.39 Revolving Note dated as of September 18, 1995, of the Registrant to
Norwest Bank Minnesota, N.A.(12)
10.40 First Amendment to Debtor-in-Possession Revolving Credit and
Security Agreement dated as of March 1996, between the Registrant
and Norwest Bank Minnesota, N.A.(13)
21 Subsidiaries(13)
23 Consent of Independent Auditors(13)
17
<PAGE> 20
----------------------
(1) Previously filed as an exhibit to the Registrant's Form 10-K for the
year ended January 31, 1994.
(2) Previously filed as an exhibit to the Registrant's Registration
Statement No. 33-48429 on Form S-1 and incorporated herein by
reference.
(3) Previously filed as an exhibit to the Registrant's Form 8-K dated
October 16, 1992, and incorporated herein by reference.
(4) Previously filed as an exhibit to the Registrant's Registration
Statement No. 33-59260 on Form S-1 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1993.
(6) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 31, 1994.
(7) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 30, 1994.
(8) Previously filed as an exhibit to the Registrant's Form 10-K for the
year ended January 29, 1995.
(9) Previously filed as an exhibit to the Registrant's Form 10-K/A
Amendment No. 1 for the year ended January 29, 1995.
(10) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended April 30, 1995.
(11) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended July 30, 1995.
(12) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 29, 1995.
(13) Filed herewith.
18
<PAGE> 21
AMBER'S STORES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 20
Consolidated Balance Sheets as of January 29, 1995 and January 28, 1996 21
Consolidated Statements of Operations for each of the three years in
the period ended January 28, 1996 22
Consolidated Statements of Shareholders' Equity (Deficit) for each of the
three years in the period ended January 28, 1996 23
Consolidated Statements of Cash Flows for each of the three years
in the period ended January 28, 1996 24
Notes to Consolidated Financial Statements 25
</TABLE>
19
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Amber's Stores, Inc.
We have audited the accompanying consolidated balance sheets of Amber's Stores,
Inc. and subsidiaries as of January 29, 1995 and January 28, 1996, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for each of the three years in the period ended January 28,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Amber's Stores, Inc. and subsidiaries at January 29, 1995 and January 28, 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended January 28, 1996, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. As discussed in Note 1, the Company has filed a voluntary petition
for reorganization under Chapter 11 of the United States Bankruptcy Code. The
uncertainties inherent in the bankruptcy process and the Company's recurring
losses from operations raise substantial doubt about the Company's ability to
continue as a going concern. The Company is currently operating its business
as a Debtor-in-Possession under the jurisdiction of the Bankruptcy Court, and
continuation of the Company as a going concern is contingent upon, among other
things, the confirmation of a Plan of Reorganization, the Company's ability to
comply with its debtor-in-possession financing agreement, and the Company's
ability to generate sufficient cash from operations and obtain financing
sources to meet its future obligations. If no reorganization plan is approved,
it is possible that the Company's assets may be liquidated. The consolidated
financial statements do not include any adjustments relating to the realization
or classification of assets or the amount and classification of liabilities
that might result from the outcome of these uncertainties.
ERNST & YOUNG LLP
Dallas, Texas
May 3, 1996
20
<PAGE> 23
AMBER'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
ASSETS
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
----------- -----------
<S> <C>
Current assets:
Cash $ 384 $ 62
Merchandise inventories 24,719 8,129
Prepaid expenses and other 1,690 144
--------- ---------
Total current assets 26,793 8,335
Property and equipment, net 4,489 1,889
Deposits and other assets 929 529
--------- ---------
Total assets $ 32,211 $ 10,753
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Post-petition liabilities:
Current liabilities
Accounts payable $ 8,666 $ 512
Accrued liabilities 3,142 1,097
Revolving credit facility 11,163 6,020
--------- ---------
Total current liabilities 22,971 7,629
Deferred rent 559 201
Liabilities subject to compromise -- 14,874
Commitments
Shareholders' equity (deficit):
Common stock, $.01 par value:
Authorized shares--25,000,000
Issued and outstanding shares--5,496,800 55 55
Paid-in capital 17,385 17,385
Accumulated deficit (8,759) (29,391)
--------- ---------
Total shareholders' equity (deficit) 8,681 (11,951)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 32,211 $ 10,753
========= =========
</TABLE>
See accompanying notes.
21
<PAGE> 24
AMBER'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except share and per share data)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 61,839 $ 65,694 $ 41,185
Cost of sales and occupancy expense 44,871 51,073 35,913
--------- --------- ---------
Gross profit 16,968 14,621 5,273
Selling, general, and administrative expense 19,728 23,272 17,901
Provision for store closings -- 4,048 6,300
--------- --------- ---------
Operating loss (2,760) (12,699) (18,928)
Interest income (expense), net 4 (829) (1,372)
Other income 325 284 232
--------- --------- ---------
Loss before reorganization items and income
tax benefit (2,431) (13,244) (20,068)
Reorganization items
Professional fees -- -- 546
Other expenses -- -- 18
--------- --------- ---------
-- -- 564
--------- --------- ---------
Loss before income tax benefit (2,431) (13,244) (20,632)
Income tax benefit (939) (1,113) --
--------- --------- ---------
Net loss $ (1,492) $ (12,131) $ (20,632)
========= ========= =========
Loss per share $ (.28) $ (2.21) $ (3.75)
========= ========= =========
Weighted average common shares outstanding 5,396 5,497 5,497
========= ========= =========
</TABLE>
See accompanying notes.
22
<PAGE> 25
AMBER'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Retained
Number Common Paid-in Earnings
of Shares Stock Capital (Deficit) Total
---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1993 4,700,000 $ 47 $ 7,355 $ 4,864 $ 12,266
Net proceeds of common
stock offering 796,800 8 10,030 -- 10,038
Net loss -- -- -- (1,492) (1,492)
---------- -------- ---------- ----------- -----------
Balance at January 30, 1994 5,496,800 55 17,385 3,372 20,812
Net loss -- -- -- (12,131) (12,131)
---------- -------- ---------- ----------- -----------
Balance at January 29, 1995 5,496,800 55 17,385 (8,759) 8,681
Net loss -- -- -- (20,632) (20,632)
---------- -------- ---------- ----------- -----------
Balance at January 28, 1996 5,496,800 $ 55 $ 17,385 $ (29,391) $ (11,951)
========== ======== ========== =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE> 26
AMBER'S STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,492) $ (12,131) $ (20,632)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 611 956 1,288
Gain on sale of assets -- 11 (106)
Provision for store closings -- 4,048 6,300
Deferred rent 97 (16) (161)
Deferred federal income tax benefit (37) 188 --
Changes in operating assets and liabilities:
Merchandise inventories (12,196) 470 14,491
Prepaid expenses and other (1,446) 74 1,546
Accounts payable 6,692 (2,989) 512
Accrued liabilities (125) (7) 1,097
Income taxes payable (236) -- --
Liabilities subject to compromise -- -- 866
--------- --------- ---------
Net cash provided by (used in) operating activities (8,132) (9,396) 5,201
INVESTING ACTIVITIES
Additions to property and equipment (2,937) (1,243) (163)
Cash received on sale of assets -- -- 219
Deposits and other assets (186) (509) (436)
--------- --------- ----------
Net cash used in investing activities (3,123) (1,752) (380)
FINANCING ACTIVITIES
Net borrowings (repayments) under
revolving credit facility -- 11,163 (5,143)
Net proceeds from common stock offering 10,038 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities 10,038 11,163 (5,143)
--------- --------- ----------
Net increase (decrease) in cash (1,217) 15 (322)
Cash at beginning of period 1,586 369 384
--------- --------- ---------
Cash at end of period $ 369 $ 384 $ 62
========= ========= =========
Cash paid during the period for:
Interest $ 29 $ 601 $ 974
Income taxes $ 270 $ -- $ --
</TABLE>
See accompanying notes.
24
<PAGE> 27
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CHAPTER 11 REORGANIZATION AND BASIS OF PRESENTATION
On September 8, 1995 (the "Petition Date"), Amber's Stores, Inc. (the
"Company") filed a voluntary petition for relief under Chapter 11 of the United
States Bankruptcy Code. Under the protection of Chapter 11, the Company is
managing its affairs and operating its business as a debtor-in-possession. As
a debtor-in-possession, the Company is authorized to operate its business, but
may not engage in transactions outside of the normal course of business without
approval of the Bankruptcy Court. A creditors' committee was formed, which has
the right to review and object to transactions outside the ordinary course and
participate in the Company's Plan of Reorganization.
On January 19, 1996, the Company filed an amended Plan of Reorganization (the
"Plan") consensual with the Committee of Unsecured Creditors. The Plan
contemplated that the existing security holders would receive, in exchange for
their existing shares and upon additional contributions of cash, all of the new
common stock of the reorganized Company. If sufficient additional cash is not
contributed by existing shareholders, all of the new common stock of the
reorganized Company would be issued to the unsecured creditors. Following
approval of the Disclosure Statement, the Company solicited votes with respect
to the Plan, and the Plan was approved by the unsecured creditors and
shareholders of the Company. However, the confirmation hearing on the Plan was
postponed by the Bankruptcy Court pending a review of a proposal made on May 2,
1996, by Old America Stores, Inc. ("Old America") to acquire substantially all
assets of the Company (the "Old America Proposal"). Although the terms of the
Old America Proposal are not yet definitive, it is contemplated that Old
America would pay bankruptcy administrative costs, post-petition liabilities,
secured claims and six cents on the dollar to unsecured creditors. Holders of
the Company's outstanding common stock would receive nothing for their
interests in the Company.
The consolidated financial statements have been prepared using accounting
principles applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business. The
continuation of the Company as a going concern is dependent upon, among other
things, confirmation of its Plan of Reorganization, its ability to comply with
debtor-in-possession financing agreements, future profitable operations, and
the ability to generate sufficient cash from operations to meet obligations.
The final Plan of Reorganization may require additional material adjustments to
asset values and liabilities which could result from asset disposals or
liquidation of liabilities at amounts different than presently reflected in the
accompanying consolidated financial statements.
As of the Petition Date, actions to collect prepetition indebtedness were
stayed and other contractual obligations could not be enforced against the
Company. Certain prepetition liabilities were approved by the Bankruptcy Court
for payment in the ordinary course of business.
Subject to Bankruptcy Court approval and certain other limitations, the Company
has the right to assume or reject real estate leases, personal property leases,
service contracts and other unexpired prepetition executory contracts. Parties
to contracts which are rejected are entitled to file claims for losses or
damages sustained as a result of the rejection. Management's estimate of
allowable claims that will result from contracts that management rejected or
intends to reject has been included within liabilities subject to compromise.
Liabilities subject to compromise represent those liabilities and obligations
whose disposition is dependent upon the outcome of the Chapter 11 proceedings.
Management may reject other executory contracts, or the Bankruptcy Court may
allow claims for contingencies and other disputes, and if so, the allowable
claims will constitute additional liabilities subject to compromise. These
potential allowable claims have not been reflected in the accompanying
consolidated financial statements.
25
<PAGE> 28
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company is a specialty retailer of arts and crafts products and related
merchandise used chiefly for craft and hobby projects, home decorating and
personalized gifts. The Company operates 14 retail stores, with eight stores
in Texas, three in Louisiana, two in Missouri, and one in Mississippi. The
Company operates three additional stores that it is in the process of closing.
CONSOLIDATION
The consolidated financial statements include the accounts of Amber's Stores,
Inc. and its wholly owned subsidiaries (collectively referred to herein as the
"Company"). All significant intercompany accounts have been eliminated.
FISCAL YEAR
Effective with the beginning of fiscal 1995, the Company changed its fiscal
year from one ending January 31 to a 52/53-week year ending on the Sunday
closest to January 31. The results for the year ended January 30, 1994, have
been restated for comparative purposes to conform to the change in the
Company's fiscal calendar. The impact of the restatement of fiscal 1994
results was not significant.
CASH
In accordance with the Company's revolving credit facility agreement, cash from
store sales is deposited directly into local depository accounts owned by the
lender and then transferred to a concentration account also owned by the
lender. Collected funds are transferred to the lender's account and then
posted against the amount outstanding under the loan. Substantially all cash
included in the consolidated balance sheet represents restricted funds in the
local depository accounts and concentration account that have not yet been
transferred to the lender's account.
MERCHANDISE INVENTORIES
Store merchandise inventories are valued at the lower of cost (determined by a
retail method) or market. Distribution center inventories are valued at the
lower of cost (determined by the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the respective assets.
26
<PAGE> 29
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed upon the first showing of the related
advertisement. Total advertising expense was approximately $4,529,000,
$5,400,000, and $4,054,000 for fiscal 1994, 1995, and 1996, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes. The
carrying value of inventory, in particular, is dependent on, among other things,
management's intentions and assumptions as to the liquidation of merchandise
inventory. Actual results could differ from these estimates and can differ if
changes in management's intentions and assumptions and approaches to the
liquidation are made.
PREOPENING COSTS
Preopening costs are expensed as incurred. Preopening costs consist primarily
of labor, supplies and occupancy costs incurred prior to each new store's
opening.
STOCK OPTION PLAN
In accordance with the Company's 1992 Stock Option Plan, options to purchase an
aggregate of 750,000 shares may be granted to officers, key employees and
consultants. As all previous stock option agreements were canceled as a result
of the rejection of these agreements during bankruptcy proceedings, there are
no options outstanding as of April 29, 1996.
LOSS PER SHARE
Loss per share data is based on the weighted average number of shares
outstanding during the year divided into net loss.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
----------- -----------
(In thousands)
<S> <C> <C>
Furniture and fixtures $ 4,876 $ 2,271
Leasehold improvements 1,053 654
Equipment 147 99
--------- ---------
6,076 3,024
Less accumulated depreciation (1,587) (1,135)
--------- ---------
$ 4,489 $ 1,889
========= =========
</TABLE>
27
<PAGE> 30
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
----------- -----------
(In thousands)
<S> <C> <C>
Store closing reserve $ 1,728 $ --
Professional fees -- 406
Salaries, bonuses, and other payroll related costs 330 201
Taxes, other than income and payroll 322 263
Other 762 227
--------- ---------
$ 3,142 $ 1,097
========= =========
</TABLE>
As of January 29, 1995, the Company recorded a provision of $4,048,000 for the
closing of nine of its stores that were closed in the second quarter of fiscal
1995. In the second quarter of fiscal 1996, the Company recorded a provision of
$6,400,000 representing costs associated with the closing of 10 stores and the
Company's distribution center. The provision for the second quarter of fiscal
1996 was offset in the fourth quarter of fiscal 1996 by $2,074,000 due to
mitigation of certain lease obligations related to the closed stores. In
addition, in the fourth quarter of fiscal 1996, the Company accrued $1,974,000
for six additional stores to be closed in fiscal 1997. The provision includes a
writedown of fixtures in the stores to net realizable value, the writedown of
inventory in the stores to the lower of cost or market in accordance with the
Company's retail method of accounting, and the lease termination and other costs
associated with closing the stores. The provision for lease termination costs
associated with closing stores is included in liabilities subject to compromise.
See Note 5. Sales for the fourteen continuing stores totaled $18,326,000 in
fiscal 1996.
5. LIABILITIES SUBJECT TO COMPROMISE
<TABLE>
<CAPTION>
January 28,
1996
-----------
(In thousands)
<S> <C>
Accounts payable $ 9,956
Obligations under rejected executory contracts 3,962
Priority tax claims 700
Other 256
---------
$ 14,874
=========
</TABLE>
6. INCOME TAXES
Income taxes are provided in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," whereby deferred income tax
assets and liabilities result from temporary differences. Temporary differences
are differences between the tax bases of assets and liabilities and their
reported amounts in the consolidated financial statements that will result in
taxable or deductible amounts in future years.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
28
<PAGE> 31
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
January 29, January 28,
1995 1996
----------- -----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,772 $ 8,777
Inventory valuation 981 330
Store closing reserve 588 1,347
Rent expense book over tax 190 69
Credit for prior year alternative minimum tax 127 127
--------- ---------
Total deferred tax assets 3,658 10,650
--------- ---------
Deferred tax liabilities:
Tax over book depreciation and amortization 261 257
Other, net 31 14
--------- ---------
Total deferred tax liabilities 292 271
--------- ---------
Net deferred tax asset 3,366 10,379
Valuation allowance (3,366) (10,379)
--------- ---------
$ -- $ --
========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------
1994 1995 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Income tax benefit:
Current
Federal $ (793) $ (1,327) $ --
State (109) 26 --
Deferred-federal (37) 188 --
--------- --------- ---------
$ (939) $ (1,113) $ --
========= ========= =========
Reconciliation of income tax benefit to statutory rate:
Income tax benefit at statutory rate $ (822) $ (4,503) $ (7,014)
State income tax (benefit), net of federal income tax
benefit (72) 17 --
Change in valuation allowance -- 3,366 7,013
Other (45) 7 1
--------- --------- ---------
$ (939) $ (1,113) $ --
========= ========= =========
</TABLE>
The Company has a net operating loss carryforward of approximately $25,816,000
for federal income tax purposes which expires at the end of fiscal 2011. The
Company has an alternative minimum tax credit carryforward of $127,000
available for an indefinite period. Any changes in the stock ownership of the
Company could limit the net operating loss utilization.
29
<PAGE> 32
AMBER'S STORES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. REVOLVING CREDIT FACILITY
The Company entered in to a three-year revolving credit facility effective
September 22, 1995, with Norwest Bank, N.A. ("Norwest") providing for
borrowings up to $10 million, subject to certain borrowing base restrictions.
The "debtor-in-possession" financing arrangement was approved by the
Bankruptcy Court and replaced the Company's existing $15 million facility. The
Norwest credit facility provides the Company with a higher borrowing capacity
and is secured by a lien on substantially all assets of the Company. The
facility is used to provide working capital and to secure the bank in the
issuance of letters of credit requested by the Company. Advances bear interest
on the principal amount outstanding at a rate equal to the lender's prime rate
plus 2.25% (10.75% at January 28, 1996). The agreement requires the Company to
pay a commitment fee on the unborrowed amount at a rate of .5% per annum.
Under the terms of the agreement, the Company is required to comply with
certain financial and nonfinancial covenants, including a prohibition of the
payment of dividends and limitation on capital expenditures. As of April 30,
1996, the Company had borrowings under the facility totaling $6,073,000 on a
borrowing base of $6,250,000. The carrying amount of the outstanding balance
approximates its fair value. In addition, the Company's Plan contemplates an
increase in the current borrowing rate as a percentage of retail inventory.
The Plan is not confirmable without such an increase and commitment from the
bank for post-confirmation financing. The Company has not yet received a
commitment from Norwest regarding an increase in the borrowing rate and
commitment for post-confirmation financing. As such, the revolving credit
facility is classified as a current liability until the post-confirmation
lending is in place. Although the financing may be obtained, there can still
be no assurance that the Company's Plan will be successful.
8. COMMITMENTS
OPERATING LEASES
The Company operates store facilities that are leased under noncancelable
operating leases expiring at various dates through 2008, the majority of which
contain renewal options that are generally for five years. All of the
Company's stores are located in leased facilities, the majority of which have
primary lease terms ranging from five to ten years. Store leases generally
provide for yearly minimum rental paid in equal monthly installments plus the
payment of other charges, such as real estate taxes, which are often subject to
escalation clauses. In addition, the majority of store leases require payments
of a percentage of net sales in excess of specified net sales levels, although
historically such payments have been insignificant. Total rent expense was
approximately $4,182,000, $5,914,000 and $4,784,000 for fiscal 1994, 1995 and
1996, respectively. Future minimum lease payments for noncancelable operating
leases for the 14 stores the Company currently intends to operate and the
Company's corporate office are as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1997 $ 1,388
1998 1,261
1999 1,133
2000 975
2001 932
Thereafter 2,859
---------
$ 8,548
=========
</TABLE>
LITIGATION
The Company is a defendant from time to time in routine lawsuits incidental to
its business. As a part of the bankruptcy proceedings, all such lawsuits have
been stayed.
30
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AMBER'S STORES, INC.
By: /s/ Neal W. Stevens
-------------------------------------
Neal W. Stevens
President and Chief Executive Officer
Dated: May 10, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Ron Craft Chairman of the Board May 10, 1996
- ------------------------------
Ron Craft
/s/ Neal W. Stevens President and Chief Executive Officer May 10, 1996
- ------------------------------ (Principal Executive Officer)
Neal W. Stevens
/s/ J. Lamar Roberts Vice President--Finance, Treasurer May 10, 1996
- ------------------------------ and Chief Financial Officer (Principal
J. Lamar Roberts Financial and Accounting Officer)
/s/ J. Lynn Kitchens Director May 10, 1996
- ------------------------------
J. Lynn Kitchens
/s/ James S. Hopson, Jr. Director May 10, 1996
- ------------------------------
James S. Hopson, Jr.
/s/ Samuel P. Mitchell Director May 10, 1996
- ------------------------------
Samuel P. Mitchell
/s/ C. J. Wofford Director May 10, 1996
- ------------------------------
C. J. Wofford
/s/ Charles Brewer Director May 10, 1996
- ------------------------------
Charles Brewer
/s/ Hal Compton Director May 10, 1996
- ------------------------------
Hal Compton
</TABLE>
31
<PAGE> 34
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.40 First Amendment to Debtor-in-Possession
Revolving Credit and Security Agreement
21 Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.40
FIRST AMENDMENT TO DEBTOR-IN-POSSESSION REVOLVING
CREDIT AND SECURITY AGREEMENT
This First Amendment to Debtor-In-Possession Loan and Security
Agreement ("Amendment") dated as of this _ day of March, 1996, by and between
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association
having its principal office at Norwest Center, Sixth and Marquette,
Minneapolis, Minnesota 55479 ("BANK"), and AMBER'S STORES, INC., a Texas
corporation, with its principal office at 3737 Gus Thomasson Road, Mesquite,
Texas 75150 ("BORROWER" or "DEBTOR"), a debtor-in-possession in Case No.
395-35650-HCA-11 pending in the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division ("CASE").
RECITALS
FIRST: On September 8, 1995, Debtor filed its voluntary petition with
the Bankruptcy Court commencing the Case. Pursuant to sections
1107 and 1108 of the Bankruptcy Code, Debtor as
debtor-in-possession has remained in possession and control of
its assets.
SECOND: On September 18, 1995, the Bank and the Debtor entered into
the Debtor-In-Possession Revolving Credit and Security
Agreement ("DIP Loan Agreement"; hereinafter, the DIP Loan
Agreement together with all documents executed and delivered
in connection therewith will be jointly referred to as the
"Loan Documents").
THIRD: Debtor is in default under the terms of the Loan Documents in
the following respects: (a) the Debtor is in default under the
terms of paragraph 6.26 of the Loan Documents in that it has
replaced or terminated certain "Key Officers" (as that term is
defined in the Loan Agreement) of Debtor including Ron Craft
and Lance Wimmer; (b) the Debtor is in default under paragraph
7.1(k) of the DIP Loan Agreement in that the Aggregate
Outstanding under the DIP Loan Agreement exceeds the Borrowing
Base by the amount of $350,000.00; and (c) the Debtor is in
default under the DIP Loan Agreement by virtue of its
inability to have a plan confirmed by January 15, 1996 ("Known
Defaults").
FOURTH: The Debtor has asked that the Bank agree to amend the DIP Loan
Agreement to allow for the extension of credit above the
Borrowing Base for a limited time. The Bank is willing to so
amend subject to the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Debtor and Bank agree as follows:
<PAGE> 2
1. Definitions. Unless otherwise defined herein and
subject to the amendments contained herein, all capitalized terms used
herein shall have the meaning ascribed to them in the Loan Agreement.
2. Amendment to Definition of "Key Officer". The
definition of Key Officer set forth in Section 1.1 of the DIP Loan
Agreement shall be deleted in its entirety and shall be replaced by
the following:
"Key Officer" means J. Lamar Roberts or Neal Stevens
(at least through the confirmation of a Chapter 11
plan).
3. Addition of Definition of "Over Advance Amount".
Section 1.1 of the DIP Loan Agreement will be amended to add the
following definition:
"Over Advance Amount" shall have the meaning ascribed
to it in Section 2.1(a) herein.
4. Amendment to Section 2.1(a) of DIP Loan Agreement.
The following shall replace the first sentence of Section 2.1(a) of
the DIP Loan Agreement:
Bank agrees, on the terms and subject to the
conditions herein set forth, to make Advances to
Borrower from time to time during the period
commencing on the date hereof until the earlier of
June 1, 1996 or the date the Credit has been
terminated pursuant to Sections 2.3(d) or 7.1(a), in
an aggregate amount at any time outstanding, when
added to all other Obligations outstanding, including
the Letter of Credit Obligations, not to exceed the
lesser of (i) an amount equal to the Maximum Credit
Commitment, or (ii) an amount up to $500,000,
$350,000 of which will be immediately available, the
remainder of which will be available at the Bank's
discretion based upon criteria to be agreed upon by
the Bank and the Borrower ("Over Advance Amount")
plus the Borrowing Base as shown on the most recent
Borrowing Certificates submitted to Bank, or, if no
such certificates have been submitted by Borrower to
Bank on a timely basis, the Borrowing Base as
calculated in good faith by Bank, which Advances
shall be secured by the Collateral as provided in
Article III hereof; Bank agrees, on the terms and
subject to the conditions herein set forth, to make
Advances to Borrower from time to time during the
period from June 1, 1996 until the earlier of the
"Maturity Date" or the date the Credit has been
terminated pursuant to Sections 2.3(d) or 7.1(a), in
an aggregate amount at any time outstanding, when
added to all other Obligations outstanding, including
the Letter of Credit Obligations, not to exceed the
lesser of (i) an amount equal to the Maximum Credit
Commitment, or (ii) an amount equal to the Borrowing
Base as shown on the most recent Borrowing
Certificates submitted to Bank, or, if no such
certificates have been submitted by Borrower to Bank
on a
2
<PAGE> 3
timely basis, the Borrowing Base as calculated in
good faith by Bank, which Advances shall be secured
by the Collateral as provided in Article III hereof
5. Amendment to Section 2.1(a)(1). Section 2.1(a)(1)
shall be deleted in its entirety and shall be replaced by the
following:
For the period commencing on the date hereof and
continuing to June 1, 1996, Borrower will not request
any Advances under this Section 2.1(a) if, after
giving effect to such requested Advance, the sum of
the outstanding and unpaid Advances under this
Section 2.1(a) or otherwise would exceed the
Borrowing Base plus the Over Advance Amount; for the
period after June 1, 1996, Borrower will not request
any Advances under this Section 2.1(a) if, after
giving effect to such requested Advance, the sum of
the outstanding and unpaid Advances under this
Section 2.1(a) or otherwise would exceed the
Borrowing Base.
6. Amendment to Section 2.2(a). The fourth sentence in
Section 2.2(a) of the DIP Loan Agreement shall be deleted in its
entirety and shall be replaced by the following:
In addition, for the period prior to June 1, 1996,
the Letter of Credit Obligations plus all other
Obligations shall not exceed the lesser of the
Maximum Credit Commitment or the Borrowing Base plus
the Over Advance Amount; for the period after June 1,
1996, the Letter of Credit Obligations plus all other
Obligations shall not exceed the lesser of the
Maximum Credit Commitment or the Borrowing Base.
7. Amendment to Section.2.2(c). Section 2,2(c) shall be
amended by deleting Section 2.2(c) in its entirety and replacing it
with the following:
Mandatory Payment. If at any time prior to June 1,
1996, the Aggregate Outstanding exceeds the lesser of
(i) an amount equal to the Maximum Credit Commitment,
or (ii) an amount equal to the Borrowing Base plus
the Over Advance Amount, the Borrower shall
immediately pay into the Collateral Account an amount
sufficient to cause the Aggregate Outstanding to be
equal to or less than the lesser of (i) the Maximum
Credit Commitment, or (ii) the sum of the Borrowing
Base plus the Over Advance Amount; if at any time
after June 1, 1996, the Aggregate Outstanding exceeds
the lesser of (i) an amount equal to the Maximum
Credit Commitment, or (ii) an amount equal to the
Borrowing Base, the Borrower shall immediately pay
into the Collateral Account an amount sufficient to
cause the Aggregate Outstanding to be equal to or
less than the lesser of (i) the Maximum Credit
Commitment, or (ii) the sum of the Borrowing Base.
3
<PAGE> 4
8. Amendment to Exhibit A. The definition of Eligible
Inventory set forth in Exhibit A shall be amended by deleting
subparagraph 5 therein and replacing it with the following:
5. Intentionally Omitted.
9. Court Approval. As a condition precedent to the
effectiveness of the amendments contained herein, the Debtor must
obtain an order of the bankruptcy court approving this Amendment after
notice to all parties entitled to notice in accordance with the
Bankruptcy Rules and any applicable local rules or pursuant to a
properly entered court order.
10. Fees and Indemnification. Debtor agrees that Bank's
fees and actions to date have been reasonable. To the extent that the
Debtor has any claims against the Bank, Debtor hereby releases and
waives any and all such claims and reaffirms its obligations under
paragraph 8.8 of the DIP Loan Agreement to indemnify Bank against any
such claims.
11. No Waiver of Default. By entering into this
Amendment, the parties agree and acknowledge that the Bank has not and
does not waive any default, except the Known Defaults, of the Debtor
with respect to any obligation owed to the Bank. Except to the limited
extent provided herein, the Bank does not modify or amend the
covenants and obligations of the Debtor with respect to the Loan
Documents.
12. Amendments, Etc. No amendment, modification,
termination or waiver of any provision of this Amendment or consent to
any departure by the Debtor therefrom shall be effective unless the
same shall be in writing and signed or consented to, by the Bank, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or
demand on the Debtor in any case shall entitle the Debtor to any other
or further notice or demand in similar or other circumstances.
13. Merger. All prior oral and written communications,
commitments, alleged commitments, promises, alleged promises,
agreements and alleged agreements by or between the Bank and the
Debtor with respect to the amendments provided herein are hereby
merged into this Amendment; shall be of no force or effect; and shall
not be enforceable unless expressly set forth in this Amendment.
14. Headings. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or
interpretation of this Amendment.
15. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Minnesota.
4
<PAGE> 5
16. Successors and Assigns. This Amendment shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns, except that the Debtor may
not assign or transfer its or his rights or obligations hereunder
without the prior written consent of the Bank.
17. Counterparts. This Amendment may be executed in one
or more counterparts, each of which shall be deemed to be an original
and all of which shall constitute one and the same instruments.
18. Loan Documents in Full Force and Effect. Subject to
the amendments set forth herein, the Loan Documents remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment on the
date first above written.
AMBER'S STORES, INC.
By: /s/ J. Lamar Roberts
-----------------------------------
Title: VP Finance
--------------------------------
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Thomas A. Swann
-----------------------------------
Title: Vice President
--------------------------------
Consented to by:
THE OFFICIAL COMMITTEE OF
UNSECURED CREDITORS FOR AMBER'S
STORES, INC.
By: /s/ Patrick Nelligan
---------------------------
Its:
--------------------------
5
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Amber's Marketing, Inc.
Amber's Licensing Co.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-68888) pertaining to the 1992 Stock Option Plan of Amber's
Stores, Inc. of our report dated May 3, 1996, with respect to the consolidated
financial statements of Amber's Stores, Inc. included in the Annual Report
(Form 10-K) for the year ended January 28, 1996.
ERNST & YOUNG LLP
Dallas, Texas
May 10, 1996
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