SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K /A
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 30, 1997
Commission File No. 0-20498
TOPS APPLIANCE CITY, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-3174554
(State of Incorporation) (I.R.S. Employer ID No.)
45 Brunswick Avenue, Edison, NJ 08818
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's phone number, including area code: (732) 248-2850
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:Common Stock, No
Par Value
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 (of 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
The aggregate market value of Common Stock held by non-affiliates based
upon the average price of such stock as quoted on NASDAQ for March 27, 1998, and
reported by the National Quotation Bureau, Inc. was $5,112,006. Shares of Common
Stock held by each officer and director, and each person who owns 5% of more of
the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates.
Registrant's Common Stock (no par value) outstanding at March 27, 1998,
was 7,294,901 shares.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not, to the best of the
Registrant's knowledge, be contained in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K /A or any
amendment to this Form 10-K/A ___
Total Number of Pages: 103
Exhibit List: Page 21
Documents Incorporated by Reference: (a) Proxy Statement for 1998 Annual
Meeting
<PAGE>
TABLE OF CONTENTS
ITEM PAGE
1. Business...........................................................1
2. Properties........................................................10
3. Legal Proceedings.................................................10
4. Submission of Matters to a Vote of Security Holders...............10
5. Market for the Registrant's Common Stock
and Related Stockholder Matters...................................11
6. Selected Financial Data...........................................12
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 13
8. Financial Statements and Supplementary Data...................... 18
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............................18
10. Directors and Executive Officers of the Registrant................19
11. Executive Compensation............................................19
12. Security Ownership of Certain Beneficial Ownership
and Management....................................................19
13. Certain Relationships and Related Transactions....................19
14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K...........................................20
<PAGE>
PART I
ITEM 1. Business
General
Tops Appliance City, Inc. ("Tops" or the "Company") is a leading
retailer of home appliances and consumer electronics in New Jersey and New York,
serving a customer base within the Greater New York Metropolitan Area. The
Company operates seven retail megastores, ranging in size from 43,000 to 120,000
square feet, in heavily populated locations in New Jersey and New York. The
Company also operates a commercial division, selling to small independent
retailers, builders and landlords, corporate buying groups, major corporations
and municipalities, which accounted for approximately 9.2% and 10.9% of its net
sales and service revenues in fiscal 1997 and fiscal 1996.
Tops' stores display a broad selection of high quality, nationally
recognized brand names in each of its product categories. The Company's primary
products include major appliances, such as refrigerators, washers and dryers,
electronics including televisions, VCRs, camcorders, room air conditioners,
consumer electronics, home and car audio equipment, home office products, small
electronic appliances, and other related products such as vacuum cleaners,
seasonal goods, housewares, related accessories and extended service plans. The
Company maintains a knowledgeable, well-trained sales force which builds and
reinforces customer confidence in Tops' value-driven merchandising strategy. As
part of that strategy, the Company offers a number of customer services, such as
home delivery and removal of old appliances. Tops emphasizes competitive pricing
in its advertising and guarantees the lowest price on its products through a 45
day, best price guarantee.
The Company has experienced comparable store sales declines of 3.6% and
26.4% for 1997 and 1996. These declines were mostly attributable to the
continuing weak retail environment in the appliance and electronic industry and
increased competition. This competitive environment has put pressure on gross
margins as retailers focus on maintaining market share. In addition, the recent
demand for consumer electronics has decreased due to the lack of new products
brought to market. Research also indicates that high consumer debt levels have
also reduced consumer spending on non-essential items. The fiscal periods ending
December 30, 1997 and December 31, 1996 were also severely impacted by the
unseasonably cooler weather in the northeast during the summer months which
affected sales of room air conditioners. Substantial price deflation in Video
and Home Office products also contributed to the sales dollar decline.
During 1997, the Company expanded the Kitchen Place to three stores and
introduced the Dial-A-Mattress leased department to six stores. The Company also
opened four seasonal room air conditioner outlets in Manhattan during the summer
months. The Company has been pleased with the results from these three concepts.
The Company continues to put forward several initiatives to offset the
impact on operating results of the declining sales. Payroll and payroll related
expenses have been reduced as well as many other operating expenses including
net advertising, credit card processing, occupancy and corporate overhead. The
Company instituted a 45 day, best price guarantee during the fourth quarter of
1995. It appears to have been widely accepted by our customers and recent trends
indicate a leveling off of same store sales declines.
Business Strategy
Tops' business strategy is to be the dominant retailer of home
appliances and consumer electronics in each of its markets by developing
customer loyalty through a marketing program that emphasizes price, service and
selection. Management believes that the Company's strong sales and customer
loyalty are a result of Tops' pricing, customer service and relations, product
selection, advertising strategy, store environment, store locations and the
quality and experience of its personnel.
Pricing. The Company's policy is to offer its products at low prices in
each of its markets. The Company monitors prices at competing stores on a daily
basis and adjusts its prices as necessary to adhere to its "everyday best price"
strategy. The Company believes that a "sale" oriented marketing strategy is
still necessary in this competitive category and marketplace. The Company offers
a 45 day, best price guarantee.
Customer Service and Relations. The Company is committed to a high
level of service for its customers, providing both value and responsiveness.
Included among the services it offers are home delivery and removal of old
appliances, cartons and packaging. The Company also offers a liberal return and
exchange policy. Tops maintains a staff of customer service representatives who
answer telephone inquiries six (6) days per week regarding product use,
delivery, service, warranties and other customer concerns. The Company also has
customer service representatives present in each store who deal with the same
types of questions and an "electronic hospital" staffed during store hours by
trained technical advisors who are responsible for free instructional
assistance, product analysis and customer service.
Product Selection. Tops offers a broad range of high quality,
nationally recognized brand names within each product category and at all price
points, with greater inventory depth at the middle to higher price level than
most retailers. The Company's stores display in excess of 5,000 products and
maintain over 9,000 products in inventory. The Company offers the full line of
models from each of its vendors in all of the Company's major product
categories. The Company's policy is to maintain all products in stock for
immediate availability to the customer.
Advertising. The Company utilizes an advertising strategy that stresses
the offering of nationally recognized brands at significant savings. The Company
generally advertises weekly in 8 to 14 regional and local newspapers, and
supplements this with television, radio and billboard advertising. In addition,
Tops operates a direct mail program to approximately 310,000 Tops charge card
customers. The Company also uses a variety of promotional sales and sales events
to increase traffic in its stores.
Store Environment. Tops' in-store environment seeks to create an
atmosphere of excitement through the intensity of its visual merchandising,
sales promotion, signage and layout, and the quality, value and variety of
product assortment. The stores have an open, clean, bright, exciting atmosphere,
with disciplined product presentation, attractive in-store displays and
efficient check-out procedures, designed to create a friendly, convenient
shopping experience. Tops' sales force is given extensive and ongoing training
to provide customers with knowledgeable, prompt and courteous assistance.
Store Locations. The Company's strategy is to locate its stores in
heavily populated areas that are easily accessible from major highways and have
adequate parking for high sales volume.
Personnel Development. The Company devotes significant resources to
training its employees, both to ensure basic selling skills and product
knowledge and to enhance customer relations. The Company emphasizes promoting
employees from within the organization. This policy, combined with above-average
compensation, comprised of salary, commission and incentives for its sales
force, has produced loyal, motivated employees with a low turnover record. The
Company believes that its employees are among the most qualified and experienced
in its industry.
Products
The Company's stores stock over 9,000 home appliance and consumer
electronic products. The Company sells brand-name products, offering its
customers a large selection of styles and price points in each of its product
categories. The Company sells no private label or house brands. The Company
displays in excess of 5,000 products in its stores, in the following categories:
<PAGE>
<TABLE>
<CAPTION>
CATEGORY PRODUCTS PRINCIPAL BRAND NAMES
<S> <C> <C>
Major Appliances Refrigerators, Amana, Admiral, Frigidaire, General Electric
Dishwashers, Hotpoint, Jenn-Air, KitchenAid, Magic Chef, Maytag
Washers/Dryers Roper, Sub Zero, Viking, Westinghouse, Whirlpool
Televisions Daewoo, Hitachi, JVC, Panasonic, Proscan,
Quasar, RCA, Samsung,Sharp, Quasar, Sony,
Zenith
Video VCRs,DVD Hitachi, JVC, Panasonic,
Camcorders RCA, Samsung, Sony, Zenith
Ranges/
Microwaves Ranges, Cooktops General Electric, Jenn-Air, Magic Chef, Panasonic,
Cooktops, Sharp, Tappan, Thermador, Viking, Whirlpool
Range Hoods,
Microwaves
Air Conditioners Carrier, Emerson, Fedders, Friedrich,
General Electric, Samsung, Whirlpool,
Quasar
Audio Stereo Systems, Aiwa, Bose, Infinity, JBL, JVC, Kenwood
Components and JBL, JVC, Kenwood, Onkyo, Pioneer,
Speakers RCA, Sony ES, Technics, Yamaha
Electronics Cameras, Walkman AT&T, Alpine, Blaupunkt, Canon,
Radar Detectors, General Electric, Hitachi, JVC,
Portable Radios, Kenwood, Magnavox, Minolta,
Audio and Car Olympus, Panasonic, RCA, Sony,
Alarms, Telephones, Yashica,
Cellular Phones
Home Office Computers, Brother, Canon,
Products Printers, Fax Compaq, Epson, Hewlett Packard,
Machines, IBM, Lexmark, Sharp, Packard Bell
Wordprocessors,
Typewriters,
Copiers
Vacuums,Seasonal Vacuum Cleaners, Black and Decker, Braun,
Items/Housewares Humidifiers, Cuisinart, Eureka,
Fans, General Electric, Hoover,
Space Heaters, Krups, Sanyo, Sharp, Sunbeam,
Small Electrical Thermos, Weber, Westinghouse
Appliances
(coffee makers,
blenders, etc.),
Barbecue Grills
</TABLE>
The Company tailors its product mix to meet the needs of its customers
by regularly evaluating sales and profit performance for each of its products
through its computerized perpetual inventory system. Product mix by category has
remained relatively stable over the past five years. Management believes that
this stability makes the Company less vulnerable to short term product trends
and changing economic conditions. The following chart demonstrates the
percentage of retail and commercial sales represented by each of the Company's
product categories during the past three years:
<PAGE>
<TABLE>
<CAPTION>
Percent of Total Sales
Product Category 1995 1996 1997
<S> <C> <C> <C>
Major Appliances (Refrigerators,
Washers, Dryers)........................ 20.5% 21.4% 20.8%
Ranges/Microwaves/Dishwashers............. 12.4 13.4 13.5
Air Conditioners.......................... 12.0 7.2 10.2
Vacuums/Seasonal Items/Housewares......... 5.0 5.3 4.7
----- ----- ---
Subtotal............................... 49.9 47.3 49.2
Televisions............................... 14.4 14.7 14.6
Video/Projection Televisions.............. 10.8 11.2 11.3
Audio..................................... 7.3 6.9 6.5
Home Office and Other
Consumer Electronics.................... 13.2 15.6 13.l8
---- ---- -----
Subtotal............................... 45.7 48.4 46.2
Extended Service Plans and
Miscellaneous Income.................... 4.4 4.3 4.6
---- ---- ----
100.0% 100.0% 100.0%
</TABLE>
Extended Service Plans
The Company offers extended service plans for most categories of its
retail products. The extended service plans cover services or time periods not
covered by the manufacturer's warranty on such products and are non-cancelable.
These plans are administered for the Company by Warrantech Corporation, an
unaffiliated third party, which performs the repair services required by the
plans through factory authorized service centers. Warrantech is required by its
agreement with the Company to maintain insurance to protect the Company in the
event that Warrantech fails to fulfill its obligations under the extended
service plans. The Company sells the extended service plans to Warrantech on a
non-recourse basis. In 1990, the Company began offering customers who purchase
five-year extended service plans vouchers entitling them to certain store
discounts, subject to certain restrictions, if the customer does not utilize the
extended service contract during the five-year term. The Company has established
a reserve on its balance sheet to cover the potential cost of honoring these
vouchers. Gross margins from the sale of extended service plans are higher than
gross margins from the sale of the Company's other products.
Purchasing
The Company offers a broad range of name brands within each product
category at all price points, with a greater inventory depth at the middle to
higher price level than most retailers. Because Tops purchases complete product
lines in large volumes, with an emphasis on middle to higher priced models, the
Company is able to obtain quality products at competitive prices and
discretionary advertising subsidies from vendors to promote the sale of their
products. Although certain vendors are significant to the Company's business
because of their name recognition, the Company does not believe that its
business is dependent upon any one vendor or particular group of vendors. In
fiscal 1997, four vendors each accounted for more than 10% of the Company's
purchases. Tops purchases over 80% of its products from the 15 vendors shown in
the following chart.
Top 15 Vendors
Aiwa G.E./Hot Point Sharp
Carrier Hitachi Sony
Compaq JVC Thomson/RCA
Fedders Maytag/Magic Chef Whirlpool/Kitchen Aid
Frigidaire Panasonic Zenith
The Company's merchandise purchasing is managed through its buying and
merchandising group, consisting of the Senior Vice President/Chief Operating
Officer and a staff of eight buyers. Each buyer is responsible for purchasing
products within specified product categories. Within each category, the buyer is
responsible for choosing the product mix, insuring product availability based
upon the rate of sale, and negotiating prices, payment terms and other vendor
support items. The buyers are also responsible for analyzing potential new
business.
The Company generally orders inventory one month in advance of delivery
dates, but provides key vendors with 120 day rolling forecasts to ensure
availability of important items.
Advertising
The Company uses a "price and item" approach in its advertising,
stressing the offering of nationally recognized brands at significant savings.
The emphasis of the Company's advertising is to stress the Company's low prices
as well as its customer service features, such as home delivery, disposal of old
appliances and removal of cartons and packaging. Advertisements are placed in 8
to 14 regional newspapers weekly and on television, radio and billboards. The
Company also uses a circular program showing a broader selection of advertised
products. Advertisements are complemented by in-store signage highlighting
brand-name products and values. The Company's advertising strategy includes a
series of special events, and private sales throughout the year to generate
traffic and to maintain a sense of shopping excitement. Tops also employs a
monthly direct mailing to its credit card holders and to other selected groups.
Tops employs a five-person staff to coordinate its advertising and
develop promotional strategies. Certain manufacturers provide the Company with
various discretionary funding subsidies to promote the sale of their products.
Customer Service and Relations
Tops places a strong emphasis on customer service and relations as part
of its business strategy. The Company offers a number of services such as home
delivery, removal and disposal of old appliances and packaging of delivered
products. The Company emphasizes the quality of its sales force, devoting
significant resources to training, and is committed to having sufficient sales
people available at all times to service all customers in a store.
The Company maintains a staff of customer service representatives who
respond to customer calls six days per week. The customer service
representatives are trained to answer questions regarding product use, delivery,
service, warranties and other customer concerns. Tops has regular contacts at
each of its vendors who enable Tops to respond promptly to specific product
questions.
Customer Credit
Tops' customers may pay for their purchases with the Tops proprietary
credit card, Visa, Master Card, American Express, Discover, cash, check or debit
card. The Company periodically offers extended payment term financing programs
which are often sponsored by manufacturers.
Since 1987, when the Company initiated its own proprietary credit card,
the Company has increased the number of its credit card accounts to in excess of
310,000. As of December 30, 1997, approximately 30% of Tops' credit card holders
had outstanding balances. The Company has made a significant investment in its
credit card program since Tops credit card holders generally constitute its most
loyal and active customers. As part of its growth strategy, the Company intends
to increase the number of Tops credit card holders while maintaining existing
credit standards. No assurances can be given that the Company will be able to
accomplish this goal. In addition, the Company believes that its credit card is
a particularly productive tool for targeted marketing and presents an excellent
opportunity to analyze and better understand its customers' shopping patterns
and trends.
Purchases made with a Tops credit card involve lower costs to the
Company than other credit cards, with no greater risk to the Company. The
following table summarizes the percentage of total retail sales generated by
type of payment for the fiscal years 1995, 1996 and 1997.
1995 1996 1997
Tops Credit Card................... 25.3% 25.4% 24.8%
Visa, MasterCard, American
Express, Discover................ 50.3% 48.3% 47.6%
Cash, Check, Debit Card, Other..... 24.4% 26.3% 27.6%
The Company's credit card program is administered by Monogram Credit
Card Bank of Georgia, a subsidiary of General Electric Capital Corporation ("GE
Capital"). The Account Financing Agreement between the Company and GE Capital
requires GE Capital to purchase Tops' customer accounts receivable on a
non-recourse basis. GE Capital pays Tops a monthly fee based upon total average
receivable balances of the Tops portfolio. Tops pays GE Capital monthly for all
finance charge reversals incurred by Tops customers.
Additionally, GE Capital offers insurance and other products to Tops'
credit card customers and distributes a portion of the income derived from the
marketing of such products to Tops.
Warehousing and Distribution
The Company operates a 350,000 square foot warehouse and distribution
center at its Edison, New Jersey headquarters, from which it serves all seven of
its stores. The center has three subdivisions, devoted to receiving, storage and
home delivery, respectively. The Company believes this facility has the capacity
to service existing stores and commercial operations and at least 3 additional
stores. The facility is leased from the Company's former Chairman, who remains a
principal shareholder. See Item 13 - Certain Relationships and Related
Transactions.
The Company purchases in bulk and utilizes distribution personnel and
systems to transfer merchandise to store locations and to manage the quantities
moved into and out of the warehouse. The distribution system supports the
Company's advertising strategy by prioritizing and processing needed merchandise
through the distribution center. Store inventory levels are reviewed and
adjusted constantly toward calculated targets in most product categories.
Tops makes approximately 3,500 product deliveries per week, to
customers' homes from its distribution center, using trucks owned by independent
owner-operators and administered by Merchants Home Delivery Service
("Merchants") and Westbury Terminals, Inc. of Georgia ("WTI"). The Company uses
a computerized delivery system to coordinate routing and increase efficiencies.
In addition, the Company makes deliveries to its stores every day to support
inventories of items that customers can take with them. The Company pays only
for completed deliveries and, at a lower rate, for certain uncompleted
deliveries. The Company's agreements provide that Merchants and WTI assume the
risk of loss for merchandise upon taking delivery from the Company. The Company
has also contracted with WTI for the transportation of merchandise between its
distribution center and store locations.
Commercial Sales Division
The Company operates a commercial sales division which accounted for
approximately 9.2% and 10.9% of the Company's net sales and service revenues in
fiscal 1997 and 1996. The commercial operations are made up of five categories:
(i) sales to small independent retailers; (ii) telemarketing sales through
several corporate benefit buying clubs in which the Company participates; (iii)
sales to builders and landlords; (iv) sales to major corporations for their
various gift and incentive programs, and (v) sales to exporters. These sales are
generally made at lower gross margins than the Company's retail sales, but are
made with less operating expense to the Company.
Management Information and Control Systems
The Company has placed substantial emphasis on its management
information and control systems. Control of the Company's merchandising
activities is maintained by a sophisticated set of on-line systems, including a
point-of-sale and sales reporting system. These systems are completely
integrated and track merchandise from order through sale. They are used to
compare actual to planned results and to highlight areas requiring management
attention.
All operational data is fully integrated with the Company's financial
systems. The inventory information in the systems is verified through a program
of cycle counting and testing.
The Company upgrades its management information and control systems on
an on-going basis. The Company believes that the systems it has implemented are
an important factor in enabling it to achieve its goal of superior execution in
all aspects of the Company's operations and that its existing computer systems
are fully capable of further technical enhancements with minimal conversion
effort.
Year 2000 Compliance
The Company continues to assess the impact of the Year 2000 on its
systems and operations. The Year 2000 issue exists because many computer
applications currently use two-digit date fields to designate a year. As the
century date occurs, date sensitive systems may not properly recognize and
process the year 2000. During fiscal 1997, the Company has utilized its existing
management information systems and applications personnel to evaluate Year 2000
issues, and expects to continue to utilize internal resources during fiscal 1998
and 1999.
Expansion Strategy
The Company continues to evaluate expansion plans in existing markets
within the Greater New York Metropolitan Area. The Company has plans for an
eighth store in Brooklyn, New York, which it intends to open in 1998. The
Company has also announced its intention to open a ninth store in 1998. The
availability of financial resources may limit the Company's expansion plans, and
no assurances can be given that the Company will expand.
In evaluating store locations, the Company considers a number of
criteria, including proximity to its existing stores and the size, strength and
merchandising philosophy of potential competitors. In selecting a site, the
Company searches for buildings which are between 35,000 - 60,000 square feet
with ample customer parking areas to support high sales volumes. The Company
also considers local demographics, traffic patterns and overall retail activity.
Although the Company seeks locations that are conveniently reached and highly
visible from major highways, the stores need not be located in the most
important retail location in the particular market.
In October 1997, the company closed its store located in Westbury, New
York. The store's marginal performance was severely exacerbated by the costs to
advertise for this single location. The Company is not contemplating the closing
of any additional stores.
Competitors
The Company operates in a highly competitive marketplace. The Company
faces competition for customers from traditional department stores, discount
stores, warehouse clubs and other specialty retailers. Some of these competitors
are units of large national or regional chains that may have greater financial
and other resources than the Company. Circuit City, a national retailer of
consumers electronics, music and appliances, entered the New Jersey/New York
marketplace during 1997. Although most of the Company's competitors have more
stores than the Company, the stores are generally smaller and the Company
believes that they produce lower sales than the Company on a per store basis.
Competition within the Company's industry is based upon breadth of
product selection, product quality, customer service and price. The Company
believes that it is comparable with or superior to all of its competitors in
each of these categories.
Employees
As of December 30, 1997, the Company had approximately 732 full time
and 325 part-time employees. The Company also employs additional part-time
salespersons and cashiers during peak periods. None of the Company's employees
are represented by a labor union. The Company believes that relationships with
its employees are good.
Service Marks
The service mark TOPS and a Tops logo used in the Company's print
advertising, have been registered by the Company in the U.S. Patent and
Trademark Office. The Company believes that these marks have acquired
substantial goodwill and reputation and broad consumer recognition as marks of
the Company within its market area and that their continued use is important to
the development of its business.
Reorganization
The Company was reorganized (the "Reorganization") in August, 1992 as
two New Jersey corporations in connection with the Company's initial public
offering. Prior to that, the Company had operated as a Delaware Limited
Partnership ("Tops LP"). The limited partners of Tops LP contributed their
partnership interest and shares, respectively, to a newly formed corporation in
exchange for that corporation's common stock. This corporation changed its name
to Tops Appliance City, Inc. and became the sole shareholder of the former
corporate general partner, which owned all of the Company's assets and traded as
Tops Appliance City, Inc. In March, 1993, these two corporations were merged,
and the successor is Tops Appliance City, Inc. In 1995, the Company formed two
subsidiaries in connection with a mortgage loan on its Queens, New York
property. During 1997, one subsidiary was sold in connection with the sale and
leaseback of the property. All references in this report to Tops or the Company
refer to the prior limited partnership or the corporate entities on a
consolidated basis, where appropriate.
ITEM 2. Properties
The Company operates seven stores in heavily populated areas in New
Jersey and New York, all of which are leased by the Company. The Company's
Edison store and its office and distribution center, also located in Edison, are
leased from the Company's former Chairman. See "Item 13. Certain Relationships
and Related Transactions." The Company purchased land and a building for its
newest store in Queens, New York, which the Company opened in August 1994.
During 1997, the company completed a sale and leaseback transaction for the
Queens location. The store leases, including all options to renew, expire
between 2010 and 2042.
The following chart sets forth certain information regarding the store
leases. The Company also has an option to purchase property in Brooklyn, New
York for an eighth store.
<TABLE>
<CAPTION>
Date Approximate Approximate
Location Opened Sq. Footage(1) Selling Space(2)
<S> <C> <C> <C>
Edison, NJ June, 1979 45,059 33,940
Secaucus, NJ December, 1986 120,360 44,928
East Hanover, April, 1989 65,600 38,407
Lakewood, NJ May, 1990 50,500 31,200
Westchester County, NY October, 1992 63,935 48,935
Union, NJ November, 1993 54,920 44,320
Queens, NY August, 1994 77,000 43,826
</TABLE>
(1) Includes mezzanine area.
(2) Selling space is total square footage less the Company's estimate of store
space not used for selling merchandise.
ITEM 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders in
the fourth quarter of 1997.
PART II
ITEM 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded under the symbol "TOPS" on the
NASDAQ National Market System.
The following table sets forth, for the fiscal quarters indicated, the
high and low sale prices for the Company's Common Stock on the NASDAQ National
Market System. NASDAQ National Market System quotations are based on actual
transactions and not bid prices.
Prices
High Low
Year Ended December 30, 1997
First Quarter 1 5/8 13/16
Second Quarter 1 9/32 3/4
Third Quarter 1 19/32 15/16
Fourth Quarter 1 7/16 1
Year Ended December 31, 1996
First Quarter 3 1/4 2 1/4
Second Quarter 2 7/8 1 3/4
Third Quarter 2 1/8 7/8
Fourth Quarter 2 1
On March 27, 1998, the closing sale price of the Common Stock as
reported on the NASDAQ National Market System was $2.00 per share. On December
30, 1997, there were approximately 582 holders of record of the Company's Common
Stock.
The Company has never paid any cash dividends on its Common Stock and
does not anticipate paying cash dividends in the foreseeable future. Any
decision made by the Company to declare dividends in the future will depend upon
the Company's future earnings, capital requirements, financial condition and
other factors deemed relevant by its Board of Directors.
ITEM 6. Selected Financial Data
Selected financial data is set forth below as of and for the years
ended December 28, 1993, December 27, 1994, December 26, 1995, December 31, 1996
and December 30, 1997. The selected financial data should be read in conjunction
with the financial statements, related notes and other information included
herein and "Management's Discussion and Analysis of Results of Operations and
Financial Condition."
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year Ended Year Ended Year Ended Year Ended Year Ended
Statement of Operating Data: 12/28/93 12/27/94 12/26/95 12/31/96 12/30/97
Net sales and service revenues.. $ 411,947 $ 462,494 $ 422,197 $ 317,437 $ 293,924
Cost of sales............................... 312,392 350,881 324,079 250,117 229,073
------- ------- -------- --------- --------
Gross profit.................... 99,555 111,613 98,118 67,320 64,851
Selling, general and adminis-
trative expenses.............. 90,328 107,317 96,859 82,461 65,712
-------- ------- -------- -------- -------
Income (loss) from operations.. 9,227 4,296 1,259 (15,141) (861)
Interest Expense................ 1,451 3,934 4,478 6,240 6,264
--------- --------- --------- -------- --------
Income (loss) before
income taxes and extraordinary
item 7,776 362 (3,219) (21,381) (7,125)
Provision (benefit) for
income taxes.................. 3,111 145 (1,288) (2,000) -----
--------- --------- ---------- --------- -------
Income (loss) before
extraordinary item ........... $ 4,665 $ 217 $ (1,931) ($19,381) $ (7,125)
Extraordinary item-gain
on debt extinguishment........ -- -- -- -- 8,482
--------- --------- --------- --------- --------
Net income (loss) .............. $ 4,665 $ 217 $ (1,931) ($19,381) $ 1,357
======= ======== ============ ========== =========
Income (loss) per common share
before extraordinary item..... $ 0.65 $ 0.03 $ (0.27) $ (2.66) $ (0.98)
Gain per common share on
extraordinary item............ 1.16
-------- --------- ------------ ---------- ---------
Net income (loss) per
common share.................. $ 0.65 $ 0.03 $ (0.27) $ (2.66) $0.18
======== ========= ============ ======== =========
Weighted Average Common
Shares Outstanding............ 7,200,042 7,252,990 7,277,229 7,277.229 7,294,901
========== ========= =========== ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Year Year Year Year
Ended Ended Ended Ended Ended
Dec. 28, Dec. 27, Dec. 26, Dec. 31, Dec. 30,
1993 1994 1995 1996 1997
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Operating Data (at period end) (unaudited):
Number of stores open ..................... 7 8 8 8 7
Inventory turns ........................... 5.5x 5.7x 5.4x 4.3x 4.2x
Square feet of retail selling space ....... 288,206 332,032 332,032 332,032 285,556
Average retail sales per store open
entire year .............................. $ 64,615 $ 56,456 $ 47,010 $ 34,777 $ 33,931
Percentage increase (decrease) in
comparable store sales ................... (3.6)% (14.1%) (20.1%) (26.4%) (3.6%)
Retail sales per weighted average
square foot of selling space ............. $ 1,637 $ 1,377 $ 1,133 $ 842 $ 832
Balance Sheet Data:
Inventory ................................. $ 61,934 $ 61,289 $ 59,847 $56,184 $ 53,895
Working Capital ........................... 35,909 25,132 32,112 14,785 16,894
Total Assets .............................. 127,422 121,076 113,552 101,020 94,850
Long-term debt, net of current
portion ................................. 41,611 40,689 49,201 48,944 47,733
Other long-term liabilities ............... 5,410 5,110 4,512 3,933 2,559
Shareholders' Equity ...................... 21,517 21,952 20,099 750 2,118
</TABLE>
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Year ended December 30, 1997 Compared to the Year Ended December 31, 1996.
Net sales and service revenues for 1997 decreased 7.4% to $293,924,000
from $317,437,000 for 1996. Net sales and service revenues for 1997 included 52
weeks versus 53 weeks in 1996. 1997 also included only 10 months of sales from
the Westbury, Long Island store which the Company closed in October 1997. This
decrease is also attributable to the highly competitive and continuing weak
retail environment in the appliance and consumer electronics industry. The lack
of new products in the market, high consumer debt levels, retail price deflation
in selected categories and an unseasonably cooler summer which affected room air
conditioner sales also contributed to the decrease. Total comparable store sales
decreased 3.6% for the period compared to a decrease of 26.4% for the same
period last year. Sales from the commercial division decreased 8.2% or
$2,844,000.
Gross revenues from the sale of product protection plans for 1997
increased 0.5% to $13,768,000 from $13,705,000 for 1996. Incremental costs
related to these sales totaled $5,912,000 and $5,830,000 respectively, for the
comparable periods. These product protection plans are non-cancelable.
Gross margin as a percentage of net sales and service revenues for 1997
increased to 22.1% from 21.2% last year. This increase was due in part to the
company's focus on higher margin merchandise and product protection plans. Gross
margins in the commercial sales division increased to 9.7% from 9.1% for the
comparable period. Gross margins in the commercial sales division tend to be
lower than gross margins on retail sales.
Selling, general and administrative expenses for 1997 decreased 20.3%
to $65,712,000 from $82,461,000 for 1996. This net decrease was achieved
primarily by reducing payroll and related expenses, net advertising, reduced net
variable selling expenses and other cost cutting measures. Selling, general and
administrative expenses as a percentage of net sales and service revenues
decreased to 22.4% from 26.0% for the comparable periods. This decrease was due
to the reduced level of expenses.
Included in selling, general and administrative expenses is $1,500,000
of costs related to the closing of the Company's Westbury, Long Island store in
October 1997. The marginal operating performance of this store was severely
exacerbated by the costs to advertise for this single location. The Company's
income from operations before store closing costs improved to $639,000 for 1997
compared to a loss from operations of $15,141,000 for 1996.
Interest expense increased slightly to $6,264,000 from $6,240,000 for
the comparable periods. This was caused by higher average borrowings and related
interest expense on the revolving credit facility offset by lower interest on
the 6-1/2% Convertible Subordinated Debentures during the year. 1996 included
the write-off of $630,000 of capitalized loan fees relating to the Company's
previous revolving credit facility.
The Company did not record an income tax provision for 1997 compared to
an income tax benefit at an effective rate of 9.4% or $2,000,000 for 1996.
The Company's net loss before extraordinary items for 1997 was $7,125,000
($0.98 per share) compared to a net loss of $19,381,000 ($2.66 per share) for
1996.
During 1997 the Company recorded extraordinary items totaling
$8,482,000 relating to the exchange and repurchase of a portion of 6-1/2%
Convertible Subordinated Debentures with a conversion price of $22.25 for
$7,687,500 in New 6-1/2% Convertible Subordinated Debentures with a conversion
price of $1.75. The Company also repurchased during the year $1,320,000 face
value of the Original Debentures for a purchase price of $525,550.
The Company's net income after the extraordinary gain on the early
extinguishment of debt was $1,357,000 ($0.18 per share) compared to a net loss
of $19,381,000 ($2.66) per share for 1996.
In November 1997, the Company entered into a sale and leaseback of its
Queens, New York store. The Company received $14.5 million in gross proceeds and
paid off an outstanding mortgage on the property of $9.0 million.
Year Ended December 31, 1996 Compared to the Year Ended December 26, 1995
The Auditor's Report on the accompanying financial statements states
that such financial statements have been prepared assuming that the Company will
continue as a going concern. The Company incurred a significant loss in 1996
which has significantly decreased its working capital and stockholders' equity.
The auditors have stated in their report that this condition raises substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of the assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty. Management believes that cost reductions already implemented
combined with the leveling off of comparable store sales declines and a normal
air conditioning selling season will reduce losses in the future, and along with
the continuation of its current credit facility, will enable the Company to have
sufficient cash flow to continue its operations.
Net sales and service revenues for 1996 decreased $104,760,000 or 24.8%
to $317,437,000 from $422,197,000. This decrease is attributable to the highly
competitive and continuing slow retail environment in the Northeast. Room air
conditioner sales declines, due to unseasonably cooler weather during the summer
season, also contributed to the decrease. Room air conditioner sales in 1996
were approximately 54.2% less than in 1995. Total comparable store sales were
26.4% lower than last year. Substantial price deflation in Video and Home Office
products also contributed to the decline. Sales in the commercial division
decreased $10,599,000 or 23.5%.
Gross revenues from the sale of product protection plans for 1996
decreased 35.9% to $13,705,000 from $21,368,000. Incremental costs related to
these sales totaled $5,830,000 and $8,996,000 respectively, for the comparable
periods. These product protection plans are non-cancelable.
Gross profit for 1996 decreased $30,798,000 or 31.4%. The decrease is
attributable to the decrease in merchandise sales and higher margined product
protection plans resulting in a decrease in margins to 21.0% from 23.1% last
year. This decrease was due in part to lower sales of higher margined room air
conditioners due to the unseasonably cooler weather and gross margin pressure
caused by the generally weak retailing environment in a highly promotional metro
New York/New Jersey marketplace. Gross margins in the commercial sales division
increased to 9.1% from 8.6% for the comparable periods. Gross margins in the
commercial sales division tend to be lower than gross margins on retail sales.
Selling, general and administrative expenses for 1996 decreased
$14,398,000 or 14.9% to $82,461,000 from $96,859,000 for 1995. This net decrease
was achieved primarily by reducing payroll and related expenses, net
advertising, other cost-cutting measures, reduced costs associated with the
Company's private label credit card program and reduced net variable selling
expenses, partially offset by higher net delivery costs and data processing
expenses. Selling, general and administrative expenses as a percentage of net
sales and service revenues increased to 26.0% from 22.9% for the comparable
periods. This increase was due to the decreased sales levels.
Interest expense increased to $6,240,000 from $4,478,000 for the
comparable periods as a result of interest in 1996 on the Queens mortgage, which
was entered into in July 1995, higher average borrowings and the write-off of
$630,000 of capitalized loan fees associated with the Company's revolving credit
facility which was replaced in October 1996 with a new revolving credit facility
with more favorable terms to the Company.
The Company recorded a tax benefit at an effective rate of 9.4% or
$2,000,000 in 1996 compared to a tax benefit at an effective rate of 40% or
$1,288,000 in 1995. [See Note 10 of Financial Statements.]
The Company's net loss for 1996 was $19,381,000 ($2.66 per share) compared
to a net loss of $1,931,000 ($.27 per share) for 1995.
Seasonality
Sales levels are generally highest in the fourth quarter as a result of
increased demand for consumer electronics during the Christmas season and higher
during either the second or third quarter, depending on weather conditions, as a
result of demand for room air conditioners during the summer months. The
unseasonably cooler weather during the summer of 1996 severely impacted room air
conditioner sales. Room air conditioner sales were approximately 54.2% less in
1996 compared to 1995. Additionally, the first quarter of 1996 was impacted by
inclement weather.
The Company experiences a build up of inventory and accounts payable
during the first and second quarters due to the purchase of room air
conditioners in anticipation of the May through August selling season and the
third and fourth quarters in anticipation of the holiday season.
Liquidity and Capital Resources
In the past, the Company has relied primarily upon net cash from
operations, a revolving credit facility with institutional lenders, trade credit
from vendors and inventory floor plan financing to fund its operations and
growth.
During 1993, the Company issued $40,000,000 Convertible Subordinated
Debentures due 2003 at an annual interest rate of 6 1/2%. Interest is payable
semi-annually. The net proceeds were used to fund new store openings, repay
certain indebtedness and for general corporate purposes. On September 1, 1997,
the Company exchanged $15,375,000 of the $40,000,000 original par value 6-1/2%
Convertible Bonds due 2003 (the "Original Debentures" into $7,687,500 6-1/2%
Convertible Subordinated Debentures due 2003 (the "New Debentures"). The New
Debentures are convertible in shares of common stock of the Company (but not
prior to February 1999) at a conversion price of $1.75. The New Debentures rank
pari passu with the Original Debentures in respect to principal and interest.
During the fourth quarter of 1997, the Company entered into a series of
transactions for the repurchase of Original Debentures outstanding. The Company
purchased $1,320,000 face value of the Original Debentures for a purchase price
of $525,550.
In July 1995, the Company obtained a $9,200,000 ten year loan secured
by a mortgage on the Queens property. This mortgage had a fixed interest rate of
8.75%. On November 5, 1997, the Company entered into a sale and leaseback
agreement relating to this property. Part of the proceeds of the sale were
utilized to eliminate the outstanding mortgage. The Company simultaneously
entered into a lease agreement for the property with an initial term expiring on
October 31, 2022. The lease also contains two 10 year renewal options. This sale
and leaseback transaction improved working capital by approximately $6.2
million.
At December 30, 1997, the Company had working capital of $16.9 million,
an increase of $2.3 million from December 31, 1996. This increase in working
capital resulted primarily from the sale and leaseback of the Queens, New York
property, which generated cash proceeds in excess of the related mortgage
obligation that was repaid. The new capital lease arrangement requires no
principal payments during the first 8 years of the lease. The changes in working
capital components during the year were an increase of $1.7 million in
short-term borrowings, and decreases in inventory of $2.3 million, accounts
payable of $3.1 million and accrued liabilities and taxes of $3.6 million.
The Company increases its inventory levels during the first and second
quarters of each year in anticipation of room air conditioner sales from May
through August and during the third and fourth quarters in anticipation of the
Christmas season. Short-term trade credit represents a significant source of
financing for inventory. Trade credit arises from the willingness of the
Company's vendors to grant extended payment terms for inventory purchases and is
financed either by the vendor or by third-party floor planning sources. The
Company currently utilizes three floor- planning companies which in the
aggregate at any one time provide financing for approximately 20% of the
Company's inventory purchases. Payment terms vary from 15 to 150 days, depending
upon the inventory product. The Company typically grants the floor planning
companies a security interest in those products financed together with the
proceeds from the sales of such products. Due to the significant loss incurred
by the Company during 1996, certain vendors have reduced the credit terms
previously extended to the Company. In most cases, the Company was able to
negotiate additional cash discounts relating to the reduced credit terms. Due to
the Company's improved operating performance during 1997, many trade vendors
have begun extending more favorable credit terms to the company.
The Company has a $35 million secured revolving credit facility
expiring October 28, 1999, which bears interest at the bank's base rate plus 1%
or, for a portion of the loan, LIBOR plus 3%. All of the Company's unencumbered
cash, equipment, inventory and accounts receivable are pledged as collateral for
the new facility.
The Company continues to evaluate expansion plans in existing markets
within the Greater New York Metropolitan Area. During 1995, the Company obtained
an option to purchase property which will be the site of the eighth store. It is
expected to open in 1998. The Company has also announced plans to open a ninth
store in 1998. The availability of financial resources may limit the Company's
expansion plans, and no assurances can be given that the Company will expand.
The Company believes that its borrowings under available credit
facilities, short term trade credit from vendors and inventory floor plan
arrangements combined with the impact on operating results of the cost
reductions already implemented, the leveling off of comparable store sales
declines and a normal room air conditioning selling season will be sufficient to
fund the Company's operations and its anticipated capital expenditures,
excluding new stores, of $1 million. No assurances can be given that such cost
reductions will produce the desired result.
This Annual Report on Form 10-K may contain forward-looking information
about the Company. The following factors, and others, may cause the Company's
actual results to differ from those set forth in any forward-looking statements
made by the Company. Accordingly, there can be no assurances that any future
results will be achieved.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information
required in this item are incorporated by reference from the Company's Annual
Report.
Tops Appliance City, Inc.
Consolidated Financial Statements
As of December 30, 1997 And December 31, 1996
Together With
Reports of Independent Public Accountants
TOPS APPLIANCE CITY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Tops Appliance City, Inc.:
We have audited the accompanying consolidated balance sheet of Tops
Appliance City, Inc. (the Company) as of December 30, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tops
Appliance City, Inc. as of December 30, 1997 and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Roseland, New Jersey
February 18, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Shareholders and Board of Directors of
Tops Appliance City, Inc.
We have audited the accompanying consolidated balance sheet of Tops
Appliance City, Inc. (the Company) as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the two years in the period then ended. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
consolidated financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tops
Appliance City, Inc. at December 31, 1996 and the consolidated results of its
operations and its cash flows in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as whole,
presents fairly in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that
Tops Appliance City, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred a significant loss in 1996, which
has significantly decreased its working capital and shareholders' equity. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
Ernst & Young LLP
MetroPark, New Jersey
April 15, 1997
<PAGE>
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED BALANCE SHEETS -- DECEMBER 30, 1997 AND DECEMBER 31, 1996
RESTATED
(dollars in thousands)
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,368 $ 2,147
Accounts receivable, net of allowance for
doubtful accounts of $303 and $268 in
1997 and 1996, respectively 1,101 1,355
Merchandise inventory 53,895 56,184
Prepaid expenses and other current assets 2,080 2,492
------ ------
Total current assets 59,444 62,178
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, NET 29,936 31,858
DEFERRED TAXES 2,940 2,758
OTHER ASSETS 2,530 4,226
------- ------
Total assets $ 94,850 $ 101,020
====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 23,558 $ 21,904
Current portion of long-term debt 110 247
Accounts payable 6,551 9,626
Accrued liabilities and taxes payable 5,115 8,748
Customer deposits 4,276 4,110
Deferred taxes 2,940 2,758
------- ------
Total current liabilities 42,550 47,393
LONG-TERM DEBT, NET OF CURRENT PORTION 47,623 48,944
DEFERRED RENT 1,801 3,179
OTHER LIABILITIES 758 754
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 20,000,000
shares authorized; none issued or
outstanding --- ---
Common stock, no par value, 30,000,000
shares authorized; 7,294,901 and 7,277,229
shares issued and outstanding in 1997 and 1996,
respectively
--- ---
Paid-in capital 24,806 24,795
Accumulated deficit (22,688) (24,045)
------- ------
Total shareholders' equity 2,118 750
------- ------
Total liabilities and
shareholders' equity $94,850 $101,020
====== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
</TABLE>
<TABLE>
<CAPTION>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 1997, DECEMBER
31, 1996 AND DECEMBER 26, 1995 (dollars in
thousands, except per share data)
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET SALES AND SERVICE REVENUES $293,924 $317,437 $422,197
COST OF SALES 229,073 250,117 324,079
-------- ------- -------
Gross profit 64,851 67,320 98,118
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 65,712 82,461 96,859
------ ------- ------
Income (loss) from operations (861) (15,141) 1,259
INTEREST EXPENSE 6,264 6,240 4,478
------ ------- ------
Loss before benefit for income
taxes and extraordinary item (7,125) (21,381) (3,219)
BENEFIT FOR INCOME TAXES --- (2,000) (1,288)
----- ------- ------
Loss before extraordinary item (7,125) (19,381) (1,931)
EXTRAORDINARY ITEM - Gain on debt
extinguishment 8,482 --- ---
----- ------- -----
Net income (loss) $ 1,357 ($19,381) ($1,931)
===== ======= ======
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM ($0.98) ($2.66) ($0.27)
INCOME PER COMMON SHARE APPLICABLE TO
EXTRAORDINARY ITEM 1.16 --- ----
----- ----- ----
BASIC AND DILUTED NET INCOME (LOSS)
PER COMMON SHARE $0.18 ($2.66) ($0.27)
====== ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 7,294,901 7,277,229 7,252,990
========== ========== =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 30, 1997,
DECEMBER 31, 1996 AND DECEMBER 26, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
Shares of Paid-In Accumulated
Common Stock Capital Deficit Total
<S> <C> <C> <C> <C>
BALANCE, December 27, 1994 7,232,690 $24,685 ($2,733) $21,952
Net loss - - (1,931) (1,931)
Shares issued -
Employee Stock Purchase Plan 20,300 78 - 78
--------- ------ ------ ------
BALANCE, December 26, 1995 7,252,990 24,763 (4,664) 20,099
Net loss - - (19,381) (19,381)
Shares issued - Employee Stock
Purchase Plan 24,239 32 - 32
--------- ------ ------ ------
BALANCE, December 31, 1996 7,277,229 $24,795 (24,045) 750
Net income - - 1,357 1,357
Shares issued - Employee Stock
Purchase Plan 13,622 11 - 11
Shares issued - Employee Awards 4,050 - - -
--------- ------- ------- -----
BALANCE, December 30, 1997 7,294,901 $24,806 ($22,688) $2,118
========== ======== ========= ======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
TOPS APPLIANCE CITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 1997,
DECEMBER 31, 1996 AND DECEMBER 26, 1995
(dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $1,357 ($19,381) ($1,931)
Adjustments to reconcile net income (loss)
to net cash used in operating activities-
Depreciation and amortization 4,897 5,897 6,081
Deferred rent (1,378) 387 494
Extraordinary gain on debt extinguishment (8,482) - -
Write-off of fixed assets relating to
store closing 1,628 - -
Gain on sale of assets relating to sale
and leaseback (72)
Amortization of deferred income - (73) (216)
Changes in assets and liabilities-
Accounts receivable 254 97 201
Inventory 2,289 3,663 1,442
Prepaid expenses and other
current assets 412 (228) (314)
Deferred taxes - (236) (1,006)
Accounts payable (1,215) (3,204) (5,995)
Accrued liabilities and taxes payable (2,851) (1,631) (376)
Customer deposits 166 180 (1,716)
Other assets 769 (1,595) (2,008)
Other liabilities 4 (111) (94)
------- -------- -------
Net cash used in operating activities (2,222) (16,235) (5,438)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (635) (1,148) (2,111)
Net proceeds from sale of assets
relating to sale and leaseback 13,772 - -
------ -------- -------
Net cash provided by (used in)
investing activities 13,137 (1,148) (2,111)
------ -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from Employee Stock
Purchase Plan 11 32 78
Cash overdrafts (1,860) (358) (3,773)
Short-term borrowings 1,654 13,004 (700)
Proceeds from long-term borrowings - - 9,200
Long-term debt repayments (9,717) (655) (894)
Related party payments (782) (782) (782)
------- -------- -------
Net cash (used in) provided by
financing activities (10,694) 11,241 3,129
-------- -------- -------
Increase (decrease) in cash and
cash equivalents 221 (6,142) (4,420)
CASH AND CASH EQUIVALENTS, beginning of year 2,147 8,289 12,709
CASH AND CASH EQUIVALENTS, end of year $2,368 $2,147 $8,289
====== ====== ======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $6,087 $5,939 $4,265
Income taxes paid 8 30 196
====== ======= ======
NON CASH TRANSACTIONS:
Capital lease obligation incurred $16,820 ------- ------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
TOPS APPLIANCE CITY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BASIS OF PRESENTATION:
Tops Appliance City, Inc. (the "Company") is a publicly held retailer
of major household appliances, audio/video electronic goods and home office
products with seven megastores, five of which are located in New Jersey and two
in New York. The Company may be subject to sales fluctuations due to increased
competition, consumer spending levels and weather conditions, as a result of
demand for air conditioners during the summer months and the ability of
customers to travel to stores during the winter months.
The Report of Independent Public Accountants on the consolidated
financial statements for the year ended December 31, 1996 included an
explanatory paragraph regarding the Company's ability to continue as a going
concern. This opinion was based, among other things, upon the Company's
significant operating loss during that period, which caused a decline in working
capital and stockholders' equity.
During 1997 and continuing into 1998, management of the Company has
instituted several changes that have improved the Company's financial condition
and its results of operations. These changes include a reduction in the level of
long-term debt and operating expenses, the sale of certain real estate property
to provide additional operating funds, closure of an unprofitable store as well
as re-established and improved trade credit. In addition, in 1998, the Company
obtained an increase in the amounts available under its secured credit facility
(Note 4).
Management of the Company believes that these initiatives, together
with the results of operations for 1998, will provide sufficient resources to
fund the Company's operations for the coming year.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents-
The Company considers all highly-liquid securities with an original
maturity less than three months to be cash equivalents.
Concentrations of Credit-
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of temporary cash
investments. The Company places its temporary cash investments in high credit
quality financial instruments in accordance with debt agreements. At times such
investments may be in excess of the FDIC insurance limit.
Use of Estimates-
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments-
The carrying value of the Company's financial instruments, excluding
the subordinated debentures (see Note 4), approximates fair value.
Consolidation-
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. All significant intercompany accounts
and transactions have been eliminated.
Merchandise Inventory-
Merchandise inventory is stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method.
Property, Equipment and Leasehold Improvements-
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the respective assets which range from 3 to 35
years.
Deferred Financing Costs-
Included in other assets is $1,157,000 and $1,463,000 at December 30,
1997 and December 31, 1996, respectively, of costs associated with obtaining the
debt discussed in Note 4. The deferred costs associated with the convertible
subordinated debentures and the revolving credit facility are being amortized
over periods ranging from three to ten years.
Preopening Costs-
Prior to January 1, 1997, it was the Company's policy to capitalize
costs (primarily personnel and training costs) associated with the opening of
new stores and amortize them on a straight-line basis over the twelve month
period following the store opening. Effective January 1, 1997, preopening store
costs are being expensed in the year incurred. During the periods presented,
there were no preopening costs incurred or expensed.
Accounts Payable-
Included in accounts payable is a cash overdraft balance of $2,180,000 and
$4,040,000 at December 30, 1997 and December 31, 1996, respectively.
Revenue Recognition-
Merchandise Sales-
Revenue is recognized upon receipt of the merchandise by the customer.
The Company provides appropriate allowances for sales returns and uncollectible
accounts based upon reviews of sales and credit history.
Product Protection Plans-
The Company purchases product protection plans on a non-recourse basis
from a third party who performs the obligations of the Company under its
protection plans through factory authorized service centers. The third party is
required to maintain insurance, with the Company named as insured, guaranteeing
performance of the third party's obligation to the Company. The difference
between the sales price of the Company's protection plan and the purchase price
of the third party protection plan is recognized as revenue at the time of sale,
since the Company has substantially completed what it must do to be entitled to
the benefits represented by the revenue and it is remote that any future costs
will be incurred with respect to such contracts. The revenues and related costs
associated with the sale of product protection plans are as follows-
December 30, December 31, December 26,
1997 1996 1995
Revenues $13,768,000 $13,705,000 $21,368,000
Cost of sales 5,912,000 5,830,000 8,996,000
Selling, General and Administrative Expenses-
Included in selling, general and administrative expenses are
advertising costs which are charged to operations as incurred. Advertising
expense, net of reimbursements from vendors, was $864,000, $5,981,000 and
$7,294,000 for 1997, 1996 and 1995, respectively.
Net Income (Loss) Per Share-
Effective for the year ended December 30, 1997, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The adoption of SFAS No. 128 requires the presentation of Basic Earnings
per Share and Diluted Earnings per Share. Basic Earnings per Share is based on
the average number of common shares outstanding per year. Diluted Earnings per
Share is based on the average number of common shares outstanding during the
year plus the common share equivalents, if any, related to outstanding stock
options and deferred contingent common stock awards. The adoption of SFAS No.
128 had no effect on previously reported earnings per share and there was no
difference between basic and diluted earnings per share for all periods
presented.
Stock Based Compensation-
The Company grants stock options for a fixed number of shares to
employees with an exercise price equal to the fair value of the shares at the
date of grant. As permitted by FASB Statement No. 123, "Accounting and
Disclosure of Stock Based Compensation", the Company has elected to account for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and, accordingly, recognizes no compensation expense for
the stock option grants. The Company has adopted the pro forma disclosure-only
option under Statement No. 123.
Long-Lived Assets-
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement No.
121 in the first quarter of 1996. The Company assesses impairment at the
individual store level and believes that no impairment of long-lived assets has
occurred as of December 30, 1997 and December 31, 1996.
New Accounting Standards-
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements and requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company will adopt SFAS
No. 130 during the first quarter of fiscal 1998. The adoption of this
pronouncement is expected to have no impact on the Company's financial position
or results of operations. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
required to be adopted for the Company's 1998 year-end financial statements. The
Company is currently evaluating the impact, if any, of the adoption of this
pronouncement on the Company's existing disclosures.
Fiscal Year-
The Company's fiscal year ends on the last Tuesday of December. Fiscal 1996
contains 53 weeks, and fiscal 1997 and fiscal 1995 contain 52 weeks.
Reclassification-
Certain December 31, 1996 and December 26, 1995 balances have been
reclassified to conform to the December 30, 1997 presentation.
(3) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements and related depreciation
periods consist of the following-
December 30, 1997 December 31, 1996
Land and buildings (35 years) $16,820,000 $13,970,000
Computer equipment and purchased
software (5 years) 11,978,000 11,364,000
Transportation equipment (5 years) 746,000 869,000
Furniture, fixtures and store
equipment (5 years) 9,599,000 9,579,000
Warehouse equipment (5 years) 2,324,000 2,324,000
Leasehold improvements (3 to 25 years) 18,823,000 21,047,000
---------- -----------
60,290,000 59,153,000
Less- Accumulated depreciation 30,354,000 27,295,000
---------- ----------
$29,936,000 $31,858,000
=========== ==========
Depreciation expense was $4,529,000, $4,906,000 and $5,015,000 for 1997,
1996 and 1995, respectively.
(4) DEBT:
Short-Term Debt-
The Company currently utilizes a $35 million secured credit facility
expiring October 28, 1999. The revolver bears interest at the bank's base rate
plus 1% or, for a portion of the loan, LIBOR plus 3%. Borrowings are based on
65% of eligible inventory, as defined, and amounts available under the agreement
may be reduced to reflect availability reserves, based on certain conditions as
determined by the lender. In addition, a material adverse change in the
Company's consolidated financial condition may be deemed an event of default
under the agreement. All of the Company's unencumbered cash, equipment,
inventory and accounts receivable are pledged as collateral for the new
facility. As of December 30, 1997 and December 31, 1996, $23,558,000 and
$21,904,000, respectively was outstanding under this credit facility.
Additional borrowings available at December 30, 1997 were $5,153,000.
Long-Term Debt-
Long-term debt consists of the following-
December 30, 1997 December 31, 1996
Convertible Subordinated
Original Debentures (A) $23,305,000 $40,000,000
Convertible Subordinated New
Debentures (B) 7,687,500 -
Equipment Financing Loans (C) - 146,000
Mortgage Payable (D) - 9,045,000
Capital Lease Obligation (D) 16,740,000 -
---------- ---------------
47,732,500 49,191,000
Less current portion 110,000 247,000
------------ ------------
Total long-term debt,
net of current portion $47,622,500 $48,944,000
=========== ===========
(A) The $23,305,000 of 6-1/2% Convertible Subordinated Debentures due
2003 (the "Original Debentures"). Interest is paid semi-annually on February 28
and August 31. The Original Debentures are convertible into common stock of the
Company at a conversion price of $22.25 per share, subject to adjustment in
certain circumstances. The Original Debentures are redeemable, in whole or in
part, for cash at any time on or after November 30, 1996 at the option of the
Company, at a redemption price beginning at 103.25% and thereafter declining
ratably to par plus accrued interest to the date of redemption. No quoted market
price is available for the Original Debentures, however, the Company estimates
the fair value is approximately 40% of face value, based on the limited
transactions for these instruments, including those described below.
On September 1, 1997, the Company exchanged $15,375,000 of the
$40,000,000 6-1/2% Convertible Subordinated Debentures due 2003 for $7,687,500
of 6-1/2% Convertible Subordinated Debentures due 2003 (the "New Debentures").
The New Debentures rank pari passu with the Original Debentures in respect to
principal and interest but have a substantially lower conversion price (see
(B)). This transaction generated an extraordinary gain of $7,687,500 during the
fiscal year ended December 30, 1997, based upon the difference between the face
value of the Original Debentures exchanged and the face value of the New
Debentures issued.
During the fourth quarter of 1997, the Company entered into a series of
transactions for the repurchase of Original Debentures outstanding. The Company
purchased $1,320,000 face value of the Original Debentures for a purchase price
of $525,550. These transactions generated an extraordinary gain of $794,450
during the fiscal year ending December 30, 1997.
(B) The $7,687,500 of 6-1/2% Convertible Subordinated Debentures due
2003. Interest is paid semi-annually on February 28 and August 31. The New
Debentures are convertible into common stock (but not prior to February 1999) at
a conversion price of $1.75 per share. No quoted market price is available for
the New Debentures, however based upon the recent issuance of these securities,
the Company believes their carrying cost approximates fair market value at
December 30, 1997.
(C) The Equipment financing loans were paid in full during 1997. The
loans were payable in 48 monthly installments of principal and interest through
October 28, 1997. The interest rates varied between 8.5% and 8.75%. The loans
were secured by certain fixed assets. The carrying value of the loans
approximated fair value due to their short-term maturities.
(D) On November 5, 1997, the Company entered into a sale and leaseback
agreement relating to the Queens, New York store which was previously owned by
the Company. Part of the proceeds of the sale were utilized to eliminate the
outstanding mortgage on the property. The Company simultaneously entered into a
lease agreement for the property with an initial term expiring on October 31,
2022. The lease also contains two 10 year renewal periods at the Company's
option. This lease has been accounted for as a capital lease with the building
and initial capital lease obligation reflected at the fair market value of the
property on the date of lease inception. The minimum future obligations under
the lease have been discounted based upon the implicit lease rate of 12.3%
The 8.75% fixed rate mortgage loan on the Queens property was
eliminated when the Company completed the sale and leaseback transaction in
November 1997. Interest and principal were payable in equal monthly installments
of $76,000 to July 2005 at which time the remaining principal was due.
Principal payments required under long-term debt obligations for years
subsequent to December 30, 1997 are as follows-
1998 $ 110,000
1999 124,300
2000 140,400
2001 158,800
2002 179,400
Thereafter $47,019,600
(5) COMMITMENTS AND CONTINGENCIES:
The Company's retail stores, distribution center and office space are
leased under operating leases. The leases have initial remaining terms of three
to twenty-five years with renewal options from five to thirty years. Most of the
leases are net, requiring additional payments for real estate taxes, maintenance
and insurance.
During 1995, the Company obtained an option to purchase property which
will be the site of another store which is expected to open during 1998.
One of the Company's stores and the distribution center/corporate
office are leased from a proprietorship affiliated with the former Chairman of
the Board. These rentals are included in the related party amounts in the table
below.
Rental expense charged to operations under the leases described above,
all of which are classified as operating leases, are summarized below-
<TABLE>
<CAPTION>
Year Ended
December 30, December 31, December 26,
1997 1996 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Rentals under-
Related party leases $1,979,000 $1,848,000 $1,836,000
Other leases 5,298,000 5,660,000 5,323,000
--------- --------- ----------
$7,277,000 $7,508,000 $7,159,000
========== ========== ==========
</TABLE>
Minimum annual rental payments under operating leases in fiscal years
subsequent to December 30, 1997 are as follows-
1998 $5,759,000
1999 5,241,000
2000 5,139,000
2001 5,043,000
2002 2,207,000
Thereafter 7,109,000
The Company presently has employment contracts with five officers which
commit the Company to various salary and fringe benefit obligations through 2000
(as specified in the individual agreements). The aggregate salary obligation
under these agreements is $936,000, $700,000 and $125,000 for the years ending
1998 through 2000, respectively.
In connection with the floor plan financing for certain inventory
purchases, such floor planners have a security interest in the inventory
purchased through such floor planning arrangements.
At December 30, 1997 and December 31, 1996, the Company had standby
letters of credit of $785,000.
(6) 401(K) SALARY SAVINGS PLAN:
The Company maintains a defined contribution 40l(k) plan which allows
eligible employees to defer a portion of their income through contributions to
the plan. Under the terms of the plan, the Company contributes an amount equal
to 2-1/2% of the total annual compensation paid to plan participants and may
contribute additional amounts on a discretionary basis. Effective January 1997,
the Plan was modified whereby the Company contributes 25% of the participant's
contribution up to 10% of that participant's annual compensation. Plan
forfeitures are utilized to fund the Company's contribution requirements.
The Company's contributions to the plan were as follows-
1997 $290,000
1996 632,000
1995 856,000
(7) LITIGATION:
The Company is involved in litigation, both as plaintiff and defendant,
incidental to the conduct of its business. It is the opinion of management,
after consultation with its counsel, that the outcome of such litigation will
not have a material adverse effect on the Company's financial condition or the
results of its operations.
(8) STOCK OPTION PLANS:
The Company offers two incentive stock option plans (the "Plans"). In
addition, non-qualified stock options have been issued that are not covered by
the Plans. A total of 1,200,000 shares of common stock are reserved for issuance
under the incentive stock option plans and 570,000 shares of common stock are
reserved for issuance relating to nonqualified stock options. The exercise price
of stock options granted may not be less than 100% (110% in the case of
incentive stock options granted to owners of more than 10% of the total combined
voting power of all classes of stock of the Company) of the fair market value at
the time of grant. Options are generally exercisable over a three year period.
Stock option transactions for the periods indicated were as follows-
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Number Wt Avg Number Wt Avg Number Wt Avg
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year ($1.44 to $6.88) 1,110,300 $2.97 796,700 $5.49 600,000 $6.40
Granted ($1.00 to $5.00) 297,000 $1.15 1,041,300 $2.35 385,000 $4.44
Canceled ($2.38 to $6.25) (250,600) $3.14 (727,700) $4.84 (188,300) $6.25
--------- ------ --------- ----- -------- -----
Options outstanding at end of year 1,156,700 $2.46 1,110,300 $2.97 796,700 $5.49
($1.00 to $6.88) ========= ========= =======
Exercise price range of 12/97 options
1.000 1.440 333,000
2.375 2.625 713,700
6.250 6.880 110,000
--------
1,156,700
</TABLE>
<TABLE>
<CAPTION>
DETAIL OF 1997 OUTSTANDING OPTIONS BALANCE:
SHARES VESTED REMAINING
SHARES EXERCISE ISSUE VESTED VALUE LIFE (YRS)
PLAN O/S PRICE DATE @ 12/97 @ 12/97 @12/97
- ---- -------- --------- ----- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ISO ........ 13,000 6.250 04-18-94 13,000 81,250 9.5
ISO ........ 326,000 2.375 06-03-96 108,667 258,083 10.0
ISO ........ 103,000 1.310 08-29-97 0 0 0.0
ISO ........ 53,396 6.880 04-18-94 53,396 367,364 9.5
NQO ........ 43,604 6.880 04-18-94 43,604 299,996 9.5
NQO ........ 47,700 2.625 06-03-96 15,900 41,738 10.0
NQO ........ 250,000 2.375 06-03-96 83,333 197,917 10.0
NQO ........ 100,000 1.063 11-19-97 100,000 106,300 10.0
NQO ........ 90,000 2.375 06-03-96 30,000 71,250 10.0
NQO ........ 30,000 1.063 10-15-97 30,000 31,890 10.0
NQO ........ 40,000 1.440 09-01-96 40,000 57,600 10.0
NQO ........ 50,000 1.063 10-15-97 0 0 0
NQO ........ 10,000 1.000 03-12-97 0 0 0
1,156,700 2.463 517,900 1,513,388
============ ===== ======= =========
Weighted average exercise price at 12/97 2.922
=====
Weighted average remaining life (years) at 12/97 9.9
===
</TABLE>
The Company applies "Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. Had compensation cost for the Company's stock option
plans been determined based upon the fair value at the grant date, consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
income and earnings per share would have been as follows-
1997 1996 1995
----------- ----------- ----------
Net income (loss)-
As reported $1,357,000 ($19,381,000) ($1,931,000)
Pro forma 720,000 (19,864,000) (2,093,000)
Pro forma net income
(loss) per share-
As reported $0.18 ($2.66) ($0.27)
Pro forma 0.10 (2.72) (0.28)
These pro forma amounts may not be representative of future disclosures
because the estimated fair value of stock options is amortized over the vesting
period, and additional options may be granted in future years.
Using the Black-Scholes option valuation model, the estimated fair values
of options granted during 1997, 1996 and 1995 were $0.85, $1.68 and $3.14,
respectively. The Black-Scholes model was developed for use in estimating the
fair value of traded options which have no vesting restrictions. In addition,
such models require the use of subjective assumptions, including expected stock
price volatility. In management's opinion, such valuation models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Principal assumptions used in applying the Black-Scholes model were as
follows-
1997 1996 1995
------- ------- -------
Risk-free interest rate 6.0% 6.6% 6.0%
Expected life, in years 5 5 5
Expected volatility 91% 67% 67%
Expected dividend yield 0.0% 0.0% 0.0%
(9) STOCK PURCHASE PLAN:
The Company has established an Employee Stock Purchase Plan (the "Plan"). A
total of 200,000 shares of common stock are reserved for issuance under the
Plan. The Plan enables participating employees to purchase the Company's common
stock through payroll deductions at a value equal to 85% of the market value of
the common stock on the first or last day of the offering period, whichever is
lower. During 1997 and 1996, common stock totaling 13,622 and 24,239 shares,
respectively, were issued under the Plan.
(10) INCOME TAXES:
Deferred income taxes at December 30, 1997 and December 31, 1996 reflect
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's deferred tax assets
and liabilities are as follows-
1997 1996
---------- ---------
Current deferred tax assets-
Compensation not currently deductible $ - $313,000
Inventory 301,000 376,000
Accrued liabilities 129,000 152,000
Other 223,000 324,000
Valuation allowance (481,000) (885,000)
--------- ---------
Total current deferred tax assets 172,000 280,000
Current deferred tax liabilities-
Vendor allowances 2,545,000 2,899,000
Other 567,000 139,000
Total current deferred tax liabilities 3,112,000 3,038,000
--------- ---------
Net current deferred tax liabilities $2,940,000 $2,758,000
========== ==========
Long-term deferred tax assets-
Federal and state loss carryforwards $6,941,000 $7,150,000
Alternative minimum tax and job credit
carryforward 593,000 604,000
Compensation not currently deductible - 37,000
Rent 805,000 1,266,000
Depreciation 2,502,000 1,992,000
Warranty 348,000 343,000
Valuation allowance (8,244,000) (8,629,000)
----------- -----------
Total long-term deferred tax assets 2,945,000 2,763,000
Long-term deferred tax liabilities - Other 5,000 5,000
------------- -----------
Net long-term deferred tax assets $2,940,000 $2,758,000
========== ==========
At December 30, 1997, the Company has a Federal net operating loss
carryforward of approximately $16,570,000 of which the majority expires in 2010.
Components of the benefit for income taxes (before extraordinary item) are
as follows-
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Current-
Federal $ - ($1,778,000) ($298,000)
State - 14,000 16,000
---------- ----------- ----------
(1,764,000) (282,000)
Deferred-
Federal - (236,000) (752,000)
State - - (254,000)
---------- ----------- ----------
- (236,000) (1,006,000)
---------- ----------- ----------
Benefit for income taxes $ - ($2,000,000) ($1,288,000)
========== =========== ==========
</TABLE>
A reconciliation of the effective tax rate to the Federal statutory rate is
as follows-
1997 1996 1995
---- ---- ----
Federal statutory rate (34.0%) (34.0%) (34.0%)
State income taxes, net of
Federal income tax benefit - - (4.9)
Increase in valuation allowance
attributable to Federal net
operating loss carryforward not
recognized 34.0 26.0 -
Other - (1.4) (1.1)
----- ------ -----
Effective tax rate 0% (9.4%) (40.0%)
In addition, the tax provision attributable to the gain on debt
extinguishment has been offset by a reduction in the valuation allowance
attributable to net operating losses incurred in prior periods.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
TOPS APPLIANCE CITY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 30, 1997, DECEMBER 31, 1996 AND DECEMBER 26, 1995
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period and Expenses Deductions of Period
----------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C>
Year ended December 26, 1995 --
Allowance for doubtful accounts $263,000 $240,000 $130,000 $373,000
--------- -------- -------- --------
Year ended December 31, 1996 --
Allowance for doubtful accounts $373,000 $360,000 $465,000 $268,000
-------- -------- -------- --------
Year ended December 30, 1997 --
Allowance for doubtful accounts $268,000 $180,000 $145,000 $303,000
-------- -------- -------- --------
</TABLE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Registrant has engaged Arthur Andersen LLP as its independent certifying
accountant effective August 28, 1997 replacing Ernst & Young, its prior
independent certifying accountant, as of the same date. The change in
independent certifying accountant was approved by the Board of Directors of
Registrant.
The reports of Ernst & Young respecting Registrant for fiscal years 1995
and 1996 contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or application of
accounting principles, except that Ernst & Young qualified its 1996 report as to
registrant's ability to continue as a going concern. During fiscal years 1995
and 1996 and the subsequent period thereto prior to the dismissal of Ernst &
Young, there were no disagreements between Registrant and Ernst & Young on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
During fiscal years 1995 and 1996 and the subsequent period thereto prior
to engaging Arthur Andersen LLP, the Registrant had no discussions with Arthur
Andersen LLP regarding either the application of an accounting principle, the
type or opinion that would be rendered in Registrant's financial statements or
any matter that was the subject of disagreement with Ernst & Young.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required in response to this item is
incorporated by reference from the Registrant's proxy statement for its 1998
annual meeting of shareholders to be filed with the Securities and Exchange
Commission on or before April 29, 1998.
ITEM 11. Executive Compensation
The information required in response to this item is
incorporated by reference from the Registrant's proxy statement for its 1998
annual meeting of shareholders to be filed with the Securities and Exchange
Commission on or before April 29, 1998.
ITEM 12. Security Ownership of Certain Beneficial Ownership and Management
The information required in response to this item is
incorporated by reference from the Registrant's proxy statement for its 1998
annual meeting of shareholders to be filed with the Securities and Exchange
Commission on or before April 29, 1998.
ITEM 13. Certain Relationships and Related Transactions
The information required in response to this item is incorporated by
reference from the Registrant's proxy statement for its 1998 annual meeting of
shareholders to be filed with the Securities and Exchange Commission on or
before April 29, 1998.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Reports of Independent Public Accountants.........................12
Consolidated Balance Sheets as of December 30, 1997 and
December 31, 1996..................................................4
Consolidated Statements of Operations for years
ended December 30, 1997, December 31, 1996, and
December 26, 1995..................................................5
Consolidated Statements of Shareholders' Equity................... 6
Consolidated Statements of Cash Flows for years
ended December 30, 1997, December 31, 1996 and
December 26, 1995..................................................7
Notes to Consolidated Financial Statements........................ 8
(a)(2) Financial Statement Schedule
The following are included in Part II, Item 8:
Schedule II- Valuation and Qualifying
Accounts and Reserves............................................S-2
(a)(3) Exhibits
Except where noted, all exhibits are incorporated by reference from the
Registrant's registration statement on Form S-1 as filed with the Securities and
Exchange Commission on June 3, 1992, and amendments thereto, Registration No.
33-48326.
Exhibit Number Description of Document
3.1 The Registrant's Certificate of Incorporation
3.2 The Registrant's By-Laws
4 Specimen of stock certificate for shares of common stock
4.2 Indenture dated as of November 30, 1993 between Tops
Appliance City, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (incorporated by reference from Form S-3 filed February
10, 1994)
4.3 Registration Rights Agreement dated as of November 30, 1993
between Tops Appliance City, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference from Form S-3 filed
February 10, 1993)
10.1 Security Agreement dated April 27, 1992 between Maytag Financial
Service Corp. and Tops Appliance City, L.P.
10.2 Security Agreement dated January 19, 1989 between General
Electric Capital orporation and Tops Appliance City, L.P.
10.3 Security Agreement dated January 15, 1990 between Tops Appliance City,
L.P. and WCI Acceptance Corporation
10.4 Floor Plan Inventory Security Agreement dated March 19, 1990 between
Tops Appliance City, L.P. and Carrier Distribution Credit Corporation
10.5 Lease dated March 3, 1984 between Leslie S. Turchin and Tops
Appliance City, L.P., as amended (1745 Route 27, Edison, New Jersey)
10.6 Lease dated October 11, 1985 between Leslie S. Turchin and Tops
Appliance City, L.P. (45 Brunswick Avenue, Edison, New Jersey)
10.7 Lease Dated May 21, 1986 between Mack Edison Co. and Tops Appliance
City, L.P., as amended
10.8 Lease dated May 21, 1986 between Mack Industries and Tops Appliance
City, Inc., as amended
10.9 Lease dated April 27, 1988 between Castle Ridge Shopping Plaza
Associates and Tops Appliance City, L.P.
10.10 Lease dated June 2, 1989 between Sudler Town and Country Limited
Partnership and Tops Appliance City, L.P.
10.11 Management Agreement dated November 30, 1988 between Tops Appliance
City, L.P. and Leslie S. Turchin, as amended
10.12 Management Agreement dated January 1, 1989 between Tops Appliance
City, L.P. and Philip M. Schmidt, as amended
10.13 Form of Equipment Loan Agreement between Tops Appliance City, L.P. and
Bell Atlantic Mobile Systems, Inc.
10.14 Form of Hardware/Software License Agreement between Tops Appliance
City, L.P. and Bell Atlantic Mobile Systems, Inc.
10.15 Delivery Agreement dated January 30, 1992 between Tops Appliance City,
L.P. and Merchants Home Delivery Service, Inc.
10.16 Form of Amended and Restated Section 401(k) Plan dated July 29, 1988
10.17 Summary Plan and Description Amended and Restated 401(k) Plan dated
January 1, 1988
10.18 Form of Executive and Deferred Compensation Plan
10.19 Form of Premium Conversion Plan
10.20 Form of Stock Option Plan
10.21 Extended Service Agreement dated October 19, 1987 between
Warrantech Corporation and Tops Appliance City, Inc.
10.22 Extended Service Agreement dated April 29, 1988 between
Warrentech Corporation and Tops Appliance City, Inc.
10.23 Account Financing Agreement dated December 30, 1986 between
General Electric Capital Corporation and Tops Appliance City, L.P.
10.24 Lease dated July 7, 1992 between New York Medical
College and Tops Appliance City, L.P.
10.25 Third Amendment to Management Agreement between Tops
Appliance City, Inc. and Leslie S. Turchin dated December 16, 1992
(incorporated by reference from 8-K filed January 11, 1993).
10.26 Lease dated February 11, 1993 between Tops Appliance City, Inc. and
Jerry Spiegel and Jesco Co. (incorporated by reference from 8-K filed
April 6, 1993.)
10.27 Lease dated May 1993 between Tops Appliance City, Inc. and
Lester Robbins, Trustee (incorporated by reference from 8-K
filed June 11, 1993).
10.28 Management Agreement dated July 31, 1995 between Tops
Appliance City, Inc. and Rick Jones (incorporated by reference
from Annual Report on Form 10-K for year ending December 26, 1995.
10.29 Management Agreement dated May 31, 1995 between Tops
Appliance City, Inc. and Robert Gross (incorporated by reference
from Annual Report on Form 10-K for year ending December 26, 1995.)
10.30 Addendum to Management Agreement dated October 15, 1997
between Tops Appliance City, Inc. and Thomas L. Zambelli - Page 26.
10.31 Addendum to Management Agreement dated November 20, 1997
between Tops Appliance City, Inc. and Robert Gross - Page 28.
10.32 Addendum to Management Agreement dated October 15, 1997
between Tops Appliance City, Inc. and Richard Jones - Page 31.
10.33 Stock Purchase Agreement dated November 5, 1997 by and between SSP,
L.L.C., Tops Appliance City of New York, Inc. and Tops Appliance City,
Inc. - Page 33.
10.34 Debenture Exchange Agreement dated August 20, 1997, effective
September 1, 1997 between Tops Appliance City, Inc. and BEA
Associates - Page 35.
10.35 First Amendment to Lease dated November 5, 1997 between Tops Appliance
Realty, Inc. and Tops Appliance City, Inc.
22 List of Subsidiaries of the Registrant- Page 108.
24.1 Consent of Arthur Andersen L.L.P. - Page 109.
24.2 Consent of Ernst & Young LLP - Page 110.
(b) Reports on Form 8-K
Form 8-K filed February 6, 1997 with respect to Leslie S. Turchin's
resignation as the Registrant's Chairman of the Board of Directors. Robert G.
Gross was immediately elected as Chairman of the Board of Directors. The
Registrant also announced that Richard L. Jones was named Chief Operating
Officer in addition to his duties as Senior Vice President and General
Merchandise Manager.
Form 8-K filed August 27, 1997 with respect to the Registrant's entering
into a Debenture Exchange Agreement with BEA Associates for $15,375,000 of the
Registrant's 6 1/2% Convertible Debentures due 2003 (the "Original Debentures")
for $7,687,500 of the Registrant's 6 1/2% Convertible Debenture due 2003 (the
"New Debentures"). The New Debentures are convertible into shares of the
Registrant at a conversion price of $1.75 per share.
Form 8-K filed September 4, 1997 with respect to the completion of the
Debenture Exchange Agreement with BEA Associates effective September 1, 1997.
Form 8-K filed September 4, 1997 with respect to the Registrant's engaging
Arthur Andersen LLP as it's new independent certifying accountant effective
August 28, 1997 replacing Ernst & Young.
Form 8-K filed December 29, 1997 with respect to the Registrant's sale of
the stock of a wholly owned subsidiary which owned certain real estate in
Queens, New York.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TOPS APPLIANCE CITY, INC.
BY: /s/ Robert G. Gross
-------------------------
ROBERT G. GROSS
Chief Executive Officer
BY: /s/ Thomas L. Zambelli
-------------------------
THOMAS L. ZAMBELLI
Chief Accounting Officer
Dated: October 8, 1998
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Signature Title Date
/s/ Robert G. Gross Chairman of the Board, October 8, 1998
- --------------------- Chief Executive Officer
ROBERT G. GROSS
/s/ Thomas L. Zambelli Exec. Vice President, October 8, 1998
- ---------------------- Chief Accounting Officer
THOMAS L. ZAMBELLI
/s/ Leslie S. Turchin Director October 8, 1998
- ---------------------
LESLIE S. TURCHIN
/s/ Anthony L. Formica Director October 8, 1998
- ----------------------
ANTHONY L. FORMICA
/s/ John H. Hollands Director October 8, 1998
- ---------------------
JOHN H. HOLLAND
<PAGE>
EXHIBIT 10.35
FIRST AMENDMENT TO LEASE
This is a First Amendment ( FIRST AMENDMENT ) dated November 5, 1997, to
Lease (the "Lease") dated July 28, 1995 between Tops Appliance Realty, Inc.
("Landlord") and Tops Appliance City, Inc. ("Tenant").
1. ARTICLE 3 of the Lease shall be deleted in its entirety and the
following paragraph shall be substituted in its place:
ARTICLE 3. TERM
3.1 The term of the Lease (the "Initial Term") shall commence on the
date of this First Amendment (hereinafter called the "Commencement Date") and
shall end at noon of the last day of the calendar month preceding the
twenty-fifth anniversary of the Commencement Date, which ending date is
hereinafter called the "Expiration Date", or shall end on such earlier date upon
which said term may expire or be cancelled or terminated pursuant to any of the
terms or covenants of this Lease or pursuant to law.
3.2 Provided Tenant shall not then be in default of this Lease, Tenant
shall have the option, exercisable by giving notice to the Landlord not less
than six months before the end of the Initial Term, to extend the tei~n of this
Lease for a further period of ten years following the end of the Initial Terrn
(herein referred to as the "First Option Term") at the base rent set forth in
Schedule A below, attached hereto and made a part hereof, and otherwise upon the
same terms, covenants and conditions set forth herein. Each rent increase shall
take effect on November 1 of each year during the Initial Term, the First Option
Term and the Second Option Term.
3.3 Provided Tenant shall not then be in default of this Lease, and
shall have exercised the option provided in Paragraph 3.2 of this Article,
Tenant shall have the further option, exercisable by giving notice to the
Landlord not less than six months before the end of the First Option Term, to
extend the term of this Lease for a further period of ten years following the
end of the First Option Terrn (herein referred to as the "Second Option Term")
at the base rent set forth in Schedule A below, attached hereto and made a parr
hereof, and otherwise upon the same terms, covenants and conditions set forth
herein.
3.4 Unless the context otherwise requires, all references herein to the
term of this Lease shall mean the Initial Term, as extended as provided herein.
2. Paragraph 4.1(a) shall be deleted in its entirety and the following
paragraph shall be substituted in its place:
(a) Fixed annual rental shall be payable as follows in equal
monthly installments in advance on the first day of each and
every month during the term of this Lease, in the amount set
forth for each year on Schedule A, attached hereto and made a
part hereof.
3. The last sentence of Paragraph 17.1 of the Lease shall be deleted in
its entirety and the following sentence shall be substituted in its place:
Landlord agrees to obtain for the benefit of Tenant a non-disturbance
agreement in form and substance reasonably satisfactory to Tenant from
each mortgagee of Landlord.
4. The following Article 34 shall be added to the Lease:
ARTICLE 34. SECURITY DEPOSIT
Tenant shall deposit with The Witkoff Group LLC in
escrow the sum of Five Hundred Thousand ($50O,000) Dollars
(the "Security Deposit") as security for the faithful
performance of Tenant's obligations hereunder. If Tenant fails
to pay rent payable hereunder, or otherwise defaults with
respect to any provision of this Lease after notice and
expiration of any applicable grace periods, Landlord may at
its option use, apply and retain all or any portion of the
Security Deposit (i) to remedy Tenant's defaults in the
payment of rent pursuant to the terms hereof, (ii) to repair
any damage to the Premises, (iii) to clean and otherwise
maintain the Premises, or (iv) to compensate Landlord for any
other loss or damage which Landlord may suffer thereby.
Notwithstanding anything to the contrary above,
Landlord agrees that the Security Deposit or any portion
thereof which is being held by Landlord or its counsel, shall
yield interest for the beneft of Tenant (provided Tenant is
not then in default) at the rate of interest earned by
Landlord with respect thereto, less one percent (1%) per
annum. Provided Tenant is not then in default, 20% of the
Security Deposit and all accrued interest thereon shall be
returned to Tenant commencing on the second annual anniversary
date of this Lease and continuing on each of the following
four annual anniversary dates.
5. The following Article 35 shall be added to the Lease:
Tenant shall pay Landlord the sum of FIFTY THOUSAND
DOLLARS ($50,000.00) per annum in quarterly installments of
TWELVE THOUSAND FI`IE HUNDRED DOLLARS ($12,500.00) each
quarter, until the earlier of (a) August 1, 2005, or (ii) that
certain date when Landlord's note and mortgage, each dated
July 28, 1995, with Chase Manhattan Bank (successor to
Chemical Bank), is satisfied and/or refinanced (the "Fee
Termination Date"). The first quarterly payment shall be made
on April 1, 1998, which payment shall cover the period of
January 1, 1998 through March 31, 1998, and thereafter the
quarterly payments shall be made on April 1st, July 1st,
October 1st and January 1st of each year until the Fee
Termination Date. Additionally, on January 1, 1998, Tenant
shall pay Landlord a prorated fee for the period commencing
November 5, 1997 until December 31, 1997, in the amount of
SEVEN THOUSAND SIX HUNDRED EIGHT DOLLARS ($7,608.00).
6. Paragraph 4. l(b), Lines 5 through 7 of the Lease shall be amended
so that the words "and any Landlord Mortgagee (as defined in Section 17.1
hereof)" shall be deleted. Additionally, the third sentence of Paragraph 10.1,
which states, "Tenant further agrees to undertake and perform any and all
repairs if, when and as required by, and to the satisfaction of, any Landlord
Mortgagee (as defined in Section 17.1 hereo0. " shall be deleted in its
entirety. The foregoing two Lease modifications in this Paragraph 6 of the
Amendment shall only become effective upon the earlier of (i) August 1, 2005, or
(ii) the Fee Termination Date, as defined in Paragraph 5 above.
7. Except as modified herein, the Lease shall remain in full force and
effect.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First
Amendment to Lease as of the date set forth below.
ATTEST: TOPS APPLIANCE REALTY, INC.
______________________________ By:____________________________________
Lee Feld, Secretary Steven C. Witkoff, President
ATTEST: TOPS APPLIANCE CITY, INC.
______________________________ By:____________________________________
Alexander Burlotos, Asst. Secretary Thomas L. Zambelli, Sr. Vice President
Dated: November 5, 1997
<PAGE>
SCHEDULE A
Year Annual Rent Monthly Rent
- ------------------------------------------------------------
1 2,170,000.00 180,833.33
2 2,170,000.00 180,833.33
3 2,170,000.00 180,833.33
4 2,170,000.00 180,833.33
5 2,170,000.00 180,833.33
6 2,213,400.00 184,450.00
7 2,257,668.00 188,139.00
8 2,302,821.36 191,901.78
9 2,348,877.79 195,739.82
10 2,395,855.34 199,654.61
11 2,443,772.45 203,647.70
12 2,492,647.90 207,720.66
13 2,542,500.86 211,875.07
14 2,593,350.87 216,112.57
15 2,645,217.89 220,434.82
16 2,698,122.25 224,843.52
17 2,752,084.69 229,340.39
18 2,807,126.39 233,927.20
19 2,863,268.92 238,605.74
20 2,920,534.29 243,377.86
21 2,978,944.98 248,245.42
22 3,038,523.88 253,210.32
23 3,099,294.36 258,274.53
24 3,161,280.24 263,440.02
25 3,224,505.85 268,708.82
First Option Term:
- ----------------------------------------------------------
26 3,288,995.97 274,083.00
27 3,354,775.89 279,564.66
28 3,421,871.40 285,155.95
29 3,490,308.83 290,859.07
30 3,560,115.01 296,676.25
31 3,631,317.31 302,609.78
32 3,703,943.65 308,661.97
33 3,778,022.53 314,835.21
34 3,853,582.98 321,131.91
35 3,930,654.64 327,554.55
<PAGE>
Year Annual Rent Monthly Rent
Second Option Term:
- ------------------------------------------------------------
36 4,009,267.73 334,105.64
37 4,089,453.08 340,787.76
38 4,171,242.15 347,603.51
39 4,254,666.99 354,555.58
40 4,339,760.33 361,646.69
41 4,426,555.54 368,879.63
42 4,515,086.65 376,257.22
43 4,605,388.38 383,782.36
44 4,697,496.15 391,458.01
45 4,791,446.07 399,287.17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-30-1997 DEC-30-1997
<PERIOD-END> DEC-30-1997 DEC-30-1997
<CASH> 2,368 2,368
<SECURITIES> 0 0
<RECEIVABLES> 1,101 1,101
<ALLOWANCES> 0 0
<INVENTORY> 53,895 53,895
<CURRENT-ASSETS> 59,444 59,444
<PP&E> 29,936 29,936
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 94,850 94,850
<CURRENT-LIABILITIES> 42,550 42,550
<BONDS> 47,623 47,623
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2,118 2,118
<TOTAL-LIABILITY-AND-EQUITY> 94,850 94,850
<SALES> 293,924 76,239
<TOTAL-REVENUES> 293,924 76,239
<CGS> 229,073 59,809
<TOTAL-COSTS> 229,073 59,809
<OTHER-EXPENSES> 65,712 15,744
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6,264 1,394
<INCOME-PRETAX> (7,125) (708)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,125) (708)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 8,482 794
<CHANGES> 0 0
<NET-INCOME> 1,357 86
<EPS-PRIMARY> 0.18 0.01
<EPS-DILUTED> 0.18 0.01
</TABLE>
