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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended February 3, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-24328
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Richman Gordman 1/2 Price Stores, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 47-0771211
- - --------------------------------------------------- --------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
12100 West Center Road, Omaha, Nebraska 68144
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 691-4000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None.
- - ----------------------------- --------------------------------------------
- - ----------------------------- --------------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Common Stock, Par Value $.01
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (# 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of April 15, 1996, an aggregate of 27,840,000 shares of Common Stock,
par value $.01, were outstanding, composed of 17,640,000 shares of Series A
Common Stock and 10,200,000 shares of Series B Option Common Stock. The
registrant's stock is not publicly traded, and therefore there is no
ascertainable aggregate market value of voting stock held by non-affiliates.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
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Portions of the registrant's Registration Statement on Form S-1
(Commission File No. 33-79352) and Amendment No. 4 thereto, have been
incorporated by reference in Part IV of this report.
Page 1 of 95
Exhibit Index on Page 73
<PAGE> 2
PART 1
Item 1. Business
THE COMPANY
General History
Richman Gordman 1/2 Price Stores, Inc. (the "Company") is the outgrowth of
a retail clothing business in Omaha dating back almost to the turn of the
century. The Company's predecessor was formed in 1915 by Sam Richman. In
1936, his son-in-law, Dan Gordman, joined him in the business, later becoming
his partner. In 1948, the Gordman family purchased the Richman family's
interests, with Dan Gordman becoming the Chairman and Chief Executive Officer
of Richman Gordman Stores. Until 1994, the Richman Gordman companies remained
privately owned, with all of the stock owned by members of Dan Gordman's
family.
Richman Gordman Stores, Inc.
Richman Gordman Stores, Inc. was the parent company of 1/2 Price Stores, a
regional retailer in the Midwest that operated the 1/2 Price Stores, a chain of
off-price stores offering first quality merchandise at one-half the traditional
department store full retail prices or one-half of manufacturers' suggested
retail price. Richman Gordman Stores was also the parent company of Richman
Gordman Department Stores which operated a separate chain of moderate-end and
full-price department stores. Richman Gordman Stores was a holding company
owning all of the Common Stock of 1/2 Price Stores and Richman Gordman
Department Stores.
Richman Gordman Department Stores, Inc.
Richman Gordman Department Stores, Inc. was a moderate-end department store
chain which at its peak consisted of 15 stores located in five Midwestern
states. Occupying a niche between mass merchants and traditional department
stores, Richman Gordman Department Stores was positioned as a promotional,
popularly priced, branded, family department store. The chain's merchandising
strategy was to dominate the market for "main floor" (i.e. popularly priced)
national brands in apparel and softline home furnishings by offering broad
assortments and inventory depth in sizes and colors, and by promoting
aggressively.
Through the end of the 1980s, Richman Gordman Department Stores
successfully maintained its market share in the face of growing competition
from a variety of regional and national retailers. However, three major
factors led to Richman Gordman
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Department Stores' eventual loss in market share and financial
stability: (i) national retailing trends favoring discount shopping; (ii) a
decision to upscale the merchandise offered by Richman Gordman Department
Stores; and (iii) an increasing overhead burden.
As part of the reorganization discussed below, and based on the above
factors, management decided to convert many of the Richman Gordman Department
Stores chain to the 1/2 Price Stores; those Richman Gordman Department Stores
that were not converted to 1/2 Price Stores were closed.
1/2 Price Stores, Inc.
The first 1/2 Price store opened in 1972 as an outlet for marked-down
Richman Gordman Department Stores merchandise. The concept evolved into an
independent chain with separate buying, operations, advertising and human
resource staffs.
The 1/2 Price concept is to offer first quality, nationally branded
merchandise at half of conventional department store prices or one-half of
manufacturer's suggested retail price, every day. 1/2 Price Stores is able to
execute this concept through opportunistic buying strategies including the
purchase of manufacturers' close-outs and overstocks, merchandise made from
excess piece goods and bulk production overruns. The quality and negotiating
strength of the 1/2 Price Stores' buying staff have enabled the 1/2 Price
Stores to acquire merchandise at substantial discounts from normal wholesale
prices, sell at not more than half of regular department store prices and
achieve strong gross margins.
Until recently, the 1/2 Price Stores had applied this concept with regard
to all merchandise sold in the stores. However, the rapidly changing and
increasingly competitive retail environment has prompted the 1/2 Price Stores
to introduce a three-tier merchandise pricing strategy in 1996. Please see
"Item 1. Business -- THE COMPANY -- Merchandising" for a discussion of the
Company's current merchandise pricing strategy.
The Bankruptcy
Plan of Reorganization
On June 17, 1992, Richman Gordman Stores, Richman Gordman Department Stores
and 1/2 Price Stores filed for protection under the United States Bankruptcy
Code (Case Nos. BK92-81073; BK92-81074 and BK92-81075, respectively) in the
United States Bankruptcy Court for the District of Nebraska. During the
bankruptcy proceedings, the Companies operated as debtors-in-possession.
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On October 5, 1993, the Bankruptcy Court confirmed the Debtors' First
Amended Joint Plan of Reorganization Under Chapter 11, as modified (the
"Plan"), and the Plan became effective on October 20, 1993 (the "Effective
Date"). The Bankruptcy Court retains jurisdiction to interpret the terms of
and settle disputes arising from the Plan through the five-year term of the
Plan. The Plan provided for the issuance of Common Stock to former
shareholders and management (the "Series A Common Stock") and to unsecured
creditors (the "Series B Option Common Stock").
Under the Plan, the Creditors' Committee, as the representative of the
Company's general unsecured creditors (the "Creditors"), will continue in
existence during the term of the Plan for the following primary purposes:
(1) monitoring compliance with the Plan; (2) monitoring defaults and granting
waivers and modifications of the Plan; and (3) exercising rights and duties
expressly granted in the Plan.
The Company also issued a secured note in the amount of $4 million to
Harris Trust and Savings Bank ("Harris Bank") in partial satisfaction of
pre-bankruptcy obligations. This note is payable in equal installments over
five years, and it bears an interest rate of 7%. The note is secured by most
of the real property held by the Company in addition to furniture, machinery
and equipment located in the Company's Distribution Center and corporate
offices. Events of default under the note include entering into voluntary
bankruptcy proceedings, involuntary bankruptcy proceedings that are not
dismissed within ninety days of their initiation, failure to pay principal or
interest payments within ten days after their due date, and acceleration of
annual payments to the Creditors by the Creditor's Committee. Please see "Item
1. BUSINESS -- The Bankruptcy -- Payment Obligations to Creditors" for a
description of the acceleration provisions. Harris Bank was also the largest
unsecured creditor and, at April 15, 1996, held approximately 10.4% of the
Company's Series B Option Common Stock on a fully diluted basis.
The Plan provided that Richman Gordman Stores and 1/2 Price Stores merge
into Richman Gordman Department Stores. These mergers took place on the
Effective Date. Additionally, pursuant to the Plan, the Company was formed and
Richman Gordman Department Stores was merged into it.
As contemplated by the Plan, on the Effective Date, the Company entered
into a Credit Agreement with Congress Financial Corporation. The Credit
Agreement is the Company's primary credit facility, and it provides for a
maximum $25 million revolving line. The amount the Company may borrow is
determined by a formula based on eligible inventory. The initial term is four
years, through October 20, 1997, with
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provisions for annual renewals unless either party gives notice of non-renewal
within 90 days prior to contract expiration. The interest rate is 1.5% over
the prime commercial interest rate as published by CoreStates Bank, N.A.,
Philadelphia, Pennsylvania. This line of credit is secured by substantially
all of the current assets of the Company, including general intangibles.
Payment Obligations to Creditors
On the Effective Date of the Plan, the Creditors (with claims in the
approximate aggregate amount of $50,156,000) received cash in the total amount
of $10,000,000. In addition, the Creditors received 10,200,000 shares of
Series B Option Common Stock, or 34% of the total authorized Common Stock.
Under the Plan, the Company remains obligated to the Creditors. The
following is a summary of all of the material provisions of the Company's
obligation to make payments to the Creditors. The summary is qualified with
reference to the complete terms and conditions of the obligation as contained
in the Plan.
Annual Minimum Payment Obligation. The Annual Minimum Payment obligation
is an unconditional obligation to make payments in the amounts set forth in the
first column, titled Annual Minimum Payment, on the schedule below. All
scheduled payments received on this obligation will be applied first to accrued
stated interest and then payments of stated principal. Any payments in excess
of the cumulative total of stated principal and interest ($14,865,000) will be
considered as payments of additional interest. The Annual Minimum Payment
obligation will be paid as set forth in the first column on the schedule below.
To the extent the cash flow contingencies as detailed below allow additional
payments in excess of the Annual Minimum Payment column, such payments will be
considered prepayments of the Annual Minimum Payment obligation to be applied
first to accrued stated interest (if any) and then to stated principal.
<TABLE>
<CAPTION>
Annual Fiscal Annual Minimum Cumulative Minimum Annual Plan Cumulative Plan
Year Payment Payment Cash Balance Cash Balance
- - ------------- -------------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C>
1993 $ 2,302,000 $ 2,302,000 $ 2,708,000 $ 2,708,000
1994 3,275,000 5,577,000 3,853,000 6,561,000
1995 5,521,000 11,098,000 6,495,000 13,056,000
1996 1,939,000 13,037,000 2,281,000 15,337,000
1997 1,828,000 14,865,000 2,151,000 17,488,000
----------- -----------
$14,865,000 $17,488,000
=========== ===========
</TABLE>
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The Company operates on a fiscal year basis, and its Fiscal Years through 1997
end on the dates shown below:
<TABLE>
<CAPTION>
Fiscal Year Ends
----------- ----
<S> <C>
Fiscal Year 1993 01/29/94
Fiscal Year 1994 01/28/95
Fiscal Year 1995 02/03/96
Fiscal Year 1996 02/01/97
Fiscal Year 1997 01/31/98
</TABLE>
Actual Cash Balance. The Company is obligated to pay, for each of Fiscal
Years 1993-1997: (1) 100% of Actual Cash Balance, as defined in the Plan, to a
maximum of Cumulative Plan Cash Balance shown above, and (2) 50% of Excess Cash
Balance, as defined in the Plan. The fourth column represents the Company's
estimate of Actual Cash Balance for the Fiscal Years indicated.
Other Terms. In no event will the Company be required to pay with respect
to any Fiscal Year an amount which, when added to prior payments of Actual Cash
Balance and Excess Cash Balance, exceeds the greater of Cumulative Minimum
Payments or Cumulative Actual Cash Balance. The annual payment will be
distributed to Creditors not later than 90 days after the end of the Fiscal
Year.
Creditors are also entitled to tax refunds, if any, for the Fiscal Years
ended prior to the bankruptcy filing date in excess of an aggregate of $500,000
for those years. Also, the Creditors are entitled to payments of amounts equal
to income tax benefits realized solely from the reduction of taxable income
which would otherwise be reported on the Company's federal and state income tax
returns for Fiscal Years 1993 through 1997 resulting from utilization of
pre-bankruptcy tax attributes (i.e., net operating loss carry forwards, capital
loss carry forwards (if any), alternative minimum tax credit carry forwards,
charitable contribution carry forwards and general business credits including
targeted job credits) and payments to Creditors.
On April 29, 1994, the Creditors were sent the annual payment for Fiscal
Year 1993 required by the Plan. The payment totaled $4,152,613, composed of
the following:
<TABLE>
<S> <C>
Annual Minimum Payment $2,302,000
Actual Cash Balance up to
Plan Cash Balance 406,000
---------
Annual Plan Cash Balance 2,708,000
50% of Excess Cash Balance 1,444,613
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Total Payment to Creditors $4,152,613
==========
</TABLE>
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Payments to creditors required by the Plan for Fiscal Year 1994 in the
total amount of $6,073,260 were paid on April 28, 1995, and consisted of the
following amounts:
<TABLE>
<S> <C>
Annual Minimum Payment $3,275,000
Actual Cash Balance up to
Plan Cash Balance 578,000
---------
Annual Plan Cash Balance 3,853,000
Tax Benefit in Excess
of $500,000 387,649
50% of Excess Cash Balance 1,832,611
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Total Payment to Creditors $6,073,260
==========
</TABLE>
Payments to creditors required by the Plan for Fiscal Year 1995 in the
total amount of $1,480,477 will consist of the following amounts:
<TABLE>
<S> <C>
Annual Minimum Payment $1,259,776
Tax Benefits 220,701
----------
Total Payment to Creditors $1,480,477
==========
</TABLE>
For Fiscal Year 1995, no Annual Cash Balance up to Plan Cash Balance or Excess
Cash Balance were available. The Annual Minimum Payment was computed by
crediting the previous two years' payment up to Plan Cash Balance and Excess
Cash Balance Payments to the required Cumulative Minimum Payment.
Series B Repurchase Option
The Series B Option Common Stock is subject to an option to purchase
exercisable by the Company or the Trustee of the R.G. Stock Trust in 1998 (the
"Option"). The Option is noted upon the face of the Series B Option Common
Stock certificates. If the Option is exercised, the holder or holders of
shares must sell them for a price equal to the fair value of the shares, as
determined by an independent appraisal on February 2, 1998, less any payments
of Excess Cash Balance that have been made to Creditors. Holders of the Series
B Option Stock will not have any rights of appraisal similar to dissenters'
rights if they dispute the market value as determined by the independent
appraisal. Payments of Excess Cash Balance would result in shareholders having
to sell their shares for less than fair market value. Holders of Series B
Option Common Stock should note that the Excess Cash Balance previously paid to
the Creditors shall be credited against, and shall reduce the exercise price
for, the option whether or not the holder of any share of Series B Option
Common Stock with respect to which the option is exercised received such Excess
Cash Balance.
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Although with respect to the Company's Fiscal Years ended January 29, 1994,
and January 28, 1995, the Company made Excess Cash Balance payments of
$1,444,613 and $1,832,611, respectively, to Creditors, the Company's cash
position during Fiscal Year 1995 was such that all of the prior Excess Cash
Balance payments were utilized to make a portion of the $5.5 million minimum
payment to creditors required for Fiscal Year 1995. Therefore, if the Option
were exercised at this date, the Excess Cash Balance payments would result in
no reduction from fair market value in the Option exercise price. Additional
payments of Excess Cash Balance may be created in the next two Fiscal Years
which may reduce the Option exercise price. For any given Fiscal Year, the
Excess Cash Balance is the excess of the Company's actual year-end cash balance
over the Cumulative Plan Cash Balance for that year. The cumulative total of
the Excess Cash Balance will be reported in the Company's annual and quarterly
financial reports.
Plan Covenants, Defaults and Waivers
The Plan contains a number of covenants. The covenants include the
Company's agreement to maintain its corporate existence, to maintain its books
in accordance with generally accepted accounting principles and provide reports
to creditors, to pay its taxes, to keep its property free of certain liens, not
to make prohibited investments, not to guarantee debts of third parties, not to
make loans to other parties, not to make distributions on account of its stock,
to maintain customary insurance and to comply with environmental and pension
laws. The breach of any of these covenants will result in an event of default.
The Plan also describes certain occurrences that are defined as events of
default. These events include the failure to make payments pursuant to the
annual Minimum Payment Obligation, the failure to perform or observe any of the
terms or provisions of the Plan, the entering of an order of relief under the
Bankruptcy Code is granted to or against the Company, the Company voluntarily
or involuntarily makes an assignment for the benefit of creditors, applies for
or consents to the appointment of a receiver, trustee, custodian or similar
officer for all or for any substantial part of its assets, voluntarily or
involuntarily institutes any bankruptcy, insolvency, liquidation,
reorganization, readjustment, dissolution, or similar proceeding, the entry of
a judgment against the Company in an amount exceeding the Company's insurance
coverage by more than $200,000, and the failure of the Company's cumulative
EBITDA to equal or exceed certain EBITDA levels. The Company did not meet the
applicable EBITDA level at the end of Fiscal Year 1995. However, the
Creditors' Committee has waived the EBITDA covenant in its entirety for Fiscal
Year 1995 as well as the two remaining Fiscal Years of the Plan, Fiscal Years
1996 and 1997.
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Following an event of default, a majority of the Creditors' Committee may
accelerate the Cumulative Minimum Payments due under the Plan. The Creditor's
Committee, by a two-thirds vote of its members, may waive for up to six months
any payment required under the Plan and defer the due date of some payments.
The Creditors' Committee will, if requested in writing by a majority in number
or dollar amount of the Creditors, declare an acceleration of any remaining
unpaid annual payments, described above.
PRODUCTS AND SERVICES
Overview
The 1/2 Price Stores chain is an off-price retailer which operates 32
stores in eight states: Colorado, Illinois, Iowa, Kansas, Missouri, Nebraska,
Oklahoma and South Dakota.
Facilities
The Company's physical facilities consist of a corporate headquarters
building of 98,700 square feet which was completed in 1984, a Distribution
Center of 267,000 square feet (excluding internal mezzanine space of 111,400
square feet), and 32 1/2 Price Stores averaging 80,000 gross square feet and
62,000 square feet of selling space. The Company owns 103,700 square feet of
the Distribution Center. The other 163,300 square feet, composed of two
additions to the Distribution Center, are leased from entities owned by members
of the Gordman family. See "Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." All other facilities are leased from third parties. For Fiscal
Year 1995, the 1/2 Price Stores rentals averaged approximately $4 per square
foot, and the chain's average sales per square foot of selling space was $105.
The stores are primarily located in strip shopping centers, and are open from
9:30 a.m. to 9:30 p.m. Monday through Saturday and 9:30 a.m. to 7:00 p.m. on
Sundays, with extended hours during the Christmas selling season. The
following table reflects the number of stores by market/state:
<TABLE>
<CAPTION>
State/Market Stores State/Market Stores
- - ------------ ------ ------------ ------
<S> <C> <C> <C>
COLORADO IOWA
Aurora 1 Des Moines 3
Lakewood 1 Sioux City 1
Thornton 1 Council Bluffs 1
---- Waterloo 1
3 ----
6
</TABLE>
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<TABLE>
<S> <C> <C> <C>
ILLINOIS KANSAS
Fairview Heights 1 Kansas City area 2
Topeka 1
Lawrence 1
Wichita 2
----
6
MISSOURI NEBRASKA
Kansas City area 3 Omaha 4
Springfield 1 Lincoln 1
Bridgeton 1 Fremont 1
St. Charles 1 Hastings 1
---- Grand Island 1
6 ----
8
OKLAHOMA SOUTH DAKOTA
Tulsa 1 Sioux Falls 1
</TABLE>
TOTAL 32
==
Market Position and Competition
1/2 Price Stores contain elements of traditional department stores,
discount chains and other off-price concepts. Each store is organized with
clearly identifiable "shops" similar to a department store. A "racetrack"
traffic aisle goes around the perimeter of the store, providing easy visual and
physical access to all departments.
The quality of goods and merchandise mix of 1/2 Price Stores differentiate
them from many other off-price retailers which frequently offer a mix of
apparel overstocks and seconds. In addition, the strength of most discount
stores is hardlines, while the strengths of the 1/2 Price Stores are their
apparel and decorative home lines. Apparel generates approximately 73% of the
chain's sales, and the decorative home line is the chain's fastest growing
merchandise category.
Rather than offering lower quality merchandise, the 1/2 Price Stores offer
nationally recognized brands, and several instantly recognized, department
store dominant brands. Please see "Item 1. Business -- THE COMPANY --
Merchandising" for examples of the merchandise brands offered by the 1/2 Price
Stores. Approximately 98% of 1/2 Price Stores' merchandise mix is branded,
with the balance being high quality private label goods. Approximately 70% of
the stores' merchandise is sold at not more than one-half of department store
prices.
Consumer acceptance of the 1/2 Price Stores is demonstrated in the 1995
Omaha World-Herald Consumer Preference Survey, a survey conducted by the Omaha
World-Herald, a local newspaper.
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In response to the questions, "At what one store has your household spent most
for (childrens, womens and mens clothing, and shoes) in the last three
months?", the 1/2 Price Stores rank ahead of many national chains. In
particular, the Company ranks extremely well within the childrens clothing and
shoes, as well as mens shoes categories. In this survey 59% of respondents
indicated that "price" motivates their shopping with the 1/2 Price Stores,
while 24% now mention "selection." Customers of the 1/2 Price Store are
dual-income, homeowning families in the middle income range. The median age of
adults among this group of frequent customers is 40 and the median household
income is $32,500. These compare with the medians of the total market of 40
years of age and $35,700.
The 1/2 Price Stores compete against all types of retailers including
discounters such as K-Mart, Target, Venture and Shopko; off-price concepts such
as Marshall's, T.J. Maxx, Ross Stores and Burlington Coat Factory; and
department stores such as Dillards and Younkers. The following page reflects
1/2 Price Stores' competitors by market.
State/City 1/2 Price Store Competitors By Market
- - ---------- -------------------------------------
COLORADO
Aurora K-Mart, Target, Wal-Mart, Mervyn's, Sears, Ross, Marshall's,
T.J. Maxx, JC Penney, Foley's, Joslins, Burlington Coat and
Montgomery Ward
Lakewood Foley's, Joslins, JC Penney, Montgomery Wards, Sears, K-Mart,
Target, Wal-Mart, T.J. Maxx, Ross and Marshalls
Thornton Foley's, Joslins, JC Penney, Montgomery Wards, Sears, Mervyns,
K-Mart, Target, Wal-Mart, T.J. Maxx, Marshalls and Burlington
Coat
IOWA
Des Moines Burlington Coat, JC Penney, K-Mart, Kohl's, Montgomery Ward,
Sears, Target, T.J. Maxx, Venture, Von Maur, Wal-Mart and
Younkers
Sioux City JC Penney, K-Mart, Sears, Shopko, Target, Wal-Mart, Younkers
and T.J. Maxx
Waterloo Herberger's, JC Penney, K-Mart, Sears, Target, Venture, Von
Maur, Wal-Mart and Younkers
ILLINOIS
Fairview Dillards, Famous Barr, Grandpa's, JC Penney,
Heights K-Mart, Sears, Target, Venture, Wal-Mart, T.J.
Maxx and Burlington Coat
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KANSAS
Topeka Dillards, JC Penney, Jones, K-Mart, Montgomery Ward, Sears,
Target, T.J. Maxx, Venture, Wal-Mart and Kohl's
Lawrence JC Penney, K-Mart, Outlet Malls, Wal-Mart, Weavers and Super
Target
Wichita Burlington Coat, Dillards, JC Penney, K-Mart, Montgomery Ward,
Sears, Target, T.J. Maxx, Venture, Wal-Mart and Kohl's
MISSOURI
Kansas Burlington Coat, Dillards, Halls, JC Penney,
City Jones, K-Mart, Marshall's, Montgomery Ward, Sears, Stein Mart,
T.J. Maxx, Venture, Wal-Mart, Kohl's and Jacobsons
Spring- Dillards, Famous Barr, Heers, JC Penney,
field K-Mart, Montgomery Ward, Sears, T.J. Maxx,
Venture, Wal-Mart, Target and Kohl's
Bridgeton Famous Barr, Dillards, JC Penney, Sears, K-Mart, Venture,
Target, Wal-Mart, Grandpa's, T.J. Maxx, Marshalls and
Burlington Coat
St. Charles Famous Barr, Dillards, Sears, JC Penney, Wal-Mart, Venture,
K-Mart, Target, Grandpa's, T.J. Maxx, Marshalls and Outlet Mall
NEBRASKA
Omaha/ Burlington Coat, Dillards, JC Penney, K-Mart,
Council Marshall's, Montgomery Ward, Outlet Mall, Sears,
Bluffs Shopko, Target, T.J. Maxx, Wal-Mart, Younkers and Von Maur
Lincoln Dillards, JC Penney, K-Mart, Montgomery Ward,
Sears, Shopko, Target, T.J. Maxx, Wal-Mart and Younkers
Fremont Alco, JC Penney, Schweser's and Wal-Mart
Hastings Herberger's, K-Mart, Allen's, Shopko and Wal-Mart
Grand Dillards, JC Penney, K-Mart, Schweser's, Sears,
Island Shopko, Wal-Mart and Younkers
OKLAHOMA
Tulsa Anthonys, Dillards, Foley's, K-Mart, JC Penney,
Marshalls, Mervyn's, Sears, Target, Venture,
Wal-Mart, Beall's, Burlington Coat, T.J. Maxx, Steinmart
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SOUTH DAKOTA
Sioux Dayton's, JC Penney, K-Mart, Kohl's, Sears,
Falls Shopko, Target, T.J. Maxx, Wal-Mart and Younkers
Merchandising
The Company's overall marketing and merchandising objective is to broaden
its customer base by strengthening its department store value offering while
achieving discount store operating efficiencies. This overall objective
includes a three-tier merchandise pricing strategy:
- The "Premier Brands Program" encompasses 10-15% of the Company's
merchandise mix and includes a senior-management approved, select
group of instantly recognized and department store dominant brands,
such as Chaps, Polo by Ralph Lauren, Nautica, Liz Claiborne, Leslie
Fay and Calvin Klein, which are priced at least 25% below the
manufacturer's suggested retail price.
- The "Value Price Program" encompasses 10-15% of the Company's
merchandise mix and includes commodity and discount store comparable
products, such as Hanes Underwear, Rubbermaid, Sony, Braun, and
critically popular television advertised toys, which are priced at or
below prices advertised by specifically identified discount stores.
- The "1/2 Price Program" encompasses 70-80% of the Company's
merchandise mix and includes nationally branded products priced at not
more than one-half of department store prices.
With regard to the majority of the Company's merchandise, the 1/2 Price
Stores are able to execute these strategies through opportunistic buying,
wherein the Company's buyers go directly to the manufacturer and purchase:
- Current, in line merchandise;
- Factory overstock and/or overruns;
- Close-outs;
- Small quantities;
- Pack and holds (seasonal merchandise purchased at end of season and
held until the season recurs);
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- Special cutting from unused piece goods (manufacturer's overstock of
raw materials that manufacturer is to use in production of goods to
order, such as blouses and trousers);
- Orders cancelled by other stores.
The following tables give examples of the national brands featured in each
merchandise division:
Womens
Shoes Mens Childrens Accessories
- - ----------- ------------- ------------- -------------
Converse Arrow Izod Liz Claiborne
Saucony Gant Bum Equipment Monet
L.A. Gear Izod Buster Brown Anne Klein II
Reebok Pierre Cardin Hanes Aris-Isotoner
Keds Nike Fruit of the Guess
Bass Robert Stock Loom Riveria
Fila Chaps Lee Rider Totes
Sporto Boston Trader Generra Trifari
Nunn Bush Bill Blass Ocean Pacific
Naturalizer Union Bay Knitwaves
Dexter Oshkosh
Connie
Lifestride
Misses Juniors Lingerie Hardlines
- - ----------- ------------- ------------- -------------
Sag Harbor L.A. Gal Playtex Samsonite
Leslie Fay Union Bay Olga Rubbermaid
Outlander Esprit Lily of France Cannon
Counterparts Not Guilty Vanity Fair Playskool
Fritzi Vintage Blue Maidenform Anchor-Hocking
Bill Blass Judy Knapp Christian Dior Fieldcrest
Lee Rider Plain Jane Warner's Mattel (Barbie)
Gloria Sam & Libby Bali Hasbro
Vanderbilt Jockey Corningware
Donnkenny Joe Boxer Martex
Harve Bernard Hanes Fisher Price
Beldoch Popper Lilyette Ekco
Pepe Noritake
Jones New York
The 1/2 Price Stores have eight merchandise divisions with apparel
representing the largest portion of the business. Apparel and apparel-related
merchandise categories generated approximately 73% of the Company's 1995 sales.
The following table reflects the percentage mix of business by merchandise
division for Fiscal Year 1995:
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Merchandise Division 1995
-------------------- ------
<S> <C>
Shoes 8.5%
Mens 17.2
Childrens 12.6
Womens Accessories 10.7
Misses 13.6
Juniors 7.2
Lingerie 2.6
Hardlines 27.6
Other 0.0
-----
Total 100.0%
=====
</TABLE>
Expansion
The Company's expansion strategy is to first open new stores within a
500-mile radius of the headquarters and Distribution Center in Omaha. By doing
so, it can leverage advertising, purchasing and transportation and then effect
greater efficiencies.
In 1995, the Company opened four new stores in Lakewood and Thornton,
Colorado; Bridgeton, Missouri; and Des Moines, Iowa. In March, 1996, the
Company opened a store in St. Charles, Missouri. Between 1996 and 1997 the
Company anticipates opening one to three new stores per year so as to have 34
to 37 stores in operation at the end of Fiscal Year 1997. Areas currently
targeted for new stores include: Fayetteville, Arkansas; Norman, Oklahoma
City, and Tulsa, Oklahoma; Denver, Colorado; and St. Louis, Missouri. There
can be no assurance that the Company will be successful in opening any or all
of these additional stores.
Suppliers
The total number of suppliers is approximately 2,000. The ten largest
suppliers, based on Fiscal Year 1995 purchases are Reebok, Rubbermaid,
Z Cavaricci, Gibson Greeting Cards, ACI, Converse, Fieldcrest, Chaps, Miss
Erika and World Bazaars. As a group, these suppliers accounted for
approximately 11% of total goods purchased by the 1/2 Price Stores in Fiscal
Year 1995, although none individually accounted for more than 1.6%.
At the present time approximately 90% of the Company's regular suppliers
are selling to the Company and extending terms. Management believes that the
terms being extended appear adequate at this time. In certain cases, where the
Company has a greater need for goods than can be covered by the present credit
line from a supplier, the Company plans to prepay the supplier for the amount
exceeding the normal credit line of the supplier. During 1995 approximately
15% of the
-15-
<PAGE> 16
Company's purchases from its suppliers had to be prepaid because the supplier
would not extend normal credit terms to the Company. Most of these prepayments
were made to suppliers that factor their invoices. Management believes that if
its operating plans are met, the percentage of prepayments will not increase
over the next few months, and considers its supplier relations to be excellent.
Distribution
The Company is served by a 267,000 square-foot Distribution Center located
in Omaha (excluding internal mezzanine space of 111,400 square feet). In
addition, the Company owns land adjacent to the Distribution Center which could
provide for an additional 76,000 square feet of high cubic storage. Management
believes that the current storage and processing capacity of the Center can
support up to forty stores.
In 1992 and 1993 Garr & Associates (warehouse consultants) were engaged to
work with Distribution Center management to review and make recommendations
regarding the Distribution Center operations. One of the results of that study
was that based on anticipated volume and known production levels, the
Distribution Center could support forty stores.
Virtually all of the 1/2 Price Stores' inventory purchases flow through the
Distribution Center, with only seasonal candy and greeting cards shipped
directly to the stores. Distribution Center personnel receive and ticket all
merchandise, perform warehousing and order picking functions, and make
deliveries to all stores. The Distribution Center has automated materials
handling systems and on-line information systems.
The Distribution Center processed approximately 31.0 million pieces in
Fiscal Year 1995. Merchandise is processed through the Distribution Center in
an average of 3.7 working days, and is subsequently delivered to the stores two
to three times per week, depending on the current activity and volume of the
stores. Deliveries to stores are made with a combination of the Company's
fleet of leased tractors and owned trailers as well as contracted carriers.
Management Information Systems
Recognizing the value of advanced systems as a competitive tool, Company
management has been a strong advocate of management information system
development. The Company has previously upgraded its data processing equipment
on a consistent basis in accordance with substantial information system
planning.
-16-
<PAGE> 17
Having replaced former batch systems with the latest generation of
efficient, on-line, fully integrated database systems, the Company has
available to it all application programs found in any well-managed major retail
company. In a great number of these applications, data can be accessed on-line
at any of over 200 terminals throughout the Company's stores, corporate offices
and the Distribution Center. MIS provides the Company with sophisticated
on-line merchandise and executive information systems, as well as an array of
merchandise, financial, inventory and other reports. Management is determined
to make critical information available to anyone requiring it, yet at the same
time to discipline the Company so as not to produce unnecessary volumes of
printed reports.
Since 1974, the Company has been 100% electronic point of sale (POS)
installed and uses IBM terminals. The Company currently operates on an IBM
3090 mainframe. Additionally, local area networks (LANs) are being set up to
off-load non-critical processing from the mainframe. Personal desktop and
notebook computers support users of information with graphical user interfaces
and various "client-server" protocols. Also, a wide area network (WAN)
capability is being tested for future chain-wide implementation.
Advertising
Total advertising expense for the 1/2 Price Stores was approximately
$7.6 million in Fiscal Year 1995.
The advertising strategy is to broaden the Company's customer base while
clearly positioning the concept of offering the best value -- everyday. With
the customer as the focus, the Company plans to implement this strategy by:
- Educating customers on the three ways they can save at the 1/2 Price
Stores.
- Utilizing a combination of "Sale Events" and "Special Merchandise
Focused Events" to develop store traffic and increase sales.
- Using a media mix to broaden the customer base.
Each advertising vehicle (preprints, newspapers and television) has
specific strengths which together create an effective marketing plan.
Preprints are merchandise focused and designed to drive traffic for a three to
four day period. They also serve as a catalog to showcase the depth and
breadth of merchandise available in the various departments. Newspaper ads are
merchandise and event focused. They are designed to generate an immediate lift
in sales for one to two days.
-17-
<PAGE> 18
Television ads are designed to clearly position the stores in the marketplace
while helping to drive traffic. Because of its broad reach, television will
also help broaden the customer base.
The Company's seventeen-person advertising department is responsible for
all creative and marketing services, including the design, development and
production of television advertising as well as all print-related activity,
which includes newspaper ads, newspaper inserts (preprints) and direct mail.
The department's in-house capabilities include creative concept and design,
copywriting, photography, typesetting, key lining, final composition, marketing
research and media buying. These in-house capabilities enable the Company to
avoid the media commissions and creative charges that would be incurred if an
outside agency were used, thus yielding substantial savings.
Of the Company's Fiscal Year 1995 advertising expense, 95% was allocated to
high frequency print, with the balance allocated to television.
Management and Employees
The Company has experienced excellent relations with its employees through
its history, has no unions or collective bargaining agreements and has
experienced no work stoppages at any time. The Company currently employs
approximately 900 full-time and 1,500 part-time associates. The Company offers
to its employees a wide range of benefits which are competitive with those
offered by other major retailers. For all management and full-time hourly
personnel, the Company funds a major portion of the insurance program, which
includes health insurance and major medical, dental assistance, and life
insurance, as well as short and long-term disability. Various performance
incentives and a 401(k) Plan are also provided to all employees.
Item 2. Properties.
For a description of the Company's real property, please see "Item 1.
Business -- PRODUCTS AND SERVICES -- Overview" and "Item 1. Business --
PRODUCTS AND SERVICES -- Facilities."
Item 3. Legal Proceedings
As noted above, the Company's predecessor entities filed for bankruptcy
protection in 1992, and in 1993 the United States Bankruptcy Court for the
District of Nebraska approved the Plan under which the Company continues to
operate. For a detailed discussion of the Plan, please see "Item 1. Business
- - -- THE COMPANY -- The Bankruptcy -- Plan of Reorganization."
-18-
<PAGE> 19
Additionally, the Bankruptcy Court has retained jurisdiction to insure that the
purpose and intent of the Plan are carried out as well as to consider any
modifications of the Plan and to hear any claims, controversies, suits and
disputes against the Company that may arise during the five-year term of the
Plan.
Item 4. Submission of Matters to a Vote of Security Holders.
There are no items to report.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's sole class of equity securities, common stock, consists of
30,000,000 shares on a fully diluted basis and is divided into two series, the
Series A Common Stock and the Series B Option Common Stock. As of April 15,
1996, 17,640,000 shares of Series A Common Stock were issued and outstanding
and held of record by 3 shareholders, and 10,200,000 shares of Series B Option
Common Stock were issued and outstanding and held of record by 790
shareholders. The remaining 2,160,000 shares, all of Series A Common Stock,
are reserved for issuance to management pursuant to the Plan. No established
public trading market exists with respect to either series of the Company's
Common Stock.
The Company has never paid a cash dividend and intends to retain earnings,
if any, and does not presently intend to pay any cash dividends on either
series of the Common Stock. However, holders of both series of the Common
Stock are entitled to such dividends as may be declared from time to time by
the Company's Board of Directors.
Item 6. Selected Financial Data.
The following table contains certain selected financial data for the
Company for each of the last five Fiscal Years through February 3, 1996, and
should be read in conjunction with the financial statements, including the
related notes thereto, included elsewhere in this document and with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 20
<TABLE>
<CAPTION>
Fiscal Years Ended
-------------------------------------------------------------------
February 3, January 28, January 29, January 30, February 1,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands, except per share and selected operating data)
Income Statement Data:
- - ---------------------
<S> <C> <C> <C> <C> <C>
Net Sales $206,520 $191,148 $167,638 $212,709(3) $266,462
Cost of Sales 138,916 123,028 109,462 145,478 166,572
-------- -------- -------- -------- --------
Gross Profit 67,604 68,120 58,176 67,231 99,890
Operating &
Administrative
Expenses 69,605 62,769 54,067 77,289 95,203
Interest
Expense Net 3,774 3,597 2,415 3,064 3,941
(Gain) loss on
Life Insurance
Benefits - 335 (678) - -
-------- -------- -------- -------- --------
Income (Loss) Before
Reorganization
Item, Provision
for Income Taxes
and Extraordi-
nary Item (5,775) 1,419 2,372 (13,122) 746
Reorganization
Items - - 1,705 12,809 -
Provision for
Income Taxes - - - 1,709 572
-------- -------- -------- -------- --------
Income (Loss)
Before Extra-
ordinary Item (5,775) 1,419 667 (27,640) 174
-------- -------- -------- -------- --------
Extraordinary
Item - Gain on
Debt Forgiveness 6,550 - 15,200 - -
-------- -------- -------- -------- --------
Net Income
(Loss) $ 775 $ 1,419 $15,867 $(27,640) $ 174
-------- -------- -------- -------- --------
Average Common
Shares Outstanding(1) 30,000 30,000 30,000 - -
Income per common share:
Income before
Extraordinary item $ (.19) $ .05 $ .02
Extraordinary item .22 - .51
-------- -------- --------
Net Income per common
share $ .03 $ $.05 $ .53
======== ======== ========
Dividends paid on
Common Stock - - - - -
Selected Operating Data:
- - -----------------------
Stores Open at
End of Period 31 27 23 24 30
Average Sales Per
Square Foot of
Selling Space $ 105 $ 111 $ 111 $ 115 $ 122
Average Sales Per
Store ($000's) $ 7,079 $ 7,570 $ 7,649 $ 8,103 $ 8,882
Change in Comparable
Store Sales(2) (5.5)% (4.8)% 1.6% (4.4)% 8.6%
Balance Sheet Data:
- - ------------------
(end of period)
Working Capital $ 7,119 $ 11,271 $ 20,052 $ 42,356(3) $ 5,564
Total Assets 52,009 57,861 57,846 73,074 66,853
Long Term Debt 4,201 7,763 17,086 - -
Capital Lease
Obligations 10,594 11,824 13,022 - 16,105
Stockholder's
Equity 9,398 8,417 6,793 (12,383)(3) 15,257
</TABLE>
-20-
<PAGE> 21
(1) Average common shares outstanding, based on the Restated Certificate of
Incorporation filed in Fiscal Year 1993, assumes that the 26,400,000 shares
issued to the unsecured creditors and the former preferred shareholder, as
well as the 3,600,000 shares issued and to be issued to certain members of
management or to the unsecured creditors during the term of the Plan, were
outstanding for all of Fiscal Years 1993, 1994 and 1995.
(2) Comparable store sales refer to 1/2 Price Stores open at least one full
year in each comparable period or stores converted from a Richman Gordman
Department Store in the same market area. Comparable store sales exclude
the effect of Richman Gordman Department Stores converted to 1/2 Price
Stores in market areas which previously had no 1/2 Price Stores, until open
for a full year in each comparable period. The Richman Gordman Department
Store sales are excluded for all years presented.
(3) During Fiscal Year 1992, the Company filed Chapter 11 bankruptcy. Please
see "Item 1. Business -- THE COMPANY -- -- The Bankruptcy" for a
discussion of the Company's reorganization and Note F to the Financial
Statements for a discussion of the liabilities classified as long-term as a
result of the bankruptcy. These factors affect the comparability of the
information presented.
Item 7. Management's Discussion and Analysis
of Financial Condition and
Results of Operations.
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial condition and
results of operations during the periods included in the accompanying financial
statements.
Results of Operations
The following table sets forth for the years indicated summary information
from the Company's Statements of Income expressed as a percentage of net sales
and the percentage change in the dollar amount of such items compared to the
prior period.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-21-
<PAGE> 22
<TABLE>
<CAPTION>
Percentage of Sales Percentage
Increase (Decrease)
----------------------------------- ------------------------
From From
Fiscal Years 1994 to 1993 to
----------------------------------- 1995 1994
1995 1994 1993 ------- -------
----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 8.0% 14.0%
Cost of Sales 67.3 64.4 65.3 12.9 12.4
----- ----- ----- ----- -----
Gross Profit 32.7 35.6 34.7 (0.8) 17.1
Operating &
Administrative
Expenses 33.7 32.8 32.3 10.9 16.1
Interest Expense
Net 1.8 1.9 1.4 4.9 48.9
(Gain) loss on
Life Insurance
Benefits - 0.2 (0.4) - 149.4
----- ----- ----- ----- -----
Income (Loss)
Before Reorgani-
zation Item,
Provision for
Income Taxes
and Extra-
ordinary Item (1.0) 0.7 1.4 - (40.2)
----- ----- ----- ----- -----
Reorganization
Items - - 1.0 - -
Provision for
Income Taxes - - - - -
Income (Loss)
Before Extra-
ordinary Item (2.8) 0.7 0.4 - 112.5
Extraordinary
Item-Gain on
Debt Forgiveness 3.2 - 9.1 - -
----- ----- ----- ----- -----
Net Income .4% 0.7% 9.5% (454)% (91.1)%
</TABLE>
Fiscal Year 1995 Compared
to Fiscal Year 1994
Net sales in Fiscal Year 1995 increased $15.4 million, or 8.0% over Fiscal
Year 1994 due to sales from four new stores opened subsequent to January 28,
1995, and sales from four stores opened in Fiscal Year 1994 that were open for
a full year in Fiscal Year 1995. These stores produced increased sales of
$24.3 million in Fiscal Year 1995. Comparable store
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<PAGE> 23
sales decreased $8.9 million, or 5.5%, during Fiscal Year 1995 compared to
Fiscal Year 1994. The decline in comparable store sales was a result of
extremely weak retail market conditions, especially in apparel lines, coupled
with additional retail outlets in the Company's markets.
The weaknesses in apparel lines cited above have contributed to the
weaknesses in comparable store sales, and have been noted by many other
retailers nationally. These trends have persisted for the past two to three
years and have particularly affected the Misses and Junior lines of womens
clothing. The Company is uncertain how long this trend will continue. The
Company is addressing this trend by expanding its merchandise offering and
modifying its pricing structure. Previously, the Company's merchandise
assortments consisted of moderately priced recognizable department store brands
sold at one-half of regular retail prices. Approximately 70% of the Company's
merchandise assortment will continue as such, but two additional merchandise
programs will be added.
The first, the Company's "Premier Brand" program, will consist of first
quality designer and/or exclusive department store branded merchandise that
will be sold at 25% or more below regular retail price. It is anticipated that
approximately 10% to 15% of the merchandise assortments will consist of
"Premier Brand" goods. The second program, the Company's "Value Price"
program, will consist of widely distributed products and/or brands priced equal
to or lower than discount stores' or mass merchants' regular retail prices.
The Company anticipates that approximately 10% to 15% of all merchandise will
consist of "Value Price" products.
Comparable store sales have also been impacted by a significant increase in
competition in the Company's markets. Over the past three years (1993-1995)
over 11 million square feet of retail space have opened in the Company's
markets. The Company has reacted to this by allocating an additional $1.6
million to its advertising and marketing programs. This will enable the
Company to heighten consumer awareness of the 1/2 Price Stores and protect its
market share. The Company is also increasing the number of special promotions
and advertising events to stimulate sales.
Gross profits decreased by $0.5 million in Fiscal Year 1995, or 0.8%, as
compared to Fiscal Year 1994. As a percentage of net sales, gross profits were
32.7% of sales in Fiscal Year 1995 compared to 35.6% in Fiscal Year 1994, a
decrease of 2.9%. This decrease was primarily due to a $9.0 million increase
in markdowns in Fiscal Year 1995. In addition, a $0.4 million LIFO provision
was required in Fiscal Year 1995 while no provision was required in Fiscal Year
1994.
-23-
<PAGE> 24
Operating and administrative expenses for Fiscal Year 1995 increased $6.8
million as compared to Fiscal Year 1994. As a percentage of net sales,
operating and administrative expenses were 33.7% and 32.8% of net sales in
Fiscal Years 1995 and 1994, respectively. Of the increase in operating and
administrative expenses, $6.3 million represents costs associated with the
non-comparable stores, including $4.7 million in non-comparable store operating
costs, $1.9 million additional advertising costs and a $0.3 million decrease in
pre-opening expenses. In addition, $0.3 million of additional Distribution
Center expenses and $0.2 million in additional Corporate Headquarters costs
were incurred.
Interest expense increased from $3.8 million in Fiscal Year 1994 to $3.9
million in Fiscal Year 1995, an increase of $0.1 million. The increase
consists of an increase of $0.5 million in interest and costs resulting from
increased borrowings on the Company's credit line, a decrease of $0.3 million
in interest on the pre-petition debt to the Company's unsecured creditors due
to principal payments and a decrease of $0.1 million of interest on capital
leases.
No income tax expense was recorded in Fiscal Years 1995 and 1994 due to the
fact that a taxable loss was incurred, which increased the Company's net
operating loss carryforward. Management believes that if the Company meets
current operating plans, it will realize the benefit of these losses over the
next several years.
In Fiscal Year 1995, the Company recorded an extraordinary gain of $6.5
million, a result of revising the estimate of amounts to be paid to the
Company's unsecured creditors. Recent operating losses, coupled with the
Company's revised projections for the balance of the Plan of Reorganization
period (Fiscal Years 1996 and 1997), indicate a lower level of payout to the
unsecured creditors.
Fiscal Year 1994 Compared
to Fiscal Year 1993
Net sales in Fiscal Year 1994 increased $23.5 million or 14% over Fiscal
1993 primarily due to sales from four new stores opened subsequent to
January 29, 1994 and sales from stores opened in Fiscal Year 1993 that were
open for a full year in Fiscal Year 1994. These stores produced increased
sales of $31.2 million in Fiscal Year 1994. Comparable store sales decreased
$7.7 million, or 4.8%, during Fiscal Year 1994 compared to the prior Fiscal
Year. The decline in comparable store sales is a result of overall market
weaknesses in apparel lines, a decrease in the number of special advertising
promotions during Fiscal Year 1994, and a $2.7 million decrease in sales of the
Company's store in Lincoln, Nebraska, which resulted from increased
competition.
-24-
<PAGE> 25
With respect to factors contributing to the decrease in comparable store
sales, the weakness in apparel lines was noted by many retailers nationally.
Within the industry the weakness in apparel lines is generally attributed to
consumers' perceived lack of newness and/or excitement in fashion goods,
particularly the Misses and Junior lines of womens clothing. This trend has
persisted for over a year and the Company is uncertain how long the trend will
continue. The Company is addressing this trend through inventory planning in
the principal categories affected to minimize the impact of weak sales in these
areas.
The Company's specific softness in apparel lines was also impacted by
unusually warm weather in the fall months within its trade area, negatively
impacting outerwear sales. The principal categories affected were cold weather
merchandise, such as gloves, hats, boots, sweaters and long-sleeved knit
shirts.
With respect to the Lincoln, Nebraska, store sales decrease, while the
Lincoln store remains profitable, that store has been impacted by a significant
influx of retail competition in Lincoln. In particular, a K-Mart store located
across the street from the Company's Lincoln store was closed and replaced with
a new Super K store in another part of the city. This resulted in decreased
traffic at the Company's location and significant consumer interest in the new
store, reducing sales at the Lincoln location.
Gross profits increased by $9.9 million in Fiscal Year 1994, or 17.1%, as
compared to Fiscal Year 1993. This increase is primarily due to the sales
increase produced by the new stores. As a percentage of net sales, gross
profits increased by 0.9% in Fiscal Year 1994 as compared to Fiscal Year 1993.
This increase was a result of the fact that a LIFO inventory provision was not
required in Fiscal Year 1994. In Fiscal Year 1993, the LIFO inventory
provision was $1.4 million. If the LIFO provision had not been required in
Fiscal Year 1993, the gross margin percentage of sales would have been the same
as in Fiscal Year 1994.
Operating and administrative expenses for Fiscal Year 1994 increased
$8.7 million as compared Fiscal Year 1993. Of the increase in operating and
administrative expenses, $6.4 million represents costs associated with the new
stores, including $4.3 million in new store operating costs, $1.0 million in
additional advertising costs and $1.1 million of pre-opening costs. In
addition, $0.4 million of additional Distribution Center expenses and
$0.2 million in additional costs for legal and accounting fees in connection
with post reorganization activities were incurred. The balance of the increase
primarily relates to salaries, employee benefits and administrative costs in
its corporate headquarters.
-25-
<PAGE> 26
Interest expense increased from $2.7 million in Fiscal Year 1993 to
$3.8 million in Fiscal Year 1994. Most of the increase represents interest on
the pre-petition debt to the Company's unsecured creditors. These costs have
been incurred only since the Company emerged from Chapter 11; consequently, no
such costs were incurred during the first nine months of Fiscal Year 1993.
Interest and costs resulting from borrowings on the Company's credit agreements
accounted for $0.2 million of the increase in interest expense. During Fiscal
Year 1993 there were no borrowings under that line.
During Fiscal Year 1993, the Company incurred reorganization items of $1.7
million pursuant to its Chapter 11 reorganization proceedings. The Company
successfully confirmed its Plan of Reorganization on October 20, 1993;
consequently, there were no such costs during Fiscal Year 1994.
No income tax expense was recorded in Fiscal Year 1994 due to the fact that
a taxable loss was incurred, which increased the Company's net operating loss
carryforward. Management believes that if the Company meets current operating
plans, then it will realize the benefit of these recent losses over the next
three to five years. No tax expense was recorded in Fiscal Year 1993 primarily
because the extraordinary gain on debt foregiveness was nontaxable.
In Fiscal Year 1993 the Company realized an extraordinary gain of $15.2
million, a result of the forgiveness of debt pursuant to its Plan of
Reorganization under Chapter 11. Because the Plan was confirmed in Fiscal Year
1993 as noted above, no such gain was realized in Fiscal Year 1994.
Liquidity and Capital Resources
The Company's primary ongoing cash requirements are for inventory, capital
expenditures in connection with the Company's new store expansion and
remodeling programs and the minimum payments to the Company's creditors
(pursuant to the Plan). The Company's primary sources of funds for its
business activities are cash from operations and borrowings under its revolving
credit facility with Congress Financial Corporation (Central). In addition,
short term trade credit (normally for 30-day periods) represents a significant
source of interim financing for merchandise inventories. Approximately 90% of
all trade creditors are extending terms. During Fiscal Year 1995 approximately
15% of the Company's purchases, primarily from those vendors that factor their
invoices, had to be prepaid because the factor would not extend normal credit
terms to the Company. Management believes that if its operating plans are met,
the percentage of prepayments will not increase over the next few months.
Management believes that it has adequate capacity under its revolving line of
credit to fund such prepayments.
-26-
<PAGE> 27
During Fiscal Years 1995, 1994 and 1993, the Company's cash flow from
operations was $(6.5) million, $10.5 million, and $6.7 million, respectively.
Cash flow from operating activities was less in Fiscal Year 1995 than in Fiscal
Years 1994 and 1993 primarily because of the loss from operations and a
decrease in accounts payable. Cash flow in Fiscal Year 1994 was more than in
Fiscal Year 1993 primarily as a result of a lower investment in inventory, net
of trade payables, the collection of recoverable income taxes, and a greater
net income from operations.
The Company has a financing agreement with a financial institution which
provides for revolving credit borrowings and letters of credit of up to $25
million (subject to a borrowing base limitation) with a maturity date in
October, 1997. The rate of interest on borrowings is prime plus 1.50% payable
monthly in arrears. A non-use fee of .5% per annum is payable monthly in
arrears on the unused portion of the facility.
The financing agreement contains certain restrictions and covenants,
including minimum levels of cumulative annual earnings before interest, taxes,
depreciation and amortization ("EBITDA") and limitations on annual cumulative
capital expenditures. At the end of Fiscal Year 1995, the Company was not in
compliance with its EBITDA covenant. The minimum cumulative EBITDA covenant
for the end of Fiscal Year 1995 was $16.6 million and the Company's actual
cumulative EBITDA was $11.1 million. The Company's lender waived the violation
of the cumulative EBITDA covenant for the end of Fiscal Year 1995. In
addition, the lender has waived the EBITDA covenant for the next two Fiscal
Years as well. The maximum cumulative capital expenditure covenant through
Fiscal Year 1995 was $8.8 million, and the actual cumulative capital
expenditures were $8.3 million.
During Fiscal Year 1995, there were weighted average short-term borrowings
of $8.9 million against the Company's lines of credit and peak short-term
borrowings of $19.6 million. During Fiscal Year 1994, there were weighted
average short-term borrowings of $4.0 million against the Company's lines of
credit and peak short-term borrowings of $12.3 million. The Company had no
such borrowings during Fiscal Year 1993. At the end of Fiscal Year 1995 there
were short-term borrowings of $7.7 million, and at the end of Fiscal Years 1994
and 1993 there were no short-term borrowings. At February 3, 1996, the Company
had unused available borrowings of $9.4 million under the revolving line of
credit.
For Fiscal Years 1995, 1994 and 1993, capital expenditures were
$2.8 million, $3.2 million and $2.2 million, respectively. The following table
sets forth the major categories of capital expenditures for Fiscal Years 1995,
1994 and 1993.
-27-
<PAGE> 28
<TABLE>
<CAPTION>
Total Capital Expenditures
(in millions)
--------------------------
Fiscal Year
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
New Stores $2.6 $2.2 $0.8
Existing Store Remodels,
New Fixtures, General - 0.2 0.6
Distribution Center 0.1 0.3 0.1
Computer Operations 0.1 0.5 0.6
All Other - - 0.1
---- ---- ----
Total $2.8 $3.2 $2.2
==== ==== ====
</TABLE>
The Company plans to spend approximately $3.0 million for capital
expenditures in Fiscal Year 1996, an amount within the Company's cumulative
capital expenditure covenant under the Company's financing agreement. Of this
amount, $0.5 million has been allocated for a new store with the balance
relating to existing stores, the Distribution Center and the computer
operations. The Company's policy is to negotiate leases wherein the landlord
makes the leasehold improvements. Accordingly, the Company's capital
expenditures to open a store are composed primarily of fixturing at a cost of
approximately $350,000 to $500,000. In addition, new stores typically require
an inventory investment of approximately $1,400,000 which is largely financed
by accounts payable.
For Fiscal Year 1995, the Company's cash position was such that previous
cumulative payments of Plan and Excess Cash Balances were utilized to make the
cumulative minimum payment. The cumulative minimum payment owed through Fiscal
Year 1995 was $11.1 million. Prior payments by the Company of minimum, Plan
and Excess Cash Balances were $9.8 million. Therefore, the minimum cash
payment made by the Company for Fiscal Year 1995 was $1.3 million. In addition
to the minimum payment, the creditors will receive $0.2 million of tax
benefits. The Company is required to make a minimum payment of $1.9 million to
unsecured creditors for Fiscal Year 1996.
The Company had long term debt and obligations under capital leases of
$14.8 million at February 3, 1996, and $19.6 million at January 28, 1995. The
Company's ability to satisfy scheduled principal and interest payments under
such obligations is dependent on its cash flow and existing credit facility.
The Company recognizes that it has a high level of indebtedness, primarily
in the form of creditor debt and capital lease obligations. Operating results
in 1995 were lower than initially projected under the Plan. Increased
-28-
<PAGE> 29
competition in the Company's markets and the overall weakness in the retail
industry resulted in a decline of comparable store sales of 5.5% and lower
margins in Fiscal Year 1995. Management has implemented an operating plan for
Fiscal Year 1996 which they believe will produce substantial improvements in
the Company's operations. Key components of the Plan include repositioning the
product mix to include more name brands, changes in advertising, realizing the
benefits of re-engineering certain functions in Fiscal Year 1995, opening one
new store, maintaining comparable store sales at a level consistent with Fiscal
Year 1995 and several other strategies to improve margins. Management believes
its existing revolving credit agreement, which extends until October 1997,
along with its planned cash flows from operations will provide adequate
financing for inventory purchases and operations throughout Fiscal Year 1996.
Management does not believe that its agreement to keep its property free of
certain liens and not to make certain prohibited investments will adversely
affect its liquidity or capital resources.
Seasonality and Inflation
The Company's business is seasonal, with the back-to-school season (July
and August) historically contributing approximately 17% of annual sales and the
Christmas season (November and December) accounting for approximately 28% of
annual sales. For quarterly financial data for Fiscal Years 1995 and 1994,
please see Note M to the Financial Statements. Sales and income are also
affected by the timing of new store openings. Although the Company's
operations are influenced by general economic conditions and inflationary
pressures, the Company does not believe that inflation has had a material
effect on operations during the past 3-5 years.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-29-
<PAGE> 30
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements and Schedules:
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE NO.
- - -------------------- --------
<S> <C>
Independent Auditors' Report. . . . . . . . . . . . . 31
Consolidated Balance Sheets as of
February 3, 1996, and
January 28, 1995. . . . . . . . . . . . . . . . . 32
Consolidated Statements of Operations --
Years Ended February 3, 1996,
January 28, 1995, and January 29, 1994. . . . . . 33
Consolidated Statements of Stockholders
Equity. . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Cash Flows --
Years Ended February 3, 1996, January
28, 1995, and January 29, 1994. . . . . . . . . . 35
Notes to Consolidated Financial Statements
-- Years Ended February 3, 1996,
January 28, 1995, and January 29, 1994. . . . . . 37
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULE
- - ----------------------------
<S> <C>
Independent Auditors' Report on Schedules . . . . . . 47
Schedule II -- Valuation and Qualifying
Accounts . . . . . . . . . . . . . . 48
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-30-
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Richman Gordman 1/2 Price Stores, Inc.
Omaha, Nebraska
We have audited the accompanying consolidated balance sheets of Richman Gordman
1/2 Price Stores, Inc. and subsidiary as of February 3, 1996 and January 28,
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended February
3, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Richman Gordman 1/2
Price Stores, Inc. and subsidiary as of February 3, 1996 and January 28, 1995
and the results of their operations and their cash flows for each of the three
years in the period ended February 3, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, on October 20,
1993 the Company emerged from Chapter 11 bankruptcy pursuant to a confirmed
Plan of Reorganization. Under the Plan of Reorganization, the Company is
required to comply with certain terms and conditions as more fully described in
Note A.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
April 12, 1996
Omaha, Nebraska
31
<PAGE> 32
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash $ 488,012 $ 6,607,476
Accounts receivable, less allowance for doubtful accounts of $392,948 and $370,463 928,792 1,278,711
Merchandise inventories (Note C) 30,786,359 31,874,884
Prepaid expenses and other current assets 2,145,237 791,896
----------- -----------
Total current assets 34,348,400 40,552,967
PROPERTY, BUILDINGS AND EQUIPMENT, net (Notes D and F) 16,681,855 16,775,924
OTHER ASSETS 978,691 531,976
----------- -----------
$52,008,946 $57,860,867
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings (Note F) $ 7,690,923 $ -
Accounts payable 7,953,024 11,175,051
Accrued expenses (Note E) 5,118,000 5,815,039
Taxes accrued and withheld 2,252,451 1,838,410
Income taxes payable 206,104 212,503
Current portion of long-term debt (Note F) 2,779,207 9,034,684
Current maturities of capital lease obligations (Note H) 1,229,819 1,206,320
----------- -----------
Total current liabilities 27,229,528 29,282,007
LONG-TERM DEBT, net of current portion (Note F) 4,201,143 7,763,045
CAPITAL LEASE OBLIGATIONS, net of current portion (Note H) 10,594,328 11,824,146
OTHER LONG-TERM LIABILITIES 585,765 574,430
COMMITMENTS AND CONTINGENCIES (Notes H, I and K)
STOCKHOLDERS' EQUITY:
Common stock (Note L):
Series A common stock, $.01 par value; 19,800,000 shares
authorized; 17,640,000 and 16,920,000 shares issued and outstanding in
fiscal 1995 and 1994, respectively 176,400 169,200
Series B common stock, $.01 par value; 10,200,000 shares
authorized, issued and outstanding in fiscal 1995 and 1994 102,000 102,000
Paid-in capital 4,436,526 4,238,238
Retained earnings (Note F) 4,683,256 3,907,801
----------- -----------
Total stockholders' equity 9,398,182 8,417,239
----------- -----------
$52,008,946 $57,860,867
=========== ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DEBTOR-IN-POSSESSION FROM JUNE 17, 1992 TO OCTOBER 20, 1993)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
<S> <C> <C> <C>
NET SALES $206,520,255 $191,147,802 $167,638,373
COST OF SALES 138,915,561 123,028,330 109,461,950
------------ ------------ ------------
Gross Profit 67,604,694 68,119,472 58,176,423
OPERATING AND ADMINISTRATIVE EXPENSES 69,605,046 62,769,000 54,066,591
------------ ------------ ------------
Income (loss) from operations (2,000,352) 5,350,472 4,109,832
OTHER INCOME (EXPENSE):
Interest expense - (contractual interest of $3,899,379 in fiscal 1993) (3,904,015) (3,821,199) (2,697,516)
Interest income 129,592 224,620 282,806
Gain (loss) on life insurance benefits (Note B) - (334,977) 678,076
------------ ------------ ------------
(3,774,423) (3,931,556) (1,736,634)
------------ ------------ ------------
INCOME (LOSS) BEFORE REORGANIZATION
ITEMS, PROVISION FOR INCOME TAXES AND
EXTRAORDINARY ITEM (5,774,775) 1,418,916 2,373,198
REORGANIZATION ITEMS (Note G) - (1,705,460)
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM (5,774,775) 1,418,916 667,738
PROVISION FOR INCOME TAXES (Note I) - - -
------------ ------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (5,774,775) 1,418,916 667,738
EXTRAORDINARY ITEM - GAIN ON DEBT
FOREGIVENESS (Notes A, F and I) 6,550,230 - 15,199,606
------------ ------------ ------------
NET INCOME $ 775,455 $ 1,418,916 $ 15,867,344
============ ============ ============
INCOME PER COMMON SHARE:
Income (loss) before extraordinary item $ (0.19) $ 0.05 $ 0.02
Extraordinary item 0.22 - 0.51
------------ ------------ ------------
Net income per common share $ 0.03 $ 0.05 $ 0.53
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEBTOR-IN-POSSESSION FROM JUNE 17, 1992 TO OCTOBER 20, 1993)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
RICHMAN GORDMAN
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
STORES, INC. ------------------------------------
-------------------------- COMMON STOCK
PREFERRED COMMON ------------------------
STOCK STOCK COMMON SERIES SERIES
STOCK A B
<S> <C> <C> <C> <C> <C>
BALANCE, January 31, 1993 $ 6,000 $ 45,111 $ - $ - $ -
Cancellation of predecessor
stock and issuance of
16,200,000 new shares to
predecessor owners under
the Reorganization Plan (6,000) (45,111) 162,000 - -
Issuance of 10,200,000 new
shares to creditors under
the Reorganization Plan - - 102,000 - -
Net income - - - - -
------- -------- -------- -------- --------
BALANCE, January 29, 1994 - - 264,000 - -
Reissuance of 16,200,000 shares
of predecessor owner's stock
as Series A shares (Note L) - - (162,000) 162,000 -
-
Reissuance of 10,200,000 shares
of creditor stock as Series B
shares (Note L) - - (102,000) - 102,000
Issuance of 720,000 new Series
A shares to executive officers
under the Reorganization Plan - - - 7,200 -
Net income - - - - -
------- -------- -------- -------- --------
BALANCE, January 28, 1995 - - - 169,200 102,000
Issuance of 720,000 new Series
A shares to executive officers
under the Reorganization Plan - - - 7,200 -
Net income - - - - -
------- -------- -------- -------- --------
BALANCE, February 3, 1996 $ - $ - $ - $176,400 $102,000
======= ======== ======== ======== ========
<CAPTION>
ADDITIONAL RETAINED
PAID-IN EARNINGS
CAPITAL (DEFICIT) TOTAL
<S> <C> <C> <C>
BALANCE, January 31, 1993 $ 944,839 $(13,378,459) $(12,382,509)
Cancellation of predecessor
stock and issuance of
16,200,000 new shares to
predecessor owners under
the Reorganization Plan (110,889) - -
Issuance of 10,200,000 new
shares to creditors under
the Reorganization Plan 3,206,000 - 3,308,000
Net income - 15,867,344 15,867,344
--------- ---------- ----------
BALANCE, January 29, 1994 4,039,950 2,488,885 6,792,835
Reissuance of 16,200,000 shares
of predecessor owner's stock
as Series A shares (Note L) - - -
Reissuance of 10,200,000 shares
of creditor stock as Series B
shares (Note L) - - -
Issuance of 720,000 new Series
A shares to executive offiecers
under the Reorganization Plan 198,288 - 205,488
Net income - 1,418,916 1,418,916
--------- ---------- ----------
BALANCE, January 28, 1995 438,238 3,907,801 8,417,239
Issuance of 720,000 new Series
A shares to executive officers
under the Reorganization Plan 198,288 - 205,488
Net income - 775,455 775,455
--------- ---------- ----------
BALANCE, February 3, 1996 $4,436,526 $4,683,256 $9,398,182
========== ========== ==========
</TABLE>
34
<PAGE> 35
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DEBTOR-IN-POSSESSION FROM JUNE 30, 1992 TO OCTOBER 20, 1993)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Cash received from customers $206,470,621 $191,156,790 $167,702,418
Merchandise purchases (140,696,491) (119,521,493) (108,188,638)
Cash paid for operating and administrative expenses (68,533,220) (58,543,197) (50,149,446)
Interest paid on capital leases (1,533,450) (1,679,553) (1,757,238)
Interest paid on other debt obligations (2,230,590) (1,939,492) (897,893)
Income tax refund received - 1,065,902 -
------------ ------------ ------------
Net cash provided by (used in) operating activities before
reorganization items (6,523,130) 10,538,957 6,709,203
------------ ------------ ------------
OPERATING CASH FLOWS FROM REORGANIZATION ITEMS:
Professional fees paid for services - - (1,561,546)
Lease termination costs - - (1,326,308)
Other - - (362,185)
------------ ------------ ------------
Net cash used by reorganization items - - (3,250,039)
------------ ------------ ------------
Net cash provided by (used in) operating activities (6,523,130) 10,538,957 3,459,164
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, buildings and equipment (2,820,309) (3,215,711) (2,185,698)
Increase (decrease) in cash surrender value of life
insurance policies 4,572 - (242,949)
Proceeds from sale of investment - 121,000 -
Proceeds from life insurance policies - 879,619 -
------------ ------------ ------------
Net cash used in investing activities (2,815,737) (2,215,092) (2,428,647)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit borrowings 7,690,923 - -
Payments on obligations under capitalized leases (1,206,320) (1,090,540) (1,077,957)
Payments on secured term note (804,000) (1,695,497) (268,000)
Payments to other prepetition creditors - - (1,833,583)
Payments made under plan of reorganization (2,461,200) (5,166,770) (11,935,110)
------------ ------------ ------------
Net cash provided by (used in) in financing activities 3,219,403 (7,952,807) (15,114,650)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (6,119,464) 371,058 (14,084,133)
CASH, Beginning of year 6,607,476 6,236,418 20,320,551
------------ ------------ ------------
CASH, End of year $ 488,012 $ 6,607,476 $ 6,236,418
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 36
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DEBTOR-IN-POSSESSION FROM JUNE 30, 1992 TO OCTOBER 20, 1993)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
RECONCILIATION OF NET INCOME TO NET
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 775,455 $ 1,418,916 $15,867,344
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Extraordinary credit-gain on debt foregiveness (6,550,230) - (15,199,606)
Depreciation and amortization 3,050,338 3,013,260 2,726,965
Loss on sale and retirement of property, buildings
and equipment, net - - 177,445
Deferred compensation expense - - (26,575)
Net changes in assets and liabilities:
Accounts receivable 349,919 85,791 394,636
Merchandise inventories 1,088,525 (2,675,246) (1,114,979)
Prepaid expenses and other current assets (1,353,341) 1,235,738 1,785,452
Income taxes recoverable - 1,065,902 105,981
Other assets (584,623) (173,679) (452,786)
Accounts payable (3,222,027) 4,954,358 1,436,076
Other accrued expenses (77,146) 1,613,917 (2,240,789)
----------- ----------- -----------
Net cash provided by (used in) operating activities $(6,523,130) $10,538,957 $ 3,459,164
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred on lease agreement
for equipment $ - $ - $ 49,800
=========== =========== ===========
Stock issued to unsecured creditors under the Plan
of Reorganization as partial payment of liabilities $ - $ - $ 3,308,000
=========== =========== ===========
Stock issued to Company officers under the Plan of
Reorganization $ 205,488 $ 205,488 $ -
=========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
36
<PAGE> 37
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 3, 1996, JANUARY 28, 1995 AND JANUARY 29, 1994
(DEBTOR-IN-POSSESSION FROM JUNE 17, 1992 TO OCTOBER 20, 1993)
A. REORGANIZATION, BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL
STATEMENTS AND RECENT DEVELOPMENTS
On June 17, 1992, Richman Gordman Stores, Inc. and its two wholly owned
subsidiaries, Richman Gordman Department Stores, Inc. and 1/2 Price Stores,
Inc. (collectively the "Company") filed a voluntary petition for
reorganization under Chapter 11 of Title 11 of the United States Bankruptcy
Code ("Chapter 11") in the United States Bankruptcy Court for the District
of Nebraska. Under Chapter 11, certain claims against the Company were
stayed while the Company continued business operations as a
debtor-in-possession. These claims, which totalled $72,399,717 at January
30, 1993, were reflected as "Liabilities Subject to Compromise" as required
under Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code.
On October 20, 1993 (the "Effective Date"), the Company emerged from
Chapter 11 pursuant to a confirmed Plan of Reorganization (the "Plan"). As
part of the Plan, Richman Gordman Stores, Inc. and its two wholly-owned
subsidiaries, Richman Gordman Department Stores, Inc. and 1/2 Price Stores,
Inc. merged and now operate as Richman Gordman 1/2 Price Stores, Inc. (a
Delaware corporation). P.H. of Florida, Inc. was retained as a subsidiary
of the Company. The Plan provided for, among other things, the
cancellation of all prepetition ownership interests of the Company; the
issuance of 54% of the new authorized common stock of the Company to
certain prepetition owners; the issuance of 34% of the new authorized
common stock of the Company to the unsecured creditors (estimated fair
value $3,308,000); cash payments over a period of five years to the
prepetition unsecured creditors (see Note F); cash payments of priority
claims; and the assumption or rejection of unexpired leases. The Plan also
requires the Company to maintain minimum levels of annual cumulative
earnings before interest, taxes, depreciation and amortization. The
present value of amounts expected to be paid to the unsecured creditors
were accrued at January 29, 1994. Liabilities subject to compromise not
expected to be repaid totalling $15,199,606 were recorded in the statement
of operations as an extraordinary gain in fiscal year 1993.
During fiscal 1995, the Company revised its estimate of the amounts
expected to be repaid to the unsecured creditors under the Plan. As a
result of actual earnings and revised projected earnings being lower than
originally estimated over the term of the Plan, the cash payments and net
operating loss tax benefits expected to be paid to the unsecured creditors
are expected to be lower than originally estimated. As a result, an
extraordinary gain of $6,550,230 was recorded in fiscal 1995 to reflect the
change in this estimated liability to be paid to the unsecured creditors.
37
<PAGE> 38
As noted above, operating results in 1995 were lower than initially
projected under the Plan. Increased competition in the Company's markets
and the overall weakness in the retail industry resulted in a decline of
comparable store sales of 5.5% and lower margins in fiscal 1995.
Management has implemented an operating plan for fiscal 1996 which they
believe will produce substantial improvements in the Company's operations.
Key components of the Plan include repositioning the product mix to include
more name brands, changes in advertising, realizing the benefits of
re-engineering certain functions in fiscal 1995, opening one new store,
maintaining comparable store sales at a level consistent with fiscal 1995
and several other strategies to improve margins. Management believes its
existing revolving credit agreement, which extends until October 1997,
along with its planned cash flows from operations will provide adequate
financing for inventory purchases and operations throughout fiscal 1996.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - Richman Gordman 1/2 Price Stores, Inc. operates
31 1/2 Price Stores in eight states. The 1/2 Price concept is to offer
first quality, nationally branded merchandise at half of the conventional
department store prices or at half of manufacturers suggested retail
prices, designer brands at 25% to 50% less than conventional department
store prices, and discount/commodity brands at, or below, discount store
prices.
CONSOLIDATION - The consolidated financial statements include the accounts
of Richman Gordman 1/2 Price Stores, Inc. and its wholly-owned subsidiary,
P.H. of Florida. All material intercompany accounts and transactions have
been eliminated in consolidation.
FISCAL YEAR - Fiscal years are designated in the financial statements and
notes by the calendar year in which the fiscal year commences.
Accordingly, results for fiscal year 1995 represent the fifty-three week
period ended February 3, 1996, and fiscal years 1994 and 1993 represent the
fifty-two week periods ending January 28, 1995 and January 29, 1994,
respectively.
CASH FLOW REPORTING - For purposes of the statement of cash flows, the
Company considers all temporary cash investments purchased with a maturity
of three months or less to be cash equivalents. There were no temporary
investments at February 3, 1996, and $5,540,000 and $5,250,000 at January
28, 1995 and at January 29, 1994, respectively.
MERCHANDISE INVENTORIES - Merchandise inventories are stated at the lower
of cost or market, using the last-in, first-out (LIFO) method.
PROPERTY, BUILDINGS AND EQUIPMENT - Property, buildings and equipment are
recorded at cost and are depreciated for financial reporting purposes using
the straight-line method over their estimated useful lives. Leasehold
improvements are depreciated over their related lease terms or useful life,
generally two to 40 years while furniture, fixtures and equipment are
depreciated over a period of two to 10 years. Buildings and equipment
recorded under capital leases are being amortized using the straight-line
method over the shorter of the related lease terms or useful life of the
assets, generally two to 32 years.
DEFERRED FINANCING CHARGES - Deferred financing charges are being amortized
using the straight-line method over the term of the related financing
agreement.
PRE-OPENING COSTS - Costs associated with the opening of new stores are
expensed during the fiscal year the stores are opened.
38
<PAGE> 39
GAIN ON LIFE INSURANCE BENEFITS - Upon the death of the Chairman of the
Board in December, 1993, the Company recorded a gain on life insurance
benefits reflecting the proceeds of life insurance policies of $879,814
offset by the cash surrender value of $201,738, which was previously
recorded as an asset. These proceeds were received during fiscal year
1994. During fiscal year 1994, a claim against those insurance proceeds
was filed, resulting in the recording of an expense of $334,977 for the
amount that will be refunded by the Company.
FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK - Financial
instruments which potentially subject the Company to concentrations of
credit risk are primarily cash, temporary investments and accounts
receivable. The Company places its cash and temporary investments in
highly rated financial institutions and in very short term investments.
Concentration of credit risk with respect to accounts receivable are
limited due to the large number of customer balances.
TEMPORARY INVESTMENTS - Temporary investments, which are included in cash,
are carried at cost. In accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, all of the Company's temporary investment have
been classified as trading securities. These temporary investments are
generally repurchase agreements and cost approximated fair value at the end
of fiscal year 1994. No temporary investments were held at the end of
fiscal year 1995.
EARNINGS PER SHARE - Income (loss) per common share was calculated using
weighted average common shares outstanding of 30,000,000 for all years
presented. For purposes of the weighted average shares outstanding, the
3,600,000 shares to be issued to certain members of management, of which
1,440,000 have been issued, or to the unsecured creditors during the term
of the Plan are considered outstanding for all periods presented.
ESTIMATES - The preparation of 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
these estimates.
ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board (FASB) issues Statement of Financial Accounting Standards
(SFAS) 121, "Accounting for the Impairment of Long Lived Assets." SFAS 121
required that long lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment. The Company will adopt
SFAS 121 as required in 1996 but does not expect any adjustments to the
value of long lived assets.
In October 1995, FASB issued SFAS 123 "Accounting for Stock Based
Compensation." Beginning in 1996, SFAS 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages, but
does not require, the recognition of employee compensation expense related
to stock compensation based on the fair value of the equity instrument
granted. Companies that do not adopt the fair value recognition provisions
of SFAS 123 and continue to follow the existing APB Opinion 25 rules to
recognize and measure compensation, will be required to disclose the pro
forma amounts of net income and earnings per share that would have been
reported had the company elected to follow the fair value recognition of
SFAS 123. Management has determined that the Company will not adopt the
fair value recognition provisions of SFAS 123 so the impact of adopting
this statement beginning in 1996 will only be the expanded disclosure
requirements.
39
<PAGE> 40
C. INVENTORY
Total inventories would have been higher at February 3, 1996 by $8,615,977
and at January 28, 1995 by $8,245,375, respectively, had the FIFO
(first-in, first-out) method been used to determine the cost of all
inventories. During fiscal years 1995, 1994 and 1993 inventory quantities
were reduced resulting in a liquidation of certain LIFO layers carried at
costs which were lower than the costs of current purchases, the effect of
which increased net income by approximately $89,000, $2,000 and $42,000,
respectively.
Included in inventory is $2,371,108 and $148,544 of prepaid inventory at
February 3, 1996 and January 28, 1995, respectively.
D. PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment consist of:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
<S> <C> <C>
Land $ 1,406,060 $ 1,406,060
Leasehold improvements 10,084,654 10,070,402
Furniture, fixtures and equipment 15,431,502 13,787,349
Capitalized leases 20,830,962 20,830,963
------------ ------------
47,753,178 46,094,774
Less accumulated depreciation (31,071,323) (29,318,850)
------------ ------------
$ 16,681,855 $ 16,775,924
============ ============
</TABLE>
E. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
<S> <C> <C>
Store operating expenses $2,702,838 $3,080,912
Employee compensation 2,299,639 2,596,125
Interest 115,523 138,002
---------- ----------
$5,118,000 $5,815,039
========== ==========
</TABLE>
40
<PAGE> 41
F. FINANCING AGREEMENTS
Long-term debt consists of:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
<S> <C> <C>
Present value of payments to be made to prepetition unsecured
creditors discounted at 10% plus the payment of tax benefits
realized during the term of the Plan from net operating loss
carryforwards in existence at January 29, 1994 $5,749,796 $14,761,226
Secured term note; payments of $67,000 monthly plus
interest at 7%, matures August 20, 1997 1,230,554 2,036,503
---------- -----------
6,980,350 16,797,729
Less current portion 2,779,207 9,034,684
---------- -----------
$4,201,143 $ 7,763,045
========== ===========
</TABLE>
On October 20, 1993, the Company entered into a financing agreement with a
financial institution which replaced the debtor-in-possession financing
agreement. The financing agreement provides for revolving credit
borrowings and letters of credit of up to $25 million. As a result of an
amendment to the financing agreement in fiscal 1995, borrowings under this
agreement bear interest at a rate which is 1.5% per annum greater than the
applicable prime rate and the term of the financing agreement extends to
October 1997. The amounts the Company is permitted to borrow under the
agreement are determined by a formula based upon the Company's eligible
inventory from time to time. Amounts available under this agreement at
February 3, 1996 and January 28, 1995 totalled $9,441,000 and $17,897,000,
respectively. Such borrowings are secured by substantially all of the
current assets of the Company and general intangibles. A non-use fee of
.5% per annum is payable monthly on the unused portion of the facility, and
a servicing fee is payable quarterly during the term of the agreement.
Additional fees are due upon early termination of the agreement. On
February 3, 1996 borrowings were $7,690,923 and there were no outstanding
borrowings under this agreement at January 28, 1995, and the Company had
outstanding letters of credit on February 3, 1996 and January 28, 1995
totaling approximately $378,000 and $816,000, respectively. The maximum
amount of revolving credit borrowings during fiscal year 1995, 1994 and
1993 was $19,587,000, $12,275,000 and $0, respectively. The weighted
average amount of revolving credit borrowings for fiscal years 1995, 1994
and 1993 was $8,868,000, $4,036,000 and $0, respectively, with related
weighted average interest rates of 10.5% and 9.1% in fiscal 1995 and 1994,
respectively.
The current financing agreement contains certain restrictions and
covenants, including minimum levels of annual cumulative earnings before
interest, taxes, depreciation, amortization and other defined adjustments
(EBITDA) and limitations on annual cumulative capital expenditures and
additional borrowings. The Company is also restricted from making any
dividend payments. During the year ended February 3, 1996, the Company
failed to comply with the EBITDA covenants under the financing agreement
and the Plan, but appropriate waivers of this covenant have been obtained
for the balance of the term of the Plan, which extends through fiscal 1997.
The secured term note is collateralized by certain Company owned real
estate, furniture, fixtures and equipment. The aggregate maturities of the
secured term note in each of the next two fiscal years are as follows:
1996 - $804,000 and 1997 - $426,554.
41
<PAGE> 42
During the third quarter of 1993 the Company emerged from Chapter 11
pursuant to a confirmed Plan of Reorganization (the "Plan"). The present
value of amounts estimated to be paid to the unsecured creditors over the
Plan's term were accrued at that time based on projections of income and
cash flows over the same period. In the fourth quarter of 1995, after
giving effect to actual operating results under the Plan and revised
projected earnings for the balance of the term of the Plan, the Company
reduced the estimated remaining liability for payments to unsecured
creditors, which resulted in recording an extraordinary gain of $6,550,230.
The ultimate amount that will be paid to the unsecured creditors will
depend on the actual operating results and cash flows throughout the entire
term of the Plan. Due to uncertainties inherent in the estimation process,
it is at least reasonably possible that the ultimate payments to the
unsecured creditors could be revised in the near term. Future estimated
payments to unsecured creditors recorded at their present value are as
follows:
<TABLE>
<CAPTION>
DESCRIPTION OF PAYMENTS FISCAL YEAR
-----------------------------------------------
1996 1997 TOTAL
<S> <C> <C> <C>
Annual minimum payments $1,939,000 $1,828,000 $3,767,000
Less amount representing interest (183,793) (330,119) (513,912)
---------- ---------- ----------
Present value of payments $1,755,207 $1,497,881 3,253,088
========== ==========
Benefit of net operating loss carry forward 2,343,797
Undistributed payments to unsecured
creditors 152,911
----------
Total expected payments 5,749,796
Less current portion 1,975,207
----------
Long-term portion $3,774,589
==========
</TABLE>
G. REORGANIZATIONS ITEMS
The net expense occurring as a result of the Company's Chapter 11 filing
and subsequent reorganization efforts has been separated from ordinary
operations in the consolidated statements of operations. Components of
reorganization items for the year ended January 29, 1994 are as follows:
<TABLE>
<S> <C>
Professional fees $1,567,274
Loss on leasehold improvements written off and sale of furniture and fixtures
on closed stores 126,001
Other 12,185
----------
$1,705,460
==========
</TABLE>
H. LEASES
The Company has entered into numerous long-term lease agreements classified
as both capital and operating leases. These leases relate to retail store
locations, additions to the distribution center, corporate headquarters,
and furniture, fixtures and equipment. The leases expire on various dates
through the year 2016 with most of the leases containing renewal options.
Certain retail store leases contain provisions for additional rent based on
varying percentages of sales.
42
<PAGE> 43
Total rental expense related to all operating leases (including those with
terms less than one year) is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------
<S> <C> <C> <C>
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
Minimum rentals $8,583,986 $6,796,469 $6,472,244
Contingent rentals 18,201 100,326 27,367
---------- ---------- ----------
$8,602,187 $6,896,795 $6,499,611
========== ========== ==========
</TABLE>
Following is a summary of capitalized leased assets included in property,
buildings and equipment:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
<S> <C> <C>
Buildings and improvements $ 20,579,512 $ 20,579,513
Furniture, fixtures and equipment 251,450 251,450
------------- ------------
20,830,962 20,830,963
Less accumulated depreciation (14,478,000) (13,466,452)
------------- ------------
$ 6,352,962 $ 7,364,511
============= ============
</TABLE>
Future minimum lease payments under capitalized and operating leases with
rental terms of more than one year as of February 3, 1996, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
<S> <C> <C>
1996 $ 2,710,186 $10,032,170
1997 2,659,502 8,861,980
1998 2,384,027 7,685,902
1999 2,017,708 6,876,597
2000 1,965,814 6,354,363
After 2000 10,519,137 37,101,587
----------- -----------
Total minimum lease payments 22,256,374 $76,912,599
===========
Less estimated executory costs (425,253)
-----------
Net minimum lease payments under capitalized leases 21,831,121
Less amount representing interest (10,006,974)
------------
Present value of net minimum lease payments 11,824,147
Less current portion (1,229,819)
------------
Long-term obligation $ 10,594,328
============
</TABLE>
43
<PAGE> 44
I. INCOME TAXES
The differences between the Federal statutory tax rate and the Company's
effective tax rate on income (loss) before extraordinary item are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY 3, JANUARY 28, JANUARY 29,
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 34.0 % 34.0 % 34.0 %
Reversal of temporary differences for which
no benefit was previously recorded (34.0) (34.0) (34.0)
----- ----- -----
- - -
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts reported for income tax
purposes, and (b) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax
position as of February 3, 1996 and January 28, 1995 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 3, JANUARY 28,
1996 1995
<S> <C> <C>
Accruals and other reserves $ 346,801 $ 528,131
Rejected leases 28,575 353,829
Capitalized inventory costs 641,812 649,451
Fixed assets 162,032 369,708
Capital leases 1,899,487 1,969,945
Net operating loss and tax credit carryforwards 5,553,317 5,604,222
Valuation reserve (8,632,024) (9,475,286)
---------- -----------
Net deferred asset $ - $ -
=========== ===========
</TABLE>
On February 3, 1996 the Company has net operating loss carryforwards of
approximately $15,053,471 which expire through 2010. The valuation reserve
provided will be recorded as a reduction in income tax expense in future
periods if realization of the future deductions becomes more likely than
not. Under the Plan, the tax benefits associated with net operating loss
carryforwards and other tax credit carryforwards as of January 29, 1994
which are realized during the term of the Plan are to be paid to the
unsecured creditors. An estimate of these tax benefits to be paid has been
accrued as of February 3, 1996 (see Note F).
For federal income tax purposes, the gain on the debt forgiveness was
nontaxable pursuant to the stock for debt exception of IRC Section 108.
The Company applied for and received a favorable letter ruling from the
Internal Revenue Service with respect to this treatment. As a result, the
gain on debt forgiveness for the years ended February 3, 1996 and January
29, 1994 does not require the netting of income tax expense associated with
the gain.
44
<PAGE> 45
J. RELATED PARTY TRANSACTIONS
The Company currently leases five of its retail store locations, its
corporate headquarters and two additions to its distribution center from
organizations owned in whole or in part by certain stockholders of the
Company. During fiscal years 1995, 1994 and 1993 the Company paid
$2,915,243, $2,919,926 and $2,887,912, respectively, to these related
organizations under the terms of the leases.
K. EMPLOYMENT BENEFITS AND CONTRACTS
The Company offers a 401(k) thrift savings plan that allows employees to
defer a percentage of their income by making pretax contributions to the
savings plan. Matching contributions made by the Company are determined by
the Board of Directors in accordance with plan provisions. During fiscal
years 1995, 1994 and 1993, no contributions were made to the plan.
The Company has employment agreements with two key executive officers which
expire in October 1998 and January 1999. In addition to a base salary, the
agreements provide for cash and stock bonuses to be paid if certain
operating goals are achieved.
As part of the Plan of Reorganization, the Company entered into a
non-compete agreement with a former President (who is currently a member of
the Board of Directors) requiring the Company to pay him $125,000 annually
through October, 1998.
L. STOCKHOLDERS' EQUITY
Under the approved Plan, all shares of existing common stock and existing
preferred stock were canceled in fiscal year 1993. The Company filed a
restated certificate of incorporation which authorized the issuance of
30,000,000 shares of $.01 par value common stock. Under the Plan, the
Company issued 10,200,000 new shares to the unsecured creditors and
16,200,000 new shares to the former preferred shareholder. The former
common shareholders' interests in the Company were canceled and they
received no distribution under the Plan.
During fiscal year 1994 and in order to clarify for the marketplace the
purchase option for common stock issued to unsecured creditors under the
Plan, the Company's Board of Directors designated the Company's common
stock into two series. The Series A common stock consists of the
17,640,000 shares of the Company's common stock that are not subject to the
option to repurchase (issued only to pre-reorganization shareholders and
management). The Series B option common stock (issued to unsecured
creditors) consists of the 10,200,000 shares that are subject to the option
to repurchase, which is discussed in the second succeeding paragraph that
follows.
Employment agreements with certain members of management include a
provision that would allow them to receive over the five year term of the
Plan up to 3,600,000 new Series A shares if certain cash flow goals are
achieved. Any new shares reserved for these management members that are
not earned under the Plan will be distributed pro rata to the unsecured
creditors in 1998. As of February 3, 1996, 1,440,000 shares of Series A
had been issued under this incentive plan. Also included in the financial
statements was an accrual of approximately $47,520 for the expected
issuance of 540,000 additional shares to certain members of management
relating to fiscal year 1995.
45
<PAGE> 46
Should the Company fulfill its minimum obligation to the unsecured
creditors under the Plan, the Company and the former preferred
shareholder's designee has the option to purchase all or a portion of the
Series B option common stock, issued to unsecured creditors, at fair value
of the stock on February 2, 1998, less the amount of any excess cash that
has been paid to the unsecured creditors during the term of the Plan. As
of February 3, 1996 there is no excess cash paid to the unsecured
creditors. During fiscal 1995, previous excess cash payments totalling
$3,277,224 were used to fulfill the Company's minimum obligation to the
unsecured creditors.
M. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial information for fiscal 1995 and 1994 is as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------------------------------
FISCAL 1995 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $38,359 $47,723 $52,731 $67,707 $206,520
Gross profit $13,184 $16,469 $17,503 $20,449 $67,605
Income (loss) from operations $(1,918) $(429) $(665) $1,012 $(2,000)
Income (loss) before
extraordinary item $(2,875) $(1,461) $(1,700) $261 $(5,775)
Net income (loss) $(2,875) $(1,461) $(1,700) $6,811 $775
Net income (loss) per common
share:
Net income (loss) before
extraordinary item $(0.10) $(0.05) $(0.06) $0.01 $(0.19)
Net income (loss) per
common share $(0.10) $(0.05) $(0.06) $0.23 $0.03
</TABLE>
Fourth quarter fiscal 1995 income was negatively impacted by an accrual of
inventory markdowns of approximately $1,764,000 related to slow moving
merchandise. In addition, during the fourth quarter of fiscal 1995 the
Company recorded an extraordinary benefit for a change in estimate of the
liability due to the creditors of $6,550,230.
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------------------------------------------
FISCAL 1994 FIRST SECOND THIRD FOURTH TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $33,752 $44,022 $52,740 $60,634 $191,148
Gross profit $11,184 $15,731 $18,561 $22,643 $68,119
Income (loss) from operations $(1,936) $620 $1,606 $5,060 $5,350
Net income (loss) $(2,797) $(508) $581 $4,143 $1,419
Net income (loss) per common $(0.09) $(0.02) $0.02 $0.14 $0.05
share $(0.09) $(0.02) $0.02 $0.14 $0.05
</TABLE>
Fourth quarter fiscal 1994 income was favorably impacted by a credit in the
LIFO provision of approximately $440,000 resulting from adjusting the estimated
LIFO provision recorded during the year to the actual provision based on the
year end calculation.
46
<PAGE> 47
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
Board of Directors
Richman Gordman 1/2 Price Stores, Inc.
We have audited the financial statements of Richman Gordman 1/2 Price Stores,
Inc. as of February 3, 1996 and January 28, 1995, and for each of the three
years in the period ended February 3, 1996, and have issued our report thereon
dated April 12, 1996; such financial statements and report are included in Item
8 of this Form 10-K. Our audits also included the financial statement schedule
of Richman Gordman 1/2 Price Stores, Inc., listed in Item 14 (a)(2). This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audits. In our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 12, 1996
47
<PAGE> 48
SCHEDULE II
<TABLE>
<CAPTION>
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
VALUATION AND QUALIFYING ACCOUNTS
- - ---------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES (1) DEDUCTIONS (2) OF PERIOD
<S> <C> <C> <C> <C>
Allowance deducted from asset to which
it applies:
Allowance for doubtful accounts:
Year ended February 3, 1996 $370,463 $688,530 $(666,045) $392,948
Year ended January 28, 1995 $741,816 $212,875 $(584,228) $370,463
Year ended January 29, 1994 $953,531 $ 86,480 $(298,195) $741,816
</TABLE>
(1) Additions charged to expense is net of recoveries of amounts previously
written off.
(2) The deduction in this column are amounts written off against the
respective reserve.
<PAGE> 49
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There are no items to report.
PART III
Item 10. Directors and Executive Officers of the Registrant
MANAGEMENT
Directors
Three members of the Gordman family are Directors of the Company: Jerome P.
Gordman, Nelson T. Gordman, and Jeffrey J. Gordman. Nelson and Jerome Gordman
are brothers; Jerome Gordman is the father of Jeffrey Gordman. Jeffrey Gordman
is also Vice President, Planning and Allocation. The table below sets forth
the name, age and position of the Company's Directors as well as the means of
designation pursuant to the Plan:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Paul M. Bass, Jr.(2)(6) 60 Chairman of the
Board of
Directors
Dennis E. Reaves(2)(4) 53 Director, Vice
Chairman of the Board, President, and
Chief Executive Officer
Paul M. Buxbaum(1)(6) 41 Director
Jeffrey J. Gordman(1)(5) 32 Director and
Vice President,
Planning and
Allocation
Jerome P. Gordman(1)(5) 57 Director
Nelson T. Gordman(3)(5) 56 Director
Thomas J. Noonan, Jr. 56 Director
(2)(3)(6)
Philip Scheipe(1)(3)(6) 58 Director
</TABLE>
49
<PAGE> 50
(1) Member of the Compensation Committee.
(2) Member of the Executive Committee.
(3) Member of the Audit Committee.
(4) Designated as a member of the Board by the Plan as CEO.
(5) Designated as a member of the Board by the Gordman Trustee.
(6) Designated as a member of the Board by the Creditors' Committee.
All Directors were appointed on the Effective Date. The Directors will
serve during the term of the Plan which commenced on the Effective Date of the
Plan and will end on the later of September 15, 1998, or payment in full of
amounts due under the Plan. Accordingly, shareholders will not be able to vote
on the election of Directors until expiration of the term of the Plan.
In the event of the death, resignation, or incapacity of any of the initial
Directors, a successor Director will be chosen as follows:
* Successor Directors to Directors selected by the Creditors' Committee
will be chosen by the remaining Directors selected by the Creditors'
Committee and any successor Directors to Directors selected by the
Creditors' Committee.
* Successor Directors to the Directors selected by Mr. Dennis Reaves or
his successor will be chosen by Dennis Reaves, his successor or any
successor thereto.
* Successor Directors to the Directors chosen by Dan Gordman will be
selected by the the Gordman Trustee.
Within forty-five days after the expiration of the term of the Plan, the
then-Chairman of the Board of Directors shall call a special meeting to provide
for the election of new members of the Board of Directors. Shareholders will
not have cumulative voting rights with respect to the election of Directors.
Officers
The table below sets forth the name, age and position of the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dennis E. Reaves 53 Director, Vice Chairman of the Board, President
and Chief Executive Officer
</TABLE>
50
<PAGE> 51
<TABLE>
<S> <C> <C>
Jeffrey J. Gordman 32 Director and Vice President, Planning and
Allocation
Roger R. Faust 53 Senior Vice President, Secretary, Treasurer and
Chief Financial Officer
James H. Cooke 47 Executive Vice President and Chief Operating
Officer
Norman J. Farrington 48 Vice President, Management Information Services
Stanley B. Latacha 45 Vice President, Marketing and
Sales Promotion
David L. Potter 45 Vice President, Merchandising and General
Merchandise Manager for the Mens, Childrens
and Hardlines Divisions
John Simkins 48 Vice President, Distribution
Edward D. Williamson 41 Vice President, Human
Resources
Donald L. DeGraeve 53 Vice President, Merchandising and General
Merchandise Manager for the Shoes, Womens
Accessories, Misses, Juniors and Intimate
Apparel Divisions
</TABLE>
Biographies of Directors and Officers
Directors
Mr. Paul M. Bass, Jr. is the Chairman of the Board of Directors. From 1988
to the present, he has been Vice Chairman of First Southwest Company, a
Dallas-based regional investment banking firm. Mr. Bass specializes in
corporate finance, investment management and public finance. Mr. Bass is also
presently a Director and Chairman of the Audit Committee of First Nationwide
Bank F.S.B., a Director of Keystone Consolidated Industries (also Chairman of
Audit Committee), a Director of Source Services, Inc. and is a Director and
Chairman of the Board of MACC Private Equities Inc., a business development
company making venture capital investments. Mr. Bass holds a B.B.A. in
Finance from Southern Methodist University.
51
<PAGE> 52
Mr. Paul M. Buxbaum is a Director of the Company. From 1973 to 1978, Mr.
Buxbaum was a field representative for liquidators of retail discount specialty
and department stores. In 1978 he opened a chain of mass merchandising
off-price retail men's clothing stores in greater Los Angeles and in 1982 he
sold the eight stores which were doing in excess of $8 million dollars in
annual sales. Mr. Buxbaum is the Executive Vice President and Secretary
Treasurer of Buxbaum, Ginsberg & Associates, a national merchandising firm
organized in 1983 as a consulting firm which emphasizes restructuring needs and
recovery services to companies on a nationwide basis. Mr. Buxbaum is also an
Executive Vice President of BGA Consulting which provides loan evaluations for
major banks, financial institutions and insurance companies. Mr. Buxbaum is a
Director of Herbalife International and chairs the following committees: Stock
Options, Directors Nominating, Compensation, Finance and Audit. He is also a
Director and Chairman of the Board of Ames Department Stores, Inc. of
Rockyhill, Connecticut and serves on the Compensation and Finance/Audit
committees. Mr. Buxbaum attended California State University in Northridge
where he studied business and finance.
Mr. Jeffrey J. Gordman is a Director and Vice President of Planning and
Allocation for the Company. He joined the Company in 1990 after working as a
mergers and acquisitions analyst for Shearson Lehman Brothers, a New York-based
investment banking firm. At the Company, Mr. Gordman has held positions in
merchandising, store operations and MIS. He is currently responsible for the
planning and allocation function, the two-fold purpose of which is to produce
detailed financial plans within which merchandise is procured, and to generate
tailored merchandise distributions based on individual store characteristics.
Mr. Gordman holds a B.S. in Economics from the Wharton School, University of
Pennsylvania and an M.B.A. from the Massachusetts Institute of Technology.
Mr. Jerome P. Gordman, Director, has 32 years of department store and
specialty store experience. He joined Richman Gordman in 1962 after active
duty with the Army as a lieutenant. He helped develop the Company into a
five-state retailer during his 23 years with Richman Gordman. He rose to Chief
Operating Officer of Richman Gordman Department Stores and Executive Vice
President of Richman Gordman Stores. In 1984, Mr. Gordman joined Kalico's,
Inc., a specialty store, as its President. Mr. Gordman graduated from the
Wharton School at the University of Pennsylvania with a B.S. in Economics.
Mr. Nelson T. Gordman, a Director of the Company, is currently involved in
real estate development and management. He was previously President and COO of
Richman Gordman Department Stores and of Richman Gordman Stores, the parent
company of both Richman Gordman Department Stores and 1/2 Price Stores. Mr.
Gordman joined the Company in 1962 after
52
<PAGE> 53
completing studies at the University of Pennsylvania's Wharton School and, in
various capacities, participated in and directed Richman Gordman's growth to 30
stores, five states and $250 million in annual sales volume.
Mr. Thomas J. Noonan, Jr. is a Director of the Company. Mr. Noonan's
principal business experience over the past approximately ten years has been
managing and advising troubled and underperforming businesses. In this regard
he is presently an Executive Vice-President and Chief Financial Officer of
Herman's Sporting Goods, Inc., a specialty sporting goods retailer which filed
for protection under the United States Bankruptcy Code while Mr. Noonan was an
executive officer. Previously, he had served as a Managing Director of
Taggart/Fasola Group, a manager of troubled and underperforming businesses, and
as a Director and Executive Vice President of Intrenet, Inc., which filed for
protection under the United States Bankruptcy Code while Mr. Noonan was an
executive officer. Previously, Mr. Noonan served as Vice President-Finance for
Pilot Freight Carriers, Inc., Senior Vice President-Finance for Purolator
Courier Corporation, and a number of line and financial positions with Airco,
Inc. Mr. Noonan holds a B.S. degree from Fordham University and an M.B.A.
from St. John's University.
Mr. Dennis E. Reaves is a Director, Vice-Chairman, President and Chief
Executive Officer of the Company. With over twenty-six years of department
store, specialty store, and off-price retailing experience (including 15 years
with Federated Department Stores), Mr. Reaves has held leadership positions in
virtually every discipline of retail. He has extensive merchandising
background in both softlines and hardlines, as well as stores and operations.
Mr. Reaves joined 1/2 Price Stores in 1990 as President and in 1992 was
subsequently appointed President and Chief Operating Officer for Richman
Gordman Department Stores. In early 1993, he assumed the position of President
and Chief Operating Officer for the Companies. Prior to joining Richman
Gordman, from 1989 to 1990, Mr. Reaves was Executive Vice President of Bee Gee
Shoes, a division of Elder Beerman and from 1987 to 1989 Executive Vice
President of Meis Department Stores. Mr. Reaves graduated from the University
of Texas with a B.B.A. degree in Marketing.
Mr. Philip Scheipe is a Director of the Company. Mr. Scheipe has over 30
years experience in the apparel and retail fields. Prior to retiring in 1994,
for the last fifteen years he was employed by Levi Strauss & Co. in the
positions of General Manager of DAE Financial Services and Vice President of
the Elesco Factors Division. Mr. Scheipe has broad experience in financial
disciplines and business reorganizations. He graduated from Pennsylvania State
University and is presently active as a consultant.
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<PAGE> 54
Officers
Mr. James H. Cooke is the Executive Vice President and Chief Operating
Officer of the Company. He joined the Company in 1987 after a sixteen year
career with an Ohio-based discount chain. While with that company, he served in
a variety of operational positions. Prior to that time, Mr. Cooke served in
the United States Air Force. He is a graduate of Ohio University. As
Executive Vice President and Chief Operating Officer, Mr. Cooke directs all
store activities and provides supervision for the Distribution Center.
Mr. Donald L. DeGraeve is the Vice President of Merchandising and General
Merchandise Manager for the Shoes, Womens Accessories, Misses, Juniors and
Intimate Apparel Divisions of the Company. Prior to joining the 1/2 Price
Stores in 1995, Mr. DeGraeve was the Executive Vice President of Merchandising
and Marketing for Elder Beerman Stores, Inc. From 1983 to 1990 Mr. DeGraeve
was the General Merchandise Manager for Home, Mens and Childrens for the H.C.
Prange Company. He has also had a variety of merchandising positions with
Federated Department Stores, J.L. Brandeis Company, L.S. Ayres Company and
Mercantile Stores Company, Inc. Mr. DeGraeve graduated from Kansas State
University with a Bachelor of Science in Business.
Mr. Norman J. Farrington is the Vice President of Management Information
Services for the Company. He received a B.S. and a M.S. in Computer Science
from Iowa State University. For a period of nine years, he owned and operated
a successful computer consulting business. Prior to joining the Company in
1984, Mr. Farrington was on the faculty at Iowa State University teaching
computer science. He has earned the professional designations of Certified
Data Processor and Certified Systems Professional. Mr. Farrington is
responsible for the development and information strategy and support systems.
Mr. Roger R. Faust is the Senior Vice President, Secretary, Treasurer and
Chief Financial Officer of the Company. He graduated from Loyola University
with a B.B.A. in accounting and from the University of Chicago with an M.B.A.
in General Business. Prior to joining the Company, Mr. Faust held numerous
financial management positions of increasing responsibility in the retail
industry during a fifteen year period. Mr. Faust joined the Company in 1984
and became responsible for the direction and supervision of the Financial
Division.
Mr. Stanley B. Latacha is the Vice President of Marketing for the Company.
He has over twenty years of retail marketing and advertising experience. His
diverse marketing background
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<PAGE> 55
includes off-price, discount, department store and specialty chain store
retailers. He held advertising positions at the agencies of Young & Rubicam,
Ogilvy & Mather, Foot, Cone & Belding, and DDB Needham, where he worked with a
variety of national clients and retailers. Mr. Latacha graduated from
Roosevelt University with a B.S.B.A. in Marketing.
Mr. David L. Potter is the Vice President of Merchandising and General
Merchandise Manager for the Mens, Childrens and Hardlines Divisions of the
Company. Prior to joining the Company in 1992, Mr. Potter was with Prange Way
Discount Stores as Vice President and Prange's Department Stores as Divisional
Manager. Mr. Potter gained valuable experience working for Brandeis Department
Stores for over seventeen years, working his way from Sales Associate to
Division Merchandise Manager. Mr. Potter graduated from the University of
Nebraska at Omaha with a Bachelor of Science in Business Administration.
Mr. John Simkins is the Vice President of Distribution for the Company.
Prior to joining the Company in July of 1993, he was director of operations for
Madigans in Chicago for two years. Before then, he was Vice President of
Distribution Operations for Carson Pirie Scott, also in Chicago; with
distribution responsibility for 35 stores, a staff of about 700 and an annual
budget of approximately $15 million. For eleven years prior to Carson's, Mr.
Simkins held increasingly responsible positions in operations and distribution
with the Bon Marche Corporation of Seattle. Mr. Simkins holds a degree from
Olympic College in Bremerton, Washington.
Mr. Edward D. Williamson is the Vice President of Human Resources for the
Company and is responsible for the human resources policy, training, benefits
and compensation. Prior to joining the Company in October of 1989, he
originated and directed the human resources department of Grisanti's, a
restaurant chain, during the company's national expansion phase. Mr.
Williamson received a B.G.S. degree in general administration from the
University of Nebraska at Omaha, and currently holds the certification of
Senior Professional in Human Resources (SPHR).
Committees
The Board of Directors has three standing committees: the Executive
Committee, the Compensation Committee and the Audit Committee.
The Executive Committee
Mr. Bass, Mr. Noonan and Mr. Reaves are members of the Executive Committee.
The Executive Committee is intended generally to function on behalf of the
Board of Directors when
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<PAGE> 56
the Board cannot be convened. The Executive Committee will not act
independently of the Board on significant matters impacting the Company.
The Compensation Committee
Mr. Buxbaum, Mr. Jeffrey Gordman, Mr. Jerome Gordman and Mr. Scheipe are
members of the Compensation Committee. The compensation of the Company's two
senior executive officers was established by the Plan prior to the Effective
Date and the seating of the present Board of Directors and Compensation
Committee. The primary functions of the Compensation Committee are considering
issues that are raised under the employment agreements with the Company's two
senior officers, including amendments to the employment agreements, and
monitoring employment agreements with vice presidents, including considering
changes to base salary and contract extensions, monitoring the bonus program
for vice presidents and establishing compensation for additional officers that
may be hired in the future.
Compensation Committee Interlocks and Insider Participation
Of the three members of the Compensation Committee, Mr. Jeffrey Gordman
and Mr. Jerome Gordman are a present and former employee of the Company,
respectively, and are each beneficial owners of more than 5% of the Common
Stock. Mr. Jeffrey Gordman is the Company's Vice President of Planning and
Allocation. Mr. Jerome Gordman was an employee of the Company for 23 years,
ending in 1984.
The Audit Committee
Mr. Noonan, Mr. Scheipe and Mr. Nelson Gordman are members of the Audit
Committee. The Audit Committee is responsible for recommending selection of
the independent auditors of the Company and reviewing audit results. The
Committee has the authority to engage and retain its own professionals.
SECTION 16(a) REPORTING DELINQUENCIES
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors and holders of
10% or more of the outstanding shares of the Company's Common Stock (together,
the "Reporting Persons") to file reports on Forms 3, 4 and 5 regarding their
transactions in the Company's Common Stock. Based solely upon its review of
the Company's records, copies of such Forms sent to the Company and/or written
statements from Reporting Persons, the Company believes that all Reporting
Persons have timely filed all forms required to be filed during Fiscal Year
1995 pursuant to Section 16(a) of the Exchange Act.
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<PAGE> 57
Item 11. Executive Compensation.
Employment Agreements with
Mr. Dennis Reaves and Mr. Roger Faust
Mr. Dennis Reaves and Mr. Roger Faust are each party to an employment
agreement with the Company. The following describes the terms and conditions
of these two employment agreements.
Base Salary. Mr. Reaves' employment agreement provides for an annual
base salary of $400,000. Mr. Faust's employment agreement provides for
an annual base salary, subject to annual adjustment, with a minimum
increase equal to the increase, if any, in the Bureau of Labor Statistics
Consumer Price Index (Urban Consumers-All City Average). Mr. Faust's base
salary for Fiscal Year 1995 was $211,150 and is $216,430 for Fiscal Year
1996.
Term of Agreement and Severance. Mr. Reaves' employment agreement has
a term extending through January 30, 1999. Mr. Faust's employment
agreement has a three year duration, subject to annual extension, with
severance payment to be the greater of one year's base salary or the
remaining balance of the contract term. Mr. Faust's employment agreement
has been extended by the Board through October 20, 1998.
Management Stock. Mr. Reaves and Mr. Faust will receive Series A
Common Stock as part of their compensation. The employment agreements
provide that Messrs. Reaves and Faust may receive 9% and 3% on a fully
diluted basis, respectively, of the Common Stock issued by the Company
over five years in equal annual installments beginning in Fiscal Year
1994, subject to the following conditions: (1) 75% of the annual
installment of such stock shall vest if Cumulative Minimum Payment is
made; and (2) the remaining 25% of the annual installment of such stock
shall vest if the Cumulative Adjusted Plan Cash Flow is achieved. Any
missed installments may be earned in subsequent years if the appropriate
cumulative test has been met at that time. Any Common Stock reserved for
Messrs. Reaves and Faust that is not earned within 90 days after
January 31, 1998, will be distributed pro rata to Creditors as provided by
the Plan. Any unvested Common Stock of Mr. Faust or Mr. Reaves,
respectively, will automatically be earned if (i) more than 50% of the
Common Stock is sold or transferred or (ii) his employment is terminated
by the Company without cause.
Cash Bonus Compensation. Mr. Reaves' employment agreement provided
for a cash bonus, net of taxes, of $500,000 paid in October, 1995. If Mr.
Reaves voluntarily
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<PAGE> 58
terminates his employment prior to the expiration of his contract's term, a
pro rata portion of the bonus must be repaid. Mr. Faust's employment
agreement provides for cash bonus payments in each year upon the following
terms: (1) 20% of base salary if the Cumulative Minimum Payment is met;
(2) an additional 20% of base salary if Cumulative Adjusted Plan Cash
Balance is met; (3) any missed bonus will be earned and payable within 90
days after the end of any Fiscal Year in which the respective cumulative
test has been satisfied by such date; (4) the Company shall pay 5% of its
50% share of Excess Cash Balance to Mr. Faust; and (5) the bonuses referred
to in this sentence will not be earned in any year in which the Company's
cumulative EBITDA is less than the following EBITDA requirements (the
"EBITDA Requirements"):
<TABLE>
<CAPTION>
FISCAL YEAR MINIMUM CUMULATIVE EBITDA
----------- -------------------------
<S> <C>
1993 $ 4,562,000
1994 9,974,000
1995 16,577,000
1996 23,596,000
1997 31,468,000
</TABLE>
Executive Benefits. The employment agreements further require
(1) current executive benefits, including short term disability insurance
and a benefits allowance; (2) payment by the Company of membership dues in
Prairie Life Club; (3) four weeks vacation annually; and (4) contribution
by the Company to 401(k) plans on terms applicable to other participants.
The Company did not make contributions to the 401(k) plan in Fiscal Year
1995. For Fiscal Year 1996, the Company has authorized matching
contributions equal to 25% of each employee's contribution, but not in
excess of 4% of the employee's compensation.
Tax Bonus. A cash bonus will be paid to Mr. Reaves and Mr. Faust for
purposes of paying income tax on the stock bonuses received by them. Such
tax bonus will not exceed the tax savings attributable to the deduction
available to the Company in connection with such transaction.
Bonus Plan and Employment Agreements for Vice Presidents
All vice presidents are parties to three-year employment agreements,
including specific base salary levels for each of the three years. The
employment agreements include provision for severance payments of the greater
of six months' base salary or base salary through the end of the Fiscal Year of
termination. The agreements also provide for a review and possible extension
on the second anniversary date of each agreement.
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<PAGE> 59
The Company has a bonus program available to vice presidents selected by
the President of the Company. Since the inception of this plan, all vice
presidents have been included in the bonus program. The bonus plan contains
the following provisions:
* Each vice president selected by the President shall receive a bonus of
20% of such person's base salary for each year that the Company's
cumulative EBITDA is equal to or greater than the Company's EBITDA
covenants.
* Each selected vice president will participate in a cash bonus pool
into which will be paid on an annual basis 20% of the cumulative
excess, if any, of the Company's cumulative EBITDA over the amounts
contained in the projections attached to the Plan. The cash bonus
pool will be divided based upon 500 "points", with each eligible vice
president to receive one "point" for each $2,000 of base salary.
The vice presidents also participate in benefits applicable to other
full-time employees, including a 401(k) Plan. The Company did not make
contributions to the 401(k) plan in Fiscal Year 1995. For Fiscal Year 1996,
the Company has authorized matching contributions equal to 25% of each
employee's contribution, but not in excess of 4% of the employee's
compensation.
Covenant Not to Compete
Pursuant to the Plan, Mr. Nelson Gordman, a Director, has executed a
covenant not to compete anywhere in the United States with the Company in
exchange for payments of $125,000 per annum through October 1998.
Directors
The Chairman of the Company's Board of Directors receives an annual fee of
$25,000, and all other Directors receive an annual fee of $20,000. Each
Director also receives $1,500 per board meeting attended. Directors attending
board meetings by telephone receive $750 per meeting. Members of committees
receive $1,000 per committee meeting attended. Committee members attending
committee meetings by telephone receive $500 per meeting. Directors who are
also officers or employees of the Company do not receive Directors fees. Such
Directors, however, are reimbursed for expenses related to meeting attendance.
The Board of Directors has adopted a policy requiring members to attend at
least 75% of all meetings each year in order to receive compensation as a
Director.
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<PAGE> 60
Officers Compensation
The following table summarizes the compensation of the Chief Executive
Officer and the four additional most highly compensated officers during the
Fiscal Years 1993, 1994 and 1995.
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Name ------------------- Other Annual Compensation All Other
And Position(1) Year(2) Salary Bonus Compensation(3) Payouts(4) Compensation(5)
------------- ----- ------ ----- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
A. D. Gordman(6) 1993 $137,500 -0- $19,693 -0- -0-
Director, Chief 1994 -0- -0- -0- -0- -0-
Executive 1995 -0- -0- -0- -0- -0-
Officer
Roger Faust 1993 $200,000 -0- $4,733 $23,711 -0-
Sr. V.P., Sec., 1994 $205,800 $224,151(7) $4,464 -0- -0-
Treas., and Chief 1995 $211,150 $195,125(7) $3,748 -0- -0-
Financial Officer
Dennis Reaves(9) 1993 $250,000 $ -0- $4,098 $6,814 -0-
Director, Pres., and 1994 $257,250 $387,992(8) $3,688 -0- -0-
Chief Executive 1995 $322,596 $1,336,254(8) $3,105 -0- -0-
Officer
David Potter 1993 $113,846 $34,243 $3,438 -0- -0-
V.P. of Merchandising 1994 $127,115 $23,000 $3,100 -0- -0-
1995 $150,000 $25,000 $3,066 -0- -0-
James Cooke 1993 $130,000 $ -0- $4,469 $5,427 -0-
V.P., Operations 1994 $145,000 $26,000 $4,263 -0- -0-
1995 $160,000 $29,000 $4,641 -0- -0-
Stanley Latacha 1993 $125,000 -0- $3,301 -0- -0-
V.P. of Marketing 1994 $130,000 $25,000 $2,886 -0- -0-
1995 $140,000 $26,000 $3,027 -0- -0-
</TABLE>
(1) The current position with the Company is given. During the years listed
the named persons held various positions with Richman Gordman Stores,
Richman Gordman Department Stores and 1/2 Price Stores.
(2) Represents Fiscal Years commencing in January or February of the stated
year.
(3) "Other Annual Compensation" is primarily in the form of other cash
benefits, life insurance, reimbursement of health and dental insurance,
health club memberships, value of company-paid automobiles, etc.
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<PAGE> 61
(4) For Fiscal Year 1993, represents cash payment of one-half of management's
claim under a deferred compensation plan which was terminated by the Plan.
(5) "All Other Compensation" represents 401(k) matching contributions made by
the Company.
(6) Mr. Dan Gordman died on December 22, 1993.
(7) For Fiscal Year 1995, includes cash, stock and tax bonuses of $123,132,
$51,372 and $20,621, respectively. For Fiscal Year 1994, includes cash,
stock, and tax bonuses of $152,230, $51,372, and $20,549, respectively.
(8) For Fiscal Year 1995, includes cash, stock and tax bonuses of $1,120,274,
$154,116 and $61,864, respectively. For Fiscal Year 1994, includes cash,
stock, and tax bonuses of $172,230, $154,116, and $61,646, respectively.
(9) The increase in the 1995 bonus compensation represents a bonus to Mr.
Reaves under an employment agreement dated October 1, 1995. The employment
agreement provided for a cash bonus, net of taxes, in the amount of
$500,000, covering a period of 40 months. Under the terms of the
employment agreement, termination of Mr. Reaves' employment may require Mr.
Reaves to repay the unamortized portion of the bonus.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
The table below represents shares of Common Stock held by management.
Additionally, the table includes those Creditors who, as of April 15, 1996, had
been issued and hold shares of Common Stock in an amount that is equal to or
greater than 5% of the Common Stock on a fully diluted basis.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 62
<TABLE>
<CAPTION>
Name, Percentage
Title, of Total
Address Number Authorized(1)
------- ------ -----------
<S> <C> <C>
R.G. Stock Trust 16,200,000(2) 54.0%
Jeffrey J. Gordman,
Trustee
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
Jeffrey J. Gordman 16,200,000(3) 54.0%
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
Nelson T. Gordman 6,302,939(4) 21.0%
10777 North 60th Street
Omaha, Nebraska 68152
Jerome P. Gordman 4,916,326(5) 16.4%
120 Regency Parkway
Omaha, Nebraska 68114
Harris Trust and 3,123,459 10.4%
Savings Bank
200 West Monroe Street
P.O. Box 755
Chicago, Illinois 60603
Dennis Reaves 2,700,000(6) 9%
President and Chief
Executive Officer
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
Roger Faust 900,000(7) 3%
Senior Vice President,
Chief Financial Officer,
Secretary and Treasurer
Richman Gordman 1/2
Price Stores, Inc.
12100 West Center Road
Omaha, NE 68144
</TABLE>
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(1)Presented on a fully-diluted basis assuming issuance of all 30,000,000
authorized shares; 27,840,000 presently issued and outstanding, with 2,160,000
shares subject to issuance to Mr. Reaves and Mr. Faust under their Employment
Agreements; if financial targets not met, these management shares will be
redistributed to Creditors.
(2)These 16,200,000 shares of Series A Common Stock are the property of the R.G.
Stock Trust created by Dan Gordman. Mr. Jeffrey J. Gordman, the Gordman
Trustee, is sole trustee of the trust and is Dan Gordman's designee for
purposes of the Plan. The Gordman Trustee has exclusive voting and investment
power with respect to the 16,200,000 shares of Series A Common Stock. There
are three beneficiaries of the trust, Mr. Jeff Gordman, Mr. Nelson T. Gordman
and Mr. Jerome P. Gordman, all members of the Board of Directors of the
Company.
(3)See Note 2 above. As sole trustee of the R.G. Stock Trust, Jeff Gordman has
exclusive voting and investment power with respect to 16,200,000 shares of
Series A Common Stock. As a beneficiary of the trust with a 35% interest, Jeff
Gordman in his individual capacity is the beneficial owner of 5,670,000 shares,
plus an additional 4,860,000 shares representing the 30% beneficial interest in
the trust of his father, Jerome Gordman.
(4)Nelson Gordman is the beneficial owner of 5,670,000 shares of Series A Common
Stock as a beneficiary of the R.G. Stock Trust with a 35% interest. Through
his interest in Gordman family entities which are registered owners of shares
of Series B Option Common Stock, Nelson Gordman is the beneficial owner of an
additional 632,939 shares of Series B Option Common Stock.
(5)Jerome Gordman is the beneficial owner of 4,860,000 shares of Series A Common
Stock as a beneficiary of the R.G. Stock Trust with a 30% interest. Through
his interest in Gordman family entities which are registered owners of shares
of Series B Option Common Stock, Jerome Gordman is the beneficial owner of an
additional 56,326 shares of Series B Option Common Stock.
(6)Mr. Reaves is the registered owner of 1,080,000 shares of Series A Common
Stock issued pursuant to his Employment Agreement with the Company. Pursuant
to his Employment Agreement, Mr. Reaves is entitled, under certain
circumstances, to receive an additional 1,620,000 shares of Series A Common
Stock over the next few years.
(7)Mr. Faust is the registered owner of 360,000 shares of Series A Common Stock
issued pursuant to his Employment Agreement with the Company. Pursuant to his
Employment Agreement, Mr. Faust is entitled, under certain circumstances, to
receive an additional 540,000 shares of Series A Common Stock over the next few
years.
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Item 13. Certain Relationships and Related Transactions.
The following table describes facilities that the Company leases from
entities owned or controlled by Mr. Nelson Gordman, Mr. Jerome Gordman (both
Directors of the Company) or the estate of Dan Gordman. Nelson and Jerome
Gordman are Co-Personal Representatives of the Dan Gordman estate.
<TABLE>
<CAPTION>
Approximate
Floor Area Annual
Location (Square Feet) Rent Description
- - -------- ------------- ------ -----------
<S> <C> <C> <C>
Omaha, NE 98,700 $450,288 Corporate Headquarters(1)
Omaha, NE 163,300 676,710 Distribution Center(2)
Bellevue, NE 100,000 701,060 Store Location(3)
Grand Island, NE 91,400 215,023 Store Location(4)
LaVista, NE 81,200 269,540 Store Location(5)
Omaha, NE 103,200 628,161 Store Location(6)
Lincoln, NE 101,400 175,226 Store Location(7)
</TABLE>
(1) Lease expires July 31, 2009 with a single option to renew for twenty years.
(2) The Distribution Center is composed of a total of 267,000 square feet
(excluding internal mezzanine space of 111,400 square feet). The Company
owns 103,700 square feet of the Distribution Center and the land beneath
this portion ("Building 1"). Two portions totaling 163,300 square feet are
leased from Gordman entities. One lease for approximately 82,000 square
feet ("Building 2") expires April 30, 2003; the Gordman entity which leases
Building 2 to the Company also owns the underlying land. The Company has
four five-year options to extend the term of the Building 2 lease. The
second lease for approximately 81,000 square feet ("Building 3") expires
July 31, 1999. The land under Building 3 is owned by the Company and is
leased to the Gordman entity lessor for a term also expiring July 31, 1999.
Upon expiration of the Building 3 leases, the Company will own both the
building and land for Building 3. The Company and the Gordman entity are
also parties to an Option Agreement giving the Company the option to
purchase Building 2 and its underlying real estate at the end of the term
or any option term at fair market value. If the Company does not exercise
its purchase option on Building 2, the Gordman entity has the option to
purchase Building 1 and/or Building 3 from the Company at fair market
value.
(3) Lease expires October 31, 2003, with three renewal options of five years
each.
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<PAGE> 65
(4) Lease expires February 28, 1998, with no renewal options.
(5) Lease expires July 31, 2005, with ten renewal options of five years each.
(6) Lease expires July 31, 1998, with three renewal options of five years each.
(7) Lease expires October 31, 2010, with a first privilege to negotiate a
second twenty year term.
During the bankruptcy proceedings, the Company conducted an extensive
review of all locations. As a result, many locations owned by Gordman family
members and other lessors were closed and the leases rejected as being
unsuitable. Also during the bankruptcy proceedings, an independent third party
analyzed the terms of remaining leases with Gordman family enterprises. While
some leases were found to be above market and others below, the portfolio as a
whole was found to be comparable to those from unaffiliated parties in
comparable real estate markets.
While the Company is not materially dependent on one or several store
locations, the Company is materially dependent on its Distribution Center
located in Omaha, Nebraska. The Distribution Center is comprised of three
buildings, one of which is owned by the Company. The remaining two buildings
are owned by entities controlled by members of the Gordman family. Please see
footnote 2 to the chart above. As part of extension of the Building 2 lease,
in February, 1996, the Company granted the Gordman entity which is the lessor
of Building 2 an easement over a portion of the Company's property. This
easement provides for access to Building 2, including truck docking and
parking.
As a result of the bankruptcy proceedings, four Gordman family partnerships
("Gordman Partnerships") received unsecured claims of $3,697,749, relating to
the rejection of three store leases. Pursuant to these allowed unsecured
claims, the Gordman Partnerships received the same treatment accorded other
Class 3 Unsecured Claims under the Plan, namely Series B Option Common Stock,
cash payments and the right to future cash payments to Creditors.
There are three additional issues under discussion between members of the
Gordman family and the Company. First, there exists an outstanding loan from
the Company to Mr. Dan Gordman approximating $77,000. In accordance with the
provisions of Nebraska probate law, the Company has made a claim against his
estate. Second, an issue exists with respect to an insurance policy on the
life of Dan Gordman, the proceeds of which were paid to Harris Bank, one of the
Company's lenders, following
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Mr. Gordman's death. The Dan Gordman estate has asserted that an amount
representing the personal portion of the insurance policy may be required to be
paid to the estate. The Company believes the amount at issue is approximately
$365,000, including accrued interest. Third, the Company is evaluating one or
more life insurance policies on the life of Mr. Nelson Gordman. The Company
may determine to surrender the policy or policies (or permit assumption by Mr.
Nelson Gordman of premiums due) upon payment to the Company of the difference
between premiums paid by the Company and the loans obtained on the policy or
policies by the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Financial Statements.
(1) Please see "Item 8. Financial Statements and Supplementary Data" for
an index of the financial statements filed in this Annual Report.
(2) Please see "Item 8. Financial Statements and Supplementary Data" for
an index of the financial schedule filed in this Annual Report.
(3) Exhibits --
(2) Plan of acquisition, reorganization, arrangement,
liquidation or succession (incorporated by reference to
the Company's Registration Statement on Form S-1
(Commission File No. 33-79382), filed with the
Commission on May 26, 1994).
(3)(i) Amended and Restated Certificate of Incorporation of
Richman Gordman 1/2 Price Stores, Inc. (incorporated by
reference to the Company's Registration Statement on
Form S-1 (Commission File No. 33-79382), filed with the
Commission on May 26, 1994).
(3)(ii) Bylaws of Richman Gordman 1/2 Price Stores, Inc.
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382), filed with the Commission on May 26, 1994).
66
<PAGE> 67
(4)(i) Instruments defining the rights of security holders,
including indentures -- Section 6.03(a), 7.09, and
10.03 of First Amended Joint Plan of Reorganization
under Chapter 11 of the Bankruptcy Code for Richman
Gordman Stores, Inc., Richman Gordman Department
Stores, Inc., and 1/2 Price Stores, Inc. -- Please see
Exhibit (99)(i).
(4)(ii) Instruments defining the rights of security holders,
including indentures -- Please see Exhibit (3)(i).
(4)(iii) Instruments defining the rights of security holders,
including indentures -- Specimen Stock Certificate
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382) filed with the Commission on May 26, 1994).
(9) Voting trust agreement -- not applicable.
(10)(i)(a) Material Contracts -- Credit Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Congress Financial
Corporation dated October 20, 1993 (incorporated by
reference to the Company's Registration Statement on
Form S-1 (Commission File No. 33-79382) filed with the
Commission on May 26, 1994).
(10)(i)(b) Material Contracts -- Amendment No. 1 to Credit
Agreement between Richman Gordman 1/2 Price Stores,
Inc. and Congress Financial Corporation, dated January
28, 1994 (incorporated by reference to Amendment No. 4
to the Company's Registration Statement on Form S-1
(Commission File No. 33-79382) filed with the
Commission on March 6, 1995).
(10)(i)(c) Material Contracts -- Amendment No. 2 to Credit
Agreement between Richman Gordman 1/2 Price Stores,
Inc. and Congress Financial Corporation, dated
67
<PAGE> 68
February 24, 1994 (incorporated by reference to
Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Commission File No. 33-79382) filed with
the Commission on March 6, 1995).
(10)(i)(d) Material Contracts -- Amendment No. 3 to Credit
Agreement between Richman Gordman 1/2 Price Stores,
Inc. and Congress Financial Corporation, dated
September 11, 1995.
(10)(ii)(a) Material Contracts -- Employment Agreement dated
October 1, 1995, between Richman Gordman 1/2 Price
Stores, Inc. and Mr. Dennis Reaves.
(10)(ii)(b) Material Contracts -- Amendments dated January 17, 1996
to Employment Agreement between Richman Gordman 1/2
Price Stores, Inc. and Mr. Dennis Reaves.
(10)(iii)(a) Material Contracts -- Employment Agreement between
Richman Gordman 1/2 Price Stores, Inc. and Mr. Roger
Faust (incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382) filed with the Commission on May 26, 1994).
(10)(iii)(b) Material Contracts -- Amendments dated March 31, 1994
to Employment Agreement between Richman Gordman 1/2
Price Stores, Inc. and Mr. Roger Faust (incorporated by
reference to the Company's Form 10-K for the Fiscal
Year ended January 28, 1995, filed with Commission on
April 28, 1995).
(10)(iii)(c) Material Contracts -- Amendments dated January 17, 1996
to Employment Agreement between Richman Gordman 1/2
Price Stores, Inc. and Mr. Roger Faust.
(10)(iv) Material Contracts -- Covenant Not To Compete between
Richman Gordman 1/2 Price Stores, Inc. and Mr. Nelson
Gordman (incorporated by reference to the Company's
Registration Statement on
68
<PAGE> 69
Form S-1 (Commission File No. 33-79382) filed with the
Commission on May 26, 1994).
(10)(v) Material Contracts -- Vice President Incentive Program
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382) filed with the Commission on May 26, 1994).
(11) Statement re computation of share earnings -- not
applicable.
(12) Statements re computations of ratios -- not applicable.
(13) Annual report to security holders, Form 10-Q or
quarterly report to security holders -- not applicable.
(16) Letter re change in certifying accountant -- not
applicable.
(18) Letter re change in accounting principles -- not
applicable.
(21) Subsidiaries of the Registrant -- not applicable.
(22) Published report regarding matters submitted to vote of
security holders -- not applicable.
(23) Consents of Experts.
(24) Power of attorney -- not applicable.
(27) Financial data schedule.
(28) Information from reports furnished to state regulatory
authorities -- not applicable.
(99)(i) Additional Exhibit -- First Amended Joint Plan of
Reorganization under Chapter 11 of the Bankruptcy Code
for Richman Gordman Stores, Inc., Richman Gordman
Department Stores, Inc., and 1/2 Price Stores, Inc.
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382) filed with the Commission on May 26, 1994).
69
<PAGE> 70
(99)(ii) Additional Exhibit -- First Amended Disclosure
Statement Pursuant to Section 1125 of the Bankruptcy
Code with Respect to the First Amended Joint Plan of
Reorganization Under Chapter 11 of the Bankruptcy Code
for Richman Gordman Stores, Inc., Richman Gordman
Department Stores, Inc., and 1/2 Price Stores, Inc.
(incorporated by reference to the Company's
Registration Statement on Form S-1 (Commission File No.
33-79382) filed with the Commission on May 26, 1994).
(b) Reports on Form 8-K.
The Company filed no Reports on Form 8-K during the last quarter of Fiscal
Year 1995.
[THE REMAINDER OF THIS INTENTIONALLY LEFT BLANK]
70
<PAGE> 71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Richman Gordman 1/2 Price
Stores, Inc.
Date: April 30, 1996 By: /s/ Dennis E. Reaves
---------------------
Dennis E. Reaves,
President
71
<PAGE> 72
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ Dennis E. Reaves April 30, 1996
- - ---------------------------------------
Dennis E. Reaves
President and Chief Executive
Officer, Director
/s/ Paul M. Bass, Jr. April 30, 1996
- - ---------------------------------------
Paul M. Bass, Jr.
Chairman, Board of Directors
/s/ Paul M. Buxbaum April 30, 1996
- - ---------------------------------------
Paul M. Buxbaum
Director
/s/ Jerome P. Gordman April 30, 1996
- - ---------------------------------------
Jerome P. Gordman
Director
- - ---------------------------------------
Nelson T. Gordman
Director
/s/ Thomas J. Noonan, Jr. April 30, 1996
- - ---------------------------------------
Thomas J. Noonan, Jr.
Director
/s/ Philip Scheipe April 30, 1996
- - ---------------------------------------
Philip Scheipe
Director
/s/ Jeffrey J. Gordman April 30, 1996
- - ---------------------------------------
Jeffrey J. Gordman
Director
/s/ Roger R. Faust April 30, 1996
- - ---------------------------------------
Roger R. Faust
Senior Vice President
Secretary, Treasurer and
Chief Financial Officer
</TABLE>
5196A
72
<PAGE> 73
EXHIBITS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(10)(i)(d) Material Contracts -- Amendment
No. 3 to Credit Agreement
between Richman Gordman 1/2
Price Stores, Inc. and
Congress Financial Corporation,
dated September 11, 1995 . . . . . . 74
(10)(ii)(a) Material Contracts -- Employment
Agreement dated October 1, 1995,
between Richman Gordman 1/2 Price
Stores, Inc. and Dennis E. Reaves. . 77
(10)(ii)(b) Material Contracts -- Amendments
dated January 17, 1996 to Employment
Agreement between Richman Gordman
1/2 Price Stores, Inc. and
Mr. Dennis Reaves. . . . . . . . . . 88
(10)(iii)(c) Material Contracts -- Amendments
dated January 17, 1996 to Employment
Agreement between Richman Gordman
1/2 Price Stores, Inc. and
Mr. Roger Faust. . . . . . . . . . . 90
(23) Consents of Experts. . . . . . . . . 92
(27) Financial Data Schedule. . . . . . . 94
</TABLE>
<PAGE> 1
EXHIBIT (10)(i)(d)
Material Contracts -- Amendment No. 3 to Credit Agreement between Richman
Gordman 1/2 Price Stores, Inc. and Congress Financial Corporation, dated
September 11, 1995.
<PAGE> 2
AMENDMENT NO. 3 TO
INVENTORY FINANCING AGREEMENT AND
ACCOUNTS SECURITY AGREEMENT
September 11, 1995
Richman Gordman 1/2 Price Stores, Inc.
12100 West Center Road
Omaha, Nebraska 68144
Ladies and Gentlemen:
Reference is made to the Inventory Financing Agreement and Accounts
Security Agreement dated as of October 20, 1993, as amended and supplemented
("Loan Agreement") between Congress Financial Corporation (Central)
("Congress") and Richman Gordman 1/2 Price Stores, Inc. ("Borrower"). Terms
used herein and not otherwise defined herein shall have the meaning ascribed to
such terms in the Loan Agreement.
Borrower has requested that Congress agree to amend the Loan Agreement to
(i) reduce the interest rate to 1.50% in excess of the prime rate and (ii)
extend the Renewal Date through and including October 20, 1997, and Congress is
willing to do so subject to the terms and conditions set forth herein.
Accordingly, the Loan Agreement is hereby amended in the following
respects:
1. Effective as of September 1, 1995, the first sentence of Section 3.1 of
the Loan Agreement is hereby deleted in its entirety and replaced with the
following:
"Interest shall be payable by us to you on the first day of each month upon
the closing daily balances in our loan account for each day during the
immediately preceding month, at a rate equal to one and one half percent
(1.50%) per annum in excess of the prime commercial interest rate from time
to time publicly announced by Philadelphia National Bank, incorporated as
CoreStates Bank, N.A., Philadelphia, Pennsylvania, whether or not such
announced rate is the best rate available at such bank."
<PAGE> 3
2. The first sentence of Section 9.1 of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"This Agreement shall become effective upon acceptance by you and shall
continue in full force and effect for a term ending four (4) years from the
date hereof (the "Renewal Date") and from year to year thereafter, unless
sooner terminated pursuant to the terms hereof; provided that, on October
20, 1996 we shall pay to you a fee of $75,000 which fee shall be fully
earned as of September 11, 1995, and on each annual renewal, including the
renewal on the fourth anniversary of the date hereof, we shall pay to you a
renewal fee of three-tenths percent (.3%) of the Maximum Credit on the date
such renewal becomes effective."
The amendments to the Loan Agreement described herein shall be effective
upon delivery by Borrower to Congress of a counterpart of this Amendment No. 3
to the Loan Agreement which has been acknowledged and agreed to by Borrower.
Except as expressly set forth herein, the Loan Agreement shall remain
unmodified and in full force and effect.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By:
-----------------------------
Its:
----------------------------
Acknowledged and Agreed to
this 11th day of September, 1995
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By: /s/ Roger R. Faust
------------------------------
Its: Senior Vice President
-----------------------------
5196A
-2-
<PAGE> 1
EXHIBIT (10)(ii)(a)
Material Contracts -- Employment Agreement dated October 1, 1995, between
Richman Gordman 1/2 Price Stores, Inc. and Mr. Dennis E. Reaves.
<PAGE> 2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of October 1, 1995,
between RICHMAN GORDMAN 1/2 PRICE STORES, INC., a Delaware corporation
("Company") and Dennis Reaves ("Executive").
RECITALS:
Executive is currently the President and Chief Executive Officer for
Company. Company and Executive desire that Executive continue in this position
for Company upon the terms and conditions stated in this Agreement.
IT IS AGREED:
1. Position and Duties. Company hereby employs Executive in the capacity
of President and Chief Executive Officer. Executive shall perform the duties
as are reasonably associated with this position as Company may determine from
time to time. Executive shall have the authority to enable him to carry out
his duties.
2. Term. The term of this Agreement shall commence as of the date hereof
and continue for a term ending January 30, 1999.
3. Compensation. Company shall pay Executive the following compensation:
a. Base Salary. Effective as of October 1, 1995, Executive shall
receive a base salary of Four Hundred Thousand Dollars ($400,000) per year
(the "Base Salary"), payable biweekly in accordance with Company's normal
payroll practices and subject to normal withholding including without
limitation withholding for FICA and other taxes.
b. Cash Bonus. Upon execution of this Agreement and ratification by
the Company's Board of Directors, Executive shall be entitled to a cash
bonus (the "Cash Bonus") equal to the net amount of $500,000 after payment
of federal and state income taxes thereon which shall be paid by the
Company. In the event that Executive voluntarily terminates his
employment with the Company prior to January 30, 1999, the Executive shall
repay to the Company the pro
<PAGE> 3
rata portion of such Cash Bonus, such repayment portion to be calculated by
multiplying the gross amount of the Cash Bonus times a fraction, the
numerator of which is the number of months remaining from the date of
Executive's voluntary termination through January 30, 1999, and the
denominator of which is 40. There shall be no refund for a termination of
Executive's employment by the Company (with or without Cause, as defined
below) or as a result of the death or disability of Executive.
c. Stock Bonuses. Executive shall be entitled to receive a stock
bonus payable in New Common Stock of the Company (the "Stock Bonus") for
the Company's fiscal years ending February 3, 1996, February 1, 1997 and
January 31, 1998 provided the terms and conditions of this Section 3(c)
are met.
(1) 1.8% of the New Common Stock (an "Installment") shall be
earned annually as follows:
(y) 75% of such Installment shall be earned if the
Cumulative Minimum Payment as provided in the Company's Plan
of Reorganization (the "Plan") is met; and
(z) an additional 25% of such Installment shall be earned
if the Cumulative Adjusted Plan Cash Balance is met as
provided in the Plan,
in either case, such Installment amounts to be determined and, if
earned, paid within 90 days after the end of the applicable fiscal
year.
(2) Any Installment under (1) above not earned because the
Cumulative Minimum Payment or the Cumulative Adjusted Plan Cash
Balance for the relevant fiscal year was not met shall be earned
within 90 days after the end of the next fiscal year in which the
holders of Allowed Class 3 Claims have received 100% of the
Cumulative Minimum Payments or the Cumulative Adjusted Plan Cash
Balance, as applicable, as provided in the Plan. Any Stock Bonus
which has not been earned by the ninetieth day after January 31, 1998
shall be forfeited.
(3) Immediately upon the sale, transfer or other disposition of
more than fifty percent (50%) of the New Common Stock of Company,
determined on a cumulative basis from the Effective Date of the Plan,
or upon termination of this Agreement by Company without Cause,
Executive's entire Stock Bonus shall
<PAGE> 4
automatically be earned upon the date of such sale, transfer or other
disposition, or upon such Termination Date, regardless of actual or
projected Cumulative Adjusted Plan Cash Balance; provided that such
Stock Bonus shall not be earned based on any sale, transfer or other
disposition of New Common Stock which occurs after January 31, 1998.
(4) All stock of Company shall be subject to transfer and voting
restrictions required by law.
d. Tax Bonus. Company shall pay Executive, on or before April 15th
of each year, a cash bonus (the "Tax Bonus") equal to income taxes due and
payable by Executive for Stock Bonuses received with respect to the
previous fiscal year; provided, however, that such Tax Bonus shall not
exceed the tax savings attributable to the deduction available to Company
in connection with such transaction.
4. Benefits.
a. General. Executive shall be entitled to the following benefits
(the "Benefits"):
(1) Payment by Company of medical insurance, dental insurance, short
term disability insurance (100% of salary for up to six months), long
term disability insurance (paying the lesser of 60% of salary or
$10,000 per month, for life, with no waiting period) and director and
officer liability insurance for executive;
(2) Payment by Company of membership dues for Executive in Prairie
Life Club;
(3) Contribution by Company to 401(k) plans of Executive on terms
applicable to other participants in such 401(k) plans; and
(4) All other then current executive benefits offered by Company and
not otherwise specified above.
Any amounts payable to Executive under any benefit plans in respect of any
calendar year during which Executive is employed by Company for less than
the entire such year shall, unless otherwise required by government
regulation of the applicable plan, be prorated in accordance with the
number of days in such calendar year during which he is so employed.
b. Vacations. Executive shall be entitled to the number of paid
vacation days in each calendar year
<PAGE> 5
determined in accordance with Company's vacation plan, but in no event less
than twenty (20) working days (four weeks) per calendar year. Executive
shall also be entitled to all paid holidays generally given by Company to
its executives.
c. Services Furnished. Company shall furnish Executive in Omaha,
Nebraska with office space, secretarial assistance and such other
facilities and services as shall be suitable to Executive's position and
adequate for the performance of Executive's duties.
5. New Common Stock.
a. Release of Restricted Shares. Except as required by applicable
securities laws, (i) all shares of New Common Stock held on behalf of
Executive in any of Company's stock programs shall be awarded free of all
restrictions to Executive, and (ii) the restrictions on all shares of New
Common Stock held directly by Executive shall be removed immediately
following the Termination Date specified below.
b. Registration.
(1) Upon Company's determination to seek a registration of any
equity security under the Securities Act of 1933, as amended, Company
shall send notice in writing of such determination to Executive, and
Executive shall have the right to have any shares of New Common Stock
held directly or indirectly by Executive included in such
registration. Such right may be exercised by Executive by giving
written notice to Company within 15 days of receipt of the notice
that Company has determined to seek such registration. The right of
Executive described in this Section 5(b)(1) to have shares of New
Common Stock included in such registration shall survive Executive's
termination of employment with Company.
(2) If at any time after giving written notice of its intention
to register any equity security and prior to the effective date of
the registration statement filed in connection with such
registration, the Board of Directors of Company shall determine that
it is in the best interest of Company not to register any such equity
security, Company may, at its election, give written notice of such
determination to Executive and, thereupon, shall be relieved from its
obligation to register any New Common Stock in connection with such
registration.
6. Reimbursement of Business Expenses. Executive shall be entitled to
receive prompt reimbursement for all reasonable
<PAGE> 6
expenses incurred in performing services for Company, including reasonable
entertainment expenses and reasonable travel and living expenses while away
from home in the performance of services for Company, provided that such
expenses are incurred and accounted for in accordance with Company's policies
and procedures in effect from time to time.
7. Termination. For purposes of this Agreement, "Termination Date" shall
mean the last day of Executive's employment hereunder. This Agreement and
Executive's employment hereunder may be terminated as follows:
a. Death. This Agreement shall terminate without notice
automatically upon the Executive's death. In such case, the Termination
Date shall be the date of death.
b. Total Disability. Company may terminate this Agreement following
Executive's total and continuous disability for a period of 180
consecutive days if the Board of Directors determines in good faith that
the disability prevents the Executive from carrying out his duties;
provided that such termination must be exercised by Notice of Termination
delivered to Executive prior to substantial cure of such disability. In
such case, the Termination Date shall be the date of delivery of the
Notice of Termination, or such later date as may be specified in the
Notice of Termination.
c. Cause. Company may terminate this Agreement for Cause provided
the conditions of this Section 7(c) are met. For purposes of this
Agreement, "Cause" shall mean (i) willful dishonesty which materially
damages Company or (ii) willful failure to substantially perform duties if
such performance is not commenced within five (5) business days after
written notice is delivered to Executive specifically identifying the
failure. Company shall initiate termination for Cause by delivering a
Notice of Termination to Executive. Upon delivery of the Notice of
Termination under clause (i) above, Executive shall be immediately
suspended, with pay, from his duties. Executive shall not be suspended in
connection with a Notice of Termination given under clause (ii) above.
Company shall give Executive at least 15 days written notice of and an
opportunity to be heard at a Board of Directors meeting at which the Board
shall decide whether to rescind the Notice of Termination. If the Notice
of Termination is not rescinded, the Termination Date shall be the date of
the Board of Directors meeting, or such later date as may be specified by
the Board.
d. Without Cause. Company may terminate this Agreement at any time
without Cause upon 30 days' Notice of
<PAGE> 7
Termination delivered to Executive. In the event Company materially
changes Executive's duties or authority as provided in this Agreement, at
Executive's option exercised at any time following such event, Executive
may deem such conditions to be notice of termination by Company without
Cause.
"Notice of Termination", as used in this Section, means a written notice
delivered to Executive by Company which states the specific termination
provision in this Agreement relied upon; sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so stated; and states the proposed
termination date in accordance with this Agreement.
8. Severance Compensation. Upon termination of this Agreement, Executive
shall be entitled to the following severance compensation:
a. Termination Without Cause. Upon termination by Company without
Cause, Executive shall be entitled to:
(i) Base Salary, benefits under Section 4 hereof, Cash Bonus and
Stock Bonuses received through the Termination Date, and
(ii) a lump sum payment on the Termination Date of the present value
of unpaid Base Salary and benefits under Section 4 for the
greater of six months or the remainder of the fiscal year during
which such Termination Date occurs, (such lump sum payment to be
discounted to present value at the Termination Date using a
factor of six percent (6%)); and
(iii) the Stock Bonus described in Section 3(c)(3).
b. Termination for Dishonesty. Upon termination of Executive under
Section 7(c)(i) of this Agreement, Executive shall be entitled to Base
Salary, Cash Bonus and Stock Bonuses, and benefits under Section 4 hereof
received through the Termination Date.
c. Other Termination. Upon any other termination, including,
without limitation, termination for death or disability and termination
under Section 7(c)(ii), but excluding termination by Executive and
termination at the
<PAGE> 8
expiration of this Agreement, Executive or his estate shall be entitled to:
(i) Base Salary, benefits under Section 4 hereof, Cash Bonus and
Stock Bonuses, received through the Termination Date;
(ii) a lump sum payment within 30 days after the Termination Date of
the present value of unpaid Base Salary and benefits under
Section 4 hereof for the greater of six months or the remainder
of the fiscal year during which such Termination Date occurs,
(such lump sum payment to be discounted to present value at the
date of payment using a factor of six percent (6%)).
9. Beneficiary Designation. Executive may by written notice delivered to
Company during his lifetime designate which person(s), including primary and
contingent beneficiaries, in the event of his death during the term of this
Agreement, he elects to have receive any payments which would otherwise be due
him under this Agreement. Executive may change his designations from time to
time and the last designation in writing filed with Company before his death
shall control. Failing such designation, the payments shall be made to the
legal representative(s) of Executive's estate. Company shall be fully
protected and absolved from any liability with respect to any payments made by
it hereunder in good faith and reasonably believed by it to be made in
compliance with any designation filed by Executive hereunder or, in the absence
thereof, to any persons reasonably believed by it in good faith to be entitled
to receive the same.
10. Hiring of Employees, Trade Secrets, Etc.
a. Hiring of Employees. During the term of this Agreement and for a
period of one year thereafter, Executive shall not for any reason
whatsoever, directly or indirectly, induce or attempt to influence any
management employee of Company or any subsidiary of Company to terminate
his or her employment with Company or such subsidiary of Company or to
hire any employee of Company or any subsidiary of Company.
b. Trade Secrets. During the term of this Agreement and at all times
thereafter, Executive shall not use for his personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of
any person, firm, association or company other than Company or any
subsidiary of Company, any information regarding the business methods,
business policies, procedures, techniques, research or development
projects or results,
<PAGE> 9
trade secrets or other knowledge or processes of a proprietary nature
belonging to, or developed by, Company or any other confidential
information relating to or dealing with the business operations or
activities of Company or any subsidiary of Company, made known to Executive
or learned or acquired by Executive while in the employ of Company.
c. Covenant Against Competition. Solely in the event that Executive
is terminated for Cause in accordance with Section 7(c) above, for period
of one year Executive shall not compete against Company within 50 miles of
Company's corporate offices or any of its stores by, directly or as an
agent or employee of another entity, performing services that are
substantially similar to or are a competitive alternative to Company's
primary business of off-price retailing.
d. Remedies. Executive acknowledges that the restrictions contained
in the foregoing Sections 7(a) and (b) (the "Restrictions"), in view of
the nature of the business in which Company and its subsidiaries are
engaged, are reasonable and necessary in order to protect the legitimate
interests of Company and its subsidiaries, and that any violation thereof
would result in irreparable injury to Company. Executive therefore
further acknowledges that, in the event Executive violates, or threatens
to violate, any Restrictions, Company and its subsidiaries shall be
entitled to obtain from any court of competent jurisdiction, without the
posting of any bond or other security, preliminary and permanent
injunctive relief as well as damages and an equitable accounting of all
earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies
in law or equity to which Company or any subsidiary of Company may be
entitled.
e. Invalid Provisions. If any Restriction, or any part thereof, is
determined in any judicial or administrative proceeding to be invalid or
unenforceable, the remainder of the Restrictions shall not thereby be
affected and shall be given full effect, without regard to the invalid
provisions.
f. Judicial Reformation. If the period of time or the area specified
in the Restrictions should be adjudged unreasonable in any judicial or
administrative proceeding, then the court or administrative body shall
have the power to reduce the period of time or the area covered and, in
its reduced form, such provisions shall then be enforceable and shall be
enforced.
<PAGE> 10
g. Tolling. If Executive violates any of the Restrictions, the
restrictive period shall not run in favor of Executive from the time of
the commencement of any such violation until such time as such violation
shall be cured by Executive to the satisfaction of Company.
11. Other Investments. Nothing herein shall prohibit investments by the
Executive in other persons and enterprises, provided that such investments
shall not interfere with duties delegated to the Executive.
12. Sale of Stock. Upon (a) Executive's termination without Cause, or (b)
at any time during or after the term of this Agreement, the sale, transfer or
other disposition of more than fifty percent (50%) of the New Common Stock of
Company determined on a cumulative basis from the Effective Date of the Plan,
Executive may, at Executive's option, offer Executive's New Common Stock for
sale to any person holding more than 50% of New Common Stock of Company or
require Company to repurchase Executive's New Common Stock at the greatest of
(i) fair market value; (ii) book value as reflected in Company's most recent
annual financial statements; or (iii) the average of prices per share paid for
New Common Stock of Company previously sold, transferred or otherwise disposed
of.
13. Definitions. Terms used herein and not otherwise defined have the
meanings assigned in Company's Plan of Reorganization, as confirmed by order of
the Bankruptcy Court for the District of Nebraska.
14. Notices. Any notice under this Agreement shall be deemed given to
Executive when deposited in the U.S. Mail postage prepaid addressed to him at
his last known residence and otherwise when delivered to him personally and to
Company when deposited in the U.S. Mail postage prepaid addressed to Company at
its principal office in Omaha, Nebraska and otherwise when delivered to Company
at such address, or to such other place as either party may direct from time to
time in writing.
15. Miscellaneous. No provision of this Agreement may be modified or
waived unless such waiver or modification is agreed to in writing signed by
Executive and Company. No waiver by either party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
16. Severability. The invalidity or unenforceability of any provision(s)
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
<PAGE> 11
17. Successors and Assigns. The rights and obligations of Company under
this Agreement shall be binding upon and shall benefit its successors and
assigns. Company shall not sell substantially all of its assets or undertake a
liquidation or dissolution of Company without providing reasonable assurances
to Executive that this Agreement will be honored by the successor to Company's
business.
18. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto with respect to the subject matter contained herein. This
Agreement supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto in respect thereof,
including without limitation the Employment Agreement between the parties dated
as of October 20, 1993, as amended and extended, which Employment Agreement is
terminated as of the date hereof.
19. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Nebraska.
20. Survival. The provisions of Sections 3(d), 6, 8 and 10 of this
Agreement shall survive the termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RICHMAN GORDMAN 1/2 PRICE
STORES, INC.
By /s/ Jeffrey J. Gordman
--------------------------
Title Vice President
--------------------------
EXECUTIVE
/s/ Dennis E. Reaves
--------------------------------
Dennis Reaves
<PAGE> 1
EXHIBIT (10)(ii)(b)
Material Contracts -- Amendments dated January 17, 1996 to Employment
Agreement between Richman Gordman 1/2 Price Stores, Inc. and Mr. Dennis
Reaves.
<PAGE> 2
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND DENNIS E. REAVES
This First Amendment (the "First Amendment") to the Employment Agreement
(the "Employment Agreement") dated as of October 1, 1995, between RICHMAN
GORDMAN 1/2 PRICE STORES, INC. (the "Company") and DENNIS E. REAVES
("Executive").
1. Section 4 (a) (1) of the Agreement is hereby amended to provide as
follows:
Payment by the Company of premiums for short term disability
insurance (100% of salary for up to six months) and director and
officer liability insurance for Executive and a bi-weekly
benefits allowance determined in accordance with the Company's
executive benefits policy currently in place;
2. All terms and conditions of the Employment Agreement shall remain in
full force and effect except as expressly provided in this First
Amendment or as previously amended.
3. This First Amendment is made as of the 17th day of January, 1996, and
shall be effective immediately.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By: /s/ Roger R. Faust
--------------------------------
Its: Senior Vice President
--------------------------------
EXECUTIVE
By: /s/ Dennis E. Reaves
--------------------------------
Dennis E. Reaves
<PAGE> 1
EXHIBIT (10)(iii)(c)
Material Contracts -- Amendments dated January 17, 1996 to Employment
Agreement between Richman Gordman 1/2 Price Stores, Inc. and Mr. Roger
Faust.
<PAGE> 2
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
BETWEEN
RICHMAN GORDMAN 1/2 PRICE STORES, INC. AND ROGER R. FAUST
This Second Amendment (the "Second Amendment") to the Employment Agreement
(the "Employment Agreement") dated as of October 20, 1993, between RICHMAN
GORDMAN 1/2 PRICE STORES, INC. (the "Company") and ROGER R. FAUST
("Executive").
1. Section 4 (a) (1) of the Agreement is hereby amended to provide as
follows:
Payment by the Company of premiums for short term disability
insurance (100% of salary for up to six months) and director and
officer liability insurance for Executive and a bi-weekly
benefits allowance determined in accordance with the Company's
executive benefits policy currently in place;
2. All terms and conditions of the Employment Agreement shall remain in
full force and effect except as expressly provided in this Second
Amendment or as previously amended.
3. This Second Amendment is made as of the 17th day of January, 1996, and
shall be effective immediately.
RICHMAN GORDMAN 1/2 PRICE STORES, INC.
By: /s/ Dennis E. Reaves
----------------------------------
Its: President and C.E.O.
----------------------------------
EXECUTIVE
By: /s/ Roger R. Faust
----------------------------------
Roger R. Faust
<PAGE> 1
EXHIBIT (23)
Consents of Experts
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-94014 on Form S-8 of Richman Gordman 1/2 Price Stores, Inc. of our reports
dated April 12, 1996, appearing in this Annual Report on Form 10-K of Richman
Gordman 1/2 Stores, Inc. for the year ended February 3, 1996
DELOITTE & TOUCHE LLP
Omaha, Nebraska
April 12, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR 12 MONTHS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 488,012
<SECURITIES> 0
<RECEIVABLES> 1,321,740
<ALLOWANCES> 392,948
<INVENTORY> 30,786,359
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<CURRENT-LIABILITIES> 27,229,528
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0
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<COMMON> 278,400
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<TOTAL-LIABILITY-AND-EQUITY> 52,008,946
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<INCOME-PRETAX> (5,774,775)
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<EXTRAORDINARY> 6,550,230
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