ITEM 1. BUSINESS.
INTRODUCTION
The registrant, Jacobson Stores Inc., a Michigan corporation and successor to a business founded in 1868, operates specialty department stores catering to discerning customers with preferences for quality merchandise. The Company emphasizes quality merchandise, fully staffed stores, personalized customer service and attractive, comfortable shopping surroundings. Each store features fashion apparel and accessories for the family and most offer decorative accents for the home.
The Company owns a substantial portion of the real property used in its business, primarily through its consolidated, wholly-owned real estate subsidiary, Jacobson Stores Realty Company ("Jacobson Realty"). Prior to December 21, 1995, the Company financed customer receivables through Jacobson Credit Corp. ("Jacobson Credit"), its consolidated, wholly-owned finance subsidiary. Effective on that date, the Company began financing receivables and other working capital needs with its own loan under its new credit facility, replacing Jacobson Credit's revolving credit facility. As used in this report, the terms "registrant", "Company" and "Jacobson's" refer to Jacobson Stores Inc. and its subsidiaries unless the context indicates otherwise.
Jacobson's operates in two regions, with stores in twenty-seven cities in Michigan, Indiana, Kansas, Kentucky, Ohio and Florida. The Company maintains separate staffs of buyers for each region in order to better respond to customers' lifestyles and merchandise preferences. The principal merchandising and distribution functions are performed through regional facilities. Functions common to all stores, such as management coordination, sales promotion, data processing and accounting, are centralized at the corporate headquarters in Jackson, Michigan.
MERCHANDISE AND MARKETING
Merchandise. Jacobson's directs its primary merchandising and marketing efforts to discerning customers with preferences for quality merchandise. Stores are merchandised with fashion apparel and accessories for the family and most offer decorative accents for the home.
The percentage contribution to sales by major class of merchandise for the last three fiscal years was as follows:
Personal Service. Jacobson's stores are fully staffed with knowledgeable salespeople to ensure that customers receive prompt personal attention. Jacobson's salespeople are experienced and well-trained through video presentations, seminars and close working relationships with buyers and merchandise managers. Salespeople maintain personal trade lists of their customers' sizes, colors, fashion preferences, and important dates, and contact customers by telephone or personal note to alert them to the arrival of new merchandise or to remind them of birthdays or anniversaries. Management believes that personal relationships between salespeople and their clientele promote customer loyalty and contribute to the Company's growth. Jacobson's has a liberal return policy and accepts merchandise purchased at Jacobson's for return or exchange if the customer is not satisfied. Other special services include free gift wrapping and free parking. All regularly scheduled Jacobson's salespeople are compensated on some form of commission program.
Sales Promotion. The Company uses newspaper, radio, television and direct mail advertising, as well as in-store events and billing statement enclosures, to stimulate sales. Advertising generally is institutional and focuses on current fashions and merchandise classifications. The Company's policy is to price merchandise fairly and competitively and to avoid sale events other than special pre-season promotions and end-of-season clearances. Although advertisements usually mention price, Jacobson's refrains from comparative pricing (comparing the advertised price to a higher original price) in its advertising. Management believes that this practice enhances credibility and customer loyalty. Jacobson's in-store events include fashion shows and wardrobing seminars to communicate fashion trends to customers.
Store Design. Jacobson's stores are designed to project an attractive, comfortable atmosphere similar to the style customers find in their own homes. All aspects of the store interiors and fixturing are coordinated by the Company's store planning personnel, using quality fixtures, carpeting, lighting and displays. The Company has developed a concept store based on a standard 65,000-70,000 square foot footprint on one level. Merchandise in the concept store is expected to focus on core classifications with high sales and margins. The Company plans to use this concept for future stores.
CREDIT POLICY
Jacobson's issues its own credit card as a customer service. The Company offers three credit plans to its cardholders: an Option plan requiring a minimum monthly payment of 20% of the outstanding balance; an Extended Payment plan available primarily for furs, fine jewelry, and furniture purchases in the Company's two stores which carry furniture; and a Tabletop plan granting extended payment terms without finance charge for qualifying purchases of china, crystal, silver, and table linens.
Sales under Jacobson's credit plans averaged 45.6% of sales for the last three fiscal years and accounted for 43.6% of the Company's sales in fiscal 1995. In addition, sales under third party credit cards (VISA, MasterCard and American Express) averaged 35.5% of sales for the last three fiscal years and accounted for 38.9% of the Company's sales in fiscal 1995. Credit losses relating to the Company's credit card have averaged 0.40% of credit sales over the last three years (ranging from 0.32% to 0.48%).
Over the past five years, sales under Jacobson's credit plans have declined to 43.6% of sales in 1995 compared with 55.2% in 1990, largely in favor of third party cards. The Company is testing ways to improve the competitiveness of its credit card.
The Company maintains purchasing and payment history on its 274,000 active account holders, which permits targeting of direct mail advertising and automatic increases of credit limits.
OPERATIONS
The Company operates in two regions, the Midwest and Florida. The principal merchandising and distribution functions for the Midwest stores are performed at the Company's central distribution facility in Jackson, Michigan. The principal merchandising and distribution functions for the Florida stores are performed in Winter Park, Florida. Functions common to all stores, such as management coordination, sales promotion, data processing and accounting, are centralized at the corporate headquarters in Jackson, Michigan.
Jacobson's stores in Michigan are located in Birmingham, Dearborn, Grosse Pointe, Livonia and Rochester (all suburbs of Detroit), Ann Arbor, East Grand Rapids, East Lansing, Jackson, Kalamazoo and Saginaw; in Indiana, in Indianapolis; in Kansas, in Leawood; in Kentucky, in Louisville; in Ohio, in Columbus and Toledo; and in Florida, in Clearwater, Fort Myers, Jacksonville, Longwood, Naples, North Palm Beach, Osprey, Sarasota, Tampa and Winter Park. In addition, the Company has a clearance center in Troy, Michigan, a suburb of Detroit. Stores in the Midwest range from 83,000 to 199,000 square feet, except for the clearance center, which is 34,000 square feet. The Florida stores range from 23,000 to 90,000 square feet. In March 1996, the Company opened a 120,000 square foot leased store as part of the Town Center Plaza, a new shopping center in Leawood, Kansas, a suburb of Kansas City.
Jacobson's maintains evening hours consistent with customer shopping patterns in each community. Stores are open from 53 to 71 hours each week, except during the holiday season, when evening hours may be extended.
Annual sales, percentage increase in sales, average gross square footage of stores in operation during the fiscal year, and approximate sales per average gross square foot were as follows:
PURCHASING, CONTROL AND DISTRIBUTION OF INVENTORY
Jacobson's purchases merchandise from several thousand suppliers, no one of which accounted for as much as 5% of the Company's net purchases during fiscal 1995. The Company maintains separate staffs of buyers for its Midwest and Florida stores to better respond to customer lifestyles and merchandise preferences. Merchandising decisions are directed by 2 general merchandise managers, 12 divisional merchandise managers, 82 buyers and 10 assistant buyers. In addition, the Company is a member of the Frederick Atkins Buying Office, a domestic and foreign buying office serving approximately 20 retailers, which provides merchandising counsel, product information, direct store import capability, and other services.
An on-line computerized merchandise information system provides the Company's buyers with detailed reports of current sales and inventory levels for each store, by department, class, vendor, style, color and size. This system permits the Company's merchandising staff to analyze trends on a daily basis, to identify fast-selling and slow-selling merchandise and to respond to customer buying preferences when making reorder and markdown decisions.
Merchandise is generally shipped directly from vendors to the Company's regional distribution centers in Jackson, Michigan and in Winter Park, Florida, where it is inspected for quality by the Company's buyers, priced and shipped to the stores by Jacobson's fleet of trucks.
Jacobson's adopted the LIFO method of inventory valuation in 1968. At the end of fiscal 1995, LIFO reserves totalled $16,812,000, or approximately 15.9% of pre-LIFO inventory values. Physical inventories are taken at least once each year. Inventory shrinkage at retail over the past three fiscal years has averaged 2.5% of owned retail sales.
EXPANSION AND CONSOLIDATION
The Company's strategy is to achieve consistent long-term growth both by maintaining and improving market share in its existing communities and by entering new markets. The Company evaluates potential new locations and expects to open new stores as desirable opportunities arise and resources permit. The Company opened one new store in March 1996, has signed a lease for another new store expected to open in the Fall of 1996, and continues to evaluate opportunities for additional new stores. The Company has developed a concept store for these additional new stores based on a standard 65,000-70,000 square foot footprint on one level. Implementing a growth strategy would likely require additional capital, including additional debt or equity financing. The Company is currently exploring financing alternatives for its corporate development plans. The Company reviews the performance of its less profitable existing stores from time to time to determine whether it would be in the Company's best interest to close any of these stores. Store openings and closings could have a significant impact on the Company's sales, expenses and capital requirements. In addition, store closings would likely entail significant one-time charges to effect the closing and to recognize any impairment of assets resulting from the closing decision.
The Company opened a 120,000 square foot leased store in the Town Center Plaza, a shopping center in Leawood, Kansas, a suburb of Kansas City, in March 1996.
In May 1995, the Company signed a lease for an 80,000 square foot store under construction in Mizner Park, a mixed-use retail, residential and office development in Boca Raton, Florida. The store is targeted to open in the Fall of 1996.
See "General Development of Business" below for a discussion of the consolidation of the Company's Kalamazoo, Michigan, operations from two facilities into one and the sale of its Children's Store in Birmingham, Michigan.
REAL ESTATE POLICY
Jacobson's strategy is to own or obtain long-term leases of the real estate used in the operation of its business. The Company owns approximately 71% of the total square footage used in its business. The Company maintains a continuing program of property improvements and renewal of existing stores and support facilities. New stores and major expansion projects generally are financed by mortgage loans or comparable financing, or through long-term leases. At January 27, 1996, mortgage loans and related secured financings comprised approximately 41% of consolidated debt.
COMPETITION
The specialty department store business is highly competitive. The Company's stores are in active competition with other department and specialty stores and with regional and national department store chains, some of which are considerably larger than the Company and have substantially greater financial and other resources. Sales in the Company's Metropolitan Detroit stores are expected to be further pressured as a result of increased competition, including the entry of Nordstrom's into the market in the Fall of 1996. Jacobson's competes principally on the basis of availability of fashion merchandise, quality, personalized service and attractive store surroundings, as well as fair pricing and advertising. The Company believes it is a respected retail merchandiser in the communities it serves, and that its merchandising policies and reputation enable it to maintain its competitive position.
EMPLOYEES
Jacobson's believes that its employees are among its key resources. Management stresses development programs for employees and promotion from within. The Company employs approximately 4,900 employees, 3,800 full-time and 1,100 part-time. During the holiday season, the number of employees increases to approximately 5,700.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Some of the principal developments in Jacobson's business during fiscal 1995 and the current year to date are summarized on page 5 of this report under the caption "Expansion and Consolidation". To finance this expansion, the Company obtains mortgage loans or comparable financing or obtains long-term leases. In addition, to fund its present and planned working capital requirements, including working capital requirements for the two stores opening in 1996, the Company has a $65,000,000 Revolving Credit and Term Loan facility under a Credit Agreement with two banks. The Term Loan portion of the Agreement totals $20,000,000 and the Revolving Credit portion of the Agreement provides for borrowings of up to $45,000,000, subject to a borrowing base limitation. Borrowings are guaranteed by the Company's subsidiaries and secured by receivables under Company credit plans and will be secured by first mortgages on selected properties. At January 27, 1996, the Company had borrowed $20 million under the Term Loan portion of this Agreement and $17.2 million under the Revolving Credit line.
During fiscal 1995, the Company consolidated its Kalamazoo, Michigan operations from two facilities into one and sold its former Children's Store in Birmingham, Michigan.
(b) INDUSTRY SEGMENTS AND LINES OF BUSINESS.
Jacobson's operates in a single industry, the specialty department store industry.
The percentage contribution to sales by major class of merchandise for each of the last three fiscal years is set forth on page 2 of this report.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
The nature of Jacobson's business, the categories of merchandise it sells, and the percentage contribution to sales by merchandise category during the past three fiscal years, are set forth on pages 1-6 of this report.
The specialty department store business is seasonal. The holiday season (from the day after Thanksgiving to January 1) generally accounts for 15-20% of Jacobson's net sales.
By reason of the seasonal nature of the business, Jacobson's and others in the industry experience significant build-up of inventory and accounts receivable at certain times of the year. To support the seasonal requirements, the Company has a Revolving Credit line of $45,000,000 under a Credit Agreement, subject to a borrowing base limitation. Further information on this line of credit is set forth in the Notes to the Company's Consolidated Financial Statements for the three fiscal years ended January 1996, filed as part of this report (see "Financing" on page).
Competitive conditions in the specialty department store business are discussed on page 6 of this report.
Information with respect to the Company's employees is provided on page 6 of this report.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The registrant has no foreign operations and no material export sales.
ITEM 2.

ITEM 2. PROPERTIES.
The following table shows the location and approximate size of Jacobson's stores and its offices and principal warehouse and distribution facilities; whether owned by the registrant or leased; and the expiration dates (including renewal options) of principal real estate leases. Most such owned properties are subject to mortgage. In several cities, the store consists of two buildings.
Jacobson's management considers that these properties, as well as its furniture, fixtures, machinery and equipment, are well maintained, suitable and adequate for their intended purposes, and in general fully utilized.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
(a) No material legal proceedings are pending to which Jacobson Stores Inc. or any of its subsidiaries is a party or to which any of their property is subject, other than ordinary routine litigation incidental to the registrant's business, and no such proceeding is known by the registrant to be contemplated.
(b) Not applicable.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The table below sets forth the name and age of each executive officer of the registrant, all positions and offices with Jacobson Stores Inc. and its wholly-owned subsidiaries held by each such person, and the period during which the officer has served in such positions. Each has been elected to hold office until the 1996 Annual Meeting of the Board of Directors (except in the case of retirement or other termination of employment) or until a successor is elected and qualified.
There is no arrangement or understanding between any of the officers and any other person pursuant to which the officer was selected as an officer, except that each of the executive officers is a party to an employment agreement with the Company pursuant to which he is required to be elected to the offices with the Company he currently holds, or, for Messrs. Rosenfeld, Gilbert and Fowler, such other capacity as the Board of Directors deems advisable.
Each executive officer has held managerial or executive positions with Jacobson's for more than five years.
Mark K. Rosenfeld has been an executive officer of the Company since 1976, was President, 1982-1993, Chief Operating Officer, 1987-1992, and has been Chief Executive Officer since 1992 and Chairman of the Board since 1993. He is a director to TCF Financial Corporation.
Paul W. Gilbert was Vice President and Controller of the Company, 1976-1984, Senior Vice President and Chief Financial Officer, 1984-1988, Executive Vice President and Chief Financial Officer, 1988-1993, and Treasurer, 1991-1993, and has been Vice Chairman of the Board since 1993.
James B. Fowler has held merchandising positions with the Company since 1972, was Vice President-Divisional Merchandise Manager, 1984-1987, was Executive Vice President- Marketing, 1987-1993, and has been President since 1993.
Joseph H. Fisher was Vice President and General Merchandise Manager of the Company, 1984-1991, and has been Senior Vice President-General Merchandise Manager of the Company since 1991.
Theodore R. Kolman was General Merchandise Manager, Home Furnishings Division of the Company, 1990-1991, and has been Senior Vice President-General Merchandise Manager of the Company since 1991.
Robert L. Moles was Senior Vice President of Operations of the Company, 1986-1992, and has been Senior Vice President-Stores of the Company since 1992.
Timothy J. Spalding was the Controller of the Company, 1984-1991, and has been Vice President-Controller of the Company since 1991.
Mark K. Rosenfeld is the brother of Robert L. Rosenfeld, a director of the Company, and is the first cousin of Richard Z. Rosenfeld, the Secretary and a director of the Company.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market Tier of the Nasdaq Stock Market under the symbol "JCBS."
The quarterly range of high and low sales price quotations of Jacobson's Common Stock and dividends paid per share for each quarter of fiscal 1995 and 1994 are shown in the following schedule:
The approximate number of shareholders of record of Jacobson's Common Stock as of March 1, 1996 was 1,250.
For a description of financial covenants in the Company's Credit Agreement that could restrict the Company's ability to pay dividends, see the Notes to the Company's Consolidated Financial Statements for the three fiscal years ended January 1996, filed as part of this report (see "Financing" on page).
ITEM 6.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The following table shows the percentage relationship to sales of the items presented for the periods indicated.
- --------------------------------------------------------------------
1995 Versus 1994
Sales in 1995 totalled $414,267,000, an increase of 1.2% from 1994. Comparable store sales decreased 1.1%, reflecting a difficult apparel retail climate, especially in the Midwest region. The comparable store sales decrease included a 3.6% decrease in sales in the Midwest stores, partially offset by a 5.3% increase in sales in the Florida stores. The overall increase in sales is due to the opening of the Louisville, Kentucky store in November 1994. Sales in the Metropolitan Detroit stores are expected to be further pressured as a result of increased competition, including Nordstrom's entry into the market in the Fall of 1996. In addition, planned and potential store openings and closings described under "Corporate Development" are expected to affect future sales.
Women's apparel and accessories represented 66.7% of the Company's total business in 1995. Other major components were men's 13.2%, children's 7.9%, home accessories 7.9% and miscellaneous 4.3%.
The Company's gross profit percentage decreased to 32.5% in 1995 from 35.2% in 1994, reflecting higher markdowns and a LIFO provision which increased cost of merchandise sold by $1,324,000 in 1995 compared with a significant LIFO credit in 1994 which reduced cost of merchandise sold by $4,351,000.
Selling, general and administrative expenses, expressed as a percentage of sales, increased to 32.2% from 31.7% in 1994. The increase is due primarily to the decrease in comparable store sales and resulting lack of expense leverage, first year costs associated with a new store opened in November 1994 and increased advertising costs, partially offset by lower health care costs in comparable stores.
Interest expense, expressed as a percentage of sales, increased to 2.1% of sales versus 2.0% one year ago, reflecting primarily increased borrowings under term loan and revolving credit facilities.
1995 net loss totalled $4,206,000, or 73 cents per common share, compared with 1994 net earnings of $4,088,000, or 71 cents per share. As a percentage of sales, net loss was 1.0% in 1995 compared with earnings of 1.0% in 1994.
1995 and 1994 results include after-tax gains on sales of property totalling $693,000, or 12 cents per share, and $333,000, or 5 cents per share, respectively.
1994 versus 1993
Sales in 1994 totalled $409,154,000, an increase of 1.3% from 1993. Excluding sales of furniture departments which were discontinued in six stores in the Fall of 1993, comparable store sales also increased 1.3% in 1994.
Women's apparel and accessories represented 66.2% of the Company's total business in 1994. Other major components were men's 12.8%, children's 8.8%, home accessories 8.0% and miscellaneous 4.2%.
The Company's gross profit percentage increased to 35.2% in 1994 from 33.9% in 1993, reflecting a higher markup percentage and a significant LIFO credit which reduced cost of merchandise sold by $4,351,000, partially offset by higher markdowns. In 1993, a LIFO credit (including liquidation of most furniture LIFO reserves, as discussed below) reduced cost of merchandise sold by $181,000.
Selling, general and administrative expenses, as a percentage of sales, were 31.7% compared to 31.1% in 1993. This increase was due primarily to increased advertising costs, higher usage of third party credit cards and resulting increased merchant fees and reduced finance charge income, as well as to modest sales growth and a resulting lack of expense leverage.
Interest expense increased in 1994 from 1993, reflecting primarily an increase in short-term rates and borrowings and lower interest capitalized on construction projects.
1994 net earnings totalled $4,088,000, or 71 cents per common share, compared to 1993 net earnings of $3,014,000, or 52 cents per share. As a percentage of sales, net earnings were 1.0% in 1994 as compared to 0.7% in 1993.
Net earnings include after-tax gains on sales of property totalling $333,000, or 5 cents per share, in 1994 and $636,000, or 11 cents per share, in 1993.
In the Fall of 1993, the Company phased out furniture departments in six stores to provide increased space for fashion apparel, accessories and home decorative departments. Furniture comprised less than 2 percent of Company-wide annual sales. Operating results for 1993 include a $1,400,000 reduction in the LIFO provision to reflect liquidation of most furniture LIFO reserves, largely offset by a charge to write down furniture inventories to net realizable value. The impact on net earnings was not material.
INFLATION
The Company cannot determine the precise effects of inflation on its business. Because of inflation, historically the Company has experienced increases in the cost of merchandise and in certain operating expenses. The Company generally has been able to offset the effects of these increased expenses by adjusting prices, by using the LIFO method for valuing all merchandise inventories and by controlling expenses. The Company's ability to adjust prices is limited by competitive pressures in its market areas. The Department Store Inventory Price Indexes, published by the Bureau of Labor Statistics, are used to measure inflation's impact on inventories in the LIFO valuation. The BLS Index increased 0.7% overall in 1995, decreased 0.5% in 1994 and increased 1.3% in 1993.
LIQUIDITY AND CAPITAL RESOURCES
At January 27, 1996, the Company's current ratio was 2.91 to 1 and working capital totalled $95,091,000, including $3,068,000 of cash and cash equivalents. At January 28, 1995, the Company's current ratio was 3.01 to 1 and working capital totalled $99,636,000, including $3,558,000 of cash and cash equivalents. At January 29, 1994, the current ratio was 3.13 to 1 and working capital totalled $93,348,000, including $5,899,000 of cash and cash equivalents.
The Company utilizes cash flows from operations and revolving credit line borrowings to fund its seasonal working capital needs. To support its present and planned working capital requirements, including working capital requirements for the two stores opening in 1996, the Company has a $65,000,000 Revolving Credit and Term Loan facility under a Credit Agreement with two banks. The Revolving Credit portion of the Credit Agreement provides for borrowings of up to $45,000,000, subject to a borrowing base limitation, at either or both of two interest rate alternatives, at the Company's option. Based on current rates, one of these options is below the prime rate of interest of the lending banks. Borrowings under the Revolving Credit line mature on June 30, 1998, with one year renewals subject to approval by both banks by June 30 of each subsequent year, beginning in 1996. The Revolving Credit line carries a commitment fee of two-tenths of 1% per annum on the unused portion of the line and a facility fee of one-tenth of 1% per annum on the total line. Compensating balances are not required. There was $17,200,000 outstanding under the Revolving Credit line at January 27, 1996.
The Term Loan portion of the Credit Agreement totals $20,000,000 at a fixed rate of 7.99% and provides for payments of interest only through December 31, 1997, with quarterly principal payments of $1,000,000 commencing on March 31, 1998, through the maturity date of December 31, 2002.
Borrowings under the Credit Agreement are guaranteed by the Company's subsidiaries and secured by receivables under Jacobson's credit plans and will be secured by first mortgages on selected properties.
A part of the Company's financial strategy is to own, or obtain long-term leases on its properties. Capital expenditures to modernize and refixture existing stores and support facilities generally are financed with internally generated funds. New stores and major expansion projects generally are financed by first mortgages or comparable financing through the Company's consolidated, wholly-owned real estate subsidiary, Jacobson Stores Realty Company, or through long-term leases. Future expansion is expected to be financed in a similar manner.
CASH FLOWS
Cash and cash equivalents decreased $490,000 in 1995, $2,341,000 in 1994 and $2,402,000 in 1993. Cash flows are impacted by operating, investing and financing activities. In 1995, operating activities provided $10,377,000 of cash, compared with $5,997,000 in 1994 and $16,303,000 in 1993. The increase in 1995 versus 1994 reflects primarily a $1,324,000 increase in LIFO reserves compared with a $4,351,000 reduction in 1994 and planned inventory reductions, partially offset by an unfavorable earnings variance. The decrease in 1994 versus 1993 reflects primarily increases in inventory levels, including start-up working capital requirements for a new store opened in late 1994 and a $4,351,000 reduction of LIFO reserves.
Investing activities used cash of $7,747,000, $17,563,000 and $18,263,000 in 1995, 1994 and 1993, respectively. Investing activities included capital expenditures for the acquisition and fixturing of new stores, and expansion, modernization and refixturing of existing stores and support facilities totalling $6,540,000, $14,131,000 and $17,519,000 in 1995, 1994 and 1993, respectively. In addition, the Company incurred capital lease obligations (not included in cash investing activities above) primarily for computer hardware and related software totalling $199,000 and $1,085,000 in 1995 and 1993, respectively. There were no new capital lease obligations in 1994.
Financing activities used cash of $3,120,000 in 1995, provided cash of $9,225,000 in 1994 and used cash of $442,000 in 1993. In 1995, the Company borrowed $3,700,000 more under its Credit Agreement than it had borrowed under its former revolving credit and term loan facilities in 1994 and used $3,930,000 of cash to service current maturities of long-term debt. In 1994, the Company borrowed $10,000,000 at a below-prime variable rate under its term loan facility, obtained $2,727,000 first mortgage financing and used $4,112,000 of cash to service current maturities of long-term debt. In addition, the Company had borrowings of $3,500,000 under its revolving credit line at January 28, 1995. In 1993, the Company obtained $8,000,000 first mortgage financing, and used $5,552,000 of cash to service current maturities of long-term debt and to retire the mortgage debt on its former downtown store facility in Ann Arbor. The Company paid common stock dividends of $2,890,000 in each of 1995, 1994 and 1993.
The Company believes its cash flows from operations, along with its borrowing capacity and access to financial markets are adequate to fund its operations, debt maturities and commitments for stores planned to open in 1996.
CORPORATE DEVELOPMENT
The Company's strategy is to achieve consistent long-term growth both by maintaining and improving market share in its existing communities and by entering new markets. The Company evaluates potential new locations and expects to open new stores as desirable opportunities arise and resources permit. The Company opened one new store in March 1996, has signed a lease for another new store expected to open in the Fall of 1996, and continues to evaluate opportunities for additional new stores. The Company has developed a concept store for these additional new stores based on a standard 65,000-70,000 square foot footprint on one level. Implementing a growth strategy would likely require additional capital, including additional debt or equity financing. The Company is currently exploring financing alternatives for its corporate development plans. The Company reviews the performance of its less profitable existing stores from time to time to determine whether it would be in the Company's best interest to close any of these stores. Store openings and closings could have a significant impact on the Company's sales, expenses and capital requirements. In addition, store closings would likely entail significant one-time charges to effect the closing and to recognize any impairment of assets resulting from the closing decision.
The Company opened a 120,000 square foot leased store in the Town Center Plaza, a shopping center in Leawood, Kansas, a suburb of Kansas City, in March 1996.
In May 1995, the Company signed a lease for an 80,000 square foot store under construction in Mizner Park, a mixed-use retail, residential and office development in Boca Raton, Florida. The store is targeted to open in the Fall of 1996.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements and supplementary financial information are filed as part of this report on pages through:
Consolidated Statements of Earnings, Three Fiscal Years Ended January 27, 1996.
Consolidated Statements of Cash Flows, Three Fiscal Years Ended January 27, 1996.
Consolidated Balance Sheets, January 27, 1996, January 28, 1995, and January 29, 1994.
Consolidated Statements of Shareholders' Equity, Three Fiscal years Ended January 27, 1996.
Notes to Consolidated Financial Statements.
Summary of Significant Accounting Policies.
Report of Independent Public Accountants.
Quarterly Information (Unaudited).
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Part III is incorporated by reference from those portions of the registrant's definitive proxy statement for its 1996 Annual Meeting of Shareholders to be held May 23, 1996, filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K, appearing under the following captions:
"Voting Securities and Principal Holders Thereof" (pages 1-3, inclusive, of the proxy statement).
"Election of Directors" (pages 3-7, inclusive, thereof).
"Executive Compensation" (pages 8-12, inclusive, thereof); but excluding from this incorporation by reference everything appearing under the captions "Compensation Committee Report on Executive Compensation" and "Performance Graph" (pages 13-15, inclusive, thereof).
Information with respect to executive officers of the Company is set forth on pages 10-11 of this report.
For the purpose of stating the aggregate market value of voting stock held by non-affiliates on the cover of this report, the registrant considers that the directors of the registrant, the executive officers listed on page 10 of this report, the Marjorie L. Rosenfeld Trust, David A. Rosenfeld, the Jacobson's Retirement Savings & Profit Sharing Plan, the Jacobson Pension Plan, and The Jacobson Stores Foundation are affiliates, and that all other shareholders are non-affiliates. This statement is without prejudice to the classification of any shareholder at other times or for other purposes.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following financial statements, financial statement schedules, and exhibits are filed as part of this report:
Page (1) FINANCIAL STATEMENTS:
Consolidated Statements of Earnings, Three Fiscal Years Ended January 27, 1996.
Consolidated Statements of Cash Flows, Three Fiscal Years Ended January 27, 1996.
Consolidated Balance Sheets, January 27, 1996, January 28, 1995, and January 29, 1994.
Consolidated Statements of Shareholders' Equity, Three Fiscal Years Ended January 27, 1996.
Notes to Consolidated Financial Statements. /
Summary of Significant Accounting Policies.
Report of Independent Public Accountants.
Quarterly Information (Unaudited). /
(2) All schedules have been omitted since the information required to be submitted has been included in the consolidated financial statements or notes thereto or has been omitted as not applicable or not required.
(3) EXHIBITS:
Each management contract or compensatory plan required to be filed as an exhibit pursuant to Item 14(c) of this report is indicated by an asterisk (*).
3(ii) By-Laws, Jacobson Stores Inc., as amended March 21, 1996
10(a)* Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(b)* Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and Paul W. Gilbert
10(c)* Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and James B. Fowler
10(d)* Employment Agreement dated as of March 27, 1996, between Jacobson Stores Inc. and Robert L. Moles
10(e)* Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(f)* Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and Paul W. Gilbert
10(g)* Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and James B. Fowler
10(h)* Jacobson Stores Inc. Deferred Compensation Plan, as amended and restated January 24, 1996
10(i)* 1996 Management Incentive Plan
10(j)* Split Dollar Agreement, dated December 20, 1988, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(k)* Split Dollar Agreement, dated January 31, 1992, between Jacobson Stores Inc. and Paul W. Gilbert
10(l)* Split Dollar Agreement, dated January 31, 1992, between Jacobson Stores Inc. and James B. Fowler
10(m)* First Amendment to Jacobson Stock Option Plan of 1994
11 Computation of Earnings per Share
21 Schedule of Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
In addition, the previously-filed exhibits listed below are incorporated herein by reference. (All references are to Securities and Exchange Commission File #0-6319 unless otherwise noted.)
With the exception of Exhibits 4(b) and 4(d), instruments defining the rights of holders of long-term debt of the registrant and its subsidiaries have been omitted. The amount of debt authorized under each such omitted instrument is less than 10% of the total assets of the registrant and its subsidiaries on a consolidated basis. The registrant agrees to furnish a copy of any such instrument to the Securities and Exchange Commission upon request.
In addition to Exhibits 10(a) to 10(d), inclusive, and 10(p), the registrant has employment agreements with three other executive officers, which are not considered material in amount or significance.
(b) The registrant filed a report on Form 8-K, dated as of January 11, 1996, during the last quarter of the period covered by this report. The report announced under Item 5 that the Company had executed a Credit Agreement, dated as of December 21, 1995, with two banks for a $65,000,000 line of credit which, effective on that date, replaced the $35,000,000 unsecured line of credit previously available under a Revolving Credit Agreement with Jacobson Credit Corp. and $30,000,000 outstanding under a Term Loan Agreement with the Company, both with the same two banks.
(c) See Item 14(a)(3).
(d) See Item 14(a)(2).
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.
DATE: April 9, 1996 JACOBSON STORES INC.
By: /s/ Mark K. Rosenfeld ------------------------------------ Mark K. Rosenfeld, Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
JACOBSON STORES INC. Date ----
By: /s/ Mark K. Rosenfeld April 9, 1996 ------------------------------------ Mark K. Rosenfeld, Chairman of the Board and Chief Executive Officer, and Director
By: /s/ Paul W. Gilbert April 9, 1996 ------------------------------------ Paul W. Gilbert, Vice Chairman of the Board, and Director (Principal Financial Officer)
By: /s/ James B. Fowler April 9, 1996 ------------------------------------ James B. Fowler, President and Director
By: /s/ Timothy J. Spalding April 9, 1996 ------------------------------------ Timothy J. Spalding, Vice President and Controller (Chief Accounting Officer)
JACOBSON STORES INC. Date ----
By: /s/ Herbert S. Amster April 9, 1996 ------------------------------------ Herbert S. Amster, Director
By: /s/ Herman S. Kohlmeyer April 9, 1996 ------------------------------------ Herman S. Kohlmeyer, Jr., Director
By: /s/ Kathleen McCree Lewis April 9, 1996 ------------------------------------ Kathleen McCree Lewis, Director
By: /s/ Patricia Shontz Longe April 9, 1996 ------------------------------------ Patricia Shontz Longe, Director
By: /s/ Michael T. Monahan April 9, 1996 ------------------------------------ Michael T. Monahan, Director
By: April 9, 1996 ------------------------------------ Philip H. Power, Director
By: /s/ Richard Z. Rosenfeld April 9, 1996 ------------------------------------ Richard Z. Rosenfeld, Director
By: /s/ Robert L. Rosenfeld April 9, 1996 ------------------------------------ Robert L. Rosenfeld, Director
By: /s/ James L. Wolohan April 9, 1996 ------------------------------------ James L. Wolohan, Director
- ------------------------------------------------------------------------------
The accompanying notes (pages through) and summary of significant accounting policies (page) are an integral part of these statements.
- ----------------------------------------------------------------------------
SUPPLEMENTARY CASH FLOW INFORMATION The Company considers all short-term investments with a maturity at date of purchase of three months or less to be cash equivalents.
Investing and financing activities not reported in the Consolidated Statements of Cash Flows, because they do not involve cash, include equipment acquired through capital lease obligations of $199,000 in 1995 and $1,085,000 in 1993. There were no new capital lease obligations in 1994.
Interest paid (net of interest capitalized) was $8,570,000 in 1995, $7,580,000 in 1994 and $7,165,000 in 1993. Income tax payments were $64,000 in 1995, $1,977,000 in 1994 and $753,000 in 1993.
The accompanying notes (pages through) and summary of significant accounting policies (page) are an integral part of these statements.
- -----------------------------------------------------------------------------
The accompanying notes (pages through) and summary of significant accounting policies (page) are an integral part of these statements.
- -----------------------------------------------------------------------------
PREFERRED STOCK Authorized 1,000,000 shares, $1 par value; no shares outstanding at January 29, 1994, January 28, 1995 and January 27, 1996.
COMMON STOCK Authorized 15,000,000 shares, $1 par value; 5,966,2212/3 shares issued at January 29, 1994, January 28, 1995 and January 27, 1996. Shares issued include 187,200 shares in treasury at January 29, 1994, January 28, 1995 and January 27, 1996.
The accompanying notes (pages through) and summary of significant accounting policies (page) are an integral part of these statements.
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TAXES
The provisions for income taxes consisted of:
- ---------------------------------------------------------------------------
Income taxes as a percent of earnings before income taxes differed from the statutory Federal income tax rate as follows:
- -----------------------------------------------------------------------------
Deferred income taxes represent temporary differences in the recognition of certain items for income tax and financial reporting purposes and are classified as current or non-current in the Consolidated Balance Sheets based on the classification of the assets and liabilities which gave rise to the temporary differences. The components of the net deferred income tax liability at January 27, 1996, January 28, 1995 and January 29, 1994 were as follows:
- -----------------------------------------------------------------------------
Taxes, other than income taxes, were as follows:
- -----------------------------------------------------------------------------
ADVERTISING EXPENSE
The Company expenses advertising costs the first time the advertising takes place. Advertising expense totalled $13,625,000 in 1995, $11,932,000 in 1994 and $11,331,000 in 1993.
INTEREST EXPENSE
Components of net interest expense are summarized below:
- ------------------------------------------------------------------------------
CUSTOMER CREDIT AND RECEIVABLES
Credit sales under Jacobson credit plans were 43.6% of total sales in 1995, 44.8% in 1994 and 48.4% in 1993. Credit plans consist of option and extended payment accounts.
Revenues and direct costs associated with the Company's credit program are summarized below:
- ------------------------------------------------------------------------------
The finance charge rate assessed under the Company's credit plans has remained unchanged for 1995, 1994 and 1993. Allocated interest expense is computed at the average rate of interest incurred on the Revolving Credit line applied to the average total receivables from customers. The average rate was 7.0% in 1995, 6.0% in 1994 and 3.8% in 1993.
Receivables from customers at year-end were as follows:
- ------------------------------------------------------------------------------
Accounts written off, net of recoveries, were $863,000 in 1995, $581,000 in 1994 and $791,000 in 1993 (0.48%, 0.32% and 0.40%, respectively, of credit sales).
MERCHANDISE INVENTORIES
All merchandise inventories are valued at cost, which is lower than market, as determined by the retail last-in, first-out (LIFO) method. At year-end, merchandise inventories were as follows:
- ------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment at year-end are set forth below:
- -----------------------------------------------------------------------------
Depreciation and amortization amounted to $10,266,000 in 1995, $10,120,000 in 1994 and $9,404,000 in 1993.
CAPITAL AND MAINTENANCE EXPENDITURES
Capital expenditures, including amounts under capital leases, for the past three years are summarized below:
- --------------------------------------------------------------------------
Stores and store modernization expenditures include those made for the acquisition of land, buildings and improvements, and related fixtures and equipment for new stores and expansion and re-fixturing of existing stores. Support facilities and equipment expenditures relate to corporate office and distribution centers and other non-store expenditures.
Repairs and maintenance expense totalled $1,943,000 in 1995, $1,846,000 in 1994 and $1,737,000 in 1993.
LONG-TERM LEASES
At January 27, 1996, the Company was obligated under non-cancellable long-term leases for certain stores or portions of stores, and for certain fixtures and equipment. Many of the leases contain renewal options. Most require payment of taxes, insurance, and other costs applicable to the property, and some require additional rentals based on percentages of sales.
Future minimum rental commitments as of January 27, 1996, for all non-cancellable leases which had a remaining term of more than one year were as follows:
- ------------------------------------------------------------------------------
Capital leases provide the Company with the economic benefits and risks of ownership. These leases are capitalized and treated as installment purchases of depreciable property. Capital leases are included in the balance sheets as property and equipment while the related lease obligations are included in long-term debt. Interest based on these obligations and amortization based on the lease terms are charged to current operations in lieu of rental expense.
All other leases are considered operating leases. Operating leases are accounted for by recording rental expense over the terms of the leases. Additional rentals based on percentages of sales are recorded as rental expense for both capital and operating leases.
Rental expense (net of rental income) was as follows:
- ---------------------------------------------------------------------------
FINANCING
In December 1995, the Company obtained a $65,000,000 Revolving Credit and Term Loan facility under a Credit Agreement with two banks which replaced revolving credit and term loan facilities with the same two banks. The Revolving Credit portion of the Agreement provides for borrowings of up to $45,000,000, subject to a borrowing base limitation, at either or both of two interest rate alternatives, at the Company's option. Based on current rates, one of these options is below the prime rate of interest of the lending banks. Borrowings under the Revolving Credit line mature on June 30, 1998, with one year renewals subject to approval by both banks by June 30 of each subsequent year, beginning in 1996. The Revolving Credit line carries a commitment fee of two-tenths of 1% per annum on the unused portion of the line and a facility fee of one-tenth of 1% per annum on the total line. Compensating balances are not required. There was $17,200,000 outstanding under the Revolving Credit line at January 27, 1996.
The Term Loan portion of the Credit Agreement totals $20,000,000 at a fixed rate of 7.99% and provides for payments of interest only through December 31, 1997, with quarterly principal payments of $1,000,000 commencing on March 31, 1998, through the maturity date of December 31, 2002.
Borrowings under the Agreement are guaranteed by the Company's subsidiaries and secured by receivables under Jacobson credit plans and will be secured by first mortgages on selected properties.
Revolving Credit line borrowings and interest rates for the past three years were as follows:
- ------------------------------------------------------------------------------
At year-end, long-term debt, less current maturities, consisted of the following:
- -----------------------------------------------------------------------------
The 6 3/4% Convertible Subordinated Debentures are convertible to shares of the Company's common stock at any time prior to maturity, unless previously redeemed, at $32.67 per share, subject to adjustment in certain events. The debentures are redeemable, in whole or in part, at the option of the Company at declining premiums to December 15, 1996, and thereafter at par. Mandatory annual sinking fund payments of $1,725,000 are required beginning December 15, 1996. At January 27, 1996, 1,056,000 shares of authorized common stock were reserved for conversion.
Loan agreements include, among other things, covenants requiring minimum working capital, minimum net worth, a minimum cash flow ratio, a maximum funded debt to net worth ratio and restricting capital stock redemptions and dividend payments. Under the most restrictive net worth covenant, at January 27, 1996, $5,616,000 was available for capital stock redemptions and dividend payments.
Aggregate maturities of long-term debt for the next five years are as follows:
- -------------------------------------------------------------------------
Based on the quoted market price of the 6 3/4% Convertible Subordinated Debentures due 2011 and on the current rates offered to the Company for other long-term debt of similar remaining maturities, the estimated fair value of total long-term debt, excluding capital lease obligations, was less than the carrying value by approximately $9,971,000 at January 27, 1996, $14,400,000 at January 28, 1995 and $5,700,000 at January 29, 1994.
ACCRUED EXPENSES
Accrued expenses at year-end were as follows:
- -------------------------------------------------------------------------
GAIN ON SALE OF PROPERTY
In 1995, the Company sold its former Children's Store in Birmingham, Michigan, at an after-tax gain of $693,000. In 1994, the Company sold its Store for the Home in East Lansing, Michigan, at an after-tax gain of $333,000 in connection with its phase out of furniture operations in six stores the previous year. In 1993, the Company relocated its Ann Arbor, Michigan, store operations to the Briarwood Mall and sold its interest in its downtown store facility at an after-tax gain of $636,000.
STOCK OPTIONS
At January 27, 1996, 91,350 shares of Jacobson Stores Inc. common stock were reserved for issuance under a stock option plan adopted in 1983. No more options may be granted under this plan. At January 27, 1996, 240,000 shares of Jacobson Stores Inc. common stock were reserved for issuance under a plan adopted in 1994 and options for an additional 160,000 shares were available for grant to directors and employees.
Option activity for the past three years was as follows:
- ------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE RIGHTS
The Company has a Preferred Stock Purchase Rights Plan, under which a Right is attached to each share of the Company's Common Stock. Each Right entitles the registered holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock at an exercise price of $100, subject to adjustment. The Company has reserved 100,000 shares of Series A Preferred Stock for issuance on exercise of the Rights. The Rights trade with the Company's Common Stock and will become exercisable 10 days after any person or group acquires 25% or more of the Company's Common Stock, or commences or announces an offer for 30% or more of the Company's Common Stock. After the Rights become exercisable, if the Company is acquired in a merger or other business combination or if 50% or more of its assets or earning power are sold, each Right will entitle the holder to purchase, at the then current exercise price of the Right, shares of common stock of the acquiring company having a market value of twice the exercise price of the Right. Alternatively, if a 25% shareholder acquires the Company by means of a reverse merger in which the Company and its stock survive, or if such shareholder engages in self-dealing transactions with the Company or acquires beneficial ownership of 40% or more of the Company's Common Stock other than by means of a fair offer to buy all shares, each Right (except those of the acquiring person or group) will entitle its holder to purchase, on exercise, shares of the Company's Common Stock having a market value of twice the current exercise price of each Right. The Rights may be redeemed by the Company for one cent per Right until 30 days after a person or group acquires 25% or more of the Company's Common Stock, and will expire on October 25, 1998.
RETIREMENT PLANS
The Company has a trusteed non-contributory defined benefit pension plan covering substantially all of its employees. Benefits under the plan are based on a career average pay formula. Service cost and the projected benefit obligation under the projected unit credit actuarial method reflect the impact of estimated increases in compensation on future pension benefits. Unrecognized pension costs and credits, including actuarial gains and losses, are amortized over the average remaining service period of those employees expected to receive pension benefits. Pension expense was $1,023,000 in 1995, $1,354,000 in 1994 and $1,160,000 in 1993. The Company's funding policy satisfies the minimum funding requirements of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986. Pension plan assets are managed by independent investment managers.
Net periodic pension expense, the funded status of the plan, and the related actuarial assumptions for the past three years are as follows:
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The Company contributed and charged to expense $302,000 in 1995, $293,000 in 1994 and $339,000 in 1993 for multi-employer pension plans. These contributions were determined in accordance with the provisions of negotiated labor contracts and generally are based on the number of hours worked. Under the provisions of the Multi-Employer Pension Plan Amendments Act of 1980, if the Company should substantially or totally withdraw from a multi-employer pension fund, it would be required to continue contributions to such plan to the extent of its portion of the plan's unfunded vested liability. Management has no plans to terminate operations that would subject the Company to such liability.
CONDENSED BALANCE SHEETS
Condensed balance sheets of Jacobson Stores Realty Company, Jacobson Credit Corp. and merchandising operations are shown below:
- -----------------------------------------------------------------------------
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF REPORTING. Jacobson Stores Inc. operates specialty department stores in 27 cities in Michigan, Ohio, Indiana, Kansas, Kentucky and Florida. The consolidated financial statements include the accounts of the Company and two wholly-owned subsidiaries, Jacobson Stores Realty Company and Jacobson Credit Corp. All significant inter- company transactions and balances have been eliminated.
FISCAL YEAR. The Company's fiscal year ends on the last Saturday in January. Fiscal years 1995, 1994 and 1993 consisted of 52 weeks and ended January 27, 1996, January 28, 1995 and January 29, 1994, respectively.
SALES. Sales are net of returns. Restaurant and alteration revenues are reflected as a reduction of cost of merchandise sold. Finance charge revenues are recorded as income when earned and are reflected as a reduction of selling, general and administrative expenses.
RECEIVABLES FROM CUSTOMERS. An account is reviewed for write-off if payment of 20% (one full monthly payment) has not been received during the previous four month period or if it is otherwise determined that the account is uncollectible.
MERCHANDISE INVENTORIES. All merchandise inventories are valued at cost, which is lower than market, as determined by the retail last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost. Major replacements and improvements are charged to the property and equipment accounts. Maintenance, repairs and minor replacements are charged to expense as incurred. When assets are sold, retired, or fully depreciated, their cost and related accumulated depreciation and amortization are removed from the property and equipment accounts, and any gain or loss is reflected in the statements of earnings.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the property and equipment, or over the respective lease terms, if such periods are shorter. Buildings and improvements are depreciated over ten to forty years. Furniture, fixtures and equipment are depreciated over five to ten years.
CAPITALIZATION OF INTEREST. Interest expense incurred on properties under development is capitalized to reflect properly the costs of properties up to the time they produce revenues. The amounts capitalized are then amortized over the respective lives of the depreciable assets.
PRE-OPENING EXPENSES. Expenditures of a non-capital nature associated with opening a new store are charged to expense using the straight-line method in the twelve months immediately following the opening.
INCOME TAXES. Deferred income taxes result from differences between the tax basis of an asset or liability and its reported amount in the financial statements (temporary differences) and are adjusted for changes in tax laws and rates.
EARNINGS PER SHARE. Primary earnings per share are computed by dividing net earnings by the weighted average shares of common stock and common stock equivalents outstanding during the year. Weighted average shares outstanding, excluding treasury shares, were 5,779,977 in 1995, 5,779,123 in 1994 and 5,779,117 in 1993. Fully diluted earnings per share are computed based on the additional assumption that the Company's 6 3/4% Convertible Subordinated Debentures due 2011 were converted to common stock at the date of issuance with a corresponding increase in net earnings to reflect reduction in related interest expense, net of income taxes. Weighted average shares outstanding used in the computation of fully diluted earnings per share were 6,835,992 in 1995, 6,835,138 in 1994 and 6,835,132 in 1993.
FINANCIAL INSTRUMENTS. With the exception of long-term debt and shareholders' equity, the Company records all financial instruments, including cash equivalents, receivables from customers and accounts payable, at or in amounts approximating market value.
USE OF 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 at the date of the financial statements and the reported amounts of revenues and expenses for the fiscal year. Actual results could differ from those estimates.
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Jacobson Stores Inc.:
We have audited the accompanying consolidated balance sheets of JACOBSON STORES INC. (a Michigan corporation) and subsidiaries as of January 27, 1996, January 28, 1995 and January 29, 1994 and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three fiscal years in the period ended January 27, 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 financial statements referred to above present fairly, in all material respects, the financial position of Jacobson Stores Inc. and subsidiaries as of January 27, 1996, January 28, 1995 and January 29, 1994 and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 27, 1996, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan March 4, 1996
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
QUARTERLY INFORMATION (unaudited)
OPERATING RESULTS
The unaudited quarterly operating results shown below were prepared using the same accounting policies that are applied to the annual data.
- ------------------------------------------------------------------------------
The Company's business is seasonal in nature. Traditionally, a higher proportion of sales and net earnings is generated in the fourth quarter (which includes the Christmas season). The anticipated effective annual tax rate is used to compute income taxes on a quarterly basis. The gross margins used in calculating cost of goods sold for interim periods include an allocation of the estimated annual LIFO provision, which cannot be determined precisely until the year-end inventory value is known and the Bureau of Labor Statistics Department Store Index is published in February.
The impact of LIFO on earnings per share as it was reported and as it would have been had the actual charge (benefit) been known when the quarterly allocations were made is shown below.
- ---------------------------------------------------------------
INDEX OF EXHIBITS
Exhibits
3(ii) By-Laws, Jacobson Stores Inc., as amended March 21, 1996
10(a) Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(b) Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and Paul W. Gilbert
10(c) Employment Agreement dated as of February 1, 1996, between Jacobson Stores Inc. and James B. Fowler
10(d) Employment Agreement dated as of March 27, 1996, between Jacobson Stores Inc. and Robert L. Moles
10(e) Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(f) Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and Paul W. Gilbert
10(g) Change in Control Severance Agreement, dated December 18, 1995, between Jacobson Stores Inc. and James B. Fowler
10(h) Jacobson Stores Inc. Deferred Compensation Plan, as amended and restated January 24, 1996
10(i) 1996 Management Incentive Plan
10(j) Split Dollar Agreement, dated December 20, 1988, between Jacobson Stores Inc. and Mark K. Rosenfeld
10(k) Split Dollar Agreement, dated January 31, 1992, between Jacobson Stores Inc. and Paul W. Gilbert
10(l) Split Dollar Agreement, dated January 31, 1992, between Jacobson Stores Inc. and James B. Fowler
10(m) First Amendment to Jacobson Stock Option Plan of 1994
11 Computation of Earnings per Share
21 Schedule of Subsidiaries
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
E-1
In addition, the previously-filed exhibits listed below are incorporated herein by reference. (All references are to Securities and Exchange Commission File #0-6319 unless otherwise noted.)
E-2
E-3