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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K/A
AMENDMENT NO. 1
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended January 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-1394
EDISON BROTHERS STORES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-0254900
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification number)
501 N. Broadway, St. Louis, Missouri 63102
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (314) 331-6000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
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Common Stock, par value $1 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
[Cover page 1 of 2 pages]
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 7, 1995:
Common Stock, par value $1 per share: $327,807,664
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It is assumed for purposes of this calculation that the registrant has no
"affiliates". Information as to the shareholdings of directors of the
registrant is provided in the proxy statement for the 1995 annual meeting of
stockholders.
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 7, 1995:
Common Stock, par value $1 per share: 22,037,490 shares
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders for the fiscal year
ended January 28, 1995 ("1994 Annual Report") are incorporated by
reference into Parts I and II.
Portions of the proxy statement for the 1995 annual stockholders
meeting are incorporated by reference into Part III.
[Cover page 2 of 2 pages]
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PART II
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation
Business
Edison Brothers Stores, Inc. (the "Company") is a leading specialty retailer of
fashion apparel and footwear operating more than 2,700 stores in all fifty
states, Puerto Rico, the Virgin Islands, Mexico and Canada. The Company
conducts its principal operations primarily through subsidiaries in two
segments: apparel and footwear. Stores within the apparel and footwear
segments, with the exception of the Repp Ltd. chain of big-and-tall mens
stores, are almost exclusively mall-based and generally range in size from
1,300 to 3,000 square feet. Merchandise is acquired from many vendors, and the
Company is not dependent on any one supplier. Four main distribution centers
serve as receiving points for merchandise and coordinate the distribution of
shipments to the stores via common or contract carrier. The Company also
operates an entertainment division composed of predominantly mall-based
entertainment centers and five free-standing Dave & Buster's
restaurant/entertainment complexes. In February 1995 the Company announced
plans to spin off its interest in the subsidiaries that own and operate the
five Dave & Buster's restaurant/entertainment complexes as a separate publicly-
held corporation in the second quarter of fiscal-year 1995.
At year-end 1994 the apparel segment operated 1,941 stores in eight chains.
Six chains focus on menswear: JW/Jeans West, Oaktree, J. Riggings, Coda, Repp
Ltd., and Zeidler & Zeidler/Webster (Zeidler & Zeidler). Phoenix, the
Company's first catalog operation, supplies menswear to big-and-tall consumers.
Each menswear chain targets a specific age group of men, with a different
product mix. The women's wear chain, 5-7-9 Shops, primarily markets casual
wear and accessories to young adults, teens and pre-teens.
The footwear segment operated 681 stores in three chains at the end of fiscal
1994. The footwear chains are Bakers/Leeds and Precis, which offer popular-
priced women's fashion shoes, and Wild Pair, which focuses on advanced shoe
fashion for young men and women.
The Company's fiscal year ends on the Saturday closest to January 31.
References to 1994, 1993 and 1992 are to the 52 weeks ended January 28, 1995,
January 29, 1994, and January 30, 1993, respectively.
Financial Condition
Year-end 1994 merchandise inventories increased modestly from year-end 1993 as
the Company responded to higher demand in the footwear segment and the JW/Jeans
West menswear chain. Growth of the Repp Ltd. chain also contributed to the
increase. Conversely, inventories in poorly performing operations approximated
or were below 1993 levels. The Company believes its inventories are well
controlled and not subject to any significant valuation risk. The decrease in
net current deferred income tax assets was caused principally by the benefit
resulting from recovery of certain countervailing duties and related interest
expense accruals.
The recovery also resulted in the recording of receivable balances that caused
the majority of the increase in the other current assets account. Property and
equipment, net, decreased during 1994 because the Company reduced annual
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capital expenditures by just over 20% and there were no significant
acquisitions. The significant changes in liabilities were in the debt
structure. A combination of operating cash flow, short-term borrowings and
$15.0 of intermediate-term debt were used to repay senior notes that matured
during 1994, to increase inventory and to finance capital expenditures and
acquisitions. See Capital Resources and Liquidity below for further
discussion. The foreign currency translation adjustment was caused by the
devaluation of the Mexican peso near the end of 1994.
Capital Resources and Liquidity
In 1994, cash flow from operations decreased by $81.1 or 61.9%. The decrease
was primarily attributable to the Company's management of its inventories
during 1993 and 1994 in response to changing sales trends. Thus, the 1993
decrease in inventory of $55.5 was followed by the $26.7 increase in inventory
during 1994. The 1993 decrease in inventory resulted primarily from the sale
of existing inventories and reductions in merchandise purchases. All of the
Company's chains reduced inventories during 1993, except J. Riggings and Repp
Ltd., which were the only chains with increases in number of stores. The
decrease in inventory in 1993 was achieved without reduction in the number of
stores on a total-company basis as total store count increased from 2,787 at
year-end 1992 to 2,866 at the end of 1993. Management believes the 1993
inventory decrease was accomplished without significantly affecting customer
product selection. The 1993 decrease did not represent a trend, however, as in
1994 the Company increased inventories in those chains experiencing greater
customer demand such as Jeans West and Baker/Leeds. At the end of 1994,
working capital was $140.9 as compared to $145.5 and $232.1 at the end of 1993
and 1992, respectively. The lack of change from 1993 to 1994 reflects the
offsetting effects of the inventory and other current asset increases against
the short-term debt increase. The 1993 decrease from 1992 resulted from the
inventory reduction discussed above and short-term debt increase.
During 1995 the Company plans to reduce capital improvements to a level
somewhat lower than those of 1994. That does not include funds which, in
connection with the spin-off of the Dave & Buster's operations, the Company has
committed to provide for the construction of two new restaurant/entertainment
complexes. As of the end of the first fiscal quarter of 1995, the construction
advances were approximately $4 million, and the Company currently estimates
that the amount of the construction advances will increase to approximately $17
million. Pursuant to the terms of an agreement between the Company, the
Company's subsidiaries to be included in the spin-off and the minority
shareholders of one of those subsidiaries, the post-spin-off Dave & Buster's
entity will be required to repay the construction advances made by the Company
to Dave & Buster's, such repayment to be made in equal monthly installments,
based on twenty-year amortization, commencing on the earlier of (i) two years
after the first advance or (ii) the first month after each new complex begins
operations. The advances made to Dave & Buster's by the Company will be
evidenced by a promissory note. Final payment is due on the earlier of (i) 59
months after the date of the promissory note or (ii) 30 days after the
completion of a public offering by Dave & Buster's. The advances bear interest
at the prime rate. In addition, Dave & Buster's will repay to the Company any
intercompany balance owed at the time of the spin-off. As of the end of the
first fiscal quarter of 1995, the intercompany balance owed by Dave & Buster's
to the Company was approximately $6.4 million. Dave & Buster's will execute a
promissory note for any such balance that will provide for repayment of amounts
owed to the Company over the five-year period following the spin-off. The
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outstanding balance will bear interest from the spin-off date at the prime
rate.
The Company will continue to seek opportunities to expand through acquisitions
when appropriate.
The Company has available a $125.0 credit facility of which $110.0 was unused
at the end of 1994. The Company uses short-term financing on an as-needed
basis throughout the year for working capital and other requirements, with a
peak usually coming early in the fourth fiscal quarter. The following table
provides information concerning the use of short-term financing over the past
three years.
<TABLE>
<CAPTION>
1994 1993 1992
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<S> <C> <C> <C>
Balance at end of year $115.9 $ 44.8 $ 92.8
During the year:
Maximum outstanding 214.5 193.0 219.8
Daily average outstanding 127.9 90.7 114.7
</TABLE>
Subsequent to year-end 1994, the Company entered into amendments of its
agreements governing the $125.0 credit facility and $150.0 senior unsecured
notes, to give the Company greater operating flexibility and ensure covenant
compliance during first quarter 1995. Shortly after the end of first quarter
1995, the Company moved to improve liquidity by reducing its quarterly dividend
rate from $.31 to $.11 per share effective with the second quarter of 1995.
During 1995 the Company plans to pursue a long-term refinancing of a portion of
its outstanding short-term bank debt. The refinancing plan is expected to
involve the sale of debt securities to the public during 1995. Although the
Company's pension plan is over-funded, management does not view the plan's
assets as a potential source of capital. The Company believes that funds from
operations and the appropriate combination of existing resources or alternative
financing resources will provide adequate working capital.
Operating Results
Net sales for 1994 increased by $13.5 or .9% from 1993 levels. Comparable
store sales, that is, sales reported by stores open throughout both years,
improved in the footwear segment but declined in apparel and entertainment.
Especially in apparel, a lackluster fashion environment prompted reliance on
off-price promotions to stimulate sales; the level of promotional activity was
consistent with the Company's 1993 experience. Because of favorable interest
rates and demand for higher-ticket items, consumers seemed to shift their
purchases to electronics and hardgoods. It is not clear if this trend will
continue, but the Company is seeking to improve the operating results of its
existing businesses by making organizational and merchandising changes and
controlling inventories. The Company is also currently studying the
possibility of closing a significant number of unprofitable apparel stores, the
majority of which are in the Oaktree chain. The Company will evaluate the
operating results, long-term potential and other criteria of the stores under
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consideration for closing and, if appropriate, will establish a reserve to
cover the cost of closing those units. In addition, the Company has been
actively looking for opportunities outside its traditional mall-based market.
Net sales for 1993 decreased by $45.9 or 3.0% from 1992 levels. Comparable
store sales declined in all segments. This decrease was offset to a great
extent by the contribution of acquired locations in the Repp Ltd. chain and new
outlets in J. Riggings, Zeidler & Zeidler and entertainment. The Company
anticipated the weak retail market for fashion merchandise during the fall
season of 1993 and promoted heavily to attract the available customers and to
move stock in preparation for the spring of 1994.
Cost of goods sold, including occupancy and buying expenses, as a percentage of
sales increased in 1994 because of increases in both merchandise-related and
occupancy and buying expenses. The direct cost of merchandise increased, and
the level of shrinkage was somewhat higher. Markdown activity was consistent
with that reported in 1993. Minimum rent and related common area maintenance
charges and the shutdown costs associated with closing the Company's St. Louis
distribution center also contributed to the increase. The increase in 1993
over 1992 cost was primarily the result of two factors. First, in a weak
retail environment that lacked a strong fashion direction, the Company found it
necessary to promote heavily during the fall and holiday seasons of 1993. The
higher promotional activity had the effect of reducing gross profit by
approximately $29.0 during the latter half of fiscal year 1993. Second, the
apparel and footwear segments experienced higher occupancy and buying expenses.
The increase came almost entirely from the occupancy portion of expense,
reflecting higher rent costs for store locations.
Store operating and administrative expenses as a percentage of sales increased
modestly in both 1994 and 1993. Nearly all of the modest percentage increases
in both 1994 and 1993 were in the area of store operating expenses. In 1994,
the footwear segment was able to decrease store expenses as a percentage of
sales from 1993 levels by tightly controlling costs and increasing sales.
However, the improvement in the footwear segment was partially offset by an
increase in store expenses as a percentage of sales in the apparel segment,
largely due to declining sales. The opening of a new Dave & Buster's unit
during first quarter 1994 also increased the store expense rate. These large
restaurant/entertainment centers are more labor intensive than the Company's
other retail units and tend to distort expense performance as measured against
sales. Nearly all of the increase in 1993 was in the area of store operating
expenses. A portion of the increase in cost as a percentage of sales was
caused by the decrease in sales. The balance of the change resulted from minor
increases in several categories of store expense. None of the fluctuations
were considered significant. Administrative costs as a percentage of sales
were held constant in both years, with 1994 benefiting somewhat from some
nonrecurring items.
Depreciation and amortization rose slightly in both 1994 and 1993, primarily
from increased levels of property and equipment. The amortization component
declined somewhat in 1993 from 1992, despite the higher ending balance of
intangible assets, as the 1993 acquisitions that generated the increases in
intangibles took place at mid-to-late year. The reduction in interest expense
in 1994 was attributable to the discontinuance and partial reversal of an
accrual along with greater interest earnings, all partially offset by higher
expense on borrowings. Net interest expense in 1993 was slightly above the
1992 level. Approximately one-half of the change resulted from decreased
interest income. The balance of the increase reflected the new long-term debt
in 1993 at a rate above that available on short-term borrowings.
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During the fourth quarter of 1994 a dispute involving certain countervailing
duties on imported footwear and accrued interest thereon was resolved in the
Company's favor. Earlier, during the second quarter of 1994, the Company had
discontinued the accrual of interest expense on this potential liability and
reversed interest of $.4 accrued to that point during 1994. In the fourth
quarter all previous accruals of duties and interest expense were reversed
resulting in a credit to income of $22.3. This settlement will have no future
effect on Company operations. Excluding the benefit from this recovery, pre-
tax income declined 69.1% in 1994 compared with 1993 levels, primarily due to
lower margins and higher store operating expenses. Although JW/Jeans West
increased its operating profits 80% in 1994, the apparel segment as a whole
reported significant declines in operating profit. The footwear segment was
able to achieve gross margins somewhat above 1993 levels and to improve store
expense performance, which contributed to a 28% increase in operating profit
from 1993. In 1993, lower sales, margin erosion resulting from promotional
markdowns, and slightly higher store operating expenses combined to produce a
71% decline in pre-tax income compared with 1992 levels before the cumulative
effect of the accounting change. The 1993 downturn affected operations fairly
equally as both the footwear and apparel segments reported significant declines
in operating profit.
On a seasonal average basis the Company employed approximately 23,400 people
during 1994. Salaries and wages in 1994, 1993, and 1992, were $252.6, $245.4,
and $235.2, respectively.
The Company's Dave & Buster's operation, which the Company plans to spin off in
the spring of 1995, reported pre-tax income of $4.1, $2.0 and $.9 in 1994, 1993
and 1992, respectively.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by Item 8, as listed below, is included in the 1994 Annual
Report. Such information is incorporated herein by reference.
Consolidated Statements of Income - fiscal years 1994, 1993, and 1992
Consolidated Balance Sheets - 1994 and 1993 fiscal year-ends
Consolidated Statements of Cash Flows - fiscal years 1994, 1993, and 1992
Consolidated Statements of Common Stockholders' Equity - fiscal years 1994,
1993, and 1992
Notes to Consolidated Financial Statements
Note 1 of the Notes to Consolidated Financial Statements is amended by
adding thereto the following:
"Intangible Assets -- The Company evaluates the recoverability
of its significant intangible assets as follows:
"Lease Rights -- The value of lease rights is
determined based on the excess of a lease's market
value over the discounted scheduled rent payments at
the time the lease is entered into or assumed by the
Company. The carrying value is amortized over the
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life of the lease and is charged to expense if the
lease is terminated prior to its normal expiration.
"Goodwill -- Goodwill is determined as the excess of
the purchase price over the fair value of the net
tangible assets of businesses acquired. The carrying
value of this asset is evaluated periodically in
relation to the operating performance of the
underlying business. This evaluation takes into
account such factors as the occurrence of a
significant event, a significant change in the
environment in which the business operates, and the
continuing viability of the business as a whole."
Note 15 of the Notes to Consolidated Financial Statements is amended
to read as follows:
"15. Other Operating
"The $22.3 reported as Other Operating in the 1994 Consolidated
Statement of Income represents the pretax benefit resulting from
resolution in the Company's favor of a dispute involving certain
countervailing duties on imported footwear and accrued interest
thereon."
Quarterly Information
The first footnote to the "Quarterly Information" table is amended to
read as follows:
"Amounts presented for the first three quarters of 1993 and 1994
differ from amounts previously reported on Form 10-Q because of the
restatement discussed in Note 14 of the Notes to Consolidated
Financial Statements. Net income for the fourth quarter of 1994 and
fiscal year 1994 includes $14.1 ($22.3 pre-tax) resulting from the
recovery of certain countervailing duties and related interest expense
accruals discussed in Note 15 of the Notes to Consolidated Financial
Statements."
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(3) Listing of exhibits:
Exhibit No. Page No.
3(a)* Bylaws of the Company, as amended February 21, 1995.
3(b) The Company's Certificate of Incorporation, as amended
June 28, 1990, was filed as an Exhibit to the
Company's annual report on Form 10-K for the year
ended February 2, 1991, and is incorporated herein by
reference.
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4(a) Rights Agreement dated as of January 26, 1988, and
amendments thereto dated November 30, 1989 and
September 29, 1992, between Edison Brothers Stores,
Inc. and Mellon Securities Trust Company, as Rights
Agent, were filed as Exhibits 1 to the Company's
current reports on Form 8-K dated February 17, 1988,
December 11, 1989, and October 28, 1992, respectively
(file 1-1394), and are incorporated herein by
reference.
4(b) Note Agreements and Senior Notes dated March 1, 1993,
between Edison Brothers Stores, Inc. and a number of
institutional lenders relating to $150 million of
unsecured debt were filed as an Exhibit to the
Company's annual report on Form 10-K for the year
ended January 30, 1993, and are incorporated herein by
reference.
4(c) Amendment Agreements, dated as of January 15, 1994,
and February 1, 1994, amending the Note Agreements
dated March 1, 1993 between Edison Brothers Stores,
Inc. and a number of institutional lenders relating to
$150 million of unsecured debt were filed as Exhibits
to the Company's annual report on Form 10-K for the
year ended January 29, 1994, and are incorporated
herein by reference.
4(d)* Amendment Agreement dated as of April 1, 1995 amending
the Note Agreements dated March 1, 1993, as amended
January 15, 1994 and February 1, 1994, between Edison
Brothers Stores, Inc. and a number of institutional
lenders relating to $150 million of unsecured debt.
10(a) Form of Indemnification Agreement between the
Company and each of its directors was filed
as Exhibit 10(b) to the Company's annual
report on Form 10-K for the year ended
January 31, 1987 (file 1-1394), and is
incorporated herein by reference.
10(b)* Form of Termination Agreement entered into by the
Company with Alan D. Miller, Chairman of the Board,
President and Chief Executive Officer of the Company.
10(c) Form of Termination Agreement entered into by
the Company with other executive officers of
the Company was filed as Exhibit 10(b) to the
Company's annual report on Form 10-K for the
year ended February 3, 1990 (file 1-1394),
and is incorporated herein by reference.
10(d) The Edison Brothers Stores, Inc. 1992 Stock
Option Plan, as amended March 3, 1994, was
filed as an Exhibit to the Company's annual
report on Form 10-K for the year ended
January 29, 1994, and is incorporated herein
by reference.
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10(e) The Edison Brothers Stores, Inc. 1986 Stock
Option Plan, as amended April 27, 1987 and
March 3, 1994, was filed as an Exhibit to the
Company's annual report on Form 10-K for the
year ended January 29, 1994, and is
incorporated herein by reference.
10(f) The Edison Brothers Stores, Inc. 1982
Incentive Stock Option Plan, as amended
effective October 25, 1983, January 28, 1986
and March 3, 1986, is incorporated by
reference from the Company's Registration
Statement on Form S-8 (No. 2-84838) filed
with the Commission.
10(g) Non-Qualified Retirement Plan for Outside
Directors is described under the caption
"Election of Directors" in the proxy
statement for the Company's 1995 annual
stockholders meeting, which description is
incorporated herein by reference.
11* Computation of per share earnings.
13* 1994 Annual Report to Stockholders
21* Subsidiaries
23(a) Consent of Ernst & Young LLP 12
27* Financial Data Schedule
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* Previously filed
(c) Exhibits:
Exhibits begin on page 12 of this Form 10-K/A.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
EDISON BROTHERS STORES, INC.
June 6, 1995 By /S/ DAVID B. COOPER, JR.
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Date David B. Cooper, Jr.
Executive Vice President and
Chief Financial Officer
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EXHIBIT 23(a)
Exhibit 23(a) - Consent of Independent Auditors
We consent to the incorporation by reference in this amended Annual Report
(Form 10-K/A of Edison Brothers Stores, Inc. of our report dated March 8, 1995,
included in the 1994 Annual Report to Stockholders of Edison Brothers Stores,
Inc.
We also consent to the incorporation by reference in Registration Statements
(Form S-8 Number 2-72334) pertaining to the Edison Brothers Stores, Inc. 1975
Stock Bonus Plan, (Form S-8 Number 2-84838) pertaining to the Edison Brothers
Stores, Inc. 1982 Incentive Stock Option Plan, (Form S-8 Number 33-13297)
pertaining to the Edison Brothers Stores, Inc. 1986 Stock Option Plan, and
(Form S-8 Number 33-54754) pertaining to the Edison Brothers Stores, Inc. 1992
Stock Option Plan and in the related Prospectuses of our report dated March 8,
1995, with respect to the consolidated financial statements incorporated by
reference and/or included in the amended Annual Report (Form 10-K/A) of
Edison Brothers Stores, Inc. for the year ended January 28, 1995.
/S/ ERNST & YOUNG LLP
St. Louis, Missouri
June 5, 1995
