UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 2, 1996
//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.
(Exact name of registrant as specified in its charter)
Delaware 43-0254900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 N. Broadway, St. Louis, Missouri 63102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 314-331-6000
Not applicable
Former name, former address and former fiscal year,
if changed since last report
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report:
Common Stock, $1 par value - 22,201,778
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Condensed Consolidated Balance Sheets as of
November 2, 1996; February 3,1996; and
October 28, 1995 1
Condensed Consolidated Statements of Income for
the 13 weeks and 39 weeks ended November 2, 1996,
and for the 13 weeks and 39 weeks ended
October 28, 1995 2
Condensed Consolidated Statements of Cash Flows
for the 39 weeks ended November 2, 1996, and for
the 39 weeks ended October 28, 1995 3
Notes to Condensed Consolidated
Financial Statements 4
Management's Discussion and Analysis of Operating
Results and Financial Condition 10
Part II. Other Information 13
Signatures 13
<TABLE>
PART I FINANCIAL INFORMATION
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
Nov. 2, Feb. 3, Oct.28,
1996 1996 1995
(In Millions)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 75.6 $139.6 $ 20.4
Short-term investments 82.8
Merchandise inventories 251.4 250.5 345.1
Income tax receivable .7 42.8 39.4
Prepaid expenses 5.1 10.2 7.5
Other current assets 5.6 9.4 18.5
Total Current Assets 421.2 452.5 430.9
Property and Equipment, net 190.1 209.0 260.4
Intangible Assets, net 43.9 50.3 63.1
Prepaid Pension Expense 40.1 38.4 41.9
Other Assets 13.7 11.3 9.2
Total Assets $709.0 $761.5 $805.5
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current Liabilities:
Notes payable $ $ .2 $152.5
Current portion of long-term debt 233.4
Accounts payable, trade 63.2 64.8 58.9
Payroll and vacations 11.2 13.4 15.6
Other taxes 7.3 6.9 6.5
Other current liabilities 18.6 25.8 37.4
Total Current Liabilities 100.3 111.1 504.3
Liabilities Subject to Settlement under
Reorganization Proceedings 501.9 489.8
Postretirement Benefits 40.7
Other Liabilities 20.3 20.2 32.0
Common Stockholders' Equity:
Common stock, par value $1 per share 22.2 22.1 22.1
Capital in excess of par value 76.9 76.7 76.7
Retained earnings (deficit) (12.8) 41.6 148.3
Foreign currency translation
adjustment and other .2 (18.6)
Total Common Stockholders' Equity 86.5 140.4 228.5
Total Liabilities and Equity $709.0 $761.5 $805.5
<fn1>
See notes to condensed consolidated financial statements.
</fn1>
</TABLE>
<TABLE>
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Nov 2, Oct 28, Nov 2, Oct 28,
1996 1995 1996 1995
(In millions except per share data)
<S> <C> <C> <C> <C>
Net Sales $255.2 $319.8 $782.1 $972.6
Cost of goods sold, occupancy,
and buying expenses 182.9 246.4 573.9 709.5
Store operating and administrative
expenses 65.6 85.6 204.0 259.1
Depreciation and amortization 10.6 15.3 31.1 49.0
Interest expense, net .4 11.0 1.3 22.8
Restructuring and reorganization
expenses 7.2 48.4 25.8 69.3
Total Costs and Expenses 266.7 406.7 836.1 1,109.7
Loss before Income Taxes (11.5) (86.9) (54.0) (137.1)
Income tax provision (benefit) (3.7) .4 (21.7)
Net Loss $(11.5) $(83.2) $(54.4) $(115.4)
Per Common Share:
Net Loss $ (.52) $(3.77) $(2.45) $(5.23)
Cash dividends declared $ $ $ $ .42
Weighted average common shares
outstanding (in thousands) 22,202 22,087 22,180 22,063
<fn2>
See notes to condensed consolidated financial statements.
</fn2>
</TABLE>
<TABLE>
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
39 Weeks Ended
Nov 2, 1996 Oct 28,1995
(In Millions)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (54.4) $(115.4)
Adjustments to reconcile net loss to
net cash provided(used)by operating
activities:
Depreciation and amortization 31.1 49.0
Deferred income taxes, net of valuation
allowance 6.2
Restructuring and reorganization expenses,
noncash portion 11.3 69.3
Changes in assets and liabilities, net of
effects from acquisitions and divestitures:
Merchandise inventories (.7) (23.0)
Other assets 45.3 (11.1)
Accounts payable, accrued expenses,
and other liabilities (6.8) (30.1)
Other 5.4 4.2
Total Operating Activities 31.2 (50.9)
Cash Flows from Investing Activities:
Payments for companies and assets purchased,
net of cash acquired (14.1)
Capital expenditures (13.1) (34.5)
Increase in short-term investments (82.8)
Net proceeds from disposal of subsidiary 3.8
Other .7 2.0
Total Investing Activities (95.2) (42.8)
Cash Flows from Financing Activities:
Prepetition long-term debt payments (.1)
Net prepetition short-term debt borrowings 96.6
Net postpetition payments under short-term
credit facility (.2)
Dividends on common stock (9.3)
Other 2.0 .6
Total Financing Activities 1.8 87.8
Effect of exchange rate changes on cash (1.8) (.7)
Cash Used (64.0) (6.6)
Beginning Cash and Cash Equivalents 139.6 27.0
Ending Cash and Cash Equivalents $ 75.6 $ 20.4
<fn3>
See notes to condensed consolidated financial statements.
</fn3>
</TABLE>
EDISON BROTHERS STORES, INC., AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. On November 3,1995 (the Petition Date), Edison Brothers Stores, Inc.
(the company) and 65 of its subsidiaries and affiliates (the Debtors)
filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code (Chapter 11) in the United States Bankruptcy Court in
Wilmington, Delaware. The Debtors are presently operating their
respective businesses as debtors-in possession. A statutory
Creditors' Committee has been appointed in the Chapter 11 cases. The
Chapter 11 cases of the Debtors are being jointly administered for
procedural purposes only.
Certain foreign subsidiaries were not included in the Chapter 11
filing. The results of their operations and financial position are
not material to the condensed consolidated financial statements.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles applicable to
a going concern, which principles, except as otherwise disclosed,
assume that assets will be realized and liabilities will be discharged
in the normal course of business. As a result of the Chapter 11 cases
and circumstances relating to this event, including the company's debt
structure, its recurring losses, and current economic conditions, such
realization of assets and liquidation of liabilities are subject to
significant uncertainty. Additionally, the amounts reported on the
condensed consolidated balance sheet could materially change because
of a plan of reorganization, since such reported amounts do not give
effect to adjustments to the carrying value of the underlying assets
or amounts of liabilities that may ultimately result.
The accompanying unaudited financial statements and notes have been
condensed and, therefore, do not contain all disclosures required by
generally accepted accounting principles. Reference should be made to
the annual financial statements, including the notes thereto, included
in the company's Annual Report to Stockholders for the year ended
February 3,1996. Interim operating results are not necessarily
indicative of those for a full fiscal year because of the seasonal
nature of the business.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and revenues and expenses during the reporting period.
Actual amounts could differ from those estimates.
With respect to the accompanying unaudited financial statements for
the 39 weeks ended November 2, 1996, it is the company's opinion that
all necessary adjustments (consisting of normal and recurring
adjustments) have been included to present a fair statement of results
for the interim period. Certain prior year items have been
reclassified to conform to the current year presentation.
2. In the Chapter 11 cases, substantially all liabilities as of the
Petition Date are subject to compromise or other treatment under a
plan of reorganization to be confirmed by the Bankruptcy Court after
submission to any required vote by affected parties. The Debtors have
the exclusive right to propose and file plans of reorganization and
the exclusive right to solicit acceptances of such plans until
February 28, 1997, and April 28, 1997, respectively, the Debtors
having completed their long term business plan and submitted it to the
statutory Creditors' Committee on November 1, 1996. For financial
reporting purposes, those liabilities and obligations whose treatment
and satisfaction is dependent on the outcome of the Chapter 11 cases
have been segregated and classified as liabilities subject to
settlement under reorganization proceedings in the condensed
consolidated balance sheet. Generally, all actions to enforce or
otherwise effect repayment of pre-Chapter 11 liabilities as well as
all pending litigation against the Debtors are stayed while the
Debtors continue their business operations as debtors-in-possession.
Schedules have been filed by the Debtors with the Bankruptcy Court
setting forth the assets and liabilities of the Debtors as of the
Petition Date as reflected in the Debtors' accounting records. The
Bankruptcy Court established a bar date of August 1, 1996, for
substantially all prepetition claims against the company. Excluded
from the bar date are, among other things, claims for damages
resulting from the rejection of real estate leases and other executory
contracts where such rejections occur on or after July 1, 1996. Such
claims are subject to separate bar dates. A bar date is the date by
which claims against the company must be filed if the claimants wish
to receive any distribution in the Chapter 11 cases. The company
notified all known or potential claimants subject to the August 1,
1996, bar date of their need to file a proof of claim with the
Bankruptcy Court. Differences between amounts shown by the Debtors
and claims filed by creditors are being investigated and will be
either amicably resolved or adjudicated before the Bankruptcy Court.
The ultimate amount of and settlement terms for such liabilities are
subject to a plan of reorganization and accordingly are not presently
determinable.
Under the Bankruptcy Code, the company may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other prepetition executory contracts, subject
to Bankruptcy Court approval. The liabilities subject to settlement
under reorganization proceedings include a reserve for the estimated
amount that may be claimed by lessors and allowed in connection with
the rejection of unexpired real estate leases. The company will
continue to analyze its executory contracts and may assume or reject
additional contracts.
The principal categories of claims classified as liabilities subject
to settlement under reorganization proceedings are identified below.
The amounts below in total are significantly less than the aggregate
stated amounts of proofs of claim that have been filed with the
Bankruptcy Court and may be subject to future adjustment depending on
Bankruptcy Court action, further developments with respect to disputed
claims, determination as to the value of any collateral securing
claims, or other events. Additional claims may arise from the
rejection of additional executory contracts by the company.
<TABLE>
<CAPTION>
Nov 2, 1996 Feb. 3, 1996
(In Millions)
<S> <C> <C>
Notes payable - banks $205.9 $205.9
Long-term senior notes payable 150.0 150.0
Cash set-off applied to debt (3.6) (3.6)
Deferred debt costs (6.3) (6.7)
Capital lease obligations 12.4 8.4
Accrued interest payable 3.5 3.5
Postretirement benefit accrual 42.0 41.1
Accounts payable 39.6 38.5
Lease termination claims 39.2 38.6
Taxes 4.1 4.3
Other 15.1 9.8
Total liabilities subject to settlement
under reorganization proceedings. $501.9 $489.8
</TABLE>
During the first quarter of 1996, workers' compensation reserves
totaling $6.4 million were reclassified to liabilities subject to
settlement under reorganization proceedings. The reserves represent
unpaid claims and an estimate of incurred but not reported claims
existing as of the Petition Date. These reserves were classified as
other current liabilities as of February 3, 1996.
As a result of the Chapter 11 filing, no principal or interest
payments will be made on any prepetition debt without Bankruptcy Court
approval or until a plan of reorganization providing for the repayment
terms has been confirmed by the court and becomes effective. Interest
on prepetition obligations has not been accrued after the Petition
Date. Contractual interest expense not recorded on certain prepetition
debt totaled $26.3 million for the 39 weeks ended November 2, 1996.
Cumulative contractual interest expense not recorded since the
Petition Date totaled $35.4 million as of November 2, 1996.
Prior to the Chapter 11 filing and certain agreements discussed below,
the company's debt consisted of senior notes held by various
institutional lenders amounting to $150.0 million. The unsecured
senior notes, having maturities from 7 to 15 years, were to bear
interest at rates of 7.09% to 8.04%. The company also had outstanding
borrowings under a $125.0 million revolving credit facility as well as
short-term and demand notes under uncommitted bank lines with varying
interest rates and maturity dates. In addition, the company had $8.4
million in capital lease obligations relating to its Washington,
Missouri, distribution center which are characterized as capital
leases for financial reporting purposes.
As a result of its operating loss for second quarter 1995, the company
was in violation of certain financial covenants under its bank and
senior note agreements. During the third quarter 1995, the company
and its subsidiary, Edison Brothers Apparel Stores, Inc., entered into
an agreement for a $75.0 million secured revolving line of credit
facility with BankAmerica Business Credit, Inc. extending through
February 29, 1996. In addition, the company entered into override
agreements with its existing lenders through February 29, 1996. The
override agreements covered existing 1995 financial covenants and
deferred principal repayments otherwise due December 1, 1995.
Furthermore, the company's primary existing letter of credit bank
agreed to continue to provide international letters of credit through
the override period. In exchange for these concessions, the company
paid a one-time forbearance fee of $3.6 million and agreed to increase
the interest rate on the outstanding debt to 9.75%.
As of the Petition Date, the company had outstanding $150.0 million of
senior notes, $125.0 million under its $125.0 million revolving credit
facility, $80.9 million of short-term and demand notes under its
uncommitted bank lines, $8.4 million of capital lease obligations, and
$21.6 million under its $75.0 million secured revolving line of credit
facility. The company received authorization from the Bankruptcy
Court to make a $21.6 million payment in satisfaction of the secured
revolving line of credit facility. In addition, $3.6 million of cash
was set-off by the banks against outstanding principal and accrued
interest balances.
3. The company and Edison Brothers Apparel Stores, Inc., as debtors-in-
possession, are parties to a Loan Agreement dated effective November
9, 1995(the DIP facility) with BankAmerica Business Credit, Inc., as
Agent and Lender, under which the company may borrow up to $200.0
million to fund ongoing working capital needs. The DIP facility,
which has been approved by the Bankruptcy Court, has a sublimit of
$150.0 million, subject to collateral restrictions, for the issuance
of letters of credit. The DIP facility is intended to provide the
company with the cash and liquidity to conduct its operations and pay
for merchandise shipments at normal levels during the course of the
Chapter 11 cases.
At the company's option, the company may borrow under the DIP facility
at the Reference Rate (as defined in the DIP facility) plus .25% or at
the Eurodollar Rate (as defined in the DIP facility) plus 1.5%. The
current borrowing rate is 8.5%. The maximum borrowing, up to $200.0
million, is limited to 50% of the value of eligible inventory (as
defined inthe DIP facility) plus 95% of the amount of cash deposited
with the Agent. The company is required to pay a commitment fee of
.375% per annum on the unused portion of the DIP facility. The DIP
facility contains restrictive covenants including, among other things,
a limitation on store closings of 850, limitations on the incurrence
of additional liens and indebtedness, limitations on capital
expenditures and the sale of assets, the maintenance of minimum
operating earnings (EBITDA) and inventory levels, and a prohibition on
paying dividends. At November 2,1996, the company was in compliance
with the DIP facility covenants.
The lenders under the DIP facility have a super-priority'
administrative expense claim against the estate of the company. The
DIP facility expires on the earlier of November 9, 1997, or the
effective date of a plan of reorganization that is confirmed by the
Bankruptcy Court.
As of November 2, 1996, no borrowings were outstanding under the DIP
facility. Outstanding letters of credit were $104.8 million and
available borrowings under the DIP facility were $49.9 million.
4. Restructuring and reorganization expenses were as follows:
<TABLE>
<CAPTION>
39 Weeks Ended
Nov 2, 1996 Oct 28, 1995
(In Millions)
<S> <C> <C>
Estimated loss on sale of subsidiaries $ $33.3
Estimated costs of store closings 10.5 20.9
Accelerated goodwill amortization 15.1
Early retirement program 2.3
Interest income (5.9)
Other, primarily professional fees 18.9
Total restructuring and reorganization
expenses $25.8 $69.3
</TABLE>
In third quarter 1995, the company recorded a $33.3 million charge to
adjust the net book value of the assets of the mall entertainment
division to their net realizable value based on an estimated selling
price. The company sold substantially all of the assets of its mall
entertainment division in January, 1996.
During the second and fourth quarters of 1995, the company recognized
store closing provisions relating to a restructuring plan for the
closing of unprofitable stores in 1995 and the first half of 1996. In
1995, store closing costs of $101.6 million were recognized and
represented a reserve to cover early lease termination claims and the
write-off of fixtures and equipment, leasehold improvements, and
related intangible assets. In 1996, additional stores were identified
to be closed during 1996 and the early part of 1997 and an additional
$10.5 million store closing reserve was recorded. Sales through third
quarter 1996 for stores that either have closed in 1996 or will be
closed by the early part of 1997 totaled $144.8 million. Total
charges of $69.0 million, representing the net book value of fixed and
intangible assets, have been made to the reserve since inception. Of
the remaining reserve, $39.2 million related to lease termination
claims has been reclassified to liabilities subject to settlement
under reorganization proceedings.
The company also recorded a $15.1 million charge in third quarter 1995
for the accelerated amortization of Zeidler & Zeidler goodwill based
on an analysis of estimated future cash flow, discounted to present
value. An evaluation of the carrying value of the goodwill in
relation to the operating performance of the underlying business
indicated that such goodwill had declined in value. In first quarter
1996, the company announced plans to close its Zeidler & Zeidler
division. At the end of October, 1996, the liquidation process was
virtually complete and the last Zeidler & Zeidler store was closed in
November, 1996.
As part of its restructuring initiatives, the company offered an early
retirement package to eligible employees. Expenses totaling $2.3
million related to the program were recorded during second quarter
1996.
Other reorganization expenses of $18.9 million relate primarily to
administrative expenses incurred as a result of the claims
reconciliation process and professional fees incurred as a result of
the Chapter 11 filing and restructuring activities. These
professional fees include accounting, legal and consulting services
provided to the company and the Creditors' Committee (which, subject
to court approval, are required to be paid by the company while it is
in Chapter 11.)
5. Net income per common share is based on the weighted average common
shares outstanding during the period. Shares issuable under the
company's stock option plans would have no material dilutive effect on
earnings per common share.
6. Common stock shares authorized total 100,000,000; at November 2, 1996,
27,554,232 shares were issued of which 5,352,454 shares were being
held in the company's treasury and 22,201,778 shares were outstanding.
7. Investments are stated at cost that approximates market and consist of
government securities having maturities ranging from November, 1996,
to March, 1997.
The company considers those investments with maturities of three
months or less to be cash equivalents for condensed consolidated
statements of cash flows.
8. Property and equipment, net is composed of the following:
<TABLE>
<CAPTION>
Nov. 2, Feb. 3, Oct. 28,
1996 1996 1995
(In Millions)
<S> <C> <C> <C>
Cost $410.1 $422.3 $522.0
Accumulated depreciation and amortization (220.0) (213.3) (261.6)
Net book value $190.1 $209.0 $260.4
</TABLE>
9. Intangible assets, net is composed of the following:
<TABLE>
<S> <C> <C> <C>
Cost $ 65.4 $ 71.4 $ 93.3
Accumulated amortization (21.5) (21.1) (30.2)
Net book value $ 43.9 $ 50.3 $ 63.1
</TABLE>
10. The effective tax rate of (.7%) of pretax loss for the 39 weeks ended
November 2, 1996, differs from the company's customary relationship
between the income tax provision and pretax accounting income (loss).
Due to the uncertainty of the company producing future income which
will be available to absorb net operating loss carryforwards, no tax
benefit relative to current operating results has been recorded. In
addition, the company has concluded that it is likely it will not be
able to realize its deferred tax assets. Accordingly, an allowance
against the net deferred tax asset balance of $(.3) million,
representing a slight decrease in the total deferred tax asset balance
on a year-to-date basis, and a credit to income tax expense are
reflected in the condensed consolidated financial statements as of
November 2, 1996. The provision of $.4 million on the 1996 condensed
consolidated income statement consists of a charge of $.4 million
related to operations in Puerto Rico, Canada, Taiwan, Hong Kong and
the Philippines, a $.3 million charge related to state minimum taxes,
and the $(.3) million deferred tax valuation allowance adjustment
referred to above.
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATING RESULTS
Net sales for the third quarter and 39 weeks ended November 2, 1996,
decreased by 20.2% and 19.6%, respectively, from the comparable periods of
1995 primarily due to the reduction in the number of stores. The company
operated 2,687 stores at the end of the third quarter 1995 compared to
1,873 at the end of the third quarter 1996. Same-store sales decreased
1.6% and 3.1% for the 13 week and 39 week periods ended November 2, 1996,
respectively. For the 13 week period Size 5-7-9 reported a same-store sale
increase of 7.1% and Repp Ltd. reported an increase of 3.7%. For the 39
week period Size 5-7-9 reported a same-store sale increase of 11.6% and
Repp Ltd. was flat. The remaining chains' same-store sales were down for
both periods. The positive sales increases in Size 5-7-9 reflect the impact
of the company's restructuring initiatives on Size 5-7-9, the chain
furthest along in the restructuring process. These restructuring
initiatives are focused on various facets of store operations and are
primarily designed to improve efficiency, reduce expenses, enhance customer
service and re-energize sales.
Sales for 1997 will be impacted by the store closings in 1996. Sales
through third quarter 1996 for stores that either have closed in 1996 or
will be closed by the early part of 1997 totaled $144.8 million.
Cost of goods sold, including occupancy and buying expenses, as a
percentage of sales was 71.7% and 73.4% for the third quarter and 39 weeks
of 1996, respectively, compared to 77.0% and 72.9% for the comparable
periods in 1995.
The decrease in cost of goods sold as a percentage of sales for the third
quarter 1996 compared to 1995 was primarily due to a special markdown of
$18.2 million recorded in third quarter 1995 associated with the
restructuring of tailored clothing merchandise in J. Riggings and Zeidler &
Zeidler.
The increase in cost of goods sold as a percentage of sales for the 39
weeks was due to increased merchandise costs primarily in Size 5-7-9, Repp
Ltd., and the footwear divisions. Size 5-7-9 increased its use of domestic
sourcing, Repp Ltd. focused more on branded merchandise versus private
label, and Wild Pair continued to change its product mix, focusing more on
footwear than accessories.
Special markdown accruals recorded in the second quarter 1996 related to
the liquidation of the remaining inventory in the Zeidler & Zeidler
division and the reduction of the tailored clothing inventory in Repp Ltd.
also contributed to the increase in cost of goods sold as a percentage of
sales for the 39 weeks in 1996 compared to 1995.
Occupancy and buying expenses as a percentage of sales decreased for both
the third quarter and 39 weeks of 1996 compared to the comparable periods
in 1995. For the respective third quarters, occupancy and buying expenses
were 18.4% and 20.3% of sales in 1996 and 1995. For the 39 week period,
occupancy and buying expenses were 18.9% and 20.4% of sales in 1996 and
1995, respectively. The decrease was attributable to the closing of
underperforming stores.
Store operating and administrative expenses decreased as a percentage of
sales for both the third quarter and 39 week periods in 1996 compared to
1995. For third quarter, store operating and administrative expenses were
25.7% and 26.8% of sales in 1996 and 1995, respectively. For the 39 weeks,
such expenses were 26.1% and 26.6% of sales in 1996 and 1995, respectively.
Store expenses as a percentage of sales for the third quarter were 19.0%
and 19.5% for 1996 and 1995, respectively. For the 39 weeks, store
expenses were 19.4% and 20.1% of sales for 1996 and 1995, respectively.
The decrease was also attributable to the closing of underperforming
stores.
Administrative expenses decreased $6.1 million and $11.9 million for the
third quarter and 39 week periods of 1996, respectively, remaining
relatively constant as a percentage of sales. Depreciation and
amortization decreased between years due to the decrease in number of
stores in operation and reduced capital expenditures. Net interest expense
decreased $10.6 million and $21.5 million for the third quarter and 39 week
periods, respectively. Interest expense on prepetition liabilities of $8.8
million and $26.3 million, respectively, was not recorded for the third
quarter and 39 week periods in 1996.
Restructuring and reorganization expenses of $25.8 million for the 39 week
period in 1996 consisted of $10.5 million for store closing costs, $2.3
million related to an early retirement program, and $18.9 million of
reorganization expenses, primarily legal and consulting fees, offset by
$5.9 million of interest income. In the 39 week period in 1995, a $20.9
million store closing reserve was booked related to the closing of
approximately 250 underperforming apparel stores, a $33.3 million charge
was recorded to adjust the net book value of the assets of the mall
entertainment division to their net realizable value based on an estimated
selling price, and a $15.1 million charge for the accelerated amortization
of Zeidler & Zeidler goodwill based on an analysis of estimated future cash
flow, discounted to present value, was also recorded.
The pretax loss for the 39 week period in 1996, excluding restructuring and
reorganization expenses of $25.8 million and special markdown accruals of
$12.4 million, was $15.8 million compared to a pretax loss of $49.6
million for the same period in 1995 adjusted for special markdown accruals
of $18.2 million, store closing provisions of $20.9 million and asset
write-downs of $48.4 million. The adjusted pretax loss for the third
quarter in 1996 was $4.3 million compared to the adjusted pretax loss of
$20.3 million for the third quarter in 1995.
FINANCIAL CONDITION
During the 39 weeks ended November 2, 1996, the company had positive cash
flow from operations contributing to an increase in cash and short-term
investments of $18.8 million from year-end 1995. Excess cash was invested
in short-term government securities having maturities ranging from
November, 1996, to March, 1997. Cash flow from operations during the 39
week period in 1996 increased $82.1 million from the comparable period in
1995 primarily due to the receipt of an income tax refund of $37.9 million
in first quarter 1996 and improved operating results due to the closing of
underperforming stores. The seasonal buildup of inventory was much higher
at the end of third quarter 1995 compared to 1996 due in part to the larger
number of stores in operation. Average inventory per store at the end of
third quarter 1995 was also higher than in 1996 due to tighter inventory
control in 1996. Tighter credit terms by vendors in third quarter 1995
also caused a significant decrease in accounts payable in third quarter
last year.
Capital expenditures decreased $21.4 million in the 39 week period of 1996
compared to the comparable period of 1995. The decrease in property and
equipment, net and intangibles, net between the end of third quarter 1995
and third quarter 1996 was primarily due to store closings. The change
between year-end 1995 and the end of third quarter 1996 was primarily due
to the write-off of fixed assets in the Zeidler & Zeidler division in first
quarter 1996 when the decision was made to close the remaining Zeidler &
Zeidler stores.
Positive cash flow from operations during 1996 reduced the company's
reliance on debt to fund working capital needs. In the first half of 1995,
the company increased its borrowings by $75.0 million and during the third
quarter 1995 borrowed $21.5 million under a revolving line of credit
with BankAmerica Business Credit, Inc. Both increases were used to finance
seasonal inventory levels and other working capital needs. As discussed in
Note 3 of the Notes to Condensed Consolidated Financial Statements, the
company has available a $200.0 million DIP facility with available
borrowings of $49.9 million as of November 2, 1996. The DIP facility
contains a restrictive covenant prohibiting the payment of dividends and
none were paid during 1996. In the first half of 1995, the company paid
$9.3 million in dividends.
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1 Legal Proceedings
See Note 1 of the Notes to Condensed Consolidated Financial
Statements.
Items 2, 3, 4 and 5 of Part II are not applicable.
Item 6 Exhibits and Reports on Form 8-K.
(a) Bylaws of the Company, as amended April 23, 1996, were filed as an
Exhibit to the company's annual report on Form 10-K for the year ended
February 3, 1996, and are incorporated herein by reference.
(b) The company's Certificate of Incorporation, as amended September 8,
1995, was filed as an Exhibit to the company's quarterly report on
Form 10-Q for the quarter ended October 28, 1995, and is incorporated
herein by reference.
(c) Exhibit 11, computation of per share earnings, is on page 14 of this
Form 10-Q.
(d) Exhibit 27, Financial Data Schedule, is on page 15 of this Form 10-Q.
(e) There were no reports on Form 8-K filed during the quarter ended
November 2, 1996.
SIGNATURES
Pursuant to the requirements 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 amortized.
EDISON BROTHERS STORES, INC.
DATE: December 16, 1996 By /s/David B. Cooper, Jr.
Executive Vice President and
Chief Financial Officer
<TABLE>
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
<CAPTION>
13 Weeks Ended 39 Weeks Ended
Nov. 2, Oct 28, Nov. 2, Oct 28,
1996 1995 1996 1995
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Loss from continuing operations $(11,460)$(83,240) $(54,350)$(115,378)
Preferred stock dividends (2)
Net Loss applicable to common stock $(11,460)$(83,240) $(54,350)$(115,380)
SIMPLE AND PRIMARY
Weighted average shares outstanding 22,202 22,087 22,180 22,063
Net effect of dilutive stock options-
based on the treasury method
TOTAL 22,202 22,087 22,180 22,063
Per common share amounts: Simple
Net Loss applicable to common
stock $ (.52) $ (3.77) $ (2.45) $ (5.23)
Per common share amounts: Primary
Net Loss applicable to common
stock $ (.52) $ (3.77) $ (2.45) $ (5.23)
FULLY DILUTED
Weighted average shares
outstanding 22,202 22,087 22,180 22,063
Net effect of dilutive stock options-
based on the treasury method 14
TOTAL 22,202 22,087 22,180 22,077
Per common share amounts: Fully Diluted
Net Loss applicable to common stock $ (.52) $ (3.77) $ (2.45) $ (5.23)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet as of November 2, 1996, and the condensed
consolidated statement of income for the 39 weeks ended November 2, 1996, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> NOV-02-1996
<CASH> 75,600
<SECURITIES> 82,800
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 251,400
<CURRENT-ASSETS> 421,200
<PP&E> 410,100
<DEPRECIATION> 220,000
<TOTAL-ASSETS> 709,000
<CURRENT-LIABILITIES> 100,300
<BONDS> 0
0
0
<COMMON> 22,200
<OTHER-SE> 64,300
<TOTAL-LIABILITY-AND-EQUITY> 709,000
<SALES> 782,100
<TOTAL-REVENUES> 782,100
<CGS> 573,900
<TOTAL-COSTS> 235,100
<OTHER-EXPENSES> 25,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,300
<INCOME-PRETAX> (54,000)
<INCOME-TAX> 400
<INCOME-CONTINUING> (54,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,400)
<EPS-PRIMARY> (2.45)
<EPS-DILUTED> (2.45)
</TABLE>
