UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)<PAGE>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Common Stock, par value $.01 per share
Warrants to purchase Common Stock
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<PAGE>
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 21, 1998:
Common Stock, $.01 par value $71,975,258
It is assumed for purposes of this calculation that the
registrant has no _affiliates_. Information as to the share
holdings of directors and certain security holders of the
registrant is provided in the proxy statement for the 1998 annual
meeting of stockholders.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No _
The number of shares outstanding of each of the registrant's
classes of common stock, as of April 21, 1998:
Common Stock, $.01 par value _ 9,596,701
shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders for January 31,
1998 (_1997 Annual Report_), are incorporated by reference into
Parts I and II.
Portions of the proxy statement for the 1998 annual stockholders
meeting are incorporated by reference into Part III.
PART I
Item 1. BUSINESS
GENERAL
Edison Brothers Stores, Inc. (the _Company_) owns and operates
chains of specialty retailing stores located in forty-seven
states of the United States, the District of Columbia, Puerto
Rico, the Virgin Islands and Canada. The Company conducts its
principal operations through subsidiaries and divisions in two
business segments: apparel and footwear. The stores operated
by the Company are located primarily in shopping malls. At
January 31, 1998, the Company operated 1,605 stores.
REORGANIZATION
On November 3, 1995 (the _Petition Date_), the Company and 65 of
its subsidiaries (the _Debtors_) filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court (the _Court_) in Wilmington, Delaware.
The Debtors' Amended Joint Plan of Reorganization (the _Plan_)
was confirmed by the Court on September 9, 1997. The Company
emerged from Chapter 11 on September 26, 1997 (for financial
reporting purposes, the effective _Emergence Date_ is October 4,
1997). During the period from November 3, 1995 through September
26, 1997 the Company operated as debtor-in-possession.
The Plan provided for general unsecured creditors to receive: (i)
$99 million ($96.9 million distributed to creditors and $2.1
million distributed to the Limited Liability Companies
established pursuant to the Plan); (ii) ten year, 11% unsecured
notes in the principal amount of $120 million (with approximately
the first three years of interest pre-funded and no scheduled
principal payments until maturity in 2007) (_Senior Notes_);
(iii) 10,000,000 shares of new common stock of the Company (_New
Common Stock_)(less the shares to be issued to holders of equity
interests who exercised certain Rights granted to them pursuant
to the Plan, with the proceeds of such Rights Offering being
added to the cash to be distributed to creditors); (iv) title to
the Company's headquarters building in downtown St. Louis , ; and
(v) $51.2 million, from the Company's pension plan less any
taxes and expenses attributable to the termination of the pension
plan
All of the Company's shares of common stock existing at the
Emergence Date were cancelled. The Plan provided for holders of
equity interests in the Company existing as of Emergence Date to
receive eight-year warrants to purchase a total of approximately
nine percent of the New Common Stock.
The Company also terminated the Company's pension plan as of May
31, 1997 and established a replacement plan effective January 1,
1998.
Description of Business
Apparel Segment
The Company's menswear chains include J. Riggings, JW
Group(including JW, Oaktree and Coda), REPP Ltd Big & Tall, and
Phoenix catalog operations. The womenswear chain is 5-7-9.
Shifty's is an experimental concept that provides apparel for
both men and women.
J. Riggings is a men's specialty store that sells updated
traditional and dressy clothes to a youthful, value-oriented
customer. In 1997, J. Riggings had an average store size of
2,666 square feet. J. Riggings operated 312 and 333 stores at
January 31, 1998 and February 1, 1997, respectively.
JW/Jeans West (JW) markets casual fashions, predominantly denim
clothing and accessories, to young men between the ages of 13 and
20. In 1997, JW had an average store size of 1,691 square feet.
JW operated 297 and 341 stores at January 31, 1998 and February
1, 1997, respectively.
Oaktree offers a mix of European influenced dress and casual
clothing for men ages 19 to 28. In 1997, Oaktree had an average
store size of 2,437 square feet. Oaktree operated 66 and 76
stores at January 31, 1998 and February 1, 1997, respectively.<PAGE>
Coda markets the latest in men's casual fashion, including jeans,
knit casual wear and athletic wear. The chain targets the urban
youth market - 17 to 25 year old men who are brand conscious and
fashion forward. In 1997 Coda had an average store size of 3,000
square feet. Coda operated 29 and 33 stores at January 31, 1998
and February 1, 1997, respectively.
REPP Ltd Big & Tall (REPP) is a chain offering high quality,
fashionable casual and dress men's clothing in both branded and
private label. REPP focuses on the tall man of at least 6'3" and
the big man having a 40" or larger waist. In 1997, REPP had an
average store size of 3,949 square feet. REPP operated 176 and
189 stores at January 31, 1998 and February 1, 1997,
respectively.
REPP By Mail is a catalog operation that markets fashionable
casual and dress men's clothing and a large assortment of
accessories (including footwear) in primarily branded labels.
The catalog operation focuses on the tall man of at least 6'3"
and the big man of a 40" waist or larger providing a wide variety
of sizes, styles, and accessories.
5-7-9 primarily markets sportswear, dresses and accessories to
junior high and high school girls who want to purchase trendy
fashions at moderate prices in sizes 0 through 9. The core
customer is conscious of looking current without being too
extreme or mature. In 1997, 5-7-9 had an average store size of
1,824 square feet. 5-7-9 operated 260 and 274 stores at
January 31, 1998 and February 1, 1997, respectively.
Shifty's caters to both male and female teenagers who want to set
trends with fashionable and branded clothing. In 1997, Shifty's
had an average store size of 2,506 square feet. Shifty's operated
16 and 4 stores at January 31, 1998 and February 1, 1997,
respectively. The Company announced in January 1998 that the
Shifty's concept will be phased out during 1998.
Footwear Segment
The Company's footwear chains include Bakers/Leeds, Precis, and
Wild Pair.
Bakers/Leeds targets young women, predominantly ages 12 to 24,
who want fashionable footwear and accessories at prices between
the discounters and the department stores. In 1997, Bakers/Leeds
had an average store size of 2,694 square feet. Bakers/Leeds
operated 289 and 309 stores at January 31, 1998 and February 1,
1997, respectively.
Precis targets contemporary women looking for stylish, quality,
upscale footwear and accessories. In 1997, Precis had an average
store size of 1,814 square feet. Precis operated 4 and 17 stores
at January 31, 1998 and February 1, 1997, respectively.
Wild Pair targets young men and women who are looking for
alternative fashion in footwear. In 1997, Wild Pair had an
average store size of 1,745 square feet. Wild Pair operated 156
and 164 stores at January 31, 1998 and February 1, 1997,
respectively.
Operations, Inventory and Distribution
The specialty retailing business is subject to fluctuations
resulting from changes in customer preferences dictated by
fashion and season. This is especially true for stores
emphasizing fashion over classic basics. In addition,
merchandise usually must be ordered significantly in advance of
the selling season and sometimes before fashion trends are
evidenced by customer purchases. It has been the general
practice of the Company and other apparel retailers to build up
inventory levels prior to peak-selling seasons, which further
increases the vulnerability of the Company to changes in demand,
pricing shifts and to errors in selection and timing of
merchandise purchases.
Substantially all of the Company's merchandise information,
accounting, and financial control systems are operated centrally
from the Company's headquarters in St. Louis, Missouri. Daily
polling of activity from the point-of-sale registers in each
store provides current data for updated sales, merchandise, and
bank activity reporting. Integration of this data with the
Company's merchandise system enables each chain's team of
merchandise planners and distributors to monitor performance and
replenish and control inventory.
The Company must carry large amounts of inventory to meet the
needs of its stores. The Company operates three distribution
centers located in Washington, Missouri; Rialto, California; and
Princeton, Indiana. The centers are receiving points for
merchandise from foreign and domestic suppliers and coordinate
distribution of individual shipments via contract and common
carriers.
Purchasing
The Company purchases approximately 70% of its merchandise from
foreign suppliers and the balance from domestic sources. The
Company has no long-term purchase commitments with any of its
suppliers and is not dependent on any one supplier. The
Company's importing operations are subject to the contingencies
generally associated with foreign operations, including
fluctuations in currency values, customs duty increases, quota
limitations and any other foreign development that could cause a
supply disruption. The Company has international buying offices
in Taiwan, Hong Kong, China, Indonesia, Korea, Honduras, and the
Philippines.
The Company does not manufacture any merchandise, but it markets
most of its merchandise under private labels. Each chain of
stores maintains a staff of buyers who make buying decisions for
each chain.
Competition<PAGE>
Apparel and footwear retailing industries are highly competitive.
The Company's stores are in competition with numerous other
independent retailers, department stores, mail-order companies
and discount and manufacturer's outlets, many of which have
greater sales, assets and financial resources than the Company.
Because the Company's stores are primarily in regional shopping
malls, each faces several nearby competitors. In competing for
customers, the Company emphasizes the fashion orientation of its
merchandise, customer service, store appearance and price.
Employees
At January 31, 1997,the Company employed 14,639 persons, with13,
375 of them engaged in retail operations at the store level
(approximately 29% full-time and 71% part-time). A substantial
number of the employees are hired temporarily during peak selling
seasons. The Company believes its employee benefits package is
competitive with those offered in the industry. The Company's
employees are non-union and the Company believes that its
employee relations are good.
Seasonal Business
The Company experiences a significant increase in sales during
the Christmas selling season (Thanksgiving through Christmas).
Sales during that season accounted for 13.8% of total sales for
the 17 weeks ended January 31, 1998 and the 35 weeks ended
October 4, 1997 combined and the year ended February 1, 1997.
The percentage of sales in each year was the same, although the
1997 Christmas season had one more shopping day than the 1996
season. The Company's inventory is significantly increased prior
to this peak selling period.
Trademarks
The Company holds a number of trademarks covering its products.
The Company believes that the loss of any of these trademarks
would not have a material effect on the Company's business.
Item 2. PROPERTIES
The Company's stores are located nationwide, and most are leased
with initial terms of generally from five to ten years. The
rentals under most leases are based upon a guaranteed minimum and
a percentage of sales to the extent sales exceed a threshold
amount. Many of the leases provide for additional payments for
real estate taxes and other items. The stores generally range in
size from 1,300 to 4,000 square feet.
The Company leases its headquarters (approximately 260,000
square feet) in St. Louis, Missouri, which is the home office for
all divisions. The Rialto, California and Princeton, Indiana
distribution centers are owned by the Company. The distribution
center in Washington, Missouri is operated under a long-term
capital lease arrangement. The Rialto and Washington centers
service primarily the apparel segment while Princeton services
primarily the footwear segment.
Item 3. LEGAL PROCEEDINGS<PAGE>
The Company emerged from Chapter 11 on September 26, 1997.
Additional information related to the confirmation of the Plan
and the reorganization are set forth under Part 1, Item 1 of this
Form 10-K and under the captions _Note 3: Reorganization_ to the
Consolidated Financial Statements, and _Management's Discussion
and Analysis_ in the 1997 Annual Report. Such information is
incorporated herein by reference.
The Company is not a party to any other material pending legal
proceedings.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter.
<TABLE>
Item 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the
executive officers of the Company:
<CAPTION>
Position in the Company (1)
Name Age Title Term
<S> <C> <C> <C>
Timothy W. Brannon44 Senior Vice President, Stores Since
March 1998
Director of Stores, REPP Ltd. 1997-1998
Mark H. Brown 40 Senior Vice President, Real
Estate and Construction Since April
1998
Executive Vice President, Real
Estate and Construction 1997-1998
Vice President and
Director of Real Estate 1995-1997
Vice President and Director
of Real Estate-Northeast 1992-1995
John F. Burtelow 50 Executive Vice President,
Chief Administrative Officer,
and Chief Financial Officer Since
February 1998
Paul D. Eisen 43 President of JW/Coda Since 1995
President of Oaktree Since 1994
President and General Merchandise
Manager of JW 1989-1994
Michael J. Fine 46 President of Edison Footwear
Group
Since 1996
President of 5-7-9 1994-1997<PAGE>
Lawrence E. Honig 50 Chairman, President and Chief
Executive Officer Since
January 1998
Director Since September
1997
Lee Johnson 40 Senior Vice President,
Human Resources Since April 1998
Director of Stores,
JW/Coda/Oaktree 1997-1998
General Sales Manager,
JW/Coda/Oaktree 1991-1997
Karl W. Michner 50 Chairman, Merchandising Committee Since
1998
President of J. Riggings 1997-1998
Director 1989-1997
President of Edison Menswear Group 1987-1997
John Oehler 39 President of J. Riggings Since
March 1998
General Merchandise Manager
of REPP Ltd. 1996-1998
Kimberly K.
Richmond 43 Senior Vice President,
Marketing Since
March 1998
Alan A. Sachs 51 Senior Vice President,
General Counsel and Secretary Since
April 1998
Executive Vice President,
General Counsel and Secretary 1992-
1998
Director 1990-1997
Steven R. Thomas 43 President, Edison Big & Tall Since
1997
President, REPP Ltd. 1996-1997
General Manager,
Zeidler & Zeidler 1995-1996
Carol L. Williams 49 President of 5-7-9 Since 1997
<fn1>
Experience during the last five years with other companies is as
follows:
Timothy W. Brannon was Divisional Vice President- Assistant
Director of Stores for Petrie Retail, Inc. from 1993 to 1997.
John F. Burtelow was Executive Vice President and Chief Financial
Officer of Ames Department Stores, Inc. from 1994 to 1998 and
Senior Vice President and Chief Financial Officer of Venture
Stores Inc. from 1989 to 1994.
Michael J. Fine was a Buyer for the Payless Shoe division of The
May Department Stores Company from 1992 to 1994.<PAGE>
Lawrence E. Honig was Executive Vice President of Alliant
Foodservice, Inc. from 1997 to January, 1998. From 1994 to 1997
he was President and Chief Executive Officer of Federated Systems
Group, Inc., a subsidiary of Federated Department Stores. Prior
to his employment with Federated, Mr. Honig was a Vice Chairman
and a director of The May Department Stores Company.
John Oehler was a Merchandise Manager for Structure, a division
of The Limited Inc., from 1992 to 1996.
Kimberly K. Richmond was Director of Brand Management from 1995-
1998 and Marketing Manager from 1991-1995 for Alliant
Foodservice, Inc.
Steven R. Thomas was a Merchandise Manager for Bachrach Menswear
from 1992 to 1994.
Carol L. Williams was Executive Vice President and General
Merchandise Manager of The Limited Stores division of The Limited
Inc. from 1993 to 1996.
Additional required information concerning the named individuals
is as follows:
Messers. Eisen, Fine, Michner and Sachs were serving as executive
officers of the Company in November, 1995 when the Company filed
a voluntary petition for the reorganization under Chapter 11 of
the U.S. Bankruptcy Code.
</fn1>
</TABLE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Information required by Item 5 is contained in "Note13 Common
Stock" and _Note12: Financing Arrangements_ to the Consolidated
Financial Statements and under the caption "Quarterly
Information" in the 1997 Annual Report. Such information is
incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Information required by Item 6 is contained under the caption
"Five Year Financial Summary" in the 1997 Annual Report. Such
information is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by Item 7 is presented under the captions
"Dear Shareholders and Fellow Employees" and "Management's
Discussion and Analysis" in the 1997 Annual Report. Such
information is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA<PAGE>
Information required by Item 8, as listed below, is included in
the 1997 Annual Report. Such information is incorporated herein
by reference.
Consolidated Statements of Operations for the 17 weeks ended
January 31, 1998, the 35 weeks ended October 4, 1997, and for the
years ended February 1, 1997 and February 3, 1996.
Consolidated Balance Sheets at January 31, 1998 and February 1,
1997.
Consolidated Statements of Cash Flows for the 17 weeks ended
January 31, 1998, the 35 weeks ended October 4, 1997, and for the
years ended February 1, 1997 and February 3, 1996.
Consolidated Statements of Common Stockholders' Equity (Deficit)
for the17 weeks ended January 31, 1998, the 35 weeks ended
October 4, 1997, and for the years ended February 1, 1997 and
February 3, 1996.
Notes to Consolidated Financial Statements
Quarterly Information
Five Year Financial Summary
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported in Form 8-K Current Report dated January 14,
1998.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding nominees for director as set forth under
the caption _Election of Directors_ in the proxy statement for
the 1998 annual stockholders' meeting is incorporated by
reference.
Information regarding executive officers is included as Item 4a
hereof.
Information regarding the filing of reports required by Section
16(a) of the Securities Exchange Act as set forth under the
caption _Section 16(a) Beneficial Ownership Reporting
Compliance_ in the proxy statement for the 1998 annual
stockholders' meeting is incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation, except for the
sections titled _Report on Executive Compensation_ and _Stock
Price Performance,_ as set forth under the caption _Executive
Compensation_ and information regarding compensation of directors<PAGE>
under the caption _Additional Information Concerning the Board of
Directors_ in the proxy statement for the 1998 annual
stockholders meeting is incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial
owners and management as set forth under the
captions _Security Ownership of Management_ and _Security
Ownership of Certain Beneficial Owners_ in the proxy statement
for 1998 annual stockholders meeting is incorporated by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions or other matters to be reported under
this item.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is
submitted as a separate section of this report.
(a) (3) Listing of exhibits:
<TABLE>
<CAPTION>
Exhibit No. Page No.
<S> <C> <C>
2 Debtors' Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code, dated June 30, 1997,
as modified, was filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997 and is incorporated herein by
reference.
3.1 Amended and Restated Certificate of Incorporation of
the Company, was filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997, and is incorporated herein by
reference.
3.2 Amended and Restated Bylaws of the Company were filed
as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended November 1, 1997, and are
incorporated herein by reference.
4.1 Loan and Security Agreement, dated as of September 26,
1997, by and among the Company, Edison Brothers Apparel
Stores, Inc. and Edison Puerto Rico Stores, Inc., as
Borrowers, the Guarantors named therein, the financial
institutions named therein as Lenders, Congress<PAGE>
Financial Corporation, as Agent, and The
CITGroup/Business Credit, Inc., as Co-Agent, was filed
as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended November 1, 1997, and is
incorporated herein by reference.
4.2 Amendment No. 1 to Loan and Security Agreement, dated 17
as of April 13, 1998, by and among the Company, Edison
Brothers Apparel Stores, Inc. and Edison Puerto Rico
Stores, Inc., as Borrowers, the Guarantors named
therein, the financial institutions named therein as
Lenders, Congress Financial Corporation, as Agent, and
The CITGroup/Business Credit, Inc., as Co-Agent.
4.3 Indenture, dated as of September 26, 1997, between the
Company and The Bank of New York, as Trustee, was filed
as an Exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended November 1, 1997 and is
incorporated herein by reference.
4.4 First Supplemental Trust Indenture, dated as of
September 26, 1997, between the Company and The Bank of
New York, as Trustee, was filed as an Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 1, 1997 and is incorporated herein by
reference.
4.5 Funding Escrow Agreement, dated as of September 26,
1997, among the Company, Edison Brothers Apparel
Stores, Inc. and Mercantile Trust Company, N. A., as
Escrow Agent, was filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997 and is incorporated herein by
reference.
4.6 Registration Rights Agreement, dated as of September
26, 1997, between the Company and Swiss Bank
Corporation was filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997 and is incorporated herein by
reference.
4.7 Warrant Agreement, dated as of September 26, 1997
between the Company and ChaseMellon Shareholder
Services, L.L.C., as Warrant Agent, was filed as an
Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 1, 1997 and is
incorporated herein by reference.
10.1 Form of Indemnification Agreement between the Company
and each of its Directors was filed as an Exhibit to
the Company's Quarterly Report on Form 10-Q for the
quarter ended November 1, 1997, and is incorporated
herein by reference.
10.2 Edison Brothers Stores, Inc. 1997 Stock Option Plan was
filed as an Exhibit to the Company's Quarterly Report
on Form 10-Q for the quarter ended November 1, 1997,
and is incorporated herein by reference.<PAGE>
10.3 Edison Brothers Stores, Inc. 1997 Directors Stock 21
Option Plan, as amended April 15, 1998.
10.4 Form of Restricted Stock Agreement, entered into by the
Company on June 4, 1997 with certain executive officers
of the Company was filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997, and is incorporated herein by
reference.
10.5 Employment Termination Agreement, dated September 4,
1997, between the Company and Alan D. Miller, former
Chairman of the Board, President and Chief Executive
Officer of the Company, was filed as and Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 1, 1997, and is incorporated herein by
reference.
10.6 Form of Employment Agreements entered into by the
Company on September 4, 1997 with certain executive
officers of the Company, and schedule of material
differences, were filed as Exhibits to the Company's
Quarterly Report on Form 10-Q for the quarter ended
November 1, 1997, and are incorporated herein by
reference.
10.7 Form of Employment Agreements entered into by the
Company on September 4, 1997 with certain other
executive officers of the Company, and schedule of
material differences, were filed as Exhibits to the
Company's Quarterly Report on Form 10-Q for the quarter
ended November 1, 1997, and are incorporated herein by
reference.
10.8 Employment Agreement entered into by the Company on 27
January 12, 1998 with Lawrence E. Honig, Chairman,
President and Chief Executive Officer of the Company.
11 Information that would be presented under _Computation
of Per Share Earnings_ is included in the 1997 Annual
Report and incorporated herein by reference.
13 1997 Annual Report to Stockholders 42
21 Subsidiaries 82
27 Financial Data Schedule 83
The Company filed a Form 8-K Current Report dated
January 14, 1998, with the Commission to report a
change in independent public accountant from Ernst &
Young LLP to Arthur Andersen LLP.
(b) Exhibits begin on page 17 of this Form 10-K.
(c) Financial statement schedules:<PAGE>
The response to this portion of Item 14 is submitted as
a separate section of this report.
</TABLE>
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.
EDISON BROTHERS STORES, INC.
(Registrant)
By /s/Lawrence E. Honig 5/1/98 By /s/John F. Burtelow 5/1/98
Chairman, President and Chief Executive Vice President, Chief
Executive Officer Administrative Officer and
Chief Financial Officer
By /s/Thomas K. McCain 5/1/98
Vice President, Controller
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
directors on behalf of the registrant on the dates indicated.
By /s/Lawrence E. Honig 5/1/98 By /s/Jacob W. Doft 5/1/98
By /s/Jeffrey A. Cole 5/1/98 By /s/H. Michael Hecht 5/1/98
By /s/Stephen E. Watson 5/1/98 By /s/Randolph I. Thornton,
Jr 5/1/98
ANNUAL REPORT ON FORM 10-K
ITEM 14(a) (1) and (2) and ITEM 14(d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
YEAR ENDED JANUARY 31, 1998
EDISON BROTHERS STORES, INC.<PAGE>
ST. LOUIS, MISSOURI
FORM 10-K - ITEM 14 (a) (1) and (2) and Item 14 (d)
EDISON BROTHERS STORES, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND SCHEDULES
The following consolidated financial statements of Edison
Brothers Stores, Inc. and subsidiaries, included in the 1997
annual report of the registrant to its stockholders, are
incorporated by reference in Item 8:
Consolidated Statements of Operations for the 17 weeks ended
January 31, 1998, the 35 weeks ended October 4, 1997, and for the
years ended February 1, 1997 and February 3, 1996.
Consolidated Balance Sheets at January 31, 1998 and February 1,
1997.
Consolidated Statements of Cash Flows for the 17 weeks ended
January 31, 1998, the 35 weeks ended October 4, 1997, and for the
year ended February 1, 1997 and February 3, 1996.
Consolidated Statements of Common Stockholders' Equity (Deficit)
for the17 weeks ended January 31, 1998, the 35 weeks ended
October 4, 1997, and for the year ended February 1, 1997 and
February 3, 1996.
Notes to Consolidated Financial Statements
The following consolidated financial statement schedule of Edison
Brothers Stores, Inc. and subsidiaries is included in item 14(d):
Information regarding item 14(d) is presented in _Note 5: Income
Taxes,_ to the 1997 Annual Report and is incorporated herein by
reference.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions, or are
inapplicable, and therefore have been omitted.
Individual financial statements of the registrant have been
omitted as the registrant is primarily an operating company and
all subsidiaries included in the consolidated financial
statements filed, in the aggregate, do not have minority equity
interests and/or indebtedness to any person other than the
registrant or its consolidated subsidiaries in amounts which
together (excepting indebtedness incurred in the ordinary course
of business which is not overdue and matures within one year from
the date of its creation, whether or not evidenced by securities,
and indebtedness of subsidiaries which is collateralized by the
registrant by guarantee, pledge, assignment, or otherwise) exceed<PAGE>
five percent of the total assets as shown by the most recent
year-end consolidated balance sheet.
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
April 13, 1998
Congress Financial Corporation, as Agent
and each of the financial institutions
from time to time parties to the Loan
Agreement referred to below
Ladies and Gentlemen:
Congress Financial Corporation in its capacity as agent
pursuant to the Loan Agreement (as hereinafter defined) acting
for and on behalf of the financial institutions which are parties
thereto as lenders (in such capacity, "Agent"), The CIT
Group/Business Credit, Inc. in its capacity as co-agent pursuant
to the Loan Agreement (as hereinafter defined) acting for and on
behalf of the financial institutions which are parties thereto as
lenders (in such capacity, "Co-Agent"), and the financial
institutions which are parties to the Loan Agreement as lenders
(collectively, "Lenders") have entered into financing
arrangements with Edison Brothers Stores, Inc., ("Edison"),
Edison Brothers Apparel Stores, Inc., ("Edison Apparel") and
Edison Puerto Rico Stores, Inc. ("Edison Puerto Rico", and
together with Edison and Edison Apparel, individually, a
"Borrower" and collectively, "Borrowers") and the other
signatories to the Loan Agreement as guarantors (individually, a
"Guarantor" and collectively, "Guarantors"), pursuant to which
Agent and Lenders may make loans and advances and provide other
financial accommodations to Borrowers as set forth in the Loan
and Security Agreement, dated as of September 26 , 1997, by and
among Agent, Co-Agent, Lenders, Guarantors and Borrowers (as the
same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan
Agreement") and other agreements, documents or instruments
referred to therein or at any time executed and/or delivered in
connection therewith or related thereto (all of the foregoing,
including the Loan Agreement, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, being collectively referred to herein as
the "Financing Agreements"). All capitalized terms used herein
shall have the meaning assigned thereto in the Loan Agreement,
unless otherwise defined herein.
Borrowers and Guarantors have requested certain amendments
to the Loan Agreement and Agent, Co-Agent and Lenders are willing
to agree to such amendments, subject to the terms and conditions<PAGE>
contained in this Amendment. By this Amendment, Agent, Co-Agent,
Lenders, Borrowers and Guarantors desire and intend to evidence
such amendments.
In consideration of the foregoing and the agreements and
covenants contained herein, the parties hereto agree as follows:
1. The definition of the term "Net Worth" in the Loan
Agreement is hereby amended by adding the following at the end
thereof:
"As to Edison and its Subsidiaries for purposes of
Section 9.14 hereof, any reductions, write-offs, amortizations or
adjustments of goodwill, including reorganization value in excess
of identifiable assets, by Edison and its Subsidiaries after
September 26, 1997 shall not be considered in determining net
income (loss) for purposes of the calculation of the Net Worth of
Edison and its Subsidiaries."
2. For the period commencing January 31, 1998 and ending
February 3, 2001, the reference to "$100,000,000" in Section 9.14
of the Loan Agreement is hereby deleted and replaced with the
following: "$70,000,000". Such amendment to Section 9.14 of the
Loan Agreement shall terminate and be of no further force and
effect on and after February 4, 2001.
3. In consideration of this Amendment, Borrower shall pay
Agent for the account of Lenders a facility amendment fee in an
amount equal to $100,000 payable simultaneously with the
execution hereof, which fee is fully earned as of the date
hereof. Such fee may, at the option of Agent, be charged
directly to any of Borrowers' revolving loan accounts maintained
by Agent for the account of Lenders under the Financing
Agreements.
4. Except as modified pursuant hereto, no other changes or
modifications to the Financing Agreements are intended or implied
and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties
hereto as of the effective date hereof. To the extent of
conflict between the terms of this Amendment and the Financing
Agreements, the terms of this Amendment shall control. The Loan
Agreement and this Amendment shall be read and construed as one
agreement.
5. The validity, interpretation and enforcement of this
Amendment and any dispute arising out of the relationship between
the parties hereto in connection with this Amendment, whether in
contract, tort, equity or otherwise, shall be governed by the
internal laws of the State of New York (without giving effect to
principles of conflicts of law).
6. This letter agreement shall be binding upon and inure to
the benefit of each of the parties hereto and their respective
successors and assigns.
7. This agreement may be executed in any number of
counterparts and by each of the parties hereto in separate<PAGE>
counterparts, each of which shall be an original, but all of
which shall together constitute one and the same agreement.
The parties hereto have caused this letter agreement to be
duly executed and delivered by their authorized officers as of
the day and year first above written.
Very truly yours,
EDISON BROTHERS STORES, INC.
By/s/Thomas K. McCain
Title: Vice President, Controller
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
EDISON BROTHERS APPAREL
STORES, INC.
By/s/Thomas K. McCain
Title: Vice President, Controller
EDISON PUERTO RICO STORES, INC.
By/s/Thomas K. McCain
Title: Vice President, Controller
ACKNOWLEDGED AND AGREED:
CONGRESS FINANCIAL
CORPORATION, as Agent and Lender
By/s/Lawrence S. Forte
Title: First Vice President
THE CIT GROUP/BUSINESS
CREDIT, INC., as Co-Agent and Lender
By/s/Edward Hurtfield
Title: Assistant Vice President
EDISON PAYMASTER, INC.
EDBRO MISSOURI REALTY, INC.
EDISON BROTHERS STORES INTERNATIONAL, INC.
TOFAC OF PUERTO RICO, INC.
By/s/Thomas K. McCain
Title: Vice President, Controller
[SIGNATURES CONTINUED ON FOLLOWING PAGE]<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
EDISON INDIANA, LLC
By: EDISON BROTHERS APPAREL
STORES, INC., its Manager
By/s/Thomas K. McCain
Title: Vice President, Controller
EDISON BROTHERS STORES, INC.
1997 DIRECTORS STOCK OPTION PLAN
1. Purpose of the Plan
The purpose of the Edison Brothers Stores, Inc.
1997 Directors Stock Option Plan is to encourage qualified
individuals to serve as directors of EBS and, by acquiring a
financial stake in the success of the Company, to have a greater
concern for the welfare of EBS and its stockholders.
2. Definitions
A. "Board" means the Board of Directors of EBS.
B. "Cause" means the willful commission by an
optionee of a criminal or other act that causes or will probably
cause substantial economic damage to EBS or substantial injury to
the business reputation of EBS. For purposes of this definition,
no act on the optionee's part shall be considered "willful"
unless done, or omitted to be done, by the optionee in bad faith
and without reasonable belief that the optionee's action was in
the best interests of EBS.
C. "Chapter 11 Case" means the case commenced by EBS
on November 3, 1995 under Chapter 11 of Title 11 of the United
States Code in the United States Bankruptcy Court in Delaware
(Case No. 95-1354 (PJW)).
D. "Committee" has the meaning set forth in Section 4
hereof.
E. "Common Stock" means shares of the common stock of
EBS, par value $.01 per share, authorized and issued pursuant to
the terms of a plan of reorganization of EBS under Chapter 11 of
Title 11 of the United States Code as confirmed by the Bankruptcy
Court in the Chapter 11 Case.<PAGE>
F. "Director" means a member of the Board who is not
an employee of EBS or any of its Subsidiaries.
G. "Disability" means the inability of an optionee to
perform the duties of a Director by reason of a medically
determined physical or mental impairment which has existed for a
continuous period of at least 26 weeks.
H. "EBS" means Edison Brothers Stores, Inc., a
Delaware corporation.
I. "Effective Date" shall have the meaning ascribed
to that term in the Debtors' Amended Joint Plan of
Reorganization, dated May 21, 1997, as such plan may be amended
or modified, or in such alternative plan of reorganization as is
ultimately confirmed by the Bankruptcy Court.
J. "Fair Market Value," when used with reference to a
share of Common Stock as of a particular date, means the average
of the highest and lowest selling prices of a share of Common
Stock as reported for that date (or, if no prices are quoted for
that date, for the last preceding date for which such prices are
quoted) on the New York Stock Exchange, or, if the Common Stock
is not then listed on the New York Stock Exchange, on such other
national securities exchange on which the Common Stock is listed
or, if not so listed, then on the Nasdaq National Market. If, as
of a particular date, the Common Stock is not listed or quoted on
any national securities exchange or on the Nasdaq National
Market, then the Fair Market Value of a share of Common Stock as
of such date shall be determined according to such criteria as
the Committee in good faith shall deem appropriate.
K. "Plan" means the Edison Brothers Stores, Inc. 1997
Directors Stock Option Plan.
L. "Subsidiary" means any corporation (other than
EBS) in an unbroken chain of corporations beginning with EBS if,
at the time of the granting of an option, each of the
corporations other than the last corporation in the unbroken
chain owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the
other corporations in such chain.
3. Stock Subject to the Plan
The total number of shares of Common Stock available for
grants of options under the Plan shall be 200,000. If any option
shall expire or terminate or be canceled for any reason without
having been exercised in full, the unpurchased shares subject
thereto shall again be available for the purposes of the Plan.
The shares of Common Stock subject to issuance upon exercise of
options under the Plan may be either authorized but unissued
shares or shares held in the treasury of EBS.
4. Administration
The Plan shall be administered by a committee appointed by
the Board (the "Committee") consisting of two or more members of
the Board each of whom is a "non-employee director" as such term<PAGE>
is defined in Rule 16b-3(b)(3) under the Securities Exchange Act
of 1934, as amended. Except as otherwise provided in the Plan,
the Committee shall have complete authority to interpret the
Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations
necessary or desirable for the administration of the Plan. The
decisions of the Committee with respect to the matters set forth
in this Section 4 shall be final and binding on all interested
parties.
5. Grants of Options
A. Options may be granted under this Plan only to
Directors.
B. Each person who is a Director at the close of
business on the Effective Date shall be automatically granted,
effective on such day, and without further action by the Board or
the Committee, an option to purchase 3,500 shares of Common Stock
at a price per share determined as of such date pursuant to
Section 6.
C. Each person who is first elected or appointed a
Director after the Effective Date, shall be automatically
granted, effective on the date of such election or appointment,
and without further action by the Board or the Committee, an
option to purchase 3,500 shares of Common Stock at a price per
share determined as of such date pursuant to Section 6.
D. Each Director who receives an option under
Section 5B or 5C hereof and who remains a Director effective at
the completion of an Annual Meeting of Stockholders commencing
with the Annual Meeting of Stockholders held in the calendar year
following the calendar year in which such Director received an
option under Section 5B or Section 5C shall be automatically
granted, effective on the day of completion of each such Annual
Meeting, and without further action by the Board or the
Committee, an option to purchase 5,000 shares of Common Stock,
such option to be exercisable at a price per share equal to the
Fair Market Value of a share of Common Stock as of such date.
E. In the event that the number of shares available
for grant under the Plan is insufficient to make all grants
hereby specified on the applicable date, then all Directors who
are entitled to a grant on such date shall share ratably in the
number of shares then available for grant under the Plan.
6. Option Price
The purchase price per share of Common Stock under each
option issued hereunder shall be the Fair Market Value of a share
of Common Stock at the time of the grant of the option.
7. Manner of Exercise and Payment
An option shall be exercised by delivery of a written notice
of exercise to EBS and payment of the full price of the shares
being purchased pursuant to the option. An optionee may exercise
an option with respect to less than the total number of shares<PAGE>
for which the option may then be exercised. The price of the
shares purchased pursuant to an option may be paid either (i) in
cash, (ii) by the tender to EBS of shares of Common Stock owned
by the optionee and registered in the name of the optionee having
an aggregate Fair Market Value on the date of exercise equal to
the price of the shares being purchased, (iii) by delivery of
irrevocable instructions to a financial institution to deliver
promptly to EBS sale or loan proceeds with respect to the shares
sufficient to pay the purchase price, (iv) through the written
election of the optionee to have shares of Common Stock withheld
by EBS from the shares otherwise to be received, with such
withheld shares having an aggregate Fair Market Value on the date
of exercise equal to the price of the shares being purchased, or
(v) by any combination of the payment methods specified in
clauses (i) through (iv) hereof. The proceeds received by EBS
from the sale of Common Stock subject to an option are to be
added to the general funds of EBS or to the Common Stock held in
its treasury, and used for its corporate purposes as the Board
shall determine.
8. Term and Exercise of Options
Each option granted hereunder shall expire ten years from
the date of granting thereof, subject to earlier termination as
provided in Section 9. Within such limit, each option shall
become exercisable for one-third of the shares covered thereby
after one year from the date of grant, shall become exercisable
for an additional one-third of the shares covered thereby after
two years from the date of grant, and shall become exercisable
for the remaining one-third of the shares covered thereby after
three years from the date of grant; provided, however, that no
option shall be exercisable within the first six months after the
date of grant (except in the event of the death of the optionee),
and provided further that, except as permitted by paragraph 9, no
option may be exercised at any time unless the optionee is then a
Director and has been a Director continuously since the granting
of the option.
9. Termination of Service
If a Director's service as a Director is terminated by
reason of (i) Disability, (ii) death, (iii) failure of the Board
to nominate such Director for re-election other than for Cause,
or (iv) his ineligibility for re-election pursuant to the By-laws
of EBS, if applicable, such termination shall be considered a
"Qualifying Termination." In the event of a Qualifying
Termination, the Director, his legal representative, or legatee,
as the case may be, may exercise any option held by such
Director, to the extent such option was exercisable as of the
date such Director ceased to be a Director, within one year after
his termination of service on the Board (but not after the date
of expiration of the option). If a Director's service is
terminated as a result of his determination not to stand for re-
election, such Director may exercise any option held by such
Director, to the extent such option was exercisable as of the
date such Director ceased to be a Director, within three months
after the termination of his service on the Board (but not after
the date of expiration of the option). If a Director's service
as a Director is terminated for any other reason, including for<PAGE>
Cause, such termination shall be considered a "Non-Qualifying
Termination." In the event of a Non-Qualifying Termination, all
outstanding unexercised options held by such Director shall
terminate as of the date of the Non-Qualifying Termination.
10. Nontransferability of Options
Each option granted under the Plan shall, by its terms, be
nontransferable otherwise than by will or the laws of descent and
distribution and an option may be exercised, during the lifetime
of an optionee, only by the optionee.
11. Amendment and Termination of the Plan
Subject to the provisions of Section 13E hereof, the Board
may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable.
12. Term of the Plan
This Plan shall take effect as of the Effective Date and
shall terminate ten years after such date. No option shall be
granted hereunder after the expiration of such ten-year period.
Options outstanding at the termination of the Plan shall continue
in full force and effect and shall not be affected thereby.
13. Miscellaneous
A. Service as Director. Nothing in this Plan shall be
construed as conferring any right upon any Director to continue
as a member of the Board.
B. Rights as Stockholder. An optionee shall have none
of the rights of a stockholder with respect to Common Stock
subject to an option, until such shares are issued to such
optionee upon exercise of the option.
C. Investment Purpose. Each option under the Plan
shall be granted only on the condition that all purchases of
stock thereunder shall be for investment purposes, and not with a
view to resale or distribution, except that the Committee may
make such provision in options granted under the Plan as it deems
necessary or advisable for the release of such condition upon the
registration with the Securities and Exchange Commission of stock
subject to the options, or upon the happening of any other
contingency warranting the release of such condition.
D. Adjustments Upon Changes in Capitalization. In the
event of changes in the outstanding Common Stock by reason of
stock dividends, recapitalizations, mergers, consolidations,
split-ups, spin-offs, combinations or exchanges of shares and the
like, the aggregate number and class of shares as to which
options may be granted under the Plan, and the number, class and
price of shares subject to outstanding options, shall be
appropriately adjusted by the Committee.
E. Adverse Effect on Optionee of Amendment or
Termination of Plan. No amendment or termination of the Plan
may, without the written consent of an optionee to whom any<PAGE>
option shall have been granted, adversely affect the rights of
such optionee under such option, which rights shall include all
rights of the optionee under the Plan as it existed as of the
date of grant of the option.
14. Tax Withholding
An optionee shall be required to pay to EBS at the time of
exercise of an option the amount that EBS deems necessary to
satisfy its withholding obligation with respect to federal, state
or local income or other taxes (which for purposes of this
paragraph 14 includes an optionee's FICA obligation) incurred by
reason of the exercise. Upon the exercise of an option requiring
tax withholding, an optionee may make a written election to have
shares of Common Stock withheld by EBS from the shares otherwise
to be received. The number of shares so withheld shall have an
aggregate Fair Market Value on the date of exercise sufficient to
satisfy the applicable withholding taxes.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made
and entered into as of January 12, 1998, by and between EDISON
BROTHERS STORES, INC., a Delaware corporation (the "Company"),
and Lawrence E. Honig (the "Executive").
WHEREAS, the Company believes that it would benefit
from the application of the Executive's skill, experience and
background to the management and operation of the Company, and
that the Executive will make major contributions to the short-
and long-term profitability, growth and financial strength of the
Company; and
WHEREAS, the Company desires to employ the Executive
and the Executive desires to be employed by the Company; and
WHEREAS, the Company and the Executive desire to set
forth in a written agreement the terms and conditions of the
Executive's employment with the Company;
NOW, THEREFORE, in consideration of the premises and of
the mutual covenants herein contained, it is agreed as follows:
1. Employment. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to be employed by
the Company upon the terms and conditions set forth herein.
2. Term. The Executive's employment shall be for a
term commencing on January 12, 1998 (the "Commencement Date")<PAGE>
and, subject to termination under Section 8, expiring on February
1, 2001 (the "Initial Termination Date").
3. Duties of the Executive. The Executive shall
serve as the Chief Executive Officer, President and Chairman of
the Board of the Company, and as such shall have primary
responsibility for the oversight, management and general
operation of all of the operations of the Company. The Executive
shall report solely to the Company's Board of Directors (the
"Board") and shall be assigned only those executive policy and
management duties that are consistent with the Executive's
position as Chief Executive Officer, President and Chairman of
the Board of the Company. The Executive shall devote
substantially all of his normal working time and his best
efforts, full attention and energies to the business of the
Company, the responsibilities provided for the Chief Executive
Officer, President and Chairman of the Board in the Company's
Bylaws, and such other related duties and responsibilities as may
from time to time be reasonably prescribed by the Board. The
Company shall use its best efforts to cause the Executive to be
elected as a member of its Board throughout the term of this
Agreement and shall include him in the management slate for
election as a director at every stockholders' meeting at which
his term as a director would otherwise expire.
4. Compensation.
(a) Base Salary. During the term of this Agreement,
the Company shall pay to the Executive a base salary of not less
than $700,000 per annum, which base salary may be increased (but
not decreased) from time to time by the Board in its sole
discretion, payable at the times and in the manner consistent
with the Company's general policies regarding compensation of
executive employees. Such base salary shall be reviewed by the
Board during fiscal 1999 following completion of the Board of
Director's review of the Company's financial performance for the
prior fiscal year, and annually thereafter at such time (each, an
"Annual Review") for the remainder of the term of this Agreement
for purposes of evaluating an increase in the Executive's base
salary in light of, among other things, the financial performance
of the Company, the Executive's individual performance, and
competitive market data. Such base salary shall include any
salary reduction contributions to (i) any Company-sponsored plan
that includes a cash-or-deferred arrangement under Section 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code"),
(ii) any other plan of deferred compensation sponsored by the
Company, or (iii) any Company-sponsored welfare plans and
programs. The Board may from time to time authorize such
additional compensation to the Executive, in cash or in property,
as the Board may determine in its sole discretion to be
appropriate.
(b) Cash Incentive Compensation. If the Board
authorizes cash incentive compensation under the Company's
executive incentive compensation plan or such other management
incentive program or arrangement approved by the Board, the
Executive shall be eligible to participate in such plan, program
or arrangement on the most favorable terms and conditions
available to senior executive and management employees; provided,<PAGE>
however, that the Executive shall have the opportunity to earn an
uncapped cash incentive bonus for fiscal 1998, which cash
incentive bonus shall be paid when incentive compensation is
customarily paid to the Company's senior executives. Pursuant to
the Company's applicable incentive or bonus plan as in effect
from time to time, the Executive's cash incentive compensation
for fiscal 1998 and succeeding fiscal years during the term of
this Agreement may be determined according to criteria intended
to qualify under Section 162(m) of the Code.
(c) Stock Options. The Executive shall be granted
three stock options (individually, "Option A," "Option B" and
"Option C") to purchase an aggregate of 400,000 shares of Common
Stock of the Company, par value $.01 per share ("Common Stock")
pursuant to the Company's 1997 Stock Option Plan (the "1997
Plan") or the 1998 Equity Incentive Plan (the "1998 Plan") to be
submitted to the Company's stockholders for approval, and related
rules (each of the 1997 Plan and the 1998 Plan, and applicable
rules and agreements pursuant to which such options shall be
granted being hereinafter referred to as the "Plan") in
accordance with, and subject to, the following:
(i) Option A. Option A shall constitute a non-qualified
stock option to purchase 100,000 shares of Common Stock, subject
to the terms and conditions hereof and of the 1997 Plan. The
exercise price of Option A shall be equal to the fair market
value (determined in accordance with the applicable provisions of
the 1997 Plan) of the Common Stock on the date of grant, which
date shall be the date of this Agreement. Such right shall vest
in increments of 1/3rd of the shares subject to Option A on each
anniversary of the date of grant, commencing January 12, 1999
(assuming the Executive continues to be employed through such
vesting dates). Subject to earlier termination in accordance
with the terms of the applicable Plan, Option A shall expire ten
years following the date of grant.
(ii) Option B. The terms and provisions of Option B shall
be identical to the terms and provisions of Option A in all
respects except that: (A) pursuant to Option B, the Executive
shall have the right to purchase 188,000 shares of Common Stock,
subject to the terms and conditions hereof and of the 1997 Plan,
and (B) Option B shall vest 100% on January 12, 2001, with
accelerated vesting for the following portions of Option B upon
the market price of the Common Stock reaching the applicable
target prices set forth in the table below.
100,000 $13.50
88,000 $18.00
The market price of the shares shall be deemed to reach the
foregoing target prices only when the closing price of Common
Stock on the NASDAQ System (as reported in the Wall Street
Journal) shall have reached the specified target price and
remained at or above such level for a minimum of 20 trading days
within any period of 30 consecutive trading days.
(iii) Option C. The terms and provisions of Option C
shall be identical to the terms and provisions of Option A in all
respects except that: (A) Option C shall be granted pursuant to<PAGE>
the 1998 Plan, (B) pursuant to Option C the Executive shall have
the right to purchase 112,000 shares of Common Stock, subject to
the terms and conditions hereof and of the 1998 Plan, and
(C) Option C shall vest 100% on January 12, 2001, with
accelerated vesting of 100% of the shares of Common Stock subject
to Option C upon the market price of the Common Stock reaching
$18.00 per share. The market price of the shares shall be deemed
to reach the foregoing price as determined under the terms of
Option B.
(d) Restricted Stock. The Executive shall, subject to
approval of the Company's stockholders of the 1998 Plan as herein
provided, be granted 50,000 shares of restricted stock pursuant
to the Plan and related rules (the "Restricted Stock"). The
Restricted Stock shall vest 50% on January 12, 1999, and 25% on
each of January 12, 2000 and January 12, 2001 (assuming the
Executive continues to be employed by the Company through such
vesting dates).
(e) Additional Options. On or before January 12, 2001
(assuming the Executive continues to be employed by the Company
through such date), the Company shall, subject to approval of the
Company's stockholders of the 1998 Plan as herein provided, grant
to the Executive a non-qualified stock option ("Option D") to
acquire 100,000 shares of Common Stock. In addition, on or
before January 12, 2003 (assuming the Executive continues to be
employed by the Company through such date), the Company shall,
subject to approval of the Company's stockholders of the 1998
Plan as herein provided, grant to the Executive a non-qualified
stock option ("Option E") to acquire 100,000 shares of Common
Stock. The terms and provisions of Options D and E shall be
identical to the terms and provisions of Option A except that (A)
the option exercise price therefor shall be equal to the fair
market value of the Common Stock on the date of grant of such
Options, and (B) such Options shall vest 1/3 on each anniversary
of the date of grant of such Options. Notwithstanding the
foregoing, if, during the term of this Agreement, a Change in
Control (as defined in the 1998 Plan) occurs (a "Triggering
Event"), the Company shall, subject to approval of the Company's
stockholders of the 1998 Plan as herein provided, (a) in the case
of a Triggering Event occurring prior to January 12, 2001, grant
to the Executive in lieu of Option D a non-qualified option to
purchase 100,000 shares of Common Stock ("Option F"), and (b) in
the case of a triggering event occurring prior to January 12,
2003, grant to the Executive, in lieu of Option E, a non-
qualified stock option to purchase 100,000 shares of Common Stock
("Option G"). The terms and provisions of Options F and G
(collectively, the "Triggering Event Options") shall be identical
to the terms and provisions of Option A except that (X) the date
of grant of the Triggering Event Options shall be the date of the
Change of Control, (Y) the option exercise price therefor shall
be equal to the fair market value of the Common Stock on the date
of grant of such Options, and (Z) such Options shall be fully
vested on the date of grant.
(f) Plan Approval Conditions. The Company and the
Executive acknowledge that, in order to implement the provisions
of Sections 4(c)(iii), (d) and (e), the 1998 Plan authorizing
Options C, D and E and any Triggering Event Options and the<PAGE>
Restricted Stock must be adopted and approved by the Company's
stockholders in accordance with Section 162(m) of the Code. The
Company will adopt the 1998 Plan, subject, however to receipt by
the Company of such stockholder approval. Accordingly, all of the
provisions of Sections 4(c)(iii), (d) and (e) shall be subject to
receipt by the Company of such stockholder approval, and in the
event such stockholder approval shall not have been obtained
within 12 months from the date hereof or the Executive's
employment shall have been terminated prior to receipt by the
Company of such approval, the Executive shall have no rights to
any such Options or Restricted Stock.
(g) Hiring Bonus. No later than three business days
following the execution and delivery of the Agreement by the
Company, the Company shall pay to the Executive $600,000 (less
applicable withholding pursuant to Section 18) by certified or
bank check as additional compensation to the Executive under this
Agreement (the "Hiring Bonus").
5. Executive Benefits.
(a) General. In addition to the compensation described in
Section 4, the Company shall make available to the Executive, on
the most favorable terms and conditions available to executive
and management employees of the Company and subject to the terms
and conditions of the applicable plans, including without
limitation the eligibility rules, (i) all Company-sponsored
employee benefit plans or arrangements and such other usual and
customary benefits now or hereafter generally available to
employees of the Company, and (ii) such benefits and perquisites
as may be made available to senior executives of the Company as a
group, including, without limitation, equity and cash incentive
programs, vacations, and retirement, deferred compensation and
welfare plans.
(b) Relocation.
(i) No later than April 12, 1998, the Executive shall
relocate to a residence within 25 miles of the Company's
principal executive offices, currently located in St. Louis,
Missouri.
(ii) The Company shall reimburse the Executive for the
reasonable and documented costs and expenses of moving the
Executive's principal household to St. Louis, Missouri and
temporary housing in the St. Louis, Missouri area for up to three
months from the Executive's first day of work pursuant to this
Agreement and shall also provide the Executive with a moving
allowance of $60,000.
(c) Attorneys' Fees. The Company shall pay or
reimburse the Executive for reasonable attorneys' fees and
disbursements incurred by the Executive in connection with the
negotiation and execution of this Agreement; provided, however,
that such fees and disbursements shall not exceed $10,000.
6. Expenses. The Company shall also pay or reimburse
the Executive for reasonable and necessary expenses incurred by
the Executive in connection with his duties on behalf of the<PAGE>
Company in accordance with the expense policy of the Company
applicable to members of senior management of the Company.
7. Place of Performance. In connection with his
employment by the Company, unless otherwise agreed by the
Executive, the Executive shall be based at the principal
executive offices of the Company, which as of the date of this
Agreement, are located in St. Louis, Missouri, except for travel
reasonably required for Company business. If the Company
relocates its principal executive offices, the Executive shall
relocate to a residence within 25 miles of such relocated
executive offices, subject, however, to reimbursement of the
Executive's relocation expenses on terms no less favorable than
those set forth in Section 5(b) of this Agreement.
8. Termination.
(a) Termination By the Company. The Executive's
employment hereunder may be terminated by the Company for any
reason by written notice as provided in Section 20. The
Executive's Disability (as defined herein) during the term of the
Agreement shall be deemed to constitute termination of employment
by the Company hereunder. In addition to the foregoing, the
Executive will be treated for purposes of this Agreement as
having been terminated by the Company if the Executive terminates
his employment with the Company under the following
circumstances: (i) the Company breaches any material provision
of Sections 4, 5 or 7 of this Agreement and within 30 calendar
days after notice thereof from the Executive, the Company fails
to cure such breach; or (ii) a material reduction in the
Executive's authority, functions, duties or responsibilities as
provided in Section 3 and within 30 calendar days after notice
thereof from the Executive, the Company fails to restore to the
Executive such authority, functions, duties or responsibilities.
(b) Termination By the Executive. The Executive may
voluntarily terminate his employment and this Agreement at any
time by notice to the Company as provided in Section 20. The
Executive's death during the term of this Agreement shall
constitute a voluntary termination of employment for purposes of
eligibility for termination payments and benefits as provided in
Section 9.
(c) Benefits Period. Subject to Section 9 and any
benefit continuation requirements of applicable laws, in the
event the Executive's employment hereunder is voluntarily or
involuntarily terminated for any reason whatsoever, the
compensation and benefits obligations of the Company under
Sections 4 and 5 shall cease as of the effective date of such
termination, except for any compensation and benefits earned or
accrued but unpaid through such date.
9. Termination Payments, Benefits and Obligations.
If the Executive's employment is terminated by the Company for
Cause (as defined below), or by the Executive during the term of
this Agreement for any reason other than those specified in
subsections (i) or (ii) of Section 8(a), death or Disability,
Executive shall repay to the Company the following portions of
the Hiring Bonus no later than ten (10 ) days following the<PAGE>
effective date of such termination: (i) if such termination
occurs on or before January 12, 1999, the entire Hiring Bonus,
(ii) if such termination occurs on or before January 12, 2000,
$400,000 of the Hiring Bonus, or (iii) if such termination occurs
on or before January 12, 2001, $200,000 of the Hiring Bonus.
After January 12, 2001 Executive shall be under no obligation to
repay to the Company any portion of the Hiring Bonus. If the
Executive's employment hereunder is terminated by the Company for
any reason other than for Cause (as defined herein) during the
term of this Agreement, the Company shall be obligated to pay to
the Executive the following termination payments and make
available the following benefits during the Payment Period (as
hereinafter defined):
(a) Salary Continuation. Payments of the Executive's
monthly base salary shall continue to be made for the greater of
the number of months (and fractions thereof) remaining in the
term of the Agreement or 12 months following the Executive's
termination of employment (the "Payment Period"). Subject to
Section 9(g), payments of base salary made pursuant to this
Section 9(a) shall be based upon the Executive's monthly base
salary at the highest rate in effect at any time between the
Commencement Date and the date of the Executive's termination
(the "Termination Payment").
(b) Bonus Entitlement. Subject to Section 9(g), the
Executive shall be entitled to such annual cash incentive
compensation, if any, to which he would otherwise have been
entitled had he continued his employment with the Company through
the end of the fiscal year in which termination occurs in
accordance with the then existing terms of such cash incentive
compensation (the "Termination Bonus"). The Termination Bonus
shall not be payable until the Company's independent auditors
shall have issued their audit report with respect to such fiscal
year, and the achievement of budgeted amounts and/or financial
targets has been established.
(c) Method of Payment. Termination Payments shall not
commence until such time as the Termination Payments will not be
subject to Section 162(m) of the Code, and shall be payable in
accordance with the Company's regular payroll schedule for the
duration of the Payment Period described in Section 9(a). If
the Executive should die while any amounts are still payable to
him hereunder, all such amounts, unless otherwise provided
herein, shall be paid to the Executive's estate, in the form of a
lump sum cash payment equal to the present value of remaining
Termination Payments (discounted at 8%) calculated on the basis
of the number of months (and fractions thereof) included in the
Payment Period.
(d) Welfare Benefits. (i) During the Payment Period, the
Company shall maintain in full force and effect for the
continued benefit of the Executive all employee welfare benefit
plans in which the Executive was entitled to participate
immediately prior to the Executive's termination or shall arrange
to make available to the Executive benefits substantially similar
to those which the Executive would otherwise have been entitled
to receive if his employment had not been terminated. Such
welfare benefits shall be provided to the Executive on the same
terms and conditions (including employee contributions toward the<PAGE>
premium payments) under which the Executive was entitled to
participate immediately prior to his termination. The Company
does not guarantee a favorable tax consequence to the Executive
for continued coverage and benefits under the Company-sponsored
plans nor will it indemnify the Executive for such results.
(ii) Notwithstanding the foregoing, with respect to the
Executive's continued coverage under the Company's medical and
dental plan, or a successor plan, pursuant to this provision, the
Executive's "qualifying event" for purposes of the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") shall be the
day immediately after the end of the Payment Period.
(iii) Any termination payments hereunder (including the
Termination Bonus) shall not be taken into account for purposes
of any retirement plan or other benefit plan sponsored by the
Company, except as otherwise expressly required by such plans or
applicable law. Notwithstanding anything to the contrary herein,
no termination of the Executive's employment with the Company
shall in any manner whatsoever result in any termination,
curtailment, reduction or cessation of any vested benefits or
other entitlements to which the Executive is entitled under the
terms of any benefit plan or program of the Company in respect of
which the Executive is a participant as of the effective date of
termination.
(e) Termination for Cause. For purposes of this Agreement,
"Cause" shall mean:
(i) the willful and continued failure by the Executive
substantially to perform his duties hereunder (other than any
such failure resulting from the Executive's Disability), which
failure is not or cannot be cured within 5 business days after
the Company has given written notice thereof to the Executive
specifying in detail the particulars of the acts or omissions
deemed to constitute such failure,
(ii) the engaging by the Executive in willful
misconduct which is materially injurious to the Company,
monetarily or otherwise,
(iii) the Executive's conviction of, or entry of a
plea of nolo contendre with respect to, any felony, or
(iv) the breach of any material provision of this
Agreement, including the confidentiality agreement set forth in
Section 11, if, within 30 days of such demand, the Executive
fails to cure such breach.
For purposes of this definition, no act, or failure to act, on
the Executive's part shall be considered "willful" unless done,
or omitted to be done, by the Executive in bad faith and without
reasonable belief that the Executive's action or omission was in
the best interests of the Company. The Executive shall not be
deemed to have been terminated for Cause unless and until the
Board finds that the Executive's termination for Cause is
justified and has given the Executive written notice of
termination, specifying in detail the particulars of the
Executive's conduct found by the Board to justify such
termination for Cause.<PAGE>
(f) Disability Defined. "Disability" shall mean the
Executive's inability to perform the duties of his position with
the Company by reason of a medically determined physical or
mental impairment which has existed for a continuous period of at
least 26 weeks and which, in the judgment of a physician who
certifies to such judgment, is expected to be of indefinite
duration or to result in imminent death.
(g) Effect of Long-Term Disability. If the Executive also
becomes entitled to receive benefits under an insured long-term
disability insurance plan ("LTD Plan") now or hereafter paid for
by the Company, then the Executive's termination benefits under
this Agreement (calculated on a monthly basis) shall be reduced
by the amount of the benefits paid under such LTD Plan. No such
reduction shall be made for benefits paid to the Executive under
a personal disability income plan or such other disability income
plan paid for by the Executive, whether or not the plan was
obtained through a group-sponsored or Company-related program.
(h) No Obligation to Mitigate. The Executive is under no
obligation to mitigate damages or the amount of any payment
provided for hereunder by seeking other employment or otherwise;
provided, however, that the Executive's coverage under the
Company's welfare benefit plans will terminate when the Executive
becomes covered under any employee benefit plan made available by
another employer and covering the same type of benefits. The
Executive shall notify the Company within ten (10) days after the
commencement of any such benefits.
(i) Forfeiture. Notwithstanding the foregoing, any right
of the Executive to receive termination payments and benefits
hereunder shall be forfeited to the extent of any amounts payable
after any breach of Section 11, 12 or 13 by the Executive.
10. Certain Tax Matters.
Notwithstanding any provision of this Agreement to the
contrary, if any amount or benefit to be paid or provided under
this Agreement would be an "Excess Parachute Payment," within the
meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor provision thereto, but for
the application of this sentence, then the payments and benefits
to be paid or provided under this Agreement shall be reduced to
the minimum extent necessary (but in no event to less than zero)
so that no portion of any such payment or benefit, as so reduced,
constitutes an Excess Parachute Payment. The determination of
whether any reduction in such payments or benefits to be provided
under this Agreement or otherwise is required pursuant to the
preceding sentence shall be made at the expense of the Company,
if requested by the Executive or the Company, by the Company's
independent accountants. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations
contained in this Section 10 shall not of itself limit or
otherwise affect any other rights of the Executive other than
pursuant to this Agreement. In the event that any payment or
benefit intended to be provided under this Agreement or otherwise
is required to be reduced pursuant to this Section 10, the
Executive shall be entitled to designate the payments and/or<PAGE>
benefits to be so reduced in order to give effect to this
Section 10. The Company shall provide the Executive with all
information reasonably requested by the Executive to permit the
Executive to make such designation. In the event that the
Executive fails to make such designation within 10 business days
of the effective date of the Executive's termination of
employment, the Company may effect such reduction in any manner
it deems appropriate.
11. Confidentiality Agreement.
(a) The Executive acknowledges that, in the course of
his employment by the Company, he will or may have access to and
become informed of confidential or proprietary information which
is a competitive asset of the Company ("Confidential
Information"), including, without limitation, (i) the terms of
any agreement between the Company and any employee, customer or
supplier, (ii) pricing strategy, (iii) merchandising and
marketing methods, (iv) product development ideas and strategies,
(v) personnel training and development programs, (vi) financial
results, (vii) strategic plans and demographic analyses, (viii)
proprietary computer and systems software, and (ix) any
non-public information concerning the Company, its employees,
suppliers or customers. The Executive agrees that he will keep
all Confidential Information in strict confidence during the term
of his employment by the Company and thereafter, and will never
directly or indirectly make known, divulge, reveal, furnish, make
available, or use any Confidential Information (except in the
course of his regular authorized duties on behalf of the
Company). The Executive agrees that the obligations of
confidentiality hereunder shall be in effect at all times during
the term of this Agreement and shall survive termination of his
employment at the Company regardless of any actual or alleged
breach by the Company of this Agreement, unless and until any
such Confidential Information shall have become, through no fault
of the Executive, generally known to the public or the Executive
is required by law to make disclosure (after giving the Company
notice and an opportunity to contest such requirement). The
Executive's obligations under this Section 11 are in addition to,
and not in limitation of or preemption of, all other obligations
of confidentiality which the Executive may have to the Company
under general legal or equitable principles.
(b) Except in the ordinary course of the Company's
business, the Executive may not make or cause to be made, any
copies, pictures, duplicates, facsimiles or other reproductions
or recordings or any abstracts or summaries including or
reflecting Confidential Information. All such documents and
other property furnished to the Executive by the Company or
otherwise acquired or developed by the Company shall at all times
be the property of the Company. Upon termination of the
Executive's employment with the Company, the Executive will
return to the Company any such documents or other property of the
Company which are in the possession, custody or control of the
Executive.
(c) Without the prior written consent of the Company
(which may be withheld for any reason or no reason), except in
the ordinary course of the Company's business, the Executive
shall not at any time following the date of this Agreement use<PAGE>
for the benefit or purposes of the Executive or for the benefit
or purposes of any other person, firm, partnership, association,
trust, venture, corporation or business organization, entity or
enterprise or disclose in any manner to any person, firm,
partnership, association, trust, venture, corporation or business
organization, entity or enterprise any Confidential Information.
12. Post-termination Assistance. The Executive agrees
that after his employment with the Company has terminated he will
provide, upon reasonable notice, such information and assistance
to the Company as may reasonably be requested by the Company in
connection with any litigation in which it or any of its
affiliates is or may become a party; provided, however, that the
Company shall reimburse the Executive for any related expenses,
including travel expenses.
13. Covenant Not to Compete.
(a) For the Applicable Period (as hereinafter
defined), if (x) the Executive has received or is receiving
benefits under Section 9, (y) the Executive terminates his
employment before the end of the term of this Agreement for any
reason other than those specified in subsections (i) or (ii) of
Section 8(a), or (z) the Company terminates the Executive's
employment for Cause (as defined in Section 9(e)), the Executive
shall not, directly or indirectly, individually or on behalf of
any other person or entity, (i) engage or be interested in
(whether as owner, stockholder, partner, lender, consultant,
employee, agent or otherwise) any business, activity or
enterprise which is then competitive with the business of any
division or operation of the Company or the Company's
subsidiaries (collectively, the "Company Group") in any region of
the United States in which such business is then being conducted,
it being understood that the Company Group currently is engaged
primarily in the business of operating retail specialty apparel
stores and specialty footwear stores, or (ii) hire or employ any
person who has been an employee, representative or agent of any
member of the Company Group at any time during the Executive's
employment or solicit, aid or induce such person to leave his or
her employment with any member of the Company Group to accept
employment with any other person or entity. The Executive's
ownership of less than 1% of any class of stock in a publicly-
traded corporation or his membership on any board of directors
that the Board has approved in writing shall not be deemed a
breach of this Section 13. The Executive shall not accept an
appointment to a board of directors for an organization outside
the Company Group that would be inconsistent with his performing
his obligations to the Company, and he shall obtain the consent
of the Board of any and all of his memberships on boards of
directors of any entity other than the Company. The "Applicable
Period" shall mean, (A) where the Executive has received or is
receiving benefits under Section 9, the period during which the
Executive is receiving such benefits, provided, however, that the
Executive may limit the Applicable Period under this clause (A)
to 12 months (or such greater period of time) from the effective
date of termination of the Executive's employment (the "Reduced
Period") by giving notice to the Company that he is electing to
forfeit and have the Company cease paying and providing all
amounts and benefits arising under Section 9 following expiration<PAGE>
of the Reduced Period; and (B) where the Executive terminates his
employment pursuant to clause (y) of this Section 13(a) or the
Company terminates the Executive's employment for Cause, the
greater of (Y) a period of 12 months from the effective date of
such termination or (Z) the remaining term of this Agreement.
(b) The Executive acknowledges and agrees that a
violation of Section 11 and the foregoing provisions of this
Section 13 (referred to collectively as the Confidentiality and
Noncompetition Agreement) would cause irreparable harm to the
Company, and that the Company's remedy at law for any such
violation would be inadequate. In recognition of the foregoing,
the Executive agrees that, in addition to any other relief
afforded by law or this Agreement, including damages sustained by
a breach of this Agreement and any forfeitures under Section 9,
and without the necessity or proof of actual damages, the Company
shall have the right to enforce this Agreement by specific
remedies, which shall include, among other things, temporary and
permanent injunctions, it being the understanding of the
undersigned parties hereto that damages, the forfeitures
described above and injunctions shall all be proper modes of
relief and are not to be considered as alternative remedies.
14. Prohibition on Certain Outside Compensation. The
Executive shall not, without the Company's prior written consent,
accept any compensation or gift from any person, firm or
corporation (other than the Company) where such compensation or
gift is, or may appear to be, in consideration of his acting in a
preferential manner in relation to the business of such person,
firm or corporation.
15. Arbitration. Any dispute between the parties
under this Agreement shall be resolved (except as provided below)
through arbitration by an arbitrator selected under the rules of
the American Arbitration Association (located in Chicago,
Illinois) and the arbitration shall be conducted in the city in
which the Company's principal executive offices are then located
under the rules of said Association. Each party shall each be
entitled to present evidence and arguments to the arbitrator.
The arbitrator shall have the right only to interpret and apply
the provisions of this Agreement and may not change any of its
provisions. The arbitrator shall permit reasonable pre-hearing
discovery of facts, to the extent necessary to establish a claim
or a defense to a claim, subject to supervision by the
arbitrator. The determination of the arbitrator shall be
conclusive and binding upon the parties and judgment upon the
same may be entered in any court having jurisdiction thereof.
The arbitrator shall give written notice to the parties stating
his or her determination, and shall furnish to each party a
signed copy of such determination. The expenses of arbitration
shall be borne equally by the Executive and the Company or as the
arbitrator shall otherwise determine. Notwithstanding the
foregoing, the Company shall not be required to seek or
participate in arbitration regarding any breach of the
Executive's Confidentiality and Noncompetition Agreement
contained in Sections 11 and 13, but may pursue its remedies for
such breach in a court of competent jurisdiction, including,
without limitation, in a court in the city in which the Company's
principal executive offices are then located. Any arbitration or<PAGE>
action pursuant to this Section 15 will be governed by and
construed in accordance with the substantive laws of the State of
Missouri, without giving effect to the principles of conflict of
laws of such State.
16. Key Man Insurance. The Company shall have the
right to secure, in its own name or otherwise, and at its own
expense, life, disability, accident or other insurance covering
the Executive and the Executive shall have no right, title or
interest to such insurance. The Executive shall assist the
Company in procuring such insurance by submitting to reasonable
examinations and signing such applications and other instruments
as may be required by the insurance carriers to which application
is made for any such insurance.
17. Agreement. This Agreement supersedes any and all
prior and/or contemporaneous agreements, either oral or in
writing, between the parties hereto, with respect to the subject
matter hereof. Each party to this Agreement acknowledges that no
representations, inducements, promises, or other agreements,
orally or otherwise, have been made by any party, or anyone
acting on behalf of any party, pertaining to the subject matter
hereof, which are not embodied herein, and that no prior and/or
contemporaneous agreement, statement or promise pertaining to the
subject matter hereof that is not contained in this Agreement
shall be valid or binding on either party.
18. Withholding of Taxes. The Company may withhold
from any amounts payable under this Agreement all federal, state,
city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling.
19. Successors and Binding Agreement.
(a) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the
business or assets of the Company, by agreement in form and
substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the
same extent the Company would be required to perform if no such
succession had taken place. This Agreement will be binding upon
and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business
or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such successor
shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or
delegable by the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and
legatees.
(c) This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other,
assign, transfer or delegate this Agreement or any rights or<PAGE>
obligations hereunder except as expressly provided in Sections
19(a) and 19(b). Without limiting the generality or effect of
the foregoing, the Executive's right to receive payments
hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise,
other than by a transfer by the Executive's will or by the laws
of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 19(c), the
Company shall have no liability to pay any amount so attempted to
be assigned, transferred or delegated.
20. Notices. For all purposes of this Agreement, all
communications, including without limitation notices, consents,
requests or approvals, required or permitted to be given
hereunder will be in writing and will be deemed to have been duly
given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or
three business days after having been sent by a nationally
recognized overnight courier service such as Federal Express,
UPS, or Purolator, addressed to the Company (to the attention of
the Secretary of the Company) at its principal executive offices
and to the Executive at his principal residence, or to such other
address as either party may have furnished to the other in
writing and in accordance herewith, except that notices of
changes of address shall be effective only upon receipt.
21. Governing Law. The validity, interpretation,
construction and performance of this Agreement will be governed
by and construed in accordance with the substantive laws of the
State of Missouri, without giving effect to the principles of
conflict of laws of such State.
22. Validity. If any provision of this Agreement or
the application of any provision hereof to any person or
circumstances is held invalid, unenforceable or otherwise
illegal, the remainder of this Agreement and the application of
such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable
or otherwise illegal will be reformed to the extent (and only to
the extent) necessary to make it enforceable, valid or legal.
23. Survival of Provisions. Notwithstanding any other
provision of this Agreement, the parties' respective rights and
obligations under Sections 9 through 26, inclusive, will survive
any termination or expiration of this Agreement or the
termination of the Executive's employment for any reason
whatsoever.
24. Miscellaneous. No provision of this Agreement may
be modified, waived or discharged unless such waiver,
modification or discharge is in writing and signed by the party
against whom such modification, waiver or discharge is sought to
be enforced. No waiver by either party hereto at any time of any
breach by the other party hereto or compliance with any condition
or provision of this Agreement to be performed by such other
party will be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. <PAGE>
Unless otherwise noted, references to "Sections" are to sections
of this Agreement. The captions used in this Agreement are
designed for convenient reference only and are not to be used for
the purpose of interpreting any provision of this Agreement.
25. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same agreement.
26. Results of Executive Services. To the extent
permitted by applicable law, the Company shall own, and the
Executive hereby expressly grants to the Company, exclusively and
in perpetuity, all rights in and to all results and proceeds of
the Executive's services in the normal course of his employment
to the extent that same are protectable under the laws of
intellectual property, including without limitation, all
suggestions, ideas, techniques, forms, pamphlets and other
contributions and materials originated or developed by the
Executive in the normal course of his employment, and in and to
all earnings derived by reason of the Executive's services in the
normal course of his employment. To the extent permitted by
applicable law, the Executive hereby waives any and all right,
title or interest he might otherwise have therein or thereto, or
in or to the results or proceeds derived by the Company or others
from the use of any thereof. Without limiting the generality of
the foregoing, as the Executive is to render his services
exclusively hereunder, it is expressly understood and agreed
that, to the extent permitted by applicable law, any and all
materials created by the Executive in the normal course of his
employment which are protectable under the law of intellectual
properties are created in the normal course of such employment,
and, accordingly, all of same are "works for hire" and the
Company shall be the author and owner thereof for all purposes,
including, without limitation, for purposes of copyright. To the
extent, under applicable law, such materials may not be
considered a work made for hire, the Executive hereby transfers
and conveys to the Company, to the maximum extent permitted by
applicable law, all of the Executive's right, title and interest
in all copyrightable matter created by the Executive during the
term hereof.
IN WITNESS WHEREOF, with the Company signatory listed
below having been duly authorized by the Company to enter into
this Agreement by the Company, the parties hereto have executed
this Agreement as of the day and year first written.
/s/Lawrence E. Honig
EDISON BROTHERS STORES, INC.
<PAGE>
/s/H. Michael Hecht
Director
/s/Alan A. Sachs
Executive Vice President, General
Counsel and Secretary
Edison Brothers Stores Inc. operates apparel and footwear stores
serving the young, young-minded and special-size markets with a
focused selection of quality private-label and name-brand
merchandise. With nearly 1,600 stores and 14,000 associates in
the United States, Canada, Puerto Rico and the Virgin Islands,
Edison is one of the largest specialty retailers in North
America.
1997 was a most difficult year for Edison. After filing for
bankruptcy Nov. 3, 1995, and spending 22 months under Chapter 11
protection, Edison emerged on Sept. 26, 1997. The company closed
140 stores in 1997, bringing the number of closed stores to more
than 1,000 since the bankruptcy filing. Sales continued to be
disappointing with store-for-store sales declining 2 percent. The
net loss for the year was $62.3 million.
Shoes
449 stores
Bakers *
Wild Pair
*Some stores operate under the LeedsR name.
Juniors
260 stores
5-7-9
Men's
880 stores
J. Riggings
JW
Coda
Oaktree
REPP Ltd.
Merchandise Mix
Shoes 31%
Juniors 14
Men's 55<PAGE>
<TABLE>
Operating Results
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $949,900,000 $1,090,400,000 $1,389,400,000
Net loss (62,300,000) (143,200,000) (222,000,000)
Number of stores year-end 1,605 1,743 2,077
Number of employees 14,600 17,700 24,600
<fn2>
A discussion of results is included in Management's Discussion
and Analysis in the back of this book.
1997 represents the combined results for the 17 weeks ended Jan.
31, 1998, and the 35 weeks ended Oct. 4, 1997.
</fn2>
</TABLE>
Dear Shareholders and Fellow Employees:
As our company enters its 76th year of serving customers, its
clear we've come to a crossroads. In this letter, I will describe
our chosen path and how we can measure our progress, financially
and otherwise.
We have a good foundation to build upon -- a salute to the
contributions of 50,000 associates who have worked for the
corporation since the first Chandlers shoe store opened in
Atlanta. Our chains have solid identities you can read about in
the following pages. We have mall locations among the best in the
industry. The company has a team of seasoned associates who can
contribute to the growth of this company. And, most important,
almost half a million customers are coming into our stores every
week -- I spend 15 to 20 hours a week meeting some of them in
locations across the country.
But we won't get anywhere without significant changes -- changes
in the way we do business and in the corporate culture. Right
now, our goal is progress, not perfection. We are starting to
make progress with a sense of urgency and deliberateness because
the past -- the recent past -- is grim. In combined 1997, Edison
lost $62.3 million, on a comparable-store sales decline of 2.0
percent, which accelerated to 2.5 percent in the fourth quarter.
Looking back, we see a company that put into place a service
superstructure designed to purchase or incubate and then fund
interesting retail concepts, each of which developed its own
specific support services. For a glorious few years, it worked.
But the complex lattice was too inflexible to respond to industry
changes such as shifting international sources of merchandise. It
was too flimsy to shore up crumbling chain performance. And it is
too costly.<PAGE>
To correct these problems, we've refocused Edison as a group of
retail chains similar enough to share support services. Yet each
has well-defined customer segments served by excellent
merchandising. To begin achieving this concept, we have three
objectives for 1998:
1. Improve the merchandise content in each chain. Our model for
future merchandising success in each business is three-pronged.
First, establish a sizable platform of fashion basics such as
khaki pants, T-shirts or branded sneakers. Currently a very small
part of our business, fashion basics should provide 15 percent to
25 percent of the volume. Second, layer on top a key-item
component -- possibly sweater vests, carpenter jeans or hooded
polar fleece jackets. Our goal is for key items to make up about
2 percent to 5 percent of our business. Third, provide more
interesting, imaginative merchandise to a broader range of
customers. This means better selection of colors and fabrics. We
cannot continue to pursue fringe ideas or cater to fringe
customers. Our stores are not yet destination stores, and we must
appeal to the large audience of mall traffic.
An important component we have put into place is the Edison
Merchandising Committee, chaired by Karl Michner, whose role is
to institutionalize the trend merchandising process. As further
help, we are deep in the process of reformulating the buyers'
roles, to ensure that these critical three dozen executives --
our path to the customer's soul -- have clear support for their
jobs and understand how best to achieve the sales, margin and
turnover objectives.
2. Build strong alliances with quality suppliers worldwide,
including key brands. Currently, Edison buys merchandise from
almost 600 sources in more than 75 countries. Our objective is to
have far fewer relationships and more domestic suppliers so that
we can focus on improved quality, shorter lead times and faster
reordering of quick-selling goods. We are working now to
determine the most appropriate avenues for our importing
activities, with the goal of improving our ability to count on a
timely flow of quality merchandise. Peter Hirschhorn and Alison
Talbot -- our only two senior executives based outside St. Louis
-- run our foreign offices.
Domestically, Edison needs to increase branded content by 10 to
20 percentage points. Our faster businesses -- especially 5-7-9,
Coda, JW and J. Riggings -- require quicker turnaround time for
fresh merchandise, and the brands are best at that. Our chains
will continue to develop deeper and more meaningful partnerships
with such companies as Levi's and Levi Dockers, Fubu, Steve
Madden Ltd., DKNY, Skechers, Mecca, Mia, Paris Blues, Mudd,
Enyce, Lugz and Pivot Rules.
3. Centralize, simplify and cut costs in half. Edison must
significantly sharpen the performance of its departments and cut
costs by about half. We are centralizing and simplifying our
support services. In stores, we have tapped Tim Brannon to
consolidate what were five separate store organizations into one.
Marketing -- previously confined to sales promotions -- has
similarly been consolidated under Kim Richmond. In our
administrative functions, we are fortunate to have attracted Jack<PAGE>
Burtelow as Chief Administrative Officer and Chief Financial
Officer. He has started to build a core financial team under the
leadership of Tom McCain; improve our information systems and
reports working with Larry Pyles; and speed our logistics
pipeline with the help of George Spreiser. Mark Brown leads our
efforts to secure great mall locations at attractive rents. Our
legal department is headed by Alan Sachs. Reporting to me are two
critical administrative functions: human resources under Lee
Johnson and planning and allocation under Denise Parker.
Further, to simplify the company and concentrate on fewer, bigger
items, we have closed or will exit several businesses including
Precis, Terrasystems, Shifty's and Oaktree.
As I write this in my 10th week of service, let me describe how I
see our company in a few years. I see a customer-driven,
merchandising intensive company. I see as close to a _virtual
company_ as possible, with strong merchants helping us compete
nimbly in a land of giants. I see a bias toward outsourcing, so
that we can be financially flexible. I see a fun place to work, a
cool place to shop, and fashion leadership in enough places with
enough frequency to keep us fun and cool. We will be a strong
factor in Internet marketing -- because 30 percent of our
customers use the Net more than five hours a week. We want some
of their time -- and money. Finally, I see a handsomely
profitable company experiencing solid comparable-store growth
consistently in the high single digits and earning an above-
average return on your investment. I say _finally_ because these
will be the natural results of our efforts; already, however,
what I have labeled final is top-of-mind in our offices and
stores every day.
The vision won't become a reality without the chain presidents --
Paul Eisen, Mike Fine, John Oehler, Steve Thomas and Carol
Williams. Through their partnership, leadership and friendship,
we will achieve our collective but very personal goal: creating
stores where our children and friends are eager to shop and that
competitors are eager to shop.
Sincerely,
/s/Lawrence E. Honig
Chairman and CEO
The lifeblood of Edison is its customers. How do we maintain
their loyalty?
Hear what they say,
watch what they do,
learn what they want,
and deliver fashion they make their own,
with service they can count on,
in stores they can make their favorites ...
5-7-9
Number of stores: 260
Number of field associates: 2,100
Walk into 5-7-9 to check out what's cool! The chain offers
midpriced trendy sportswear and dresses for girls 11 to 16 years<PAGE>
old. As size specialists, the chain is becoming a destination for
fashion looks. In 1997, it was successful in categories where it
had a strong position such as fashion denim. Similar stances are
being taken in basic items like tees and tanks, and going
forward, 5-7-9 plans to become the place to find the cool item it
wants to stand for in each category.
The 5-7-9 target customer looks to 5-7-9 for those fashion ideas.
She comes into the store with her friends while they're hanging
out at the mall. She values what her friends think but wants to
maintain her own identity and opinions. She wants to be cool.
_I love your store. ... It's always the first shop on my list,
and I only shop at malls that have a 5-7-9!_ -- Jackie, Ohio
Bakers
Number of stores: 291
Number of field associates: 3,200
Bakers offers moderately priced, updated casual sport and dress
footwear with work-to-weekend flexibility for adventuresome young
women. From Bakers_-label tailored shoes to No Parking athletic-
inspired styles, Bakers' target customer can find what she needs
to complete her shoe wardrobe. And, she'll find all these styles
and a selection of national brands in a new, sophisticated store
design that's just her speed with an open feel created by light
wood, matte metal fixtures and glass.
The Bakers target customer wants sensible fashion. She'll shop at
Bakers primarily during two phases of her life: as a high-school
and college student with a fast-paced lifestyle who likes
affordable hipness; and as a young woman with professional and
social fashion needs as she concentrates on her career, family or
both.
_I love your store! I love your shoes!_ -- Emily, Pennsylvania
Wild Pair
Number of stores: 155
Number of field associates: 1,390
Trend-setters check out Wild Pair for casual shoes. To attract
these fashion-forward customers, in 1997 Wild Pair introduced
three brands: Skechers, Robert Wayne and London Underground, each
supported by special marketing programs and in-store fixtures.
Customers can also find private-label merchandise with fresh
materials, new textures and exciting visual and sole treatments.
Attitude and a full-on approach to fashion make the Wild Pair
customer a more aggressive shopper. The chain's target customers,
women and men ages 17 to 25, could be single, independent club-
hoppers who always buy the latest trends or fashion leaders who
like brand names and are influenced by styles in music videos.
_Good service, GREAT shoes._ -- Kalilah, Florida
JW
Number of stores: 297
Number of field associates: 2,140
Image is everything for JW's target customer. JW attracts and
keeps him with the Results label, a chain exclusive. Going into<PAGE>
1998, a new palette of intense colors such as true red will
appeal to the customers' visual orientation. Treatments like
zipper tags, patches and logos pull together the denim pieces to
create the coordinated look the JW target customer prefers.
He wants his outfits to _hook up,_ where the pieces match each
other by fabric, color and detail treatment -- to the point of
coordinating his shoes with his casual outfit. He shops a lot,
likes music and always has plans for the weekend.
_The good music makes JW an enjoyable place to shop, and the
excellent threads don't hurt either._ -- Rory, Hawaii
Coda
Number of stores: 29
Number of field associates: 285
Coda's potential for growth is promising because through a
refocused merchandise mix it answers the urban-minded customer's
desire for top brands. Coda gives its customers labels like Fubu,
DKNY, Mecca, Enyce, Lugz, Kani and Pure Playaz.
Oaktree
Number of stores: 66
Number of field associates: 590
Fashion leaders have looked to Oaktree for contemporary,
European-inspired looks since the chain's debut in 1976. The
chain offers club and dress wear looks to customers who set the
trend rather than follow it. Oaktree is being phased out during
1998, and its stores are being converted to Coda.
J. Riggings
Number of stores: 312
Number of field associates: 2,580
J. Riggings meets its target customers' needs with updated,
traditional merchandise at a value price. The chain offers a
tightly edited selection of weekend casual, and sportswear and
jackets for dress and dressy casual. Quality standards have been
raised in all areas including construction, fabric weight and
stitching -- to the point that each item in each department must
earn J. Riggings' _Best Quality_ Stamp of Approval.
The fashion-forward young professional, on average 24 years old,
single, in his first job out of school and living in an
apartment, is J. Riggings' target customer. Working hard and
playing hard define his life. His active lifestyle means he's
athletic, social and fashion-aware. He's a shopper who
understands value and quality.
_I love the selection of sport, casual and businesswear._ --
Fernando, Minnesota
REPP
Number of stores: 176
Number of field associates: 1,000
REPP Ltd. operates on the philosophy that size shouldn't
compromise style for the big and tall man. REPP offers moderately<PAGE>
priced, traditional sportswear and dressy casual clothing with
the goal of becoming the top-of-mind resource for everything big
and tall men need to look and feel their best.
REPP meets its customers' lifestyle needs with resources such as
the _Big and Tall Man's Survival Guide,_ direct mail pieces and
personal phone calls. REPP features the REPP Classic label for
the mature customer who's concerned with comfort more than
fashion, Canyon Ridge_ for the weekend customer, REPP Ltd. label
for the business casual customer and Ferracci for the fashion
customer.
REPP's target customers are over 6 feet tall, have more than a
40-inch waist, or both. They are generally salaried, 30 or more
years old and most dress conservatively.
_I had no idea what I was doing. ... Your salesperson took charge
and fixed me up perfectly._ -- Tom, Florida
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in Millions)
On November 3, 1995, Edison Brothers Stores, Inc. (the Company)
and 65 of its subsidiaries filed petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. An Amended Joint
Plan of Reorganization (the Plan) was confirmed by the Bankruptcy
Court on September 9, 1997. The Company emerged from Chapter 11
on September 26, 1997. During the period from November 3, 1995,
through September 26, 1997, the Company conducted business as
debtor-in-possession. For financial reporting purposes, the
effective date of the Company's emergence from bankruptcy is
considered to be the close of business on October 4, 1997. For
further discussion of the reorganization and restructuring, see
Notes 3 and 4 to the consolidated financial statements.
BUSINESS
The Company owns and operates chains of specialty retailing
stores located in forty-seven states, the District of Columbia,
Puerto Rico, the Virgin Islands and Canada. The Company conducts
its principal operations 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 menswear stores, are almost exclusively mall-based
and generally range in size from 1,200 to 3,000 square feet.
Merchandise for all segments is acquired from many vendors and
the Company is not dependent on any one supplier. Three main
distribution centers serve as receiving points for merchandise
and coordinate the distribution of shipments to the stores via
common or contract carriers. In 1997, the Company closed its two
remaining mall-based entertainment centers and completed the
phase out of its Terrasystems concept. The Company announced in
January 1998 that the Shifty's chain will be phased out during
1998.
During 1997, the Company closed 200 apparel and footwear stores.
The Company has identified another group of approximately 44
stores that may be closed during 1998, and has recorded a charge<PAGE>
associated with these closings in the 1997 consolidated financial
statements.
At year-end 1997, the apparel segment operated 1,156 stores in
five chains. Four chains focus on menswear: JW Group (including
JW, Oaktree and Coda), J. Riggings, Repp Ltd. and Phoenix, the
Company's catalog operations. Each menswear chain targets a
specific age group of men, with a different product mix. The
womenswear chain, 5-7-9 Shops, primarily markets casual wear and
accessories to teens and preteens. The footwear segment operated
449 stores in two chains at January 31, 1998. The footwear
chains are Bakers/Leeds, which offers popular-priced women's
fashion shoes, and Wild Pair, which focuses on advanced shoe
fashion for young men and women.
The Company experiences peak selling periods, such as Easter
(early spring), back-to-school (July to August), and Christmas
(Thanksgiving to Christmas), with the Christmas selling season
accounting for a significant portion of the full year sales
(13.8% for Combined 1997).
RESULTS OF OPERATIONS
Net retail sales of $336.1 and $613.8 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997 (_Combined
1997_), respectively, were on a combined basis $140.5 or 12.9%
less than net retail sales for the 52 weeks ended February 1,
1997 (_1996_) due to the numerous store closings that occurred at
the end of 1996 and during 1997 as well as a 2% reduction in
same-store sales. During Combined 1997, the apparel segment
experienced a 2.8% decrease in same-store sales. The footwear
segment's same-store sales were flat for the year. Compared to
1996, the Company averaged approximately 127 or 7.0% fewer stores
in operation during Combined 1997. Net sales for 1996 decreased
by $299.0 or 21.5% from the 53 weeks ended February 3, 1996
(_1995_). Same-store sales declined 1.9% between 1996 and 1995.
Cost of goods sold, including occupancy and buying expenses, as a
percentage of sales were 73.0% for the 17 weeks ended January 31,
1998, 70.9% for the 35 weeks ended October 4, 1997, and 71.6% in
Combined 1997, compared with 72.6% and 74.0% in 1996 and 1995,
respectively. The improvement from 1996 to Combined 1997
primarily came from the reduction of occupancy expense due to the
closing of unprofitable stores and savings in occupancy
throughout 1997 due to rent renegotiations in 1996. The decrease
in cost of goods sold from 1995 to 1996 was due primarily to the
Company successfully renegotiating approximately 300 leases,
which reduced occupancy and buying costs as a percentage of sales
by 1.6%.
Store operating and administrative expenses were 24.5% and 28.4%
of sales for the 17 weeks ended January 31, 1998, and 35 weeks
ended October 4, 1997, respectively, and 27.0% of sales in
Combined 1997, compared to 25.3% in 1996 and 24.7% in 1995. The
increase in expense as a percentage of sales from 1996 to
Combined 1997 was attributable to the 12.9% decrease in sales
from 1996 to Combined 1997 and an increase in store payroll
expense. The increase in expense as a percentage of sales from<PAGE>
1995 to 1996 was attributable to the 21.5% decrease in sales
offset by a decrease in store operating expenses in 1996 as
underperforming stores were closed at the end of 1995 and
throughout 1996. Expenses as a percentage of sales in 1995 were
higher as a result of there being a partial year of results for
Dave & Buster's, which was spun-off in June 1995. Dave &
Buster's had significantly higher store expenses as a percentage
of sales compared to the Company's other operations.
Depreciation and amortization expense of $12.0 and $20.5 for the
17 weeks ended January 31, 1998, and 35 weeks ended October 4,
1997, respectively, was on a combined basis $8.7 million less
than 1996. Depreciation and amortization expense for Combined
1997 decreased due to store closing and the Combined 1997 and
1996 provisions made for asset impairments as required by SFAS
No. 121. This decrease was partially offset by depreciation on
the $41 in capital expenditures incurred in 1997 and amortization
of the reorganization value in excess identifiable assets and
favorable lease rights recorded in the Company's adoption of
Fresh Start Accounting. Depreciation and amortization expense
decreased $21.6 between 1995 and 1996 due to the closing of 419
stores in 1996.
Interest expense of $4.9 and $4.3 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997,
respectively, was on a combined basis $6.8 more than 1996, as
interest expense was not recognized on prepetition liabilities
prior to emergence. Interest expense would have been $9.1 higher
in 1995, if interest on prepetition obligations had been accrued.
Interest income earned on the Company's cash and investment
balances subsequent to the Chapter 11 filing of $5.9, $8.2 and
$0.9 for the 35 weeks ended October 4, 1997, and the fiscal years
1996 and 1995, respectively, was recorded as a credit to
restructuring and reorganization expenses in the consolidated
statements of operations.
Restructuring and reorganization expenses for the 35 weeks ended
October 4, 1997, totaled $44.7, including $5.4 for early lease
termination costs and write-offs of fixtures and equipment,
leasehold improvements and related intangible assets, $19.2 for
legal and consulting fees, $15.8 for severance and related
benefits, and $10.2 for various other bankruptcy and
reorganization related expenses, reduced by $5.9 of interest
income. Restructuring and reorganization expenses totaled $36.3
for 1996, including $13.7 for early lease termination costs and
write-offs of fixtures and equipment, leasehold improvements and
related intangible assets, $19.8 for legal and consulting fees,
and $11.0 for various other bankruptcy and reorganization related
expenses, reduced by $8.2 of interest income. Of the $248.1 in
restructuring and reorganization expense incurred since the
petition date, $126.3 were noncash charges. Total cash payments
of $19.1, $20.7 and $3.7 were made in 1997, 1996 and 1995,
respectively.
The Company recorded charges of $2.1 for the 17 weeks ended
January 31, 1998, $2.5 for the 35 weeks ended October 4, 1997,
and $74.0 for 1996, to recognize the impairment of certain
long-lived assets in accordance with SFAS 121. Furniture and
fixtures, goodwill and several corporate properties were written<PAGE>
down to their fair market value. See Note 7 to the consolidated
financial statements.
The efficient operation of the Company's business is dependent in
part on its computer software programs and operating systems
(collectively, _Programs and Systems_). These Programs and
Systems are used in several key areas of the Company's business,
including merchandise purchasing, inventory management, pricing,
sales, distribution and financial reporting, as well as in
various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential _Year
2000_ compliance problems. These actions are necessary to ensure
that the Programs and Systems will recognize and process the year
2000 and beyond. It is anticipated that modification or
replacement of most of the Company's Programs and Systems will be
necessary to make such Programs and Systems _Year 2000_
compliant. The Company is also communicating with suppliers,
financial institutions and others to coordinate year 2000
conversion.
Based on present information, the Company believes that it will
be able to achieve such _Year 2000_ compliance through a
combination of modification of some existing Programs and
Systems, and the replacement of other Programs and Systems with
new Programs and Systems that are already _Year 2000_ compliant.
However, no assurance can be given that these efforts will be
successful. The Company expects that the remediation expenses
and capitalized costs for the installation of new software
systems with achieving _Year 2000_ compliance will have a
material effect on its financial results in 1998 and 1999.
Remediation expenses for 1998 are estimated to be $9.5 and 1999
expenses are estimated to be $2.9. The Company estimates that
capitalized costs associated with the installation of new
software systems will be $8.0 in the aggregate for 1998 and 1999.
FINANCIAL CONDITION
Cash, cash equivalents and investments at year-end 1997 decreased
$145.9 from the prior year. This reduction was primarily due to
the cash payments made pursuant to the Plan. As part of the
Funding Escrow Agreement (see Note 12), the Company deposited
$17.6 in the escrow account and reclassified $10.4 of assets held
for sale to assets held for the escrow account. The balance of
the escrow account and the assets held for sale included in the
consolidated balance sheet as of January 31, 1998, was $21.5.
Merchandise inventories decreased by 20.3% between 1996 and 1997
due to the numerous store closings, tighter inventory controls in
JW and J. Riggings, and the liquidation of seasonal merchandise
in season by various chains.
The decrease in property and equipment, net is due to the
Company's transfer of title to the Corporate Headquarters
Building to the creditors, pursuant to the Plan, the recognition
of asset impairment losses in accordance with SFAS 121 and 202
fewer stores in operation. Intangible assets, net increased due
to impairments recorded in 1996, net of the impact of fresh start
adjustments. Additionally, the Company recorded $29.4 in<PAGE>
Reorganization Value in Excess of Identifiable Assets based on
Fresh Start Accounting upon emergence from bankruptcy. Capital
expenditures of $13.8 and $27.2 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997,
respectively, were on a combined basis $19.1 greater than 1996.
This increase was principally related to information systems
development projects.
CAPITAL RESOURCES AND LIQUIDITY
Upon emergence from Chapter 11, the Company entered into a Loan
Agreement (_Credit Facility_) under which the Company may borrow
up to $200 to fund ongoing working capital needs. The Credit
Facility has a sublimit of $150 for the issuance of letters of
credit. The Credit Facility is secured by liens on inventory and
other assets, and contains restrictive covenants including
limitations, among other things, on store closings, additional
liens and indebtedness, restrictions on dividend payments and
minimum net worth requirement. As of January 31, 1998, the
Company had $43.1 available for borrowing under the Credit
Facility, excluding excess letters of credit related to the
Company's previous credit facility of $40.3.
During April 1998, the Company finalized an amendment to its
Credit Facility to reduce the $100 minimum net worth requirement
(as defined) to $70 during the period January 31, 1998, to
February 3, 2003, which improved the Company's financial
flexibility. The Company expects that its cash and investments
and the Credit Facility will continue to provide it with
sufficient liquidity to conduct its operations and pay for
merchandise shipments.
Overall, cash provided (used) from operating activities of $40.5
for the 17 weeks ended January 31, 1998, and $(37.7) for the 35
weeks ended October 4, 1997, respectively, decreased on a
combined basis by $82.7 from 1996. The decrease was principally
attributable to: (1) a tax refund of $37.6 in 1996,
(2) reorganization and bankruptcy emergence payments, and
(3) financing of inventory through short-term borrowings instead
of merchandise accounts payable.
Overall, cash from operating activities remained constant between
1995 and 1996, although the components varied from 1995 to 1996.
Merchandise inventories decreased during 1996, but not to the
same extent as in 1995, when the Company experienced inventory
flow disruptions after the Chapter 11 filing. Cash flow from
operations increased in 1996 because of the receipt of the income
tax refund. In 1995 the increase was primarily attributable to a
$71.0 decrease in inventory offset by the deterioration in 1995
net income.
Fiscal year 1998 capital expenditures are expected to decrease by
approximately 40% from Combined 1997 levels. As the Company
continues to focus on improving merchandise content in its
existing store base, fewer remodelings and conversions of
existing stores are expected in 1998 compared to 1997. Current
business plans anticipate as few as 38 new stores and conversions
for 1998 depending on market opportunities and successful lease
negotiations. Overall, cash and cash equivalents balances are<PAGE>
expected to be lower in 1998 as compared to 1997, since Combined
1997's activity included $78.5 from the liquidation of short-term
investments.
The Company operated at a net loss of $15.4 million during the 17
weeks ended January 31, 1998, which is typically the strongest
quarter of the year. During this period of time, store for store
sales declined from the prior year in each of the months. Due to
the Company's poor operating results, management has defined
certain aspects of its business strategy (Note 2). It is
expected that these actions will increase store traffic and store
for store sales and reduce expenses. However, the Company's
ability to improve its performance will depend upon a variety of
other factors, some of which are beyond its control, including
significantly improving store sales performance and operating
results, the apparel and footwear retailing environment, general
economic conditions, customer response to its new merchandising
strategies and continued cost reductions.
This Report contains _forward-looking statements_ within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The words _anticipate,_ _believe,_ _expect,_ _will,_
_could_ and similar expressions are intended to identify certain
forward-looking statements. Such statements reflect the
Company's current views with respect to future events and
financial performance and involve risks and uncertainties,
including, without limitation, the risks described above. Should
one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary
materially and adversely from those anticipated, believed or
otherwise indicated. Consequently, these cautionary statements
qualify all of the forward-looking statements made in this
Report.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
Management is responsible for the integrity and objectivity of
the financial statements and other information included in this
annual report. The financial statements have been prepared in
conformity with generally accepted accounting principles.
Information that is not subject to objective determination has
been developed based upon management's best judgment.
The Company maintains accounting systems that management believes
are sufficient to provide reasonable assurance of reliable
financial statements and to maintain accountability for assets.
These systems are supported by careful selection and training of
qualified personnel. The extent of internal accounting controls
implemented must be related to the benefits derived, and the
balancing of the cost of controls to the benefits derived
requires management's estimates and judgments. Management
continually reviews, modifies and improves its systems of
accounting and controls in response to changes in business
conditions and operations, and in response to recommendations in
the reports prepared by the independent public accountants.<PAGE>
The Board of Directors has an Audit Committee, which is comprised
totally of members of the board who are not employees of the
Company. The committee meets with the independent auditors and
representatives of management to discuss auditing and financial
reporting matters. The independent auditors meet with the Audit
Committee, with and without management representatives present,
to discuss the scope and results of their examinations, the
quality of financial reporting, and the propriety of management's
conduct of the business.
Management is committed to conducting its business affairs in
accordance with the highest ethical standards and in conformity
with the law.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Edison Brothers Stores, Inc.:
We have audited the accompanying consolidated balance sheet of
Edison Brothers Stores, Inc. (a Delaware corporation) and
subsidiaries as of January 31, 1998, and the related consolidated
statements of operations, common stockholders' equity (deficit)
and cash flows for the 17 weeks ended January 31, 1998 (as
reorganized), and the 35 weeks ended October 4, 1997
(pre-confirmation). 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 audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
As discussed in Notes 3 and 4 to consolidated financial
statements, the Company emerged from bankruptcy and adopted
fresh-start reporting as of October 4, 1997, in accordance with
American Institute of Certified Public Accountants Statement of
Position 90-7, _Financial Reporting by Entities in Reorganization
under the Bankruptcy Code._ The effects resulting from the
adoption of fresh-start reporting and the forgiveness of debt
have been reflected in the statement of operations for the 35
weeks ended October 4, 1997. Accordingly, all consolidated
financial statements prior to October 4, 1997, are not comparable<PAGE>
to the consolidated financial statements for periods after the
implementation of fresh-start reporting.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Edison Brothers Stores, Inc. and subsidiaries as of
January 31, 1998, and the results of their operations and their
cash flows for the 17 weeks ended January 31, 1998, and the 35
weeks ended October 4, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company
has continued to suffer recurring losses which raises substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/Arthur Andersen LLP
St. Louis, Missouri,
April 24, 1998
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Stockholders and Board of Directors
Edison Brothers Stores, Inc.
We have audited the consolidated balance sheets of Edison
Brothers Stores, Inc. (the Company and its principal operating
subsidiaries in reorganization under Chapter 11 of the United
States Bankruptcy Code since November 3, 1995, see Note 1 to the
consolidated financial statements) as of February 1, 1997, and
February 3, 1996, and the related consolidated statements of
operations, common stockholders' equity (deficit), and cash flows
for each of the three years in the period ended February 1, 1997.
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<PAGE>
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Edison Brothers Stores, Inc. at February 1,
1997, and February 3, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended February 1, 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates continuity
of the Company's operations and realization of its assets and
payment of its liabilities in the ordinary course of business.
As described more fully in Note 1, on November 3, 1995, Edison
Brothers Stores, Inc. filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code and is currently
operating its business as a debtor-in-possession under the
supervision of the Bankruptcy Court. The Chapter 11 filing was
the result of violation of certain debt covenants, recurring
operating losses, deterioration of vendor support, and cash flow
problems. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans to finance operating activities and further reorganize
operations are also described in Notes 2 and 3. The
appropriateness of using the going concern basis is dependent
upon, among other things, approval of a plan of reorganization by
the Bankruptcy Court, attainment by the Company of profitable
future operations, and its ability to generate sufficient cash
from operations and other financing sources to support its
business activities. As a result of the reorganization
proceedings, the Company may sell or otherwise dispose of assets
and liquidate or settle liabilities for amounts other than those
reflected in the financial statements referred to above.
Further, a plan of reorganization, as finally approved by the
Bankruptcy Court, could materially change the amounts currently
recorded. The accompanying consolidated financial statements do
not reflect further adjustments that might be necessary to the
carrying value of assets and the amounts and classification of
liabilities or stockholders' equity (deficit) as a consequence of
these bankruptcy proceedings.
As discussed in Note 1, in fiscal 1996, the Company charged its
method of accounting for the impairment of long-lived assets and
for long-lived assets to be disposed of.
/s/Ernst and Young LLP
St. Louis, Missouri,
March 14, 1997
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)
CAPTION
<PAGE>
As Pre-Confirmation
Reorganiz
ed
Year Year
17 Weeks 35 Weeks Ended Ended
Ended Ended Februar Februar
January October y 1, y 3,
31, 1998 4, 1997 1997 1996
<S> <C> <C> <C> <C>
Net Retail Sales $ 336.1 $ 613.8 $1,090.4 $ 1,389.4
Costs and Expenses:
Cost of goods sold, 245.2 435.2 791.9 1,027.7
occupancy and buying
expenses
Store operating and 82.3 174.2 276.3 343.7
administrative expenses
Depreciation and 12.0 20.5 41.2 62.8
amortization
Interest expense, net 4.9 4.3 2.4 25.2
Restructuring and --- 44.7 36.3 167.1
reorganization expenses
Pension settlement gain --- (15.8) --- ---
Impairment of long-lived 2.1 2.5 74.0 ---
assets
Other operating expenses 3.9 6.0 8.1 14.0
Total 350.4 671.6 1,230.2 1,640.5
Loss before income taxes,
extraordinary item and the (14.3) (57.8) (139.8) (251.1)
effects of fresh start
adjustments
Income tax (benefit) 1.1 0.3 3.4 (29.1)
provision
Loss before extraordinary
item and the effects of (15.4) (58.1) (143.2) (222.0)
fresh start adjustments
Extraordinary item:
Gain on debt forgiveness --- 8.3 --- ---
Fresh start adjustments --- 2.9 --- ---
Net Loss $ (15.4) $ (46.9) $ (143.2) $(222.0)
Net Loss Per Common Share
Loss before extraordinary
item and fresh start $ $ $ $
adjustments (1.51) (2.62) (6.46) (10.06)
Extraordinary item --- .38 --- ---
Fresh start adjustments --- .13 --- ---
Net Loss per basic & $ $ $ $
diluted share (1.51) (2.11) (6.46) (10.06)
Basic & diluted average
shares outstanding 10.2 22.2 22.2 22.1
(millions)
<fn3>
See accompanying notes.
</fn3>
</TABLE>
TABLE
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share data)
<CAPTION>
As Pre-
Reorganize Confirmatio
d n
January 31 February 1,
, 1997
1998
<S>
ASSETS
Current Assets: <C> <C>
Cash and cash equivalents $ 58.2 $ 125.6
Investments --- 78.5
Merchandise inventories 167.9 210.7
Other current assets 28.1 21.7
Total Current Assets 254.2 436.5
Property and Equipment 121.1 146.0
Reorganization Value in Excess of
Identifiable Assets, net of accumulated 28.4 ---
amortization of $1.0
Other Assets 39.3 62.4
Total Assets $ 443.0 $ 644.9
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Merchandise accounts payable $ 43.2 $ 50.7
Expense accounts payable 29.3 28.1
Other current liabilities 72.8 41.0
Total Current Liabilities 145.3 119.8
Liabilities Subject to Settlement under --- 508.3
Reorganization Proceedings
Long-Term Debt 127.7 ---
Postretirement and Other Employee Benefits 46.7 ---
Other Liabilities 1.6 18.9
Total Liabilities 321.3 647.0
Common Stockholders' Equity (Deficit):
Common stock 0.1 22.2
Capital in excess of par value 130.5 76.9
Common stock warrants 7.0 ---
Accumulated deficit (15.4) (101.6)
Foreign currency translation adjustment (0.5) 0.4
Total Common Stockholders' Equity 121.7 (2.1)
(Deficit)
Total Liabilities and Common $ 443.0 $ 644.9<PAGE>
Stockholders' Equity (Deficit)
<fn4>
See accompanying notes
Common stock has a par value of $.01 and $1 per share at
January 31, 1998, and February 1, 1997, respectively. At
January 31, 1998, 10,225,000 shares were outstanding (Note 13).
At February 1, 1997, 22,201,778 shares were outstanding and
5,352,454 were held in treasury.
</fn4>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
<CAPTION>
As Pre-Confirmation
Reorganiz
ed
Year Year
17 Weeks 35 Weeks Ended Ended
Ended Ended February Februar
January October 1, y 3,
31, 1998 4, 1997 1997 1996
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss $ (15.4) $ (46.9) $(143.2) $(222.0)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Extraordinary item and fresh
start adjustments --- (11.2) --- ---
Depreciation and 12.0 20.5 41.2 62.8
amortization
Restructuring and --- 3.3 11.7 111.3
reorganization expenses
Loss on disposal of property 1.5 3.1 --- ---
and equipment
Provision for deferred
income taxes, net of --- --- --- 4.5
valuation allowance and
acquisitions
Impairment of long-lived 2.1 2.5 74.0 ---
assets
Pension settlement gain --- (15.8) --- ---
Changes in assets and
liabilities, net of effects
from acquisitions and
dispositions:
Merchandise inventories 37.2 (0.1) 39.9 71.0
Other assets 0.6 3.0 49.9 (16.8)
Accounts payable, accrued
expenses and other 2.5 3.9 5.4 67.7
liabilities<PAGE>
Other --- --- 6.6 6.9
Total Operating 40.5 (37.7) 85.5 85.4
Activities
Cash Flows from Investing
Activities:
Capital expenditures (13.8) (27.2) (21.9) (37.2)
(Increase) decrease in --- 78.5 (78.5) ---
investments
Net proceeds from disposal --- 1.7 --- 17.1
of subsidiaries
Payment for companies and
assets purchased, net of --- --- --- (14.1)
cash acquired
Other --- 0.9 0.8 2.7
Total Investing (13.8) 53.9 (99.6) (31.5)
Activities
Cash Flows from Financing
Activities:
Payments on liabilities (5.8) (96.9) --- ---
subject to compromise
(Increase) decrease in 6.4 (17.6) --- ---
senior note interest escrow
Proceeds from prepetition --- --- --- 60.0
debt issuance
Net prepetition short-term --- --- --- 11.4
debt borrowings
Dividends on common stock --- --- --- (9.3)
Other 5.9 (2.3) 0.1 6.2
Total Financing 6.5 (116.8) 0.1 68.3
Activities
Effect of exchange rate --- --- --- (9.6)
changes on cash
Cash Provided (Used) 33.2 (100.6) (14.0) 112.6
Beginning cash and cash 25.0 125.6 139.6 27.0
equivalents
Ending Cash and Cash $ 58.2 $ 25.0 $ 125.6 $ 139.6
Equivalents
Cash Payments (Receipts)
for:
Interest $ 7.6 $ 0.9 $ 0.4 $23.9
Income taxes $ 0.1 $ 0.1 $ (37.9) $ (0.7)
<fn5>
See accompanying notes
</fn5>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Millions, except per share data)
<CAPTION>
Retaine<PAGE>
Capital Commo d Foreign
Commo in n earning currency
n Excess Stock s Translati
Stock of Warra (accumu on
Par nts lated Adjustmen
Value deficit t
)
<S> <C> <C> <C> <C> <C>
Balance at
January 28, 1995 _ $ $ $ -- $ 303.8 $ (15.1)
Pre-Confirmation 22.0 76.5
Net loss --- --- --- (222.0) ---
Stock options
exercised and 0.1 0.2 --- --- ---
employee benefit
plans
Spin-off of --- --- --- (30.9) ---
subsidiary
Foreign currency
translation --- --- --- --- 15.1
adjustment
Dividends on common
stock - $.42 per --- --- --- (9.3) ---
share
Balance at February 22.1 76.7 --- 41.6 ---
3, 1996 _ Pre-
Confirmation
Net loss --- --- --- (143.2) ---
Employee benefit 0.1 0.2 --- --- ---
plans
Foreign currency
translation --- --- --- --- 0.4
adjustment
Balance at February
1, 1997 - Pre- 22.2 76.9 --- (101.6) 0.4
Confirmation
Net loss before
extraordinary item
and the effect of --- --- --- (58.1) ---
fresh start
adjustments
Restricted stock --- 0.1 --- --- ---
Fresh start
adjustments and (22.2 (77.0) --- 159.7 ---
extraordinary item )
New stock and warrant 0.1 130.5 7.0 --- ---
issuance
Foreign currency
translation --- --- --- --- (0.4)
adjustment
Balance at October 4,
1997 _ Emergence Date 0.1 130.5 7.0 --- ---<PAGE>
Net loss --- --- --- (15.4) ---
Foreign currency
translation --- --- --- --- (0.5)
adjustment
Balance at January
31, 1998 - As $ $ 130.5 $ 7.0 $ $ (0.5)
Reorganized 0.1 (15.4)
<fn6>
See accompanying notes
</fn6>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, except shares and per share data)
Note 1: Description of Business and Summary of Significant
Accounting Policies
Business _ Edison Brothers Stores, Inc. (the _Company_) owns and
operates chains of specialty retailing stores located in forty-
seven states, the District of Columbia, Puerto Rico, the Virgin
Islands, and Canada. The Company conducts its principal
operations in two segments, apparel and footwear. On November 3,
1995 (the _Petition Date_), the Company and 65 of its
subsidiaries (the _Debtors_) filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the _Bankruptcy
Code_) in the United States Bankruptcy Court (the _Court_) in
Wilmington, Delaware. The Debtors' Amended Joint Plan of
Reorganization (the _Plan_) was confirmed by the Court on
September 9, 1997. The Company emerged from Chapter 11 on
September 26, 1997 (for financial reporting purposes, the
effective _Emergence Date_ is October 4, 1997). During the
period from November 3, 1995, through September 26, 1997, the
Company operated as debtor-in-possession.
Fiscal Year _ The Company's fiscal year ends on the Saturday
closest to January 31. References to 1996 and 1995 are to the 52
weeks ended February 1, 1997, and 53 weeks ended February 3,
1996, respectively. References in 1997 to the new Reorganized
Company are for the period from October 5, 1997, through
January 31, 1998, and references to the Pre-Confirmation Company
are for the period from February 2, 1997, to October 4, 1997.
Fresh Start Accounting - The Company adopted Fresh Start
Accounting as prescribed in _Statement of Position 90-7 of the
American Institute of Certified Public Accountants,_ entitled
_Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7),_ which resulted in the creation of a
new reporting entity without any accumulated deficit and
restatement of the Company's assets and liabilities to their
estimated fair market values (Note 4). Because of the
applications of Fresh Start Accounting, the financial statements
for periods after reorganization are not comparable to the
financial statements for periods prior to reorganization. A
black line has been drawn on the accompanying consolidated
financial statements to distinguish between the Reorganized
Company and the Pre-Confirmation Company.<PAGE>
The accounting policies described below represent the accounting
policies for all periods presented.
Consolidation _ The financial statements include the accounts of
all subsidiaries; intercompany accounts and transactions have
been eliminated.
Income Taxes _ The liability method as described in Statement of
Financial Accounting Standards (_SFAS_) No. 109, _Accounting for
Income Taxes,_ is used to compute deferred income taxes resulting
from temporary differences in the recognition of income and
expense items for tax and financial reporting purposes.
Interest Expense _Interest expense for the 17 weeks ended
January 31, 1998, has been reduced by $.5 of interest income and
in 1995 (prior to the Petition Date) interest expense has been
reduced by $1.8 of interest income. Interest income incurred
during the period the Company operated as a debtor-in-possession
is $5.9 for the 35 weeks ended October 4, 1997, $8.2 and $0.9 for
1996 and 1995, respectively, is included in restructuring and
reorganization expenses.
Store Preopening and Closing Costs _ Store preopening costs are
expensed as incurred. Closing costs are accrued at the time the
decision is made to close a store.
Net Loss Per Common Share _ The Company adopted the provisions of
SFAS 128, _Earnings Per Share,_ under which earnings per share is
measured at two levels: basic earnings per share and diluted
earnings per share. The Company reported a loss for all years
presented and, therefore, shares issuable under stock option
plans are antidilutive.
Cash and Cash Equivalents _ Short-term investments with
maturities of three months or less at the time of purchase are
reported as cash equivalents.
Investments _ As of January 31, 1998, the Company had no
investments. Investments at February 1, 1997, consisted of U.S.
government debt securities which mature in less than one year,
and are classified as available-for-sale. The amortized cost,
which approximates fair value, of these securities is adjusted
for amortization of premiums and accretions of discounts to
maturity. Amortization, interest and dividends are included as a
reduction in interest expense or as a reduction in restructuring
and reorganization expense.
Merchandise Inventories _ Inventories are stated at the lower of
cost or market, primarily determined by the retail inventory
method.
Depreciation and Amortization - The Company utilizes the
straight-line method of depreciation and amortization. Property
and equipment is amortized over the lesser of the estimated
useful life of the asset or the life of the lease (Note 7). The
Company amortizes its Reorganization Value in Excess of
Identifiable Assets (Note 4) over 10 years and the Fair Value of<PAGE>
Lease Rights (Note 8) over the remaining life of the respective
leases.
Long-Lived Assets and Reorganization Value in Excess of
Identifiable Assets _ SFAS 121, _Accounting for Long-Lived Assets
and for Long-Lived Assets to be Disposed of,_ requires that
long-lived assets be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be
recoverable. The Company considers such factors as management's
plans for future operations, recent operating results and
projected cash flows in evaluating an impairment (Note 7).
Foreign Currency Translation - Assets and liabilities of the
Company's foreign affiliates are translated at current exchange
rates while revenues and expenses are translated at average rates
prevailing during the year. Translation adjustments are reported
as a component of common stockholders' equity.
Estimates _ The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and revenues and expenses
during the reporting period. Actual amounts could differ from
those estimates.
Reclassifications _ Certain prior-year items have been
reclassified to conform to the current-year presentation.
Effect of New Accounting Standards
In 1997, the FASB issued SFAS No. 130, _Reporting Comprehensive
Income,_ which requires that the amounts of certain items,
including gains and losses on certain securities, be reported in
the enterprise's financial statements, and SFAS No. 131,
_Disclosures about Segments of an Enterprise and Related
Information,_ which establishes annual and interim reporting and
disclosure standards for an enterprise's operating segments.
Adoption of these statements will not significantly impact the
Company's consolidated financial position, results of operations
or cash flows, and will be limited to the form and content of its
disclosures. Both statements are effective commencing in the
1998 fiscal year.
Note 2: Going Concern
The accompanying consolidated financial statements have been
prepared on a going concern basis, which assumes continuity of
operations and realization of assets and liquidation of
liabilities in the ordinary course of business.
As shown in the accompanying statement of operations, the Company
incurred a net loss of $15.4 million in the 17 weeks since it
emerged from bankruptcy. In order to improve the Company's
operating results, management has, over the last several months,
defined certain aspects of its new business strategy, including
an improved focus on merchandise selection and reorganization of
certain operational functions. The Company has consolidated the<PAGE>
key support functions of store management, merchandise planning
and allocation and marketing in order to better leverage critical
skills and reduce costs. Additionally, the Company has recently
reduced the staffing in its headquarters office by approximately
15%.
The Company's ability to improve its financial position will be
influenced by, among other things, store sales performance and
operating results, the overall apparel and footwear retailing
environment, general economic conditions and customer response to
its new merchandising strategies and continued cost reductions.
The Company's ability to continue operations as a going concern
is dependent upon its ability to generate sufficient cash flow
and earnings to meet its obligations on a timely basis, to comply
with the terms of its financing agreements (Note 12), and to
obtain additional financing or refinancing as may be required in
the future.
Note 3: Reorganization
On November 3, 1995, the Company filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code and operated
its business as a debtor-in-possession under the supervision of
the Bankruptcy Court from November 3, 1995, to September 26,
1997. On September 9, 1997, the Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization. The
Company emerged from Chapter 11 on September 26, 1997 (for
financial reporting purposes, the effective Emergence Date is
October 4, 1997).
The Plan provided for general unsecured creditors to receive:
(i) $99.0 ($96.9 distributed to creditors and $2.1 distributed to
the Limited Liability Companies established pursuant to the
Plan); (ii) 10 year, 11% unsecured notes in the principal amount
of $120 (with approximately the first three years of interest
pre-funded and no scheduled principal payments until maturity in
2007) (_Senior Notes_); (iii) 10,000,000 shares of new common
stock of the Company (_New Common Stock_); (iv) title to the
Company's headquarters building in downtown St. Louis (_Corporate
Headquarters Building_), which the Company continues to occupy
(Note 11); and (v) $51.2 from the Company's pension plan less any
taxes and other expenses attributable to the termination of the
pension plan (_Pension Plan Proceeds_). The Company also
terminated its pension plan as of May 31, 1997, and has
established a replacement plan effective January 1, 1998
(Note 10).
All of the Company's shares of common stock existing at the
Emergence Date were cancelled. The Plan provided for holders of
equity interests in the Company existing as of the Emergence Date
to receive eight-year warrants to purchase a total of
approximately nine percent of the New Common Stock at an exercise
price of $16.40 (Note 13).
<TABLE>
Liabilities Subject to Settlement under Reorganization
Proceedings
The principal categories of claims classified as liabilities
subject to settlement under reorganization proceedings are
identified below.
<CAPTION>
Pre-Confirmation
35 Weeks Februar
Ended y 1,
October 1997
4, 1997
<S> <C> <C>
Long-term senior notes payable $ 150.0 $ 150.0
Notes payable _ banks 205.9 205.9
Cash set-off applied to debt (3.6) (3.6)
Capital lease obligations 8.4 12.4
Accrued interest payable 4.6 4.3
Deferred debt costs (4.3) (4.3)
Postretirement and other employee benefits --- 47.7
(Note 10)
Accounts payable 37.3 36.1
Lease termination claims 44.6 42.8
Taxes 3.8 6.0
Other 4.2 11.0
Distributions and debt forgiveness (450.9) ---
Total liabilities subject to settlement under $ --- $ 508.3
reorganization proceedings
</TABLE>
Prior to the bankruptcy filing and certain agreements, the
Company's debt consisted of $150.0 of senior notes held by
various institutional lenders. The unsecured senior notes had
maturities from 7 to 15 years, with interest rates ranging from
7.09% to 8.04%. The Company also had outstanding borrowings
under a $125.0 revolving credit facility, as well as $80.9 of
short-term and demand notes under uncommitted bank lines with
varying interest rates and maturity dates. In addition, the
Company had $8.4 in capital lease obligations relating to its
Washington, Missouri distribution center.
During 1995, the Company entered into override agreements with
its existing lenders. 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 letters of credit through the override period. In
exchange for these concessions, the Company paid a one-time
forbearance fee of $3.6 and agreed to increase the interest rate
on the outstanding debt to 9.75%.
Contractual interest related to the above debt not paid or
accrued was $23.6 for the 35 weeks ended October 4, 1997, $35.0
and $9.1 for the years ended 1996 and 1995, respectively.
During 1997, postretirement benefit accruals of $42.2 and pension
accruals of $5.5 were reclassified from liabilities subject to<PAGE>
settlement under reorganization proceedings to other noncurrent
liabilities. Under the Plan, the Company has assumed these
liabilities, subject to the Company's ability to amend or
otherwise modify these plans (Note 10).
As part of the Chapter 11 reorganization process, the Company
attempted to notify all known or potential creditors of the
Filing for the purpose of identifying all prepetition claims
against the Company. Generally, creditors whose claims arose
prior to the Petition Date had until August 1, 1996, to file
claims or be barred from asserting claims in the future. Claims
arising from rejection of executory contracts by the Company on
or after July 1, 1996, and claims related to certain other items
were permitted to be filed by other dates set by the Bankruptcy
Court.
Pursuant to the an order of the Bankruptcy Court dated May 13,
1997, the assets and liabilities of the Debtors were deemed to be
substantively consolidated for purposes of the Plan. As a
result, among other things, for purposes of the Plan, all
duplicative claims against the Debtors were consolidated and all
guarantee and similar claims were eliminated. Substantive
consolidation, however, does not affect, among other things, the
separate legal and corporate structure of the individual Debtors.
<TABLE>
Restructuring and Reorganization
The Company recorded restructuring and reorganization expenses in
accordance with SOP 90-7 prior to emergence from Chapter 11.
Restructuring and reorganization expenses are summarized below:
<CAPTION>
Pre-Confirmation
35 Weeks Year Year
Ended ended ended
October February February
4, 1997 1, 1997 3, 1996
<S> <C> <C> <C>
Payroll and related expenses $ 15.8 $ 5.6 $ ---
Consulting fees 13.0 15.4 2.2
Legal fees 6.2 4.4 1.5
Estimated costs of store 5.4 13.7 101.6
closings
Relocation and other 4.2 1.1 ---
facility-related expenses
Loss on sale of subsidiaries 0.3 0.9 33.0
Interest income (5.9) (8.2) (0.9)
Accelerated goodwill --- --- 15.1
amortization
Other 5.7 3.4 14.6
Total restructuring and $ 44.7 $ 36.3 $ 167.1
reorganization expenses
</TABLE>
Note 4: Fresh Start Accounting and Reporting<PAGE>
Pursuant to SOP 90-7, the Company adopted Fresh Start Accounting
which resulted in the creation of a new reporting entity. Also,
the Company's assets and liabilities were recorded at estimated
fair market value as of the Emergence Date.
As a result of the implementation of Fresh Start Accounting, the
financial statements of the Reorganized Company are not
comparable to the financial statements of the Pre-Confirmation
Company.
The new common stock issued on the Emergence Date has been
recorded at the value contained in the Plan of $137.6 million and
represented the Company's estimated enterprise value less the
fair value of its debt.
The difference between the value of the Company's stock and the
fair value of assets and liabilities as of the Emergence Date was
$29.4 and is reflected as Reorganization Value in Excess of
Identifiable Assets in the accompanying balance sheet.
<TABLE>
The Reorganization and the adoption of Fresh Start Accounting
resulted in the following adjustments to the Company's condensed
consolidated balance sheet as of October 4, 1997:
<CAPTION>
October 4, 1997
Debt Fresh Other As
Pre- Forgivene Start Adjustmen Reorgan
Confirmati ss (a) Adjustmen ts (c) ized
on ts (b)
<S> <C> <C> <C> <C> <C>
ASSETS
Total Current $ 368.6 $ $ (5.8) $ 63.3 $ 327.1
Assets (99.0)
Assets Held 10.8 --- --- (10.8) ---
for Sale
Escrowed --- --- (.4) 10.8 10.4
Assets
Property and
Equipment, net 140.8 (19.8) --- --- 121.0
Intangible --- --- --- 5.2 5.2
Assets, net
Reorganization
Value in
Excess of --- --- --- 29.4 29.4
Identifiable
Assets
Prepaid 58.6 --- 24.3 (63.3) 19.6
Pension
Expense
Other Assets 9.7 --- (3.3) --- 6.4
Total Assets $ 588.5 $ (118.8) $ 14.8 $ 34.6 $ 519.1
LIABILITIES
AND COMMON
STOCKHOLDERS'
EQUITY<PAGE>
(DEFICIT)
Total Current $ 133.9 $ $ 12.7 $ 50.6 $ 206.1
Liabilities 8.9
Liabilities
Subject to
Settlement
under 450.9 (400.3) --- (50.6) ---
Reorganization
Proceedings
Long-Term Debt 1.3 126.7 --- --- 128.0
Postretirement
and Other 48.0 --- (1.4) --- 46.6
Employee
Benefits
Other 14.5 --- 0.6 (14.3) .8
Liabilities
Common
Stockholders'
Equity
(Deficit):
Common Stock 22.2 .1 --- (22.2) 0.1
Capital in
excess of par 77.0 130.5 --- (77.0) 130.5
value
Common stock
warrants --- 7.0 --- --- 7.0
Accumulated (159.7) 8.3 2.9 148.5 ---
deficit
Foreign
currency
translation
adjustment and 0.4 --- --- (0.4) ---
other
Total
Liabilities
and Common
Stockholders' $ 588.5 $ (118.8) $ 14.8 $ 34.6 $ 519.1
Equity
(Deficit)
<fn7>
(a) Records the discharge of indebtedness pursuant to the Plan.
Liabilities Subject to Settlement under Reorganization
Proceedings of $450.9 were reduced by new equity of $137.6,
Senior Note and other long-term debt of $126.7, cash payments of
$96.9 and other settlements. The excess of indebtedness
eliminated over the fair value of securities issued in settlement
of those claims, $8.3, is reflected as an extraordinary item in
the 35 weeks ended October 4, 1997.
(b) Adjustments made to record assets and liabilities at
estimated fair market values. Significant adjustments include
the termination of the old pension plan (settlement gain less
excise taxes and income taxes) which resulted in a $2.9 credit
for the 35 weeks ended October 4, 1997.<PAGE>
(c) Adjustments to reflect the elimination of the remaining
deficit in stockholders' equity after the adjustments arising
from (a) and (b) above and to reflect the associated excess of
reorganization value over amounts allocable to identifiable
assets. Also reflects the termination of the Company's pension
plan pursuant to the Plan and capitalization of favorable lease
rights related to the transfer of the Corporate Headquarters
Building and store locations.
</fn7>
</TABLE>
Note 5: Income Taxes
<TABLE>
The provision (benefit) for income taxes consists of:
<CAPTION>
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
<S> <C> <C> <C> <C>
Current expense
(benefit):
Federal $ 0.7 $ --- $ 0.5 $ (35.6)
Foreign 0.2 --- 0.7 0.3
State and local 0.2 0.3 2.5 1.7
Deferred expense (4.8) 3.1 (13.5) (39.0)
(benefit)
Deferred tax 4.8 (3.1) 13.2 43.5
valuation allowance
Total provision $ 1.1 $ 0.3 $ 3.4 $ (29.1)
(benefit)
</TABLE>
<TABLE>
Significant components of the deferred tax liabilities and assets
in the consolidated balance sheets are as follows:
<CAPTION>
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
<S> <C> <C>
Accelerated depreciation $ 3.4 $ 4.9
Pension income 4.3 15.6
Other 1.4 2.6
Total deferred tax liabilities 9.1 23.1
Inventory capitalization 4.0 5.2
Rent expense accruals 0.3 6.3
Postretirement benefits 16.2 16.6
Restructuring reserves 1.8 17.9
Net operating loss carryforward 28.0 13.8
Other 17.2 20.0
Total deferred tax assets 67.5 79.8
Less: Deferred tax valuation allowance 58.4 56.7<PAGE>
Net deferred tax asset $ --- $ ---
</TABLE>
During 1997 and 1996, the Company concluded that it likely would
not be able to realize its deferred tax assets. Accordingly,
allowances against the net deferred tax asset balance of $58.4
and $56.7, respectively, and are reflected in the consolidated
financial statements.
<TABLE>
Reconciliation of federal statutory rates to effective income tax
rates:
<CAPTION>
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
<S> <C> <C> <C> <C>
Federal corporate (35.0%) (35.0%) (35.0%) (35.0%)
statutory rate
State and local
income taxes, net of 1.4 0.5 0.5 (0.4)
federal benefit
Goodwill amortization 2.4 --- 4.5 3.3
and write off
Increase in net
operating loss
carryforwards and 32.6 35.0 32.4 17.3
change in valuation
allowance
Other 6.3 --- --- 3.2
Actual tax expense 7.7% 0.5% 2.4% (11.6%)
(benefit)
</TABLE>
Pretax earnings from foreign subsidiaries were $2.9 in 1997, $1.9
in 1996 and $0 in 1995.
As of January 31, 1998, the Company had a net operating loss
carryforward for federal income tax purposes of approximately
$71.4, which is available to offset future taxable income through
2013. The Company also had a capital loss carryforward for
federal income tax purposes of $11.9 which is available to offset
future capital gains through 2001. In addition, the Company had
an alternative minimum tax credit carryforward of approximately
$1.4, which is available to reduce future regular income taxes
over an indefinite period. Implementation of the Company's plan
of reorganization may significantly reduce the various
carryforward items.
The Company is currently undergoing an examination by the
Internal Revenue Service (_IRS_) of its income tax returns for
1992 through 1996. Also, the IRS has asserted deficiencies
against the income tax returns of the Company for the tax years
1986 through 1991, which the Company is contesting. The Company
believes that the ultimate resolution of these matters will not
have a material adverse impact on its financial condition.
TABLE
<PAGE>
Note 6: Other Current Assets
Components of other current assets include:
<CAPTION>
As Pre-
Reorganize Confirmati
d on
January February
31, 1,
1998 1997
<S> <C> <C>
Prepaid expenses $ 13.7 $ 16.1
Senior note interest escrow (Note 12) 11.2 ---
Other 3.2 5.6
Other Current Assets $ 28.1 $ 21.7
</TABLE>
Note 7: Property and Equipment
<TABLE>
Property and equipment are stated at cost as follows:
<CAPTION>
Estimat
ed As Pre-
Useful Reorganiz Confirmati
ed on
Life January February
31, 1998 1, 1997
<S> <C> <C> <C>
Land --- $ 1.8 $ 4.9
Buildings 10-47 6.0 24.0
years
Leasehold improvements 1-15 67.6 170.3
years
Furniture and equipment 3-8 52.8 137.3
years
Property held under capital leases 10-50 2.3 9.6
years
Total cost 130.5 346.1
Accumulated depreciation and (9.4) (200.1)
amortization
Property and equipment $ 121.1 $ 146.0
</TABLE>
Depreciation and amortization expense was $10.1 for the 17 weeks
ended January 31, 1998, $20.4 for the 35 weeks ended October 4,
1997, and $35.3 and $52.1 for fiscal years 1996 and 1995,
respectively.
During 1996, the Company implemented SFAS 121, _Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed of._
Provisions made for impairments of long-lived assets were as
follows:
<TABLE>
CAPTION
<PAGE>
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year
Ended Ended Ended
January October February
31, 1998 4, 1997 1, 1997
<S> <C> <C> <C>
Assets held for sale (corporate $ --- $ --- $ 4.8
land and buildings)
Buildings --- --- 21.5
Furniture, equipment and 2.1 2.3 5.3
leasehold improvements
Intangibles --- 0.2 42.4
Impairment of long-lived assets $ 2.1 $ 2.5 $ 74.0
</TABLE>
Note 8: Other Assets
<TABLE>
Components of other assets include:
<CAPTION>
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
<S> <C> <C>
Assets held for senior note interest escrow $ 10.3 $ 10.9
Intangible assets, net of accumulated 4.3 ---
amortization of $1.0
Prepaid pension expense (Note 9) 16.3 41.3
Other 8.4 10.2
Other Assets $ 39.3 $ 62.4
</TABLE>
Pursuant to the Plan, the Company transferred assets held for
sale into an escrow account. The escrow assets consist of
corporate properties, some of which are no longer used by the
Company. Proceeds from the sale of these escrowed assets will be
used to pay interest obligations on the Senior Notes (Note 12).
Intangible assets consists of favorable lease rights for the
Corporate Headquarters Building and store locations, and are
being amortized over the remaining life of the leases.
<TABLE>
Note 9: Other Current Liabilities
Components of other current liabilities includes:
<CAPTION>
As Pre-<PAGE>
Reorganiz Confirmatio
ed n
January 31 February 1,
1998 1997
<S> <C> <C>
Assumed prepetition reclamation $ 3.0 $ --
Accrued payroll and vacations 10.2 10.7
Other taxes 28.2 5.7
Other 31.4 24.6
Other Current Liabilities $ 72.8 $ 41.0
</TABLE>
Other taxes as of January 31, 1998, include $12.7 in excise taxes
and $7.0 of income taxes related to the termination of the Old
Pension Plan (Note 10).
Note 10: Postretirement and Other Employee Benefits
On May 31, 1997, the Company's qualified pension plan existing as
of that date (the _Old Plan_) was terminated and a new qualified
plan (the _New Plan_) was implemented effective January 1, 1998.
Participants receiving benefits under the Old Plan received
annuity contracts purchased on their behalf. All participants
who were not receiving benefits under the Old Plan were fully
vested upon termination of the Old Plan. Such participants had
the option to have the net present value of their vested benefits
transferred into the New Plan, or converted into an annuity
contract. The Company, as a result of purchasing annuities for
retirees, recorded a pension settlement gain of $15.8 net of
excise taxes which is included in the consolidated statement of
operations for the 35 weeks ended October 4, 1997.
The New Plan covers employees who have met certain age and
service eligibility requirements. Qualified employees receive an
age-based credit calculated as a percentage of prior year
earnings. Interest is credited to participant accounts at the
average yield on 10-year U.S. Treasury securities.
In determining the actuarial present value of projected future
benefits for the 17 and 35 weeks of 1997 and for fiscal years
1996 and 1995, the weighted-average discount rate was 7.25%, 7.5%
and 7.0%, respectively, and the rate of increase in future
compensation levels was assumed to be 5.65% for each such period.
For the 17 and 35 weeks of 1997 and fiscal years 1996, and 1995,
the assumed rate of return on assets was 7.5%, 9.5% and 9.5%,
respectively. Plan assets consist primarily of equity and fixed
income securities.
<TABLE>
The plans' funded status was as follows:
<CAPTION>
(New (Old Plan)
Plan) Pre-
As Confirmati<PAGE>
Reorganiz on
ed
January February
31, 1998 1, 1997
<S> <C> <C>
Actuarial present value:
Vested benefit obligation $ 21.3 $ 45.8
Nonvested benefit obligation --- 3.4
Accumulated benefit obligation 21.3 49.2
Projected benefit obligation (PBO) 23.0 60.0
Plan assets at market value 38.9 137.9
Plan assets in excess of PBO 15.9 77.9
Unrecognized net asset existing at year-end 0.4 (36.6)
Prepaid pension expense $ 16.3 $ 41.3
</TABLE>
<TABLE>
Net pension (income) expense includes the following components:
<CAPTION>
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October 1996 1995
31, 1998 4, 1997
<S> <C> <C> <C> <C>
Service cost $ 0.6 $ 1.6 $ $
1.9 1.5
Interest cost 0.4 2.3 4.2 3.5
Actual return on assets (0.5) (10.5) (24.3) (30.7)
Net amortization and deferrals (0.2) 4.0 13.6 21.5
Net pension (income) expense $ 0.3 $ (2.6) $ $
(4.6) (4.2)
</TABLE>
The Company provides supplemental pension benefits under non-
qualified plans which are not funded. The total liability for
these plans was $5.2 as of January 31, 1998, and $5.5 as of
February 1, 1997. Net pension expense for these plans was $.1
for the 17 weeks ended January 31, 1998, $.6 for the 35 weeks
ended October 4, 1997, and $1.1 and $1.0 for fiscal years 1996
and 1995, respectively. The non-qualified pension liability is
classified as liabilities subject to settlement under
reorganization proceedings as of February 1, 1997, and included
in postretirement and other employee benefits as of January 31,
1998.
The Company provides an employee savings plan that permits
employees to make contributions in accordance with Internal
Revenue Code Section 401(k). Employees who meet age and service
requirements are eligible to participate by contributing up to
15% of their pretax compensation or the dollar threshold
established by the Internal Revenue Service. For 1997, 1996 and
1995, the Company matched a portion of the employee's<PAGE>
contribution under a predetermined formula based on the Company's
return on equity. Beginning January 1, 1997, the Company
matches, with cash, 25 cents for every dollar a participant
saves, up to 6% of his or her annual pay. The Company's expense
related to the plan was $.2 for the 17 weeks ended January 31,
1998, $.4 for the 35 weeks ended October 4, 1997, $.4 for fiscal
1996, and $.2 for fiscal 1995.
The Company at its discretion provides a defined-dollar benefit
health and life plan to its retirees and their eligible spouses
and dependents. To qualify, generally an employee must retire at
age 55 or later with at least 15 years of credited service under
the pension plan. The health care portion of the plan is
contributory, with retiree contributions subject to an annual
adjustment. The life insurance portion of the plan is
noncontributory. The Company funds, as needed, plan costs in
excess of retiree contributions. The Company has reserved the
right to modify or terminate these benefits.
<TABLE>
The Company's accrued benefit costs for postretirement benefits
are as
follows:
<CAPTION>
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 29.0 $ 35.7
Fully-eligible active plan participants 1.6 1.9
Other active plan participants 3.2 3.3
Unrecognized net gain 6.8 1.4
Prior service cost 1.2 ---
Accrued contributions (0.3) (0.1)
Accrued postretirement benefit cost $ 41.5 $ 42.2
</TABLE>
The accrued benefit cost was classified as liabilities subject to
settlement under reorganization proceedings as of February 1,
1997.
<TABLE>
Postretirement benefit expense consists of:
<CAPTION>
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended<PAGE>
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
<S> <C> <C> <C> <C>
Service cost $ 0.1 $ 0.1 $ 0.2 $ 0.2
Interest cost 0.8 2.2 3.1 3.2
Postretirement $ 0.9 $ 2.3 $ 3.3 $ 3.4
benefit expense
</TABLE>
The weighted average health care cost trend rate used in
measuring the accumulated postretirement benefit obligation is
7.5% for 1998, declining gradually to 5% by the year 2003 and
remaining at that level thereafter. A 1% increase in the assumed
health care cost trend rate would increase the accumulated
postretirement benefit obligation by $1.3 as of January 31, 1998,
and the net periodic postretirement benefit cost the 35 weeks
ended October 4, 1997, and the 17 weeks ended January 31, 1998,
by $0.1. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% and
7.50% as of January 31, 1998, and February 1, 1997, respectively.
Note 11: Leases
Most of the Company's store operations are conducted in leased
premises. Some of the leases include options for renewal or
extension on various terms. Additionally, as part of the Plan,
the Company entered into a three year lease with renewal options
for the Corporate Headquarters Building. Minimum rentals for
operating leases were $29.1 for the 17 weeks ended January 31,
1998, $59.1 for the 35 weeks ended October 4, 1997 and $101.2 and
$136.3 for fiscal years 1996 and 1995, respectively. Additional
percentage rentals based on retail sales were $.4 for the 17
weeks ended January 31, 1998, $1.0 for the 35 weeks ended
October 4, 1997, $2.0, and $3.5 for fiscal years 1996 and 1995,
respectively. Most leases also require the payment of common
area expenses and real estate taxes.
<TABLE>
<CAPTION>
Future minimum lease payments at January 31, 1998, were as
follows:
<S> <C>
1998 $
80.2
1999 71.8
2000 60.6
2001 46.8
2002 34.8
Thereafter 57.3
Total future minimum lease payments $351.
5
/TABLE
<PAGE>
Note 12: Financing Arrangements
SENIOR NOTES
Pursuant to the Plan, the Company issued senior notes in the
aggregate principal amount of $120 due on September 26, 2007
(_Senior Notes_). The Senior Notes bear interest at a fixed rate
of 11% per annum from July 31, 1997, payable semi-annually on
January 31 and July 31 of each year, commencing January 31, 1998.
At January 31, 1998, the estimated fair value of the Senior
Notes was $112.8. To secure the payment of approximately the
first three years of interest on the Senior Notes, the Company,
entered into a Funding Escrow Agreement. Additionally, the
Company transferred assets held for sale into the escrow account
(Note 6 and Note 8).
The Senior Notes may be redeemed, at the option of the Company,
in increments of not less than $5 at the following Redemption
Prices (expressed as percentages of the principal amount):
Emergence Date through June 30, 1998 100% of par
July 1, 1998 through June 30, 1999104% of par
July 1, 1999 through June 30, 2000103% of par
July 1, 2000 through June 30, 2001102% of par
July 1, 2001 through June 30, 2002101% of par
July 1, 2002 through September 26, 2007 100% of par
In the event a change in control occurs (as defined in the Trust
Indenture and First Supplemental Trust Indenture (together, the
_Indenture_) pursuant to which the Senior Notes were issued),
each Senior Note holder may, at the option of the holder, require
the Company to repurchase all or any of such holder's Senior
Notes at a price equal to 101% of par plus accrued interest. In
the event the Company makes extraordinary asset sales (as defined
in the Indenture) and if the net proceeds thereof not otherwise
required to be paid to other lenders exceeds $5, 50% of such net
sale proceeds must be used to pay principal under the Senior
Notes.
The Indenture limits, without prior consent, the incurrence of
new indebtedness and liens, disposition of assets and the payment
of dividends. As of January 31, 1998, the Company was in
compliance with these covenants.
CREDIT FACILITY
At the Emergence Date, the Company entered into a loan agreement
with Congress Financial Corporation as agent (the _Agent_) and
the CIT Group/Business Credit, Inc. as co-agent for a $200
revolving credit facility secured by inventory and other related
assets, to fund ongoing working capital needs and to provide
letter of credit financing (the _Credit Facility_). The Credit
Facility has a sublimit of $150 for the issuance of letters of
credit. The Credit Facility is intended to provide the Company
with the cash and liquidity to conduct its operations and expires
on September 26, 2002.<PAGE>
At the Company's option, the Company may borrow under the Credit
Facility at the Prime Rate (as defined in the Credit Facility),
or at the Eurodollar Rate (as defined in the Credit Facility)
plus 2.25%. The borrowing rate as of January 31, 1998, was 8.5%.
The maximum borrowing, up to $200, is limited to 60% of the value
of eligible inventory (as defined in the Credit Facility) or 85%
of the Net Recovery Cost Percentage of the inventory (as defined
in the Credit Facility) multiplied by the cost of eligible
inventory, plus 95% of the aggregate amount of cash held by the
Agent as collateral, less any availability reserves established
by the Agent. During the period commencing August 1 through and
including December 15 of each year, the borrowing limit
calculation uses 70% of eligible inventory and 100% of the Net
Recovery Cost Percentage.
The Company is required to pay an unused line of credit fee of
.375% per annum.
The Credit Facility as amended, contains covenants including,
among other restrictions, a limitation on store closings,
limitations on the incurrence of additional liens and
indebtedness, limitations on sales of assets, required minimum
adjusted net worth, as defined, and a prohibition on paying
dividends.
As of January 31, 1998, there were no outstanding borrowings
under the Credit Facility. Outstanding letters of credit were
$98.8 and available borrowings were $43.1, excluding excess
letters of credits related to the Company's previous credit
facility of $40.3. The weighted average of outstanding
borrowings and average interest rate was $6.6 and 8.5%,
respectively, for the 17 weeks ended January 31, 1998. On
April 13, 1998, the Credit Facility was amended to reduce the
minimum net worth requirement from $100 million to $70 million
during the period January 31, 1998, to February 3, 2001.
Other
The Company has outstanding promissory notes of $6.7, bearing
interest at rates between 6.25% and 6.5%. Certain of these notes
contain a put option, exercisable on January 1, 2000 and on each
January 1 thereafter, whereby, at the option of the noteholders,
the Company would be required to redeem in full the then
outstanding principal.
Note 13: Common Stock
The Reorganized Company is authorized to issue 100,000,000 shares
of common stock. At January 31, 1998, 9,291,900 shares had been
issued. Approximately 933,100 additional shares will be issued
upon completion of distributions under the Plan.
A total of 225,000 shares of restricted New Common Stock were
issued as of the Emergence Date to certain executives of the
Company. Such stock vests over periods up to two years from such
date and compensation is recognized over the vesting period based<PAGE>
on the fair value of the New Common Stock as of the issuance
date. Some of the stock issued to certain executives was vested
as of January 31, 1998, in connection with the termination of
their employment.
All per share data for the Reorganized Company in the financial
statements has been computed using the 10,225,000 total shares
expected to be issued under the terms of the Plan.
Stock Option Plans
Pursuant to the Plan, the 1997 Stock Option Plan (the _1997 Stock
Option Plan_), the 1997 Directors Stock Option Plan (the
_Directors Stock Option Plan_) and certain Restricted Stock
Agreements were approved.
The 1997 Stock Option Plan makes available for the granting of
options to key employees an aggregate of 800,000 shares of New
Common Stock. As of January 31, 1998, options with respect to
753,500 shares were outstanding under the 1997 Stock Option Plan.
The exercise price of these options is between $5.58 and $6.125
per share.
The Directors Stock Option Plan makes available for the granting
of options to members of the Board of Directors who are not
employees of the Company an aggregate of 200,000 shares of New
Common Stock. As of January 31, 1998, options with respect to
17,500 shares had been issued under the Directors Stock Option
Plan. The exercise price under these options is $5.58.
Outstanding stock options on January 31, 1998, were 771,000
shares at $5.58 to $6.125 per option. The weighted average
remaining contractual life was 9.8 years at a weighted average
exercise price of $5.78, no options were exercisable on January
31, 1998. Under the Plan, all options of the Pre-Confirmation
Company existing at September 26, 1997, were canceled.
Outstanding stock options on June 29, 1995, were adjusted, as a
result of the Dave & Buster's, Inc. spin-off. The number of
shares subject to each option was increased by 33.1% and the
exercise price was reduced by 24.9%.
During 1995, 175,050 options with exercise prices ranging from
$25.38 to $37.25 were canceled and reissued at an exercise price
of $14.81.
<TABLE>
Activity under these plans was as follows:
<CAPTION>
As Reorganized
17 Weeks Ended 35 Weeks Ended
January 31, 1998 October 4, 1997
Weighted
average Option
Number of price Number price
Options per of per share<PAGE>
share Options
<S> <C> <C> <C> <C>
Outstandin
g at
beginning --- $ --- 629,601 $ 4.31-
of period 27.98
Granted 826,500 5.77 --- ---
Exercised --- --- --- ---
Canceled (55,500) 5.58 (629,601 4.31-27.98
)
Outstandin
g at end 771,000 5.78 --- ---
of period
Shares
exercisabl
e at end --- --- --- ---
of period
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
February 1, 1997 February 3, 1996
Option Option
Number price Number Price
of per share of Per share
Options Options
<S> <C> <C> <C> <C>
Outstanding
at
beginning 1,108,0 $4.31- 1,068,2 $16.13-
of period 96 27.98 31 37.25
Granted --- --- 902,080 4.31-27.98
Exercised --- --- --- ---
Canceled (478,49 11.13- (862,21 11.13-
5) 27.98 5) 37.25
Outstanding
at end of 629,601 4.31- 1,108,0 4.31-27.98
period 27.98 96
Shares
exercisable
at end of 195,391 --- 321,153 ---
period
</TABLE>
The Company has elected to account for stock options using
Accounting Principles Board Opinion No. 25, _Accounting for Stock
Issued to Employees_ (_APB 25_). Under APB 25, because the
exercise price of the Company's stock options generally equals
the market price of the underlying stock at the date of grant, no
compensation expense is recognized.
The fair value of options granted was estimated using the
Black-Scholes option-pricing model with the following<PAGE>
assumptions: expected dividend yield of 0%, expected volatility
of 50%, risk-free interest rate of 6.2% and expected option life
of 10 years. Had compensation expense been determined using
SFAS 123, the Company's net loss for the 17 weeks ended
January 31, 1998, would have been $15.6 and basic and diluted
loss per share would have been $1.52. As a result of changing
assumptions and future option grants, these hypothetical
calculations are not expected to be representative of future
calculations.
Common Stock Warrants
Pursuant to the Warrant Agreement entered into in accordance with
the Plan, the Company has issued 1,008,791 warrants to purchase
shares of New Common Stock (the _Warrants_). Each Warrant
entitles the holder thereof to purchase one share of New Common
Stock at an exercise price of $16.40 per share, subject to
adjustments in certain circumstances. The Warrants expire on
September 26, 2005.
Holders of the Warrants have no voting rights, and are not
entitled to receive dividends or other distributions on the New
Common Stock. Also, holders of the Warrants will not be entitled
to share in any of the assets of the Company upon liquidation,
dissolution or winding up of the Company. If at any time the
daily market price of the New Common Stock, as calculated
pursuant to the terms of the Warrant Agreement, exceeds 200% of
the then current exercise price, the Company will have the right
upon written notice to repurchase the Warrants for a purchase
price of $1.00 per Warrant.
Note 14: Acquisitions and Dispositions
During 1995, the Company made acquisitions for an aggregate cash
consideration of $14.1. Assets of $19.9 and liabilities of $5.8
were recorded in connection with the acquisitions. The
acquisitions were accounted for by the purchase method, and
operating results of the acquired entities have been included in
the consolidated financial statements since their respective
acquisition dates.
Effective June 29, 1995, the Company distributed all of the
outstanding shares of common stock of Dave & Buster's, Inc. owned
by the Company to the Company's stockholders of record as of June
19, 1995. Prior to the distribution, Dave & Buster's had been a
majority-owned subsidiary engaged in the ownership and operation
of restaurant/entertainment complexes. No gain or loss was
recorded as a result of the distribution. The distribution was
recorded as a dividend and, accordingly, the Company reduced
retained earnings by the net book value distributed. Through the
distribution date, Dave & Buster's reported 1995 net income of
$1.0. As of June 29, 1995, it had total assets of $49.2 and a
net book value of $30.9.
In January 1996, the Company sold substantially all of the assets
of its mall entertainment division. At the date of the sale, the
mall entertainment division had total assets of $51.8 and a net<PAGE>
book value of $44.9. The Company recorded a loss of $24.7 in
1995 in connection with the sale. The Company disposed of the
remaining mall entertainment division in September 1997.
Provisions of $.1, $.9 and $8.3 were recorded for the 35 weeks
ended October 4, 1997, 1996 and 1995, respectively, related to
the remaining assets to be disposed. For the 35 weeks ended
October 4, 1997, fiscal years 1996 and 1995, the mall
entertainment division reported net losses of $.5, $.5, and $1.8,
respectively.
Note 15: Business Segments
The Company conducts its business in two segments: apparel and
footwear. Apparel's operations include J. Riggings, JW/Jeans
West Group, Repp, Ltd, and 5-7-9. Footwear's operations include
Bakers/Leeds and Wild Pair. Corporate includes the results of
some experimental concepts that are no longer in operation.
<TABLE>
<CAPTION>
Net retail sales Operating loss
As As
Reorga Pre-Confirmation Reorga Pre-Confirmation
nized nized
17 35 17 35
Weeks Weeks Year Year Weeks Weeks Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Januar Octob Februar Februar Januar Octobe Februar Februar
y 31, er 4, y 1, y 3, y 31, r 4, y 1, y 3,
1998 1997 1997 1996 1998 1997 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apparel $ $421. $ 765.9 $ 952.3 $(4.0) $(4.8) $(44.4) $(129.5
237.0 8 )
Footwear 99.1 190.7 320.7 367.9 (1.8) (3.7) (15.5) (8.9)
336.1 612.5 1,086.6 1,320.2 (5.8) (18.5) (59.9) (138.4)
Corporat --- 1.3 3.8 69.2 (3.6) (35.0) (77.5) (87.5)
e and
other
Interest --- --- --- --- (4.9) (4.3) (2.4) (25.2)
expense,
net
$ $613. $1,090. $1,389. $(14.3 $(57.8 $(139.8 $(251.1
336.1 8 4 4 ) ) ) )
</TABLE>
<TABLE>
<CAPTION>
Depreciation and amortization Capital expenditures
As As
Reorga Pre-Confirmation Reorga Pre-Confirmation
nized nized
17 35 17 35
Weeks Weeks Year Year Weeks Weeks Year Year
Ended Ended Ended Ended Ended Ended Ended Ended<PAGE>
Januar Octobe Februa Februa Januar Octobe Februa Febru
y 31, r 4, ry 1, ry 3, y 31, r 4, ry 1, ary
1998 1997 1997 1996 1998 1997 1997 3,
1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apparel $ $ 13.6 $ 28.6 $ 36.9 $ $ 16.0 $ 15.7 $
6.3 9.1 11.2
Footwear 2.4 5.3 9.4 10.1 2.6 4.1 5.0 10.4
8.7 18.9 38.0 47.0 11.7 20.1 20.7 21.6
Corporate 3.3 1.6 3.2 15.8 2.1 7.1 1.2 15.6
and other
$ 12.0 $ 20.5 $ 41.2 $ 62.8 $ 13.8 $ 27.2 $ 21.9 $
37.2
</TABLE>
<TABLE>
<CAPTION>
Identifiable assets
As
Reorgan Pre-Confirmation
ized
January Februar Februar
31, y 1, y 3,
1998 1997 1996
<S> <C> <C> <C>
Apparel $ 224.3 $ 267.1 $ 362.2
Footwear 101.6 100.9 131.2
325.9 368.0 493.4
Corporate 117.1 276.9 268.1
and other
$ 443.0 $ 644.9 $ 761.5
</TABLE>
<TABLE>
Note 16: Quarterly Information (Unaudited)
(Dollars in Millions, except per share data)
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
13 Weeks 13 Weeks 13 Weeks 13 Weeks
Pre- Pre- As Pre- As Pre-
Confirmation Confirmation Reorg Confirmation Reorga Confir
anize nized mation
d
4 9
Weeks Weeks
Ended Ended
Novem Octobe
ber r 4,
1,
1997 1996 1997 1996 1997 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net $224. $258. $236. $268. $ $ $ $ $
retail 0 1 6 8 62.7 153.2 255.2 273.4 308.3
sales<PAGE>
Cost of
goods
sold, 158.1 183.7 165.4 207.3 48.7 111.7 182.9 196.5 221.0
occupanc
y and
buying
expenses
Net (17.1 (17.7 0.2 (25.2 (6.8) (30.0) (11.5) (8.6) (88.8)
income ) ) )
(loss)
Per
common
shares:
Net (0.77 (0.80 0.01 (1.14 (0.67 (1.35) (0.52) (0.84) (4.00)
income ) ) ) )
(loss)
Dividend --- --- --- --- --- --- --- --- ---
s
Common
stock
market
price:
High 1.94 2.94 1.19 3.88 0.50 0.56 1.81 9.25 2.19
Low 0.45 1.31 0.25 1.63 0.13 0.38 1.06 0.13(a 1.06
)
<fn8>
(a) The market price of the new Common Stock was between $4.75
and $9.25 during the 4th quarter of 1997.
</fn8>
</TABLE>
<TABLE>
FIVE YEAR FINANCIAL SUMMARY (Unaudited)
(Dollars in Millions, except per share data)
<CAPTION>
As Pre-Confirmation
Reorga
nized
As of As of
and and for Year Year Year Year
for the Ended Ended Ended Ended
the 35 Februar Februar January January
17 Weeks y 1, y 3, 28, 29,
Weeks Ended 1997 1996 1995 1994
Ended October
Januar 4,
y 31, 1997
1998
<S> <C> <C> <C> <C> <C> <C>
Stores at the end of 1,605 1,634 1,745 2,077 2,761 2,866
the period
Net retail sales $336.1 $613.8 $1,090. $1,389. $1,476. $1,462.
4 4 4 9<PAGE>
Income (loss) before
extraordinary item (15.4) (58.1) (143.2) (222.0) 20.5 20.9
and effects of fresh
start adjustments
Total assets 443.0 519.1 644.9 761.5 893.8 873.1
Long-term debt 127.7 128.0 --- --- 173.5 159.2
Common stockholders' 121.7 137.6 (2.1) 140.4 387.2 407.9
equity (deficit)
Per basic common
share:
Income (loss) before
extraordinary item $(1.51 $ $ $ $ $
and effects of fresh ) (2.62) (6.46) (10.06) 0.93 0.95
start adjustments
Dividends on common --- --- --- 0.42 1.24 1.24
stock
<fn9>
Long-term debt has been reclassified to liabilities subject to
settlement under reorganization proceedings in 1996 and 1995
(Note 3 to the consolidated financial statements).
</fn9>
</TABLE>
Board of Directors
Jeffrey A. Cole
Chairman and Chief Executive Officer,
Cole National Corporation
Jacob W. Doft
Managing Director,
Highline Capital Management, L.L.C.
H. Michael Hecht
President and Chief Executive Officer,
Dickson Trading (North America) Inc.
Lawrence E. Honig
Chairman and Chief Executive Officer,
Edison Brothers Stores Inc.
Randolph I. Thornton
Managing Director and Senior Credit Officer,
Citibank N.A.
Stephen E. Watson
President and Chief Executive Officer,
Gander Mountain, L.L.C.
Edison Senior Management
Lawrence E. Honig, Chairman and Chief Executive Officer
Karl W. Michner, Chairman, Edison Merchandising Committee
Carol Williams, President, 5-7-9
Michael Fine, President, Edison Footwear Group
Paul Eisen, President, JW/Coda/Oaktree Group
John Oehler, President, J. Riggings
Steve Thomas, President, REPP Ltd.
Peter Hirschhorn, Co-general Manager, Edison Brothers Stores
International
Alison Talbot, Co-general Manager, Edison Brothers Stores
International<PAGE>
John F. Burtelow, Executive Vice President, Chief
Administrative Officer and Chief Financial Officer
Timothy W. Brannon, Senior Vice President, Stores
Kimberly Richmond, Senior Vice President, Marketing
Lee Johnson, Senior Vice President, Human Resources
Mark H. Brown, Senior Vice President, Real Estate and
Construction
Alan A. Sachs, Senior Vice President, General Counsel and
Secretary
Lawrence Pyles, Vice President, Chief Information Officer
Thomas McCain, Vice President, Controller
Denise R. Parker, Vice President, Planning and Allocation
George M. Spreiser, Vice President, Logistics
Corporate Headquarters
Edison Brothers Stores Inc.
501 N. Broadway
St. Louis, MO 63102-2102
(314) 331-6000
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Rd.
Overpeck Center
Ridgefield Park, NJ 07660
For correspondence, use:
P.O. Box 3315
South Hackensack, NJ 07607-1900
Independent Auditors
Arthur Andersen, L.L.P.
St. Louis, MO
Annual Meeting
The Annual Meeting of Stockholders will take place Wednesday,
June 10, 1998, at 11 a.m. at Edison Brothers Stores Inc.
headquarters at the address listed above.
Common Stock
The common stock of Edison Brothers Stores Inc. is listed on the
Nasdaq National Market under the trading symbol _EDBR._
Information Requests
To obtain news releases, sales releases and SEC reports
(including Form 10-K), please call (314) 331-6000 or visit the
company Web site at www.edisonbrothers.com. Additional queries
may be directed to Shareholder Relations at the corporate
headquarters address listed above.
Edison Brothers' more than 14,000 associates salute our
shareholders, vendors and customers, and we look forward to
continuing the partnership that will build the company's future
success.
EXHIBIT 21 - SUBSIDIARIES
EDISON BROTHERS STORES, INC.
AND SUBSIDIARIES
JANUARY 31, 1998
The following is a grouping of subsidiary corporations by
segment. All of the outstanding capital stock of the
subsidiaries is owned, directly or indirectly, by the Company.
All of the subsidiaries are included in the consolidated
financial statements filed herein.
<TABLE>
<CAPTION>
No. of
Principal State of Subsidiary
Segment business names Incorporation Corporations
<S> <C> <C> <C>
Apparel JW/Jeans West, Oaktree, Missouri 2
J. Riggings, CODA,
REPP Ltd Big & Tall,
5-7-9 Shops, Phoenix,
Shifty's
Footwear Bakers, Leeds, Precis,
Wild Pair Various 3
Other Entertainment and Corporate- Various 3
Related Functions
Foreign subsidiaries Canada 2
involved in retail Mexico 3
operations or acquisition of Taiwan 1
merchandise for Apparel and Hong Kong 1
Footwear segments Philippines 1
1
Missouri 17
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information etracted from the condensed
consolidated balance sheet as of January 31, 1998, and the consolidated
statement of income for the 17 weeks ended January 31, 1998 and the 35 weeks
ended October 4, 1997, and is qualified in it entirety by reference to such
finacial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 4-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998
<PERIOD-END> JAN-31-1998 OCT-04-1997
<CASH> 58,200 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 167,900 0
<CURRENT-ASSETS> 254,200 0
<PP&E> 130,500 0
<DEPRECIATION> (9,400) 0
<TOTAL-ASSETS> 443,000 0
<CURRENT-LIABILITIES> 145,300 0
<BONDS> 0 0
0 0
0 0
<COMMON> 10,225 0
<OTHER-SE> 121,700 0
<TOTAL-LIABILITY-AND-EQUITY> 443,000 0
<SALES> 336,100 613,800
<TOTAL-REVENUES> 336,100 613,800
<CGS> 245,200 435,200
<TOTAL-COSTS> 94,300 194,700
<OTHER-EXPENSES> 6,000 37,400
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,900 4,300
<INCOME-PRETAX> (14,300) (57,800)
<INCOME-TAX> 1,100 300
<INCOME-CONTINUING> (15,400) (58,100)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 11,200
<CHANGES> 0 0
<NET-INCOME> (15,400) (46,900)
<EPS-PRIMARY> (1.51) (2.11)
<EPS-DILUTED> (1.51) (2.11)
</TABLE>
