As filed with the Securities and Exchange Commission on
September 13, 1996.
Registration No. 33-98280
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
C.R. ANTHONY COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0129405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Michael E. McCreery
701 North Broadway 701 North Broadway
Oklahoma City, Oklahoma 73102 Oklahoma City, Oklahoma 73102
(Address, including zip code, (Name and address on agent for service)
of Principal Executive Offices) (405) 278-7400
(Telephone number, including area code,
of agent for service)
________________________
Copy to:
Lon Foster, III, Esq.
Crowe & Dunlevy, A Professional Corporation
500 Kennedy Building
321 South Boston
Tulsa, Oklahoma 74103-3313
(918) 592-9800
_______________________________________
Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement
becomes effective.
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.
[X]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [X]
C.R. ANTHONY COMPANY
CROSS REFERENCE SHEET PURSUANT TO
ITEM 501(B) OF REGULATION S-K
Item No. and Description Location in Prospectus
1. Forepart of the Registration Outside Front Cover
Statement and Outside Front Page
Cover Page of Prospectus
2. Inside Front Cover and Outside Inside Front Cover
Back Cover Pages of Prospectus and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Prospectus Summary;
Factors and Ratio of Earnings Risk Factors
to Fixed Charges
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Plan of Distribution
6. Dilution Not Applicable
7. Selling Security Holders Selling Shareholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities Description of
to be Registered Securities
10. Interests of Named Experts Experts; Legal
and Counsel Matters
11. Information with Respect to Risk Factors;
the Registrant Capitalization;
Selected
Consolidated
Financial Data;
Management's
Discussion and
Analysis of
Financial
Condition and
Results of
Operations;
Business; Properties;
Management;
Beneficial
Ownership; Certain
Relationships and
Related Transactions
12. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
PROSPECTUS
C.R. ANTHONY COMPANY
Common Stock
This Prospectus relates to the public offering of up to
2,579,268 shares of Common Stock, par value $0.01 per share
("Common Stock"), of C.R. Anthony Company, an Oklahoma
corporation ("Company"), by the holders thereof ("Selling
Shareholders"). The Company will not receive any of the proceeds
of this public offering.
_________________________
See "Risk Factors" commencing on page 7 for a discussion of
certain factors that should be considered by prospective
purchasers.
_________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OTHER THAN
AS CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND INFORMATION NOT HEREIN CONTAINED
SHOULD NOT BE RELIED ON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES
OF COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SUCH SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
The Selling Shareholders, directly or through agents dealers
or underwriters designated from time to time may sell the shares
of Common Stock from time to time on terms to be determined at
the time of sale. To the extent required, the number of shares
being offered, the other terms, the name or the names of any
agent, dealer or underwriter and any commissions, concessions or
discounts allowed or paid with respect to a particular offer will
be set forth in an accompanying supplement to this Prospectus.
The Company will bear substantially all of the expenses (other
than commissions, concessions and discounts) incident to the
offer and the sale of the shares of Common Stock pursuant to this
Prospectus, which are estimated to be $95,000. See "Plan of
Distribution."
The date of this Prospectus is September 13, 1996.
TABLE OF CONTENTS
Prospectus Summary
Risk Factors
Market Information and Dividend Policy
Capitalization
Selected Consolidated Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Business
Properties
Management
Beneficial Ownership
Certain Relationships and Related Transactions
Description of Securities
Selling Shareholders
Plan of Distribution
Legal Matters
Experts
Additional Information
Index to Consolidated Financial Statements
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, and, in
accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission.
Reports, proxy statements and other information filed by the
Company can be inspected and copied at the Public Reference
Section of the Commission (see "Additional Information.") The
Commission also maintains a Web site that contains reports, proxy
and information statements and other information regarding
registrants, including the Company, that file electronically with
the Commission. The address of such site is http://www.sec.gov.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995. With the exception of historical
information, the matters discussed or incorporated by reference
in this Prospectus are forward-looking statements that involve
risks and uncertainties including, but not limited to: the
risks indicated in filings with the Securities and Exchange
Commission; changes in law, regulation, technology, and economic
conditions; the loss of key personnel; an increased presence of
competition in the Company's markets; the seasonality of demand
for apparel which can be significantly affected by weather
patterns, competitors' marketing strategies and changes in
fashion trends; availability of product and favorable financing
from suppliers and lending institutions; and failure to achieve
the expected results of annual merchandising and marketing plans,
store opening or closing plans, and other facility expansion
plans. The occurrence of any of the above could have a material
adverse impact on the Company's operating results.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and the more detailed financial
statements appearing elsewhere in this Prospectus.
Overview
The Company's operating philosophy is to offer national
brand apparel, including footwear, for the entire family at price
levels that provide value to the customer relative to other
options available. All of the stores operated by the Company
offer value priced merchandise with a focus on casual men's,
women's and children's apparel and shoes. Denim has historically
been the largest category for Anthonys, under the Chic, Lee,
Levi, Wrangler and various other labels.
The Company is a regional retailer of moderately priced
family apparel operating under the names "Anthonys" and "Anthonys
Limited" with the majority of its stores in smaller communities
throughout the southwestern and midwestern United States. In
most of its rural markets, management believes that Anthonys is
the dominant -- and often only -- provider of nationally-
advertised branded apparel. As a result, the Company has taken
advantage of the recent dramatic growth in consumer spending in
non-metropolitan markets and is rapidly opening new low-cost,
highly profitable stores in these communities. The "limited"
store concept, which the Company began implementing in early
1995, utilizes on average less than one-half the selling space of
a traditional "Anthonys" store. This concept has enabled the
Company to profitably enter even smaller markets. The Company
thus has been able to bring rural customers merchandise generally
found only in malls and large full service department stores in
suburban and metropolitan communities. By supplying branded
merchandise, Anthonys is also able to comfortably coexist with
Wal-Mart and other similar chains, since the discount stores do
not generally carry branded apparel items supplied by Anthonys.
Simultaneously, the discount store chains have caused a
significant decline in the number of local merchants who would
otherwise compete with the Company.
At August 3, 1996, the Company operated 211 stores,
predominantly located in strip shopping centers, of which 185
stores operated under the name "Anthonys" and 25 under the name
"Anthonys Limited". The Company's stores are located in twelve
states primarily in Arkansas, Kansas, Louisiana, Montana, New
Mexico, Oklahoma and Texas. The Company operates one store under
the name "Exclusive Lee," which primarily sells branded goods
produced by the Lee Company. The Company intends to close this
store in fiscal 1997.
The "Anthonys Limited" store represented a refinement of the
financial profile of a store designed to operate profitability in
the lower sales volume potential in the targeted rural markets.
The name "Anthonys Limited" was derived from the idea of
"limiting" the investment risk associated with the smaller store
profile, i.e. lower capital investment and shorter lease
commitments than are required in the larger "Anthony" stores.
During the initial testing of the "limited" store concept, the 25
small stores opened in 1995 and early 1996 used the name "Anthony
Limited." While management has decided to aggressively pursue
the "limited" store concept, commencing in August 1996, all new
store openings using the "limited" store concept will operate
under the "Anthonys" name. The decision to revert to using the
"Anthonys" name in the "limited" store concept was made to
facilitate the interchange of graphics and store signage
throughout all of the Company's stores while taking advantage of
the goodwill of over 73 years of advertising the "Anthonys" name.
The "limited" store concept is targeted at communities with
a population of 5,000 to 10,000 to take advantage of the
prevailing lack of branded apparel retailers in rural areas. The
Company's objective is to capitalize on the exit of national
retailers, such as Sears and J.C. Penney, and local apparel
boutiques from those communities. These new, smaller stores
(average size 8,000 square feet as compared to the overall
Company store average size of 18,000 square feet) are less
expensive to operate and are showing a higher return on assets
than a traditional larger "Anthonys" store at the same stage of
development.
While 55 of the Company's stores are located in communities
which management considers metropolitan or highly competitive
markets ("metro" stores), 155 stores, including 25 of the
"limited" concept stores, are operated in rural communities where
the Company has considerable operating experience. The "metro"
stores average approximately 23,000 square feet in size while the
rural stores average approximately 14,500 square feet.
All of the purchasing and distribution, as well as
advertising and marketing activities of the Company, are
centralized at its corporate headquarters. Procurement of
merchandise is made on the basis of purchase orders and
merchandise is principally distributed through the Company's
distribution center located in Oklahoma City. The advertising
and promotional strategy of Anthonys is designed to improve its
image as a value-oriented branded apparel retailer for the entire
family. The majority of the Company's advertising is conducted
through newspaper inserts and ads, direct mail and broadcast
media.
Growth Strategy
General. The Company's strategy is to take advantage of the
continuing growth in demand in rural markets for national brand
apparel. Anthonys has positioned itself as the dominant retailer
of such items in these communities and is often the only channel
of distribution for national brands, such as Levi, Lee, Nike,
Haggar, Wrangler, Reebok and others into these towns. As a
result, the Company occupies a niche that provides higher gross
margins and is less subject to the intense competition that often
characterizes rural market retailing, which is dominated by
discount store chains.
Anthonys has long been a major rural market retailer in the
southwest and midwestern states and is well known and well
respected by its customers throughout this region for providing
sought-after branded merchandise at value prices. The Company
has a long history of successfully entering small town markets
with new stores that allow its customers to obtain goods that
they otherwise would have to find in more metropolitan
environments.
Beginning in the early 1980s, the decline in the domestic
energy market began to negatively affect consumer spending in the
Company's service areas. In the late 1980s, when the energy
sector began recovering, the Company was acquired in a leveraged
buyout. In 1991, the effects of the national economic downturn
forced the Company to reorganize under Chapter 11 of the
Bankruptcy Code. These events resulted in a reduction in the
Company's store growth. Because of the Chapter 11
reorganization, however, the Company was able to exit from
certain unprofitable stores and position itself better in its
remaining markets.
Following emergence from bankruptcy in 1992, Anthonys has
had the resources to begin store growth again. With the growth
and improvement in video and audio technology, management
believes consumer awareness of -- and demand for -- branded
products has rapidly increased. Recognizing this steadily
improving demand in its core rural markets, the Company developed
in 1994 and began rolling out in early 1995 its "limited" stores.
"Limited" Store Concept. To deploy assets most profitably
and capitalize on underserved areas, the Company introduced the
"limited" store concept in early 1995. Operating from a smaller
platform, the stores can be opened quickly and inexpensively.
Once operational, these stores provide a low-cost and thus highly
profitable means for the Company to expand into not only
communities where a traditional "Anthonys" store could be viable,
but also into even smaller towns that could not support the
larger format. To date, the return on investment in these stores
has been significantly higher than that experienced by the
Company with larger format stores.
"Limited" stores will effectively compete with the regional
discounter by offering national brand apparel in all categories,
something which is not available at the discounter. The
"limited" stores will differentiate themselves from existing
privately owned competitors which offer similar branded product
by offering better selection, better in-stock status and sharper
pricing.
The "limited" store differs from the traditional larger
"Anthonys" in not only size but also in product breadth and
depth. The "limited" stores are designed to provide both a good
selection of branded merchandise in denim, footwear and
children's, as well as a reasonable array of women's and men's
items. The women's component of sales in the "limited" store is
somewhat higher than in the traditional "Anthonys" because of a
lower level of competition these stores face from other chains
situated in the medium-sized communities.
The smaller store size also permits the Company to hire
personnel locally. This results in substantial labor savings by
not having to bring in career-track managers and employees from
other stores. The local staff also is an important marketing
tool for the small town stores through their interaction with
other members of the community.
Occupancy costs in the "limited" stores are approximately
50% lower per square foot because of lower property values and
availability of space. Another important factor is that minimum
lease terms are generally expected to be no longer than three to
five years; however, options for renewal beyond the base term are
easily obtained. Capital expenditures for leasehold improvements
and fixturing costs per square foot are not as great in
comparison to traditional "Anthonys" stores. All stores under
this concept are expected to have front-end customer checkout,
minimizing the required number of point of sales cash registers
and making it easier for employees to focus on loss prevention.
The Company had 25 "limited" concept stores open
at August 3, 1996. Management expects the "limited" size
store will be the principal format for new store openings
and believes that substantial opportunities exist
throughout the region in which the Company now operates for many
more "limited" stores. Because of the remote nature of many
midwest and western states, the Company believes opportunities
exist in numerous states where it currently has nominal or no
operations. The Company believes that it can open over 300
"limited" concept stores over the next five years. In addition,
because of the relatively straight-forward store layouts and the
testing and experience obtained already, once a site has been
selected, the Company can build out and stock a new "limited"
store very rapidly.
Merchandising. In addition to store growth opportunities,
the Company has demonstrated the ability to improve its gross
margins over the last several years and intends to continue
focusing on its merchandising mix. Historically, the women's
component of the Company's business has been less than its
competitors, due in large part to emphasis on men's items. Since
women comprise the majority of the Company's shoppers, the
Company is shifting its advertising and space allocation in the
existing traditional "Anthonys" stores slightly toward women's
wear to refocus women customers to buy for themselves, not just
for other members of the family. To facilitate this, the Company
is adding higher quality, branded women's items, which is
consistent with its merchandising in denim, footwear, men's and
children's and which should produce both higher sales figures and
better gross margins.
In the "limited" stores, the Company has been able to open
stores with a greater percentage of floor space devoted to
women's merchandise. This is being done to create the image as a
women's fashion store. As a result, the "limited" stores have
seen women's wear sales as a percentage of total sales
approximately 25% higher than in traditional "Anthonys" stores.
"Metro" Stores. As sunbelt areas have grown over time, many
traditional "Anthonys" stores that began as rural stores have
become part of suburban and metropolitan communities. The
Company classifies 55 stores as "metro" as of August 3, 1996.
These stores face competition from mall-oriented, large, full
service department stores and niche specialty stores. This
competition has hurt the Company's sales as well as its ability
to maintain gross margins. At the same time, the cost of
operating such stores has increased because of their urban
locations. As a consequence, the return on assets experienced by
the Company in the "metro" stores has been appreciably less than
the return on assets in existing rural stores.
When the Company emerged from bankruptcy in 1992, it
dramatically reduced debt obligations which gave it the resources
to focus on new stores. Because most of the Company's rural
operating regions were still then feeling the adverse effects of
the recession, Anthonys elected to pursue a strategy of opening
stores in its existing metropolitan areas to better leverage its
advertising and other overhead. For the most part, however, this
strategy was only marginally successful, primarily because of the
continuing competition from the larger, full-line stores.
As the rural areas began showing more signs of economic life
in 1994, the Company began directing its resources back to its
traditional rural market and in 1995 began opening the "limited"
concept stores. To minimize its risk with the "metro" stores,
the Company had entered into short-term leases (3-5 years). At
August 3, 1996, 75% of the "metro" store leases have lease
decision points in the next five years. If return on assets from
operating these stores remains less than what is being obtained
in rural stores, the Company will shift resources away from the
metropolitan and highly competitive areas.
The Company already has begun implementing this "harvesting"
strategy. As leases expire or as the opportunities arise, the
Company will evaluate closing "metro" stores and redeploying the
cash flow generated to the new "limited" stores. Because of the
favorable lease structures and because of fairly low liquidation
costs, if return on assets declines in other "metro" stores,
Anthonys will be able to exit those markets and generate cash to
support the growth in rural markets beyond what is being
generated through operating cash flow. If the "metro" stores
maintain targeted return on investment, as most currently are,
they will remain open and leases will be extended.
Other Considerations. While the Company is actively
pursuing this operating strategy, management is engaged in a
continuous strategic analysis of the Company, evaluating other
alternatives for the Company. Alternatives being evaluated at
any time may include acquisitions by the Company of other apparel
retailers or an acquisition of the Company by other apparel
retailers or financial investors. As part of this evaluation,
management may conduct discussions with and furnish information
to potential interested parties.
The address and the telephone number of the principal
executive offices of the Company are 701 North Broadway, Oklahoma
City, Oklahoma 73102 and (405) 278-7400.
An investment in the Company involves significant risk. See
"Risk Factors."
The Offering
Securities Offered Up to 2,579,268 shares
of Common Stock offered
by the Selling Shareholders
Offering Price To be determined at the time of
sale
Manner of Sale Directly by the Selling
Shareholders or through
agents, dealers or
underwriters
Proceeds Received by the Selling
Shareholders
Summary Financial Information
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Reorganized Company (1) Predecessor Company
53 Weeks 52 Weeks 52 Weeks 27 Weeks 26 Weeks 52 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended Ended Ended Ended Ended
February 3, January 29, January 30, January 31, July 26, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data: (Unaudited)
Net sales $304,451 $302,241 $302,858 $176,804 $130,757 $307,881 $133,878 $139,544
Gross Margin $96,763 $96,826 $92,504 $50,196 $40,289 $94,281 $43,892 $44,468
Net income (loss) $2,086 $3,695 $2,857 $1,191 $54,637 $354 $1,283 $(621)
Per Share Data:
Net income (loss)
per common share (2) $0.23 $0.41 $0.32 $0.13 $546,370 $3,540 $0.14 $(0.07)
Net book value per
common share (2) $7.46 $7.22 $5.92 $4.99 $(585,880) $(546,370) $7.58 $7.15
Average common stock
and common stock
equivalents outstanding
(2) 9,005,245 9,003,497 9,000,000 9,000,000 100 100 9,014,432 9,005,245
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Predecessor
Reorganized Company (1) Company
February 3, January 29, January 30, January 31, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Store Data: (Unaudited)
Stores open at end of 208 197 189 182 181 211 203
period
Balance Sheet Data:
Working capital (3) $62,199 $54,116 $52,676 $50,262 $56,825 $63,942 $60,641
Total assets (3) $117,060 $109,392 $96,195 $91,279 $113,626 $133,157 $137,689
Long-term debt (3) $25,183 $15,859 $17,023 $17,042 $91,871 $26,250 $39,888
Shareholders' equity $67,135 $65,049 $53,275 $44,953 $(54,637) $68,509 $64,428
(deficit) (3)
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Combined Predecessor
Reorganized Company(1) Fiscal Year Company
53 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended Ended Ended Ended
February 3, January 29, January 30, January 31, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Other Data (Unaudited)
EBITDA (5) $10,449 $12,039 $10,249 $6,129 $12,141 $5,282 $2,422
EBIT (3) (6) $5,587 $8,222 $6,969 $2,683 $7,775 $3,029 $233
Depreciation
and amortization $4,862 $3,817 $3,280 $3,446 $4,366 $2,253 $2,189
Capital
expenditures $4,812 $5,298 $4,706 $3,959 $3,749 $1,996 $2,276
Inventory
turnover(7) 2.6 2.8 2.9 2.9 3.0 1.0 1.1
Net sales per
selling sq.
ft.(4) $105.18 $108.46 $112.49 $116.97 117.54 $48.91 $50.50
</TABLE>
Notes to Summary Financial Data:
(1) On August 3, 1992, the Company emerged from bankruptcy
proceedings pursuant to the confirmed Reorganization Plan. See
"Business - History." For financial reporting purposes, the
effective date of the Reorganization Plan was July 26, 1992, the
last day of the second fiscal quarter of fiscal 1993. The
Company adopted fresh-start reporting in accordance with the
recommended accounting principles for entities emerging from
Chapter 11 as set forth in the American Institute of Certified
Accountants Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code.
Accordingly, the results of operations reported subsequent to
July 26, 1992 are not prepared on a basis comparable to the prior
periods.
(2) Information regarding the Predecessor Company is not
meaningful due to the recapitalization of the Company under the
Reorganization Plan. See "Business - History."
(3) Information regarding the Predecessor Company is not
comparable to the Reorganized Company information due to fresh-
start adjustments recorded and classifications of pre-petition
liabilities made in connection with the Company's Chapter 11
reorganization proceedings. See "Business - History."
(4) Reflects data only from comparable stores. Comparable
stores are those stores which were open for the entire period in
that fiscal year and the immediately preceding fiscal year.
(5) EBITDA represents earnings before interest, taxes,
depreciation and amortization. EBITDA is not a generally
accepted accounting principles measure of cash flows, nor is such
information an alternative to GAAP as an indicator of
performance.
(6) EBIT represents earnings before interest and taxes. EBIT is
not a generally accepted accounting principles measure of cash
flows, nor is such information an alternative to GAAP as an
indicator of performance.
(7) Represents costs of sales for the period divided by average
inventory. Interim period inventory turns are not annualized.
RISK FACTORS
Persons considering an investment in the shares of Common
Stock should consider, in addition to the other information
contained herein, the following information.
Highly Competitive Industry. The retail apparel industry is
highly competitive and the Company faces active competition.
Buying and selling are done in open markets and the success or
the failure of a retailer depends on its knowledge of the markets
in which it is buying and selling. Many of the retailers with
which the Company competes have substantially greater financial
and other resources than the Company. See "Business -
Competition."
Quarterly Fluctuations and Seasonality. The retail apparel
industry is highly seasonal, with the highest level of sales
occurring during the fourth quarter of the Company's fiscal year.
The success of the Company's operations depend, to a significant
degree, on the sales generated during the fourth quarter. Any
decrease in sales during the fourth quarter, whether as a result
of poor weather or otherwise, may have a material adverse effect
on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Dependence Upon Key Vendors. The Company depends, to a
significant degree, on its ability to obtain national brand name
merchandise at competitive prices from its vendors. Because of
its dependence on national brand merchandise, the Company
purchases a substantial portion of its merchandise from a small
group of vendors, including Levi Strauss & Co., which represented
19% of its merchandise purchases in fiscal 1996. Although, in
the view of management, the relationship of the Company with its
vendors is satisfactory, there is no assurance that the Company
can continue to acquire merchandise from its vendors at
competitive prices in the future and the loss of any of its
substantial vendors, particularly Levi Strauss & Co., could have
a material adverse effect on the Company. See "Business -
Purchasing and Distribution."
Dependence Upon Economic Conditions. The retail apparel
industry is sensitive to general economic conditions. In
addition, a substantial number of the stores operated by the
Company are located in the southwestern United States and, as a
result, are affected by general economic conditions in that area.
The economy of that area has traditionally depended on
agriculture and the oil and gas industry. All of these economic
conditions are beyond the control of the Company.
Nonpayment of Dividends. The Company will not pay dividends
on its shares of Common Stock in the foreseeable future. See
"Market Information and Dividend Policy."
Public Market for Common Stock; Possible Volatility of Stock
Price. The Company's Common Stock has been reported on the
Nasdaq National Market System since August 7, 1996. Prior to
such time, a limited public trading market existed for the Common
Stock. There can be no assurance that an active public trading
market for the Common Stock will be sustained. Market prices for
the Common Stock will be influenced by a number of factors,
including the Company's historical and anticipated operating
results and other factors affecting the Company specifically and
the stock market generally, as well as the depth and liquidity of
the market for the Common Stock.
MARKET INFORMATION AND DIVIDEND POLICY
On September 6, 1996, there were 591 holders of record of
the Company's Common Stock. The Common Stock has been quoted on
the Nasdaq National Market System (Nasdaq symbol "CRAU") since
August 7, 1996. On September 6, 1996, the last reported sale
price of the Common Stock on the Nasdaq National Market System
was $4.25 per share. The following table sets forth for the
period indicated the range of the high and low sale prices for
the Common Stock as reported on the Nasdaq National Market
System. These prices do not include retail mark-up, mark-down or
commission.
Fiscal 1997 High Low
Third Quarter (from August 7, 1996
through September 6, 1996) $3.75 $4.63
Prior to the listing of the Common Stock on the Nasdaq
National Market System, a limited public trading market existed
for the Common Stock. Through the first fiscal quarter ended May
4, 1996, trading in the Common Stock was limited and sporadic and
did not, in the view of the Company, constitute an established
public trading market. During the second fiscal quarter ended
August 3, 1996 and through August 6, 1996, market making and
trading activity in the Common Stock increased. During such time
period, the high and low sales price for the Common Stock ranged
from $1.25 to $4.13, as reported by Ladenburg, Thalmann & Co.
Inc. These prices do not include retail mark-up, mark-down or
commission.
The Company anticipates that all future earnings will be
retained to finance future growth. Furthermore, the loan
agreement with respect to its present working capital and letter
of credit facility prohibits the Company from paying dividends on
its Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources - Fiscal Year End Discussion." Even absent
such restriction, the Company has no present intention of paying
any dividends on its Common Stock in the foreseeable future.
CAPITALIZATION
The following table sets forth the capitalization of the
Company at August 3, 1996. This table should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
Long-term debt $26,250,000
Stockholders' Equity:
Common Stock, $0.01 par value;
50,000,000 shares authorized;
9,035,645 shares issued
and outstanding (1) 90,000
Additional Paid in Capital 57,307,000
Retained Earnings 11,112,000
Total Stockholders' Equity 68,509,000
Total Capitalization $94,759,000
________________________________
(1) Does not include up to 1,082,500 shares that may be issued
pursuant to outstanding options granted under the Company's 1992
Stock Option Plan and other grants to non-employee directors of
the Company.
Because the shares of Common Stock are being sold by the
Selling Shareholders and the Company is not receiving any of the
proceeds of the offering, this offering does not affect the
capitalization of the Company.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected historical financial
data for the Company for the periods presented and should be read
in conjunction with the consolidated financial statements
included elsewhere in this Prospectus (in thousands, except store
and per share data).
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Reorganized Company (1) Predecessor Company
53 Weeks 52 Weeks 52 Weeks 27 Weeks 26 Weeks 52 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended Ended Ended Ended Ended
February 3, January 29, January 30, January 31, July 26, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data: (Unaudited)
Net sales $304,451 $302,241 $302,858 $176,804 $130,757 $307,881 $133,878 $139,544
Gross margin 96,763 96,826 92,504 50,196 40,289 94,281 43,892 44,468
Selling, general, and
administrative
expense 73,317 72,188 70,580 39,297 32,869 70,854 33,515 35,720
Advertising 12,997 12,599 11,675 6,401 5,789 11,286 5,095 6,326
Depreciation and
amortization 4,862 3,817 3,280 1,249 2,197 4,366 2,253 2,189
Income (loss) before
interest expense,
reorganization items,
fresh-start
adjustments, income
taxes and
extraordinary item 5,587 8,222 6,969 3,249 (566) 7,775 3,029 233
Interest expense 2,577 2,165 2,207 1,296 1,076 2,610 925 1,252
Income (loss) before
reorganization items,
fresh-start
adjustments, income
taxes and
extraordinary item 3,010 6,057 4,762 1,953 (1,642) 5,165 2,104 (1,019)
Reorganization items - - - - (2,309) (5,017) - -
Fresh-start
adjustments - - - - (5,839) - - -
Income (loss) before
income taxes and
extraordinary item 3,010 6,057 4,762 1,953 (9,790) 148 2,104 (1,019)
Income tax benefit
(expense) (924) (2,362) (1,905) (762) - 206 (821) 398
Net income (loss)
before extraordinary
item 2,086 3,695 2,857 1,191 (9,790) 354 1,283 (621)
Extraordinary item -
gain on debt
discharge - - - - 64,427 - - -
Net income (loss) $2,086 $3,695 $2,857 $1,191 $54,637 $354 $1,283 $(621)
Average common stock
and common stock
equivalents
outstanding (2) 9,005,245 9,003,497 9,000,000 9,000,000 100 100 9,014,432 9,005,245
Net income (loss)
per common share (2) $0.23 $0.41 $0.32 $0.13 $546,370 $3,540 $0.14 $(0.07)
</TABLE>
<TABLE>
Fiscal Year Interim Period
Predecessor
Reorganized Company (1) Company
February 3, January 29, January 30, January 31, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data: (Unaudited)
Working capital (3) $62,199 $54,116 $52,676 $50,262 $56,825 $63,942 $60,641
Net property and
equipment (3) $15,331 $14,911 $13,146 $11,446 $19,320 $15.110 $15,250
Total assets(3) $117,060 $109,392 $96,195 $91,279 $113,626 $133,157 $137,689
Long-term debt (3) $25,183 $15,859 $17,023 $17,042 $91,871 $26,250 $39,888
Shareholders'
equity (deficit)(3) $67,135 $65,049 $53,275 $44,953 $(54,637) $68,509 $64,428
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Combined Predecessor
Reorganized Company (1) Fiscal Year Company
53 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended Ended Ended Ended
February 3, January 29, January 30, January 31, January 26, August 3, July 30,
1996 1995 1994 1993 1992 1996 1995
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C>
Selected Other Data: (Unaudited)
Net sales per store
(000's) (4) $1,544 $1,572 $1,632 $1,694 $1,698 $722 $737
Selling sq. ft. per
store (4) 14,677 14,497 14,507 14,486 14,453 14,770 14,599
Net sales per selling
sq.ft.(4) $105.18 $108.46 $112.49 $116.97 $117.54 $48.91 $50.50
Comparable store sales
percentage increases
(decrease) (4) (1.29%) (3.75%) (3.62%) (0.93%) 4.39% (3.8%) 4.4%
EBITDA (5) $10,449 $12,039 $10,249 $6,129 $12,141 $5,282 $2,422
EBIT (3) (6) $5,587 $8,222 $6,969 $2,683 $7,775 $3,029 $233
Depreciation and
amortization $4,862 $3,817 $3,280 $3,446 $4,366 $2,253 $2,189
Inventory turnover (7) 2.6 2.8 2.9 2.9 3.0 1.0 1.1
Number of stores (end
of period) 208 197 189 182 181 211 203
Total selling sq. ft.
(end of period) 3,033,112 2,913,998 2,762,161 2,647,939 2,617,125 2,941,963 2,984,135
Capital expenditures $4,812 $5,298 $4,706 $3,959 $3,749 $1,996 $2,276
</TABLE>
Notes to Selected Consolidated Financial Data:
(1) On August 3, 1992, the Company emerged from bankruptcy
proceedings pursuant to the confirmed Reorganization Plan. See
"Business - History." For financial reporting purposes, the
effective date of the Reorganization Plan was July 26, 1992, the
last day of the second fiscal quarter of fiscal 1993. The
Company adopted fresh-start reporting in accordance with the
recommended accounting principles for entities emerging from
Chapter 11 as set forth in the American Institute of Certified
Accountants Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code.
Accordingly, the results of operations reported subsequent to
July 26, 1992 are not prepared on a basis comparable to the prior
periods.
(2) Information regarding the Predecessor Company is not
meaningful due to the recapitalization of the Company under the
Reorganization Plan. See "Business - History."
(3) Information regarding the Predecessor Company is not
comparable to the Reorganized Company information due to fresh-
start adjustments recorded and classifications of pre-petition
liabilities made in connection with the Company's Chapter 11
reorganization proceedings. See "Business - History."
(4) Reflects data only from comparable stores. Comparable stores
are those stores which were open for the entire period in that
fiscal year and the immediately preceding fiscal year.
(5) EBITDA represents earnings before interest, taxes,
depreciation and amortization. EBITDA is not a generally
accepted accounting principles measure of cash flows, nor is such
information an alternative to GAAP as an indicator of
performance.
(6) EBIT represents earnings before interest and taxes. EBIT is
not a generally accepted accounting principles measure of cash
flows, nor is such information an alternative to GAAP as an
indicator of performance.
(7) Represents costs of sales for the period divided by average
inventory. Quarterly inventory turns are not annualized.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company operates on a fiscal year distinct from the
calendar year. References to fiscal 1992, fiscal 1993, fiscal
1994, fiscal 1995, fiscal 1996 and fiscal 1997 refer to the
fiscal years ended January 26, 1992, January 31, 1993, January
30, 1994, January 29, 1995, February 3, 1996, and February 1,
1997, respectively. References to a fiscal period refer to the
12 accounting periods comprising a fiscal year, each of which is
a four or five week period under the Company's "4-5-4" method of
accounting.
Results of Operations
Fiscal Years Ended February 3, 1996, January 29, 1995 and
January 30, 1994. The following table presents selected results
of operations expressed as a percent of net sales:
Fiscal Fiscal Fiscal
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Gross margin 31.8% 32.0% 30.5%
Selling, general and
administrative expense 24.1% 23.8% 23.2%
Advertising 4.3% 4.2% 3.9%
Depreciation & amortization 1.6% 1.3% 1.1%
Interest expense 0.8% 0.7% 0.7%
Income from operations 1.0% 2.0% 1.6%
Net sales. Comparable store sales have declined 1.3% on a
fifty-three week basis and 2.4% on a fifty-two week basis in
comparing fiscal 1996 to fiscal 1995. While comparable store
sales increased 1.7% during the first three quarters of fiscal
1996, the Company experienced comparable store sales declines
during the fourth quarter. Sales volume in the fourth quarter of
fiscal 1996 was very disappointing for apparel retailers in
general. Due to the softness in demand, management made the
decision to curtail selected promotional events during the
holiday season. This step was taken to optimize profitability.
With improved merchandise status reporting becoming
available during fiscal 1995, management pursued a strategy of
controlling inventory levels and maximizing gross margins through
somewhat higher initial mark-ups on selected merchandise. While
this strategy was successful and contributed to higher
profitability, it tended to have a negative effect on comparable
store sales in fiscal 1995 as compared to fiscal 1994.
Comparable store sales in fiscal 1995 declined 3.8% from fiscal
1994.
Gross margin. Gross margin was essentially flat in
comparing fiscal 1996 to fiscal 1995. The gross margin increase
in fiscal 1995 from fiscal 1994 was principally achieved through
maintenance of a higher initial mark-ups and reduced markdown
expenses achieved by improved inventory management. The improved
initial mark-ups resulted from a combination of selected price
increases on fashion items and "off price" purchases of seasonal
fashion at lower than normal unit costs.
Selling, general and administrative expense. The increases
in selling, general and administrative expense of $1,129,000 (or
1.6%) in fiscal 1996 and $1,608,000 (or 2.3%) in fiscal 1995 have
resulted principally from the increased selling square footage
associated with operating more stores. Non-comparable stores
(new and closed stores) in fiscal 1996 and fiscal 1995
represented net increases in expense in these years of $2,037,000
and $2,809,000, respectively. The selling, general and
administrative costs of operating comparable stores actually
decreased in fiscal 1996 and fiscal 1995 by $988,000 and
$1,201,000, respectively. These decreases were the result of
lower personnel costs from implementing better information
systems and improved management practices. The costs associated
with the Company's corporate offices remained relatively flat in
fiscal 1996, fiscal 1995, and fiscal 1994 except for
approximately $400,000 of increase in fiscal 1996 associated with
severance payments due to a reduction in corporate office staff.
Advertising expense. Advertising expense increased
$398,000, or 3.2% in fiscal 1996 compared to fiscal 1995, and as
a percentage of sales, increased to 4.3% from 4.2%. While the
mix of medium (pre-printed inserts, regular newspaper, and
broadcast) varies from year to year, the Company has been
reducing the use of pre-printed inserts and increasing the use of
newspaper and broadcast media. The increase in advertising
expense in fiscal 1996 and fiscal 1995 over fiscal 1994 is due
principally to major programs that occurred in fiscal 1996 and
fiscal 1995. In fiscal 1996, the Company developed a multi-media
campaign entitled "Telling Our Story" using an outside
spokesperson to reinforce to the customer the "value" of shopping
regularly at "Anthonys." The campaign focused on how "Anthonys"
delivers "value" under the themes of great prices, convenience,
quality merchandise and customer service. In fiscal 1995, the
Company began to aggressively market its private label credit
card program to increase the number of cardholders under the
Company's private label charge card program and the use of the
card during Christmas 1994. See "Business - Marketing and
Advertising."
Depreciation. Depreciation and amortization expense
increased $1,045,000, or 27.4%, in fiscal 1996 compared to fiscal
1995 and as a percentage of sales, increased to 1.6% from 1.3%.
The increase was due principally to new stores opened and the
increased basis of depreciable assets. Also contributing to the
increase in fiscal 1996 was an increase in depreciation due to
the shortening of the estimated useful life of leasehold
improvements and write-off of approximately $114,000 of deferred
financing costs associated with the pay-off prior to maturity of
long-term debt by the Company. See "Liquidity and Capital
Resources." Depreciation and amortization expense increased
$537,000, or 16.4%, in fiscal 1995 compared to fiscal 1994 and,
as a percentage of sales, from 1.1% to 1.3%. The increase is
primarily due to the depreciation on the new stores opened in
fiscal 1995 and a full year's depreciation on new stores opened
in fiscal 1994.
Interest expense. Interest expense increased $412,000, or
19.0%, in fiscal 1996 compared to fiscal 1995, and as a
percentage of sales, increased to 0.8% from 0.7%. This increase
resulted from increases in the interest rate paid by the Company
on its working capital and letter of credit facility in the first
half of fiscal 1996 as a result of generally rising interest
rates and higher average outstanding borrowings thereunder.
During the second half of fiscal 1996, interest rates declined
as a result of the more favorable pricing under the amended and
restated loan agreement entered into July 27, 1995. See
"Liquidity and Capital Resources." Interest expense decreased
$42,000, or 1.9%, to $2,165,000 in fiscal 1995 compared to
$2,207,000 in fiscal 1994. The decrease was attributable to
25.3% lower average daily outstanding borrowings under the
Company's working capital and letter of credit facility and a
scheduled repayment of term debt made during fiscal 1995. The
decrease in interest expense due to these factors was offset by
increases in the prime interest rate which triggered increases in
the interest rate under the Company's loan agreements.
Tax expense. The Company's effective tax rate was 31%, 39%,
and 40% in fiscal 1996, 1995, and fiscal 1994, respectively. The
principal differences from the federal statutory rate were state
income taxes and general business credits.
Net income. As a result of the above factors, net income
decreased $1,609,000, or 43.5%, to $2,086,000 in fiscal 1996
compared to $3,695,000 in fiscal 1995. Net income increased
$838,000, or 29.3%, in fiscal 1995 compared to fiscal 1994 net
income of $2,857,000.
Twenty-six Weeks Ended August 3, 1996 Compared to the Twenty-
six Weeks Ended July 30, 1995. Due to the seasonal nature of the
Company's business, the results of operations for interim periods
are not necessarily indicative of the results of operations for
the full fiscal year. The following table presents selected
results of operations expressed as a percent of net sales:
26 Weeks Ended
August 3, July 30,
1996 1995
Net sales 100.0% 100.0%
Gross margin 32.8% 31.9%
Selling, general and
administrative expense 25.0% 25.6%
Advertising 3.8% 4.5%
Depreciation & amortization 1.7% 1.6%
Interest expense 0.7% 0.9%
Income (loss) before income taxes 1.6% (0.7%)
Net sales. Comparable store sales have declined 3.8% during
the twenty-six weeks ended August 3, 1996 compared to the twenty-
six weeks ended July 30, 1995. Except for the February clearance
period, the Company has been focused on following a strategy of
less aggressive advertising and maintaining lower inventory
levels as compared to the twenty-six weeks ended July 30, 1995.
Net sales during the twenty-six weeks ended August 3, 1996 also
reflect a net decrease of $797,000 associated with store openings
and closings. The Company opened 12 new stores while closing 9
during the twenty-six weeks ended August 3, 1996.
Gross margin. Gross margin dollars declined in comparing
the twenty-six weeks ended August 3, 1996 to the twenty-six weeks
ended July 30, 1995 while the gross margin percent improved. The
decline in gross margin dollars occurred during the first quarter
and was primarily related to a strategy of positioning inventory
through clearance activity which occurred principally in
February. Subsequent to this repositioning, the gross margin
percent has improved as the result of reduced markdowns and
establishing higher initial mark-ups. This margin percent
improvement increased gross margin dollars $296,000 on a net
sales decline of $4,515,000 during the second quarter. Average
inventory per selling square foot was 4.2% lower during the
twenty-six weeks ended August 3, 1996 as compared to the twenty-
six weeks ended July 30, 1995.
Selling, general and administrative expense. The decline in
selling, general and administrative expense in the twenty-six
weeks ended August 3, 1996 as compared to the twenty-six weeks
ended July 30, 1995 is primarily due to the continuing trend of
lower handling costs associated with a reduction in merchandise
purchases and lower personnel costs from implementing improved
business processes and management practices, the first phases of
which were initiated in the second half of last fiscal year.
Management intends to continue implementing business process
improvements to achieve further operating efficiencies. However,
the rate of improvement over the prior year in personnel costs
will diminish as the implemented process improvements reach their
first anniversary and as the effect of higher hourly wages are
absorbed as a result of increases to minimum wages effective
October 1, 1996 and September 1, 1997. Expense reductions
achieved from comparable stores were $2,054,000. The costs
associated with new stores were more than offset by savings
realized from stores closed as the net decrease in expenses in
non-comparable stores (new and closed stores) was $191,000.
Advertising expense. Advertising expense decreased
$1,231,000, or 19.5%, in the twenty-six weeks ended August 3,
1996 compared to the twenty-six weeks ended July 30, 1995. In
the prior year, the Company was introducing a campaign of "Every
Jean On Sale Everyday." While this promotional strategy
continues to be utilized, the marketing costs of maintaining the
program are lower than were incurred in the prior year. In
addition, since the first of the fiscal year management has been
pursuing a strategy of reducing reliance on more expensive pre-
printed inserts and broadcast media and has increased usage of
newspaper and direct marketing programs. While the trend of lower
advertising expense is expected to continue in the third quarter
due to the costs associated with a non-recurring marketing
campaign run in the prior year third quarter, this trend is not
expected to continue into the fourth quarter.
Interest expense. Interest expense was lower in the twenty-
six weeks ended August 3, 1996 compared to the twenty-six weeks
ended July 30, 1995 due to lower average borrowings and interest
rates. Average borrowings were $21,806,000 during the twenty-six
weeks ended August 3, 1996 as compared to $23,204,000 in the
twenty-six weeks ended July 30, 1995. The interest rate was
lower due to the new revolving credit agreement entered into in
July 1995 (see "Liquidity and Capital Resources").
Tax expense. The Company's effective tax rate was 39%
during the twenty-six weeks ended August 3, 1996 and July 30,
1995. The principal differences from the federal statutory rate
were state income taxes.
Net income (loss). As a result of the above factors,
results of operations improved as the Company is reporting net
income of $1,283,000 for the twenty-six weeks ended August 3,
1996 as compared to a net loss of $621,000 in the twenty-six
weeks ended July 30, 1995.
Liquidity and Capital Resources
General Discussion. The Company's primary cash requirements
are for seasonal working capital and capital expenditures in
connection with its new store expansion and remodeling programs,
equipment and software for information systems and distribution
center facilities. The Company's inventory levels build in early
spring for the Easter and spring selling season, in early summer
for the back-to-school selling season, and throughout the fall,
peaking during the Christmas selling season. Accounts
receivable, consisting principally of layaway receivables, peak
during July due to the back-to-school layaway promotion and
decrease during the third quarter as payments are received.
Capital expenditures typically occur throughout the year.
The Company's primary sources of funds are cash flow from
operations, borrowings under its working capital and letter of
credit facility and trade accounts payable. Terms for trade
accounts payable are generally 30 days with the total of trade
accounts payables fluctuating with the timing of merchandise
receipts.
The Company also has a private label charge card
program. The charge card receivables are sold to a third party
processor on a non-recourse basis at 100% of face value, less a
stated discount rate. The Company is also obligated to pay a fee
to the third party processor for bad debt losses equal to 50% of
such losses in excess of 2.25% of annual private label charge
card sales. The Company records the discount and accrues for its
estimated obligation for bad debt expense at the time the
receivables are sold
The Company had net operating loss carryforwards of
approximately $16,800,000 at the end of fiscal 1996. The benefit
of the net operating loss carryforwards has been fully recorded
as a deferred tax asset. The Company can deduct up to
approximately $2,700,000 of the loss carryforward each year until
fully utilized or expiration in fiscal 2008 which, at current
effective income tax rates, produces a tax savings annually of
approximately $1,050,000.
Fiscal Year End Discussion. While the decline in cash flow
from operating activities in fiscal 1996 as compared to fiscal
1995 was in part due to the decrease in operating income, the
principal cause for the decline was the build-up in inventory at
year end which resulted from lower than expected sales volume in
the 1995 holiday season . See "Results of Operations - Net
sales." Inventory levels were reduced through a combination of
clearance promotions and reducing purchases in the first quarter.
Net cash used for capital expenditures was $4,812,000,
$5,298,000, and $4,706,000 in fiscal 1996, fiscal 1995, and
fiscal 1994, respectively. These amounts include the following
expenditures in the following fiscal years (dollars in
thousands):
Fiscal Fiscal Fiscal
1996 1995 1994
Store expenditures:
New stores $2,116 $1,977 $1,236
Remodels, expansions, and relocations 1,043 1,194 1,516
Other 762 865 803
Information systems 585 1,037 971
Other 306 225 180
Total $4,812 $5,298 $4,706
In July 1995, the Company entered into an Amended and
Restated Loan Agreement (the "Agreement") maturing July 26, 2000.
The Agreement provides for revolving credit borrowings, letters
of credit and $20 million of long-term debt. The long-term
portion requires a $2 million annual payment. Maximum borrowings
under the Agreement are $60 million reduced annually by the $2
million long-term principal payment. The rate of interest on
borrowings is at an index rate (thirty-day dealer commercial
paper rate or LIBOR rates for selected terms) plus 2% per annum
plus a fee of 0.25% on the unused portion of the facility. The
Agreement is secured by a lien on substantially all assets of the
Company. Proceeds from the new agreement were used to pay off
the $15,368,000 secured note payable to the former Bank Group
which had provided for $3 million annual principal reductions and
matured June 1, 1999. By paying off the Bank Group secured
note, the Company achieved a slight improvement in interest cost
and reduced annual principal payment obligations of $3.0 million
to $2.0 million.
Interim Period Discussion. The increase in cash flow from
operating activities in the twenty-six weeks ended August 3, 1996
as compared to the twenty-six weeks ended July 30, 1996 was due
in part to improved operating results. However, the principal
cause for improvement was a reduction during the twenty-six weeks
ended August 3, 1996 in required working capital, contrasted to
an increase in the twenty-six weeks ended July 30, 1995. The
change in working capital was due to lower inventory investment
during the current year. Purchases of inventory during the
twenty-six weeks ended August 3, 1996 were approximately
$18,806,000 less than during the twenty-six weeks ended July 30,
1995. Outstanding borrowings of long-term debt, which were
$9,324,000 higher at the end of fiscal 1996 compared to the end
of fiscal 1995, were $13,638,000 lower at August 3, 1996 as
compared to July 30, 1995.
Net cash used for capital expenditures was $1,996,000 and
$2,276,000 in the twenty-six weeks ended August 3, 1996 and July
30, 1995, respectively. These amounts included the following
expenditures in the periods presented (dollars in thousands):
26 Weeks Ended
August 3, July 30,
1996 1995
Store expenditures:
New stores $603 $941
Remodels, expansions, and relocations 224 678
Other 95 255
Information systems 596 221
Distribution center 299 -
Other 179 181
Total $1,996 $2,276
The Company's capital expenditures in fiscal 1997 are
expected to total approximately $7 million. This amount
contemplates the opening of 30 to 35 stores if suitable
locations can be found and expending approximately $2 million
for equipment and software to automate the distribution center
processes. The distribution center project will be financed
by the Company's revolving credit facility. The Company expects
to accelerate the rate of store openings in future years with
financing to be provided by cash flow from operations.
BUSINESS
At August 3, 1996, the Company operated 211 specialty
department stores under the names "Anthonys" and "Anthonys
Limited" primarily in smaller communities in twelve southwestern
and Rocky Mountain states. The stores offer moderately priced
branded and private label apparel for the entire family, with
particularly strong offerings of denim and footwear, and selected
decorative home accessories.
History
The Company was founded as a partnership by C.R. Anthony in
Cushing, Oklahoma in 1922 and was incorporated in 1926 as an
Oklahoma corporation under the name "C.R. Anthony Company."
From 1922 to 1987, the Company was operated as a family
business by C.R. Anthony and members of his family. During this
period, the Company increased substantially both in size and in
geographic area. The Company experienced steady growth until the
early 1980's, when growth slowed principally as a result of
declines in local economies in the southwestern United States.
In April 1987, the Company was acquired by a group of
private investors in a leveraged buy-out and, from April 1987 to
August 1992, the Company was operated by management selected by
the investor group. During this period, management commenced a
business improvement program which involved (i) narrowing the
geographic area in which the Company operated, (ii) remodeling of
existing stores, (iii) opening of new stores within the narrowed
geographic area, (iv) improving its merchandise information and
financial systems and (v) strengthening the financial,
information systems and merchandising staff.
The Company's working capital financing was provided by a
group of banks, which had also provided a $40.0 million senior
term loan facility in connection with the leveraged buyout.
Again in the early 1990s, the economy slowed dramatically and the
Company's cash flows were significantly reduced. In January 1991,
the Company breached its operating cash flow covenant required by
the working capital facility. The Company was unable to attain
an acceptable waiver with the bank group that would enable the
Company to utilize the working capital facility in order to
purchase spring merchandise. This resulted in trade vendors
significantly limiting the flow of merchandise to the Company's
stores. The Company filed a voluntary Chapter 11 petition in
February 1991 in order to obtain working capital financing to
ensure continuous flow of merchandise to its stores.
Throughout the bankruptcy proceedings the management team
continued to implement the business improvement plan that it had
previously initiated. As a result of reviewing all lease
contracts on stores operating at the bankruptcy filing, 36 stores
were closed with the Company's maximum lease liability for these
stores being settled by the operation of the Bankruptcy Code.
The Company was also able to obtain concessions from landlords in
many stores which it continued to operate. The effect of these
concessions was to either reduce the annual occupancy expense or
give the Company the option to shorten the minimum remaining term
under the lease agreement. See "Properties - Store Leases."
The Reorganization Plan was confirmed in July 1992 and
consummated in August 1992. The prior working capital and letter
of credit facility of the Company was converted to a term loan
and most of the general unsecured creditors of the Company,
including holders of approximately $76 million in debentures,
were converted to shareholders of the Company. Upon consummation
of the Reorganization Plan, the former debentureholders owned
approximately 72% of the outstanding Common Stock, with other
former general unsecured creditors owning approximately 27% of
the outstanding Common Stock and the prior holding company owning
less than 1%. As a result of the Reorganization Plan, the
Company's debt service requirements were significantly reduced
from pre-bankruptcy levels.
The Company has reported the following operating results
immediately prior to and since the consummation of the
Reorganization Plan (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal Year Interim Period
Predecessor
Reorganized Company Company
53 Weeks 52 Weeks 52 Weeks 27 Weeks 26 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended Ended Ended Ended
February January January January July August July
3, 1996 29, 1995 30, 1994 31, 1993 26, 1992 3, 1996 30, 1995
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales $304,451 $302,241 $302,858 $176,804 $130,757 $133,878 $139,544
Gross Margin $96,763 $96,826 $92,504 $50,196 $40,289 $43,892 $44,468
Net Income (Loss) $2,086 $3,695 $2,857 $1,191 $54,637 (1) $1,283 $(621)
</TABLE>
(1) Includes non-recurring charges and extraordinary gain on
debt discharge in connection with the Company's Reorganization
Plan. With the change in ownership resulting from the
Reorganization Plan, the Company adopted fresh-start reporting in
accordance with the recommended accounting principles for
entities emerging from Chapter 11 as set forth in the American
Institute of Certified Accountants Statement of Position 90-7,
Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code. The adjustments to record assets and
liabilities at their fair value were reflected in the financial
statements of the Predecessor Company for the 26 weeks ended July
26, 1992. Consequently, not all aspects of the result of
operations reported subsequent to July 26, 1992, for the
reorganized entity are comparable.
Overview of Current Operations
The Company is a regional retailer of moderately priced
family apparel operating under the names "Anthonys" and "Anthonys
Limited" with the majority of its stores in smaller communities
throughout the southwestern and midwestern United States. In
most of its rural markets, management believes that Anthonys is
the dominant -- and often only -- provider of nationally-
advertised branded apparel. As a result, the Company has taken
advantage of the recent dramatic growth in consumer spending in
non-metropolitan markets and is rapidly opening new low-cost,
highly profitable stores in these communities. The "limited"
store concept, which the Company began implementing in early
1995, utilizes on average less than one-half the selling space of
a traditional "Anthonys" store. This concept has enabled the
Company to profitably enter even smaller markets. The Company
thus has been able to bring rural customers merchandise generally
found only in malls and large full service department stores in
suburban and metropolitan communities. By supplying branded
merchandise, Anthonys is also able to comfortably coexist with
Wal-Mart and other similar discount chains, since these discount
stores do not generally carry branded apparel items supplied by
Anthonys. Simultaneously, these discount store chains have
caused a significant decline in the number of local merchants who
would otherwise compete with the Company.
The Company's operating philosophy is to offer national
brand apparel, including footwear, for the entire family at price
levels that provide value to the customer relative to other
options available. All of the stores operated by the Company
offer value priced merchandise with a focus on casual men's,
women's and children's apparel and shoes. Denim has historically
been the largest category for Anthonys, under the Chic, Lee,
Levi, Wrangler and various other labels.
At August 3, 1996, the Company operated 211 stores,
predominantly located in strip shopping centers, of which 185
stores operated under the name "Anthonys" and 25 under the name
"Anthonys Limited". The Company's stores are located in twelve
states primarily in Arkansas, Kansas, Louisiana, Montana, New
Mexico, Oklahoma and Texas. The Company operates one store under
the name "Exclusive Lee," which primarily sells branded goods
produced by the Lee Company. The Company intends to close this
store in fiscal 1997.
The "Anthonys Limited" store represented a refinement of the
financial profile of a store designed to operate profitability in
the lower sales volume potential in the targeted rural markets.
The name "Anthonys Limited" was derived from the idea of
"limiting" the investment risk associated with the smaller store
profile, i.e. lower capital investment and shorter lease
commitments than are required in the larger "Anthony" stores.
During the initial testing of the "limited" store concept, the 25
small stores opened in 1995 and early 1996 used the name "Anthony
Limited." While management has decided to aggressively pursue
the "limited" store concept, commencing in August 1996, all new
store openings using the "limited" store concept will operate
under the "Anthonys" name. The decision to revert to using the
"Anthonys" name in the "limited" store concept was made to
facilitate the interchange of graphics and store signage
throughout all of the Company's stores while taking advantage of
the goodwill of over 73 years of advertising the "Anthonys" name.
The "limited" store concept is targeted at communities with
a population of 5,000 to 10,000 to take advantage of the
prevailing lack of branded apparel retailers in rural areas. The
Company's objective is to capitalize on the exit of national
retailers, such as Sears and J.C. Penney, and local apparel
boutiques from those communities. These new, smaller stores
(average size 8,000 square feet as compared to the overall
Company store average size of 18,000 square feet) are less
expensive to operate and are showing a higher return on assets
than a traditional larger "Anthonys" store at the same stage of
development.
While 55 of the Company's stores are located in communities
which management considers metropolitan or highly competitive
markets ("metro" stores), 155 stores, including 25 of the
"limited" concept stores, are operated in rural communities where
the Company has considerable operating experience. The "metro"
stores average approximately 23,000 square feet in size while the
rural stores average approximately 14,500 square feet.
All of the purchasing and distribution, as well as
advertising and marketing activities of the Company, are
centralized at its corporate headquarters. Procurement of
merchandise is made on the basis of purchase orders and
merchandise is principally distributed through the Company's
distribution center located in Oklahoma City. The advertising
and promotional strategy of Anthonys is designed to improve its
image as a value-oriented branded apparel retailer for the entire
family. The majority of the Company's advertising is conducted
through newspaper inserts and ads, direct mail and broadcast
media.
Growth Strategy
General. The Company's strategy is to take advantage of the
continuing growth in demand in rural markets for national brand
apparel. Anthonys has positioned itself as the dominant retailer
of such items in these communities and is often the only channel
of distribution for national brands, such as Levi, Lee, Nike,
Haggar, Wrangler, Reebok and others into these towns. As a
result, the Company occupies a niche that provides higher gross
margins and is less subject to the intense competition that often
characterizes rural market retailing, which is dominated by
discount store chains.
Anthonys has long been a major rural market retailer in the
southwest and midwestern states and is well known and well
respected by its customers throughout this region for providing
sought-after branded merchandise at value prices. The Company
has a long history of successfully entering small town markets
with new stores that allow its customers to obtain goods that
they otherwise would have to find in more metropolitan
environments.
Beginning in the early 1980s, the decline in the domestic
energy market began to negatively affect consumer spending in the
Company's service areas. In the late 1980s, when the energy
sector began recovering, the Company was acquired in a leveraged
buyout. In 1991, the effects of the national economic downturn
forced the Company to reorganize under Chapter 11 of the
Bankruptcy Code. These events resulted in a reduction in the
Company's store growth. Because of the Chapter 11
reorganization, however, the Company was able to exit from
certain unprofitable stores and position itself better in its
remaining markets.
Following emergence from bankruptcy in 1992, Anthonys has
had the resources to begin store growth again. With the growth
and improvement in video and audio technology, management
believes consumer awareness of -- and demand for -- branded
products has rapidly increased. Recognizing this steadily
improving demand in its core rural markets, the Company developed
in 1994 and began rolling out in early 1995 its "limited" stores.
"Limited" Store Concept. To deploy assets most profitably
and capitalize on underserved areas, the Company introduced the
"limited" store concept in early 1995. Operating from a smaller
platform, the stores can be opened quickly and inexpensively.
Once operational, these stores provide a low-cost and thus highly
profitable means for the Company to expand into not only
communities where a traditional "Anthonys" store could be viable,
but also into even smaller towns that could not support the
larger format. To date, the return on investment in these stores
has been significantly higher than that experienced by the
Company with larger format stores.
"Limited" stores will effectively compete with the regional
discounter by offering national brand apparel in all categories,
something which is not available at the discounter. The
"limited" stores will differentiate themselves from existing
privately owned competitors which offer similar branded product
by offering better selection, better in-stock status and sharper
pricing.
The "limited" store differs from the traditional larger
"Anthonys" in not only size but also in product breadth and
depth. The "limited" stores are designed to provide both a good
selection of branded merchandise in denim, footwear and
children's, as well as a reasonable array of women's and men's
items. The women's component of sales in the "limited" store is
somewhat higher than in the traditional "Anthonys" because of a
lower level of competition these stores face from other chains
situated in the medium-sized communities.
The smaller store size also permits the Company to hire
personnel locally. This results in substantial labor savings by
not having to bring in career-track managers and employees from
other stores. The local staff also is an important marketing
tool for the small town stores through their interaction with
other members of the community.
Occupancy costs in the "limited" stores are approximately
50% lower per square foot because of lower property values and
availability of space. Another important factor is that minimum
lease terms are generally expected to be no longer than three to
five years; however, options for renewal beyond the base term are
easily obtained. Capital expenditures for leasehold improvements
and fixturing costs per square foot are not as great in
comparison to traditional "Anthonys" stores. All stores under
this concept are expected to have front-end customer checkout,
minimizing the required number of point of sales cash registers
and making it easier for employees to focus on loss prevention.
The Company had 25 "limited" concept stores open
at August 3, 1996. Management expects the "limited"
size store will be the principal format for new store
openings and believes that substantial opportunities exist
throughout the region in which the Company now operates for many
more "limited" stores. Because of the remote nature of many
midwest and western states, the Company believes opportunities
exist in numerous states where it currently has nominal or no
operations. The Company believes that it can open over 300
"limited" concept stores over the next five years. In addition,
because of the relatively straight-forward store layouts and the
testing and experience obtained already, once a site has been
selected, the Company can build out and stock a new "limited"
store very rapidly.
Merchandising. In addition to store growth opportunities,
the Company has demonstrated the ability to improve its gross
margins over the last several years and intends to continue
focusing on its merchandising mix. Historically, the women's
component of the Company's business has been less than its
competitors, due in large part to emphasis on men's items. Since
women comprise the majority of the Company's shoppers, the
Company is shifting its advertising and space allocation in the
existing traditional "Anthonys" stores slightly toward women's
wear to refocus women customers to buy for themselves, not just
for other members of the family. To facilitate this, the Company
is adding higher quality, branded women's items, which is
consistent with its merchandising in denim, footwear, men's and
children's and which should produce both higher sales figures and
better gross margins.
In the "limited" stores, the Company has been able to open
stores with a greater percentage of floor space devoted to
women's merchandise. This is being done to create the image as a
women's fashion store. As a result, the "limited" stores have
seen women's wear sales as a percentage of total sales
approximately 25% higher than in traditional "Anthonys" stores.
"Metro" Stores. As sunbelt areas have grown over time, many
traditional "Anthonys" stores that began as rural stores have
become part of suburban and metropolitan communities. The
Company classifies 55 stores as "metro" as of August 3, 1996.
These stores face competition from mall-oriented, large, full
service department stores and niche specialty stores. This
competition has hurt the Company's sales as well as its ability
to maintain gross margins. At the same time, the cost of
operating such stores has increased because of their urban
locations. As a consequence, the return on assets experienced by
the Company in the "metro" stores has been appreciably less than
the return on assets in existing rural stores.
When the Company emerged from bankruptcy in 1992, it
dramatically reduced debt obligations which gave it the resources
to focus on new stores. Because most of the Company's rural
operating regions were still then feeling the adverse effects of
the recession, Anthonys elected to pursue a strategy of opening
stores in its existing metropolitan areas to better leverage its
advertising and other overhead. For the most part, however, this
strategy was only marginally successful, primarily because of the
continuing competition from the larger, full-line stores.
As the rural areas began showing more signs of economic life
in 1994, the Company began directing its resources back to its
traditional rural market and in 1995 began opening the "limited"
concept stores. To minimize its risk with the "metro" stores,
the Company had entered into short-term leases (3-5 years). At
August 3, 1996, 75% of the "metro" store leases have lease
decision points in the next five years. If return on assets from
operating these stores remains less than what is being obtained
in rural stores, the Company will shift resources away from the
metropolitan and highly competitive areas.
The Company already has begun implementing this "harvesting"
strategy. As leases expire or as the opportunities arise, the
Company will evaluate closing "metro" stores and redeploying the
cash flow generated to the new "limited" stores. Because of the
favorable lease structures and because of fairly low liquidation
costs, if return on assets declines in other "metro" stores,
Anthonys will be able to exit those markets and generate cash to
support the growth in rural markets beyond what is being
generated through operating cash flow. If the "metro" stores
maintain targeted return on investment, as most currently are,
they will remain open and leases will be extended.
Other Considerations. While the Company is actively
pursuing this operating strategy, management is engaged in a
continuous strategic analysis of the Company, evaluating other
alternatives for the Company. Alternatives being evaluated at
any time may include acquisitions by the Company of other apparel
retailers or an acquisition of the Company by other apparel
retailers or financial investors. As part of this evaluation,
management may conduct discussions with and furnish information
to potential interested parties.
Merchandise
All Company stores offer national brand apparel merchandise
and certain private label merchandise for the entire family.
The merchandise mix of the Company is weighted towards basic
casual wear with an appropriate mix of popular trend merchandise.
The Company is particularly strong in its offerings of denim and
footwear for men, women and children. In fiscal 1996, denim and
footwear sales contributed approximately 26% and 12%,
respectively, of total net sales. The Company offers key denim
brands such as the Chic, H.I.S., Lee, Levi, and Wrangler labels
and shoes with key brands such as the Dexter, Eastland, Keds,
Laredo, Nike and Reebok labels.
While the Company purchased merchandise from approximately
1,100 vendors in fiscal 1996, approximately 54% of its
merchandise came from 20 vendors because of the Company's
merchandise strategy emphasizing national brands. Key brands,
listed alphabetically, featured by the Company in the following
categories include:
Women's Alfred Dunner, Caliche, Cathy Daniels, Cherry
Stix, Chesterfield, Chic, Copy Cats,
Donnkenny, Fritzi, Gloria Vanderbilt, Hanes,
Lee, Levi, Lorraine, Mickey & Co., Next Move,
Oakhill, One Step Up, Playtex, Stuffed Shirt,
Vanity Fair
Men's Coliseum, Foria (Knights of the Roundtable),
H.I.S., Haggar, Hanes, Lee, Levi,
Munsingwear, Wrangler
Children's Bad Boy Club, Chic, Day Kids, H.I.S., Health-
tex, Lee, Levi, Oshkosh B'Gosh, Top Boy
Footwear Candies, Dexter, Doc Martin, Eastland,
Esprit, Hushpuppy, K Swiss, Keds, Laredo,
Nike, Reebok, Red Wing, Wolverine
As a complement to its branded merchandise, private label
merchandise of comparable quality is offered in selected
categories, using such trademarks as "C.R. & Co.", "C.R. Sport",
"Copper Creek" and "Fastbak". These trademarks are registered
with the United States Patent and Trademark Office, but none of
them individually is material to the business of the Company.
Management believes that its private label merchandise provides
additional "value" to the customer by offering a quality
merchandise alternative at prices lower than national brands.
See "Business - Pricing." In addition, private label merchandise
often has higher gross margins than branded merchandise and
allows the Company to avoid direct price competition. Sales of
private label merchandise represented less than 10% of net sales
in fiscal 1996.
Merchandising responsibilities are segregated into five
divisions: (i) men's; (ii) women's basic; (iii) women's fashion;
(iv) children's; and (v) footwear, lingerie, women's
accessories/hosiery, and bed and bath. Five divisional
merchandise managers supervise 17 buyers. Merchandise plans are
developed by each buyer based on historical sales, planned store
openings and closings and any shift in merchandising strategies
or trends. A significant amount of the Company's annual
merchandise purchases are items subject to replenishment purchase
order control. Model stocks are established by store for
replenishment merchandise and maintained by feeding sales history
and automatically generating purchase orders on a scheduled basis
to replenish units sold. The Company is making increased use of
electronic data interchange with key vendors to jointly monitor
sales history and purchase order initiation and status reporting.
Merchandise purchases which are not initiated via replenishment
programs are based on historical sales performance and existing
merchandising and marketing strategies.
The following table sets forth the approximate amount of net
sales contributed by each of the following categories of
merchandise for the presented periods (dollars in thousands):
Fiscal 1996 Fiscal 1995 Fiscal 1994
% of % of % of
Category $ Total $ Total $ Total
Men's $119,171 39.2% $116,303 38.5% $114,954 38.0%
Women's 78,624 25.8% 80,536 26.6% 81,236 26.8%
Children's 47,026 15.5% 48,773 16.1% 49,066 16.2%
Footwear 37,430 12.3% 36,269 12.0% 35,492 11.7%
Lingerie 9,482 3.1% 9,932 3.3% 10,509 3.5%
Women's
Accessories/
Hosiery 9,823 3.2% 9,827 3.3% 10,060 3.3%
Bed & Bath 2,484 0.8% 195 0.1% 1,341 0.4%
Other 411 0.1% 406 0.1% 200 0.1%
Total $304,451 100.0% $302,241 100.0% $302,858 100.0%
The shift in mix of business in fiscal 1996 as compared to
fiscal 1995 was primarily due to the weakness in women's business
experienced by much of the industry in 1995 combined with the
success of the Company's "Every Jean On Sale Everyday" marketing
campaign. See "Business - Pricing." This denim marketing
campaign inaugurated in fiscal 1996 had a greater impact on men's
denim business than on women's and children's. Management's goal
is to increase the percentage of women's merchandise to total net
sales in order to increase total net sales and gross margin.
Strategies to achieve this goal include:
Placing more emphasis on career merchandise
Devoting more selling square footage to women's merchandise
Developing marketing programs targeting the 35 to 55 year
old female career customer
Using market research to identify the female customer's
expectations
Pricing
The focus of the Company's pricing strategy is to offer
merchandise at prices targeted below those regularly charged by
department stores or national apparel stores. Pricing decisions
are established on a company-wide basis for all stores. Because
the level of competition can vary significantly between stores,
management implemented in fiscal 1996 a zone store pricing
system, under which prices are established at the corporate
office based, in part, on the individual store markets. Under
the zone pricing system, an item is priced in a specific store
based on one of three levels of competitive pricing, i.e. heavy,
moderate or light competition in the local store market.
Denim is positioned as a "draw" and is generally
priced more aggressively than other merchandise. In fiscal 1996,
the Company initiated an "Every Jean on Sale Every Day" campaign
to emphasize "value" pricing of denim. This campaign was tested
initially in the Oklahoma City, Oklahoma market in the Spring
1995, and was expanded to a company-wide program in August 1995.
Customer Service
The Company has adopted customer service procedures to
provide a pleasant shopping experience for customers. A top
priority of area supervisors is the training of store personnel
to ensure they are following the procedures.
Among other practices, employees are to greet the
customer within a specified time of the customer's entry into the
employee's work area to offer assistance and to advise the
customer of the special sales then in effect.
In addition, customers are provided such other everyday
amenities as free gift wrap, free layaway purchase programs and
the convenience and benefits of the Anthony private label credit
card with special promotional events. A "Special Order" program
is under development to permit the customer to order any item
normally carried in the Company's inventory but not available in
a store due to space or other considerations.
Purchasing and Distribution
While the Company purchased merchandise from approximately
1,100 vendors in fiscal 1996, approximately 54% of its
merchandise came from 20 vendors because of the Company's
merchandise strategy emphasizing national brands. During fiscal
1996, the Company's purchases from Levi Strauss & Co., its
largest vendor, represented approximately 19% of its total
purchases. No more than 5% of total purchases were attributable
to any other single vendor. Consistent with general practice in
the retail industry, the Company does not have exclusive or long-
term contracts with any particular vendor. Most of the Company's
vendors are based in the United States, which minimizes the lead
time between placing orders and receiving shipments, thus
allowing the Company to react to merchandising trends in a timely
fashion. Although alternative sources are generally available,
the loss of any of the top 20 vendors could have an adverse
effect on the Company.
Most merchandise is distributed to the stores through the
distribution center located in Oklahoma City, Oklahoma. All
stores receive a minimum of one delivery per week from the
distribution center and larger stores may receive multiple
deliveries each week. Approximately 82% of merchandise purchases
for fiscal 1996 were shipped to, and distributed through, the
distribution center. Approximately 18% was shipped directly to
individual stores.
The Company plans to install material handling
and automation equipment in the distribution center beginning in
fiscal 1997. This investment is being made to support the
increasing amount of merchandise being distributed through the
distribution center, to gain efficiencies in transportation
costs, and to make the merchandise "floor ready" upon delivery to
the store. The project will consist of the installation of
conveyor systems and a stock locator system. Total expenditures
are budgeted to be approximately $2 million and will be financed
by the Company's revolving credit agreement.
The Company leases 11 truck tractors and owns 43 truck
trailers to deliver merchandise to the stores. The trucks
deliver merchandise to stores from the distribution center and,
on return trips, deliver transferred merchandise, as well as some
merchandise from vendors located in route, to the distribution
center. Anco Transportation Service, Inc., a wholly-owned
subsidiary of the Company, leases drivers to operate these trucks
and holds the licenses required in connection with the operation
of these trucks.
Marketing and Advertising
The Company's marketing and advertising, which is
centralized at the corporate headquarters, is designed to enhance
its image as a value-oriented apparel retailer for the entire
family. The Company conducts an advertised sales promotion
virtually every week utilizing a multi-media approach, although
newspaper advertisements and color tabloids inserted into
newspapers for distribution remain the principal form of
circulation. Several of the Company's key vendors provide
cooperative advertising funds. While planning and design of the
advertising events is done internally with marketing, store
operations and merchandising personnel all participating, the
Company currently outsources all production of media events.
Monthly strategies are developed around promotional themes with
special sales promotions for individual stores being coordinated
between the store and the corporate advertising department.
The Company marketing organization develops tailored
programs for small volume stores, medium volume stores and large
volume stores. The objective is to minimize inventory build-up in
smaller stores for advertised events and reduce the Company's
dependency on insert tabloids as a media format with greater
utilization of newspaper advertisements and broadcast media.
As a result of customer research surveys, the Company
developed a multi-media campaign during fiscal 1996 entitled
"Telling Our Story" using an outside spokesperson to reinforce to
the customer the "value" of shopping regularly at "Anthonys."
The campaign focused on how "Anthonys" delivers "value" to the
customer under the themes of great prices, convenience, quality
merchandise and customer service. Training programs were
conducted in all stores to ensure that all sales associates
reinforce the "value" message with customers. In the future, the
program will reemphasize the "value" messages and focus on the
Company's merchandise selection, concentrating on the women's
merchandise offering.
In 1985, the Company initiated a private label charge
card program. Until late 1993, when the Company completed
installation of Point of Sale ("POS") cash registers in all
stores, the Company did not have sufficiently detailed history of
customer purchases to support significant investment in direct
marketing promotions to Anthony cardholders. Beginning in fiscal
1995, the Company significantly increased its promotional efforts
to acquire more Anthony cardholders. As a result of these
promotions, the total number of cardholders has almost doubled
since the promotional campaign began in fiscal 1995. There were
approximately 539,000 Anthony cardholders at June 30, 1996. Sales
using the Anthony charge card represented 18.2%, 14.6%, and 10.0%
of total sales in fiscal 1996, fiscal 1995 and fiscal 1994,
respectively. The Company intends to continue promoting the
benefits of the Anthony charge card and develop appropriate
direct marketing programs. An individual was hired in early 1996
to develop and implement direct marketing activities utilizing
the Company's customer database. These activities will target
specific groups of customers based on past purchase history and
on research data. The Company has also recently developed a new
store opening strategy which concentrates on communicating the
value messages prior to the store opening and developing the
customer database for future direct marketing activities.
Under an arrangement with Citicorp Retail Services,
Inc. ("CRS"), the Company sells its private label card
receivables to CRS at 100% of face value, less a stated discount.
The Company has no obligation for bad debt losses on the
receivables sold unless the defined loss experience exceeds 2.25%
of annual private label charge card sales. In such event, the
Company would be required to reimburse CRS for 50% of the amount
of bad debt expense in excess of 2.25% of the annual private
label charge card sales. Losses for the 12 fiscal periods ended
February 3, 1996 and January 30, 1995 were 2.9% and 2.0%,
respectively, of the private label charge card sales.
Store Operations
Management of store operations is the responsibility of
the Vice President - Store Operations, who is assisted by eight
regional managers and 58 area supervisors. Regional managers are
responsible for the execution of all marketing, merchandising and
operational strategies in the stores in their regions. Each is
assisted by area supervisors who have responsibility for an
average of three stores. The area supervisors, who are also store
managers, have a demonstrated track record of successfully
running a store and developing other managers. Their principal
responsibility is to visit their assigned stores to ensure that
store personnel are properly trained and are executing the
Company's customer service and store operations policies.
Stores that have annual sales of less than $1,250,000
generally have a store manager and a "key carrier". Key
carriers are experienced employees who typically have
responsibility for one or more departments and handle store
opening and closing activities in the absence of the store
manager. Larger stores have one or more assistant managers. The
number of employees varies with store size and sales volume and
also fluctuates with the seasonality of the Company's business,
peaking during the Christmas selling season.
Store managers and assistant managers are compensated
by a combination of salary and incentive bonus. Bonuses for
managers and assistant managers are based on levels of sales and
profitability. Sales associates are compensated on an hourly rate
based on experience. Incentive contests are held in connection
with special marketing or promotional activities allowing sales
associates to earn additional income based on attainment of
specified quotas or production.
Stores are generally open 11 hours daily Monday through
Saturday. Most stores are also open Sundays for five to six
hours. Smaller stores typically are open nine hours daily six
days a week and are not generally open on Sunday. Hours are
extended during the holiday season and for special promotional
events.
Management Information Systems
In fiscal 1993, the Company began a phased
implementation of modern merchandise information reporting
systems by installing merchandise management reporting software.
Simultaneously, the Company commenced a phased roll-out of POS
cash registers which was completed in late fiscal 1994. With the
installation of the merchandise management reporting software,
merchandise managers were able to track merchandise investment
and performance at approximately 350 "classifications" versus the
former ten department levels of history provided by the old
merchandise management system. However, until the completion of
the POS cash registers installation in late fiscal 1994,
merchandise managers did not have available complete history at
the stock-keeping unit, or SKU, level which tracks merchandise
items at the style, color, and size level of detail. Thus, they
were not able to fully utilize the features of the merchandise
management software.
Management believes that the introduction of modern
merchandise reporting systems has been a significant factor in
improving operating performance in recent years due to enhanced
ability to monitor merchandise performance and profitability.
Competition
The retail apparel business is highly competitive, with
price, selection, fashion, quality, location, store environment
and service being the principal competitive factors. The Company
competes primarily with department stores, specialty stores, off-
price apparel stores and, to a lesser extent, discount stores.
Many competitors are large national chains with substantially
greater financial and other resources than those of the Company.
Management believes, however, the Company's operating strategy
reduces competition. See "Business - Growth Strategy."
In rural markets, the stores compete by offering a wide
selection of national brand apparel and private label merchandise
of comparable quality for the family at competitive prices. In
these markets, the only other source of a broad selection of
branded family apparel frequently is a national or regional
discount mass merchandise retailer, which does not offer the
national brand selection presented in the Company's stores. In
larger markets, where the Company's stores compete with other
retailers of national brand apparel, the Company differentiates
itself by offering prices below those of full-line department and
specialty stores prices and the convenience of strip-center store
locations. See "Business - Customer Service," " - Pricing" and "
- - Store Locations."
Store Locations
While the Company's stores are located primarily in
rural communities, at August 3, 1996, the Company operated 55
stores considered by management to be in metropolitan or highly
competitive markets ("metro markets"). Metro markets offer
customers the alternative of shopping at full-line department
stores or specialty apparel stores located in malls or "power
strip centers" (strip centers occupied by national retailers that
offer a very broad selection of merchandise in relatively focused
merchandise categories; e.g. home improvement, office supplies
and products, electronics) in addition to other specialty
department or apparel stores located in strip shopping centers
similar to the Company's store locations. The stores located in
metro markets accounted for 39% of total company sales in fiscal
1996. The remaining 155 stores, including 25 of the "limited"
concept stores, are operated in rural communities with
populations ranging from 2,000 to 37,000. The "metro" stores
average approximately 23,000 square feet in size while the rural
stores average approximately 14,500 square feet.
While many stores are located in the downtown shopping
area of rural communities, the most prevalent location is in a
strip shopping center on a main traffic roadway. The centers are
typically occupied by other national or regional retailers
including discount mass merchandisers, specialty apparel, arts
and crafts stores, discount drug stores and large volume grocery
stores. Management believes that locating close to large volume
discount mass merchandise retailers, such as Wal-Mart Stores, has
a positive impact on store sales. The Company benefits from the
traffic created by such retailers since the key national brands
offered in the Company's stores are not generally available at
discount mass merchandisers.
The Company periodically reviews existing store
locations. Based on its review, an existing store location may
be closed, expanded, relocated or remodeled.
The Company operates a store located in Oklahoma City,
Oklahoma under the name "Exclusive Lee." The store sells
primarily branded goods produced by The Lee Company, and
accounted for 0.13% of net sales in fiscal 1996. Management
plans to close this store in fiscal 1997.
At August 3, 1996, the Company had 211 stores located
in 12 states as follows:
Arizona 1
Arkansas 9
California 1
Colorado 2
Kansas 18
Louisiana 11
Missouri 2
Montana 13
New Mexico 18
Oklahoma 60
Texas 68
Wyoming 8
Total 211
Expansion Strategies
The following table sets forth information with respect
to store openings, closings, remodelings and relocations during
the last five fiscal years.
<TABLE>
<CAPTION>
26 Weeks Fiscal Years Ended
Ended August February 3, January 29, January 30, January 31, January 26,
3, 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Number of
stores beginning
of period 208 197 189 182 181 216
New stores
opened during the
period 12 17 8 8 3 1
Stores closed
during the period (9) (6) - (1) (2) (36)
Number of
stores open, end of
period 211 208 197 189 182 181
Stores
remodeled, relocated
or expanded during
the period 5 8 20 15 29 41
</TABLE>
The closings in fiscal 1992 and fiscal 1993 occurred
during the Company's bankruptcy proceedings. The decision to
close these stores was based on such factors as eliminating
stores where the Company did not have sufficient market presence
to leverage effectively off the corporate advertising and
marketing programs and the inability to renegotiate the lease
terms to an occupancy cost level that would permit profitable
operations.
From consummation of the Reorganization Plan in August
1992 through fiscal 1995, the Company's principal expansion
strategy was to open stores under the "Anthonys" name in metro
markets where the Company had existing locations and in
communities with populations of 10,000 to 30,000. A key
consideration in many of these new store openings was the ability
to leverage existing advertising program and freight costs over a
larger sales volume. The average size of the 17 "Anthonys" stores
opened from August 1992 through fiscal 1995, was 22,200 square
feet. While these stores are not fully matured and are expected
to improve operating performance, the sales performance of these
stores has generally not achieved the levels management had
expected. One of these stores was closed in April, 1996 and
others may close in the future as opportunities arise if store
performance is not satisfactory.
In fiscal 1996, the Company embarked on the expansion
strategy of focusing new store openings in the smaller rural
communities under the "limited" store concept. See "Business -
Growth Strategy." Thirteen "limited" stores were opened in
fiscal 1996. The fiscal 1997 budget contemplates the opening of
40 stores if suitable locations can be found.
The six closings in fiscal 1996 consisted of three
underperforming "Anthonys" stores which were closed at the end of
the lease term and three "Anthonys" stores for which lease
extensions were not renegotiated.
Commencing in fiscal 1996, the Company implemented a
"harvesting" strategy for its "metro" stores. As leases expire
or as opportunities arise, the Company will evaluate closing
metropolitan stores and redeploy the cash flow generated to the
new "limited" stores. Because of the favorable lease structures
and because of fairly low liquidation costs, if return on assets
declines in other metropolitan stores, Anthonys will be able to
exit those markets and generate cash to support the growth in
rural markets beyond what is being generated through operating
cash flow. If the metropolitan stores maintain targeted return
on investment, as most stores currently are, they will remain
open and leases will be extended. The following table summarizes
the store opening and closing activity by nature of the market
for the periods presented:
[CAPTION]
<TABLE>
26 Weeks Fiscal Year Ended
Ended August 3, February 3, January 29, January 30,
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Opened:
Metro - 2 6 5
Rural 12 15 2 3
Total Opened 12 17 8 8
Closed:
Metro (9) (2) - (1)
Rural - (4) - -
Total Closed (9) (6) - (1)
Net change in
store count 3 11 8 7
</TABLE>
Employees
As of September 5, 1996, the Company had approximately 2,175
full-time employees and 675 part-time employees. No union
represents any employees and management believes that the
Company's relationship with its employees is good.
Environmental Issues
Management does not believe that compliance with federal,
state or local environmental provisions has had a material effect
on the Company. However, in fiscal 1996, the bombing of the
Alfred P. Murrah Federal Building in Oklahoma City, Oklahoma
dislodged asbestos in the corporate headquarters which the
Company was required to remove. Substantially all of the removal
costs of approximately $175,000 were covered by the Company's
insurance.
Legal Proceedings
The Company is currently subject to certain litigation in
the normal course of business which, in the opinion of
management, will not result in a material adverse effect on the
Company's business or financial statements.
PROPERTIES
Headquarters
The only real estate owned by the Company is its corporate
headquarters, located at 701 North Broadway, Oklahoma City,
Oklahoma, and three adjacent parking lots. The headquarters
building was originally constructed in 1904, with additions added
in the 1950's, and contains approximately 69,000 square feet,
principally consisting of office space.
The headquarters building incurred damages of approximately
$1,300,000 as a result of the explosion associated with the April
1995 bombing of the Alfred P. Murrah Federal Building in Oklahoma
City, Oklahoma. The cost of restoration was substantially
covered by the Company's insurance.
Store Leases
All of the stores are located in space leased by the
Company. The use of leased, rather than owned, space allows the
Company to expand without incurring substantial indebtedness.
Management also believes that the flexibility afforded by leases
and the avoidance of the risks of real estate ownership confer
substantial benefits on the Company.
Although the Company's lease portfolio contains leases whose
terms vary considerably, the Company is making a continuing
effort to convert its store leases to a standard store lease form
used by the Company.
Each lease contains one of three types of rent provisions,
(i) fixed rent payable by the Company, (ii) rent payable by the
Company based on a percentage of sales revenues by the Company in
that store location or (iii) fixed rent payable by the Company
and additional rent based on a percentage of sales revenues by
the Company, typically over a specified dollar amount of sales
revenues. Leases may also provide for the Company to pay some or
all of the insurance, maintenance and taxes associated with the
leased premises. Lease costs constituted approximately 3.5% of
net sales in fiscal 1996.
The leases typically provide for an initial term, often
coupled with an option to extend the lease for an additional term
or terms. At August 3, 1996, over 80% of the Company's leases
will expire within the next five years unless the Company
exercises options, if any, granted under the leases. The Company
has not experienced any undue difficulty renewing or extending
leases on a satisfactory basis.
The following table sets forth, as of August 3, 1996, the
number of stores whose current lease terms will expire in each of
the following fiscal years and the associated number of stores
which the Company has options to extend the lease term:
Metro Rural
With With
Fiscal Year # of Stores (1) Options # of Stores Options
Month-to-Month - - 6 -
1997 4 1 9 6
1998 8 4 35 28
1999 12 8 28 21
2000 7 6 36 28
2001 9 8 14 8
Thereafter 15 11 27 23
55 38 155 114
(1) Excludes the "Exclusive Lee" store which the Company
intends to vacate in January, 1997.
Distribution Center
The Company leases approximately 214,000 square feet of
warehouse space in Oklahoma City, Oklahoma for use as a
distribution center. The current monthly rent payable by the
Company under the lease is $40,108. The Company is also
responsible for the payment of a pro rata portion of the taxes,
insurance and maintenance on the building in which the warehouse
space is located. The current lease term expires on January 31,
2000. The lease grants the Company the option to extend the
lease for one additional term of five years.
MANAGEMENT
Directors and Executive Officers
The following table sets forth the name, age and principal
positions held by each director and each executive officer of the
Company.
Name Age Principal Positions
John J. Wiesner 58 Chairman of the Board and
Chief Executive Officer
James J. Gaffney 55 Director
Alan Melamed 67 Director
Willard C. Shull, III 55 Director
Jeffrey I. Werbalowsky 39 Director
Michael J. Tanner 49 President and Chief Operating
Officer
Michael E. McCreery 48 Vice Chairman and Chief
Administrative Officer
John J. Wiesner has served as Chairman of the Board of the
Company since February 1990, and as Chief Executive Officer and a
director of the Company since April 1987. Mr. Wiesner served as
President of the Company from April 1987 to February 1990, and
from September 1992 to January 1995. From 1977 to 1987, Mr.
Wiesner was employed by Pamida, Inc., an operator of discount
stores in the midwestern United States, serving as Corporate
Controller from 1977 to 1979, Senior Vice President from 1979 to
1981, Senior Executive Vice President and Chief Financial Officer
from 1981 to 1985 and Vice Chairman of the Board and Chief
Administrative Officer from 1985 to 1987. Prior to joining
Pamida, Inc., Mr. Wiesner was employed for seven years by Fisher
Foods, Inc., a supermarket chain, attaining the position of Vice
President and Controller.
James J. Gaffney has served as a director since August 1992.
Since September 1995, Mr. Gaffney has served as President and
Chief Executive Officer of General Aquatics Corp., a manufacturer
of pools and pool equipment. Mr. Gaffney also serves as a
director of California Federal Savings & Loan and as a director
of Insilco Corp., a conglomerate, and is Chairman of the Board of
Hamburger Hamlet, Inc. Mr. Gaffney was President of KDI D/H
Holding Co. ("KDI"), a holding company for several electronic
companies, from October 1993 until September 1995, at which time
the holdings of KDI were restructured and several companies in
the KDI group were combined to form General Aquatics Corp. From
August 1991 to July 1992, Mr. Gaffney served as President and
Chief Executive Officer of International Tropic-Cal, Inc., a
designer, importer and distributor of optical products and hair
accessories. From September 1989 to August 1991, he was a
consultant with Turnaround Management. From August 1989 to March
1990, he served as Chairman of the Board and Chief Executive
Officer of Ayers/Chairmakers, Inc., a furniture manufacturer, and
from December 1986 to June 1988, he served as Chief Executive
Officer of Brown Jordan Company, a manufacturer of casual
furniture and indoor and outdoor lighting products.
Alan Melamed has served as a director since August 1992.
Mr. Melamed serves as President of Alan M. Associates, which he
founded in 1975. Alan M. Associates represents manufacturers,
wholesalers and financial institutions with respect to debt
recovery problems and financial restructuring of their customers
with an emphasis on the apparel industry.
Willard C. Shull, III has served as a director since August
1992. Mr. Shull has been a private investor since 1991. From
1971 to 1991, he was employed by Dayton-Hudson Corporation, a
department store operator, serving as Senior Vice President of
Finance from 1980 to 1991.
Jeffrey I. Werbalowsky has served as a director since August
1992. Mr. Werbalowsky has been a Managing Director and in charge
of the Financial Restructuring Group of Houlihan Lokey Howard &
Zukin, Inc., a specialty investment banking firm, for over seven
years and serves on the firm's board of directors.
Michael J. Tanner has served as President and Chief
Operating Officer of the Company since January 1995. Mr. Tanner
served as Vice President and Divisional Merchandise Manager of
the Company from May 1990 to February 1992, as Senior Vice
President and Divisional Merchandise Manager from February 1992
to September 1992, and as Executive Vice President from September
1992 to January 1995. Prior to joining the Company in May 1990,
Mr. Tanner was employed by Gold Circle Stores, a department store
operator, serving as Vice President of Merchandising from 1984 to
1990.
Michael E. McCreery has served as Vice Chairman and Chief
Administrative Officer of the Company since January 1995. Mr.
McCreery served as Executive Vice President and Chief Financial
Officer of the Company from June 1990 to February 1992, and as
Senior Executive Vice President and Chief Financial Officer from
February 1992 to January 1995. Prior to joining the Company, Mr.
McCreery was employed by Touche Ross & Co. and Deloitte & Touche
commencing in June 1973, serving as an audit partner from August
1983 to June 1990.
The directors are elected at each annual meeting of
shareholders and serve for a term of one year until the next
annual meeting of shareholders or until their earlier resignation
or removal. All of the officers serve at the pleasure of the
Board of Directors.
Executive Compensation
The following table sets forth information with respect to
the compensation received by the chief executive officer and the
other executive officers of the Company during the periods
indicated. These individuals are hereinafter referred to as the
"named executive officers."
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Annual Compensation(1) Compensation
Securities
Name and Fiscal Underlying All Other
Principal Position Year Salary Bonus(2) Options(#) Compensation(3)
<S> <C> <C> <C> <C> <C> <C>
John J. Wiesner 1996 $270,192 $ 31,000 175,000 $3,080
Chairman of the Board 1995 250,000 94,555 40,000 2,559
and Chief Executive 1994 250,000 108,850 - 2,248
Officer
Michael J. Tanner 1996 $193,270 $ 31,000 100,000 $3,080
President and Chief 1995 163,079 62,406 25,000 2,348
Operating Officer 1994 133,090 67,487 - 1,627
Michael E. McCreery 1996 $194,233 $ 31,000 100,000 $2,566
Vice Chairman and Chief 1995 168,086 64,298 30,000 2,230
Administrative Officer 1994 153,850 69,664 - 1,874
William A. North 1996 $148,077 $ 7,000 20,000 $2,482
Executive Vice 1995 138,075 52,951 25,000 2,022
President 1994 130,000 56,602 - 1,563
James E. Dailey(4) 1996 $101,923 $ - - $1,793
Executive Vice 1995 138,075 52,951 25,000 1,863
President 1994 130,000 56,602 - 975
</TABLE>
__________________
(1) Amounts do not include perquisites and other personal
benefits unless the annual amount of such compensation
exceeds the lesser of $50,000 or 10% of annual salary and
bonus reported for the named executive officers.
(2) Bonus amounts consist of bonuses earned with respect to
services performed during the fiscal year indicated,
although such bonuses are calculated and paid after the end
of the fiscal year.
(3) All other compensation consists of matching employer
contributions to the Company's 401(k) plan on behalf of the
named executive officers.
(4) Mr. Dailey resigned from the Company effective September 15,
1995.
The following table contains information concerning the
grant of stock options by the Company during the fiscal year
ended February 3, 1996 to each of the named executive officers
who received option grants during such year.
Option Grants in Last Fiscal Year
[CAPTION]
<TABLE>
Potential Realizable Value
Upon Exercise at the End of 10
Individual Grants Year Option Term if There Is (3)
% of total
Options
Granted to Exercise
Employees or Base 0% 5% 10%
Options in Fiscal Price Expiration Compound Compound Compound
Name Granted(1)(#) Year ($/Sh)(2) Date Growth Growth Growth
<S> <C> <C> <C> <C> <C> <S> <C> <C>
John J. Wiesner 175,000 44.3% $3.00 9/28/05 - $330,750 $836,500
Michael J. Tanner 100,000 25.3% $3.00 9/28/05 - $189,000 $478,000
Michael E. McCreery 100,000 25.3% $3.00 9/28/05 - $189,000 $478,000
William A. North 20,000 5.1% $3.00 9/28/05 - $ 37,800 $ 95,600
</TABLE>
________________________
(1) All options granted to the named executive officers were
granted under the Company's Stock Option Plan. The exercise
price of all such options is equal to 100% of the fair
market value per share of Common Stock on the date of grant
as determined by the Board of Directors. In each case, one-
third of the stock options are exercisable on the first
anniversary date of the grant, one-third on the second
anniversary of the date of grant and one-third on the third
anniversary of the date of grant, subject to acceleration
in certain circumstances.
(2) The exercise price of options must be paid in cash or, with
the approval of the Board of Directors or the Compensation
Committee which administers the Stock Option Plan, in
property or in installments.
(3) The Potential Realizable Values upon exercise of stock
options are equal to the product of the number of shares
underlying the options and the difference between (i) the
respective hypothetical stock prices on the date of option
exercise and (ii) the exercise price per share of the
options. The hypothetical stock prices are equal to the
price per share of the Common Stock as of the date of the
option grant compounded annually at the rates of 0%, 5%,
and 10%, respectively, over the ten year term of the
option. The rates of appreciation used are required by the
Securities and Exchange Commission and do not represent a
projection or estimate by the Company on the potential
growth of its Common Stock. Therefore, there can be no
assurance that the rate of stock price appreciation
presented in this table can be achieved.
The following table provides information with respect to the
named executive officers who hold stock options from the Company
concerning the exercise of options during the fiscal year ended
February 3, 1996 and unexercised options held as of the end of
such fiscal year.
Option Exercises and Year-end Value Table
[CAPTION]
<TABLE>
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options at Options at
Fiscal Year-End Fiscal Year-End
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <S> <C> <C> <S>
John J. Wiesner - - 123,334 201,666 - -
Michael J. Tanner - - 43,334 116,666 - -
Michael E. McCreery - - 95,000 120,000 - -
William A. North - - 43,334 36,666 - -
</TABLE>
Stock Option Plan
On August 2, 1992, pursuant to the Reorganization Plan, the
Company adopted the Stock Option Plan, which was subsequently
approved by the shareholders on May 18, 1993, and has been
subsequently amended on March 22, 1995, April 1, 1995 and
September 28, 1995. Under the Stock Option Plan, the Company may
grant both incentive stock options qualified under Section 422 of
the Internal Revenue Code of 1986, as amended, and options which
are not qualified as incentive stock options.
The Stock Option Plan is presently administered by the Board
of Directors. The selection of recipients and the terms and
conditions of options are presently determined by the Board of
Directors, subject to the terms and conditions of the Stock
Option Plan. The Stock Option Plan permits the Stock Option Plan
to be administered by a Stock Option Committee appointed by the
Board of Directors.
The maximum number of shares of Common Stock issuable under
the Stock Option Plan is 1,500,000, subject to adjustment in the
event of a reorganization, stock split, stock dividend,
reclassification or other change affecting the Common Stock. All
directors, officers and other key employees of the Company are
eligible to receive awards under the Stock Option Plan. The
Stock Option Plan provides that, so long as the Common Stock or
any other equity security is registered under the Securities and
Exchange Act of 1934, as amended, the members of the Stock Option
Committee, if any, are ineligible to receive options under the
Stock Option Plan if their eligibility would result in them not
being "disinterested persons" under Rule 16b-3 of such Act.
The number of shares to be covered by each option is
determined by the Board of Directors. However, the aggregate
fair market value of shares as of the date of grant with respect
to which incentive stock options are exercisable for the first
time may not exceed $100,000 for each optionee.
The exercise price of each option is determined by the Board
of Directors. The exercise price of each incentive stock option
may not be less than 100% of the fair market value of the Common
Stock on the date of grant.
Each option granted under the Plan is not exercisable after
the earliest of (i) 10 years from the date the option is granted,
(ii) termination of the optionee's employment for cause (as
defined in the Stock Option Plan), (iii) 90 days after the
termination of the optionee's employment for any reason other
than death, disability or Cause, (iv) 60 days after termination
of the optionee's employment for a Good Reason (as defined in the
Stock Option Plan) or (v) such time as the Board of Directors
determines prior to or following a change in control (as defined
in the Stock Option Plan).
All options become exercisable at the rate not faster than
33.3% on the first anniversary of the date of grant, 33.3% on the
second anniversary of the date of the grant and 33.4% on the
third anniversary of the date of grant, unless the Board of
Directors otherwise determines. The options become immediately
exercisable if the optionee's employment is terminated other than
for Cause (as defined in the Stock Option Plan), the optionee
dies or becomes disabled, there is a change in control (as
defined in the Stock Option Plan) or the optionee terminates his
employment with a Good Reason (as defined in the Stock Option
Plan). Upon exercise, the option price is payable in cash unless
otherwise provided by that option.
Options granted under the Stock Option Plan are not
assignable or transferable by the optionees other than by will or
the laws of descent and distribution and are otherwise
exercisable only by the optionee.
The Board of Directors may amend or terminate the Stock
Option Plan at any time, except that no amendment will become
effective without the approval of the shareholders which would
(i) materially increase the total number of shares available for
issuance, (ii) materially change the eligibility requirements or
(iii) materially increase the benefits accruing to participants
under the Stock Option Plan.
The Stock Option Plan will terminate in 2002.
Directors Compensation
Each director who is not an employee of the Company receives
a monthly fee of $1,000 and a fee of $1,500 for each quarterly
meeting of the Board of Directors attended and is reimbursed for
certain expenses in connection with attendance at such meetings.
On March 22, 1993 (effective as of August 3, 1992), James J.
Gaffney, Alan Melamed, Willard C. Shull, III and Jeffrey I.
Werbalowsky (non-employee directors of the Company) were each
granted non-qualified options to purchase 40,000 shares of Common
Stock at a price of $4.00 per share for a period of ten years
from date of grant. On March 24, 1994, each of these directors
were granted options to purchase 15,000 shares of Common Stock at
$5.92 per share for a period of ten years from date of grant. On
June 10, 1996, in lieu of an increase in fees payable to these
directors, each of them was granted an option to purchase 5,000
shares of Common Stock at $3.00 per share for a period of ten
years from date of grant.
Savings Plan
The C.R. Anthony Savings and Investment Plan ("Saver Plan")
was established effective as of January 1, 1985, and amended
effective January 1, 1988. The Saver Plan is intended to be
qualified under Section 401(a) and 401(k) of the Internal Revenue
Code of 1986, as amended. An employee who participated in the
C.R. Anthony Company Profit-Sharing Plan prior to January 1,
1988, is eligible to participate in the Saver Plan. In addition,
an employee hired by the Company after January 1, 1988, may
participate in the Saver Plan if that employee is at least 21
years of age and has completed 1,000 hours of service with the
Company. The Saver Plan provides for participants to defer
compensation, which may be matched, subject to certain
limitations, by the Company.
Severance Arrangements
The Company has entered into an Executive Severance
Compensation Agreement ("Severance Agreement") with each of John
J. Wiesner, Michael E. McCreery, Michael J. Tanner and William A.
North. In the case of Mr. Wiesner and Mr. North, the Severance
Agreements provide that, upon a Severance Event (as defined
therein), the Company is required to pay to the named executive
officer a lump sum payment equal to (a) his total cash
compensation for the 12 month period preceding the Severance
Event plus (b) the product of (i) the dollar amount of the annual
incentive cash bonus then most recently paid or earned multiplied
by (ii) a fraction the numerator of which is the number of
elapsed days in the fiscal year and the denominator of which is
365. In the case of Mr. McCreery and Mr. Tanner, the Company is
required to pay the named executive officer a lump sum payment
equal to (a) two times his total annual base salary plus (b) the
product of (i) the dollar amount of the annual incentive cash
bonus then most recently paid or earned multiplied by (ii) a
fraction the numerator of which is the number of elapsed days in
the fiscal year and the denominator of which is 365. The
Severance Agreements also provide procedures for certain types of
employment terminations by the Company and the applicable
executive officers. Each Severance Agreement has a term expiring
on March 31, 2002, subject to automatic extension for additional
one year periods.
The Severance Agreements have been filed as Exhibits 10.6,
10.7, 10.8, and 10.14 of the Registration Statement of which this
Prospectus is a part.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors was
established in January 1996 and consists of each of the directors
of the Company that are not executive officers or employees of
the Company as follows: James J. Gaffney, Alan Melamed, Willard
C. Shull, III and Jeffrey I. Werbalowsky. During fiscal 1996
prior to the establishment of the Compensation Committee, all
decisions relating to the compensation of John J. Wiesner, the
Company's Chief Executive Officer, were made by the non-employee
directors named above. Mr. Wiesner made recommendations to the
non-employee directors concerning the salaries and incentive
compensation of the other executive officers of the Company, and
the non-employee directors reviewed such recommendations and
determined the salary and incentive compensation of the other
executive officers. Other than Mr. Wiesner, none of the
Company's executive officers or employees participated in the
deliberations of the Board of Directors concerning compensation
matters during fiscal 1996.
Compensation Committee Report on Executive Compensation
As described above, the Compensation Committee of the Board
of Directors was established in January 1996 and consists of all
of the non-employee directors of the Company. The Compensation
Committee is primarily responsible for the development and
implementation of the Company's executive compensation programs,
including establishment of base salary levels and bonus
compensation of the executive officers of the Company. The
Compensation Committee also administers the Company's Stock
Option Plan. Prior to establishment of the Compensation
Committee, the non-employee members of the Board of Directors
performed the functions now being performed by the Compensation
Committee.
In determining levels of base salary, bonus and long-term
equity-based compensation for the Company's executive officers,
including the Chief Executive Officer, the Compensation Committee
supports achievement of the Company's long-range goals through
application of the following general principles. First, in order
to attract, retain and reward executive officers that will
contribute significantly to the long-term success of the Company,
the Compensation Committee recognizes that the Company's
executive officers should be compensated at levels reasonably
comparable to the compensation of equivalent officers in
similarly situated companies in the retail apparel industry.
Second, the Compensation Committee believes that compensation
received by each executive officer should represent reasonable
value in relation to the services of the executive officer in his
respective capacity and the impact of such executive officer's
contribution to the achievement of the Company's long-term goals.
Third, the Compensation Committee assesses the Company's overall
performance and the performance of each executive officer
relative to the Company's overall performance. The Compensation
Committee applies the foregoing principles subjectively, without
regard to any objective, required or projected performance
criteria except as described below in connection with the
determination of annual bonus awards.
The non-employee members of the Board of Directors who now
constitute the Compensation Committee determined the salary for
fiscal 1996 of John J. Wiesner, the Company's Chief Executive
Officer, based on the application of the principles described
above. Mr. Wiesner prepared recommendations of salary for the
other executive officers for fiscal 1996. The non-employee
directors reviewed the recommendations of Mr. Wiesner and, after
considering these recommendations, established the salaries of
the other executive officers. The non-employee directors applied
the same subjective principles to their evaluation of the
salaries of the other executive officers as they did to their
deliberations with respect to Mr. Wiesner.
During fiscal 1996, bonuses were authorized for the
executive officers based on the Company's achievement of targeted
levels of earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The Company did not achieve the
targeted levels of EBITDA during fiscal 1996. However the
Compensation Committee recognized that fiscal 1996 was a
difficult year for the retail apparel industry and believed that
the performance of the executive officers in difficult
circumstances was important to the achievement of the Company's
reported profits. Accordingly, the Compensation Committee
authorized discretionary bonus awards for the executive officers
in the amounts indicated in the Summary Compensation Table above.
Bonuses of the executive officers for fiscal 1997 will again be
based on achievement by the Company of targeted levels of EBITDA.
During fiscal 1996, the non-employee directors approved the
grant under the Company's Stock Option Plan of options to
purchase an aggregate of 395,000 shares of Common Stock to the
executive officers of the Company. Such options vest in one-
third increments in each year following the date of grant and are
exercisable at a price of $3.00 per share, an amount determined
by the non-employee directors to be at least 100% of the fair
market value per share of Common Stock on the date of grant. In
authorizing the stock option awards, the non-employee directors
considered a number of factors in addition to those described
above, including each executive officer's relative equity
interest in the Company in the form of stock and options and the
Company's desire to further align the interests of management and
the shareholders in the long-term performance and financial
success of the Company.
During fiscal 1996, the Company retained an independent
consultant to review the Company's executive officer compensation
practices. The consultant reported to the non-employee directors
that the cash compensation being paid to the Company's executive
officers is generally competitive with the compensation packages
offered by comparable companies and that the Company's executive
severance arrangements also are competitive with and reflective
of general practices of comparable companies. The consultant
also recommended that additional stock options be granted to the
executive officers to reflect the levels of equity-based
compensation among comparable companies. The grant of stock
options to the executive officers during fiscal 1996 was in
response to this recommendation.
Members of the Compensation Committee are:
James J. Gaffney Willard C. Shull, III
Alan Melamed Jeffrey I. Werbalowsky
BENEFICIAL OWNERSHIP
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of September 6, 1996,
certain information with respect to the beneficial ownership of
the shares of Common Stock of the Company by (i) each person
known by the Company to own beneficially more than 5% of the
issued and outstanding shares of Common Stock, (ii) each director
and each executive officer of the Company and (iii) the directors
and the executive officers as a group.
Beneficial Ownership (1)
Number of Percentage of
Name of Beneficial Owner Shares Class(2)
Executive Life Insurance 1,533,996 17.0%
Company of New York
in Rehabilitation
123 William Street
New York, New York 10022
Citicorp Venture Capital, Ltd. 1,489,991 16.5%
399 Park Avenue
New York, NY 10043
Cargill Financial Services 1,045,272 11.6%
Corporation
6000 Clearwater Drive
Minnetonka, Minnesota 55343
S.C. Fundamental, Inc. 613,938 6.8%
712 Fifth Avenue
New York, New York
John J. Wiesner 210,619 (3) 2.3%
Michael J. Tanner 101,460 (3) 1.1%
Michael E. McCreery 154,570 (3) 1.7%
James J. Gaffney 50,000 (4) *
Alan Melamed 50,000 (4) *
Willard C. Shull, III 50,000 (4) *
Jeffrey I. Werbalowsky 50,000 (4) *
All Directors and Executive 666,649 (5) 6.9%
Officers as a Group (7 persons)
__________________________
* Less than one percent.
(1) This table is based upon information supplied by officers,
directors and principal shareholders and applicable
Schedules 13D or 13G filed with the Securities and Exchange
Commission. Unless otherwise indicated in the footnotes to
this table and subject to community property laws where
applicable, each of the shareholders named in this table
has sole voting and investment power with respect to the
shares indicated as beneficially owned.
(2) Percent of class is determined without regard to shares
issuable upon the exercise of stock options not exercisable
within 60 days of the date as of which beneficial ownership
is reflected. Any shares issuable upon the exercise of
stock options exercisable within 60 days of the date as of
which beneficial ownership is reflected are considered
outstanding for purposes of calculating the named person's
percentage ownership and the percentage ownership of the
directors and the executive officers as a group.
(3) Includes shares which the named individuals have the right
to acquire by exercise of stock options granted under the
Company's Stock Option Plan, which are currently
exercisable, as follows: John J. Wiesner - 195,000 shares;
Michael J. Tanner - 85,000 shares; and Michael E. McCreery
- 138,333 shares.
(4) Consists of 50,000 shares which the named individual has
the right to acquire by exercise of currently exercisable
stock options granted under the Company's Stock Option
Plan.
(5) Includes 618,333 shares which directors and executive
officers as a group have a right to acquire by exercise of
options granted under the Company's Stock Option Plan which
are currently exercisable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey I. Werbalowsky, a member of the Compensation
Committee, serves as a Managing Director of Houlihan Lokey Howard
& Zukin, Inc. ("Houlihan Lokey"). During 1995, the Company
entered into an agreement to retain Houlihan Lokey Capital,
together with Oppenheimer & Co., Inc. ("Oppenheimer"), to perform
general corporate advisory services in connection with the
analysis by the Company of strategic alternatives, including
analyzing the Company and possible transactions in which the
Company might engage, counseling the Company on the structure of
such possible transactions, advising the Company with respect to
due diligence on such possible transactions, assisting the
Company with financing on such possible transactions and
assisting in the negotiation of such possible transactions. The
Company terminated the agreement in November 1995. During the
term of such agreement, the Company paid a retainer of $14,000
per month. The Company also agreed to reimburse Houlihan Lokey
Capital and Oppenheimer for reasonable out-of-pocket expenses.
Houlihan Lokey Capital is an affiliate of Houlihan Lokey.
In 1992, Houlihan Lokey entered into an agreement with
Cargill Financial Services Corporation ("Cargill") with respect
to Cargill's investment in the Company and certain other
securities acquired by Cargill from the Resolution Trust
Corporation. Under the agreement in exchange for certain
financial advisory services, Cargill has paid Houlihan Lokey a
retainer and has agreed to pay Houlihan Lokey additional
compensation based on the net proceeds derived by Cargill from
its investment in the purchased securities and certain related
securities and Houlihan Lokey's reasonable costs and expenses.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 50,000,000 shares of
Common Stock, of which 9,035,645 shares of Common Stock are
issued and outstanding as of June 30, 1996.
Each holder is entitled to one vote for each share of Common
Stock held of record on each matter submitted to the
shareholders.
Each holder is entitled to receive dividends when and if
such dividends are declared by the Board of Directors. See
"Market Information and Dividend Policy."
In the event of the voluntary or involuntary dissolution of
the Company, holders are entitled to participate, pro rata, in
any distribution of assets of the Company.
The shares of Common Stock do not entitle the holders to any
conversion, preemptive or redemption rights. All of the shares
are fully paid, validly issued and nonassessable.
The Amended and Restated Certificate of Incorporation of
C.R. Anthony Company ("Certificate of Incorporation") and the
Bylaws of C.R. Anthony Company ("Bylaws") require the approval of
the following actions by a majority of the whole Board of
Directors: (a) proposal of an amendment to the Certificate of
Incorporation, (b) approval of a sale of all, or substantially
all, of the assets of the Company, (c) approval of a merger or a
consolidation involving the Company, (d) adoption of a resolution
on the advisability of dissolution of the Company, (e) election
of an officer and (f) removal of an officer. These provisions
may limit the ability to effect a change of control.
The Certificate of Incorporation and the Bylaws require the
approval of the following actions by the holders of two-thirds of
the issued and outstanding shares of Common Stock: (a) amendment
of the Certificate of Incorporation, (b) approval of a sale of
all, or substantially all, of the assets of the Company, (c)
approval or a merger (other than a merger for which shareholder
approval is not required) or a consolidation involving the
Company, (d) approval of the dissolution of the Company, (e)
election of a director and (f) removal of a director. These
provisions may limit the ability to effect a change in control.
The Certificate of Incorporation provides that the
provisions of the Oklahoma General Corporation Act, as amended,
with respect to "control shares" apply to the Company. "Control
shares" are shares which permit the acquiring person to exercise
voting power with the following ranges: (a) over one fifth, but
less than one third, of the voting power, (b) over one third, but
less than a majority, of the voting power and (c) a majority or
more of the voting power. Absent compliance with certain
procedural requirements, principally shareholder approval, the
voting rights associated with such "control shares" are reduced.
These provisions may limit the ability to effect a change in
control.
The Certificate of Incorporation and the Bylaws, the
governing documents of the Company which define the rights of the
holders of Common Stock, are attached as Exhibit 3.1 and Exhibit
3.2, respectively, of the Registration Statement of which this
Prospectus is a part.
The Transfer Agent and Registrar for the Common Stock is The
Liberty Bank and Trust Company of Oklahoma City, N.A.
SELLING SHAREHOLDERS
The following table sets forth, as of September 6, 1996, the
name of each Selling Shareholder, the number and the percentage
of shares of Common Stock beneficially owned by each Selling
Shareholder and the number of shares registered by the Company on
behalf of each Selling Shareholder.
Beneficial Ownership
Name of
Selling Shareholder Number of Shares Percentage
Cargill Financial Services 1,045,272 11.6%
Corporation
Executive Life Insurance
Company of New York
in Rehabilitation 1,533,996 17.0%
Total 2,579,268 28.6%
Because the Selling Shareholders may sell all or some of the
shares of Common Stock which the Company has registered on their
behalf, it is impossible to estimate the number of shares of
Common Stock which will be beneficially owned by each Selling
Shareholder at the conclusion of the offering.
There has been no material relationship between the Company
and any Selling Shareholder during the last three years (other
than the beneficial ownership of shares of Common Stock by the
Selling Shareholders).
PLAN OF DISTRIBUTION
The Selling Shareholders may sell, from time to time, the
shares of Common Stock directly to purchasers or through agents,
dealers or underwriters, who may receive compensation in the form
of commissions, concessions or discounts from the Selling
Shareholders and/or the purchasers for whom they are acting.
At the time at which a particular offer of the shares of
Common Stock is made, to the extent required, the number of
shares being offered, the other terms, the name or the names of
any agent, dealer or underwriter and any concessions, commissions
or discounts allowed or paid with respect to a particular offer
will be set forth in an accompanying supplement to this
Prospectus.
The shares of Common Stock may be sold from time to time in
one or more transactions at a fixed offering price, which may be
changed, at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the Selling
Shareholders or by agreement between the Selling Shareholders and
any dealers or underwriters. The criteria used to establish the
prices are likely to involve subjective factors normally
associated with the sale of similar securities.
The Company will bear substantially all of the expenses
(other than concessions, commissions and discounts) incident to
the offer and sale of the shares of Common Stock pursuant to this
Prospectus, which are estimated to be $95,000.
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby
will be passed upon for the Company by Crowe & Dunlevy, A
Professional Corporation, Tulsa, Oklahoma.
EXPERTS
The financial statements of the Company as of February 3,
1996, and January 29, 1995, and for the fifty-three weeks ended
February 3, 1996 and the fifty-two weeks ended January 29, 1995
and January 30, 1994, included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated
in their report appearing herein and are included in reliance
upon the report of such firm given upon their authority as
experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments
thereto, relating to the Common Stock offered hereby has been
filed by the Company with the Securities and Exchange Commission,
Washington, D.C. This Prospectus does not contain all of the
information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document
referred to are not necessarily complete and in each instance
reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement. For further
information with respect to the Company and the Common Stock
offered hereby, reference is made to such Registration Statement,
exhibits and schedules. A copy of the Registration Statement and
the exhibits and schedules thereto may be inspected by anyone
without charge and copies may be obtained at prescribed rates at
the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices at Northwest Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies
of all or any part of these materials may be obtained from the
Commission upon the payment of certain fees prescribed by the
Commission by writing to the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
C.R. ANTHONY COMPANY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Financial Statements:
Consolidated Balance Sheets at February 3, 1996 and
January 29, 1995
Consolidated Statements of Income for the 53 Weeks Ended
February 3, 1996 and the 52 Weeks Ended January 29, 1995
and January 30, 1994
Consolidated Statements of Stockholders' Equity for the
53 Weeks Ended February 3, 1996 and the 52 Weeks Ended
January 29, 1995 and January 30, 1994
Consolidated Statements of Cash Flows for the 53 Weeks
Ended February 3, 1996 and the 52 Weeks Ended January 29,
1995 and January 30, 1994
Notes to Consolidated Financial Statements
Interim Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets at August 3, 1996 and
July 30, 1995
Unaudited Consolidated Statements of Operations for the 13
and 26 Weeks Ended August 3, 1996 and July 30, 1995
Unaudited Consolidated Statements of Cash Flows for the
26 Weeks Ended August 3, 1996 and July 30, 1995
Notes to Interim Unaudited Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
Board of Directors
C. R. Anthony Company
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of
C. R. Anthony Company and subsidiary (the "Company"), as of
February 3, 1996 and January 29, 1995, and the related
consolidated statements of income, stockholders' equity and cash
flows for the fifty-three weeks ended February 3, 1996 and the
fifty-two weeks ended January 29, 1995 and January 30, 1994.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company as of February 3, 1996 and January 29,
1995, and the results of their operations and their cash flows
for the fifty-three weeks ended February 3, 1996 and the fifty-
two weeks ended January 29, 1995 and January 30, 1994, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Oklahoma City, Oklahoma
March 8, 1996
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
February 3, January 29,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,654 $ 3,784
Accounts receivable, less allowance for
doubtful accounts of $100 2,353 2,649
Merchandise inventories 84,438 75,921
Other assets 1,620 841
Deferred income taxes 1,849 1,496
Total current assets 92,914 84,691
PROPERTY AND EQUIPMENT, net 15,331 14,911
OTHER ASSETS 376 317
DEFERRED INCOME TAXES 8,439 9,473
TOTAL $117,060 $109,392
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,562 $ 16,175
Other liabilities 6,673 6,971
Accrued compensation 1,889 2,961
Income taxes payable 522 1,304
Current maturities of long-term debt 7,069 3,164
Total current liabilities 30,715 30,575
LONG-TERM DEBT, less current maturities 18,114 12,695
OTHER LIABILITIES 1,096 1,073
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000
shares authorized; 9,005,245 shares
issued and outstanding 90 90
Additional paid-in capital 57,216 57,216
Retained earnings 9,829 7,743
Total stockholders' equity 67,135 65,049
TOTAL $117,060 $109,392
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except per share
amounts)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30,
1996 1995 1994
<S> <C> <C> <C>
NET SALES $ 304,451 $ 302,241 $ 302,858
COST OF GOODS SOLD 207,688 205,415 210,354
GROSS MARGIN 96,763 96,826 92,504
EXPENSES:
Selling, general and
administrative 73,317 72,188 70,580
Advertising 12,997 12,599 11,675
Depreciation and amortization 4,862 3,817 3,280
Interest 2,577 2,165 2,207
Total expenses 93,753 90,769 87,742
INCOME BEFORE INCOME TAXES 3,010 6,057 4,762
INCOME TAX EXPENSE (924) (2,362) (1,905)
NET INCOME $ 2,086 $ 3,695 $ 2,857
NET INCOME PER COMMON SHARE $ 0.23 $ 0.41 $ 0.32
AVERAGE COMMON STOCK AND
COMMON STOCK EQUIVALENTS
OUTSTANDING 9,005,245 9,003,497 9,000,000
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1993 9,000,000 $ 90 $ 43,672 $ 1,191 $ 44,953
Net income - - - 2,857 2,857
Utilization of pre-reorganization
deferred tax assets - - 5,465 - 5,465
BALANCE, JANUARY 30, 1994 9,000,000 90 49,137 4,048 53,275
Issuance of stock 5,245 - 20 - 20
Net income - - - 3,695 3,695
Utilization of pre-reorganization
deferred tax assets - - 8,059 - 8,059
BALANCE, JANUARY 29, 1995 9,005,245 90 57,216 7,743 65,049
Net income - - - 2,086 2,086
BALANCE, FEBRUARY 3, 1996 9,005,245 $ 90 $ 57,216 $ 9,829 $ 67,135
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30,
1996 1995 1994
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,086 $ 3,695 $ 2,857
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 4,862 3,817 3,280
Deferred tax expense (benefit) (743) 10 (156)
Utilization of pre-reorganization
tax assets 1,424 1,080 1,621
Gain on disposals of equipment (9) (67) (117)
Changes in other assets and
liabilities:
Accounts receivable 296 (364) 612
Merchandise inventories (8,517) (4,251) 67
Other assets (1,146) 627 (292)
Accounts payable and accrued
expenses (1,888) 1,588 787
Accrued compensation (1,072) 135 496
Income taxes payable (782) 864 440
Net cash provided by (used in)
operating activities (5,489) 7,134 9,595
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,812) (5,298) (4,706)
Proceeds from sale of property and
equipment 33 99 158
Net cash used in investing
activities (4,779) (5,199) (4,548)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) -
Revolving Credit Agreement 24,845 - (5,110)
Payments of long-term debt (15,707) (1,164) (19)
Proceeds from issuance of common
stock - 20 -
Net cash (used in) provided by
financing activities 9,138 (1,144) (5,129)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (1,130) 791 (82)
CASH AND CASH EQUIVALENTS,
Beginning of period 3,784 2,993 3,075
CASH AND CASH EQUIVALENTS,
End of period $ 2,654 $ 3,784 $ 2,993
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,685 $ 2,145 $ 2,197
Income taxes 1,027 407 -
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FIFTY-THREE WEEKS ENDED FEBRUARY 3, 1996 AND THE
FIFTY-TWO WEEKS ENDED JANUARY 29, 1995 AND JANUARY 30, 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - C.R. Anthony Company (the "Company"), an
Oklahoma corporation, is engaged in the operation of a
regional chain of retail stores, with the majority in smaller
communities throughout the southwestern and midwestern United
States, offering national brand apparel, including footwear,
for the entire family.
Basis of presentation - The consolidated financial statements
include the results of operations, account balances and cash
flows of the Company and its wholly owned subsidiary (ANCO
Transportation, which principally transports merchandise to
Company stores). All material intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Cash and cash equivalents - All temporary cash investments
purchased with a maturity of three months or less are
considered to be cash equivalents. The carrying amount
approximates fair value because of the short maturity of
these instruments.
Merchandise inventories - Inventories are valued at the lower
of cost or market using the retail method for merchandise
inventories at stores and the average cost method for
merchandise inventories at the Company's distribution center.
Property and equipment - Property and equipment are recorded
at cost. Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are amortized over the lesser
of the estimated useful life or the remaining lease term
using the straight-line method. The estimated useful lives
and periods used in computing depreciation and amortization
are: buildings - 30 years; fixtures and equipment - 3 to 8
years; transportation and data processing equipment - 3 to 8
years; and leasehold improvements - 5 to 20 years.
Pre-opening expenses - Costs related to the opening of new
stores are expensed as incurred.
Income taxes - The Company recognizes an asset and liability
approach for accounting for income taxes. Deferred income
taxes are recognized for the tax consequences of temporary
differences and carryforwards by applying enacted tax rates
applicable to future years to differences between the
financial statement amounts and the tax bases of existing
assets and liabilities. A valuation allowance is to be
established if it is more likely than not that some portion
of the deferred tax asset will not be realized.
Earnings per share - Earnings per share is computed based
upon net income divided by the weighted average number of
shares outstanding. The impact of stock options on earnings
per share is not materially dilutive.
Long-lived assets - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. SFAS No. 121, which is effective for fiscal
years beginning after December 15, 1995, establishes
accounting standards for the impairment of long-lived assets,
certain identified intangibles and goodwill related to such
assets. The Company will adopt SFAS No. 121 in fiscal 1997.
Management believes the impact of this pronouncement on the
Company's financial statements will not be material.
Reclassifications - Certain reclassifications have been made
to 1994 and 1995 balances to conform with the classifications
of such amounts for the current periods.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in
thousands):
February 3, January 29,
1996 1995
Land $ 214 $ 214
Buildings 781 781
Leasehold improvements 7,910 5,992
Fixtures and equipment 12,015 10,080
Transportation and data processing
equipment 6,345 5,318
27,265 22,385
Less accumulated depreciation and
amortization (11,934) (7,474)
$15,331 $14,911
3. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
February 3, January 29,
1996 1995
Revolving Credit Agreement $24,845 $ -
Secured note payable - Bank Group - 15,368
Tax notes payable 182 491
Other 156 -
Total 25,183 15,859
Less current maturities 7,069 3,164
Long-term debt $18,114 $12,695
On July 27, 1995, the Company entered into an Amended and
Restated Loan Agreement ("Agreement") maturing July 26, 2000.
The Agreement replaced the revolving credit agreement which
was scheduled to mature August 3, 1995. The Agreement
provides for revolving credit borrowings, letters of credit
and $20 million of long-term debt. The long-term portion
requires a $2 million annual payment. Available borrowings
are based on a percentage of eligible inventory, as defined,
with a maximum of $60 million reduced annually by the $2
million long-term principal payment. The rate of interest on
borrowings is at the index rate plus 2% per annum (7.4% at
February 3, 1996) plus a fee of .25% on the unused portion of
the facility payable monthly in arrears. The Agreement is
secured by a lien on substantially all assets of the Company.
The Company is required to reduce its borrowings to the
amount of the long-term debt for a 30-day period each fiscal
year. The agreement requires defined fixed charge and
specified inventory turnover ratios and maintenance of a
minimum net worth, and restricts capital expenditures,
additional borrowings and dividends. Management believes
that the Company will maintain compliance with the financial
ratio requirements for fiscal year 1997.
Proceeds from the Agreement were used to pay-off the
$15,368,000 secured note payable to the former bank group
which had provided for $3 million annual principal reductions
and matured June 1, 1999.
Tax notes represent miscellaneous tax claims which are being
repaid with interest at 3.5% in equal, annual principal
installments of $164,000.
Other long-term debt represents an equipment purchase which
is being repaid with interest at 4.9% in equal, monthly
installments, including interest, of $5,563.
Future maturities of long-term debt during each of the next
five fiscal years are $7,069,000 in 1997;$2,082,000 in 1998;
$2,033,000 in 1999; $2,000,000 in 2000; and $12,000,000 in
2001.
The carrying amount of the Company's long-term debt
approximates fair value based on current rates offered to the
Company for debt with similar terms.
4. LEASES
The Company has operating leases for its store facilities,
distribution center, and certain other equipment.
Substantially all of the leases are net leases which require
the payment of property taxes, insurance and maintenance
costs in addition to rental payments. Certain store leases
provide for additional rentals based on a percentage of
sales, renewal options for one or more periods ranging from
one to five years and rent escalation clauses.
At February 3, 1996, the future minimum lease payments under
operating leases with rental terms of more than one year are
as follows (in thousands):
Fiscal Year Ending
1997 $ 11,128
1998 9,363
1999 7,415
2000 5,627
2001 3,462
Later years 6,625
$ 43,620
Rent expense relating to operating leases consists of the
following (in thousands):
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30,
1996 1995 1994
Minimum rentals $12,450 $11,623 $10,517
Contingent rentals 899 1,093 1,254
5. INCOME TAXES
The Company has net operating loss deduction carryforwards
for tax purposes of approximately $16,800,000 which arose
from pre-reorganization operations and will expire in 2007.
The Company emerged from Chapter 11 pursuant to a confirmed
Plan of Reorganization on August 3, 1992. The Company's
ability to utilize the operating loss for income tax purposes
is limited to an annual deduction of approximately $2,700,000
because of IRS rules applicable to the terms of the Plan of
Reorganization. The Company has recognized the full loss
carryforwards as a deferred tax asset for financial statement
purposes.
Current and deferred income tax expense recorded in results
of operations in each period are as follows (in thousands):
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30,
1996 1995 1994
Current:
Federal $1,461 $2,202 $1,796
State 206 150 265
1,667 2,352 2,061
Deferred:
Federal (690) (166) (136)
State (53) 176 (20)
(743) 10 (156)
Total expense $ 924 $2,362 $1,905
The effective income tax rate differed from the statutory
federal income tax rate as follows:
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30,
1996 1995 1994
Statutory federal income tax rate 34% 34% 34%
State income taxes 5 5 5
General business credits (9) (2) (1)
Other 1 2 2
31% 39% 40%
The tax basis of certain assets and liabilities are different
from the values reflected in the accompanying balance sheets.
The related deferred tax assets and liabilities created by
these temporary basis differences are as follows (in
thousands):
Deferred Tax Assets
(Liabilities)
February 3, January 29,
1996 1995
Depreciation $ 1,899 $ 1,555
Receivable valuation (56) (62)
Inventory 688 545
Employee benefits 1,041 919
Deferred lease cost 68 94
Other 63 39
Tax benefit of net operating loss
carryforward 5,963 7,257
General business credit carryforward 622 622
Total $10,288 $10,969
Accounting standards require recognition of future tax
benefits of the above deferred tax assets to the extent such
realization is more likely than not. In recognizing
$8,059,000 and $4,000,000 of such tax benefits at January 29,
1995 and January 30, 1994, respectively, management
considered the nonrecurring nature of significant expense
which contributed to the creation of the operating loss
carryforwards and the results of operations subsequent to the
consummation of the Plan of Reorganization. The tax benefits
recognized related to pre-reorganization deferred tax assets
were recorded as a direct addition to additional paid-in
capital.
6. STOCK OPTION PLAN
Effective August 3, 1992, the C.R. Anthony 1992 Stock Option
Plan ("Option Plan") provides for the issuance of either
Incentive Stock Options or nonqualified options or both to
any key employee as determined by the Board of Directors or
the issuance of nonqualified options to nonemployee
directors. The Company has reserved 1,500,000 shares of the
new common stock ("Shares") for issuance under the Option
Plan, and any Shares, subject to options which are forfeited,
will be returned to the Option Plan.
Stock option transactions are as follows:
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
February 3, January 29, January 30, Option Price
Number of Options 1996 1995 1994 per Share
Outstanding,
beginning of period 725,000 505,000 365,000 $4.00 to 5.92
Granted 395,000 230,000 160,000 3.00 to 5.92
Exercised (35,000) - - $4.00
Forfeited (33,334) - (20,000) $4.00
Expired (51,666) (10,000) - $4.00
Outstanding, end of
period 1,000,000 725,000 505,000 $3.00 to 5.92
The options granted will vest at 33.3% per year at the end of
each twelve-month period following the date of the grant and
expire on the tenth year following the date of grant. The
option plan provides that all options will become immediately
exercisable upon an involuntary termination of employment, a
substantial diminution of duties, a reduction in
compensation, a change in control, as defined, death or
disability. At February 3, 1996, 485,000 stock options were
exercisable.
The Option Plan will automatically terminate and no
additional options will be granted on the tenth anniversary
of its effective date.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), Accounting for Stock-Based Compensation,
effective for fiscal years beginning after December 15, 1995.
SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages, but
does not require, compensation costs to be measured based on
the fair value of the equity instrument awarded. Companies
are permitted, however, to continue to apply APB Opinion No.
25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will
continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees and will disclose the
required proforma effect on net income and earnings per
share.
7. COMMITMENTS AND CONTINGENCIES
The Company has a contributory 401(k) savings plan covering
substantially all employees. The Company contributed
approximately $278,000, $247,000 and $142,000, respectively,
for the fifty-three weeks ended February 3, 1996 and the
fifty-two weeks ended January 29, 1995 and January 30, 1994,
in matching contributions based upon employees'
contributions. Effective July 1, 1994, the Company matched
33% of each participant's contribution, limited to the first
1.67% of each participant's salary. The Company's matching
rate was 25% prior to July 1, 1994.
Effective August 1, 1995, the Company entered into a "Second
Amended and Restated Private Label Retail Credit Services
Agreement" with Citicorp Retail Services, Inc. ("CRS")
related to the Company's private label charge card. The
agreement matures August 1, 1998, with annual renewal options
to August, 2000. The Agreement provides for the sale of the
charge card receivables to CRS on a non-recourse basis at
100% of face value, less a stated discount rate. Charge card
receivables of approximately $55,300,000, $44,200,000, and
$30,400,000 were sold to CRS during the fifty-three weeks
ended February 3, 1996 and the fifty-two weeks ended January
29, 1995 and January 30, 1994, respectively. The Company is
also obligated to pay a fee to CRS for bad debt losses equal
to 50% of such losses in excess of 2.25% of annual private
label charge card sales. The former agreement provided for
reimbursement of losses up to 3% of average outstanding
accounts receivable balances. The amount of losses incurred
by the Company pursuant to the current and former agreements
for the fifty-three weeks ended February 3, 1996 and the
fifty-two weeks ended January 29, 1995 and January 30, 1994
were $399,000, $419,000, and $532,000, respectively. The
Company records the discount and accrues for its estimated
obligation for bad debt expense at the time the receivables
are sold.
The Company is currently subject to certain litigation in the
normal course of business which, in the opinion of
management, will not result in a material adverse effect on
the Company's business, financial position, or results of
operations.
The Company retains certain risks for general liability,
workers' compensation and group health losses. The Company
has individual and aggregate stop loss coverages with
insurers for these claims. Management of the Company
believes the recorded reserves of approximately $2,152,000 at
February 3, 1996, are adequate to cover these retained risks.
At February 3, 1996, the Company was contingently liable for
approximately $2,986,000 for outstanding letters of credit
securing performance of purchase contracts and other
guarantees.
* * * * * *
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
August 3, July 30, February 3,
ASSETS 1996 1995 1996
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,576 $ 3,141 $ 2,654
Accounts receivable, less
allowance for doubtful
accounts of $100 12,192 12,730 2,353
Merchandise inventories 88,776 93,993 84,438
Other assets 1,693 861 1,620
Deferred income taxes 1,194 1,894 1,849
Total current assets 109,431 112,619 92,914
PROPERTY AND EQUIPMENT, net 15,110 15,250 15,331
OTHER ASSETS 343 347 376
DEFERRED INCOME TAXES 8,273 9,473 8,439
TOTAL $ 133,157 $ 137,689 $ 117,060
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,212 $ 20,333 $ 14,562
Other liabilities 11,017 10,047 6,673
Accrued compensation 2,074 1,874 1,889
Income taxes payable - - 522
Current maturities of long-term
debt 8,186 19,724 7,069
Total current liabilities 45,489 51,978 30,715
LONG-TERM DEBT, less current
maturities 18,064 20,164 18,114
OTHER LIABILITIES 1,095 1,119 1,096
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value;
50,000,000 shares authorized;
9,035,645, 9,005,245, and
9,005,245 shares issued and
outstanding 90 90 90
Additional paid-in capital 57,307 57,216 57,216
Retained earnings 11,112 7,122 9,829
Total stockholders' equity 68,509 64,428 67,135
TOTAL $ 133,157 $ 137,689 $ 117,060
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(Dollars in Thousands,
except per share amounts)
<TABLE>
<CAPTION>
For the Thirteen For the Twenty-six
Weeks Ended Weeks Ended
August 3, July 30, August 3, July 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 72,688 $ 77,203 $ 133,878 $ 139,544
COST OF GOODS SOLD 46,974 51,785 89,986 95,076
GROSS MARGIN 25,714 25,418 43,892 44,468
EXPENSES:
Selling, general and
administrative 17,571 18,735 33,515 35,720
Advertising 3,044 3,421 5,095 6,326
Depreciation and
amortization 1,278 1,147 2,253 2,189
Interest 502 790 925 1,252
Total expenses 22,395 24,093 41,788 45,487
INCOME (LOSS) BEFORE INCOME
TAXES 3,319 1,325 2,104 (1,019)
INCOME TAX (EXPENSE)
BENEFIT (1,295) (516) (821) 398
NET INCOME (LOSS) $ 2,024 $ 809 $ 1,283 $ (621)
NET INCOME (LOSS) PER SHARE $ 0.22 $ 0.09 $ 0.14 $ (0.07)
AVERAGE SHARES OF COMMON
STOCK OUTSTANDING 9,023,619 9,005,245 9,014,432 9,005,245
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
26 Weeks 26 Weeks
Ended Ended
August 3, July 30,
1996 1995
<S> <C> <S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,283 $ (621)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,253 2,189
Deferred tax expense (benefit) 821 (398)
(Gain) loss on disposals of
equipment (18) 1
Common stock issued as compensation
expense 91 -
Changes in other assets and liabilities:
Accounts receivable (9,839) (10,081)
Merchandise inventories (4,338) (18,072)
Other assets (76) (322)
Accounts payable and other
liabilities 13,471 5,976
Accrued compensation 185 (1,087)
Net cash provided by (used in)
operating activities 3,833 (22,415)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,996) (2,276)
Proceeds from sale of property and
equipment 18 19
Net cash used in investing activities (1,978) (2,257)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings - Revolving Credit
Agreement 1,115 39,560
Payments of long-term debt (48) (15,531)
Net cash provided by financing
activities 1,067 24,029
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,922 (643)
CASH AND CASH EQUIVALENTS, Beginning of
period 2,654 3,784
CASH AND CASH EQUIVALENTS, End of period $ 5,576 $ 3,141
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 884 $ 1,255
Income taxes $ 557 $ 1,150
</TABLE>
See notes to consolidated financial statements.
C. R. ANTHONY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SUMMARY OF INTERIM REPORTING PRACTICES
Basis of presentation - The consolidated financial statements
include the results of operations, account balances and cash
flows of the Company and its wholly owned subsidiary (ANCO
Transportation, which principally transports merchandise to
Company stores). All material intercompany accounts and
transactions have been eliminated.
The consolidated balance sheets as of August 3, 1996 and July 30,
1995 and the statements of operations and cash flows for the
thirteen and twenty-six weeks ended August 3, 1996 and July 30,
1995 have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting only of
normal, recurring accruals) necessary to state fairly the
Company's financial position and the results of operations and
cash flows for the thirteen and twenty-six weeks ended August 3,
1996 and July 30, 1995 have been made. Due to the seasonal
nature of the business, results for the interim periods are not
necessarily indicative of a full year's operations, and balances
of inventory, receivables, revolving credit agreement borrowings,
and trade payables vary with the seasonal demands of the
business.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
It is suggested that these financial statements be read in
connection with the annual consolidated financial statements and
notes thereto.
Earnings per share - Earnings per share is computed based upon
net income divided by the weighted average number of shares
outstanding. The impact of stock options on earnings per share
is not materially dilutive.
Reclassifications - Certain reclassifications have been made to
prior year balances to conform with the classifications of such
amounts in the current period.
Accounting pronouncements - In March 1995, the Financial
Accounting Standards Board issued SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which establishes accounting standards for such
assets. In October 1995, the Financial Accounting Standards
Board issued SFAS 123, "Accounting for Stock-Based Compensation."
SFAS 123 establishes a fair value method and disclosure standards
for stock-based employee compensation arrangements, such as stock
purchase plans and stock options. As allowed by SFAS 123, the
Company will continue to follow the provisions of Accounting
Principles Board Opinion 25 for such stock based compensation
arrangement and disclose the proforma effects of applying SFAS
123, if any, in the financial statements. The Company adopted
these new standards effective February 4, 1996. The adoption of
these standards had no material impact on the Company's financial
position, results of operations or related disclosures to the
Notes to Consolidated Financial Statements.
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table reflects the estimated expenses payable
by the Registrant in connection with the distribution of the
shares of Common Stock being registered:
Securities and Exchange Commission Registration Fee $3,071.65
Blue sky fees 3,000.00
Accounting fees 20,000.00
Copying/printing fees 2,000.00
Legal fees 65,000.00
Miscellaneous 1,928.35
Total $95,000.00
Item 14. Indemnification of Directors and Officers
Section 1031(A) of the Oklahoma General Corporation Act, as
amended ("OGCA"), empowers an Oklahoma corporation to indemnify
any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative, or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding
if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests
in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Section 1031(B) of the OGCA empowers an Oklahoma corporation
to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment
in its favor, by reason of the fact that such person reasonably
incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good
faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and except
that no indemnification may be made in respect of any claim issue
or matter as to which such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that the
court in which such action or suit was brought shall determine
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the
court shall deem proper.
Section 1031(c) of the OGCA provides that, to the extent
that a director or officer of a corporation has been successful
on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1031(A) or Section 1031(B), or
in the defense of any claim, issue or matter therein, he or she
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection
therewith; that expenses incurred by an officer or director in
defending any action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by such
director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by
the corporation; that the indemnification and advancement of
expenses provided by, or granted pursuant to, Section 1031 shall
not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled; and that a corporation is empowered to purchase and
maintain insurance on behalf of any person who is or was a
director or officer of the corporation against any liability
asserted against him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify
him or her against such liability under Section 1031.
The Amended and Restated Certificate of Incorporation of the
Company provides for indemnification of directors and officers to
the fullest extent permitted by Oklahoma law. Management
believes that such indemnification is necessary to attract and to
retain qualified persons as directors and officers.
insurance policy, which provides coverage with respect to
the actions and the omissions of the directors and the officers.
The policy provides, subject to stated exceptions, coverage in an
amount of $10 million.
Item 15. Recent Sales of Unregistered Securities
In connection with the consummation of its plan of
reorganization on August 3, 1992, the Company issued to certain
former unsecured creditors common stock purchase warrants which
entitled such former unsecured creditors to purchase an aggregate
of 500,000 shares of Common Stock at a purchase price of $3.75
per share, subject to adjustment, until August 2, 1994. On or
about August 2, 1994, the Company issued 5,245 shares of Common
Stock upon the exercise of such common stock purchase warrants
for an aggregate purchase price of $19,669. Such shares were
issued in reliance on the exemption provided by Section 1145 of
the United States Bankruptcy Code and the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
On June 10, 1996, the Company granted to each of its four
non-employee directors options to purchase 5,000 shares of the
Company's Common Stock, for a total of 20,000 options, at an
exercise price of $3.00 per share. Such options were issued in
reliance on the exemption provided by Section 4(2) of the
Securities Act.
On June 10, 1996, the Company granted to 285 employees a
total of 30,400 shares of Common Stock of the Company as stock
bonus awards. The Company believes that the issuance of such
shares was exempt from the registration requirements of the
Securities Act for the reason that such issuance did not
constitute a "sale" of securities under the Securities Act in
reliance upon published "no action" positions of the Securities
and Exchange Commission. In this regard, (i) the bonus awards
were a one-time employee bonus involving no direct cost to
recipients, (ii) the recipients did not individually bargain to
contribute cash or other consideration in exchange for the bonus
awards, (iii) the bonus awards applied to a relatively broad
class of employees, and (iv) the bonus awards were not dependent
upon achievement of individual performance goals by recipients.
Item 16. Exhibits and Financial Statements
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
The following exhibits are filed herewith:
Exhibit
Number Description
1 *
2 *
3.1 Amended and Restated Certificate of Incorporation of
C.R. Anthony Company **
3.2 Bylaws of C.R. Anthony Company **
4 *
5 Opinion of Crowe & Dunlevy, A Professional Corporation,
regarding legality of the shares of Common Stock. **
6 *
7 *
8 *
9 *
10.1 Amended and Restated Loan Agreement dated as of July
27, 1995, by and between C.R. Anthony Company and
General Electric Capital Corporation. **
10.2 First Amendment to Amended and Restated Loan Agreement
dated as of July 27, 1995 by and between C.R. Anthony
Company and General Electric Capital Corporation
(Incorporated by reference to Exhibit 10.2 to Company's
Form 10-K for fiscal year ended February 3, 1996).
10.3 Second Amended and Restated Private Label Retail Credit
Services Agreement effective August 1, 1995, between
Citicorp Retail Services, Inc. and C.R. Anthony
Company.**
10.4 C.R. Anthony Company 1992 Stock Option Plan, as
amended, and forms of option agreements. **
10.5 Severance Payment Plan. **
10.6 Severance Agreement dated April 1, 1995, between the
Company and John J. Wiesner. **
10.7 Severance Agreement dated April 1, 1995, between the
Company and Michael E. McCreery. **
10.8 Severance Agreement dated April 1, 1995, between the
Company and Michael J. Tanner.**
10.9 Intentionally omitted.
10.10 Letter Agreement dated May 22, 1995, between C.R.
Anthony Company and Houlihan Lokey Howard & Zukin
Capital. **
10.11 Letter Agreement dated July 28, 1995, among C.R.
Anthony Company, Houlihan Lokey Howard & Zukin and
Oppenheimer & Co. Inc. **
10.12 Amended and Restated Intercreditor Agreement dated as
of August 1, 1995 between Citicorp Retail Services,
Inc. and General Electric Capital Corporation. **
10.13 Form of Stock Option Agreement dated June 10, 1996
evidencing the grant of options to purchase 5,000 shares
of Common Stock of the Company to each of the following
directors of the Company: James J. Gaffney, Alan
Melamed, Willard C. Shull, III, and Jeffrey I.
Werbalowsky (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended
August 3, 1996.)
10.14 Amended Severance Compensation Agreement dated May 31,
1996 between the Company and William A. North
(Incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the fiscal quarter ended August
3, 1996.)
11 *
12 *
13 *
14 *
15 *
16 *
17 *
18 *
20 *
21 Subsidiaries of C.R. Anthony Company **
22 *
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Crowe & Dunlevy, A Professional Corporation
(included in Exhibit 5).**
24 Powers of Attorney **
25 *
26 *
27 *
28 *
* - Inapplicable
** - Previously filed
Item 17. Undertakings
The Registrant hereby undertakes:
(1) to file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement:
(i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or
events arising after the effective date of the Registration
Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed in
the Registration Statement or any material change to such
information in the Registration Statement;
(2) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement,
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof; and
(3) to remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
as amended, the Registrant has duly caused this Post-Effective
Amendment No. 2 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Oklahoma City, State of Oklahoma on
September 12, 1996.
C.R. Anthony Company
By: /s/ Michael E. McCreery
Michael E. McCreery
Vice Chairman and Chief
Administrative Officer
Pursuant to the requirements of the Securities Act of 1933,
as amended, this Post-Effective Amendment No. 2 to Registration
Statement has been signed by the following persons in the
following capacities and on the dates indicated.
Dated: September 12, 1996 /s/ John J. Wiesner*
John J. Wiesner
Chairman of the Board, Chief
Executive Officer and
Director
Dated: September 12, 1996 /s/ Michael E. McCreery
Michael E. McCreery
Vice Chairman, Chief
Administrative Officer and
Treasurer (Chief Financial
Officer)
Dated: September 12, 1996 /s/ Richard E. Stasyszen*
Richard E. Stasyszen
Vice President and
Controller (Chief Accounting
Officer)
Dated: September 12, 1996 /s/ James J. Gaffney*
James J. Gaffney
Director
Dated: September 12, 1996 /s/ Alan Melamed*
Alan Melamed
Director
Dated: September 12, 1996 /s/ Willard C. Shull,III*
Willard C. Shull, III
Director
Dated: September 12, 1996 /s/ Jeffrey I. Werbalowsky
Jeffrey I. Werbalowsky
Director
* By: /s/ Michael E. McCreery
Michael E. McCreery,
Attorney-in-Fact
EXHIBIT INDEX TO POST-EFFECTIVE AMENDMENT NO. 2 TO FORM S-1
Exhibit
Number Description
1 *
2 *
3.1 Amended and Restated Certificate of Incorporation of
C.R. Anthony Company **
3.2 Bylaws of C.R. Anthony Company **
4 *
5 Opinion of Crowe & Dunlevy, A Professional Corporation,
regarding legality of the shares of Common Stock. **
6 *
7 *
8 *
9 *
10.1 Amended and Restated Loan Agreement dated as of July
27, 1995, by and between C.R. Anthony Company and
General Electric Capital Corporation. **
10.2 First Amendment to Amended and Restated Loan Agreement
dated as of July 27, 1995 by and between C. R. Anthony
Company and General Electric Capital Corporation
(Incorporated by reference to Exhibit 10.2 to Company's
Form 10-K for fiscal year ended February 3, 1996).
10.3 Second Amended and Restated Private Label Retail Credit
Services Agreement effective August 1, 1995, between
Citicorp Retail Services, Inc. and C.R. Anthony
Company. **
10.4 C.R. Anthony Company 1992 Stock Option Plan, as
amended, and forms of option agreements. **
10.5 Severance Payment Plan. **
10.6 Severance Agreement dated April 1, 1995, between the
Company and John J. Wiesner. **
10.7 Severance Agreement dated April 1, 1995, between the
Company and Michael E. McCreery. **
10.8 Severance Agreement dated April 1, 1995, between the
Company and Michael J. Tanner.**
10.9 Intentionally omitted.
10.10 Letter Agreement dated May 22, 1995, between C.R.
Anthony Company and Houlihan Lokey Howard & Zukin
Capital. **
10.11 Letter Agreement dated July 28, 1995, among C.R.
Anthony Company, Houlihan Lokey Howard & Zukin and
Oppenheimer & Co. Inc. **
10.12 Amended and Restated Intercreditor Agreement dated as
of August 1, 1995 between Citicorp Retail Services,
Inc. and General Electric Capital Corporation. **
10.13 Form of Stock Option Agreement dated June 10, 1996
evidencing the grant of options to purchase 5,000 shares
of Common Stock of the Company to each of the following
directors of the Company: James J. Gaffney, Alan
Melamed, Willard C. Shull, III, and Jeffrey I.
Werbalowsky (Incorporated by reference to Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended
August 3, 1996.)
10.14 Amended Severance Compensation Agreement dated May 31,
1996 between the Company and William A. North
(Incorporated by reference to Exhibit 10.2 to the
Company's Form 10-Q for the fiscal quarter ended August
3, 1996.)
11 *
12 *
13 *
14 *
15 *
16 *
17 *
18 *
20 *
21 Subsidiaries of C.R. Anthony Company **
22 *
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Crowe & Dunlevy, A Professional Corporation
(included in Exhibit 5).**
24 Powers of Attorney **
25 *
26 *
27 *
28 *
* - Inapplicable
** - Previously filed
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 2 to
Registration Statement No. 33-98280 of C.R. Anthony Company on
Form S-1 of our report dated March 8, 1996, appearing in the
Prospectus, which is a part of such registration statement, and
to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Oklahoma City, Oklahoma
September 12, 1996
