<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1994.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10491
-------
MERRY-GO-ROUND ENTERPRISES, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0913402
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 Fashion Way, Joppa, Maryland 21085
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 538-1000
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- - ------------------- -----------------------------------------
Common Stock, par value New York Stock Exchange, Inc.
- - ----------------------- -----------------------------
$ .0l per share
- - -------------------
Securities registered pursuant to Section 12(g) of the Act: NONE
----
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such Filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
registrant: $121,347,754 based on the closing price of the stock on the New
York Stock Exchange on April 20, 1994.
The number of outstanding shares of the registrant's common stock as of April
20,1994: 53,932,335
Documents Incorporated By Reference:
1. Portions of the registrant's 1994 Annual Report to
Stockholders (Annual Report) are incorporated in Parts II and
IV.
2. Portions of the registrant's proxy statement which will be
filed with the Commission within 120 days of the end of the
fiscal year ended January 29, 1994 are incorporated in Part
III.
<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
MERRY-GO-ROUND ENTERPRISES, INC.
INDEX TO INFORMATION IN REPORT
<TABLE>
<CAPTION>
Page
Number
------
PART I
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 20
</TABLE>
<TABLE>
<CAPTION>
PART II
<S> <C> <C>
Item 5. Market for the Registrant's Common Equity and Related 21
Stockholder Matters
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial 22
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 22
Item 9. Changes in and Disagreements with Accountants 22
on Accounting and Financial Disclosure
</TABLE>
<TABLE>
<CAPTION>
PART III
<S> <C> <C>
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners 23
and Management
Item 13. Certain Relationships and Related Transactions 23
</TABLE>
<TABLE>
<CAPTION>
PART IV
<S> <C> <C>
Item 14. Exhibits, Financial Statement Schedules and 24
Reports on Form 8-K
</TABLE>
SIGNATURES 30
<PAGE>
<PAGE>
Part I
------
Item 1. Business
- - -----------------
INTRODUCTION
------------
Merry-Go-Round Enterprises, Inc. (the "Company") was
incorporated in Maryland in 1971. The Company is a national
specialty retailer of contemporary fashions for young men and
women. The majority of stores operate under the trade names
Merry-Go-Round, N.E.T Works, DJ's Fashion Center for Men,
Dejaiz, Attivo, Chess King, Cignal, Boogies Diner and Club
International. At January 29, 1994, the Company operated 1,434
stores in 44 states and Washington, D.C., almost all of which
were located in enclosed regional shopping malls.
As a result of certain events in the third and fourth
quarters of fiscal 1994, including those described below, on
January 11, 1994, (the "petition date"), the Company and two of
its subsidiaries, MGR Distribution Corporation and MGRR, Inc.
(collectively the "MGRE debtors"), filed voluntary petitions
for relief (the "filing") under Chapter 11 ("Chapter 11") of
Title 11 of the United States Code (the "Bankruptcy Code") in
the United States Bankruptcy Court for the District of
Maryland, Baltimore Division (the "Bankruptcy Court"). The
MGRE debtors are presently operating their businesses as
debtors-in-possession under the jurisdiction of the Bankruptcy
Court and intend to propose a plan of reorganization pursuant <PAGE>
<PAGE>
to Chapter 11. As debtors in possession, the MGRE debtors may
not engage in transactions outside of the ordinary course of
business without approval of the Bankruptcy Court, after notice
and hearing.
The Company incurred a significant net loss in the
third quarter of fiscal 1994. This net loss caused the Company
to be in violation of certain financial covenants in its
borrowing arrangements and the Company was unable to reach an
agreement with its lenders to amend or restructure these
arrangements on satisfactory terms. The extended negotiations
with the Company's lenders created substantial uncertainty
among the Company's vendors and factors, resulting in their
failure to accept certain of the Company's spring merchandise
orders and causing uncertainty as to future deliveries of
merchandise. These events led to the Company's decision to
file for protection under Chapter 11 to enable the Company to
restructure its financial arrangements under the jurisdiction
of the Bankruptcy Court.
The following discussion sets forth certain aspects of
the Chapter 11 filing, but is not intended to be an exhaustive
summary. For additional information regarding the effect of
the filing on the Company, reference should be made to the
Bankruptcy Code.
<PAGE>
<PAGE>
Chapter 11 Reorganization Under the Bankruptcy Code
---------------------------------------------------
Pursuant to Section 362 of the Bankruptcy Code, the
commencement of the Chapter 11 proceedings created an automatic
stay, applicable generally to creditors and other parties in
interest, of: (i) the commencement or continuation of any
judicial, administrative or other legal proceedings against the
MGRE debtors that was or could have commenced prior to the
filing; (ii) the enforcement against the MGRE debtors or their
property of any judgments obtained prior to the filing; (iii)
the taking of any action to obtain possession of or to exercise
control over any property of the MGRE debtors, or otherwise
create, perfect or enforce any lien against their property;
(iv) the collection or assessment of any claims against or
other liabilities of the MGRE debtors that arose prior to the
filing.
Any entity may apply to the Bankruptcy Court, upon an
appropriate showing of cause for relief from the automatic
stay, to exercise the foregoing and other remedies.
The Company is in possession of its properties and is
maintaining and operating its business as a debtor-in-possession
pursuant to Sections 1107 and 1108 of the Bankruptcy Code. As
a debtor-in-possession, the Company after notice and a hearing,
may use, sell or lease its property in the ordinary course of
business. The Bankruptcy Code provides that all liabilities as <PAGE>
<PAGE>
of the petition date are subject to restructure under the terms
of a plan of reorganization.
Resolution of Claims
--------------------
Schedules were filed with the Bankruptcy Court setting
forth the assets and liabilities of the Company and its
subsidiaries as of the petition date as shown in the Company's
accounting records. The Bankruptcy Code provides for the
establishment of a Bar Date, by which date proofs of claim are
required to be filed for all amounts in dispute with or omitted
from the schedules of liabilities filed by the Company. The
Bar Date has not been set by the Bankruptcy Court. Differences
between amounts shown by the Company and claims filed by
creditors, if any, will be investigated and resolved. The
ultimate amount and settlement terms for any such liabilities
will be subject to a plan of reorganization (see "plan of
reorganization" below), and accordingly, are not presently
determinable.
Acceptance or Rejection of Executory Contracts
----------------------------------------------
Subject to Bankruptcy Court approval and certain other
limitations, the Company has the right to assume or reject real
estate leases, personal property leases, service contracts and
other unexpired executory prepetition contracts. In this
context, "assumption" means that the Company agrees to perform <PAGE>
<PAGE>
its obligations and cure existing defaults under the executory
contract. "Rejection" means that the Company is relieved of
its obligations to perform further under the executory contract
and is subject only to a prepetition unsecured claim for
damages for the breach thereof.
Unless the Bankruptcy Court, upon request of a party
in interest and after notice and hearing, fixes a date by which
the Company must elect to assume or reject an executory
contract, other than a nonresidential real property lease, the
Company may assume or reject such contracts in a plan or plans
of reorganization (see "Plan of Reorganization" below). The
Bankruptcy Court has fixed July 31, 1994, as the date by which
the Company must elect to assume or reject nonresidential real
property leases. Such date could be extended by the Court. As
of April 7, 1994, with Bankruptcy Court approval, three retail
property leases had been rejected by the Company, leaving the
landlords with the right to file prepetition unsecured claims.
The Company cannot presently determine with certainty
the number of store leases or other executory contracts it will
seek to reject. Likewise, the ultimate aggregate liability
which will result from the filing of claims relating to such
rejection cannot presently be determined.
<PAGE>
<PAGE>
Plan of Reorganization
----------------------
The Bankruptcy Code provides that, for 120 days after
the date of the filing, the Company has the exclusive right to
file a plan or plans of reorganization (a "plan") with the
Bankruptcy Court (the "exclusivity period"). If the Company
files a plan during the exclusivity period, no other party may
file a plan of reorganization until 180 days after the filing
have elapsed (the "acceptance period"). Until the end of the
acceptance period, the Company has the exclusive right to
solicit acceptances of a plan. The Bankruptcy Court may extend
the exclusivity period and/or the acceptance period. If the
Company fails to file a plan during the exclusivity period or,
after such plan has been filed, the Company fails to obtain
acceptances of such a plan as required by the Bankruptcy Code,
then any party in interest may file a plan of reorganization.
Additionally, if the Bankruptcy Court were to appoint a
trustee, the exclusivity period, if not previously terminated,
would terminate. Currently the exclusivity period will expire
on May 11, 1994, and the acceptance period will expire on July
11, 1994. As of the date hereof, the Company has sought an
extension of its exclusivity period until January 10, 1995.
After a plan has been filed with the Bankruptcy Court,
it will be sent, together with a disclosure statement approved
by the Bankruptcy Court, to all impaired prepetition creditors
and stockholders for acceptance or rejection. Following <PAGE>
<PAGE>
acceptance or rejection of any plan by impaired prepetition
creditors and stockholders, the Bankruptcy Court after notice
and a hearing would consider whether to confirm the plan. The
standards for confirmation of a plan of reorganization are
complex and depend on, to some extent, the plan's treatment of
prepetition creditors and stockholders.
It is not clear when a plan will be filed with the
Bankruptcy Court, nor can any assurances be given that any such
plan will be confirmed by the Bankruptcy Court.
Inherent in a successful plan is a capital structure
which permits a debtor to generate sufficient cash flow after
reorganization to meet its restructured obligations and fund
its current obligations. Under the Bankruptcy Code, the rights
of and ultimate payments to prepetition creditors and
stockholders may be substantially altered or, as to some
classes, even eliminated.
Post Petition Matters
---------------------
An official committee of unsecured creditors (the
"creditors' committee") has been appointed to represent the
interests of prepetition unsecured creditors. The creditors'
committee has retained counsel and accountants to assist in
performing its statutory functions. The Company has learned
that a number of its prepetition creditors have sold and
assigned their prepetition debt to other parties. Such <PAGE>
<PAGE>
transfers of claims have resulted in resignations from and a
change in membership of the committee.
On April 14, 1994, an official committee of equity
security holders (the "equity committee") was appointed to
represent the interests of the stockholders. The equity
committee has retained counsel.
In connection with the filing, the Company entered
into and the Bankruptcy Court approved an agreement with
certain lenders and The CIT Group/Business Credit, Inc., as
agent, to provide debtor-in-possession financing in the form of
a $125 million line of credit (see note 5 to the consolidated
financial statements included in the 1994 Annual Report
incorporated herein by reference). The Company believes that
the Bankruptcy Court protection provided by the filing, its
line of credit agreement and the approximately $97 million in
cash and cash equivalents it had as of the petition date has
enabled it to progress toward the resumption of normal business
operations and provide trade creditors with the assurances they
need to supply merchandise to the Company.
At this time it is not possible to predict the outcome
of the filing in general, or the effect of the filing on the
business of the Company or on the interests of prepetition
creditors and stockholders. Because of this and other
possibilities, the value of the Company's common stock is
highly speculative. The uncertainty regarding the eventual
outcome of the filing and the effects of other unknown adverse <PAGE>
<PAGE>
factors could threaten the Company's existence as a going
concern.
General
-------
The Company is a national specialty retailer of
moderate to higher priced contemporary fashions primarily for
young men and women. Approximately 75% of the Company's sales
are of men's apparel. In addition to its fashion selection,
the Company emphasizes merchandise display, store location and
design and personalized service to the customer. At January
29, 1994, the geographic distribution of the Company's 1,434
retail stores by regions of the United States was as follows:
East North Central, 315; East South Central, 72; Middle
Atlantic, 246; Mountain, 5O; New England, 93; Pacific, 139;
South Atlantic, 290; West North Central, 60; and West South
Central, 169. Following the fiscal year-end, and as previously
announced, the Company closed approximately 5O stores as their
leases expired.
In May 1993, the Company purchased 450 young men's
store locations, comprising the Chess King division of Melville
Corporation, and related merchandise inventory. The purchase
price, including the merchandise inventory together with
certain post closing adjustments and other estimated direct
acquisition costs was approximately $40.2 million. The stores
are operating under the "Chess King" concept.
<PAGE>
<PAGE>
Merchandising and Marketing
---------------------------
The Company's merchandising divisions, led by Lenny
Weinglass, Chief Executive Officer of the Company, have been
reorganized into four major operating concepts, each of which
is headed by a concept merchandising manager and has separate
buying personnel. The Company is currently searching for two
top merchandising executives, one to head the Merry-Go-Round
concept and one to head the young men's concepts of
Dejaiz/Attivo and Chess King. Concept merchandising management
is responsible for purchasing, pricing, markdowns, inventory
planning and allocating merchandise to the concept stores. A
computerized point-of-sale merchandise system aids in
accomplishing these tasks. The Company emphasizes frequent
shipments to its stores to maintain a continuous flow of
current merchandise. The Company is currently revising certain
of its merchandising and marketing strategies, including
further distinguishing the merchandise content among its
concepts. The Company recently identified approximately 80 of
the stores referred to below (22 in the Merry-Go-Round concept,
48 in the Chess King concept and 8 in the Dejaiz/Attivo
concept) which had lower sales, and operates them as clearance
stores for slow moving and end-of-season merchandise.
The four major operating concepts are as follows:
<PAGE>
<PAGE>
Merry-Go-Round Concept - Young Men's and Women's
Apparel Stores
------------------------------------------------
As of January 29, 1994, the Company operated 517
Merry-Go-Round concept stores primarily under the names
"Merry-Go-Round" and "N.E.T Works". These stores average
approximately 3,100 square feet of selling space and offer an
assortment of moderate to higher priced fashion apparel for
young men and women between the ages of 15 and 25. The fashion
merchandise includes dress and casual pants, jeans, shirts,
blouses, dresses, outerwear and related men's and women's
accessories.
DeJaiz/Attivo Concept - Young Men's Apparel Stores
--------------------------------------------------
As of January 29, 1994, the Company operated 395
DeJaiz/Attivo concept stores primarily under the names "DJ's -
Fashion Center For Men," "Dejaiz" and "Attivo." These stores
average approximately 2,700 square feet of selling space and
feature a complete collection of fashion apparel for young men
between the ages of 18 and 35. These stores carry a wider and
broader selection of young men's fashion merchandise than the
young men's and women's apparel stores. These stores offer a
complete fashion wardrobe including dress and casual pants,
jeans, shirts, suits, sportcoats, outerwear and related
accessories.
<PAGE>
<PAGE>
Chess King Concept - Casual Men's Apparel Stores
------------------------------------------------
As of January 29, 1994, the Company operated 417 Chess
King concept stores primarily under the name "Chess King."
These stores average approximately 1,900 square feet of selling
space and offer a selection of moderately priced casual pants,
jeans, shirts, outerwear and accessories, the majority of which
consists of private label merchandise. Chess King's customers
are price conscious men between the ages of 18 and 30.
Cignal Concept - Contemporary Upscale Men's and
Women's Apparel Stores
-----------------------------------------------
As of January 29, 1994, the Company operated 80 Cignal
concept stores under the name "Cignal." These stores average
approximately 2,100 square feet of selling space and offer high
quality contemporary designer sportswear for men and women
between the ages of 20 and 40.
Other Concepts
--------------
As of January 29, 1994, the Company operated 20 stores
under the name "Club International". These stores offer a
complete selection of tailored men's clothing and related
accessories appealing to the 25-50 year-old traditional men's
clothing customer.
As of January 29, 1994, the Company operated five
Boogies Diner locations. These stores combine a contemporary <PAGE>
<PAGE>
fashion boutique (with logo merchandising) with 1950's style
All-American diner.
The Company has no manufacturing facilities. It
purchases its merchandise from over 1,000 vendors and is not
dependent upon any single source of supply. It maintains no
long-term or exclusive purchase commitments or arrangements
with any manufacturer.
All merchandise is shipped directly from vendors to
the Company's central distribution facility near Baltimore,
where it is received, inspected and priced before being shipped
to the stores by common carrier. The Company has begun a
program of automatic replenishment of merchandise providing
with certain of its vendors with the objectives of providing
broader merchandise selection and reducing inventory carrying
costs.
Approximately 30% of the Company's sales is
represented by private label merchandise which focuses on
quality, fashion and value. The Company designs, but does not
manufacture this merchandise, which includes for each concept,
moderately priced collections of casual apparel for men and
women intended to appeal to a wide variety of customers.
The Company experiences the normal seasonal pattern of
the retail apparel industry with its peak sales and inventory
levels occurring during the Holiday and Back-to-School seasons.
The Company's advertising efforts are primarily
directed to cable music television (MTV and VH-1) which <PAGE>
<PAGE>
captures a large portion of the Company's targeted customers.
The Company also advertises in national fashion magazines
and local shopping mall publications.
Store Operations
----------------
At January 29, 1994, the Company operated 1,434 retail
stores in 44 states and Washington, D.C. Almost all of the
stores are located in enclosed regional shopping malls and are
leased.
During fiscal 1994, the numbers of stores opened,
acquired and closed, by concept, were as follows:
<TABLE>
<CAPTION>
Open at Open at
Jan. 30 Stores Stores Stores Jan. 29
1993 Opened Acquired Closed 1994
------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
Concept
- - -------
Merry-Go-Round 496 35 - (14) 517
DeJaiz/Attivo 396 15 - (16) 395
Chess King - - 450 (33) 417
Cignal 74 8 - (2) 80
Club Intl. 17 3 - - 20
Boogies Diner 6 - - (1) 5
Total 989 61 450 (66) 1,434
</TABLE>
In May 1993, the Company acquired 450 Chess King store
locations and certain other assets for approximately $40.2
million (see note 3 to the consolidated financial statements
included in the Annual Report for fiscal 1994 incorporated
herein by reference).
<PAGE>
<PAGE>
The Company's store operations are led by four vice
presidents, assisted by several regional vice presidents and
district managers. Each of the Company's stores is staffed by
a manager, assistant manager and full and part-time sales
personnel. Supervisory personnel regularly visit the stores to
review merchandise inventory levels, content and presentations,
staff training, personnel issues, inventory shrinkage and to
monitor overall operations.
The Company has a program of in-store video training
of personnel to assist them in the identification of customer
needs. Productivity reports and regular reviews are also used
to develop store personnel. Performance, compensation and
incentive programs for rewarding sales personnel are in place.
Stores are designed with special emphasis on the
display of merchandise. The stores are well maintained and the
Company has in place a remodeling program. The Company expects
to remodel approximately 39 stores during fiscal 1995.
The Company's stores conduct primarily a cash business
including sales on a layaway plan. All stores offer credit
through various national credit cards. During the last fiscal
year, credit card sales were approximately 25% of total sales.
Where sales are made on credit cards, the credit agency assumes
the full credit risk and pays the Company directly, after
deducting a service fee. The Company maintains a policy of
offering cash refunds, issuing charge card credits or giving
in-store credits if merchandise is returned within 30 days.
<PAGE>
<PAGE>
The stores conform to the operating hours of the malls
in which they are located and generally are open from 10:00
a.m. to 9:30 p.m., Monday through Saturday, and from 12:00 p.m.
to 5:00 p.m. on Sunday.
Competition
-----------
The retail apparel business is highly competitive.
The Company's stores compete with national chains, local
independent retail stores and with regional and national
department store chains. Many of its competitors are
considerably larger than the Company and have substantially
greater financial and other resources. The Company competes
primarily on the basis of fashion selection, price, merchandise
display, store location and design and personalized service to
the customer.
Employees
---------
At January 29, 1994, the Company had 14,970 employees,
approximately two-thirds of whom were employed part-time on a
regular basis. In addition, a number of temporary employees
are hired during the peak Back-to-School and Holiday seasons.
The Company has never had a work stoppage and considers its
employee relations to be good.
<PAGE>
<PAGE>
Trademarks and Service Marks
----------------------------
"Merry-Go-Round," "DJ's - Fashion Center For Men,"
"Dejaiz," "Attivo," "Chess King," "Cignal," "Club
International", and several other trademarks of lesser
importance have been registered with the United States Patent
and Trademark Office.
Item 2. Properties
- - -------------------
The Company's business is conducted from its
headquarters and distribution center located on a 44 acre site
near Baltimore, Maryland in Harford County, Maryland. This
facility is comprised of 240,000 square feet for headquarters
operations and 770,000 square feet for warehousing and
distribution. It is estimated that this facility has the
capacity for receiving, processing and shipping merchandise for
approximately 2,000 stores. The Company owns the land, land
improvements and building comprising the site.
The Company purchased land and a 12,000 square foot
two-story street-front building in Georgetown, Washington, D.C.
The site is currently used as a Boogies Diner. This is the
only retail location the Company owns.
The Company leases substantially all of its stores,
generally for a term of ten years. Under most leases, the
Company is required to pay, in addition to fixed minimum rental
payments, additional rent based on a percentage of gross sales <PAGE>
<PAGE>
in excess of specified amounts, charges for real estate taxes,
common area maintenance fees, utility charges, insurance
premiums and mall association charges.
In connection with the Chapter 11 filing, the Company
commenced negotiations with its landlords to determine the
extent to which the Company may assume or reject store leases
as provided under the Bankruptcy Code. The Company is in the
early stages of these negotiations and cannot presently
determine the number of such leases that it will assume or
reject. Likewise, the ultimate aggregate liabilities which
will result from the filing of claims relating to the rejection
of such leases cannot presently be determined. As leases
expire, the Company has historically been successful in
negotiating renewals when desired. However, as a result of the
Chapter 11 filing, the Company may encounter difficulties in
negotiating future renewals with certain of its landlords.
Item 3. Legal Proceedings
- - --------------------------
Except as described below and other than ordinary
routine litigation incidental to the business, neither
Merry-Go-Round Enterprises, Inc. nor any of its wholly-owned
subsidiaries is a party to any material pending legal
proceedings.
On January 11, 1994 (the "petition date"), the Company
and two of its subsidiaries filed voluntary petitions for <PAGE>
<PAGE>
relief under Chapter 11 of the Federal Bankruptcy Code in the
United States Bankruptcy Court for the District of Maryland
(Chapter 11 Case Nos. 94-5-0161, 0162 and 0163 (SD)). The
Company and such subsidiaries are in possession of their
respective properties and are maintaining and operating their
respective businesses as debtors-in-possession pursuant to the
provisions of Sections 1107 and 1108 of Chapter 11. The
Company intends and desires to continue the operation of its
businesses and the management of its properties and intends to
propose a plan or plans of reorganization pursuant to Chapter
11 of the Bankruptcy Code (see "Business" for further
information regarding Chapter 11 filing).
Under Chapter 11, actions to pursue litigation against
the Company are automatically stayed if the claim arose or is
based on events that occurred on or before the petition date.
Between December 15, 1993 and January 11, 1994, nine
purported class actions were filed against the Company and
three of its officers, Michael D. Sullivan, Isaac Kaufman and
Leonard Weinglass, in the United States District Court,
District of Maryland, seeking unspecified damages, attorneys'
fees and other relief. The complaints alleged that during
certain periods in 1993, in violation of certain provisions of
the Securities Exchange Act of 1934, defendants misrepresented
and failed to disclose material facts about the business,
financial condition and income of the Company.
<PAGE>
<PAGE>
Of these nine cases, one case has been dismissed and
eight have been consolidated. An amended complaint has been
filed as to the consolidated case. The plaintiffs in this
consolidated case are a purported class of persons who acquired
Common Stock, or options to purchase Common Stock, of the
Company during the period from November 24, 1993 through
December 17, 1993. In view of the automatic stay, the Company
has not been named as a defendant in this amended complaint.
The individual named defendants have informed the Company that
they are reviewing the complaint and intend to defend the
action vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
The Company did not submit any matter to a vote of its
security holders during the fourth quarter of fiscal 1994.
Additional Item. Executive Officers of the Registrant
- - ------------------------------------------------------
The executive officers of the Company who are not also
directors of the Company are set forth below. All officers
serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name and Age Office Held
- - ------------ -----------
<S> <C>
Ken Rodriguez (44) President - Cignal Division
Frank C. Peters (46) Vice President and Controller
</TABLE>
<PAGE>
<PAGE>
Mr. Rodriguez has been employed by the Company since
1971. He has been President - Cignal Concept since February
1988. He was Vice President - Merchandising from 1983 - 1988.
Prior to 1983 he served as Men's Merchandise Manager, as a
Buyer, as a District Manager and in store management.
Mr. Peters has been employed by the Company since
1974. He has been Vice President and Controller since 1983.
Prior to 1983 he served as Controller and Assistant Controller.
PART II
-------
Item 5. Market For the Registrant's Common Equity and Related
Stockholder Matters
- - -------------------------------------------------------------
The information regarding market prices of the
Company's common stock, approximate number of stockholders, and
dividends set forth on page 28 of the 1994 Annual Report to
Stockholders is incorporated herein by reference.
Item 6. Selected Financial Data
- - -------------------------------
The selected financial data set forth on page 30 of the 1994
Annual Report to Stockholders are incorporated herein by
reference.
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
- - ---------------------------------------------------------
Condition and Results of Operations
- - -----------------------------------
Management's discussion and analysis of financial
condition and results of operations set forth on page 32 of the
1994 Annual Report to Stockholders is incorporated herein by
reference.
Item 8. Financial Statements and Supplementary Data
- - ---------------------------------------------------
The consolidated financial statements of
Merry-Go-Round Enterprises, Inc. and subsidiaries and the
related notes, together with the report of KPMG Peat Marwick,
dated April 5, 1994, and the Summary of Quarterly Results
(unaudited) set forth on pages 7 through 31 of the Company's
1994 Annual Report to Stockholders are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on
- - --------------------------------------------------------
Accounting and Financial Disclosure
- - -----------------------------------
None.
PART III
Item 10. Directors and Executive officers of the Registrant
- - ------------------------------------------------------------
Information regarding Directors of the Company
(including those also serving as executive officers) is
incorporated herein by reference to the Company's definitive <PAGE>
<PAGE>
proxy statement which will be filed with the Commission within
120 days of the end of the fiscal year ended January 29, 1994.
Item 11. Executive Compensation
- - --------------------------------
Information regarding executive compensation is
incorporated herein by reference to the Company's definitive
proxy statement which will be filed with the Commission within
120 days of the end of the fiscal year ended January 29, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and
- - -------------------------------------------------------------
Management
- - ----------
Information regarding security ownership of certain
beneficial owners and management is incorporated herein by
reference to the Company's definitive proxy statement which
will be filed with the Commission within 120 days of the end of
the fiscal year ended January 29, 1994.
Item 13. Certain Relationships and Related Transactions
- - --------------------------------------------------------
Information regarding certain relationships and
related transactions is incorporated herein by reference to the
Company's definitive proxy statement which will be filed with
the Commission within 120 days of the end of the fiscal year
ended January 29, 1994.
<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
- - -------------------------------------------------------------
on Form 8-K
- - -----------
(a) 1. Financial Statements
-------------------------------
The Consolidated Financial Statements of
Merry-Go-Round Enterprises, Inc. and subsidiaries
(debtors-in-possession) incorporated herein by reference to the
Company's 1994 Annual Report to Stockholders are as follows:
Consolidated Balance Sheets as of January 29, 1994 and
January 30, 1993
Consolidated Statements of Operations for the
three-year period ended January 29, 1994
Consolidated Statements of Stockholders' Equity for
the three-year period ended January 29, 1994
Consolidated Statements of Cash Flows for the
three-year period ended January 29, 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(a) 2. Financial Statement Schedules
----------------------------------------
The following financial statement schedules and report
of independent auditors thereon are filed herewith:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report 31
(on Financial Statement Schedules)
<PAGE>
<PAGE>
Schedule V - Property, Plant and Equipment 33
Schedule VI - Accumulated Depreciation, 34
Depletion and Amortization of Property,
Plant and Equipment
Schedule X - Supplementary Income 35
Statement Information
</TABLE>
All other schedules are omitted because they are not
applicable, not required, or because the required information
is included in the consolidated financial statements or notes
thereto.
Item 14. (a) 3. Exhibits
- - ------------------------
The following exhibits are filed as part of this
Report and are all incorporated by reference to the identically
numbered exhibit (except as otherwise indicated) in the
Company's Registration Statements on Form S-1, Registration
Nos. 2-83907 and 2-92347, or its annual reports on Form 10-K
for the fiscal years ended January 28, 1984, February 2, 1985,
February 1, 1986, January 31, 1987, January 30, 1988, January
28, 1989, February 3, 1990, February 2, 1991, February 1, 1992
and January 30, 1993 (the "1984 Form 10-K" through "1993 Form
l0-K"), its Form 10-Q for the period ended August 4, 1990 (the
"1990 Form 10-Q") and Form 10-Q for the period ended July 31,
1993 ("the "1993 Form 10-Q"), and its Forms 8-K, dated
September 20, 1991, June 15, 1992, May 16, 1993 and January 11,
1994 (the "1991 Form 8-K" through "1994 Form 8-K"), each filed
with the Commission.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
3(a) - Articles of Restatement of the
Registrant, dated September 5, 1991
(1992 Form 10-K, Exhibit 3(a))
3(a-l) - Articles Supplementary, dated
September 23, 1991
(1991 Form 8-K, Exhibit B to Exhibit
4(a))
3(b) - By-laws of the Registrant, as amended,
including amended Sections 12 and 13
(filed herewith)
4(a) - Rights Agreement dated as of September
20, 1991, between the Registrant and the
Rights Agent, including Form of Rights
Certificate (1991 Form 8-K, Exhibit 4(a))
10(a) - Loan Agreement and Related Notes dated
June 28, 1993 between Signet
Bank/Maryland National Westminster Bank
USA, Boatmen's National Bank of St.
Louis, Credit Suisse and the Registrant
(1993 Form 10-Q)
10(b) - Lease, dated June 30, 1975, between The
Arcade Partnership and the Registrant,
with amendments dated March 30, 1978 and
May 20, 1983; Lease dated March 17,
1982, between The Arcade Partnership
and the Registrant, with amendment dated
May 20, 1983 (Form S-1, No. 2-83907,
Exhibit 10(f))
10(c) - Lease, dated October 24, 1983, and lease
dated February 27, 1984, between The
Arcade Partnership and the Registrant
(1984 Form 10-K, Exhibit 10(g))
10(d) - Sublease and Assignment Option Agreement,
dated February 28, 1984, and lease dated
October 5, 1984, between The Arcade
Partnership and the Registrant (1985
Form 10-K, Exhibit 10(e))
10(e) - Lease, dated March 5, 1986, between The
Arcade Partnership and the Registrant
(1986 Form 10-K, Exhibit 10(f))
<PAGE>
<PAGE>
10(i) - Form of Deferred Compensation Agreement,
dated January 2, 1985, of the Registrant
with certain officers of the Registrant
(1985 Form 10-K, Exhibit 10(q))
10(j) - 1985 Employee Stock Option Plan of the
Registrant and forms of option
agreements (1986 Form 10-K, Exhibit
10(s))
10(i) - Note Agreement, dated January 27, 1989,
of MGRR, Inc., as maker, in the original
principal amount of $25,000,000.00 and
Form of Senior Secured Note (1989 Form
10-K, Exhibit 10(q))
10(m) - 1989 Long-Term Incentive Plan of the
Registrant, as amended (1993 Form 10-K,
Exhibit 10(m))
10(n) - Form of Restricted Share Award Agreement,
as amended (1990 Form 10-K, Exhibit
10(s))
10(o) - Deferred Compensation Plan, dated April
1989 and Form of Deferred Compensation
Agreement, dated April 1989 (1989 Form
10-K, Exhibit 10(t))
10(p) - Form of Incentive Stock Option Agreement,
dated September 26, 1990 (1991 Form 10-K,
Exhibit 10(p))
l0(q) - Form of 1992 Director Stock Option
Agreement and Form of Stock Option
Agreement (1993 Form 10-K, Exhibit l0(q))
10(r) - Stock Purchase Agreement dated March 17,
1993, between Melville Corporation and
the Registrant (1993 Form 10-K Exhibit
(10(r))
10(s) - Note Purchase Agreements and Related
Notes, dated as of August 1, 1993,
between Principal Mutual Life Insurance
Company, Aid Association for Lutherans,
TMG Life Insurance Company and the
Registrant (1993 Form 10-Q, Exhibit
10(b))
<PAGE>
<PAGE>
10(t) - Stock Purchase Agreement dated March 17,
1993, between the Registrant and
Melville Corporation (1993 Form
10-K, Exhibit 10(r))
10(u) - First Supplemental Agreement dated as of
May 14, 1993, between the Registrant and
Melville Corporation (1993 Form 8-K,
Exhibit 2(ii))
l0(v) - Convertible Fixed Rate Note dated as of
May 16, 1993, issued by the Registrant
to Melville Corporation (1993 Form 8-K,
Exhibit 2(iii))
10(w) - Revolving Credit Agreement, dated as of
January 14, 1994, among the Registrant
and MGR Distribution Corporation as
Borrowers, MGRR, Inc. as Guarantor,
the financial institutions party
thereto, as Lenders, and The CIT
Group/Business Credit, Inc., as Agent
(1994 Form 8-K, Exhibit 99.3)
l0(x) - First Amendment, dated as of January 21,
1994, among the Borrowers, the
Guarantor, the Lenders and the
Agent (1994 Form 8-K, Exhibit 99.4)
10(y) - Second Amendment, dated as of February 28,
1994, among the Borrowers, the
Guarantor, the Lenders and the Agent
(filed herewith)
11 - Computation of earnings per share (filed
herewith)
13 - 1994 Annual Report to Stockholders (filed
herewith)
21 - Subsidiaries of the Registrant (filed
herewith)
23 - Consent of Independent Auditors (filed
herewith)
28 - Text of Resolution adopted by the Board of
Directors on September 20, 1991,
regarding Subtitle 6 of Title 3 of the
Maryland General Corporation Law (1991
Form 8-K, Exhibit 28)
</TABLE>
<PAGE>
<PAGE>
Item 14. (b) Reports on Form 8-K
- - --------------------------------
On January 26, 1994, the Company filed a Form 8-K
reporting that the Company and two of its subsidiaries had
filed voluntary petitions seeking protection under Chapter 11
of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Maryland and describing
the Revolving Credit Agreement with The CIT Group/Business
Credit, Inc, as agent.
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MERRY-GO-ROUND ENTERPRISES, INC.
(Registrant)
Date: April 29, 1994 By/s/ Michael D. Sullivan
-------------- -------------------------
Michael D. Sullivan,
President
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - --------- ----- ----
<S> <C> <C>
/s/ Leonard Weinglass Chairman of the Board, Chief April 29, 1994
- - --------------------- Executive Officer and Director
Leonard Weinglass (Principal Executive Officer)
/s/ Michael D. Sullivan President and Director April 29, 1994
- - -----------------------
Michael D. Sullivan
/s/ Isaac Kaufman Executive Vice President, April 29, 1994
- - ----------------------- Secretary, Treasurer and Director
Isaac Kaufman (Principal Financial Officer)
/s/ Frank C. Peters Vice President and Controller April 29, 1994
- - ----------------------- (Principal Accounting Officer)
Frank C. Peters
/s/ Thomas J. Byrne, Jr. Director April 29, 1994
- - ------------------------
Thomas J. Byrne, Jr.
/s/ Robert B. Bank Director April 29, 1994
- - ------------------------
Robert B. Bank
/s/ Alan E. Berkowitz Director April 29, 1994
- - ------------------------
Alan E. Berkowitz
/s/ Raymond F. Altman Director April 29, 1994
- - ------------------------
Raymond F. Altman
/TABLE
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors
Merry-Go-Round Enterprises, Inc. (Debtor-in-Possession):
Under date of April 5, 1994, we reported on the
consolidated balance sheets of Merry-Go-Round Enterprises, Inc.
and subsidiaries (Debtor-in-Possession) as of January 29, 1994
and January 30, 1993, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of
the years in the three-year period ended January 29, 1994, as
contained in the 1994 annual report to stockholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for
the fiscal year 1994. In connection with our audits of the
aforementioned consolidated financial statements, we also have
audited the related consolidated financial statement schedules
as listed in the accompanying Item 14. These financial
statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statement schedules based on our audits.
<PAGE>
<PAGE>
In our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
The audit report on the consolidated financial
statements of Merry-Go-Round Enterprises, Inc. and subsidiaries
(Debtor-in-Possession) referred to above contains an
explanatory paragraph that states that the uncertainties
inherent in the bankruptcy process raise substantial doubt
about the Company's ability to continue as a going concern.
The financial statement schedules do not include any
adjustments that might result from the outcome of these
uncertainties.
KPMG PEAT MARWICK
Baltimore, Maryland
April 5, 1994
<PAGE>
<PAGE>
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at Balance
Beginning Additions at End of
Classification of Period at Cost Retirements Other Period
- - -------------- ------------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Leasehold Improvements $131,330,000 $24,699,000 $ (6,631,000) $ (9,097,000) $140,301,000
Furniture, Fixtures & Equipment 148,921,000 42,596,000 (4,215,000) (3,621,000) 183,681,000
Land and Land Improvements 5,363,000 58,000 - - 5,421,000
Buildings 34,783,000 2,645,000 - - 37,428,000
------------ ----------- ------------ ------------ ------------
$320,397,000 $69,998,000 $(10,846,000) $(12,718,000) $366,831,000
Year Ended January 30, 1993:
Leasehold Improvements $107,l67,000 $30,295,000 $ (6,132,000) $ - $131,330,000
Furniture, Fixtures & Equipment 113,244,000 42,729,000 (7,052,000) - 148,921,000
Land and Land Improvements 4,372,000 991,000 - - 5,363,000
Buildings 19,181,000 15,6O2,000 - - 34,783,000
Construction in Progress 17,595,000 (17,595,000) - - -
------------ ----------- ------------ ------------ ------------
$26l,559,000 $72,022,000 $(13,184,000) $ - $320,397,000
Year Ended February 1, 1992:
Leasehold Improvements $ 75,108,000 $34,005,000 $ (1,946,000) $ - $107,167,000
Furniture, Fixtures & Equipment 83,117,000 32,606,000 (2,479,000) - 113,244,000
Land and Land Improvements 4,343,000 39,000 (10,000) - 4,372,000
Buildings 18,558,000 623,000 - - 19,181,000
Construction in Progress - 17,595,000 - - 17,595,000
------------ ----------- ------------ ------------ ------------
$181,126,000 $84,868,000 $ (4,435,000) $ - $261,559,000
</TABLE>
<PAGE>
<PAGE>
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at Balance
Beginning Additions at End of
Classification of Period at Cost Retirements Other Period
- - -------------- ------------ ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended January 29, 1994:
Leasehold Improvements $44,412,000 $17,263,000 $ (4,760,000) $ (1,047,000) $ 55,868,000
Furniture, Fixtures & Equipment 46,922,000 16,725,000 (3,030,000) (254,000) 60,363,000
Land Improvements 563,000 64,000 - - 627,000
Buildings 2,085,000 748,000 - - 2,833,000
----------- ----------- ------------ ------------ ------------
$93,982,000 $34,800,000 $ (7,790,000) $ (1,301,000) $119,691,000
Year Ended January 30, 1993:
Leasehold Improvements $35,593,000 $13,611,000 $ (4,792,000) $ - $ 44,412,000
Furniture, Fixtures & Equipment 38,478,000 14,619,000 (6,175,000) - 46,922,000
Land Improvements 408,000 155,000 - - 563,000
Buildings 1,428,000 657,000 - - 2,085,000
----------- ----------- ------------ ------------ -----------
$75,907,000 $29,042,000 $(10,967,000) $ - $93,982,000
Year Ended February 1, 1992:
Leasehold Improvements $26,160,000 $10,479,000 $ (1,046,000) $ - $35,593,000
Furniture, Fixtures & Equipment 29,109,000 11,301,000 (1,932,000) - 38,478,000
Land Improvements 260,000 148,000 - - 408,000
Buildings 805,000 623,000 - - 1,428,000
----------- ----------- ------------ ------------ -----------
$56,334,000 $22,551,000 $ (2,978,000) $ - $75,907,000
</TABLE>
<PAGE>
<PAGE>
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
(DEBTOR-IN-POSSESSION)
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Years Ended
-------------------------------------------
February 1, January 30, January 29,
1992 1993 1994
----------- ------------ --------------
<S> <C> <C> <C>
Maintenance and repairs * * *
Depreciation and amortization
of intangible assets * * *
Taxes, other than payroll
and income taxes $8,219,000 $11,398,000 $15,636,000
Royalties * * *
Advertising costs * * *
<FN>
* less than 1% of total revenues
</TABLE>
<PAGE>
<PAGE>
EXHIBIT INDEX
The following exhibits referenced in Form 10-K are filed herewith.
<TABLE>
<CAPTION>
Page of Sequential
Exhibit Numbering System
- - ------- ------------------
<S> <C> <C>
3(b) - By-laws of the Registrant, as amended,
including amended Sections 12 and 13
10(y) - Second Amendment, dated as of February 28,
1994 among the borrowers, the Guarantor,
the Lenders and the Agent
11 - Computation of Earnings Per Share
13 - 1994 Annual Report to Stockholders
21 - Subsidiaries of the Registrant
23 - Consent of Independent Auditors
</TABLE>
EXHIBIT 3(b)
- - ------------
Amended as of April 1994
BYLAWS
MERRY-GO-ROUND ENTERPRISES, INC.
ARTICLE I.
Stockholders
Section 1. Annual Meetings.
The annual meeting of the stockholders of the Corporation
shall be held on such date within the month of June as may be
fixed from time to time by the Board of Directors. Not less
than ten nor more than 90 days written or printed notice
stating the place, day and hour of each annual meeting shall be
given in the manner provided in Section 1 of Article IX
hereof. The business to be transacted at the annual meetings
shall include the election of directors and may include
consideration and action upon the reports of officers and
directors and any other business within the power of the
Corporation. All annual meetings shall be general meetings at
which any business may be considered without being specified as
a purpose in the notice unless otherwise required by law.
Section 2. Special Meetings Called by Chairman of the Board,
President or Board of Directors.
At any time in the interval between annual meetings,
special meetings of stockholders may be called by the Chairman
of the Board, or by the President, or by the Board of
Directors. Not less than ten days nor more than 90 days'
written notice stating the place, day and hour of such meeting
and the matters proposed to be acted on thereat shall be given
in the manner provided in Section 1 of Article IX. No business
shall be transacted at any special meeting except that
specified in the notice.
Section 3. Special Meeting Called by Stockholders.
Upon the request in writing delivered to the Secretary by
stockholders entitled to cast at least 25% of all the votes
entitled to be cast at the meeting, it shall be the duty of the
Secretary to call forthwith a special meeting of the
stockholders. Such request shall state the purpose of such
meeting and the matters proposed to be acted on thereat, and no
other business shall be transacted at any such special
meeting. The Secretary shall inform such stockholders of the
reasonably estimated costs of preparing and mailing the notice
of the meeting, and upon payment to the Corporation of such
PAGE
<PAGE>
costs, the Secretary shall give not less than ten nor more than
90 days' notice of the time, place and purpose of the meeting
in the manner provided in Section I of Article IX. If, upon
payment of such costs the Secretary shall fail to issue a call
for such meeting within thirty days after the receipt of such
payment (unless such failure is excused by law), then the
stockholders entitled to cast 25% or more of the outstanding
shares entitled to vote may do so upon giving not less than ten
days' nor more than 90 days' notice of the time, place and
purpose of the meeting in the manner provided in Section I of
Article IX. Unless requested by stockholders entitled to cast a
majority of all the votes entitled to be cast at the meeting, a
special meeting need not be called to consider any matter which
is substantially the same as a matter voted on at any special
meeting of the stockholders held during the preceding l2 months.
Section 4. Place of Meetings.
All meetings of stockholders shall be held at the principal
office of the Corporation in the State of Maryland or at such
other place within the United States as may be fixed from time
to time by the Board of Directors and designated in the notice.
Section 5. Quorum.
At any meeting of stockholders the presence in person or by
proxy of stockholders entitled to cast a majority of the votes
thereat shall constitute a quorum.
Section 6. Adjourned Meetings.
A meeting of stockholders convened on the date for which it
was called may be adjourned from time to time without further
notice to a date not more than 120 days after the record date,
and any business may be transacted at any adjourned meeting
which could have been transacted at the meeting as originally
called. If notice of the adjourned meeting is given in the
manner required for a special meeting, any business specified
in the notice may be transacted.
Section 7. Voting.
A majority of the votes cast at a meeting of stockholders,
duly called and at which a quorum is present, shall be
sufficient to take or authorize action upon any matter which
may properly come before the meeting, unless more than a
majority of votes cast is required by statute or by the
Charter. A plurality of all the votes cast at a meeting at
which a quorum is present is sufficient to elect a director.
The Board of Directors may fix the record date for the
determination of stockholders entitled to vote in the manner
provided in Article VIII, Section 3 of these Bylaws.
PAGE
<PAGE>
Section 8. Proxies.
A stockholder may vote the shares owned of record by him
either in person or by proxy executed in writing and signed by
the stockholder or by his duly authorized attorney-in-fact.
Every proxy shall be dated, but need not be sealed, witnessed
or acknowledged. No proxy shall be valid after 11 months from
its date, unless otherwise provided in the proxy. In the case
of stock held of record by more than one person, any co-owner
or co-fiduciary may execute the proxy without the joinder of
his co-owner(s) or co-fiduciary(ies), unless the Secretary of
the Corporation is notified in writing by any co-owner or
co-fiduciary that the joinder of more than one is to be
required. At all meetings of stockholders, the proxies shall
be filed with and verified by the Secretary of the Corporation,
or, if the meeting shall so decide, by the Secretary of the
meeting.
Section 9. Order of Business.
At all meetings of stockholders, unless otherwise
determined by the Chairman of the meeting, the order of
business shall be as follows:
(1) Organization
(2) Proof of notice of meeting or of waivers
thereof. (The certificate of the Secretary of the
Corporation, or the affidavit of any other person who
mailed or published the notice or caused the same to be
mailed or published, shall be proof of service of notice.)
(3) If an annual meeting, or a special meeting called
for that purpose, the election of directors.
(4) Other business.
(5) Adjournment.
Section 10. Removal of Directors.
At any special meeting of the stockholders called in the
manner provided for by this Article, the stockholders, by the
affirmative vote of a majority of all the votes entitled to be
cast for the election of directors, may remove any director or
directors from office, with or without cause, and may elect a
successor or successors to fill any resulting vacancies for the
remainder of his or their terms.
Section 11. Informal Action by Stockholders.
Any action required or permitted to be taken at any meeting
of stockholders may be taken without a meeting if a consent in
writing setting forth such action is signed by all the
PAGE
<PAGE>
stockholders entitled to vote thereon and such consent is filed
with the records of stockholders' meetings.
Section 12. Advance Notice of Matters to be Presented at an
Annual Meeting of Stockholders.
At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of the
meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, otherwise be properly
brought before the meeting by or at the direction of the Board
of Directors or otherwise be properly brought before the
meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have
given timely notice thereof in writing to the Secretary. To be
timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the
Corporation, not less than 15 days nor more than 30 days prior
to the meeting (or, with respect to a proposal required to be
included in the Company's proxy statement pursuant to Rule
14a-8 of the Securities Exchange Act of 1934, or its successor
provision, the earlier date such proposal was received);
provided, however, that in the event that less than 30 days'
notice or prior public disclosure of the date of the date of
the meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at
the annual meeting, (ii) the name and record address of the
stockholder proposing such business, (iii) the class and number
of shares of the Corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the
stockholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no
business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 12;
provided, however, that nothing in this Section 12 shall be
deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in
accordance with said procedure.
No matter shall be considered at any meeting of the
stockholders except upon a motion duly made and seconded. Any
motion or second of a motion shall be made only by a natural
person present at the meeting who either is a stockholder of
PAGE
<PAGE>
the Company or is acting on behalf of a stockholder of the
Company; provided, that if the person is acting on behalf of a
stockholder, he or she must present a written statement
executed by the stockholder or the duly authorized attorney of
the stockholder on whose behalf he or she purports to act.
The presiding officer at the meeting shall, if the facts
warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with the
provisions of this Section 12, and if he should so determine,
he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 13. Advance Notice of Nominees for Directors.
Only persons who are nominated in accordance with the
following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors,
or by any nominating committee or person appointed by the Board
of Directors, or by any stockholder of the Corporation entitled
to vote for the election of Directors at the meeting who
complies with the notice procedures set forth in this Section
13. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to
timely notice in writing to he Secretary. To be timely, a
stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation
not less than 15 days nor more than 30 days prior to the
meeting; provided, however, that in the event that less than 30
days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the
stockholder to be timely must be so received no later than the
close of business on the 10th day following the day on which
such notice of the date of the meeting was mailed or such
public notice of the date of the meeting was mailed or such
public disclosure was made. Such stockholder's notice shall
set forth: (a) as to each person who the stockholder proposes
to nominate for election or re-election as a Director, (i) the
name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of stock of the
Corporation which are beneficially owned by the person and (iv)
any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of
Directors pursuant to Rule 14a under the Securities Exchange
Act of 1934 or any successor rule thereto; and (b) as to the
stockholder giving the notice, (i) the name and record address
of the stockholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by the
stockholder. The Corporation may require any proposed nominee
to furnish such other information as may reasonably be required
by the Corporation to determine the eligibility of such
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proposed nominee to serve as a Director of the Corporation. No
person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures
set forth herein.
The presiding officer at the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination
was not made in accordance with the foregoing procedure, and if
he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
ARTICLE II.
Directors
Section 1. Powers.
The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under the
authority of the Board of Directors except as conferred on or
reserved to the stockholders by law, by the Charter or by these
Bylaws. A director need not be a stockholder. The Board of
Directors shall keep minutes of its meetings and full and fair
accounts of its transactions.
Section 2. Number; Term of Office; Removal.
The number of directors of the Corporation shall be not
less than three or the same number as the number of
stockholders, whichever is less; provided, however, that such
number may be increased and/or decreased from time to time by
vote of a majority of the entire Board of Directors to a number
not exceeding 15. Directors shall hold office for the term of
one year, or until their successors are elected and qualify. A
director may be removed from office as provided in Article I,
Section 10 of these Bylaws.
Section 3. Annual Meeting; Regular Meetings.
As soon as practicable after each annual meeting of
stockholders, the Board of Directors shall meet for the purpose
of organization and the transaction of other business. No
notice of the annual meeting of the Board of Directors need be
given if it is held immediately following the annual meeting of
stockholders and at the same place. Other regular meetings of
the Board of Directors may be held at such times and at such
places, within or without the State of Maryland, as shall be
designated in the notice for such meeting by the party making
the call. All annual and regular meetings shall be general
meetings, and any business may be transacted thereat.
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Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by
the Chairman of the Board, or the President, or by a majority
of the directors.
Section 5. Quorum; Voting.
A majority of the Board of Directors shall constitute a
quorum for the transaction of business at every meeting of the
Board of Directors; but, if at any meeting there be less than a
quorum present, a majority of those present may adjourn the
meeting from time to time, but not for a period exceeding ten
days at any one time or 60 days in all, without notice other
than by announcement at the meeting, until a quorum shall
attend. At any such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have
been transacted at the meeting as originally called. Except as
hereinafter provided or as otherwise provided by the Charter or
by law, directors shall act by a vote of a majority of those
members in attendance at a meeting at which a quorum is present.
Section 6. Notice of Meetings.
Notice of the time and place of every regular and special
meeting of the Board of Directors shall be given to each
director in the manner provided in Section 2 of Article IX
hereof. Subsequent to each Board meeting, each director shall
be furnished with a copy of the minutes of said meeting. The
purpose of any meeting of the Board of Directors need not be
stated in the notice.
Section 7. Vacancies.
(a) If the office of a director becomes vacant for any
reason other than removal or increase in the size of the Board,
such vacancy may be filled by the Board by a vote of a majority
of directors then in office, although such majority is less
than a quorum.
(b) If the vacancy occurs as a result of the removal of a
director, the stockholders may elect a successor or may
delegate that authority to the Board of Directors.
(c) If the vacancy occurs as a result of an increase in
the number of directors, it may be filled by vote of a majority
of the entire Board of Directors.
(d) If the entire Board of Directors shall become vacant,
any stockholder may call a special meeting in the same manner
that the Chairman of the Board, the Vice Chairman of the Board
or the President may call such meeting, and directors for the
unexpired term may be elected at such special meeting in the
manner provided for their election at annual meetings.
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(e) A director elected by the Board of Directors to fill a
vacancy shall serve until the next annual meeting of
stockholders and until his successor is elected and qualifies.
A director elected by the stockholders to fill a vacancy shall
serve for the unexpired term and until his successor is elected
and qualifies.
Section 8. Rules and Regulations.
The Board of Directors may adopt such rules and regulations
for the conduct of its meetings and the management of the
affairs of the Corporation as it may deem proper and not
inconsistent with the laws of the State of Maryland or these
Bylaws or the Charter.
Section 9. Committees.
The Board of Directors may appoint from among its members
an executive committee and other committees of the Board of
Directors, each committee to be composed of two or more of the
directors of the Corporation. The Board of Directors may, to
the extent provided in the resolution and except those powers
specifically denied by law, delegate to any committee, in the
intervals between meetings of the Board of Directors, any or
all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation. A committee or
committees shall have the name or names as may be determined
from time to time by the Board of Directors. Unless the Board
of Directors designates one or more directors as alternate
members of any committee, who may replace an absent or
disqualified member at any meeting of the committee, the
members of the committee present at any meeting and not
disqualified from voting may, whether or not they constitute a
quorum, unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or
disqualified member of the committee. Two members of a
committee shall constitute a quorum for the transaction of
business and the act of a majority of the members and alternate
members present at any meeting at which a quorum is present
shall be the act of the committee. Action may be taken without
a meeting if unanimous written consent is signed by all of the
members of the Committee, and if such consent is filed with the
records of the Committee. A committee shall have the power to
elect one of its members to serve as its Chairman unless the
Board of Directors shall have designated such Chairman. Any
action taken by a committee within the limits permitted by law
shall have the force and effect of Board action unless and
until revised or altered by the Board.
Section 10. Compensation.
The directors may receive reasonable compensation for their
services, including an annual retainer and a fixed sum and
expenses of attendance at each regular or special meeting, as
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determined by resolution of the Board; provided, however, that
nothing herein contained shall be construed as precluding a
director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 11. Place of Meetings.
Regular or special meetings of the Board may be held within
or without the State of Maryland, as the Board may from time to
time determine. The time and place of meeting may be fixed by
the party making the call.
Section 12. Informal Action by the Directors.
Any action required or permitted to be taken at any meeting
of the Board may be taken without a meeting, if a written
consent to such action is signed by all members of the Board
and such consent is filed with the minutes of the Board.
Section 13. Telephone Conference.
Members of the Board of Directors or any committee thereof
may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and participation
by such means shall constitute presence in person at the
meeting.
ARTICLE III.
Officers
Section 1. In General.
The Board of Directors may choose a Chairman of the Board
and a Vice Chairman of the Board from among the directors. The
Board of Directors shall elect a President, one or more Vice
Presidents, a Treasurer, a Secretary, and such Assistant
Secretaries and Assistant Treasurers as may be chosen by the
Board of Directors. All officers shall hold office for a term
of one year and until their successors are chosen and qualify.
Any two of the above offices, except those of President and
Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more
than one capacity when such instrument is required to be
executed, acknowledged or verified by any two or more
officers. The Board of Directors may from time to time appoint
such other agents and employees with such powers and duties as
they may deem proper. In its discretion, the Board of
Directors may leave unfilled any offices except those of
President, Treasurer and Secretary.
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Section 2. Chairman of the Board.
The Chairman of the Board, if one is elected, shall preside
over the meetings of the Board at which he is present and shall
have such other duties as may be determined by the Board of
Directors.
Section 3. Vice Chairman of the Board.
The Vice Chairman, if one is elected, shall have such
duties as may be determined by the Board of Directors and, in
the absence of the Chairman of the Board, shall preside over
the meetings of the Board at which he is present.
Section 4. President.
The President shall be the Chief Executive Officer of the
Corporation and shall have the responsibility for the active
management of the business and general supervision and
direction of all of the affairs of the Corporation. In the
absence of the Chairman of the Board and Vice Chairman of the
Board, he shall preside over the meetings of the Board at which
he is present. He shall preside over meetings of the
stockholders at which he is present and shall perform such
other duties as may be assigned to him by the Board of
Directors. The President shall have the authority on the
Corporation's behalf to endorse securities owned by the
Corporation and to execute any documents requiring the
signature of an executive officer.
Section 5. Vice Presidents.
The Board of Directors may elect one or more Executive,
Senior or other Vice Presidents. The Vice Presidents, in the
order of priority designated by the Board of Directors, shall
be vested with all the power and may perform all the duties of
the President in his absence. They may perform such other
duties as may be prescribed by the Board of Directors or the
President.
Section 6. Treasurer.
The Treasurer shall be the chief financial officer of the
Corporation and shall have general supervision over its
finances. He shall perform such other duties as may be
assigned to him by the Board of Directors or the President. If
required by resolution of the Board, he shall furnish bond
(which may be a blanket bond) with such surety and in such
penalty for the faithful performance of his duties as the Board
of Directors may from time to time require, the cost of such
bond to be defrayed by the Corporation.
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Section 7. Secretary.
The Secretary shall keep the minutes of the meetings of the
stockholders and of the Board of Directors and shall attend to
the giving and serving of all notices of the Corporation
required by law or these Bylaws. He shall maintain at all
times in the principal office of the Corporation at least one
copy of the Bylaws with all amendments to date, and shall make
the same, together with the minutes of the meeting of the
stockholders, the annual statement of affairs of the
Corporation and any voting trust or other stockholders
agreement on file at the office of the Corporation, available
for inspection by any officer, director or stockholder during
reasonable business hours. He shall perform such other duties
as may be assigned to him by the Board of Directors.
Section 8. Assistant Treasurer and Secretary.
The Board of Directors may designate from time to time
Assistant Treasurers and Secretaries, who shall perform such
duties as may from time to time be assigned to them by the
Board of Directors or the President.
Section 9. Compensation; Removal; Vacancies.
The Board of Directors shall have power to fix the
compensation of all officers of the Corporation. It may
authorize any committee or officer, upon whom the power of
appointing subordinate officers may have been conferred, to fix
the compensation of such subordinate officers. The Board of
Directors shall have the power at any regular or special
meeting to remove any officer, if in the judgment of the Board
the best interest of the Corporation will be served by such
removal. The Board of Directors may authorize any officer to
remove subordinate officers. The Board of Directors may
authorize the Corporation's employment of an officer for a
period in excess of the term of the Board. The Board of
Directors at any regular or special meeting shall have power to
fill a vacancy occurring in any office for the unexpired
portion of the term.
Section 10. Substitutes.
The Board of Directors may from time to time in the absence
of any one of its officers or at any other time, designate any
other person or persons, on behalf of the Corporation to sign
any contracts, deeds, notes or other instruments in the place
or stead of any of such officers, and may designate any person
to fill any one of said offices, temporarily or for any
particular purpose; and any instruments so signed in accordance
with a resolution of the Board shall be the valid act of the
Corporation as fully as if executed by any regular officer.
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ARTICLE IV.
Resignation
Any director or officer may resign his office at any time.
Such resignation shall be made in writing and shall take effect
from the time of its receipt by the Corporation, unless some
time be fixed in the resignation, and then from that date. The
acceptance of a resignation shall not be required to make it
effective.
ARTICLE V.
Commercial Paper, Etc.
All bills, notes, checks, drafts and commercial paper of
all kinds to be executed by the Corporation as maker, acceptor,
endorser or otherwise, and all assignments and transfers of
stock, contracts, or written obligations of the Corporation,
and all negotiable instruments, shall be made in the name of
the Corporation and shall be signed by any one or more of the
following officers, i.e., the Chairman of the Board, the
President, any Vice President, or the Treasurer, or by such
other person or persons as the Board of Directors may from time
to time designate.
ARTICLE VI.
Seal
The seal of the Corporation shall be in the form of two
concentric circles inscribed with the name of the Corporation
and the year and State in which it is incorporated. The
Secretary or Treasurer, or any Assistant Secretary or Assistant
Treasurer, or any other person authorized to do so the Board of
Directors, is authorized to attest and to affix to the
corporate seal to any document of the Corporation. In lieu of
affixing the corporate seal to any document, it shall be
sufficient to meet the requirements of any law, rule or
regulation relating to a corporate seal to affix the word
"(SEAL)" adjacent to the signature of the authorized officer or
other person.
ARTICLE VII.
Stock
Section 1. Issue.
Each stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number and
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class of shares of stock owned by him in the Corporation. Each
certificate shall be signed by the Chairman of the Board, the
President or any Vice President, and countersigned by the
Secretary or any Assistant Secretary or the Treasurer or any
Assistant Treasurer, and may be sealed with the seal of the
Corporation. The signatures of the Corporation's officers and
its corporate seal appearing on stock certificates may be
facsimiles if each such certificate is authenticated by the
manual signature of an officer of a duly authorized transfer
agent. Stock certificates shall be in such form not
inconsistent with law or with the Charter, as shall be approved
by the Board of Directors. In case any officer of the
Corporation who has signed any certificate ceases to be an
officer of the Corporation, whether by reason of death,
resignation or otherwise, before such certificate is issued,
then the certificate may nevertheless be issued by the
Corporation with the same effect as if the officer had not
ceased to be such officer as of the date of such issuance.
Section 2. Transfers.
The Board of Directors shall have power and authority to
make all such rules and regulations as they may deem expedient
concerning the issue, transfer and registration of stock
certificates. The Board of Directors may appoint one or more
transfer agents and/or registrars for its outstanding stock,
and their duties may be combined. No transfer of stock shall
be recognized or binding upon the Corporation until recorded on
the books of the Corporation, or, as the case may be, of its
transfer agent and/or of its registrar, upon surrender and
cancellation of a certificate or certificates for a like number
of shares.
Section 3. Record Dates for Dividends and Stockholders' Meeting.
The Board of Directors may fix a date not exceeding 90 days
preceding the date of any meeting of stockholders, any dividend
payment date or any date for the allotment of rights, as a
record date for the determination of the stockholders entitled
to notice of and to vote at such meeting, or entitled to
receive such dividends or rights, as the case may be, and only
stockholders of record on such date shall be entitled to notice
of and to vote at such meeting or to receive such dividends or
rights, as the case may be. In the case of a meeting of
stockholders, the record date shall be fixed not less than ten
days prior to the date of the meeting.
Section 4. New Certificates.
In case any certificate of stock is lost, stolen, mutilated
or destroyed, the Board of Directors may authorize the issue of
a new certificate in place thereof upon indemnity to the
Corporation against loss and upon such other terms and
conditions as it may deem advisable. The Board of Directors
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may delegate such power to any officer or officers of the
Corporation or to any transfer agent or registrar of the
Corporation; but the Board of Directors, such officer or
officers or such transfer agent or registrar may, in their
discretion, refuse to issue such new certificate save upon the
order of some court having jurisdiction in the premises.
ARTICLE VIII
Notice
Section 1. Notice to Stockholders.
Whenever by law or these Bylaws notice is required to be
given to any stockholder, such notice shall be in writing and
may be given to each stockholder by leaving the same with him
or at his residence or usual place of business, or by mailing
it, postage prepaid, and addressed to him at his address as it
appears on the books of the Corporation or its transfer agent.
Such leaving or mailing of notice shall be deemed the time of
giving such notice.
Section 2. Notice to Directors and Officers.
Whenever by law or these Bylaws notice is required to be
given to any director or officer, such notice may be given in
any one of the following ways: by personal notice to such
director or officer, by telephone communication with such
director or officer personally, by telecopy, telegram,
cablegram or radiogram, addressed to such director or officer
at his then address or at his address as it appears on the
books of the Corporation, or by depositing the same in writing
in the post office or in a letter box in a postage paid, sealed
wrapper addressed to such director or officer at his address as
it appears on the books of the Corporation. The time when such
notice shall be consigned to a communication company for
delivery shall be deemed to be the time of the giving of such
notice, and 48 hours after the time when such notice shall be
mailed shall be deemed to be the time of the giving of such
notice by mail.
Section 3. Waiver of Notice.
Notice to any stockholder or director of the time, place
and/or purpose of any meeting of stockholders or directors
required by these Bylaws may be dispensed with if such
stockholder shall either attend in person or by proxy, or if
such director shall attend in person, or if such absent
stockholder or director shall, in writing filed with the
records of the meeting either before or after the holding
thereof, waive such notice.
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ARTICLE IX.
Voting of Stock in Other Corporations
Any stock in other corporations, which may from time to
time be held by the Corporation, may be represented and voted
at any meeting of stockholders of such other corporations by
the President or a Vice-President or by proxy or proxies
appointed by the President or a Vice-President, or otherwise
pursuant to authorization of the Board of Directors.
ARTICLE X.
Indemnification
The Corporation shall indemnify its directors to the
fullest extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall
indemnify its officers to the same extent as its directors and
to such further extent as is consistent with law. The
Corporation shall indemnify its directors and officers who,
while serving as directors or officers of the Corporation, also
serve at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of another
corporation, partnership, joint venture, trust, other
enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights
provided by this Section shall continue as to a person who has
ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a
person.
Any director or officer seeking indemnification within the
scope of this Section shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by
him in connection with the matter as to which he is seeking
indemnification in the manner and to the fullest extent
permissible under the Maryland General Corporation Law without
a preliminary determination of ultimate entitlement to
indemnification.
The Board of Directors may make further provision
consistent with law for indemnification and advance of expenses
to directors, officers, employees and agents by resolution,
agreement or otherwise. The indemnification provided by this
Section shall not be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which those seeking
indemnification may be entitled under any insurance or other
agreement or resolution of stockholders or disinterested
directors or otherwise.
References in this Section are to the Maryland General
Corporation Law as from time to time amended. No amendment of
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these By-Laws shall affect any right of any person under this
Section based on any event, omission or proceeding prior to the
amendment.
ARTICLE XI.
Amendments
These Bylaws may be added to, altered, amended, repealed or
suspended by the Board of Directors.
<PAGE>
EXHIBIT 10(y)
- - -------------
SECOND AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Second Amendment, dated as of February 28, 1994, to
the Revolving Credit Agreement, dated as of January 14, 1994,
as amended (as so amended, the "Credit Agreement"), among
MERRY-GO-ROUND ENTERPRISES, INC., a Maryland corporation
("MGRE"), MGR DISTRIBUTION CORPORATION, a Maryland corporation
("MGRD", and together with MGRE, collectively, the "Borrowers"
and individually, a "Borrower"), MGRR, INC., a Delaware
corporation (the "Guarantor"), the financial institutions from
time to time party thereto (collectively, the "Lenders" and
individually, a "Lender"), and THE CIT GROUP/BUSINESS CREDIT,
INC. ("CIT"), as agent for the Lenders (in such capacity, the
"Agent").
The Borrowers, the Guarantor and the Lenders desire to
(i) amend the definition of the term "Agreed Administrative
Expense Priorities" contained in the Credit Agreement,
(ii) establish new financial covenants in the Credit Agreement
with respect to Cumulative FIFO EBITDA and minimum and maximum
amounts of Inventory, and (iii) amend certain other provisions
of the Credit Agreement, all on the terms and conditions
hereinafter set forth. Accordingly, the Borrowers, the
Guarantor and the Lenders hereby agree as follows:
1. Definitions. All capitalized terms used herein
and not otherwise defined herein are used herein as defined in
the Credit Agreement.
2. Agreed Administrative Expense Priorities.
Paragraph first of the definition of the term "Agreed
Administrative Expense Priorities" in Section 1.01 of the
Credit Agreement is hereby amended by (i) deleting the words
"attorneys and accountants retained" in clause (ii) thereof and
substituting in lieu thereof the words "professionals
employed", (ii) adding the words "and allowed administrative
expenses of members of any official committee of creditors"
after the words "Bankruptcy Code" and before the comma on the
fourth line thereof, and (iii) adding the following
parenthetical at the end of clause (A) of the proviso:
"(unless the amount to be paid has been reserved
and placed in a segregated account prior to the
occurrence of an Event of Default, in which case
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payments made from such segregated account shall
not reduce the Professional Expense Cap)"
3. Borrowing Base. The definition of the term
"Borrowing Base" contained in Section 1.01 of the Credit
Agreement is hereby amended by deleting the words "based upon
information previously unknown to the Lenders" in the second
sentence of such definition.
4. Reports to Committees. Section 8.01(g) of the
Credit Agreement is hereby amended by adding the following at
the end thereof:
", provided, however, that the Borrowers and the
Guarantor shall not be required to provide the
Agent with any written reports relating to claims
which the Borrowers or the Guarantor may have
against the Agent or the Lenders arising under or
related to the Loan Documents."
5. Cash Management System. The first sentence of
Section 8.08 of the Credit Agreement is hereby amended by
deleting the words ", within 15 days of the Entry Date" at the
end thereof and substituting in lieu thereof ", on or before
April 1, 1994."
6. Cumulative FIFO EBITDA. Section 9.02 of the
Credit Agreement is hereby amended in its entirety to read as
follows:
"9.02 Cumulative FIFO EBITDA. The
Borrowers shall not permit Cumulative FIFO EBITDA
for the fiscal months listed below to be less
than the amount specified opposite each such
fiscal month:
Month Ending FIFO EBITDA
February 1994 ($ 6,619,000)
March 1994 ($ 8,421,000)
April 1994 ($11,771,000)
May 1994 ($11,618,000)
June 1994 ($ 8,757,000)
July 1994 ($ 9,623,000)
August 1994 ($ 2,051,000)
September 1994 $ 4,096,000
October 1994 $ 4,228,000
November 1994 $ 6,664,000
December 1994 $27,095,000
January 1995 $20,450,000
February 1995 $21,189,000
March 1995 $22,145,000
April 1995 $23,014,000
May 1995 $23,965,000
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June 1995 $25,151,000
July 1995 $26,009,000
August 1995 $27,351,000
September 1995 $28,713,000
October 1995 $29,611,000
November 1995 $27,971,000
December 1995 $25,075,000
January 1996 $24,463,000"
(and thereafter)
7. Loans, Advances and Investments. Clause (d) of
Section 9.06 of the Credit Agreement is hereby amended in its
entirety to read as follows:
"(d) loans and advances between either Borrower
and the Guarantor or among the Borrowers; and"
8. Dividends and Related Distributions. Section
9.07 of the Credit Agreement is hereby amended by adding the
following before the period at the end thereof:
", except that MGRD and MGRR may make, pay or
agree to pay dividends or other distributions to
MGRE"
9. Affiliates. Clause (c) of Section 9.10 of the
Credit Agreement is hereby amended in its entirety to read as
follows:
"(c) as permitted by Section 9.06(d) or (e)."
10. Capital Expenditures. Section 9.12 of the Credit
Agreement is hereby amended by deleting the date "February 1,
1997" in clause (ii) thereof and substituting in lieu thereof
the date "February 1, 1996."
11. Maintenance of Inventory. Section 9.16 of the
Credit Agreement is hereby amended in its entirety to read as
follows:
"9.16 Maintenance of Inventory. The
Borrowers shall not permit the aggregate amount
of their Inventory (valued at Book Value) at the
end of each fiscal month set forth below to be
less than or more than the amounts specified
opposite each such month set forth below:
Fiscal Month Minimum Amount Maximum Amount
February 1994 $ 56,116,000 $ 84,174,000
March 1994 $ 72,810,000 $109,214,000
April 1994 $ 95,787,000 $143,681,000
May 1994 $105,222,000 $157,834,000
June 1994 $111,282,000 $166,922,000
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July 1994 $121,824,000 $182,736,000
August 1994 $120,461,000 $180,691,000
September 1994 $120,230,000 $180,346,000
October 1994 $123,935,000 $185,903,000
November 1994 $132,748,000 $199,176,000
December 1994 $ 89,112,000 $133,668,000
January 1995 $ 91,598,000 $137,398,000
February 1995 $ 83,449,000 $125,173,000
March 1995 $ 99,472,000 $149,208,000
April 1995 $100,813,000 $151,219,000
May 1995 $104,256,000 $156,384,000
June 1995 $110,538,000 $165,806,000
July 1995 $121,123,000 $181,685,000
August 1995 $119,942,000 $179,914,000
September 1995 $119,942,000 $179,914,000
October 1995 $123,785,000 $185,677,000
November 1995 $132,637,000 $198,955,000
December 1995 $ 89,366,000 $134,050,000
January 1996 $ 92,318,000 $138,478,000
February 1996 $ 83,449,000 $125,173,000
March 1996 $ 99,472,000 $149,208,000
April 1996 $100,813,000 $151,219,000
, provided that the Borrowers and the Agent shall
negotiate in good faith to determine an
adjustment to the minimum amount and maximum
amount of Inventory set forth above in connection
with the store closings permitted by Section
9.09(b)(i) and (iii) hereof".
12. Payments. Clause (i) of Section 9.17 of the
Credit Agreement is hereby amended in its entirety to read as
follows:
"(i) (a) to the holders of, or in respect of,
wage, salary, commissions and employee benefit
obligations (including expense reimbursements)
which arose prior to the Filing Date and
(b) store credits and merchant card and bank card
credits for goods purchased prior to the Filing
Date;"
13. Exhibits. Exhibit D to the Credit Agreement is
hereby amended in its entirety as set forth in Annex I to this
Amendment.
14. Conditions to Effectiveness. This Amendment
shall become effective only upon satisfaction in full of the
following conditions precedent (the first date upon which all
such conditions have been satisfied being herein called the
"Effective Date");
(i) The Agent shall have received counterparts
of this Amendment which bear the signatures of the Borrowers,
the Guarantor and the Lenders.
PAGE
<PAGE>
(ii) All legal matters incident to this
Amendment shall be satisfactory to the Agent and its counsel.
15. Representations and Warranties. Each of the
Borrowers and the Guarantor represents and warrants to the
Lenders as follows:
(a) The execution, delivery and performance by
the Borrowers and the Guarantor of this Amendment and the
performance by the Borrowers and the Guarantor of the Credit
Agreement as amended hereby (i) have been duly authorized by
all necessary corporate action and (ii) do not and will not
contravene their organizational documents or any applicable law.
(b) This Amendment and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding
obligations of the Borrowers and the Guarantor, enforceable
against the Borrowers and the Guarantor in accordance with
their terms.
(c) The representations and warranties contained
in Article VI of the Credit Agreement are correct on and as of
the Effective Date as though made on and as of the Effective
Date (except to the extent such representations and warranties
expressly relate to an earlier date), and no Event of Default
or Potential Default, has occurred and is continuing on and as
of the Effective Date.
16. Continued Effectiveness of Credit Agreement.
Each of the Borrowers and the Guarantor hereby (i) confirms and
agrees that each Related Document to which it is a party is,
and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects except that on
and after the Effective Date of this Amendment all references
in any such Related Document to "the Credit Agreement",
"thereto", "thereof", "thereunder" or words or like import
referring to the Credit Agreement shall mean the Credit
Agreement as amended by this Amendment, and (ii) confirms and
agrees that to the extent that any such Related Document
purports to assign or pledge to the Agent, or to grant to the
Agent a security interest in or lien on, any collateral as
security for the Obligations of the Borrowers or the Guarantor
from time to time existing in respect of the Credit Agreement
and the Related Documents, such pledge, assignment and/or grant
of the Credit Agreement and security interest or lien is hereby
ratified and confirmed in all respects.
17. Miscellaneous.
a. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original,
but all of which taken together shall constitute one and the
same agreement.
PAGE
<PAGE>
b. Section and paragraph headings herein are
included for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
c. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
d. The Borrowers will pay on demand all fees,
costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Amendment,
including, without limitation, the reasonable fees,
disbursements and other charges of Schulte Roth & Zabel,
counsel to the Agent.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be executed by their respective officers
thereunto duly authorized as of the day and year first above
written.
BORROWERS:
MERRY-GO-ROUND ENTERPRISES, INC.,
as debtor and as debtor-in-
possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title:
MGR DISTRIBUTION CORPORATION, as
debtor and as debtor-in-possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title:
Guarantor:
MGRR, INC., as debtor and as
debtor-in-possession
By: /s/ Isaac Kaufman
Name: Isaac Kaufman
Title:
PAGE
<PAGE>
AGENT AND LENDER:
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Eric Miller
Name: Eric Miller
Title: Vice President
PAGE
<PAGE>
Annex I to Second Amendment
to Revolving Credit Agreement
EXHIBIT D
BORROWING BASE CERTIFICATE
Dated as of
Certificate No.
1. Inventory of the Borrowers at Book Value
in any of the locations listed in
Schedule 1.01(A) to the Revolving Credit
Agreement before deduction in Line 2 below* $
2. Sum of A-J below:
(Based on definition of Eligible Inventory) $
(A) Inventory subject to any Lien,
security interest or prior assignment
(B) Inventory held on consignment
(C) Inventory in-transit
(D) Reserves for markdowns
(E) Reserves for shrinkage
(F) Reserves for lay-a-ways
(G) Reserves for displays and open stock
(H) Reserves for rejected, damaged, aged
or other unsalable inventory
(I) Packaging
(J) Other reserves required by the Agent
3. Book Value of Eligible Inventory (Line 1
less Line 2 to the extent included
in line 1) $
4. 60% of Line 3 $
* Prior to the entry of the Final Bankruptcy Court Order such
Inventory must be located in (i) one of the jurisdictions listed
on Schedule 1.01(B) to the Revolving Credit Agreement or (ii) any
other jurisdiction for which the Agent has received UCC searches
or other evidence reasonably satisfactory to the Agent
establishing the absence of any Liens on the Inventory of the
Borrowers in such jurisdictions.
5. L/C Inventory (excluding Inventory supported
by Letters of Credit issued for domestic
trade creditors) $
PAGE
<PAGE>
6. 60% of line 5 $
7. Amount of the Tax Refund allowed by
the Agent, if any, in accordance with
the definition of "Borrowing Base" set
forth in Section 1.01 of the Revolving
Credit Agreement** $
8. % of Line 7 $
9. Borrowing Base Reduction ($2,500,000) $
10. Borrowing Base (Line 4 plus Line 6 plus
Line 8 less Line 9) $
11. Maximum amount of Revolving Credit
Commitment permitted under
Final Bankruptcy Court Order $125,000,000
12. Amount of Loans Outstanding plus Letter
of Credit Exposure (sum of sublines A
through C below) $
(A) Standby letters of credit
(B) Documentary letter of credit
(c) Direct borrowings
13. Amount of Cash collateralized documentary
letters of credit $
14. Net Exposure (Line 12 less Line 13) $
15. Availability: Lower of (i) Line 10 less
Line 14 and (ii) Line 11 less Line 12 $
16. Borrower's estimate of cash on hand $
** Enter zero (0) in Line 7 (i) unless and until the "Borrowing
Base" is increased during the "Tax Refund Period" in accordance
with the definition of "Borrowing Base" set forth in Section
1.01 of the Revolving Credit Agreement and (ii) at all times
after the Tax Refund Period.
PAGE
<PAGE>
I, the undersigned Designated Borrowing Officer of
each of Merry-Go-Round Enterprises, Inc., a Maryland
corporation, and MGR Distribution Corporation, a Maryland
corporation, as debtors and as debtors-in-possession
(collectively, the "Borrowers"), DO HEREBY CERTIFY,
individually and on behalf of the Borrowers, as follows:
(1) This certificate is furnished to The CIT
Group/Business Credit, Inc., as agent (the
"Agent") pursuant to Section 4.04 of that
certain Revolving Credit Agreement, dated as
of January , 1994 (the "Revolving Credit
Agreement"), among the Borrowers, MGRR,
Inc., the Lender's party thereto and the
Agent. Unless otherwise defined herein,
capitalized terms used in this Certificate
have the meanings assigned to such terms in
the Revolving Credit Agreement.
(2) This Borrowing Base Certificate has been
prepared in accordance with the provisions
of the Revolving Credit Agreement.
(3) This Borrowing Base Certificate and the
information attached hereto and the
schedules, if any, delivered herewith
represent an accurate statement of the
matters purported to be set forth herein or
therein as of the date set forth above.
(4) Pursuant to Section 4.04(d) of the Revolving
Credit Agreement, you are entitled to
request backup schedules showing the
derivation of this Borrowing Base
Certificate.
Name:
Title:
Date:
<PAGE>
##
##
## -#-
4640/BLUSEC
##
<PAGE>
EXHIBIT 11
- - ----------
<TABLE>
MERRY-GO-ROUND ENTERPRISES, INC.
"DEBTOR-IN-POSSESSION"
Computation of Earnings (Loss) Per Share
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net Earnings (loss) $(45,624,000) $37,981,000 $22,704,000
Number of shares of common
stock outstanding at
beginning of year 53,862,886 53,341,251 51,932,959
Shares of restricted common
stock as of the dates
awarded - 356,786 -
Exercise of common stock
options 48,490 21,924 31,729
Issuance of shares in public
offering - - 1,175,687
------------- ------------ -----------
Weighted average number
of shares outstanding 53,911,376 53,719,960 53,140,375
============ ============ ==========
Earnings (loss) per share $ (.85) $.71 $.43
============= ============ ==========
</TABLE>
Note - All share data have been restated to retroactively reflect the 3-for-2
common stock split of July, 1991.
4640/BLUSEC
##
##
## -#-
4637/BLUSEC##
EXHIBIT 13
- - ----------
MERRY-GO-ROUND ENTERPRISES
1994
ANNUAL REPORT
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
Dollars in thousands, except per share data.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
OPERATING RESULTS
Net sales $959,878 $877,499 $761,163
Earnings (loss) before income taxes (1) (63,811) 59,812 36,038
Net earnings (loss) (45,624) 37,981 22,704
Earnings (loss) per share of common stock ( .85) .71 .43
EBITDA (2) 36,059 89,690 59,060
YEAR END POSITION
Working capital (3) $174,465 $50,921 $51,721
Current ratio (3) 5.8 1.6 1.8
Total assets $461,879 $364,705 $300,549
Stockholders' equity 191,221 235,616 197,342
Number of stores 1,434 989 825
Number of employees 14,970 13,911 11,688
<FN>
(1) Fiscal 1994 includes a third quarter charge of $55.3 million
(see Management's Discussion and Analysis).
(2) Represents earnings before interest, income taxes,
depreciation and amortization. EBITDA for fiscal 1994 is
calculated excluding the effects of the $55.3 million charge
in the third quarter and the reversal of $3.1 million
incentive compensation accrual in the first quarter.
(3) 1994 excludes liabilities subject to compromise under the
reorganization proceedings.
</TABLE>
<PAGE>
<PAGE>
To Our Shareholders:
Merry-Go-Round Enterprises, Inc. was severely tested
by the events of fiscal year 1994. Seldom in our 22-year
history have we faced so many complex business issues and
challenging economic factors.
The fourth quarter of fiscal 1994, in particular, was
one of crisis. As a result of the continuing absence of a
clear fashion trend with our customers, a highly promotional
retail environment and certain unsuccessful merchandising
decisions, we determined that it was necessary to write down
the value of certain of our inventory and leasehold
improvements associated with some underperforming stores as of
the end of the third quarter. This write-down resulted in a
series of events culminating in our decision to voluntarily
file a petition for protection under Chapter 11 of the U.S.
Bankruptcy Code on January 11, 1994. We thought long and hard
about filing, but following the third quarter charge we were
faced with a variety of factors over which we had little
control, including our inability to successfully conclude
negotiations with our lenders, which led to the deterioration
of vendor and factor confidence and support.
The filing under Chapter 11 gave us the ability to
obtain new financing, regain vendor and factor support and
return our attention to running the business. At present, our
primary goals are to re-focus our merchandising efforts and
regain the enthusiasm of our traditional customers and to
enable the Company to emerge from bankruptcy.
<PAGE>
<PAGE>
Improving Performance and Potential.
With the decision to file behind us, we have turned
our energies and resources to the future. Beginning in
December 1993, and continuing into the new fiscal year,
significant operational changes have been made to strengthen
Merry-Go-Round Enterprises.
We are addressing our methods for selecting
merchandise for our customers and rebuilding customer traffic
and loyalty. Lenny Weinglass, founder of Merry-Go-Round
Enterprises, assumed the position of Chief Executive Officer in
January and has focused his considerable experience in the
retail industry on our merchandising organization. He will be
working with a strong team of buyers bringing his expertise
closer to the decision-making process and helping develop our
next generation of merchants. Like Lenny, they are energetic,
and in sync with the young adult customer we serve.
At the same time, the Company is sharpening the
operational and merchandising focus of each concept. We are
actively searching for two top merchandising executives, one to
head the Merry-Go-Round concept and one to lead the young men's
concepts of Dejaiz/Attivo and Chess King. Since many of our
stores share the same mall location, we are seeking to maximize
the distinctive brand identity of each store and to select a
merchandise mix designed to assure minimal overlap among
concepts.
Merry-Go-Round stores remain a one-stop unisex
boutique where young men and women can shop for complementary
fashions. Dejaiz/Attivo features a complete collection of
<PAGE>
<PAGE>
slightly higher priced fashion selections for young men.
Cignal continues to be successful in offering European-style
clothing for career-oriented men and women. Chess King is a
value-oriented young men's store featuring private label
merchandise. The May 1993 Chess King acquisition, which
included over 400 stores in 44 states, improves the leverage of
our merchandising, distribution and administrative functions.
Taking a pro-active stance in working with new and
emerging designers who can help the Company succeed, we have
opened a New York City showroom, bringing our buyers closer to
a wider range of merchandise vendors in the hub of the U.S.
fashion marketplace.
Along with a renewed focus on merchandising we are
continuing to focus on returning to profitability. We are
seeking to lower occupancy costs by conducting a thorough
review of the Company's real estate positions. We are also
making a complete analysis of the profitability and market
position of each store. We are committed to eliminating stores
which cannot meet our profitability goals. In addition, staff
downsizing and cost-reductions at the Company's headquarters
have resulted in significant annual savings.
Our plans to rebuild customer loyalty include the
merchandising and operational steps noted above, as well as a
renewed emphasis on targeted marketing communications. The
Company is mounting an intensive marketing campaign, including
national print and MTV advertising, with particular emphasis on
the upcoming 1994 critical selling seasons--Back-to-School and
<PAGE>
<PAGE>
Holiday. At the same time, we are introducing additional
product lines for the Company with new private label
merchandise that will remain unique to the stores for which it
was created, thus strengthening the individual concepts and
increasing brand loyalty.
With its substantial liquidity, we believe
Merry-Go-Round Enterprises possesses the financial strength to
meet its needs. The Company maintains a strong cash position,
in excess of $110 million in cash on hand at fiscal year-end,
and has an agreement approved by the Bankruptcy Court, with The
CIT Group, as agent, for debtor-in-possession financing in the
form of a $125 million line of credit.
Commitment to the Future.
The strengths of Merry-Go-Round Enterprises remain
significant: highly experienced management team; outstanding
employees who really care about the Company; state-of-the-art
management information and distribution systems; and commitment
to the satisfaction of our customers.
In the next year, in addition to working on improving
our core business, we will be spending a significant amount of
time developing a plan of reorganization, designed to
restructure the Company's liabilities and to permit it to
emerge from bankruptcy. The plan, when filed, will require the
approval of impaired prepetition creditors and stockholders and
confirmation by the Bankruptcy Court.
While the short term outlook remains dampened due to
some reduction in customer traffic in our stores, lower
<PAGE>
<PAGE>
inventories for the first half of the year, and the
uncertainties of operating under Chapter 11, we believe we are
taking the necessary steps to restore profitability. We are
working diligently to rebuild and enhance the reputation of the
Company among its customers, to enable the Company to emerge
from Chapter 11 and to restore shareholder value.
We appreciate the patience of our shareholders as we
go forward. We recognize the tireless efforts of our employees
and the confidence of our loyal vendors and creditors, whose
continued support is vital to rebuilding the Company and
meeting the challenges of the future.
Lenny Weinglass Michael D. Sullivan
Chairman and Chief Executive Officer President
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three year period ended January 29, 1994 1994 1993 1992
<S> <C> <C> <C>
Net sales $959,878,000 $877,499,000 $761,163,000
Costs and expenses;
Cost of sales, buying and occupancy 780,279,000 621,591,000 551,817,000
Selling and administrative 230,616,000 195,224,000 172,837,000
Interest expense, net (note 11) 5,859,000 872,000 471,000
Total costs and expenses 1,016,754,000 817,687,000 725,125,000
Earnings (loss) before income taxes
(benefit) and reorganization costs (56,876,000) 59,812,000 36,038,000
Reorganization costs (note 12) 6,935,000 -- --
Earnings (loss) before income taxes
(benefit) (63,811,000) 59,812,000 36,038,000
Income taxes (benefit) (note 13) (18,187,000) 21,831,000 13,334,000
Net earnings (loss) $(45,624,000) $37,981,000 $22,704,000
Earnings (loss) per share of
common stock (note 10) $(.85) $.71 $.43
</TABLE>
See accompanying notes to consolidated financial statements
Consolidated Financial Statements pages 8-14
Notes to Consolidated Financial Statements pages 15-28
Independent Auditors' Report page 28
Market and Dividend Information page 28
Five year Financial Summary page 30
Summary of Quarterly Results pages 30-31
Management's Discussion and Analysis pages 32-37
<PAGE>
<PAGE>
Balance Sheets
January 29, 1994 and January 30, 1993
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $113,119,000 $ 40,115,000
Receivables 3,916,000 6,466,000
Merchandise inventories 71,528,000 82,197,000
Prepaid expenses and other, included deferred
income taxes of $2,323,000 and $4,921,000
(note 13) 4,279,000 7,904,000
Refundable income taxes (note 13) 18,026,000 --
Total current assets 210,868,000 136,682,000
Property and equipment, at cost (notes 6 and 9):
Land and land improvements 5,421,000 5,363,000
Buildings 37,428,000 34,783,000
Leasehold improvements 140,301,000 131,330,000
Furniture, fixtures and equipment 183,681,000 148,921,000
366,831,000 320,397,000
Less accumulated depreciation and amortization 119,691,000 93,982,000
Net property and equipment 247,140,000 226,415,000
Other assets 3,871,000 1,608,000
$461,879,000 $364,705,000
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, trade 5,406,000 33,426,000
Other payables and accrued expenses (note 4) 30,997,000 42,325,000
Federal and state income taxes payable -- 9,578,000
<PAGE>
<PAGE>
Current portion of long-term debt -- 432,000
Total current liabilities 36,403,000 85,761,000
Noncurrent liabilities:
Long-term debt (note 6) 10,000,000 29,997,000
Other, including deferred income taxes of
$648,000 and $4,231,000 (note 13) 11,113,000 13,331,000
Total noncurrent liabilities 21,113,000 43,328,000
Liabilities subject to compromise under
reorganization proceedings (note 9) 213,142,000 --
Stockholders' equity (note 10):
Common stock of $.01 par value per share:
Authorized 100,000,000 shares; issued
and outstanding 53,932,335 shares at
January 29, 1994 and 53,862,886 shares
at January 30, 1993 539,000 539,000
Additional paid-in capital 70,644,000 67,264,000
Retained earnings 120,038,000 167,813,000
Total stockholders' equity 191,221,000 235,616,000
$461,879,000 $364,705,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Additional
Three year period ended Common Paid-in Retained
January 29, 1994 Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balance at February 2, 1991 $519,000 $42,502,000 $112,826,000 $155,847,000
Net earnings-fiscal 1992 -- -- 22,704,000 22,704,000
Cash dividends-$.053 per share -- -- (2,839,000) (2,839,000)
Cash paid in lieu of
fractional shares
in connection with 3-for-2
stock split in July 1991
(note 10) -- -- (3,000) (3,000)
Issuance of 1,350,000 shares
of common stock in public
offering 13,000 18,492,000 -- 18,505,000
Issuance of common stock in
connection with the exercise
of stock options (note 15) 1,000 219,000 -- 220,000
Amortization of and tax
benefits related to
restricted common stock -- 2,908,000 -- 2,908,000
Balance at February 1, 1992 533,000 64,121,000 132,688,000 197,342,000
Net earnings-fiscal 1993 -- -- 37,981,000 37,981,000
Cash dividends-$.053 per share -- -- (2,856,000) (2,856,000)
Issuance of common stock in
connection with the exercise
of stock options (note 15) 2,000 654,000 -- 656,000
Grant and amortization of
and tax benefits related
to restricted common stock 4,000 2,489,000 -- 2,493,000
Balance at January 30, 1993 539,000 67,264,000 167,813,000 235,616,000
Net loss-fiscal 1994 -- -- (45,624,000) (45,624,000)
<PAGE>
<PAGE>
Cash dividends-$.04 per share -- -- (2,151,000) (2,151,000)
Issuance of common stock in
connection with the exercise
of stock options (note 15) -- 624,000 -- 624,000
Amortization of and tax
benefits related to
restricted common stock -- 2,756,000 -- 2,756,000
Balance at January 29, 1994 $539,000 $70,644,000 $120,038,000 $191,221,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three year period ended January 29, 1994 1994 1993 1992
<S> <C> <C> <C>
Operating activities:
Net earnings (loss) $(45,624,000) $37,981,000 $22,704,000
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Noncash reorganization costs 4,734,000 -- --
Depreciation and amortization 34,800,000 29,042,000 22,551,000
Provision (credit) for deferred
income taxes (985,000) 117,000 (201,000)
Losses on and provisions related
to property and equipment 11,467,000 1,303,000 1,219,000
Amortization of restricted
common stock 1,740,000 1,309,000 1,309,000
Changes in operating assets and
liabilities, net of effects of
store acquisitions:
(increase) decrease in:
Receivables 574,000 (369,000) (362,000)
Merchandise inventories 27,146,000 (19,089,000) (678,000)
Prepaid expenses and other 1,027,000 2,569,000 (3,398,000)
Refundable income taxes (17,010,000) -- --
Other assets (1,008,000) (530,000) (134,000)
Increase (decrease) in:
Accounts payable, trade (28,020,000) 8,458,000 (15,583,000)
Other payables and accrued
expenses (10,812,000) 466,000 208,000
Federal and state income
taxes payable (9,578,000) 10,790,000 (391,000)
<PAGE>
<PAGE>
Other noncurrent liabilities 1,365,000 391,000 3,164,000
Operating payables subject to
compromise under reorganization
proceedings 69,212,000 -- --
Net cash provided
by operating activities 39,028,000 72,438,000 30,408,000
Investing activities:
Property and equipment expenditures (46,301,000) (63,830,000) (78,842,000)
Proceeds from sales of property
and equipment 456,000 914,000 238,000
Acquisitions of store locations (10,769,000) (6,418,000) (9,969,000)
Proceeds from redemption of
marketable securities -- 9,703,000 670,000
Net cash used in investing
activities (56,614,000) (59,631,000) (87,903,000)
Financing activities:
Prepetition debt activity:
Net borrowing under revolving
credit debt 44,520,000 -- --
Proceeds from issuance of
institutional investor notes 65,000,000 -- --
Repayment of long-term debt (15,000,000) -- --
Principal payments on secured
notes payable (432,000) (284,000) (239,000)
Procurement costs related to debtor-
in-possession financing (1,255,000) -- --
Proceeds from issuance of common
stock 624,000 656,000 18,725,000
Dividends paid (2,867,000) (2,848,000) (2,822,000)
Other -- 3,000 (3,000)
Net cash provided by (used in)
financing activities 90,590,000 (2,473,000) 15,661,000
Net change in cash and cash
equivalents 73,004,000 10,334,000 (41,834,000)
<PAGE>
<PAGE>
Cash and cash equivalents at
beginning of year 40,115,000 29,781,000 71,615,000
Cash and cash equivalents at end
of year $113,119,000 $40,115,000 $29,781,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three-year period ended January 29, 1994
1. REORGANIZATION AND BASIS OF REPORTING
Merry-Go-Round Enterprises, Inc. (Debtor-in-Possession) (the
"Company"), a national specialty retailer of contemporary
fashions for young men and women, operated 1,434 stores in 44
states and Washington, D.C. at January 29, 1994. The majority
of stores operate under the trade names Merry Go Round, N.E.T
Works, DJ's Fashion Center for Men, Dejaiz, Attivo, Chess King,
Cignal, Boogies Diner and Club International, and almost all
are located in enclosed regional shopping malls. At
January 29, 1994, the geographical distribution of these stores
was: East North Central, 315; East South Central, 72; Middle
Atlantic, 246; Mountain, 50; New England, 93; Pacific, 139;
South Atlantic, 290; West North Central, 60; and West South
Central, 169.
As a result of certain events in the third and fourth
quarters of fiscal 1994, on January 11, 1994, the Company and
two of its subsidiaries, filed voluntary petitions for relief
under Chapter 11 ("Chapter 11") of Title 11 of the United
States Code in the United States Bankruptcy Court for the
District of Maryland, Baltimore Division (the "Bankruptcy
Court"). The Company and its subsidiaries are presently
operating their businesses as debtors-in-possession under the
jurisdiction of the Bankruptcy Court and intend to propose a
plan of reorganization pursuant to Chapter 11. As
debtors-in-possession, the Company and its subsidiaries may
not engage in transactions outside of the ordinary course of
business without approval of the Bankruptcy Court, after notice
and hearing.
The Company incurred a significant net loss in the
third quarter of fiscal 1994. This net loss caused the Company
to be in violation of certain financial covenants in its
borrowing arrangements and the Company was unable to reach
agreement with its lenders to amend or restructure these
arrangements on satisfactory terms. The extended negotiations
with the Company's lenders created substantial uncertainty
among the Company's vendors and factors resulting in their
failure to accept certain of the company's spring merchandise
orders and causing uncertainty as to future deliveries of
merchandise. These events led to the Company's decision to
file for protection under Chapter 11 to enable the Company to
restructure its financial arrangements under the jurisdiction
of the Bankruptcy Court.
<PAGE>
<PAGE>
Liabilities subject to compromise (see note 9) in the
accompanying consolidated balance sheets represent the
Company's estimate of liabilities as of January 29, 1994,
subject to adjustment in the reorganization process. Under
Chapter 11, actions to enforce certain claims against the
Company are stayed if the claims arose, or are based on events
that occurred, on or before the petition date of January 11,
1994. The ultimate terms of settlement of these liabilities
and claims will be determined in accordance with a plan of
reorganization which requires the approval of impaired
prepetition creditors and stockholders and confirmation by the
Bankruptcy Court. Other liabilities may arise or be subject to
compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of
claims for contingencies and other disputed amounts. The
ultimate resolution of such liabilities will be part of a plan
of reorganization.
The accompanying consolidated financial statements
have been presented on the basis that the Company is a going
concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As a result of the Chapter 11 filing and circumstances relating
to this event, realization of assets and satisfaction of
liabilities is subject to uncertainty. A plan of
reorganization could materially change the amounts reported in
the accompanying consolidated financial statements, which do
not give effect to adjustments to the carrying values of assets
and liabilities which may be necessary as a consequence of a
plan of reorganization. The ability of the Company to continue
as a going concern is dependent on, among other things,
confirmation of an acceptable plan of reorganization, future
profitable operations, compliance with the debtor-in-possession
financing agreement (see note 5), and the ability to generate
sufficient cash from operations and to obtain financing sources
to meet future obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR - The Company reports on a 52-53 week year ending
the Saturday nearest January 31. Fiscal years 1994, 1993 and
1992 each consisted of 52 weeks.
CONSOLIDATED FINANCIAL STATEMENTS - The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
CASH AND CASH EQUIVALENTS - Cash equivalents include all highly
liquid investments with maturities, at dates of purchase, of
three months or less.
MERCHANDISE INVENTORIES - Merchandise inventories are stated at
the lower of first-in, first-out cost or market. The cost of
merchandise is determined by the retail method.
<PAGE>
<PAGE>
PROPERTY AND EQUIPMENT - For financial reporting purposes,
buildings and furniture, fixtures and equipment are depreciated
using the straight-line method over the estimated lives of the
assets. Leasehold improvements are amortized by use of the
straight-line method over the lesser of the terms of the
respective lease or the lives of the improvements.
Effective January 31, 1993, the Company extended the
useful lives of certain property and equipment in its
headquarters and distribution centers and stores, and
established a salvage value of the headquarters and
distribution center. These changes were made to more closely
reflect the estimated physical and economic lives and salvage
value of the property and equipment. The effect of these
changes decreased the loss before income tax benefit and net
loss for fiscal 1994 by approximately $3,600,000 and
$2,574,000, respectively, or $.05 per share.
INCOME TAXES - Effective January 31, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires
the use of the asset and liability method to account for income
taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates in
effect for the years in which the temporary differences are
expected to be recovered or settled. However, deferred tax
assets are recognized only to the extent that it is more likely
than not that they will be realized based on the consideration
of available evidence and other factors. The effects of
changes in tax rates on deferred tax assets and liabilities are
recognized in the period that includes the enactment date. The
effects of adopting SFAS 109 as of January 31, 1993 were not
material.
Prior to adoption of SFAS 109, the Company accounted
for income taxes using the deferred method under APB Opinion
No. 11, which required that deferred income taxes be recognized
for income and expense items that were reported in different
years for financial reporting and income tax purposes. Under
the deferred method, deferred income tax balances were not
adjusted for subsequent changes in tax rates.
PREOPENING COSTS - Expenses associated with the opening of new
stores are charged to expense as incurred.
REORGANIZATION COSTS - Professional fees, the write-off of
assets and other costs and expenditures directly related to the
Chapter 11 filing are classified as reorganization costs.
<PAGE>
<PAGE>
3. ACQUISITIONS OF STORE LOCATIONS
On May 16, 1993, the Company acquired from Melville Corporation
("Melville") 450 store locations and related assets operated as
men's retail clothing stores under the names "Chess King,"
"Garage," "Metro Garage" and "Freefall" (collectively "Chess
King"). The assets acquired included merchandise inventory,
furniture, fixtures, equipment, leasehold improvements, and
leases of the acquired locations operated by Melville under
these names.
The aggregate cost of acquiring the assets from
Melville, including certain post closing adjustments and other
estimated direct acquisition costs, was approximately $40.2
million, of which $10.8 million was paid in cash and $29.4
million was paid by issuing a convertible note to Melville.
The following unaudited pro forma information has been
prepared assuming the acquisition of the 450 locations occurred
as of the beginning of the Company's 1994 and 1993 fiscal
years. Chess King's fiscal years ended on December 31 and,
accordingly, it is not practicable to develop meaningful
operating statements for the retail locations conforming to the
Company's fiscal year for pro forma purposes. Accordingly, the
following unaudited pro forma financial information for fiscal
1993 includes the historical results of operations for the
acquired retail locations for the year ended December 31, 1992,
and the unaudited pro forma financial information for fiscal
1994 includes the historical results of operations for the
acquired retail locations for the three months ended March 27,
1993 and the period from May 2, 1993 to May 15, 1993.
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net Sales $996,624,000 $1,062,227,000
Net earnings (loss) (53,246,000) 22,702,000
Earnings (loss)
per share $(.99) $.42
</TABLE>
The Company did not acquire any warehousing and distribution
facilities or retain corporate personnel. The Company has
substituted its corporate personnel, including senior
management, for that of Chess King. The Company expects
revenues and direct expenses of the stores to differ from those
generated and incurred by Melville. The unaudited pro forma
information may not be indicative of the actual results of
operations that would have occurred had the acquisition of
these retail locations actually been made at the beginning of
the respective periods or of future results of operations of
the Company with the retail locations under the Company's
management and control.
During fiscal 1993, the Company acquired 88 store
<PAGE>
<PAGE>
locations and certain other assets for approximately $8.9
million, including liabilities assumed. During fiscal 1992,
the Company acquired 69 store locations and certain other
assets in three separate transactions aggregating approximately
$10.0 million. These acquisitions did not have a material
effect on results of operations in fiscal 1993 and fiscal 1992,
respectively.
4. OTHER PAYABLES AND ACCRUED EXPENSES
Other payables and accrued expenses consist of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Operating expenses
and other payables $10,589,000 $15,061,000
Accrued wages
and benefits 9,444,000 13,543,000
Accrued rent and
occupancy costs 1,255,000 2,872,000
Accrued taxes - other
than income 2,964,000 5,450,000
Other 6,745,000 5,399,000
$30,997,000 $42,325,000
</TABLE>
5. DEBTOR-IN-POSSESSION FINANCING
On January 14, 1994, the Company entered into, and subsequently
the Bankruptcy Court approved, a $125 million unsecured
revolving credit agreement with certain lenders. The agreement
provides for cash borrowings and the issuance of up to $90
million in letters of credit which in the aggregate cannot
exceed the lower of a "borrowing base" or $125 million. The
"borrowing base" is equal to the sum of 60% of eligible
inventory, as defined in the agreement, plus 60% of inventory
on order under international letters of credit, less $2.5
million.
Cash borrowings bear interest at either the prime rate
established by a bank plus 1% or LIBOR plus 2-1/2%, at the
option of the Company. The agreement also requires a monthly
unused line fee of 3/8% per annum and an annual agent fee of
$100,000. Letter of credit fees are 1-1/2% per annum for
standby letters of credit and 1-3/8% per annum for documentary
letter of credit. Fees for documentary letters of credit which
the Company chooses to collateralize with cash, carry a fee of
1-1/4% per annum. At January 29, 1994, approximately $5.5
million of documentary letters of credit were collateralized by
approximately $5.8 million of cash. Interest and fees are
payable monthly except for the agent fee which is payable in
advance for the first year of the agreement and monthly
thereafter.
<PAGE>
<PAGE>
Cash borrowings and letters of credit issued under the
agreement have been granted super priority status by the
Bankruptcy Court over all obligations except certain
administrative expenses, as defined in the agreement.
During the term of the agreement, the Company cannot
pay dividends and is required to meet minimum levels of
earnings before interest, income taxes, depreciation and
amortization, maintain inventory levels between specified
minimum and maximum levels, and limit capital expenditures to
$18 million per year through January 31, 1996, and $4.5 million
from February 1, 1996, through the expiration date on the
earlier of April 21, 1996, or the date of consummation of a
plan of reorganization.
6. LONG-TERM DEBT
In January 1989, the Company issued notes aggregating $25
million, of which $15 million was repaid in full in October
1993. The remaining $10 million note is secured by property,
fixtures and certain equipment comprising the Company's
headquarters and distribution center. The note bears interest
at 10.36% per annum, payable semi-annually and was due
February 15, 1994.
The Company has continued to accrue interest at the
contractual rate on this note and has not classified the note
as subject to compromise in the accompanying consolidated
balance sheets. However, payments of principal and interest
have been suspended until a Bankruptcy Court order is entered
authorizing payment or until confirmation of a plan of
reorganization. See also note 9.
7. LEASE COMMITMENTS
At January 29, 1994, the Company was committed under
non-cancelable operating leases for retail stores expiring at
various dates through 2008. Generally, retail store leases
provide for additional rentals based on a percentage of sales
and increases in real estate taxes and various mall operating
expenses.
Rent and other expenses under such leases charged to
operations were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Minimum rentals $82,550,000 $60,956,000 $46,429,000
Contingent
rentals and
other expenses 47,481,000 36,291,000 30,971,000
$130,031,000 $97,247,000 $77,400,000
</TABLE>
Subject to the approval of the Bankruptcy Court, the Company
can reject executory contracts, including leases, under the
<PAGE>
<PAGE>
relevant provisions of the Bankruptcy Code. Rejection of a
lease gives the lessor the right to assert a prepetition claim
against the Company as though the lease had been terminated as
of the date of the Chapter 11 filing. However, the amount of
the claim may be limited by the Bankruptcy Code. Estimated
claims for rejected leases will be included in reorganization
costs. The analysis of lease commitments below has not been
adjusted to reflect possible future lease rejections.
Certain of the Chess King leases acquired in fiscal
1994 are guaranteed by Melville (see note 3). Therefore, the
lessors of rejected leases may have a claim against Melville
for unpaid lease obligations and breach of contract claims
beyond the amounts permitted to be asserted against the Company
under the Bankruptcy Code. As part of the purchase agreement,
the Company has agreed to indemnify Melville against any loss
under its lease guarantee. As a result, Melville may assert a
prepetition claim against the Company for the amounts, if any,
it is required to pay under the guarantees.
At January 29, 1994, future minimum rental payments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 88,111,000
1996 84,425,000
1997 78,587,000
1998 72,457,000
1999 64,854,000
Subsequent to 1999 218,854,000
</TABLE>
8. CONTINGENCIES
The Company is a party to various lawsuits and other actions
arising in the course of its business. In the opinion of
management, based upon a number of factors, including the
advice of outside counsel in certain instances, the ultimate
resolution of these legal matters will not have a material
adverse effect on the consolidated financial position or
results of operations of the Company. Under Chapter 11,
actions to pursue litigation against the Company are stayed if
the claim arose, or is based on events that occurred on or
before the petition date of January 11, 1994.
9. LIABILITIES SUBJECT TO COMPROMISE
Certain prepetition liabilities have been approved by the
Bankruptcy Court for payment. At January 29, 1994, such
amounts were included in accrued expenses and other payables.
Liabilities subject to compromise as of January 29, 1994
consisted of:
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Secured note payable $ 4,997,000
Unsecured liabilities:
Accounts payable, trade 40,881,000
Other payables and accrued expenses 28,331,000
Revolving credit debt 44,520,000
Chess King acquisition debt 29,413,000
Institutional investor notes 65,000,000
$213,142,000
</TABLE>
The note payable, which is secured by a retail
location, bears interest based on LIBOR and was due November
1995. The revolving credit debt bears interest at the lower of
the bank's prime rate less 1/2% or the Federal funds rate plus
1% and was due June 1995. The Chess King acquisition debt
bears interest at 6% and was due in equal installments in May
1996 and 1997, if not previously converted at the holders'
option to common stock of the Company. The institutional
investor notes were due in various amounts through September 1,
2003, with $50,000,000 bearing interest at 7.09% and
$15,000,000 bearing interest at 6.44%. The interest rates
described above do not consider interest rates which may be
applicable in the event of default.
A plan of reorganization ultimately approved by the
Company's impaired prepetition creditors and stockholders and
confirmed by the Bankruptcy Court may materially change the
amounts and terms of these prepetition liabilities.
The Company anticipates that it will negotiate with
creditors to reconcile claims filed with the Bankruptcy Court
to the Company's financial records. The additional liability
arising from this reconciliation process, if any, is not
subject to reasonable estimation. As a result, no provision
has been recorded for these possible claims. The Company will
recognize the additional liability, if any, as the amounts
become subject to reasonable estimation.
Additional bankruptcy claims and prepetition
liabilities may arise from the termination of other contractual
obligations and the settlement of disputed claims.
Consequently, the amounts included in the consolidated balance
sheet as liabilities subject to compromise may be subject to
further adjustment.
Based on current facts and circumstances, the Company
has determined that, except for the $10,000,000 note payable
described in note 6, it is not probable that it will ultimately
<PAGE>
<PAGE>
pay interest on its prepetition obligations and, accordingly,
the Company has stopped accruing interest on these prepetition
obligations. However, the Bankruptcy Court could determine
that postpetition interest should be paid on these
obligations. Contractual interest exceeds interest expense
recorded in the accompanying consolidated statement of
operations by approximately $400,000.
10. STOCKHOLDERS' EQUITY
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share are based
on the weighted average number of shares outstanding each year,
53,911,376 for fiscal year 1994, 53,719,960 for fiscal 1993 and
53,140,375 for fiscal 1992.
STOCK SPLIT - On July 5, 1991, the Company effected a 3-for-2
common stock split in the form of a 50% stock dividend.
CASH DIVIDENDS - In December 1993, the Company discontinued
paying a dividend on its common stock. Prior to that date, it
had followed a policy of paying a quarterly dividend of $.0133
per share.
PREFERRED STOCK - The Company has authorized the issuance of
1,000,000 shares of Class A Preferred Stock. As of January 29,
1994, no shares were issued or outstanding.
SHAREHOLDER RIGHTS PLAN - The Company has a Shareholder Rights
Plan (the "Plan") pursuant to which one Right was distributed
to stockholders for each share of common stock outstanding on
September 30, 1991, and one Right attaches to each common share
issued thereafter. Each Right initially entitles the holder to
purchase one-one thousandth share of Class A Preferred Stock
("Preferred Stock") for the exercise price of $56. Each
one-one thousandth share of Preferred Stock has voting rights
and dividend and distribution privileges (after giving effect
to a $1.00 liquidation preference) equivalent to one share of
the Company's common stock. The Plan, among other things,
provides that each Right may be exercisable if 15% or more of
the Company's stock is beneficially acquired by a third party
or group (Acquiring Person). Under such circumstances, Rights
(other than those held by the Acquiring Person) may be
exercised for common stock of the Company having a market value
of twice the exercise price (or, in the Company's discretion,
for one-one thousandth share of Preferred Stock for each common
share so issuable). Alternatively, the Company may exchange
one share of common stock (or one-one thousandth share of
Preferred Stock) for each Right (other than Rights of the
Acquiring Person). In addition, the Plan provides that if,
after a person becomes an Acquiring Person, the Company is
acquired in a merger or other similar business combination, or
certain other transactions occur, rights will be exercisable to
purchase common stock of the acquiring entity having a market
value of twice the exercise price. The Rights are not
<PAGE>
<PAGE>
currently exercisable, do not trade separately from the common
stock, are redeemable at $.01 for each Right at the discretion
of the Board of Directors and expire on September 30, 2001.
Until exercised, Rights carry no dividend or voting rights.
11. INTEREST EXPENSE, NET
Interest expense, net consists of:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Interest income $ (500,000) $ (831,000) $(2,087,000)
Interest expense 6,359,000 1,703,000 2,558,000
$5,859,000 $ 872,000 $ 471,000
</TABLE>
The Company paid interest of approximately $5,616,000,
$1,504,000 and $2,454,000 in fiscal 1994, 1993 and 1992,
respectively. Interest costs capitalized were $548,000 in
fiscal 1994, $2,194,000 in fiscal 1993 and $1,058,000 in fiscal
1992.
12. REORGANIZATION COSTS
Reorganization costs recorded in fiscal 1994 consisted of:
<TABLE>
<CAPTION>
<S> <C>
Write-off of leasehold
improvements and fixtures
associated with closed stores $2,550,000
Professional fees 1,785,000
Estimated store lease rejection claims 1,716,000
Write-off of unamortized deferred
financing costs associated with
prepetition debt 571,000
Other 313,000
$6,935,000
</TABLE>
13. INCOME TAXES
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal $(16,627,000) $18,989,000 $11,320,000
State (575,000) 2,725,000 2,215,000
(17,202,000) 21,714,000 13,535,000
Deferred
Federal and
state (985,000) 117,000 (201,000)
$(18,187,000) $21,831,000 $13,334,000
</TABLE>
<PAGE>
<PAGE>
A reconciliation of the Federal statutory rate to the
effective income tax (benefit) rate applicable to earnings
(loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory rate on
earnings (loss)
before income
taxes (34.0)% 34.0% 34.0%
State and local
income taxes, net
of Federal income
tax effect (2.9) 3.7 4.2
Provision to reduce
deferred tax assets
to estimated
realizable value 8.1 - -
Other, net .3 (1.2) (1.2)
Effective income tax
(benefit) rate (28.5)% 36.5% 37.0%
</TABLE>
The tax effects of temporary differences between the
financial reporting and tax basis of assets and liabilities
included in the net deferred tax asset at January 29, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accrued compensation and benefit costs $3,807,000
Accrued rentals 4,427,000
Inventory capitalization 1,898,000
Other accrued expenses 639,000
Alternative minimum tax credit
carryforward 2,283,000
13,054,000
Valuation allowance (5,139,000)
7,915,000
Deferred tax liabilities:
Accelerated depreciation and loss on
property and equipment 5,884,000
Prepaid benefit costs 356,000
6,240,000
Net deferred tax assets $1,675,000
</TABLE>
The net realizable balance of deferred tax assets at
January 29, 1994 was determined based on the extent to which
the related deductible amounts could be applied to either prior
years' pre-tax income or future years' taxable amounts related
to deferred tax liabilities based on their estimated scheduled
reversals. The Company established the valuation allowance in
the fourth quarter of fiscal 1994.
<PAGE>
<PAGE>
The provision (credit) for deferred income taxes for
fiscal 1993 and 1992 represent the tax effects of timing
differences as follows:
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Depreciation $2,602,000 $2,124,000
Compensation and
employee benefit costs (1,798,000) (693,000)
Inventory capitalization (412,000) (210,000)
Other, net (275,000) (1,422,000)
$ 117,000 $ (201,000)
</TABLE>
The Company paid income taxes of approximately
$10,457,000, $13,892,000, and $17,545,000 in fiscal 1994, 1993
and 1992, respectively. The Company's Federal income tax
returns have been examined by the Internal Revenue Service
through fiscal 1993.
14. THRIFT PLAN
The Company has a thrift and savings plan which meets the
qualifications of Section 401(k) of the Internal Revenue Code.
Employees are eligible to participate in the plan after
reaching age twenty-one and completing one year of service, as
defined. Under the plan, employee contributions are matched by
the Company at a rate determined by the Board of Directors
annually. Generally, the Company's contributions are vested
over a five-year period. Thrift and savings plan expense was
approximately $986,000, $780,000 and $1,027,000 for fiscal
1994, 1993 and 1992, respectively.
15. LONG-TERM INCENTIVE PLANS
The Company has incentive plans (the "Plans") pursuant to which
the Company has granted stock options, performance units and
restricted common stock to officers and other key employees.
As of January 29, 1994, options to purchase 3,187,194
shares of common stock were outstanding. The options are
exercisable over a ten-year period from dates of grants.
<PAGE>
<PAGE>
A summary of the changes in the outstanding stock
options is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance at beginning
of year 3,443,876 1,868,399 1,940,232
Options granted - 1,715,750 -
Options exercised (102,924) (131,635) (58,458)
Options cancelled
or expired (153,758) (8,638) (13,375)
Balance at end
of year 3,187,194 3,443,876 1,868,399
</TABLE>
The prices at which options were exercised in fiscal
1994 ranged from $1.51 to $10.13 per share. The options
outstanding as of January 29, 1994, are as follows: 1,597,106
shares at $10.13; 1,152,774 shares at $6.56; 184,616 shares at
$5.29; 129,113 shares at $3.10; 2,835 shares at $2.43; and
120,750 shares at $1.51. As of January 29, 1994 and January
30, 1993, 1,360,442 and 833,095 options were exercisable,
respectively.
During the quarter ended May 1, 1993, based on the
cumulative performance criteria of the Plan, the Company
determined that no amounts were payable under the Plan.
Accordingly, the Company reversed an accrual for expenses
recorded in prior years for amounts previously estimated to be
payable under the Plan, of approximately $3.1 million.
The Company has awarded 2,350,876 shares of restricted
common stock under the Plans. The shares vest in equal annual
installments over five years and non-vested shares are subject
to forfeiture if the holder terminates employment with the
Company. The market value of the shares as of the dates
awarded is being charged to compensation expense over the
period that the holders provide the related service
($1,739,000, $1,309,000, and $1,309,000 in fiscal 1994, 1993
and 1992, respectively). The number of shares of restricted
common stock subject to forfeiture is 252,000 at January 29,
1994. During fiscal 1994, 25,000 shares were forfeited.
16. DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS - The carrying amount of cash and
cash equivalents approximates their fair value because of the
short-term nature of these instruments.
RECEIVABLES - Receivables consist principally of amounts due
from credit card companies pursuant to merchandise sales and
are normally collected within five days. The carrying amount
of receivables approximates their fair value.
LONG-TERM DEBT AND LIABILITIES SUBJECT TO COMPROMISE -
Subsequent to the filing under Chapter 11, a limited market has
developed for the trading of prepetition claims against the
Company. However, since the market for claims against
companies under Chapter 11 is not well developed, no reliable
source of market prices is available.
<PAGE>
<PAGE>
17. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," is
effective for years beginning after December 15, 1993. The
Company does not expect that adoption in fiscal 1995 will have
a material effect on its consolidated financial position or
results of operations.
MARKET AND DIVIDEND INFORMATION
The Company's common stock is currently traded on the New York
Stock Exchange (NYSE) under the trading symbol "MGR." The
table below shows the high and low closing prices on the NYSE
for the last two fiscal years.
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C> <C> <C>
Period High Low High Low
First Quarter 17 1/2 12 1/4 12 10 1/8
Second Quarter 15 9 1/8 15 1/2 11
Third Quarter 9 5/8 7 1/4 15 3/8 10 1/2
Fourth Quarter 9 3/8 1 5/8 17 7/8 11 7/8
</TABLE>
As of April 20, 1994, there were 2,614 stockholders of
record. This number does not reflect the number of beneficial
owners of the Company's common stock for whom shares are held
by Cede & Co., certain brokerage firms and others.
For each quarter in fiscal 1993 and each of the first
three quarters of fiscal 1994, the Company paid a quarterly
dividend of $.0133 per share. In the fourth quarter of fiscal
1994, the Company suspended the dividend indefinitely. Under
the current terms of its debtor-in-possession financing
agreement, the Company may not pay dividends. The Company
cannot pay a dividend without the prior approval of the U.S.
Bankruptcy Court while operating under its jurisdiction.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Merry-Go-Round Enterprises, Inc.
(Debtor-In-Possession):
We have audited the accompanying consolidated balance
sheets of Merry-Go-Round Enterprises, Inc. and subsidiaries
(Debtor-In-Possession) as of January 29, 1994 and January 30,
1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in
the three-year period ended January 29, 1994. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
<PAGE>
<PAGE>
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 Merry-Go-Round Enterprises, Inc. and
subsidiaries (Debtor-In-Possession) as of January 29, 1994 and
January 30, 1993 and the results of their operations and their
cash flows for each of the years in the three-year period ended
January 29, 1994 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a
going concern. As discussed in note 1, the Company filed a
voluntary petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy
Court (the "Bankruptcy Court") on January 11, 1994. The
uncertainties inherent in the bankruptcy process raise
substantial doubt about the Company's ability to continue as a
going concern. The Company is currently operating its business
as a debtor-in-possession under the jurisdiction of the
Bankruptcy Court and continuation of the Company as going
concern is contingent upon, its ability to (1) formulate a plan
of reorganization that will be confirmed by the Bankruptcy
Court, (2) achieve satisfactory levels of profitable operations
and (3) maintain compliance with its debtor-in-possession
financing, among other things. The consolidated financial
statements do not include any adjustments that might result
from the outcome of these uncertainties.
As discussed in note 2, the Company changed its method
of accounting for income taxes for the year ended January 29,
1994 to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
KPMG PEAT MARWICK
Baltimore, Maryland
April 5, 1994
<PAGE>
<PAGE>
Five Year Financial Summary
(In thousands, except per share and store data, ratios and percentages)
<TABLE>
<CAPTION>
SUMMARY OF OPERATIONS 1994 (1) 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales $959,878 $877,499 $761,163 $628,127 $478,923
Earnings (loss) before
reorganization costs
and income taxes (benefit) (56,876) 59,812 36,038 59,993 35,879
Reorganization costs 6,935 - - - -
Earnings (loss) before
income taxes (benefit)(2) (63,811) 59,812 36,038 59,993 35,879
Income taxes (benefit) (18,187) 21,831 13,334 22,497 13,634
Net earnings (loss) (45,624) 37,981 22,704 37,496 22,245
PER SHARE DATA
Net earnings (loss) (.85) .71 .43 .73 .46
Cash dividends declared .04 .053 .053 .047 -
Book value 3.55 4.37 3.70 3.00 2.06
Weighted average
shares outstanding 53,911 53,720 53,140 51,164 48,169
OTHER FINANCIAL INFORMATION
Net earnings (loss)
as a percent of net sales (4.8)% 4.3% 3.0% 6.0% 4.6%
Working capital(3) $174,465 $50,921 $51,721 $67,840 $40,854
Ratio of current assets
to current liabilities(3) 5.8 1.6 1.8 1.9 1.9
Total assets $461,879 $364,705 $300,549 $272,954 $182,236
Long-term debt(4) 10,000 29,997 30,368 30,813 25,000
Liabilities subject to
compromise under reorgan-
ization proceedings(4) 213,142 - - - -
Stockholders' equity 191,221 235,616 197,342 155,847 103,271
Number of stores
at end of year 1,434 989 825 675 613
<FN>
(1) On January 11, 1994, the Company filed voluntary petitions under chapter 11 of the
Bankruptcy Code. See Management's Discussion and Analysis ("MD&A") and Note 1 to the
Consolidated Financial Statements.
(2) Fiscal 1994 includes a third quarter charge of $55.3 million (see MD&A).
(3) 1994 excludes liabilities subject to compromise under reorganization proceedings.
(4) See Notes 6 and 9 to the Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Summary of Quarterly Results
1994 Net Sales Net Earnings (Loss) Earnings (Loss) Per Share
<S> <C> <C> <C>
First Quarter $185,927 $1,975 $.04
Second Quarter 214,412 (2,519) (.05)
Third Quarter 255,473 (38,522) (.71)
Fourth Quarter (1) 304,066 (6,558) (.12)
For the Year $959,878 $(45,624) $(.85)
<FN>
(1) See Notes 12 and 13 to the Consolidated Financial Statements.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1993 Net Sales Net Earnings (Loss) Earnings (Loss) Per Share
<S> <C> <C> <C>
First Quarter $171,393 $7,087 $.13
Second Quarter 181,630 6,380 .12
Third Quarter 229,792 10,518 .20
Fourth Quarter 294,684 13,996 .26
For the Year $877,499 $37,981 $.71
</TABLE>
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company is a national specialty retailer of
contemporary fashions for young men and women. At January 29,
1994, the Company operated 1,434 stores in 44 states and
Washington, D.C. The following discussion explains material
changes in the results of operations for fiscal years 1994 and
1993 and significant developments affecting financial condition
since the end of fiscal 1993.
CHAPTER 11 REORGANIZATION
During fiscal 1994, the Company's sales performance
was disappointing, with comparable store sales decreasing
12.6%. This performance resulted from a variety of factors,
including the continuing absence of a clear fashion trend with
the Company's customers, a highly promotional retail
environment, a shift by its customers away from higher-priced
branded merchandise to lower-priced private label merchandise
and certain unsuccessful merchandise decisions. In the third
quarter of fiscal 1994, the Company determined that it was
necessary to write down the value of certain inventory and
leasehold improvements associated with certain under performing
stores and provide for certain other lease obligations. This
write-down resulted in a pre-tax charge of $55.3 million (the
"special charge") and caused a significant net loss for the
third quarter and nine-month periods. The net loss caused the
Company to be in violation of various financial covenants in
its borrowing arrangements and the Company was unable to reach
agreement with its lenders to amend or restructure these
arrangements on satisfactory terms. The extended negotiations
with the Company's lenders created substantial uncertainty
among the Company's vendors and factors, resulting in their
failure to accept certain of the Company's spring merchandise
orders and causing uncertainty as to future deliveries of
merchandise. These events led to the Company's decision to
seek the protection of the Bankruptcy Court to restructure its
financial arrangements.
On January 11, 1994, the Company and two of its
subsidiaries, MGR Distribution Corp. and MGRR, Inc., filed
voluntary petitions for relief under Chapter 11 of Title 11 of
the United States Code in the United States Bankruptcy Court
for the District of Maryland, Baltimore Division.
RESULTS OF OPERATIONS
The consolidated financial statements have been
presented on the basis that the Company is a going concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
As a result of the Chapter 11 filing and circumstances relating
to this event, realization of assets and satisfaction of
liabilities is subject to uncertainty. A plan of
<PAGE>
<PAGE>
reorganization could materially change the amounts reported in
the accompanying consolidated financial statements, which do
not give effect to all adjustments to the carrying values of
assets and liabilities which may be necessary as a consequence
of a plan of reorganization. The ability of the Company to
continue as a going concern is dependent on, among other
things, confirmation of an acceptable plan of reorganization,
future profitable operations, compliance with the
debtor-in-possession financing agreement and the ability to
generate sufficient cash from operations and obtain financing
sources to meet future obligations.
The following table sets forth, as a percentage of net
sales, certain items appearing in the consolidated statement of
operations:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Net sales 100% 100% 100%
Costs and expenses:
Costs of sales, buying
and occupancy 81.3 70.8 72.5
Selling and administrative 24.0 22.2 22.7
Interest expense, net .6 .1 .1
Total 105.9 93.1 95.3
Earnings (loss) before
reorganization costs and
income taxes (benefit) (5.9) 6.9 4.7
Reorganization costs (.7) - -
Earnings (loss) before
income taxes (benefit) (6.6) 6.9 4.7
Income taxes (benefit) (1.8) 2.6 1.7
Net earnings (loss) (4.8)% 4.3% 3.0%
</TABLE>
Net Sales - Net sales increased $82,379,000 or 9.4% in fiscal
1994 compared to fiscal 1993, and $116,336,000 or 15.3% in
fiscal 1993 compared to fiscal 1992. The increases in fiscal
1994 and 1993 were primarily due to the acquisition of 450 and
88 store locations, respectively, and, in fiscal 1993, the
opening of 76 additional stores. Comparable store sales
decreased 12.6% and 2.0% in fiscal 1994 and fiscal 1993,
respectively. The decreases in comparable store sales in
fiscal 1994 is the result of factors described above in
"Chapter 11 Reorganization". The decrease in fiscal 1993 was
due primarily to continued weakness in consumer confidence and
spending patterns, the absence of a clear fashion trend and a
shift by the Company's traditional customer base toward
lower-priced basic fashion merchandise. The decrease in 1993
was also attributed to managements decision to maintain lower
store inventory levels and, in the latter half of 1993, to
reduce the extent of merchandise promotions.
Comparable store sales have decreased 22% in the first
two months of fiscal 1995 compared to the same period in fiscal
1994. The Company believes that this decrease is due primarily
<PAGE>
<PAGE>
to a continuation of the factors which affected fiscal 1994
sales, a decline in customer traffic and lower inventory levels
per store resulting from the events of fiscal 1994 relating to
the Chapter 11 filing. Since the filing, the Company has
experienced improved relationships with its vendors and factors
and most orders are being shipped on regular trade terms.
However, the Company believes that its inventory levels per
store will not return to levels it considers adequate until the
fall Back-to-School selling season and the Company believes
that it will be necessary to rebuild customer loyalty. The
Company expects to continue to experience decreases in
comparable store sales at least through the end of the second
quarter and that it will report losses for this period.
Cost of Sales, Buying and Occupancy - These costs increased
$158,688,000 or 25.5% in fiscal 1994 compared to fiscal 1993
and $69,774,000 or 12.6% in fiscal 1993 compared to fiscal
1992. As a percentage of net sales, these costs were 81.3% in
fiscal 1994, 70.8% in fiscal 1993 and 72.5% in fiscal 1992.
The increased cost as a percentage of net sales in fiscal 1994
is primarily due to the special charge recorded in the third
quarter of fiscal 1994 which included a write-down of certain
merchandise inventory of approximately $43.3 million and of
certain leasehold improvements of approximately $9.2 million.
Also, sales per square foot of selling space decreased to $274
in fiscal 1994 from $356 in fiscal 1993 resulting in an
increase in occupancy costs as a percentage of sales. The
decreased cost as a percentage of sales in fiscal 1993 is
primarily due to a decrease in markdowns compared to the prior
year, partially offset by the effects of a decrease in sales
per square foot of selling space.
Selling and Administrative Expenses - Selling and
administrative expenses increased $35,392,00, or 18.1% in
fiscal 1994 compared to fiscal 1993, and $22,387,000, or 13.0%
in fiscal 1993 compared to fiscal 1992. Selling and
administrative expenses as a percentage of net sales were 24.0%
in fiscal 1994, 22.2% in fiscal 1993 and 22.7% in fiscal 1992.
The increases in these expenses in fiscal 1994 and fiscal 1993
are attributed principally to the increases in the number of
stores. The increase in these expenses as a percentage of
sales in fiscal 1994 is due to the decrease in average store
sales. The decrease in these expenses as a percentage of sales
in fiscal 1993 is due to implementation of certain cost
controls.
Interest Expense, Net - Interest expense was $6,359,000,
$1,703,000 and $2,558,000 and interest income was $500,000,
$831,000 and $2,087,000 for fiscal years 1994, 1993 and 1992,
respectively. The increase in interest expense in fiscal 1994
is due principally to an increase in borrowings. Interest
expense decreased in fiscal 1993 due principally to increases
in interest capitalized on construction projects. Interest
income decreased in fiscal 1994 and fiscal 1993 due to
decreased levels of and lower yields on investments.
<PAGE>
<PAGE>
Reorganization Costs - The Company recorded $6,935,000 for
costs associated with the Chapter 11 filing. Included are
approximately $4.3 million for costs and expenses associated
with closing certain unprofitable stores (including estimated
lease rejection claims), and approximately $1.8 million for
legal, accounting and other professional fees. The Company
anticipates that it will incur additional reorganization costs
throughout its Chapter 11 reorganization.
Income tax benefit - The effective income tax benefit rate
(28.5%) for fiscal 1994 reflects the effect of establishing a
valuation allowance for a portion of net deferred tax assets at
January 29, 1994.
Net earnings (loss) - The Company incurred a net loss of
$45,624,000 for fiscal 1994. In fiscal 1993 net earnings
increased $15,277,000 compared to fiscal 1992 or 67.3%. As a
percentage of net sales, net earnings were 4.3% in fiscal 1993
and 3.0% in fiscal 1992. The net loss for fiscal 1994 was due
principally to lower average store sales and the special charge
recorded in the third quarter of fiscal 1994. The increase in
net earnings in fiscal 1993 was due principally to decreased
markdowns and selling and administrative costs as a percentage
of sales.
LIQUIDITY AND CAPITAL RESOURCES
Chapter 11 Filing
On January 11, 1994 ("Filing date") the Company and two of its
subsidiaries filed voluntary petitions for relief under Chapter
11 of Title 11 of the United States Code. (For a more detailed
discussion of the events leading to the Company's filing, see
"Chapter 11 Reorganization").
Under Chapter 11, actions to enforce certain claims
against the Company are stayed if the claims arose, or are
based on, events that occurred on or before the petition date
of January 11, 1994. The ultimate terms of settlement of these
claims will be determined in accordance with a plan of
reorganization which requires the approval of the impaired
prepetition creditors and stockholders and confirmation by the
Bankruptcy Court. Other liabilities may arise or be subject to
compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of
claims for contingencies and other disputed amounts. The
ultimate resolution of such liabilities, all of which are
subject to compromise, will be part of a plan of reorganization.
Until a plan of reorganization is confirmed by the
Bankruptcy Court, only such payments on prepetition obligations
that are approved or required by the Bankruptcy Court will be
made. Principal and interest payments on prepetition debt have
not been made since the Filing date and will not be made
<PAGE>
<PAGE>
without the Bankruptcy Court's approval or until a plan of
reorganization, defining the repayment terms, has been
confirmed by the Bankruptcy Court. There is no assurance at
this time that a plan of reorganization will be proposed,
approved or confirmed by the Bankruptcy Court.
Beginning in December 1993 and continuing through the
Filing date, the Company stopped paying amounts owed to certain
factors, vendors and suppliers in order to conserve cash. The
result of this decision together with the "stay" of payments
for other prepetition liabilities provided under the Chapter 11
filing, enabled the Company to report $113.1 million in cash
and cash equivalents at January 29, 1994.
Inherent in a successful plan of reorganization is a
capital structure which permits the Company to generate
sufficient cash flow after reorganization to meet its
restructured obligations and fund the current obligations of
the reorganized Company. Under the Bankruptcy Code, the rights
of and ultimate payment to prepetition creditors may be
substantially altered and, as to some classes, eliminated. At
this time, it is not possible to predict the outcome of the
Chapter 11 filing, in general, or its effects on the business
of the Company or on the interests of creditors or
stockholders.
General
Net cash provided by operating activities for fiscal 1994, 1993
and 1992 was $39.0 million, $72.4 million and $30.4 million,
respectively. The decrease in cash provided by operating
activities for fiscal 1994 is due principally to the factors
contributing to the net loss. The increase in cash provided by
operating activities in fiscal 1993 is due principally to
increases in net earnings, depreciation and amortization, and
operating accounts payable, partially offset by an increase in
merchandise inventories.
Property and equipment expenditures were $46.3
million, $63.8 million and $78.8 million for fiscal 1994, 1993
and 1992, respectively. Property and equipment expenditures
include approximately $16.5 million, $11.3 million and $17.1
million in fiscal 1994, 1993 and 1992, respectively, expended
in connection with the expansion of the Company's headquarters
and distribution center. Other capital expenditures for fiscal
1994, 1993 and 1992 were principally for store openings and
remodelings.
In May, 1993 the Company purchased 450 store
locations, comprising the Chess King Division of Melville
Corporation, and related merchandise inventory. The purchase
price, including certain post closing adjustments and other
estimated direct acquisition costs, was approximately $40.2
million. The Company paid approximately $10.8 million in cash
<PAGE>
<PAGE>
and issued a convertible fixed rate note for the balance of the
purchase price. Store location acquisition expenditures for
fiscal 1993 and 1992 were $6.4 million and $10.0 million,
respectively.
The Company's pre-tax operating loss was carried back
to prior fiscal years, resulting in refundable Federal and
state income taxes paid in such years of approximately $18.0
million. The Company anticipates that this refund will be
realized during fiscal 1995.
In connection with the Chapter 11 filing, the Company
entered into and the Bankruptcy Court approved an agreement
with certain lenders and The CIT Group/Business Credit, Inc.,
as agent, to provide unsecured debtor-in-possession financing
in the form of a $125 million line-of-credit. The agreement
provides for cash borrowings and the issuance of up to $90
million in letters-of-credit which, in the aggregate, cannot
exceed the lower of a "borrowing base", as defined, or $125
million. Cash borrowings bear interest at either a banks prime
rate plus 1% or LIBOR plus 2 1/2%, at the option of the
Company. The Company is required to meet minimum levels of
earnings before interest, income taxes, depreciation and
amortization, maintain specified inventory levels, and limit
its capital expenditures and may not pay dividends on its
common stock over the term of the agreement. The agreement
will terminate on the earlier of April 21, 1996 or the date of
consummation of a plan of reorganization.
The Company anticipates that its total capital
expenditures for fiscal 1995 will be approximately $17.3
million which includes the opening of 6 stores and remodeling
of 39 stores. See note 7 to the consolidated financial
statements for information on current and future lease
payments.
The Company believes that its cash and cash
equivalents balance at January 29, 1994, net cash provided by
operating activities, the refund of income taxes and the
Company's debtor-in-possession financing agreement, should
enable the Company to meet its liquidity requirements during
fiscal 1995. However, in view of all the events referenced
above, there is uncertainty with respect to the Company's
liquidity.
NEW ACCOUNTING STANDARD
The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" which is
effective for years beginning after December 15, 1993. The
Company does not expect that adoption in fiscal 1995 will have
a material effect on its consolidated financial position or
results of operation.
<PAGE>
<PAGE>
BOARD OF DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Leonard Weinglass
Chairman of the Board
and Chief Executive Officer
Michael D. Sullivan
President
Isaac Kaufman
Executive Vice President
Chief Financial Officer
Secretary and Treasurer
Raymond F. Altman
Attorney with the Law
Firm of Freishtat & Sandler
Robert B. Bank
President, Robert B. Bank
Management Services
Alan E. Berkowitz
Certified Public Accountant
Alan E. Berkowitz & Associates,
CPAs Chartered
Thomas J. Byrne, Jr.
Corporate Finance Advisor
Ladenburg, Thalmann & Co. Inc.
CORPORATE OFFICERS AND EXECUTIVE STAFF
Leonard Weinglass
Chairman of the Board
and Chief Executive Officer
Michael D. Sullivan
President
Isaac Kaufman
Executive Vice President
Chief Financial Officer
Secretary and Treasurer
Jeffrey A. Austin
Vice President
Human Resources
<PAGE>
<PAGE>
Robert L. Heyman
Vice President
Warehousing
William T. Kolber
Vice President
Merchandising and Sourcing
Jeffrey C. Mason
Vice President
Real Estate
Jack W. McNabney
Vice President
Store Design and Construction
Frank C. Peters
Vice President and Controller
Wayne J. Schuchart
Vice President
Management Information Systems
Myrna Villanueva
Vice President
Special Projects
MERRY-GO-ROUND CONCEPT
George E. Kucin
Vice President Merchandising
Joseph R. Vander Pluym
Vice President
Store Operations
YOUNG MENS CONCEPTS
Gary W. Gillan
Vice President
Store Operations
Eric Kyser
Vice President
Merchandising
Chess King
Ron Rossi
Vice President
Merchandising
Dejaiz/Attivo
<PAGE>
<PAGE>
Robert B. Simon
Vice President
Store Operations
Club International
CIGNAL CONCEPT
Ken Rodriguez
President
Gilbert Perrone
Vice President
Store Operations
Harriet Sheinberg
Vice President
Merchandising
<PAGE>
<PAGE>
Corporate Offices
3300 Fashion Way
Joppa, Maryland 21085
(410) 538-1000
New York Buying Office
485 Seventh Avenue, Suite 900
New York, New York 10001
(212) 967-4740
Transfer Agent and Registrar
Chemical Bank
New York, New York
Legal Counsel
Venable, Baetjer and Howard
Baltimore, Maryland
Independent Auditors
KPMG Peat Marwick
Baltimore, Maryland
Form 10-K
FORM 10-K IS AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON
WRITTEN REQUEST.
Exhibits to Form 10-K will be furnished upon payment of $.50
per page, with a minimum charge of $5.00. Send requests to:
Isaac Kaufman, Executive Vice President
Merry-Go-Round Enterprises, Inc.
3300 Fashion Way
Joppa, Maryland 21085
<PAGE>
##
##
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4642/BLUSEC
##
<PAGE>
EXHIBIT 21
- - ----------
MERRY-GO-ROUND ENTERPRISES, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- - ------------------ ----------------------
<S> <C>
MGRR, Inc. Delaware
MGR Distribution, Inc. Maryland
Worth Stores Corp. Delaware
</TABLE>
4642/BLUSEC
##
##
## -#-
4643/BLUSEC
##
<PAGE>
Exhibit 23
- - ----------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Merry-Go-Round Enterprises, Inc.
(Debtor-in-Possession)
We consent to incorporation by reference in the Registration
Statements (No. 33-15207, No. 33-35947 and No. 33-68048) on
Form S-8 of Merry-Go-Round Enterprises, Inc.
(Debtor-in-Possession) of our reports dated April 5, 1994,
relating to the consolidated balance sheets of Merry-Go-Round
Enterprises, Inc. (Debtor-in-Possession) as of January 29, 1994
and January 30, 1993, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of
the years in the three-year period ended January 29, 1994 and
related financial statement schedules, which reports are
included in or incorporated by reference in the January 29,
1994 annual report on Form 10-K of Merry-Go-Round Enterprises,
Inc. (Debtor-in-Possession).
Our report on the consolidated financial statements of the
Company, dated April 5, 1994, contains an explanatory paragraph
that states that the uncertainties inherent in the bankruptcy
process raise substantial doubt about the Company's ability to
continue as a going concern. The consolidated financial
statements and financial statement schedules do not include any
adjustments that might result from the outcome of these
uncertainties.
KPMG PEAT MARWICK
Baltimore, Maryland
April 28, 1994
4643/BLUSEC
