<PAGE>
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fifty-two week period Ended January 28, 1995
Commission File Number 1-8765
BROADWAY STORES, INC.
Delaware 94-0457907
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3880 North Mission Road
Los Angeles, California 90031
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (213) 227-2000
Securities Registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class on Which Registered
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Common Stock and New York Stock Exchange and
Warrants Pacific Stock Exchange
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
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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. [ ]
Aggregate market value of common stock held by non-affiliates of the registrant
as of April 25, 1995: $140,285,090
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
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Number of shares of common stock outstanding as of April 25, 1995: 45,975,974.
Documents Incorporated By Reference
-----------------------------------
Part III incorporates certain information by reference to the Company's
Definitive Proxy Statement Relating to the Annual Meeting of Stockholders to be
held on June 16, 1995.
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PART I
ITEM I. BUSINESS
GENERAL
Broadway Stores, Inc. (the "Company"), is one of the leading operators of
department stores in California and the Southwestern United States. Organized
in 1896, the Company currently operates 83 department stores under the names The
Broadway, Emporium and Weinstocks with more than 15 million gross square feet of
retail space. The Company's 41 Southern California stores generate
approximately 50% of the Company's sales. Approximately 35% of the Company's
sales are generated by its Emporium and Weinstocks stores located in Northern
California. The remainder of the Company's sales are generated through stores
located in Arizona, Nevada, Colorado and New Mexico. The Company's stores are
generally situated in prime locations in popular malls and retail shopping
centers.
At the annual stockholders meeting on June 17, 1994, stockholders of the
Company voted to change the name of the Company from Carter Hawley Hale Stores,
Inc. to Broadway Stores, Inc. Management believes the new name more closely
links the Company's corporate identity with its operations and that The Broadway
stores, which comprise 52 of the Company's total 83 stores, has a long tradition
as an important part of the California marketplace and enjoys strong customer
loyalty. The corporate name change did not result in a change of the names of
the Company's three chains on an operating level.
RECENT COMPANY HISTORY
Introduction
During the last three years, the Company has implemented substantial
operating and financial changes which have significantly reshaped both its
business and capitalization.
Management
David L. Dworkin joined the Company as its President and Chief Executive
Officer on March 24, 1993. Prior to joining the Company, he served as Chairman
and Chief Executive Officer of a London-based retailer, BhS, a division of
Storehouse, from November 1989 until July 1992, and as Group Chief Executive of
Storehouse from July 1992 until joining the Company in March of 1993. During
the time he was with BhS and Storehouse, BhS refocused its merchandise
assortment, strengthened its merchandising organization, remodeled 64 of its 137
stores and substantially reduced its supplier base. Mr. Dworkin has in excess
of 25 years experience in the retail industry, including service as President
and Chief Executive Officer of Bonwit Teller and President and Chief Operating
Officer of Neiman Marcus, then a division of the Company.
During his first two years, David Dworkin has changed the senior management
of the Company, reduced the number of management layers and improved
communication within the management team. In 1994, the senior management team
was streamlined by eliminating three positions at the executive vice president
level. Including David Dworkin, the executive management team now includes five
senior managers with complementary skills who are equally committed to
performance goals and strategies for which they are held mutually accountable.
In addition to David Dworkin, the executive management team consists of
Elayne Garofolo, Executive Vice President, Merchandising and Marketing; John
Haeckel, Executive Vice President, Chief Financial Officer; Robert Lambert,
Executive Vice President, Stores and Human Resources; and Robert Menar,
Executive Vice President, Operations.
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During 1994, David Dworkin further decreased management layers and improved
communication within the organization by implementing a new management structure
whereby the Company's 83 stores are now clustered into groups of stores, known
as hubs, with each hub being managed by one of the store managers within the
group. By selecting top performing store managers to lead other stores within
their hubs, David Dworkin has created centers of excellence driven by a hands-
on, lead-by-example management team of proven performers.
Store management teams have also been streamlined during 1994 through the
implementation of a system of focused fourth quarter performance appraisals
which resulted in the replacement and upgrade of certain store management
positions.
Consolidation of Operations
From April 1991 to April 1992, the Company consolidated its four separate
divisions into one, which also permitted the closure of two warehouses in
Northern California. In connection with the consolidation of store operations,
the Company combined its proprietary credit and accounts payable operations into
a single administrative center and also downsized its data processing
operation. During the 1991 and 1992 bankruptcy proceedings, the Company
negotiated significant reductions in its annual equipment and real estate lease
and common area charge payments. In 1993, a major study to reduce
administrative costs was completed. See "Business Strategy -- Reduce Costs."
Taken together, the consolidation and cost control programs have resulted in
significant reduction of administrative expenses and allowed the savings to be
reinvested in sales promotion and other value enhancing programs.
Restructured Balance Sheet
During the bankruptcy proceedings, the Company significantly restructured its
secured debt obligations by extending maturities and adjusting the prospective
interest and principal payment terms for such debt. In addition to
restructuring its secured and unsecured debt, the Company obtained a $50.0
million cash equity infusion and put in place a new Credit Facility and a new
Receivables Based Facility. Also in connection with the Company's
reorganization and recapitalization, Zell/Chilmark acquired approximately 70% of
the Common Stock. As of April 25, 1995, Zell/Chilmark owned approximately 53.9%
of the Company's outstanding Common Stock.
After the October 8, 1992 emergence from bankruptcy, the Company successfully
completed a public offering of Common Stock in July 1993 which raised net
proceeds of approximately $147.5 million through the issuance of 11.45 million
shares of stock, raised approximately $137.9 million from an issuance of 6 1/4%
Convertible Senior Subordinated Notes in December 1993 and increased liquidity
through the issuance of $64.0 million of asset backed notes in September 1994.
BUSINESS STRATEGY
Introduction
David Dworkin and the executive management team are implementing a long-term
plan to improve store sales productivity and profitability, reduce operating
expenses and identify other opportunities to increase profitability. The
Company's sales per gross square foot of $138 in 1993 and 1994 (excluding
earthquake damaged stores), were significantly below the department store
industry average and below the $150 per gross square foot achieved by the
Company in fiscal 1989. Though the Company's operating profit margin (EBIT
margin) improved to 3.1% of sales in 1994 from 1.6% of sales in 1993, the
results are well below the department store industry average. Management
believes opportunities exist to improve financial performance with the
implementation of clear merchandising and operating strategies.
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In mid-1993, the new management team developed a Mission Statement defining the
Company's target customer, merchandising focus and store identity. Consistent
with its Mission Statement, Management has developed specific strategies that
are intended to improve merchandise offerings, remodel the stores, improve
inventory management, refocus marketing efforts, improve the selling culture and
reduce costs. Consistent with this strategy, the 1995 capital plan has targeted
approximately $40.0 million in expenditures for remodeling, visual and fixture
programs.
Improve Merchandise Offerings
The Company is engaged in significant reallocations of selling space towards
faster turning, higher profit core merchandise categories, which represent the
primary merchandise which attracts customers to the stores, and away from slower
turning, low profit categories. Other initiatives being taken to improve the
Company's merchandise offerings are described below.
. Improve Merchandise Profitability. The Company is increasing
private-label products across the merchandise spectrum. The Company plans
to double the penetration of its five private label brands, CC Courtenay,
Separate Ellements, Taste of California, Points West and Bleu Cafe from 6%
of retail sales in 1994 to 12% in 1995. These brands are directly
targeted at our core customers and are positioned to deliver distinctive,
quality products at prices that represent value to the customer. These
brands differentiate merchandise assortments from that of our competition
and have an expected higher margin performance than traditional branded
goods. The Company is also offering exclusive brand name product
offerings by exploiting a dramatically edited vendor base.
. Ensure Merchandise Freshness. The Company is implementing plans to
provide fresh merchandise by using a receipts-driven planning process (the
retail equivalent of just-in-time) which will allow operation of the
business with lower inventory levels, creating faster inventory turnover
and obviating the need for excessive markdowns to move dated merchandise.
New automatic replenishment programs that ensure stores are rarely, if
ever, out-of-stock in basic and advertised merchandise are having a
positive impact on sales, gross margin and cash flow. In 1994, inventory
levels were reduced 9% in basic merchandise while sales have increased 6%
in the same departments.
. Anticipate Product Demand. The Company's Planner-Distributor organization
is increasing manpower to emphasize the advance planning for customer
requirements. The program will ensure better merchandise selection for
seasonal and fashion merchandise.
Remodel Stores
The Company has developed specific strategies to improve presentation of
merchandise and to better communicate with its target customers. This past year
management applied most of its $110.0 million capital budget to renovate more
than 3.5 million square feet of retail space and thereby emphasize core
merchandise categories. In 1995, the Company will continue to upgrade the
environment of its stores, but it will delay the continuation of the massive
renovation program initiated last year. While the California economy remains
unsettled, management believes it is prudent to reduce disruption within the
stores and take time to identify those elements of the renovation strategy which
provided a substantial return on investment, as well as those that did not.
Though no major renovations will be initiated this year, all projects continued
from 1994 will be completed during 1995.
This Spring the Company will open its first Home specialty store in Las
Vegas, Nevada. Modeled after the Northridge Home Dome concept, this 52,000
square foot store will feature merchandise and services for the home and is
expected to achieve annual sales in excess of $10.0 million.
4
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The Company has created a model store space distribution floor plan in
concert with its merchandising strategy. This space redistribution/remodel plan
has been implemented at three prototype stores at Northridge, Walnut Creek and
Las Vegas.
Improve Inventory Management
The Company is continuing its strategy to tailor merchandise assortments to
its stores and develop more effective partnerships with its vendors. These
actions have increased the freshness of merchandise assortments, are expected to
improve store sales, increase inventory turnover and reduce markdowns.
. Utilize Planner-Distributor Department. The Company's planner-distributor
department ("PD Department") works closely with the Company's buying
organization to improve the allocation and distribution of inventory to
the Company's stores. The PD Department analyzes demographic and market
research data, as well as data on customer buying patterns captured
through the Company's proprietary credit card system, to tailor
merchandise assortments for clusters of stores with similar marketing
characteristics. Management believes the PD Department can provide the
Company an advantage over large national department store chains with
standardized merchandising. The tailoring of merchandise presents a
particular marketing opportunity in California and the Southwest given the
economic and ethnic diversity of these regions. See "Company Operations -
- Merchandising and Planner-Distributor Organizations."
. Reduction of Vendors. The Company has reduced the vendor base by 40%,
with ongoing purchases concentrated in the remaining vendors. Management
believes this reduction has increased the Company's importance to the
remaining vendors.
. Inventory Level Reduction/Focus on Receipt Flow and Gross Margin Return on
Investment. The Company has increased vendor participation in its quick
response inventory replenishment program to reduce purchase lead time,
maintain a faster and more continuous merchandise flow and facilitate
automatic replenishment of staple items. Automatic replenishment and
cooperative supply arrangements enhance efficiency and have driven down
both inventory levels and costs for brand merchandise. By coupling this
approach to on-hand stock reduction with automatic markdown programs to
clear-out slow moving items, Management will be able to simultaneously cut
the investment in inventory and speed up the turnover of merchandise on
the selling floor. Management intends to improve the efficiency of
inventory through a focus on receipt flow, gross margin return on
investment and timely markdowns. This focus has already resulted in an
improvement in the aging of the Company's inventory with 93.1% of
inventory aged 6 months or less at the end of 1994 compared to 90.2% last
year.
Refocus Marketing Efforts
The Company has focused its marketing efforts to create a research-based
marketing strategy that is fully integrated with both the merchandising and
store operation functions. To implement this strategy, the Company has created
a customer database through the use of both proprietary internal information and
externally available information which enables the Company to identify its
customer base and to tailor its marketing and merchandising strategy to reach
its core customer. The Company is using its market research to determine ways
to communicate with the customer and enhance the shopping environment.
Additionally, the Company is vigorously pursuing a strategy of marketing to the
ethnically diverse population of California and the Southwest through the use of
targeted marketing programs and bilingual sale associates, signage and
advertising. The Company is redirecting its marketing to provide a more focused
image and communicate the changes underway.
In April 1994, the Company initiated the Club West frequent shopper program
in cosmetics and fragrances. The program already includes over 700,000
customers and has been expanded to intimates and hosiery in 1995. In addition
to stimulating repeat sales patterns, Club West is also designed to be an
additional source for upgrading the Company's focused marketing information
database.
5
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Improve Store Selling Culture
The Company is revitalizing its selling culture. This new customer-driven
culture focuses on improving productivity by reallocating store personnel and
providing an enhanced shopping environment. In order to accomplish these goals,
the Company is recruiting talented store personnel, improving customer service
and sales training, and redesigning the compensation structure to align more
closely the sales associates' incentives with the customer service goals. In
Spring 1995, the Company is testing a pilot program linking associate
compensation to customer service standards, job competence, and quantitative
measures of sales and productivity.
Reduce Costs
The consolidation of operations to date has significantly reduced the
Company's expense infrastructure. In September 1993, the Company completed a
program designed to evaluate the importance and value of each of its areas of
operation and identify duplicative and low value-added functions, potential
staff reductions and other actions which improve efficiency. Implemented in
1993 and 1994, the cost reducing programs created substantial savings which were
reinvested in promotional and other value enhancing activities. The executive
management team is continuing to challenge the Company's expense structure and,
with the help of third party consultants, will implement additional programs in
1995 that will improve the cost effectiveness of the Company's operational
expense structure.
COMPANY OPERATIONS
Introduction
The Company's stores operate under the names The Broadway, Emporium and
Weinstocks. For efficiency purposes, all support functions are centralized.
Management, marketing and sales promotion, merchandising and administrative
functions (other than accounts payable and proprietary credit card operations,
which are consolidated in Tempe, Arizona, and data processing operations, which
are consolidated in Anaheim, California) are all located at the Company's
corporate offices in Los Angeles, California.
Forty-one Broadway stores are spread over a seven-county area in Southern
California extending from Bakersfield and Santa Barbara in the North to San
Diego in the South. The Company's twenty-two Emporium stores are located
predominantly in the San Francisco Bay area. Of the Company's nine Weinstocks
stores, eight are located in the Sacramento and Central Valley region of
California, and one in Reno, Nevada. The eleven non-California Broadway stores
are located in Arizona, Colorado, Nevada and New Mexico.
A significant number of the Company's Southern California stores suffered
damage as a result of the major earthquake which affected that area on January
17, 1994. While most of the area stores were reopened within two weeks, four
stores suffered extensive damage and required repair times ranging from 4 to 10
months. The Company maintains earthquake and business interruption insurance
with standard deductible provisions that require the Company to incur an initial
level of costs at each location subject to damage or interruption of business.
In January 1994, the Company established a reserve of $65.4 million to cover
costs of building and fixture repairs, inventory and business interruption
losses, and other costs related to the earthquake. As of January 29, 1994,
$17.1 million of the reserve had been utilized with the remainder being applied
during fiscal 1994. In addition, a $50.4 million receivable was established for
estimated insurance recoveries resulting in a $15.0 million non-recurring charge
being recognized in 1993 for earthquake related losses in excess of estimated
insurance proceeds. During 1994, $35.4 million in insurance payments have been
received and an additional receivable of $10.0 million was established at year-
end for anticipated recoveries for additional capital expenditures incurred on
damaged stores. The $15.0 million non-recurring charge recognized in January
1994, in management's opinion, continues to be adequate to cover earthquake
losses in excess of estimated insurance proceeds.
6
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During the past five years, one California Broadway store was opened and
three stores were closed. In addition, one store was opened and one store was
closed in Arizona. In January 1993, the Company closed three Weinstocks stores
located in Utah. No Emporium stores were opened or closed in the past five
years. The following table summarizes the number of stores opened and closed
during the period July 30, 1989 through January 28, 1995 (excluding stores of
the Thalhimers subsidiary, sold in December 1990).
<TABLE>
<CAPTION>
Number of Number of
stores open stores open
at beginning Stores Stores at end
period opened closed of period
------------ ------ ------ -----------
<S> <C> <C> <C> <C>
52-week period ended January 28, 1995............. 83 -- -- 83
52-week period ended January 29, 1994............. 83 -- -- 83
17-week period ended January 30, 1993............. 87 -- 4 83
35-week period ended October 3, 1992.............. 88 -- 1 87
52-week period ended February 1, 1992............. 89 -- 1 88
26-week transition period ended February 2, 1991.. 89 1 1 89
53-week period ended August 4, 1990............... 88 1 -- 89
</TABLE>
The Company intends to aggressively manage its portfolio of stores by
identifying and closing, if necessary, underperforming stores, as well as
identifying strategic opportunities to open new stores or sell existing stores.
In this regard, the Company has announced that during 1995 it plans to open a
home specialty store in Las Vegas, will close its San Jose Eastridge store, and
will close the Mountain View clearance center. In addition, in response to
several unsolicited offers and inquiries, the Company's Board of Directors, on
April 20, 1995, approved a plan to explore the sale of its twelve non-California
stores located in Arizona, Colorado, Nevada and New Mexico. The twelve stores
generated $257.5 million in sales during fiscal 1994, representing 12.3% of the
Company's total sales volume. Excluding these stores, total fiscal 1994 sales
would have been $1.8 billion, a comparable-store sales gain of 3.1% over fiscal
1993.
Average sales per gross square foot were $138 in 1993 and 1994 (excluding
earthquake stores). Excluding automotive center sales for both periods the
average sales per square foot were $140 in 1993 and 1994. The collective
average sales per square foot for stores outside of California were not
significantly different than the collective average for California stores.
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Properties
The location, year of opening, approximate gross square footage, initial
lease or current renewal option expiration date (or a notation that a store is
owned by the Company), and, for leased stores with additional renewal option
periods, the final renewal option expiration date, in each case as of April 25,
1995, are set forth below. All stores listed are in California unless otherwise
noted.
<TABLE>
<CAPTION>
Approximate
Gross Lease
Year Square Expiration
Name Location Opened Footage Date(1)
- ----------------------------- -------------------------- --------- ---------- ------------------------
<S> <C> <C> <C> <C>
The Broadway
(California Stores)
Baldwin Hills Los Angeles 1947 213,500 Owned-2042(2)
Panorama City Panorama City 1955 217,000 Owned
Los Altos Center Long Beach 1956 147,000 Owned
Del Amo Torrance 1959 220,500 Owned
Whittwood Mall Whittier 1961 141,000 2006/2021
Grossmont Shopping Center La Mesa 1961 158,000 2015
West Covina Fashion Plaza West Covina 1962 142,000 Owned
Chula Vista Center Chula Vista 1962 201,500 Owned
Buena Ventura Plaza Ventura 1963 157,500 2016/2060
Topanga Plaza Canoga Park 1964 170,000 Owned
Century City Los Angeles 1964 234,000 1995/2055
Stonewood Shopping Center Downey 1965 160,000 Owned-2051(2)
Huntington Center Huntington Beach 1965 160,000 1996/2064
Inland Center San Bernardino 1966 150,000 Owned
Valley Plaza Bakersfield 1967 150,000 1998/2065
Fashion Island Newport Beach 1967 178,500 Owned-2003/2063(2)
Montclair Plaza Montclair 1968 150,500 Owned
Fashion Valley San Diego 1969 183,000 Owned-2005/2068(2)
Tyler Mall Riverside 1970 163,000 2001/2045
Mall of Orange Orange 1971 165,500 Owned-2007/2067(2)
Cerritos Center Cerritos 1971 183,000 2002/2062
Northridge Fashion Center Northridge 1971 183,000 2002/2062
Plaza Los Angeles 1973 262,000 2010/2070
Puente Hills City of Industry 1974 161,500 2004/2067
Santa Anita Arcadia 1974 197,500 2009/2038
Laguna Hills Laguna Hills 1975 165,000 2006/2050-2014/2072(3)
Fox Hills Culver City 1975 197,000 2005/2070
Glendale Galleria Glendale 1976 191,000 Owned-2031/2051(2)
Hawthorne Plaza Hawthorne 1977 164,000 2007/2040
Sherman Oaks Fashion Square Sherman Oaks 1977 187,500 Owned
La Jolla San Diego 1977 159,500 Owned
The Oaks Thousand Oaks 1978 162,000 Owned
Brea Brea 1978 154,500 2008/2041
Plaza Camino Real Carlsbad 1979 155,500 2011/2039
Pasadena Plaza Pasadena 1980 158,500 2010/2045
Santa Monica Place Santa Monica 1980 154,000 2012/2040
La Cienega Los Angeles 1982 162,500 2017/2027
Horton Plaza San Diego 1985 135,000 2020/2060
North County Fair Escondido 1986 151,500 Owned-2022/2041(2)
South Coast Plaza Costa Mesa 1986 206,500 2021/2051
Paseo Nuevo Santa Barbara 1990 143,000 Owned-2064(2)
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Total Stores = 41 Total Gross Square Footage 7,096,500
---------
</TABLE>
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<TABLE>
<CAPTION>
Approximate
Gross
Year Square Lease
Name Location Opened Footage Expiration Date(1)
- ------------------------------- ------------------------------- ---------- ----------- -------------------------
<S> <C> <C> <C> <C>
The Broadway - Continued
(Non-California Stores)
Boulevard Las Vegas, Nevada 1966 177,500 Owned
Biltmore Fashion Park Phoenix, Arizona 1968 152,500 2000/2043
Los Arcos Scottsdale, Arizona 1969 165,500 Owned
Metrocenter Phoenix, Arizona 1973 161,000 2005/2070
Park Mall Tucson, Arizona 1974 161,500 2005/2050
Coronado Center Albuquerque, New Mexico 1976 162,500 2006/2057
Meadows Las Vegas, Nevada 1978 158,000 2008/2041
Fiesta Mall/(4)/ Mesa, Arizona 1979 137,900 2010/2040
Tucson Mall Tucson, Arizona 1982 137,500 Owned-2017/2076(2)
Westminster Westminster, Colorado 1986 135,000 Owned
Paradise Valley Paradise Valley, Arizona 1991 183,500 Owned
----------
Total Stores = 11 Total Gross Square Footage 1,732,400
----------
Emporium
(California Stores)
Downtown/(4)/ San Francisco 1896 428,700 Owned
Oakland Oakland 1929 380,400 Owned
Stonestown San Francisco 1952 287,000 Owned
Walnut Creek Walnut Creek 1954 187,000 2005/2035
Stanford Palo Alto 1956 231,000 Owned-2004/2053(2)
Valley Fair Santa Clara 1957 259,000 Owned
El Cerrito El Cerrito 1957 237,500 Owned
Hillsdale San Mateo 1962 220,500 Owned-2012/2061(2)
Marin San Rafael 1964 268,500 2012/2061-2012/2061(3)
Santa Rosa Santa Rosa 1966 213,500 2002/2062
Almaden San Jose 1968 216,500 2015/2064
Mt. View Mt. View 1970 207,000 1995
Northridge Salinas 1972 179,000 Owned-2071(2)
Tanforan San Bruno 1972 199,500 2003/2063
Hilltop Richmond 1976 203,500 2006/2066
Eastridge San Jose 1978 180,000 2006/2046
Stoneridge Pleasanton 1980 172,000 2012/2040
Sun Valley Concord 1981 181,000 2006/2046-2014/2061(3)
Solano Fairfield 1983 150,000 Owned
Southland Mall Hayward 1983 178,500 2007/2027
Vallco Cupertino 1984 181,000 Owned-2001/2061(2)
Newpark Newpark 1987 182,000 Owned
----------
Total Stores = 22 Total Gross Square Footage 4,943,100
----------
Weinstocks
(California Stores Except for
Reno, Nevada Store)
Country Club Plaza Sacramento 1961 162,500 Owned
Arden Fair Sacramento 1961 190,900 Owned
Stockton Stockton 1966 130,500 Owned-1997/2057(2)
Reno Reno, Nevada 1967 150,000 1998/2066
Florin Sacramento 1967 150,000 Owned
Fresno Fresno 1970 163,000 2006/2067
Sunrise Sacramento 1972 163,000 2003/2066
Modesto Modesto 1977 161,500 2007/2040
Downtown Plaza Sacramento 1979 163,900 2011/2039
----------
Total Stores = 9 Total Gross Square Footage 1,435,300
----------
Grand Total Stores = 83 Total Gross Square Footage/(5)/ 15,207,300
==========
</TABLE>
(1) Initial lease or current renewal option expiration date and, for stores with
additional renewal periods, the final renewal option expiration date,
respectively.
(2) Owned building subject to ground lease expiring in the years indicated.
(3) Building and ground lease expiration dates, respectively.
(4) Excludes approximately 96,800 square foot of unused divisional office
space at two locations.
(5) Includes approximately 200,000 square foot relating to automotive centers.
9
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Other Facilities
The Company operates distribution facilities in Los Angeles and Union City,
California, and Tempe, Arizona. Information services and data processing support
are centralized in a facility located in Anaheim, California. Credit card and
accounts payable administrative functions are provided from an administrative
center located in Tempe, Arizona. All management, marketing and sales
promotion, distribution networks, merchandising departments, and support
functions are located at the corporate offices in Los Angeles.
Store Remodeling
The Company's store remodeling program is designed to increase the available
selling space within existing stores and make more productive use of the
existing selling space through the reallocation of space in favor of apparel,
accessories, cosmetics and soft home goods, categories of merchandise which
generally turn faster, have higher gross margins and constitute the Company's
core merchandise.
The $60.0 million of 1993 capital expenditures emphasized "quick wins"
designed to make minor adjustments in selling space allocation and store
appearance. The $109.7 million of 1994 capital expenditures targeted 3.5
million square foot of selling space at one-third of the Company's stores with
more extensive remodels and the development of a prototype "new concept" sales
layout in its Northridge, Walnut Creek and Las Vegas stores.
The $40.0 million planned for 1995 capital expenditures will include
completion of 1994 projects, the new Las Vegas Home specialty store, and other
value enhancing projects. During 1995, management will complete an assessment
of the effectiveness of the previous capital expenditures in order to chart a
well thought out approach to continue modernizing the stores.
Merchandise Assortment
The Company's stores carry a broad merchandise assortment of apparel,
shoes, cosmetics, accessories and home products such as tabletop and housewares,
domestic items, furniture and floor coverings and electronics. The Company is
placing more emphasis on women's and men's apparel and accessories, cosmetics,
women's shoes and home goods (such as tabletop and housewares and domestic
items), which constitute the Company's core merchandise categories. See
"Business Strategy -- Improve Merchandise Offerings."
In May 1994, the shoe department was converted into an owned department from
a stand-alone department leased to outside vendors. As an owned department, the
merchandise assortment has been updated from a traditional dress-up emphasis to
a more casual style, reflecting changing customer preferences and a product mix
consistent with other apparel merchandise assortments.
Other leased departments, which currently represent approximately 4% of
annual sales, include jewelry, beauty shops, travel and other specialty
offerings. In connection with the refocusing of the Company's merchandise
assortments, the Company intends to carefully review the merchandise offerings
of its leased-space vendors to ensure that they appeal to the Company's target
customers and are consistent in terms of price, quality, assortment and fashion
with the Company's merchandise offerings in its other departments.
Consolidation of Operations
The Company has undertaken a significant series of programs over the past few
years to consolidate its operating divisions and reduce its expenses. In the
Fall of 1990, the Company sold Thalhimers, its only East Coast retailing
subsidiary. As of January 1991, the Company operated its stores through four
separate divisions, each with separate management, administrative, marketing and
sales promotion functions. In April of 1991, the Company consolidated its
Weinstocks and Emporium divisions. In January of 1992, the Company consolidated
the Broadway-Southwest division into the Broadway-Southern California division.
Finally, in April of 1992, the Company consolidated its Emporium-Weinstocks
division into its Broadway division, forming a single operating unit based in
Southern California.
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With the consolidation of the Company's store operations, the Company then
consolidated its proprietary credit card and accounts payable operations into a
single administrative center located in Tempe, Arizona. In addition, the
Company has downsized its Anaheim, California data processing operation,
reducing employment by approximately one-third. The consolidation of its
operating divisions described above also reduced the requirements for separate
distribution and warehouse facilities, permitting the closure of two warehouses
in the San Francisco and Sacramento areas. As of April 1993, the Company began
operating its Broadway Southern California and Broadway Southwest stores jointly
under the name "The Broadway".
On June 17, 1994, at the Company's annual meeting, shareholders voted to
change the Company's name from Carter Hawley Hale Stores, Inc. to Broadway
Stores, Inc. in order to more closely identify the Company with its operations.
Accordingly, on June 20, 1994, Company common stock began trading on the New
York Stock Exchange under the symbol "BWY".
Merchandising and Planner-Distributor Organizations
With the consolidation of its divisions, buying activities were centralized
for the Company's 83 stores. The centralized buying organization facilitates
the editing of assortments and reduction in the number of vendors and increases
the importance of the Company to its key vendors. The centralized buying
function has enabled the Company to improve the overall quality of its buying
staff, increase the depth and specialization of buyers dedicated to its
merchandise categories, and improve the consistency and coordination of the
buying process.
In conjunction with the consolidation of the Company's operating divisions in
1992, the Company established the PD Department to work closely with its buying
organization and improve the allocation and distribution of inventory to the
Company's stores. The PD Department synthesizes demographic and market research
along with data on current sales performance for each market served by the
Company. Using this information, the PD Department works closely with the
buyers in the Company's merchandising department to determine the appropriate
merchandise mix for each store, specifying the appropriate styles, colors and
sizes to be provided, the timing for delivery and the quantity of goods to be
delivered. In determining the merchandise mix for a particular store, the PD
Department takes into account local differences in lifestyle and ethnic
background, seasonal differences and other factors.
Management Information System
Management believes that its internally developed MIS System is competitive
and cost effective compared with other industry software solutions. The systems
capability will play an important role in the Company's implementation of its
business strategy. The MIS System provides detailed information that enables
Management to monitor the effectiveness of merchandise strategies, improve
merchandise assortments and reduce inventory costs. The MIS System capability
fully supports its efforts with vendors to shorten lead times and manage the
level of merchandise shipments received based on most recent sales trends.
The Company's information services facility provides data processing, systems
development and communication services to all of the Company's stores,
headquarters and distribution and support facilities. The MIS System provides
fully integrated voice and data communication links to its point-of-sale
terminals, computer systems and telephone system. The system currently provides
sophisticated inventory tracking and control for more than 800,000 stock-keeping
units and has the capacity to track 2 million units. The system also provides
automatic inventory replenishment of selected inventory items using computer-
generated purchase orders, and links the Company with more than 500 vendors
through an interactive electronic communications network. In addition, the MIS
System's price management system allows daily updating of merchandise prices
(either store-by-store or Company-wide) and provides on-line price-lookup
capability at the point-of-sale register. All of the major components of the
MIS System are protected from major systems failures through the MIS System's
architecture, as well as through an arrangement with a leading provider of back-
up information systems. Management believes that the Company's MIS System will
continue to play a central role in the execution of the Company's merchandising
strategy and the ongoing containment of inventory and operating costs.
11
<PAGE>
Competition
The retail industry, in general, and the retail department store business, in
particular, are intensely competitive with respect to the purchase and sale of
merchandise and the acquisition of desirable store locations. Significant
competitors of the Company include Robinsons-May, Bullock's, Macy's, Nordstrom,
Mervyn's, J.C. Penney, Dillard's and Gottschalks, though not all of these other
competitors have stores in each market in which the Company competes. Each
store competes not only with other traditional department stores, but also with
specialty stores, discount stores, off-price retailers and numerous other types
of local retail outlets selling apparel and accessories, electronics, furniture,
and home furnishings. The Company also competes with various retailers that
offer merchandise by mail order. Additionally, in the future, companies that
offer merchandise to consumers via television may become more significant
competitors of the Company. Many factors enter into the competition for
consumers' patronage, including service, price, quality, style, product mix,
convenience and credit availability. Each of the Company's stores has at least
one department store competitor nearby. Some of the retailers with which the
Company competes have substantially greater financial resources than the
Company.
Employees
As of January 28, 1995, the Company employed approximately 23,000 associates,
of whom approximately one-half were employed on a full-time basis. Subject to
seasonal increases in the number of sales associates during the holiday season,
the number of part-time employees varies according to seasonal needs. The
Company has union contracts covering approximately three and one-quarter percent
of the associates of the Company, primarily in two Emporium stores located in
San Francisco. The Company believes that it has good relations with its
associates.
Service Marks
The service marks "The Broadway," "Emporium," and "Weinstocks" have been
registered with the United States Patent and Trademark Office. The Company also
has rights to several other marks. The Company also uses several trademarks and
service marks in connection with certain of its private-label brand merchandise.
Except for the aforementioned service marks as applied to the retail
merchandising of goods and services, the Company does not believe that there are
any patents, licenses, trademarks and service marks that are material to its
business.
Proprietary Credit Card Operations
Customers may purchase merchandise at any of the Company's stores for cash,
with certain common third-party credit or charge cards, or on credit in
accordance with revolving credit account terms provided by the Company through
its own proprietary credit card operations. In addition to providing a source
of credit that customers may use to make purchases, the Company proprietary card
programs generate a significant body of marketing data related to customers'
tastes and buying patterns. Demographic and purchasing information available as
a result of the proprietary credit card program provides Management with a
valuable tool to analyze customer demographics and shopping patterns. The
Company uses this information to provide specific customers with information
about merchandise or events that would be of particular interest to them based
on their historical shopping patterns.
In the year ended January 28, 1995 proprietary credit card sales accounted
for 49.0 percent of gross sales. In recent years, the Company's proprietary
credit card sales have declined while third-party credit card sales have been
increasing. The Company believes that this is due to the broader utility of
third-party credit and stronger marketing and expanded availability of third-
party credit. The Company continually evaluates the effectiveness of various
credit-promotion programs to maximize proprietary credit card sales volume
consistent with the Company's credit standards. For example, the Company has
developed a preferred proprietary credit card. Under this preferred credit card
program, customers are offered special incentives designed to stimulate
proprietary credit card purchases.
Effective October 1993, changes in the terms of the Company's revolving
charge accounts reduced the minimum monthly payment requirement on the short-
term accounts from 10% of the outstanding balance to 5%. Concurrently, the
long-term Homemaker account balances were consolidated into the
12
<PAGE>
short-term accounts. This change in terms has resulted in increased customer
receivable balances outstanding and corresponding finance charge revenue gains.
Average accounts receivable balances increased to $568.5 million in fiscal 1994
compared to $520.7 million and $532.6 million in fiscal 1993 and 1992,
respectively. Accordingly, finance charge revenue increased to $91.3 million in
fiscal 1994 compared to $81.4 million and $82.6 million in 1993 and 1992,
respectively.
The following tables reflect selected proprietary credit operations data:
<TABLE>
<CAPTION>
Average
Number of Credit Balance
Statements Number of Days Credit per Statement
As of Mailed Sales Outstanding Mailed
- ------------------ ------------ --------------------- --------------
<S> <C> <C> <C>
January 28, 1995.. 2,011,000 177 $301
January 29, 1994.. 2,074,000 148 264
January 30, 1993.. 2,012,000 138 266
</TABLE>
Seasonal customer purchasing in November and December produce an increase in
credit purchases. As a result, customer receivable balances outstanding and the
number of accounts with unpaid balances normally reach their highest levels in
the months of December and January.
Customer receivables are generally written-off when the aggregate of payments
made in the last six months is less than one full scheduled monthly payment, or
when it is otherwise determined that the account is uncollectible. Proprietary
credit card sales, net write-offs with respect thereto, and customer receivable
balances for the period indicated were as follows (excluding Thalhimers' data):
<TABLE>
<CAPTION>
Proprietary
Credit Card Sales Net Write-Offs
---------------------------------- ---------------------- Total
% of % of Customer
Fiscal Year Ended Amount Gross Sales/(1)/ Amount Credit Sales Receivables
- ------------------------------- -------------- ------------------ ------- ------------- -----------
(dollar amounts in thousands)
<S> <C> <C> <C> <C> <C>
January 28, 1995............... $1,115,718 49.0% $24,615 2.2% $635,905
January 29, 1994............... 1,183,002 51.7 29,621 2.5 578,308
January 30, 1993............... 1,222,205 52.3 36,687 3.0 580,542
February 1, 1992............... 1,252,843 53.8 38,503 3.1 598,562
February 2, 1991
(26 weeks ended).............. 812,424 56.3 17,719 2.2 673,478
August 4, 1990................. 1,497,508 56.7 35,186 2.3 589,705
</TABLE>
(1) Proprietary credit card sales as a percent of total sales inclusive of
related sales tax receipts.
Current year write-offs at 2.2% of credit sales improved from 2.5% for the 52
week period ended January 29, 1994, reflecting improved collections and the
effect of easing minimum payment requirements. The allowance for doubtful
accounts has been kept at 3.0% of customer receivables in anticipation of the
impact of the 1993 terms change on future write-off experience.
The Company's proprietary credit cards are subject to federal and state
regulation, including consumer protection laws, that impose restrictions on the
making and collection of consumer loans and on other aspects of credit card
operations. Although there are no current changes in process which would
negatively impact credit operations, there can be no assurance that the existing
laws and regulations will not be amended, or that new laws or regulations will
not be adopted, in a manner that could adversely affect the Company's
proprietary credit card operations.
RECAPITALIZATION
On February 11, 1991, the Company filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code (The "Bankruptcy Code") in the
United States Bankruptcy Court for the Central District of California (the
"Bankruptcy Court"). During the bankruptcy proceedings, the Company managed its
affairs and operated its business as debtor in possession under the supervision
of the Bankruptcy Court while it developed a reorganization plan to restructure
the Company. The Company emerged from
13
<PAGE>
bankruptcy pursuant to a plan of reorganization ("POR") on October 8, 1992 (the
"Emergence Date"). Since the Emergence Date, the Company has operated
independently, although the Bankruptcy Court has retained jurisdiction over
certain claims and other matters relating to the POR. See "Item 3. Legal
Proceedings -- Chapter 11 Proceedings; Unresolved Claims."
Pursuant to the POR, as of the Emergence Date, the Company's largest secured
creditors and certain other secured creditors agreed to extend the maturities
and adjust the prospective interest and payment terms for loans totaling $451.8
million and capitalize $66.1 million of interest accrued thereon during the
chapter 11 proceedings. In addition, the Company negotiated significant
reductions in lease payments and common area charges under its equipment and
real property leases. While the bankruptcy proceedings were pending,
Zell/Chilmark acquired via tender offer approximately $461.0 million of the
$600.0 million in unsecured claims against the Company, making Zell/Chilmark the
Company's largest unsecured creditor. Pursuant to the POR, these unsecured
claims were converted into equity. In addition, Zell/Chilmark and First Plaza
were each issued 2,500,000 shares of common stock in exchange for a cash equity
infusion totaling $50.0 million. As a result, Zell/Chilmark held approximately
70% of the shares of Common Stock outstanding as of the Emergence Date.
Pursuant to the POR, holders of the Company's common stock, $.01 par value,
outstanding prior to the Emergence Date ("Old Common Stock") received .081
shares of Common Stock and .084 Warrants (or, in the case of participants in the
profit sharing plan in effect prior to the Emergence Date with respect to shares
of Old Common Stock held by such plan and other holders of Old Common Stock who
so elected, .081 shares of Common Stock and .084 shares of Preferred Stock).
As of the Emergence Date, the existing debtor-in-possession working capital
facility and the receivables based financing arrangement were replaced with new
facilities, the Credit Facility and the Receivables Facility. Subject to
collateral limitations, the new facilities provide for up to $225.0 million
under the Credit Facility and up to $575.0 million to finance the Company's
proprietary credit card receivables portfolio.
For information related to the financial obligations of the Company, see
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of names and ages of all of the current executive
officers of the Company indicating all positions and offices with the Company
held by each such person, each such person's principal occupations or employment
during the past five years, and the expiration of each such person's term of
office.
<TABLE>
<CAPTION>
Term
Name Age Office Expiration /(1)/
- -------------------- --- ------------------------------------------- -------------------
<S> <C> <C> <C>
David L. Dworkin 51 President, Chief Executive Officer
and Director.............................. March 23, 1996
Elayne M. Garofolo.. 48 Executive Vice President, Merchandising and
Marketing................................. May 23, 1996
John C. Haeckel..... 36 Executive Vice President,
Chief Financial Officer................... April 3, 1997
Robert J. Lambert... 41 Executive Vice President, Stores and Human
Resources................................. December 1, 1996
Robert M. Menar..... 57 Executive Vice President, Operations....... July 20, 1995
Marc E. Bercoon..... 34 Senior Vice President, General Counsel
and Secretary............................. (2)
</TABLE>
(1) The Company has entered into employment contracts with these individuals
with the term expirations indicated.
(2) Marc Bercoon serves at the pleasure of the Board of Directors.
14
<PAGE>
David L. Dworkin joined the Company as its President and Chief Executive
Officer on March 24, 1993. He also became a Director at that time. Prior to
joining the Company, he served as Chairman and Chief Executive Officer of
London-based retailer BhS, a division of Storehouse, from November 1989 until
July 1992, and as Group Chief Executive of Storehouse from July 1992 until
joining the Company in March of 1993. He has in excess of 25 years experience
in the retail industry, including service as President and Chief Executive
Officer of Bonwit Teller, Inc., from 1988 through 1989, and President and Chief
Operating Officer of Neiman Marcus from 1984 through 1988, then a division of
the Company.
Elayne M. Garofolo was promoted to Executive Vice President, Merchandising
and Marketing in January 1995. She joined the Company in May 1993. From 1991
to 1993, she served as Senior Vice President, Communications and Image of GFT
USA Corp. From 1981 to 1990, she served as Senior Vice President of Marketing
and Sales Promotion of Bonwit Teller, Inc.
John C. Haeckel was appointed Executive Vice President and Chief Financial
Officer in April 1994. From 1984 to March 1994 he was with Chilmark Partners, a
merchant banking firm, serving as a general partner from 1987. Since October
1993, while still with Chilmark Partners, he served the Company as a consultant
on financial matters. Chilmark Partners has an interest in the Zell/Chilmark
Fund, L.P. which owns 53.9% of the Company's outstanding common stock as of
April 25, 1995.
Robert J. Lambert was promoted to Executive Vice President, Stores and Human
Resources in January 1995. He joined the Company as Executive Vice President,
Human Resources in January 1994. From 1990 to 1993 he served as chief human
resources officer at The Stride Rite Corporation and from 1981 to 1990 he was
with Pepsico Inc., most recently as director of personnel resources - Pepsico
West.
Robert M. Menar was appointed Executive Vice President, Operations in October
1993. Prior to that time, he served in various positions since joining the
Company in 1978, most recently serving as Senior Vice President, Information
Services.
Marc E. Bercoon was promoted to a Senior Vice President of the Company in
February 1994, and has served as General Counsel and Secretary of the Company
since February 9, 1993. He served as Legal Counsel and Assistant to the Vice
Chairman of the Company from October 1992 to February 1993. From January 1990
to October 1992, he was Vice President and General Counsel of Equity Properties
and Development Company, a division of Equity Property Management Corp. From
July 1987 to January 1990, he was in private practice as a corporate and real
estate attorney at Rosenberg and Liebentritt, P.C., a Chicago-based law firm.
ITEM 2. PROPERTIES
- ------- ----------
As of January 28, 1995, 25 of the Company's stores were owned, 14 were owned
subject to ground leases and 44 were leased. Three of these leased stores are
subject to separate ground and improvement leases. As of January 28, 1995, the
total annual base rent due under the store leases is approximately $21.3
million. In addition to the base monthly rent, the Company is obligated under
many of the leases, or under related agreements discussed below, for a portion
of common area maintenance charges and real property taxes. Further, the
Company is lessee under eleven other leases relating to various offices,
distribution facilities, and parking facilities. As of January 28, 1995, the
total annual base rent due under these additional leases is approximately $1.5
million. Leases are generally for periods of up to 30 years, with renewal
options for substantial periods. Such leases are generally at fixed rental
rates, except that certain leases provide for additional rental payments based
on sales in excess of predetermined levels.
Since many of the Company's stores are located in regional shopping centers,
the Company is also party to other agreements which are inextricably tied to the
Company's ground or improvement leases or its ownership of the property. Anchor
tenants such as the Company and shopping center developers commonly enter into
reciprocal easement agreements which, among other things, establish certain
operating covenants to which the anchor tenants are bound. In addition,
individual anchor tenants often enter into separate agreements with the
developers relating to, among other things, common area charges and operating
covenants.
15
<PAGE>
The Company operates distribution facilities in Los Angeles and Union City,
California, and Tempe, Arizona. Information services and data processing
support are centralized in a facility located in Anaheim, California. Credit
card and accounts payable administrative functions are provided from an
administrative center located in Tempe, Arizona. All other management,
marketing and sales promotion, merchandising departments, and support functions
are located at the Company's corporate offices in Los Angeles, California.
At January 28, 1995, the square footage used in the Company's operations was
as follows:
<TABLE>
<CAPTION>
Owned
subject to
Owned ground lease Leased Total
--------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Stores..................................... 4,997,000 2,465,500 7,744,800 15,207,300
Distribution centers and other facilities.. 2,240,000 -- 108,500 2,348,500
</TABLE>
Thirty-two of the Company's stores and the Company's corporate offices and
distribution center are encumbered by deeds of trust in favor of the Company's
largest secured creditor. An additional twelve of the Company's stores and
facilities are encumbered by deeds of trust in favor of certain banks under the
Company's loan agreements with such banks. One other store and two non-store
facilities are encumbered under individual mortgage agreements with other
lenders.
For additional information related to the Company's properties, see "Item 1.
Business -- Company Operations".
ITEM 3. LEGAL PROCEEDINGS
Chapter 11 Proceedings; Unresolved Claims
A discussion of the events surrounding the Company's bankruptcy filing and an
explanation of the material terms of the Company's reorganization under the POR
is set forth in "Item 1. Recapitalization." None of the Company's subsidiaries
filed petitions for relief under the Bankruptcy Code. Notwithstanding the
confirmation and effectiveness of the POR, the Court continues to have
jurisdiction to, among other things, resolve disputed prepetition claims against
the Company and to resolve other matters that may arise in connection with or
relate to the POR.
Pursuant to the POR, the Company is required to distribute .046 shares of
Common Stock for each $1.00 of allowed general unsecured claims. The POR
estimated the total amount of such claims to be approximately $600.0 million,
against which the Company reserved 27.6 million shares of Common Stock. As of
January 28, 1995, approximately $28.6 million of disputed claims remained
outstanding. Management believes such claims will ultimately be allowed upon
settlement or litigation for approximately $10.0 million, for which the Company
has reserved approximately .8 million shares. Management believes that reserved
shares of Common Stock will be sufficient to meet the Company's obligations to
such claim holders. If all disputed claims were allowed in full, such claim
holders would be entitled to a total of 1.3 million shares of Common Stock,
compared to the .8 million shares reserved, resulting in a dilution to holders
of outstanding Common Stock of approximately 1%. Management regularly evaluates
the status of remaining disputed claims and claim settlement experience and
accordingly would adjust its estimate of the number of shares to be reserved for
issuance with respect to such claims if necessary. In addition, the Company has
reserved approximately 0.2 million shares for preconfirmation stockholders of
the Company who have not yet claimed the distribution of Common Stock to which
they were entitled under the POR. The total of 1.0 million shares of Common
Stock still issuable under the POR is included in the Company's calculation of
its outstanding Common Stock. In addition, 0.1 million Warrants remain issuable
to certain preconfirmation stockholders pursuant to the POR. There are no
contractual restrictions on the resale of these securities. Such securities may
be sold into a public market without restriction at any time, potentially
resulting in an adverse effect on the market for, or the market price of the
Common Stock.
The Company is engaged in an ongoing effort to resolve the remaining disputed
claims. Because of the disputed nature of these claims and the delays
associated with litigation, management anticipates that the settlement of these
claims is likely to occur over an extended period of time.
16
<PAGE>
Other Legal Proceedings
The Company is involved in various other legal proceedings incidental to the
normal course of business. Management does not expect that any of such other
proceedings will have a material adverse effect on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) Information with respect to the principal market on which the Company's
Common Stock is traded and the range of high and low closing market prices for
the following periods during the past two fiscal years are set forth in the
table below:
CLOSING MARKET PRICE RANGES OF
COMMON STOCK
<TABLE>
<CAPTION>
Common Stock High Low
------- -------
<S> <C> <C>
13 weeks ended January 28, 1995................... $12 1/8 $ 5 1/8
13 weeks ended October 29, 1994................... 12 1/4 10
13 weeks ended July 30, 1994...................... 11 3/4 8 1/4
13 weeks ended April 30, 1994..................... 13 1/8 9 1/8
13 weeks ended January 29, 1994................... $14 3/4 $ 8 1/2
13 weeks ended October 30, 1993................... 16 12 7/8
13 weeks ended July 31, 1993...................... 17 3/8 12 3/8
13 weeks ended May 1, 1993........................ 12 3/4 9 1/2
</TABLE>
The New York Stock Exchange is the principal market on which the Company's
Common Stock is traded.
(b) There were 18,417 holders of record of shares of Common Stock of the
Company as of April 25, 1995.
(c) The Company did not declare dividends during the fiscal years ended
January 28, 1995 and January 29, 1994. In addition, the Company's credit
agreement with GE Capital (the "GE Credit Agreement") and the Company's
settlement agreement with BofA, as agent for the Banks (the "BOA Settlement
Agreement") prohibit the Company from paying dividends to stockholders.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
A five-year summary of certain financial information about the Company is
presented in the following table:
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
Period Ended
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January 28, January 29, January 30, February 1, February 2, August 4,
(Dollar amounts in thousands, 1995 1994 1993 1992 1991/(1)/ 1990
except per share data) (52 weeks) (52 weeks) (52 weeks) (52 weeks) (26 weeks) (53 weeks)
- --------------------------------------------------------------------------------------------------------------------------------
Earnings Data
Sales.............................. $2,086,804 $2,092,681 $2,137,847 $2,127,917 $1,318,565 $2,857,819
Percent increase (decrease)
from prior year................... (0.3%) (2.1%) 0.5% (9.4%)/(2)/ (4.5%)/(2)/ 2.5%
Finance charge revenue............. 91,330 81,438 82,642 93,992 49,262 125,036
Cost of goods sold, including
occupancy & buying costs.......... 1,560,035 1,589,077 1,587,979 1,591,770 991,140 2,098,382
Selling, general and
administrative expenses........... 554,405 551,098 561,610 559,886 335,381 729,578
Charge for non-recurring
costs............................. 45,000
Provision for consolidation
programs.......................... 47,000
Gain on sale of Thalhimers......... (30,000)
Other expense/(3)/................. 4,831
Interest expense, net.............. 100,904 84,864 89,808 102,288 71,046 161,534
---------- ---------- ---------- ---------- ---------- ----------
Loss from continuing
operations before reorgani-
zation costs and income
taxes............................. (37,210) (95,920) (18,908) (32,035) (46,740) (11,470)
Reorganization income (costs)...... 884,131 (138,057) (40,000)
---------- ---------- ---------- ---------- ---------- ----------
Pretax earnings (loss) from
continuing operations............. (37,210) (95,920) 865,223 (170,092) (86,740) (11,470)
Income tax benefit (expense)....... (150) (9,800) 13,200 2,000
---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) from
continuing operations............. (37,360) (95,920) 855,423 (170,092) (73,540) (9,470)
Extraordinary income (costs)
and changes in accounting/(4)/.... 323,220 (46,894) (14,070) (16,500)
---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss)................ $ (37,360) $ (95,920) $1,178,643 $ (216,986) $ (87,610) $ (25,970)
========== ========== ========== ========== ========== ==========
Loss per common share/(5)/......... $ (.80) $(2.30)
========== ==========
Other Data
Capital expenditures............... $ 109,726 $ 59,957 $ 38,242 $ 34,850 $ 37,989 $ 83,220
Depreciation and amortization...... 42,951 33,987 38,540 43,636 21,836 50,995
Period End Data
Working capital.................... 863,137 739,810 701,478 628,270 978,082 843,414
Total assets....................... 2,127,076 1,934,147 1,912,902 1,667,662 1,755,421 2,045,194
Liabilities subject to settlement
under reorganization
proceedings....................... 598,321 598,650
Receivables based financing........ 573,138 332,182 467,577 489,254 633,798 678,646
Other secured long-term debt
and capital lease obligations..... 564,041 561,954 563,216 508,429 515,290 939,797
Convertible subordinated notes..... 143,750 143,750
Common stock and other share-
holders' equity (deficit)......... 385,652 413,717 374,761 (508,476) (272,627) (193,820)
Common shares outstanding
(in thousands).................... 46,941/(6)/ 46,814/(6)/ 35,200/(6)/ 30,349 30,369 29,848
Number of stores................. 83 83 83 88 89 115
</TABLE>
18
<PAGE>
(1) Effective as of February 2, 1991, the Company changed its fiscal year end
from the Saturday closest to July 31 of each year to the Saturday closest to
January 31 of each year.
(2) Sales decrease on a comparative period basis, excluding from the prior year
period sales of the Thalhimers subsidiary, which was sold during the fall
of 1990.
(3) Includes gains on asset sales of $7.3 million and costs of the buying office
closure of $12.1 million.
(4) Fiscal 1992 includes a $304.4 million gain on debt discharge and $18.8
million of income from a change in accounting for income taxes. The 1991 52
week period includes a $30.0 million charge for a change in accounting for
post-retirement medical benefits and $16.9 million of costs relating to
early retirements of debt. The 26 week transition period ended February 2,
1991 includes $14.1 million of costs relating to the early retirement of
debt. Fiscal 1990 includes a $16.5 million extraordinary charge for the
uninsured loss associated with the October 1989 San Francisco earthquake.
(5) Earnings per common share were $.65 for the seventeen weeks ended January
30, 1993. Per share data for periods prior to the Emergence Date have been
omitted as these amounts do not reflect the current capital structure.
(6) Includes 35.0 million shares of Common Stock expected to be issued in
accordance with the POR. As of January 28, 1995, 1.0 million of these
shares remain to be issued.
19
<PAGE>
The following table sets forth the consolidated capitalization and short-term
debt of the Company and its consolidated subsidiaries at January 28, 1995
(dollar amounts in thousands):
<TABLE>
<CAPTION>
NOTES PAYABLE AND CURRENT INSTALLMENTS
<S> <C>
Credit Facility................................................. $ 11,740
Current portion of long-term secured debt....................... 3,607
Current portion of capital lease obligations.................... 3,143
----------
TOTAL NOTES PAYABLE AND CURRENT INSTALLMENTS................... $ 18,490
==========
LONG-TERM SENIOR DEBT
Receivables Based Financing
Receivables Facility/(1)/...................................... $ 509,138
Notes subordinated to the Receivables Facility
7.55 percent subordinated notes due 1999/(2)/................. 38,000
11.0 percent subordinated notes due 1999/(2)/................. 26,000
----------
Total Receivables Based Financing.............................. 573,138
----------
Other Long-Term Secured Debt
Term loans due in 1999 (6.75 percent at January 28, 1995)...... 89,663
9.0 percent notes due 1997-2002................................ 77,150
9.9 percent notes due 1995-2010................................ 9,859
10.67 percent notes due 1997-2002.............................. 344,000
Other notes (8.25 percent to 9.9 percent)...................... 5,452
----------
Total secured debt............................................ 526,124
Less current portion of other secured long-term debt.......... (3,607)
----------
Total long-term portion of other secured long-term debt....... 522,517
----------
TOTAL LONG-TERM SENIOR DEBT.................................... 1,095,655
----------
CAPITAL LEASE OBLIGATIONS (excluding current maturities of
$3,143)......................................................... 41,524
----------
6.25 PERCENT CONVERTIBLE SENIOR SUBORDINATED NOTES DUE 2000/(3)/.. 143,750
----------
SHAREHOLDERS' EQUITY
Preferred Stock -- 25 million $.01 par value shares authorized;
.8 million shares outstanding/(4)/............................. 8
Common Stock--100 million $.01 par value shares authorized;
46.9 million shares outstanding/(5)/........................... 469
Other Paid-in Capital........................................... 502,039
SFAS 87 Adjustment.............................................. (6,304)
Total Accumulated Deficit....................................... (110,560)
----------
TOTAL SHAREHOLDERS' EQUITY............................ 385,652
----------
TOTAL CAPITALIZATION.............................................. $1,666,581
==========
</TABLE>
(1) The Company funds its credit card activities through the Receivables
Securitization Facility, which provides for a special purpose corporation,
whose accounts are consolidated into the Company, to purchase the Company's
proprietary credit card receivables and to pay for these interests through
the issuance of up to $575.0 million in commercial paper. The
securitization program is currently scheduled to mature on October 8, 1996.
(2) The subordinated notes are redeemable at the option of the Company, in whole
or in part, on each interest payment date and on October 8, 1996 at a
redemption price encompassing principal, accrued and unpaid interest, and a
make-whole premium.
(3) The notes are convertible at the option of the holder at a conversion price
of $12.19, subject to adjustment. The notes are redeemable at the option of
the Company on or after December 31, 1998.
(4) Preferred Stock outstanding includes approximately .1 million shares
reserved for issuance to certain prepetition creditors or preconfirmation
stockholders pursuant to the Company's POR.
(5) Based on the number of shares of Common Stock outstanding as of January 28,
1995. Includes approximately 1.0 million shares of Common Stock reserved
for issuance or otherwise issuable to certain prepetition creditors or
preconfirmation stockholders pursuant to the Company's POR. Also
20
<PAGE>
includes: (i) .2 million shares for options exercised out of the 5.9 million
shares reserved for issuance under the 1992 Stock Incentive Plan, as amended
(of which options with respect to 2.4 million shares of Common Stock are
outstanding and immediately exercisable at prices of between $9.125 and
$14.00 per share); (ii) .5 million shares held by the Company's 401(k)
Savings and Investment Plan out of the 1.5 million shares reserved for the
plan; and (iii) no shares out of the 2.5 million shares issuable at $17.00
per share upon exercise of Warrants issued or issuable pursuant to the POR.
Warrants to purchase 1.6 million of such shares are currently outstanding;
Warrants to purchase .9 million shares are issuable upon surrender of
outstanding Series A Exchangeable Preferred Stock (the "Preferred Stock")
for exchange; and Warrants for .1 million shares remain issuable to certain
preconfirmation stockholders.
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The discussion of results of operations that follows is based upon the
Company's consolidated financial statements set forth on pages 36-55. The
discussion of liquidity and capital resources is based upon the Company's
current financial position. Upon emergence from bankruptcy, the Company adopted
the principles of fresh start reporting (as defined in the Summary of
Significant Accounting Policies) as of October 3, 1992 (the "Effective Date") to
reflect the impact of the reorganization. As a result of the application of
fresh start reporting, the financial condition and results of operations of the
Company for dates and periods subsequent to the Effective Date are not
necessarily comparable to those prior to the Effective Date.
Results of Operations
Overview. The Company has undertaken significant organizational changes
during the past three years which have impacted operating results. In addition,
there are inherent difficulties in comparing the pre- and post-emergence period
financial statements due to the application of fresh start reporting effective
October 3, 1992. Although separate reporting is required for the 35-week period
ended October 3, 1992 and the 17-week period ended January 30, 1993, certain
pre-petition and post-petition income and expense elements remain comparable.
The following table summarizes the results for the three years ended January
28, 1995 on a comparable period basis. During the prior year, certain one-time
charges were incurred due to the execution of the Company's new business
strategy. These charges included $18.0 million of strategic inventory clearance
markdowns, which were part of the Company's inventory repositioning program.
These markdowns were taken over and above markdowns taken in the normal course
of business. In 1992, markdowns of this nature were charged to previously
established inventory valuation reserves. The one-time charges also included a
non-recurring charge of $25.0 million for costs to implement a strategic plan,
the activity value analysis, to streamline the Company's organizational
structure and reduce administrative costs. These measures resulted in cost
savings which have been reinvested in promotional activities and other value
enhancing programs. In addition, in the fourth quarter of 1993, the Company
recorded a $20.0 million charge to cover $15.0 million of costs relating to the
January 1994 Northridge earthquake and $5.0 million for severance and other
costs associated with additional restructuring efforts.
The following table illustrates reported earnings before interest and taxes
("EBIT") as well as proforma EBIT which adjusts for the one-time charges
described above:
<TABLE>
<CAPTION>
"1994" "1993" "1992"
January January January January February
Period end date 28, 1995 29, 1994 30, 1993 30, 1993 1, 1992
--------- --------- --------- --------- --------
Number of weeks reported 52 52 52 17 17
--------- --------- --------- --------- --------
(in millions)
<S> <C> <C> <C> <C> <C>
Sales................................ $ 2,086.8 $ 2,092.7 $ 2,137.8 $ 889.8 $ 859.6
Finance charge income................ 91.3 81.4 82.7 27.3 30.7
Cost of goods sold, including
occupancy and buying costs
(on a proforma FIFO basis)/(1)/..... 1,563.5 1,580.0 1,582.8 660.8 636.7
Selling, general and administrative
expenses ("SG&A")................... 554.4 551.1 561.6 206.8 209.3
--------- --------- --------- --------- --------
Proforma operating FIFO EBIT/(1)/.... 60.2 43.0 76.1 49.5 44.3
Adjustments to arrive at
reported EBIT:
LIFO credit (charge)................ 3.5 8.9 (5.2) 1.9 (3.2)
Realignment markdowns............... (18.0)
Special period end adjustments/(1)/. 17.5
Charge for non-recurring costs...... (45.0)
--------- --------- --------- --------- --------
Reported EBIT........................ $ 63.7 $ (11.1) $ 70.9 $ 68.9 $ 41.1
========= ========= ========= ========= ========
</TABLE>
22
<PAGE>
(1) Interim period results are affected by the Company's practice of allocating
certain fixed buying and occupance costs among periods within the fiscal
year to match these costs with the associated seasonal sales revenue. As
a result of the application of fresh start reporting, however, the 1992
pre-and post-emergence reporting periods each required separate year-end
type closings. Accordingly, buying and occupancy costs totalling $17.5
million, which would normally have been allocated to the fourth quarter of
fiscal 1992, were required to be expensed in September in 1992. The
"proforma operating FIFO EBIT" of $49.5 million for the seventeen week
period ended January 30, 1993, reflects the normal interim allocation of
occupancy and buying costs.
52-Week Period Ended January 28, 1995 ("1994"). Sales in the current year
were $2.09 billion, a 0.3% decline from the prior year. Current year results
were impacted by the January 17, 1994 Northridge earthquake and the loss of
sales from the four most severely damaged stores. On a comparative store basis,
sales increased 3.1% over the prior year. Excluding the four earthquake damaged
stores, sales per square foot remained unchanged from $138 last year.
The current year net loss of $37.4 million, $.80 per share, improved from a
loss of $95.9 million, $2.30 per share in 1993. Prior year results include
$25.0 million in the second quarter and $5.0 million in the fourth quarter for
non-recurring charges for the implementation of expense reduction programs and a
$15.0 million non-recurring charge for earthquake related losses in excess of
estimated insurance proceeds.
FIFO EBIT improved to $60.2 million from $43.0 million in 1993. Improvements
in margin rates were partially offset by slightly lower sales and a small
increase in selling, general and administrative costs. The improvement in
margin rate reflects the $18.0 million of realignment markdowns taken in 1993.
FIFO costs of goods sold in 1994 was $1,563.5 million, 74.9% of sales as
compared to $1,580.0, 75.5% of sales in 1993. The 0.6% improvement as a percent
to sales reflects a better gross margin rate on a slightly smaller sales base,
reduced buying and occupancy costs, and the additional gross margin from the
owned shoe department which was operated as a leased department prior to May
1994.
The current year LIFO credit of $3.5 million was based on a 1.57% deflation
rate which was calculated on the basis of an internally developed inflation
index. This method, which was adopted effective October 3, 1992, provides the
company with an inflation measurement that is specific to its business.
SG&A was $554.4 million, 26.6% of sales in the current year compared to
$551.1 million, 26.3% of sales in the prior year. Savings from expense
reduction programs put in place during fiscal 1993 were reinvested in promotion
costs and other value enhancing programs during the current year.
Finance charge revenue increased to $91.3 million, 4.4% of sales, from $81.4
million, 3.9% of sales in the prior year. The improvement reflects earnings on
higher customer receivable balances resulting from an October 1993 change in
payment terms which reduced the minimum monthly payment requirement on the
Company's short term revolving charge accounts.
Interest expense increased by $16.0 million in 1994 to $100.9 million from
$84.9 million in 1993. Approximately half of the increase was due to rising
interest rates in 1994 with the remainder due to increased borrowing levels.
Limitations on the Company's ability to record income tax benefits for net
operating loss carryforwards for financial statement purposes resulted in no
income tax benefit being recognized on the current year $37.2 million net loss
and a $.2 million provision for state franchise taxes.
52-Week Period Ended January 29, 1994 ("1993"). Sales in 1993 were $2.09
billion, 2.1 percent less than the $2.14 billion reported in 1992. The results
reflect the impact of the January 17, 1994 Northridge earthquake which resulted
in the temporary closing of 14 stores. At year end, four stores remained closed
due to damage sustained in the earthquake. 1992 included results for three Utah
stores and the Anaheim, California store which were closed in January 1993. On
a comparative store basis, 1994 sales increased 1.6 percent over the comparable
prior year period. Sales per gross square foot increased to $138 in 1993
compared to $137 in 1992.
23
<PAGE>
Proforma operating FIFO EBIT of $43.0 million in 1993 compares to $76.1
million for the combined pre- and post-emergence periods comprising the 52-week
period ended January 30, 1993. Results were impacted by the necessary
disruption associated with the implementation of expense reduction and inventory
repositioning programs.
Proforma FIFO cost of goods sold was $1,580.0 million, 75.5 percent of sales
in 1993 compared to $1,582.8 million, 74.0 percent of sales in the prior year.
The 1.5 percent increase as a percent to sales reflects a reduction in markup
rate resulting primarily from a move to everyday low pricing strategies and
reflects the impact of competitive pricing pressures. The 4.7 percent deflation
generated by the internally generated index reflects the inventory impact of the
Company's move to value pricing during 1993. The LIFO credit of $8.9 million
compares to a charge of $5.2 million in the prior year.
SG&A decreased to $551.1 million in 1993 compared to $561.6 million in 1992.
Although SG&A as a percent to sales was 26.3 percent in both periods, 1993
results reflect the favorable impact of the expense reduction program with cost
savings of $7.0 million reflected in 1993. The savings were subsequently
reinvested in other value enhancing programs.
Finance charge revenue of $81.4 million in 1993 compared to $82.7 million in
the comparable prior year period, and represented 3.9 percent of sales in both
years. The October 1993 change in credit card payment terms did not result in
an increase to finance charge revenue until 1994.
Interest expense decreased to $84.9 million in 1993 compared to $89.8 million
in the comparable prior year period. The decrease in interest expense results
primarily from lower average borrowing rates under the Company's Receivables
Facility for periods subsequent to the Emergence Date and the utilization of the
net proceeds from the equity offering to lower borrowings under the Credit and
Receivables Facilities subsequent to July 1993.
Limitations on the Company's ability to record income tax benefits for net
operating loss carryforwards for financial statement purposes, together with the
impact of an offsetting state tax provision requirement, resulted in no tax
benefit being recognized on the $95.9 million net loss for 1993.
17-Week Period Ended January 30, 1993 ("Post-reorganization Period"). Sales
increased 3.5 percent to $889.8 million in the Post-reorganization Period from
$859.6 million in the comparable prior-year 17-week period ended February 1,
1992. On a comparable store basis, the sales increase was also 3.5 percent.
For the 13-week period ended January 30, 1993, comparable store sales increased
5.5 percent over the same prior year period, reflecting a generally strong
holiday selling season and positive responses to the Company's sales and credit
promotional activities.
Proforma operating FIFO EBIT increased to $49.5 million, 5.6 percent of sales
in the Post-reorganization Period from $44.3 million, 5.2 percent of sales, in
the comparable prior-year period. Proforma EBIT reflects the reversal of the
cost-of-goods-sold adjustment described in note 1 to the table above. The
improvement reflects the increased sales base and the realization of the
benefits of cost reduction programs. Reported EBIT increased to $68.9 million,
7.7 percent of sales, in the Post-reorganization period.
Proforma FIFO cost of goods sold increased to 74.3 percent of sales, $660.8
million, in the Post-reorganization Period from 74.1 percent, $636.7 million, in
the comparable prior-year period. Cost of goods sold as a percentage of sales
increased .2 percent as a result of competitive pressures on gross margins which
more than offset the impact of higher sales and lower buying and occupancy
costs. The LIFO credit of $1.9 million for the Post-reorganization Period
compares to a charge of $3.2 million in the comparable prior-year period. Since
the Company was deemed a new entity effective October 3, 1992, its previous LIFO
reserve was eliminated at that date. The credit for the 17-week period ended
January 30, 1993 reflects the general price deflation during the period together
with the deflationary impact on the Company's internally generated inflation
index as a result of the movement to value pricing. The comparable prior year
period charge of $3.2 million, was an allocation of a portion of the fiscal 1992
$5.2 million charge.
24
<PAGE>
SG&A decreased to $206.8 million, 23.2 percent of sales, in the Post-
reorganization Period from $209.3 million, 24.3 percent of sales, in the
comparable prior-year period. This decrease is comprised of a $6.5 million
decrease in other SG&A primarily reflecting reduced fixed costs resulting from
the Company's consolidation programs, partially offset by a $4.2 million
increase in sales promotion and selling expenses in response to competitive
pressures during the holiday season.
Finance charge revenue decreased to $27.3 million, 3.1 percent of sales, in
the Post-reorganization Period from $30.7 million, 3.6 percent of sales, in the
comparable prior-year period, reflecting the conservative approach to credit
purchases generally, including proprietary credit card purchases, taken by
customers prior to the holiday season, and the continuation of the trends
discussed under "Business --Proprietary Credit Card Operations". In addition,
during the past two years, including the Post-reorganization Period, the Company
has experienced an accelerated collection rate on proprietary credit card
accounts resulting in lower overall outstanding customer receivables.
Interest expense decreased to $29.6 million in the Post-reorganization Period
from $32.1 million in the comparable prior-year period. This reduction was
largely due to lower average interest rates.
Net earnings of $22.7 million in the Post-reorganization Period are net of
taxes at statutory rates and reflect an effective tax rate of 42.2 percent.
The seasonal nature of the retail business results in a significant portion
of the earnings from operations for the year being generated in the 17-week
period. Interim operating results are thus not necessarily indicative of
earnings from operations that will be realized for the full fiscal year.
Liquidity and Capital Resources
Overview. During the year, the Company augmented its liquidity through the
private placement of $64.0 million of asset backed notes. In conjunction with
the placement, the maturity of the Receivables Facility and the Credit Facility
were extended from October 1995 to October 1996 and certain provisions of the
Credit Facility were enhanced. In combination, the asset backed notes and the
Receivables Facility enhanced liquidity by increasing the maximum receivables
advance rate from approximately 88% to 91%.
Asset Backed Notes. On September 13, 1994 the Company finalized the private
placement of subordinated asset backed notes (the "Asset Backed Notes"). The
Asset Backed Notes were issued in two classes: $38.0 million of 7.55% Class A
notes due 1999 and $26.0 million of 11.00% Class B notes due 1999. By
increasing the maximum effective receivables advance rate, the proceeds of the
notes have helped finance the Company's expanding base of customer receivables.
Borrowing Facilities. The Company's Credit Facility and Receivables Facility
mature in October 1996. Subject to collateral limitations, the facilities
provide for up to $225.0 million in credit financing and up to $575.0 million to
finance the Company's proprietary credit card receivables portfolio. As of
January 28, 1995, $11.7 million in advances and $48.7 million in letters of
credit were outstanding under the Credit Facility and $573.1 million of
borrowings, $102.0 million less than the maximum available based on the level of
customer receivables, were outstanding under the Receivables Facility.
The Credit Facility contains a number of operating and financial covenants,
as well as significant negative covenants. The Credit Facility includes
covenants for material adverse changes, minimum aggregate net cash flow and
earnings before interest, taxes, depreciation and amortization ("EBITDA"). In
addition, the Credit Facility prohibits the Company from paying dividends on its
stock and places limitations on the Company's capital expenditures. The Company
is currently in compliance with all covenants under the Credit Facility. The
Company's net inventory ratio at January 28, 1995 was 76.7%, 9.1% less than the
maximum inventory ratio permitted under the Credit Facility. The Credit
Agreement and the Company's agreements with its other principal secured
creditors also contain other covenants and requirements. In conjunction with
the September 13, 1994 issuance of Asset Backed Notes, the Credit Facility
financial covenants were relaxed by an amendment which took into account the
enhanced liquidity from the issuance. On March 7, 1995, the Company, in
conjunction with revising the capital program, further amended its Credit
Facility to provide greater flexibility with respect to earnings.
25
<PAGE>
A substantial portion of the Company's debt is variable rate debt. Assuming
that the average borrowings and all other variables would have remained
constant, an increase (or decrease) in the annual interest rates applicable to
the variable rate portion of the Company's debt throughout the 52-week period
ended January 28, 1995 of one percent would have increased (or decreased) the
Company's interest expense for such period by $5.0 million.
In order to control interest rate risk, the Company has entered into an
agreement which caps the interest paid on 30 day commercial paper. From
September 12, 1994 to September 12, 1996 the rate is limited to 8.0% on the
first $500.0 million of borrowings and 10.92% on an additional $75.0 million of
borrowings. For three years thereafter, the rate is capped at 10.92% on all
borrowings up to a limit declining ratably from $575.0 million to zero in 1999.
As of April 25, 1995, the 30-day commercial paper rate was 6.11%.
Capital Expenditures. The Company concentrated its $109.7 million and $60.0
million of capital expenditures in 1994 and 1993 on store modernization and
selling space improvement in addition to ongoing required maintenance
expenditures. The 1994 expenditures focused on the remodeling of approximately
one-third of its stores including three prototype new concept stores in
Northridge, Walnut Creek and Las Vegas. To allow for time to assess the
effectiveness of the improvements, management is delaying the continuation of
massive renovation programs and limiting expenditures in 1995 to approximately
$40.0 million.
The 1993 expenditures focused on "quick-win" remodels and other high value
store improvements. During the bankruptcy proceedings in 1992, the capital
expenditure program had been curtailed to $17.1 million pre-emergence and $21.2
million post-emergence. The Company is continually modifying its capital
programs to accommodate market factors and the Company's financial condition. In
addition, from time to time the Company may consider proposals to close existing
stores or open new stores. In this regard, in response to several unsolicited
offers and inquiries, the Company's Board of Directors, on April 20, 1995,
approved a plan to explore the sale of its twelve non-California stores located
in Arizona, Colorado, Nevada and New Mexico. The twelve stores generated $257.5
million in sales during fiscal 1994, representing 12.3% of the Company's total
sales volume. Excluding these stores, total fiscal 1994 sales would have been
$1.8 billion, a comparable-store sales gain of 3.1% over fiscal 1993.
The Company's ability to fund its capital expenditure program and to
implement its business strategy will depend on cash flow from operations and the
continued availability of borrowings under the Credit Facility. Operating cash
flow will be affected by, among other things, the timing of results from the
Company's business strategy, sales during the holiday season, and general
competitive and economic conditions. The Company believes that operating cash
flow and amounts available under the Credit Facility will be sufficient to fund
the major elements of its business strategy. However, the Company continuously
evaluates increasing or decreasing the number of stores, the terms of its Credit
Facility and Receivables Facility and other operating and financing
alternatives.
Other Matters. At January 28, 1995, the Company has estimated federal tax
net operating loss ("NOL") carryforwards of $619.0 million, which expire in
years 2004 through 2009. The Company's ability to utilize the NOL carryforwards
is limited on an annual basis as a result of the change in control that occurred
at the emergence from bankruptcy. Notwithstanding this limitation, Management
does not currently anticipate that the Company will have any significant cash
requirements for income tax payments for the next several years based on the
availability of the NOLs.
If within a three-year period, however, 50% or more of the stock of the
Company changes ownership again, the future annual use of NOLs may be limited to
a greater extent by a new annual limit. The new annual limitation would be
calculated as the product of (i) the highest long-term tax-exempt rate for a
designated period prior to the ownership change and (ii) the market value of the
Company at such time. This annual limit would apply to any NOLs incurred prior
to the new change in control, but after the change in control that occurred at
the emergence from bankruptcy. Furthermore, if the new annual limit were lower
than the current annual limit, the new annual limit would apply to all NOLs of
the Company incurred prior to the new change in control and could increase cash
requirements for income tax payments.
26
<PAGE>
In addition to federal tax NOLs, the Company also has $261.0 million of
estimated California net operating loss carryforwards which expire in years 1996
through 2002. In 1993, the California net operating loss carryforward period
was legislatively reduced to five years effective for losses generated in and
subsequent to 1993. This change may further restrict the Company's ability to
utilize its loss carryforwards.
Inflation
The effect of inflation on the Company's sales and cost of sales, in the
opinion of Management, is most closely approximated by the inflation factors
impacting the computation of its LIFO index inflation rate. The Company
utilizes an internally developed inflation index based on an analysis of the
Company's unique merchandise assortment. For the 52-week period ended January
28, 1995, the internally developed index indicated deflation of 1.57%.
Seasonality
The department store business is seasonal in nature with a high proportion of
sales and earnings generated in November and December. Working capital
requirements fluctuate during the year, increasing somewhat in late Summer in
advance of the Fall merchandising season and increasing substantially at the
outset of the holiday season when the Company must carry significantly higher
inventory levels. Quarterly sales and EBIT for the 36 months ended January 28,
1995 were as follows:
<TABLE>
<CAPTION>
Sales
----------------------
Dollar Percent of
(dollar amounts in millions) Sales Annual Sales EBIT
------ ------------- -----------
<S> <C> <C> <C>
13 weeks ended January 28, 1995............. $723.8 34.6% $41.5
13 weeks ended October 29, 1994............. 474.9 22.8 7.1
13 weeks ended July 30, 1994................ 457.0 21.9 10.6
13 weeks ended April 30, 1994............... 431.1 20.7 4.5
13 weeks ended January 29, 1994............. 705.6 33.7 30.0/(1)/
13 weeks ended October 30, 1993............. 469.7 22.4 (5.3)
13 weeks ended July 31, 1993................ 474.9 22.7 4.2/(1)/
13 weeks ended May 1, 1993.................. 442.5 21.2 5.0
13 weeks ended January 30, 1993 (proforma).. 732.5 34.3 49.4/(2)/
13 weeks ended October 31, 1992 (proforma).. 490.3 22.9 3.6/(2)/
13 weeks ended August 1, 1992............... 481.4 22.5 12.3
13 weeks ended May 2, 1992.................. 433.6 20.3 5.6
</TABLE>
(1) EBIT before non-recurring costs of $25.0 million in the period ended July
31, 1993 and $20.0 million in the period ended January 29, 1994.
(2) Reported EBIT for the 13-week periods ended October 31, 1992 and January 30,
1993 were a loss of $13.9 million and earnings of $66.9 million,
respectively. Proforma EBIT reflects the allocation to the 13-week period
ended January 30, 1993 of $17.5 million of fixed buying and occupancy costs
recognized at October 3, 1992 as a result of the application of fresh start
reporting.
As a result of the seasonal nature of the Company's business, the Company
follows the practice of allocating certain fixed buying and occupancy costs
among quarters within the fiscal year in proportion to projected quarterly sales
results. This process results in a higher portion of yearly fixed buying and
occupancy costs being allocated to the fourth quarter.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are as set forth
in the "Index to Financial Statements" on page 32.
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
For information required under this item with respect to directors of the
Company, see "Nominees for Election as Directors" and "Compliance with Section
16(a) of the Exchange Act" in the Company's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on June 16, 1995, (the "Proxy
Statement") which sections are hereby incorporated by reference.
For information required under this item with respect to executive officers
of the Company see "Executive Officers of the Company" under Item 1.
ITEM 11. EXECUTIVE COMPENSATION
For information required under this item with respect to executive
compensation see "Compensation of Executive Officers and Directors" in the
Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on June 16, 1995, which sections are hereby incorporated
by reference. Notwithstanding the foregoing, the Compensation Committee Report
on Executive Compensation and the Performance Graph contained in the Proxy
Statement are not incorporated by reference into this Annual Report on Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information required under this item with respect to beneficial ownership
of the Company's voting securities by each director and all executive officers
and directors as a group, and by any person known to beneficially own more than
5% of any class of voting security of the Company, see "Principal Stockholders
and Management Ownership" in the Company's definitive Proxy Statement relating
to the Annual Meeting of Shareholders to be held on June 16, 1995, which
sections are hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information required under this item with respect to certain
relationships and related transactions, see "Principal Stockholders and
Management Ownership -- Certain Relationships and Related Transactions" and
"Compensation of Executive Officers and Directors -- Compensation of Directors"
in the Company's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on June 16, 1995, which sections are hereby incorporated
by reference.
28
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated financial statements of the Company are set forth in the
"INDEX TO FINANCIAL STATEMENTS" on page 32.
(2) Financial Statement Schedules
Financial Statement Schedules, except those indicated in the "INDEX TO
FINANCIAL STATEMENTS" on page 32, have been omitted because the required
information is included in the financial statements or financial review, or the
amounts are not significant.
(3) Exhibits
Exhibits are as set forth in the "INDEX TO EXHIBITS" on page 59.
(b) Reports on Form 8-K
None.
29
<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 this 20th day of April,
1995.
BROADWAY STORES, INC.
By: DAVID L. DWORKIN
-----------------------------------
David L. Dworkin
President and Chief Executive Officer
POWER OF ATTORNEY
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 indicated on April 20, 1995.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
SAMUEL ZELL Chairman of the Board
- --------------------------------- and Director April 20, 1995
Samuel Zell
President
Chief Executive Officer and
Director (Principal
DAVID L. DWORKIN Executive Officer) April 20, 1995
- ----------------------------------
David L. Dworkin
Executive Vice President,
Chief Financial Officer
JOHN C. HAECKEL (Principal Financial Officer) April 20, 1995
- ---------------------------------
John C. Haeckel
Vice President, Accounting
JOHN D. DAVIES (Principal Accounting Officer) April 20, 1995
- ---------------------------------
John D. Davies
WALTER T. DEC Director April 20, 1995
- ---------------------------------
Walter T. Dec
SIDNEY R. PETERSEN Director April 20, 1995
- ---------------------------------
Sidney R. Petersen
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
TERRY SAVAGE Director April 20, 1995
- ----------------------------------------
Terry Savage
DAVID M. SCHULTE Director April 20, 1995
- -----------------------------------------
David M. Schulte
SANFORD SHKOLNIK Director April 20, 1995
- ------------------------------------------
Sanford Shkolnik
ROBERT M. SOLOW Director April 20, 1995
- ------------------------------------------
Dr. Robert M. Solow
</TABLE>
31
<PAGE>
BROADWAY STORES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants (Relating to Period After October 3, 1992).... 33
Report of Independent Accountants (Relating to Period Before October 3, 1992)... 34
Consent of Independent Accountants.............................................. 35
Consolidated Financial Statements
Consolidated Statement of Earnings........................................... 36
Consolidated Balance Sheet................................................... 37
Consolidated Statement of Cash Flows......................................... 38
Consolidated Statement of Shareholders' Equity............................... 39
Summary of Significant Accounting Policies................................... 40
Financial Review............................................................. 43
Financial Schedule VIII--Valuation and Qualifying Accounts and Reserves...... 56
Quarterly Information........................................................... 57
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Broadway Stores, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing on page 32 present fairly, in all material respects, the financial
position of Broadway Stores, Inc. (formerly known as Carter Hawley Hale Stores,
Inc.) and its subsidiaries at January 28, 1995 and January 29, 1994, and the
results of their operations and their cash flows for the fiscal years ended
January 28, 1995 and January 29, 1994 and the seventeen weeks ended January 30,
1993, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in the Reorganization and Basis of Reporting section of the Summary
of Significant Accounting Policies, on September 14, 1992, the United States
Bankruptcy Court confirmed the Company's plan of reorganization. The plan of
reorganization, which was effective October 8, 1992, resulted in the discharge
of all claims against the Company which arose prior to February 11, 1991 and
substantially altered the rights and interests of the existing equity security
holders. The Company utilized fresh start reporting as of October 3, 1992 to
account for the effects of the reorganization.
Price Waterhouse LLP
Los Angeles, California
March 13, 1995
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Broadway Stores, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing on page 32 present fairly, in all material respects, the results of
operations and cash flows of Broadway Stores, Inc. (formerly known as Carter
Hawley Hale Stores, Inc.) and its subsidiaries for the thirty-five weeks ended
October 3, 1992, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in the Reorganization and Basis of Reporting section of the Summary
of Significant Accounting Policies, on February 11, 1991, the Company filed a
petition with the United States Bankruptcy Court for reorganization under
Chapter 11 of the Bankruptcy code. The plan of reorganization was effective
October 8, 1992, at which time the Company emerged from bankruptcy. The Company
utilized fresh start reporting as of October 3, 1992 to account for the effects
of the reorganization.
As discussed in the Change in Accounting Policy section of the Summary of
Significant Accounting Policies, the Company changed its method of accounting
for income taxes in the thirty-five week period ended October 3, 1992.
Price Waterhouse LLP
Los Angeles, California
March 12, 1993
34
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-58478 and 33-58480) and in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-51847) of
our reports dated March 13, 1995 and March 12, 1993 appearing on pages 33 and
34, respectively, of this Form 10-K.
Price Waterhouse LLP
Los Angeles, California
April 27, 1995
35
<PAGE>
BROADWAY STORES, INC.
Consolidated Statement of Earnings
<TABLE>
<CAPTION>
Year Ended Period Ended
-------------------------- ---------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In thousands, except per share amounts) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $2,086,804 $2,092,681 $889,843 $1,248,004
Finance charge revenue 91,330 81,438 27,265 55,377
Cost of goods sold, including
occupancy and buying costs 1,560,035 1,589,077 641,361 946,618
Selling, general and administrative
expenses 554,405 551,098 206,804 354,806
Charge for non-recurring costs 45,000
---------- ---------- -------- ----------
Earnings (loss) from operations before
interest expense, reorganization
income and income taxes 63,694 (11,056) 68,943 1,957
Interest expense, net 100,904 84,864 29,623 60,185
---------- ---------- -------- ----------
Earnings (loss) from operations
before reorganization income
(costs) and income taxes (37,210) (95,920) 39,320 (58,228)
Reorganization income 884,131
---------- ---------- -------- ----------
Earnings (loss) from operations
before income taxes (37,210) (95,920) 39,320 825,903
Income tax benefit (expense) (150) (16,600) 6,800
---------- ---------- -------- ----------
Earnings (loss) before extraordinary
item and cumulative effect of
change in accounting (37,360) (95,920) 22,720 832,703
Extraordinary gain on debt discharge 304,388
Cumulative effect of change in accounting
for income taxes 18,832
---------- ---------- -------- ----------
Net earnings (loss) $ (37,360) $ (95,920) $ 22,720 $1,155,923
========== ========== ======== ==========
Earnings (loss) per common share $ (.80) $ (2.30) $ .65
========== ========== ========
</TABLE>
See accompanying Summary of Significant Accounting Policies and Financial
Review.
36
<PAGE>
BROADWAY STORES, INC.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
January 28, January 29,
(In thousands) 1995 1994
- ------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 18,318 $ 18,192
Accounts receivable, net 664,825 627,374
Merchandise inventories 504,522 427,631
Other current assets 11,613 9,799
---------- ----------
1,199,278 1,082,996
Property and equipment, net 888,258 810,608
Other assets 39,540 40,543
---------- ----------
$2,127,076 $1,934,147
========== ==========
Liabilities and Shareholders' Equity
Current liabilities
Notes payable and current
installments $ 18,490 $ 3,459
Accounts payable 175,622 151,687
Accrued expenses 141,027 186,837
Current income taxes 1,002 1,203
---------- ----------
336,141 343,186
Receivables based financing 573,138 332,182
Other secured long-term debt 522,517 517,287
Convertible senior subordinated notes 143,750 143,750
Capital lease obligations 41,524 44,667
Other liabilities 109,504 124,508
Deferred income taxes 14,850 14,850
Shareholders' equity
Preferred stock, $.01 par value 8 9
Common stock, $.01 par value 469 468
Other paid-in capital 502,039 500,785
Total accumulated deficit (116,864) (87,545)
---------- ----------
385,652 413,717
---------- ----------
$2,127,076 $1,934,147
========== ==========
</TABLE>
See accompanying Summary of Significant Accounting Policies and Financial
Review.
37
<PAGE>
BROADWAY STORES, INC.
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended Period Ended
-------------------------- -----------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In thousands) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating activities
Earnings (loss) from operations $ (37,360) $ (95,920) $ 22,720 $ 832,703
Adjustments to reconcile earnings (loss) from
operations to net operating cash flows
Fresh-start adjustment (906,373)
Depreciation and amortization 42,951 33,987 10,617 27,923
Stock compensation 1,401
Deferred income taxes 2,400 16,450
Change in operating assets and liabilities
Restricted cash 47,954 (47,954)
Customer receivables, net (55,829) 2,158 (88,217) 105,040
Merchandise inventories (76,891) 40,078 43,715 (79,476)
Accounts payable and accrued expenses 35,247 (7,590) (64,157) 59,309
Other, net (48,753) (10,455) (4,989) 14,359
--------- --------- -------- ---------
Net cash provided (used) by operating activities (140,635) (35,342) (14,506) 5,531
--------- --------- -------- ---------
Investing activities
Proceeds from sales of property and
equipment 6,468
Purchases of property and equipment (109,726) (59,957) (21,190) (17,052)
--------- --------- -------- ---------
Net cash used by investing activities (109,726) (53,489) (21,190) (17,052)
--------- --------- -------- ---------
Financing activities
Net change in financing under receivables
based facilities 240,956 (135,395) 79,271 (100,948)
Net change in financing under working
capital facilities 11,740 (52,315) (38,485) 53,800
Retirements of long-term debt and
capital lease obligations (3,463) (16,855) (2,739) (1,929)
Costs relating to early retirements of long-term
debt, net of items not requiring cash outlay (10,652)
Issuance of convertible subordinated notes 143,750
Issuances of common stock 1,254 149,221 50,000
--------- --------- -------- ---------
Net cash provided (used) by financing activities 250,487 88,406 38,047 (9,729)
--------- --------- -------- ---------
Net increase (decrease) in cash 126 (425) 2,351 (21,250)
Cash at the beginning of the period 18,192 18,617 16,266 37,516
--------- --------- -------- ---------
Cash at the end of the period $ 18,318 $ 18,192 $ 18,617 $ 16,266
========= ========= ======== =========
</TABLE>
See accompanying Summary of Significant Accounting Policies and Financial
Review.
38
<PAGE>
BROADWAY STORES, INC.
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Total Accumulated
Earnings (Deficit)
Shares Issued Par Value ---------------------------
------------------ ------------------- Accumulated
Warrants Other Paid- SFAS 87 Earnings
(In thousands) Issued Preferred Common Preferred Common in Capital Adjustment (Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1992 30,349 $ $ 303 $ 643,194 $ (23,111) $(1,128,862)
Net earnings 1,155,923
Net cancellations of
common stock under the
stock incentive plan (868) (9)
Adjustment to additional
minimum pension liability 23,111 (27,061)
Reorganization Plan
transactions:
Existing equity holders:
Cancellation of existing
common stock outstanding (29,481) (294) (643,194)
Issuance of new
common stock together
with warrants or
preferred stock 1,333 1,143 2,386 11 24 23,965
Issuance of new common
stock to holders of
liabilities subject to
settlement 27,600 276 275,724
Additional equity
investment 5,000 50 49,950
----- ----- ------- ------ ------- --------- ---------- -----------
Balance, October 3, 1992 1,333 1,143 34,986 11 350 349,639
Net earnings 22,720
Issuances of new common
stock 214 2 2,039
Conversions of preferred
stock 41 (41)
----- ----- ------- ------ ------- --------- ---------- -----------
Balance, January 30, 1993 1,374 1,102 35,200 11 352 351,678 22,720
Net loss (95,920)
Issuances of new common
stock 11,450 114 147,432
Conversion of preferred
stock 160 (160) (2) 2
Exercise of stock options 164 2 1,673
Adjustment to additional
minimum pension liability (14,345)
----- ----- ------- ------ ------- --------- ---------- -----------
Balance, January 29, 1994 1,534 942 46,814 9 468 500,785 (14,345) (73,200)
Net loss (37,360)
Issuances of new common
stock 44 411
Conversion of preferred
stock 96 (96) (1) 1
Exercise of stock options 83 1 842
Adjustment to additional
minimum pension liability 8,041
----- ----- ------- ------ ------- --------- ---------- -----------
Balance, January 28, 1995 1,630 846 46,941 $ 8 $ 469 $ 502,039 $ (6,304) $ (110,560)
===== ===== ======= ====== ======= ========= ========== ===========
</TABLE>
See accompanying Summary of Significant Accounting Policies and Financial
Review.
39
<PAGE>
BROADWAY STORES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization
On February 11, 1991 (the "Petition Date"), the Company filed a petition (the
"Filing") for relief under Chapter 11 of the Bankruptcy Code in the United
States Bankruptcy Court for the Central District of California (the "Bankruptcy
Court"). The Company subsequently managed its affairs and operated its business
under Chapter 11 as a debtor-in-possession while a plan of reorganization was
formulated.
On July 28, 1992, the Company's plan of reorganization ("POR"), which was
supported by the largest secured and unsecured creditors and the official
committee of the equity security holders, was filed with the Bankruptcy Court.
The POR was subsequently confirmed at the Bankruptcy Court hearing held on
September 14, 1992 and became effective October 8, 1992 (the "Emergence Date").
The POR provided for the conversion of substantially all unsecured claims
into 27.6 million shares of Common Stock, the conversion of all common stock
outstanding immediately prior to the Emergence Date ("Old Common Stock") into
2.4 million shares of newly-issued common stock of the Company ("Common Stock")
and a combined total of 2.5 million of convertible warrants or shares of
preferred stock, and the conversion of accrued interest under certain secured
debt agreements into secured long-term obligations in accordance with the
related settlement agreements.
Pursuant to the POR, Zell/Chilmark Fund, L.P. ("Zell/Chilmark"), the
Company's largest unsecured creditor, received 21.2 million shares of Common
Stock in settlement of approximately $461.0 million of unsecured claims on the
Emergence Date. In addition, pursuant to the terms of the Postpetition Store
Modernization Facility Conversion Agreement (the "Conversion Agreement"),
Zell/Chilmark and an institutional investor each acquired an additional 2.5
million shares of Common Stock at a price of $10.00 per share. As of the
Emergence Date, 32.4 million shares of Common Stock were issued pursuant to the
POR and the Conversion Agreement, of which Zell/Chilmark owned 73.2 percent. As
of January 28, 1995 Zell/Chilmark owned approximately 53.9% of the Company's
outstanding Common Stock.
Basis of Reporting
The financial statements for the 35 week period ended October 3, 1992 (the
"Effective Date") reflect the Company's emergence from Chapter 11 and were
prepared utilizing the principles of fresh-start reporting contained in American
Institute of Certified Public Accountants' Statement of Position 90-7 "Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code" (the
"Reorganization Statement").
Operations during the period from October 3, 1992 through the Emergence Date
had no significant impact on the emergence transactions and as a result have not
been separately identified. The financial statements for periods subsequent to
October 3, 1992 have been segregated from those for prior periods by a solid
double line to reflect the significant change in reporting entity resulting from
the application of fresh start reporting.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to January 31.
40
<PAGE>
Change in Accounting Policy
During 1992, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Prior to the adoption
of SFAS No. 109, the Company accounted for income taxes under Statement of
Financial Accounting Standards No. 96 ("SFAS No. 96"). Both SFAS No. 109 and
SFAS No. 96 require the use of the liability method of accounting for income
taxes and require the adjustment of previously recorded deferred tax liabilities
and assets for the effects of changes in tax laws or rates through the date of
the latest financial statements presented. SFAS No. 109 changed the criteria for
recognition and measurement of deferred tax assets and allowed the Company to
recognize certain benefits resulting from net operating loss carryforwards for
which no benefit could be recognized under SFAS 96. The cumulative effect of the
change on prior years was a gain of $18.8 million, which has been reflected in
net earnings for the first quarter of 1992.
Sales
Sales are net of returns, exclude sales tax, and comprise sales of
merchandise, services, and leased departments. Leased department sales were
$116.5 million in 1994, $210.7 million in 1993, $88.5 million for the seventeen
week period ended January 30, 1993, and $139.3 million for the thirty-five week
period ended October 3, 1992. In May 1994, the leased shoe department was
converted from a third party operation into an owned department.
Customer Accounts Receivable
An account is generally written-off when the aggregate of payments made in
the most recent six months is less than one full monthly scheduled payment, or
when it is otherwise determined that the account is uncollectible.
Inventories
Merchandise inventories are valued at the lower of cost or market, as
determined by the retail method on the last-in, first-out ("LIFO") basis. For
periods subsequent to the Effective Date, the Company utilized internally
developed inflation indices in the computation of LIFO inventories. Prior to
the Effective Date, the Company utilized the inflation indices published by the
Bureau of Labor Statistics.
Property and Equipment
Property and equipment additions are recorded at cost and include major
renewals and improvements which significantly add to productive capacity or
extend the useful life of an asset. Maintenance and repairs are expensed.
Depreciation and Amortization
Depreciation and amortization are calculated on a straight-line basis over
the estimated useful lives of the property and equipment, or over the terms of
the related leases, if shorter. Debt acquisition costs are amortized over the
life of the related debt.
Advertising and Promotional Costs
Advertising and promotional costs are generally expensed as incurred except
for certain costs which are deferred over the term of the promotion, generally
three months or less. Advertising costs charged to expense were $72.5 million
in fiscal 1994, $71.7 million in fiscal 1993, $31.6 million for the seventeen
week period ended January 30, 1993 and $47.9 million for the thirty-five week
period ended October 3, 1992.
41
<PAGE>
Income Taxes
Income taxes are recorded in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" which requires the
recognition of a deferred tax liability for taxable temporary differences and a
deferred tax asset for deductible temporary differences. A valuation allowance
is established when, based on the weight of available evidence, it appears more
likely than not that some portion or all of the deferred tax assets will not be
realized.
Earnings Per Share of Common Stock
Earnings per share are computed on the basis of the weighted average number
of shares outstanding during the period, including dilutive stock options and
all 35.0 million shares of Common Stock expected to be issued in accordance with
the POR. As of January 28, 1995, 1.0 million shares remain to be issued in
accordance with the POR. Per share data for periods prior to October 3, 1992
have been omitted as these amounts do not reflect the current capital structure.
42
<PAGE>
FINANCIAL REVIEW
Non-recurring Costs
A significant number of the Company's Southern California stores suffered
damage as a result of the major earthquake which affected that area on January
17, 1994. While most of the area stores were reopened within two weeks, four
stores suffered extensive damage and were closed for repairs for periods of 4 to
10 months. The Company maintains earthquake and business interruption insurance
with standard deductible provisions that require the Company to incur an initial
level of costs at each location subject to damage or interruption of business.
In January 1994, the company established a reserve of $65.4 million to cover
costs of building and fixture repairs, inventory and business interruption
losses, and other costs related to the earthquake. As of January 29, 1994,
$17.1 million of the reserve had been utilized with the remainder being utilized
during fiscal 1994. In addition, a $50.4 million receivable was established for
estimated insurance recoveries resulting in a $15.0 million non-recurring charge
being recognized in 1993 for earthquake related losses in excess of estimated
insurance proceeds. During 1994, $35.4 million in insurance payments have been
received and an additional receivable of $10.0 million was established at year-
end for anticipated recoveries for additional capital expenditures. The reserve
utilization and insurance proceeds received are reflected in the Consolidated
Statements of Cash Flows and are included as other net changes in operating
assets and liabilities. The $15.0 non-recurring charge recognized in January
1994, in management's opinion, continues to be adequate to cover earthquake
losses in excess of estimated insurance proceeds.
During 1993, the Company recorded $30.0 million in non-recurring charges
associated with one-time costs incurred in the implementation of the strategic
plan to streamline the Company. The charge comprised severance and other
benefit costs incurred from staff reductions, related consulting fees, and the
costs of implementing other efficiencies under the plan.
Reorganization Income and Costs
In accordance with the Reorganization Statement, income and costs directly
related to the reorganization have been segregated and are separately disclosed.
The major components are as follows:
<TABLE>
<CAPTION>
Period Ended
--------------
October 3, 1992
(In millions) (35 Weeks)
- ------------------------------------------------------------
<S> <C>
Adjustments to fair value $906.4
Provision for settlement of disputed claims (8.5)
Professional fees and other expenditures
directly related to the Filing (13.8)
------
$884.1
======
</TABLE>
The adjustments to fair value reflected the effects of the revaluation of
assets and liabilities in accordance with the Reorganization Statement. These
adjustments included the $283.4 million write-up of fixed assets, the net
increase of $3.5 million in other balance sheet items and the elimination of the
remaining $619.5 million accumulated deficit in shareholders' equity.
The provision for settlement of disputed claims represented management's
estimate of the net amount required to cover all outstanding disputed claims
included in liabilities subject to settlement based on facts and circumstances
at that time.
43
<PAGE>
Gain on Debt Discharge
The gain on debt discharge reflected the conversion of $600.0 million of
liabilities subject to settlement into $276.0 million of shareholders' equity
resulting in a $324.0 million gain. The gain is presented net of write-offs and
costs associated with the repayment of borrowings on the Effective Date.
Interest Expense, Net
The components of interest expense are as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------- ------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In millions) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest on total debt $ 86.2 $71.3 $24.9 $54.1
Imputed interest on capitalized
lease obligations 4.2 4.4 1.6 3.4
Capitalized interest (2.8) (1.4) (.5) (.4)
Amortization of debt
issuance costs 10.9 8.3 2.6 4.3
Commitment fees 1.6 1.5 .8
Other .8 .8 .2 (1.2)
------ ----- ----- -----
Interest expense, net $100.9 $84.9 $29.6 $60.2
====== ===== ===== =====
</TABLE>
Interest payments, net of amounts capitalized, were $58.9 in 1994, $63.8
million in 1993, $34.0 million in the seventeen week period ended January 30,
1993, and $32.8 million in the thirty-five week period ended October 3, 1992.
As a result of the Filing, interest payments during bankruptcy were limited
to amounts due under the Post-petition Credit Agreement, the Interim Receivables
Facility (during its existence), the Post-petition Receivables Securitization
Facility, and the interest element of capital lease payments made. During
bankruptcy, interest continued to accrue on the Company's secured mortgage debt
but no payments were made. Both the accrual of interest and amortization of
debt issuance costs on the Company's subordinated debt ceased at the Filing.
Unaccrued interest on the subordinated debt amounted to $29.2 million in the
thirty-five weeks ended October 3, 1992. In accordance with the POR, the
liability for such unaccrued interest was cancelled with no payment due.
Commitment fees totalling $1.8 million in the thirty-five week period ended
October 3, 1992 were included in selling, general and administrative expenses.
Such fees are reported as a component of interest expense for periods subsequent
to the Effective Date.
44
<PAGE>
Income Taxes
The $.2 million tax provision for the current year ended January 28, 1995
reflects state franchise taxes not measured by or based upon income. The tax
effect of the current year loss was offset by an addition to the SFAS 109
valuation allowance and, accordingly, no income tax provision was recorded.
Similarly, no income tax provision was recognized for the year ended January 29,
1994.
Income taxes for 1992 were required to be separately computed for the pre-
and post-reorganization periods. The $6.8 million tax benefit recognized for
the thirty-five week period ended October 3, 1992 reflects the reversal of
certain tax reserves on favorable resolution of income tax audits for tax years
through July 1990.
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------ ------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In millions) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current
Federal $ $ $ $ (6.8)
State .2 .1
---------- ----------- ----------- ----------
.2 -- .1 (6.8)
---------- ----------- ----------- ----------
Deferred
Federal (2.6) 11.6
State 2.6 4.9
---------- ----------- ----------- ----------
-- -- 16.5 --
---------- ----------- ----------- ----------
Income tax expense (benefit) $ .2 $ -- $ 16.6 $ (6.8)
========== =========== =========== ==========
</TABLE>
The limited ability to utilize net operating loss carryforwards in certain
periods is reflected in the following analysis of the effective income tax rate
reconciliation and in the composition of deferred income tax liability.
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------ ------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(Percent of pre-tax earnings) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal income tax at
statutory rate (35.0)% (35.0)% 34.0% (34.0)%
State income taxes 2.7 8.4
Losses for which no benefit
is recognized 35.0 32.3 34.0
Adjustments to taxes
previously recorded (.8)
Other, net .4 (.2)
---------- ----------- ----------- ----------
Effective income tax rate .4% --% 42.2% (.8)%
========== =========== =========== ==========
</TABLE>
45
<PAGE>
In the following table of components of the net deferred tax liability,
adjustments to the valuation allowance offset the benefits related to losses
from operations.
<TABLE>
<CAPTION>
January 28, January 29,
(In millions) 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Employee benefits $ 54.2 $ 60.7
Unscheduled claims 3.8 4.9
Short-period loss 6.4 8.5
Accounts receivable 8.4 7.6
Restructuring reserves 1.0 5.0
Earthquake 17.9 3.4
Loss carryforwards 210.3 165.9
Credit carryforwards 11.5 7.9
Other 7.1 8.2
------- -------
Gross deferred tax asset 320.6 272.1
------- -------
Property and equipment (218.9) (194.7)
Inventories (51.4) (36.8)
Other (9.2) (9.6)
------- -------
Gross deferred tax liability (279.5) (241.1)
SFAS 109 valuation allowance (56.0) (45.9)
------- -------
Net deferred tax liability $ (14.9) $ (14.9)
======= ========
</TABLE>
The estimated federal and California net operating loss carryforwards of
$619.0 million and $261.0 million, respectively, expire in years 2004 through
2009, and 1996 through 2002. As of the bankruptcy Emergence Date, the Company
experienced a change of ownership which may have the effect of restricting the
Company's ability to utilize losses. The California net operating loss
carryforward period was legislatively reduced to five years effective for losses
generated in and subsequent to 1993. This change may further restrict the
Company's ability to utilize its loss carryforwards.
The federal and California credit carryforwards of $3.6 million and $6.9
million, respectively, expire in years 2002 through 2005, and 2007 through 2009.
The federal alternative minimum tax credit carryforward of $1.0 million carries
over indefinitely.
Tax payments were $.4 million in 1994, $.2 million in 1993, $.2 million and
$.1 million in the seventeen and thirty-five week periods comprising the fifty-
two week period ended January 30, 1993.
46
<PAGE>
Accounts Receivable and Credit Operations
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
January 28, January 29,
(In millions) 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Customer receivables $635.9 $578.3
Other receivables 47.9 66.3
------ ------
683.8 644.6
Less allowance for doubtful accounts (19.0) (17.2)
------ ------
Accounts receivable, net $664.8 $627.4
====== ======
</TABLE>
Other receivables included estimated earthquake insurance recoveries of $25.0
million as of January 28, 1995 and $50.4 million as of January 29, 1994.
Selected credit operations information is as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------- ------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(52 weeks) (52 weeks) (17 weeks) (35 weeks)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Credit sales as a percent of
gross sales 49.0% 51.7% 52.7% 52.0%
Uncollectible account losses,
net of recoveries, as a
percent of credit sales 2.2% 2.5% 2.2% 3.6%
</TABLE>
The Company's proprietary credit card penetration has eroded 3.0% from 52.0%
of gross sales in the thirty-five week period ended October 3, 1992 to 49.0% in
the current year. In part, this reflects the impact of the Company's
approximately 85% sales concentration in California which continues to
experience economic weakness, resulting in lower levels of consumer confidence
and decreased total credit sales. In addition, it reflects the wider use of
third party bank cards. Current year write-offs at 2.2% of credit sales
improved from 2.5% for the fifty-two week period ended January 29, 1994
reflecting improved collections and the effect of easing minimum payment
requirements. Since the decline in write-offs is partially attributable to the
temporary favorable impact of reduced minimum payments, the allowance for
doubtful accounts continues to be carried at 3.0% of customer receivables
outstanding.
Inventories
The LIFO method of accounting resulted in a credit to cost of goods sold of
$3.5 million in the current year compared to credits of $8.9 million in 1993 and
$1.9 million for the seventeen weeks ended January 30, 1993 and a charge of $7.1
million for the thirty-five weeks ended October 3, 1992. If all inventories had
been valued on the first-in, first-out ("FIFO") basis, they would have been
lower at each period end by $14.3 million at January 28, 1995, $10.8 million at
January 29, 1994 and $1.9 million at January 30, 1993.
In accordance with the principles of fresh start reporting, merchandise
inventories at October 3, 1992 were restated at fair market value, resulting in
elimination of the LIFO reserve at that date.
Leases
Certain Company operations are conducted in leased properties, which include
retail stores, distribution centers, and office facilities. Leases are
generally for periods of up to thirty years, with renewal options for
substantial periods. Leases are generally at fixed rental rates, except that
certain leases provide for additional rental charges based on sales in excess of
predetermined levels.
47
<PAGE>
Rent expense for each period is as follows:
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------- ------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In millions) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Minimum rent $21.1 $21.4 $ 8.2 $18.0
Rent based on sales .6 .7 .4 .4
----- ----- ----- -----
Total rent expense $21.7 $22.1 $ 8.6 $18.4
===== ===== ===== =====
</TABLE>
The following table shows the future minimum obligations under leased
commitments in effect at January 28, 1995:
<TABLE>
<CAPTION>
Capitalized Operating
(In millions) Leases Leases
- --------------------------------------------------------------------------
<S> <C> <C>
1995 $ 7.1 $ 22.8
1996 6.9 23.1
1997 6.9 24.8
1998 6.6 24.8
1999 6.6 24.8
Thereafter 42.9 277.5
------ ------
Total future minimum obligations $ 77.0 $397.8
====== ======
Present value, including $3.1 million current
portion of capital lease obligations $ 44.7 $164.7
====== ======
</TABLE>
Property and Equipment, Net
Property and equipment was adjusted to fair market value at October 3, 1992.
The revaluation resulted in a net increase in property and equipment of $283.4
million, including the elimination of all accumulated depreciation.
Property and equipment is as follows:
<TABLE>
<CAPTION>
January 28, January 29,
(In millions) 1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Land $121.7 $121.7
Buildings and improvements 376.4 358.8
Leasehold improvements 70.9 57.4
Fixtures and equipment 209.1 144.9
Construction in progress 24.4 9.9
Leased property under capital leases,
primarily buildings 38.3 38.5
Revalued leases 112.5 112.5
------ ------
953.3 843.7
------ ------
Less accumulated depreciation and
amortization 65.0 33.1
------ ------
Property and equipment, net $888.3 $810.6
====== ======
</TABLE>
48
<PAGE>
Capital expenditures in the past three years have been focused on
modernization of stores and support facilities. Expenditures include
renovating, expanding, and re-equipping existing stores and expenditures for
improvements and fixtures for administrative facilities and distribution
centers.
Depreciation expenses included in selling, general and administrative
expenses were $32.1 million in 1994, $25.7 in 1993, $8.0 million for the
seventeen week period ended January 30, 1993, and $21.5 million for the thirty-
five week period ended October 3, 1992.
Credit Facility
Working capital financing is provided under a General Electric Capital
Corporation ("GE Capital") facility (the "Credit Facility") which matures
October 8, 1996. The facility provides for up to $225.0 million in working
capital borrowings secured on a first priority basis by substantially all of the
Company's tangible and intangible personal property. Interest is computed at a
rate equivalent to one and one-half percent above the GE Capital index rate. In
addition, the facility includes a commitment fee of one-half percent on the
unused portion of the credit line and requires the payment of administrative
fees and line-of-credit fees equivalent to 2.375 percent of the face amount of
letter-of-credit obligations. In addition, the facility includes restrictions
on capital expenditures and the payment of dividends and includes covenants for
material adverse changes, minimum aggregate net cash flow and earnings before
interest, taxes, depreciation and amortization. As of January 28, 1995, there
were $11.7 million in advances and $48.7 million in letters of credit
outstanding under the facility.
Long-Term Debt
<TABLE>
<CAPTION>
January 28, January 29,
(In millions) 1995 1994
- -----------------------------------------------------------------------
<S> <C> <C>
Receivables based financing
Receivables facility $509.1 $332.2
Subordinated asset backed notes
7.55 percent notes due 1999 38.0
11.0 percent notes due 1999 26.0
------ ------
$573.1 $332.2
====== ======
Other secured long-term debt
Term loans due in 1999 (6.75 percent at
January 28, 1995 and 3.875 percent at
January 29, 1994) $ 89.7 $ 89.7
9.0 percent notes due 1997-2002 77.1 68.5
9.9 percent notes due 1995-2010 9.9 9.4
10.67 percent notes due 1997-2002 344.0 344.0
Other notes (8.25 percent to 9.9 percent at
January 28, 1995 and January 29, 1994) 5.4 6.3
------ ------
526.1 517.9
Less current portion of long-term debt 3.6 .6
------ ------
$522.5 $517.3
====== ======
6.25 percent convertible senior subordinated
notes due 2000 $143.8 $143.8
====== ======
</TABLE>
Up to $575.0 million in receivables based financing is provided under a
receivables facility provided by GE Capital. The GE Capital facility provides
for Blue-Hawk Funding Corporation, a limited purpose corporation not affiliated
with the Company, to acquire interests in the Company's credit card receivables
and pay for these interests through the issuance of commercial paper.
Outstanding borrowings under the facility, which are secured by the Company's
customer receivables, accrue interest at the A-1/P-1 commercial paper rate plus
1.08%. At January 28, 1995, the interest rate for borrowings under the facility
was 7.3%.
49
<PAGE>
A private placement of an additional $64.0 million in receivables based
financing is provided under subordinated asset backed notes (the "Asset Backed
Notes") completed in September 1994. The notes were issued in two classes:
$38.0 million of 7.55% Class A notes due in 1999 and $26.0 million of 11.0%
Class B notes due 1999. The notes are redeemable at the option of the Company,
in whole or in part, on each interest payment date on or after October 15, 1994
and on October 8, 1996 at a redemption price combining principal, accrued
interest, unpaid interest, and a make-whole premium.
On December 31, 1991,the Company and Prudential concluded the Prudential
Settlement Agreement with respect to the $344.0 million of notes (the "Existing
Notes") due 1993 to 1997. The Prudential Settlement Agreement, which became
effective on October 8, 1992, extended the maturity of the notes for five years
to October 2002. In addition, previously accrued and unpaid interest and
certain other charges totalling $53.4 million were capitalized into a 9 percent
note (the "Accrued Interest Note"). Principal payments on the Accrued Interest
Note will commence in November 1997, continuing in equal monthly installments
through October 2002. Although the Existing Notes continued to accrue interest
at the blended contract rate of 10.67 percent during the first two years
following the Emergence Date, the Company was only required to pay interest at a
lower rate of 7.5 percent (the "Pay Rate"). The difference between the Pay Rate
and the blended contract rate amounted to $23.8 million and was capitalized
under the terms of the Accrued Interest Note with principal payments commencing
in November 1997 and continuing in equal installments over the remaining life of
the notes.
On July 28, 1992, the Company and Bank of America NT&SA ("BofA") concluded
the BofA Settlement Agreement with respect to the $89.7 million of term loans
due in 1995. The BofA Settlement Agreement, which became effective on October 8,
1992, extends the maturity of the term loans for four years to June 1999. In
accordance with the BofA Settlement Agreement, interest from October 8, 1992
through June 30, 1995, will be payable at LIBOR plus .625 percent and thereafter
at LIBOR plus 1.25 percent.
On December 21, 1993, the Company issued and sold $143.75 million of 6.25%
Convertible Senior Subordinated Notes due December 31, 2000 (the "Convertible
Notes"). Prior to the maturity date, the notes are convertible at the option of
the holder into shares of Common Stock, at a conversion price of $12.19 per
share, subject to adjustment in certain events. The notes are redeemable at the
option of the Company, in whole or in part, at any time on and after December
31, 1998, at a redemption price equal to 100% of the principal amount thereof,
together with accrued and unpaid interest. The notes do not provide for any
sinking fund. Upon a Change in Control (as defined in the Registration
Statement), holders of the Convertible Notes will have the right, subject to
certain restrictions and conditions, to require the Company to purchase all or
any part of the notes at the principal amount thereof together with accrued and
unpaid interest to the date of purchase.
Principal maturities of other secured long-term debt payable over the next
five years are $3.6 million in 1995, $5.4 million in 1996, $9.8 million in 1997,
$21.6 million in 1998, $95.4 million in 1999, with $390.3 million due
thereafter. This debt is secured by property with a net carrying value of
$491.9 million.
The Company's debt agreements include restrictions on capital expenditures
and covenants for minimum aggregate net cash flow and earnings before interest,
taxes, depreciation and amortization.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107") requires
the disclosure of fair value of financial instruments for which it is practical
to estimate that value. The Company's various long term debt liabilities
constitute the only financial instruments with a potential carrying value
different from fair value. Each class of financial instrument requires
different methods of estimating fair value as described below.
Receivables based financing - Financing under the receivables facility of
$509.1 million bear interest at floating rates which reflect short-term
market rate changes and are assumed to have a book value that approximates
fair value. The $64.0 million of asset backed notes were issued in a
September 1994 private placement and their fair value is assumed not to have
changed significantly at year-end.
50
<PAGE>
Other Secured long-term debt - Management believes that no practicable method
exists for establishing a current fair value for the $526.1 million secured
long-term debt because arrangements with similar terms would not have been
negotiable outside of bankruptcy proceedings. Discounting assumptions are
likewise not ascertainable as each lender has a unique perception of fair
value depending on their unique assessment of credit risk, their targeted
investment goals and their relationship to the Company. Except for the $89.7
million of borrowings which bear interest at LIBOR plus 0.625%, all other
borrowings are at fixed rates from 8.25% to 10.67%.
Convertible Senior Subordinated Notes - These notes were issued in a private
placement during December 1993. Since these notes are privately held, there
is no readily ascertainable market value for these notes. The fair value of
these notes cannot be compared to other publicly traded securities because
the notes are unique with respect to the conversion price, relationship to
stock price, maturity date, and interest rate.
Retirement Plans
The Company has two qualified noncontributory pension plans covering
substantially all employees. Employees who have completed one year of
employment, are at least 21 years of age, and are not covered by a collectively
bargained pension plan, are covered by the plans and become vested for benefit
purposes after completing five years of employment with the Company. The
Company also has unfunded nonqualified pension plans covering certain employees
and directors. The Company contributes at least the actuarially determined
minimum amount necessary to fund participants' benefits in accordance with the
requirements of the Employee Retirement Income Security Act of 1974.
Periodically, changes in the business environment cause management to revise
significant actuarial assumptions used in the development of the pension plans
funded status and for computation of pension expense. As of January 29, 1994,
the discount factor used to compute the present value of pension liabilities was
reduced from 8.5 percent to 7.25 percent, reflecting the reduction in long-term
rates experienced during 1993. Lower actual and expected rates of inflation
also resulted in reductions to the long-term rate of return on assets from 9.5
percent to 9.25 percent and in the projected rate of compensation increases from
5.0 percent to 4.5 percent. In fiscal 1994, a market reversal of long-term
interest rate trends caused the Company to revise the discount factor back to
8.5 percent, effective January 28, 1995.
The assumption changes made effective January 29, 1994 resulted in a $27.1
million increase to the pension liability at that date, of which $14.3 million
was charged directly to equity as a separate component of the Total Accumulated
Deficit. The January 28, 1995 revision to the discount rate resulted in a $28.5
million decrease in the current year end pension liability of which $8.0 million
was credited directly to equity as a separate component of the Total Accumulated
Deficit.
51
<PAGE>
The following table summarizes pension expense and funded status of the
plans, as determined by the Company's actuary, together with an analysis of the
significant actuarial assumptions used:
<TABLE>
<CAPTION>
Year Ended Period Ended
------------------------- --------------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In millions except percentage information) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost $ 4.5 $ 3.8 $ 1.3 $ 2.7
Interest cost 15.2 14.6 4.7 9.5
Actual net return on plan assets 2.8 (13.1) (4.9) (3.6)
Net amortization and deferral (11.8) 3.6 2.0
------- ------- ------- -------
Net pension expense $ 10.7 $ 8.9 $ 3.1 $ 8.6
======= ======= ======= =======
Funded status of plans
Accumulated benefit obligation
Vested benefits $(188.9) $(203.7) $(167.1) $(166.1)
Nonvested benefits (2.3) (3.7) (4.0) (4.9)
------- ------- ------- -------
(191.2) (207.4) (171.1) (171.0)
Effect of projected compensation
increase (8.8) (13.2) (11.1) (12.1)
------- ------- ------- -------
Projected benefit obligation (200.0) (220.6) (182.2) (183.1)
Plan assets at fair value 109.3 114.0 102.9 97.4
------- ------- ------- -------
Funded status (90.7) (106.6) (79.3) (85.7)
Unrecognized net (gain) loss 14.5 27.2 (4.0)
Additional minimum liability recognized
under SFAS No. 87 (6.7) (14.8)
------- ------- ------- -------
Pension liability $ (82.9) $ (94.2) $ (83.3) $ (85.7)
======= ======= ======= =======
Significant actuarial assumptions
Discount rate 8.5% 7.25% 8.5% 8.5%
Long-term rate of return on plan
assets 9.25 9.25 9.5 9.5
Rate of future compensation
increases 4.5 4.5 5.0 5.0
</TABLE>
As of January 28, 1995, the $90.7 million unfunded projected benefit
obligation consisted of $56.2 million relating to the qualified plans and $34.5
million relating to the nonqualified plans.
Certain retired employees also receive health care and life insurance
benefits which are subsidized to varying degrees by the Company. The post-
retirement medical benefits are available only to employees who had retired or
were eligible to retire by August 1, 1991 and who had met all other plan
eligibility requirements. A life insurance benefit of $1,000 per employee is
provided by the Company to all eligible current and retired employees.
Additional life insurance benefits are also provided to a select group of
executives. The executive life benefits were amended effective January 1993, to
reduce the amount of coverage post-retirement, based on age. The amendment
which applies to both current retirees and eligible plan participants resulted
in a $1.9 million reduction to the January 30, 1993 accumulated benefit
obligation. This gain is being amortized as a reduction in post-retirement
benefit expense on a straight line basis over a ten year period representing the
average service period to full eligibility for this benefit.
52
<PAGE>
The following table summarizes the expense and the accumulated benefit
obligation for these plans.
<TABLE>
<CAPTION>
Year Ended Period Ended
-------------------------- -----------------------
January 28, January 29, January 30, October 3,
1995 1994 1993 1992
(In millions) (52 weeks) (52 weeks) (17 weeks) (35 weeks)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Medical Plan Benefits
- ---------------------
Interest cost representing net
periodic plan expense $ 1.9 $ 2.2 $ .7 $ 1.5
====== ====== ====== ======
Accumulated benefit obligation:
Retirees $(22.1) $(25.2) $(24.7) $(24.8)
Fully eligible active plan
participants (.8) (1.0) (1.2) (1.2)
Other active plan participants (.1) (.1) (.1) (.1)
Unrecognized net (gain) loss (2.5) .6 .1
------ ------ ------ ------
Accrued benefit liability $(25.5) $(25.7) $(25.9) $(26.1)
====== ====== ====== ======
Life Insurance Benefits
- -----------------------
Net periodic plan expense:
Service cost $ .1 $ .1 $ $ .2
Interest cost .4 .4 .2 .3
Amortization of prior service
gain (.2) (.2)
------ ------ ------ ------
$ .3 $ .3 $ .2 $ .5
====== ====== ====== ======
Accumulated benefit obligation
at period end:
Retirees $ (3.9) $ (4.4) $ (3.0) $ (4.0)
Fully eligible active plan
participants (.4) (.5) (.6) (1.2)
Other active plan participants (.2) (.3) (.4) (.7)
Unrecognized prior service
gain (1.5) (1.7) (1.9)
Unrecognized net (gain) loss (.3) .8
------ ------ ------ ------
Accrued benefit liability $ (6.3) $ (6.1) $ (5.9) $ (5.9)
====== ====== ====== ======
</TABLE>
The postretirement medical and life insurance benefits are provided under
nonqualified plans. The accumulated benefit obligation represents the present
value of expected future payments discounted at 8.5 percent. Medical inflation
has been projected at a blended rate of eleven percent per annum for fiscal
1995, declining by 2002 to a long term rate of approximately six and one-half
percent per annum. The effect of a one-percentage-point increase in the assumed
medical cost trend rate would be to increase the net periodic medical plan
expense by $.2 million and to increase the related accumulated benefit
obligation by $2.3 million.
The Company's 401(k) Savings and Investment Plan is available to
substantially all employees who have completed one year of service. For
eligible participant contributions made after March 1993, the Company provides a
25 percent matching contribution in the form of newly issued shares of Company
common stock.
At January 28, 1995, the plan held .5 million shares of Common Stock
representing 1.1 percent of common stock outstanding or still issuable under the
POR and .5 million shares of preferred stock representing 55.7 percent of
preferred shares outstanding or still issuable under the POR.
53
<PAGE>
Employee Stock Incentive Plans
The Company has a long-term incentive compensation plan designed to attract
and retain top-quality management. The plan, among other things, provides for
the issuance of stock options at an exercise price that is generally not less
than the market value of the common stock on the date of grant. During the
fiscal year ended January 28, 1995, 1.1 million options were awarded and 82,466
options were exercised under the plan. As of January 28, 1995, 2.4 million
options were outstanding and exercisable at exercise prices ranging from $9.125
to $14.00. The options, which vest in one-third increments over three years,
are exercisable over a ten year period, generally beginning one year from the
date of grant.
Contingencies
Notwithstanding the confirmation and effectiveness of the POR, the Bankruptcy
Court continues to have jurisdiction to, among other things, resolve disputed
prepetition claims against the Company and to resolve other matters that may
arise in connection with or relate to the POR.
Pursuant to the POR, the Company was required to distribute .046 shares of
Common Stock for each $1.00 of allowed general unsecured claims. The POR
estimated the total amount of such claims to be approximately $600.0 million,
against which the Company reserved 27.6 million shares of Common Stock. As of
January 28, 1995, approximately $28.6 million of disputed claims remained
outstanding. Management believes such claims will ultimately be allowed upon
settlement or litigation for approximately $10.0 million, for which the Company
has reserved approximately .8 million shares which are included in the Company's
calculation of its outstanding Common Stock. Management believes that reserved
shares of Common Stock will be sufficient to meet the Company's obligations to
such claim holders. If all disputed claims were allowed in full, such claim
holders would be entitled to a total of 1.3 million shares of Common Stock,
compared to the .8 million shares reserved, resulting in a dilution to holders
of outstanding Common Stock of approximately 1%. Management regularly evaluates
the status of remaining disputed claims and claim settlement experience and
accordingly would adjust its estimate of the number of shares to be reserved for
issuance with respect to such claims if necessary.
The Company is engaged in an ongoing effort to resolve these remaining
disputed claims. Because of the disputed nature of these claims and the delays
associated with litigation generally, Management anticipates that the settlement
of these claims is likely to occur over an extended period of time.
The Company is involved in various other legal proceedings incidental to the
normal course of business. Management does not expect that any of such other
proceedings will have a material adverse effect on the Company's financial
position or results of operations.
Preferred Stock and Warrants
Pursuant to the POR, shares of Series A exchangeable preferred stock, par
value $.01 ("Preferred Stock") or warrants to purchase shares of Common Stock
("Warrants") were issuable to existing holders of Old Common Stock at a rate of
.084 for each share of Old Common Stock held. The Company does not intend to
have the preferred stock listed for trading on any national securities exchange
or other national automated quotation system. The Warrants have been registered
and listed for trading on the New York and Pacific Stock Exchanges.
At the option of the holders of Preferred Stock, shares of Preferred Stock
are exchangeable on a one-for-one basis to Warrants to purchase Common Stock.
During 1994, approximately 96,000 shares of Preferred Stock were converted to
warrants. The Company does not expect ever to pay a dividend with respect to
the Preferred Stock. In the event of dissolution, liquidation, or winding-up,
the holders of Preferred Stock are entitled to a liquidation preference of $0.25
per share from assets remaining after the full satisfaction of the prior rights
of creditors. As of January 28, 1995, the authorized Preferred Stock of the
Company consisted of twenty-five million shares, $.01 par value, of which .8
million shares were issued and outstanding.
54
<PAGE>
Each Warrant entitles the holder any time prior to the close of business on
October 8, 1999, to purchase a share of Common Stock at a purchase price equal
to $17.00 per share, subject to adjustment from time to time. In the event the
market price of the common stock equals or exceeds $25.50 per share for 30
consecutive trading days, the Board of Directors, after the passage of 30 months
from October 8, 1992, may, upon 75 days notice, shorten the exercise period to
end on a date earlier than October 8, 1999.
Common Stock
Pursuant to the POR, effective October 8, 1992, all existing shares of Old
Common Stock were converted into 2.4 million shares of Common Stock and a
combined total of 2.5 million in warrants or shares of convertible preferred
stock. Unsecured claims were converted into approximately 27.6 million shares
of new Common Stock. In addition, in accordance with the POR Zell/Chilmark and
an institutional investor each acquired an additional 2.5 million shares of new
common stock at a price of $10.00 per share.
In addition, shortly after the Effective Date, 80,000 shares of Common Stock
were issued as bonus compensation to certain professionals engaged in the
Chapter 11 proceedings, and a total of approximately 134,000 shares of Common
Stock were issued to employees. In December 1992, all eligible employees each
received ten shares of Common Stock as a result of this stock issuance.
In July 1993, the Company raised net proceeds of $147.5 million through a
public offering of 11.45 million shares of Common Stock.
The accompanying financial statements reflect the issuance of all shares of
Common Stock, preferred stock, and warrants contemplated by the POR. As of
January 28, 1995, up to 1.0 million shares of Common Stock, .1 million shares of
Preferred Stock, and fewer than .1 million Warrants remain issuable under the
POR to satisfy outstanding claims and conversion of unpresented shares of Old
Common Stock. At January 28, 1995, the Company's authorized common stock
consisted of 100 million shares, $.01 par value of which 5.9 million shares were
reserved under the employee stock incentive plan (.2 million options exercised
to date), 1.5 million shares were reserved for purchase by and contribution to
the Company's 401(k) Savings & Investment Plan which currently holds .5 million
shares and 2.5 million shares were reserved for purchase by warrant holders of
which there have been no purchases to date.
The Company's ability to pay dividends on its common stock is restricted
pursuant to the terms of its Credit Facility and the BofA Settlement Agreement.
As a result, the Company does not expect to pay common stock dividends for the
foreseeable future.
55
<PAGE>
BROADWAY STORES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Balance Additions Accounts Balance
At Charged to Charged At
Beginning Costs and off Less End
(In thousands) of Period Expenses Recoveries Other of Period
- ------------------------------------ ---------- ---------- ---------- ----- ---------
<S> <C> <C> <C> <C> <C>
Fiscal year ended January 28, 1995.. $17,224 $26,383 $24,615 $ $18,992
======= ======= ======= ===== =======
Fiscal year ended January 29, 1994.. $17,300 $29,545 $29,621 $ $17,224
======= ======= ======= ===== =======
Seventeen week period ended
January 30, 1993
Allowance for doubtful
accounts.......................... $14,583 $14,133 $11,416 $ $17,300
======= ======= ======= ===== =======
Thirty-five week period ended
October 3, 1992
Allowance for doubtful
accounts.......................... $16,605 $22,277 $25,271 $ 972/(1)/ $14,583
======= ======= ======= ===== =======
</TABLE>
/(1)/ Adjusted to fair value in accordance with the Reorganization Statement.
56
<PAGE>
QUARTERLY INFORMATION (unaudited)
<TABLE>
<CAPTION>
Period Ended
----------------------------------------------------------------------
April 30, July 30, October 29, January 28, January 28,
1994 1994 1994 1995 1995
(Dollar amounts in millions) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Sales.................................. $ 431.1 $ 457.0 $ 474.9 $ 723.8 $2,086.8
Percent change from prior year
Total sales basis.................... (2.6) (3.8) 1.1 2.6 (.3)
Comparative store sales basis........ 4.7 1.2 3.9 2.8 3.1
Finance charge revenue................. 22.5 22.4 22.2 24.2 91.3
Cost of goods sold, including occupancy
and buying costs/(1)/................. 319.4 338.3 355.3 547.1 1,560.0
Selling, general and administrative
expenses.............................. 129.7 130.5 134.7 159.4 554.4
Interest expense, net.................. 22.5 23.5 25.5 29.4 100.9
------- ------- ------- ------- --------
Earnings (loss) from operations before
income taxes.......................... (18.0) (12.9) (18.4) 12.1 (37.2)
Income tax expense/(2)/................ (.2) (.2)
------- ------- ------- ------- --------
Net earnings (loss).................... $ (18.0) $ (12.9) $ (18.4) $ 11.9 $ (37.4)
======= ======= ======= ======= ========
Net earnings (loss) per common share... $ (.38) $ (.28) $ (.39) $ .25 $ (.80)
======= ======= ======= ======= ========
</TABLE>
/(1)/ As a result of the seasonal nature of the Company's business, the Company
follows the practice of allocating certain fixed buying and occupancy
costs among quarters within the fiscal year in proportion to projected
quarterly sales results. This process results in a higher portion of
yearly fixed buying and occupancy costs being allocated to the fourth
quarter.
/(2)/ For fiscal 1994, the Company recorded a $.2 million charge for state
franchise taxes in the fourth quarter.
57
<PAGE>
QUARTERLY INFORMATION (unaudited)
<TABLE>
<CAPTION>
Period Ended
---------------------------------------------------------------------
May 1, July 31, October 30, January 29, January 29,
1993 1993 1993 1994 1994
(Dollar amounts in millions) (13 weeks) (13 weeks) (13 weeks) (13 weeks) (52 weeks)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993
Sales................................... $ 442.5 $ 474.9 $ 469.7 $ 705.6 $2,092.7
Percent change from prior year
Total sales basis..................... 2.0 (1.3) (4.2) (3.7) (2.1)
Comparative store sales basis......... 5.2 1.3 (.8) 1.3 1.6
Finance charge revenue.................. 21.2 19.9 18.9 21.5 81.5
Cost of goods sold, including occupancy
and buying costs/(1)/.................. 329.5 360.3 360.0 539.3 1,589.1
Selling, general and administrative
expenses............................... 129.2 130.3 133.9 157.8 551.1
Charge for non-recurring costs/(//2)/... 25.0 20.0 45.0
Interest expense, net................... 22.3 21.7 19.8 21.1 84.9
------- ------- ------- ------- --------
Earnings (loss) from operations before
income taxes........................... (17.3) (42.5) (25.1) (11.1) (95.9)
Income tax benefit (expense)/(3)/....... 6.9 (6.9)
------- ------- ------- ------- --------
Net loss................................ $ (10.4) $ (42.5) $ (25.1) $ (18.0) $ (95.9)
======= ======= ======= ======= ========
Net loss per common share............... $ (.29) $ (1.12) $ (.54) $ (.38) $ (2.30)
======= ======= ======= ======= ========
</TABLE>
/(1)/ As a result of the seasonal nature of the Company's business, the Company
follows the practice of allocating certain fixed buying and occupancy
costs among quarters within the fiscal year in proportion to projected
quarterly sales results. This process results in a higher portion of
yearly fixed buying and occupancy costs being allocated to the fourth
quarter.
/(2)/ Non-recurring costs include $25.0 million in the second quarter and $5.0
million in the fourth quarter for one-time costs to be incurred in the
implementation of the strategic plan to streamline the Company. The
fourth quarter also includes a charge of $15.0 million to cover January
1994 earthquake related losses in excess of insurance proceeds.
/(3)/ For fiscal 1993, the Company recorded a zero net tax benefit comprised of
a federal deferred tax benefit of $2.6 million offset by a state deferred
tax provision of $2.6 million. The federal tax benefit was limited to the
$2.6 million beginning of the year federal deferred tax liability. The
state tax provision resulted from a California tax law change enacted in
late 1993 which reduced the carryover period for California net operating
loss carryforwards from fifteen years to five years. These adjustments
were reflected in the fourth quarter of the year, resulting in the
elimination of the first quarter benefit which was established on the
basis of a 40% statutory rate applied to pretax results.
58
<PAGE>
BROADWAY STORES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company;
incorporated by reference to Exhibit 4.2 to the Form S-8 filed
February 17, 1993.
3.2 Bylaws of the Company; incorporated by reference to Exhibit 3.2 to
the Form 10-K for the year ended January 30, 1993.
4.1 Form of Warrant Agreement; incorporated by reference to
Exhibit 4.1 to the Form 10-K for the year ended January 30, 1993.
4.2 Form of Certificate of Designation, Preferences and Rights of
Series A Exchangeable Preferred Stock of the Company; incorporated by
reference to Exhibit 4.3 to the Form S-8 dated February 17, 1993.
4.3 Loan Agreement dated as of August 27, 1987, among The Prudential
Insurance Company of America, Carter Hawley Hale Stores, Inc. and
Thalhimer Brothers, Inc. with respect to $350,000,000; incorporated
by reference to Exhibit 4.5 to the Form 10-K for the twenty-six weeks
ended August 1, 1987.
4.4 Amendment to Loan Agreement and Notes dated as of June 30,
1988 among Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc.,
and The Prudential Insurance Company of America; incorporated by
reference to Exhibit 4.4 to the Form 10-K for the year ended February
1, 1992.
4.5 Amendment to Loan Agreement, Notes and License Agreement dated as of
August 3, 1990 among Carter Hawley Hale Stores, Inc., Thalhimer
Brothers, Inc., and The Prudential Insurance Company of America;
incorporated by reference to Exhibit 4.5 to the Form 10-K for the
year ended February 1, 1992.
4.6 Agreement and Release dated as of December 14, 1990 among
Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc., and the
Prudential Insurance Company of America; incorporated by reference to
Exhibit 4.6 to the Form 10-K for the year ended February 1, 1992.
4.7 Settlement Agreement dated as of December 31, 1991, among
Carter Hawley Hale Stores, Inc., The Prudential Insurance Company of
America, Zell/Chilmark Fund, L.P., and Z/C Subsidiary Corporation;
incorporated by reference to Exhibit 4.7 to the Form 10-K for the
year ended January 30, 1993.
4.8 Loan Modification Implementation Agreement and Amendment to
Loan Agreements, License Agreement and Other Loan Documentation by
and between Carter Hawley Hale Stores, Inc. and The Prudential
Insurance Company of America dated as of October 8, 1992;
incorporated by reference to Exhibit 4.17 to the Form 10-K/A No.1 for
the year ended January 30, 1993.
4.9 Amended and Restated Secured Promissory Note of Carter Hawley
Hale Stores, Inc. in favor of The Prudential Insurance Company of
America in the amount of $7,395,000.00 dated as of October 8, 1992;
incorporated by reference to Exhibit 4.18 to the Form 10-K/A No.1 for
the year ended January 30, 1993.
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.10 Amended and Restated Secured Promissory Note I of Carter
Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company
of America in the amount of $157,638,000.00 dated as of October 8,
1992; incorporated by reference to Exhibit 4.19 to the Form 10-K/A
No.1 for the year ended January 30, 1993.
4.11 Amended and Restated Secured Promissory Note II of Carter
Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company
of America in the amount of $19,875,000.00 dated as of October 8,
1992; incorporated by reference to Exhibit 4.20 to the Form 10-K/A
No.1 for the year ended January 30, 1993.
4.12 Amended and Restated Secured Promissory Note of Carter Hawley
Hale Stores, Inc. in favor of the Prudential Insurance company of
America in the amount of $159,092,000.00; incorporated by reference
to Exhibit 4.21 to the Form 10-K/A No.1 for the year ended January
30, 1993.
4.13 Accrued Interest Note of Carter Hawley Hale Stores, Inc. in
favor of The Prudential Insurance Company of America in the amount of
$53,350,000.00 (subjected to increase) dated as of October 8, 1992;
incorporated by reference to Exhibit 4.22 to the Form 10-K/A No.1 for
the year ended January 30, 1993.
4.14 Term Loan Agreement dated as of June 28, 1988, among Carter Hawley
Hale Stores, Inc., Thalhimer Brothers, Inc., the Banks Party thereto,
and Bank of America, as agent, with respect to $135,000,000;
incorporated by reference to Exhibit 4.8 to the Form 10-K for the
year ended July 30, 1988.
4.15 Modification Agreement dated as of November 28, 1988 among Bank of
America National Trust and Savings Association as Bank and Agent,
Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale
Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference
to Exhibit 4.8 to the Form 10-K for the year ended February 1, 1992.
4.16 First Amendment to Term Loan Agreement dated as of December 30, 1988
among Bank of America National Trust and Savings Association as Bank
and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter
Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated
by reference to Exhibit 4.9 to the Form 10-K for the year ended
February 1, 1992.
4.17 Second Amendment to Term Loan Agreement and Waiver dated as of May
31, 1989 among Bank of America National Trust and Savings Association
as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank,
Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.;
incorporated by reference to Exhibit 4.10 to the Form 10-K for the
year ended February 1, 1992.
4.18 Third Amendment to Term Loan Agreement dated as of July 26, 1989,
among Bank of America National Trust and Savings Association as Bank
and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter
Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated
by reference to Exhibit 4.11 to the Form 10-K for the year ended
February 1, 1992.
4.19 Fourth Amendment to Term Loan Agreement dated as of September 22,
1989 among Bank of America National Trust and Savings Association as
Bank and Agent, Barclays Bank PLC, Security Pacific National Bank,
Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.;
incorporated by reference to Exhibit 4.12 to the Form 10-K for the
year ended February 1, 1992.
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.20 Agreement and Release dated as of December 12, 1990 by and among Bank
of America National Trust and Savings Association as Bank and Agent,
Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale
Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference
to Exhibit 4.13 to the Form 10-K for the year ended February 1, 1992.
4.21 Settlement Agreement dated as of July 28, 1991 between Carter Hawley
Hale Stores, Inc. and Bank of America National Trust and Savings
Association; incorporated by reference to Exhibit 4.15 to the Form
10-K for the year ended January 30, 1993.
4.22 Amended and Restated Term Loan Agreement by and among the
Banks party thereto, Bank of America National Trust and Savings
Association as agent for Banks and Carter Hawley Hale Stores, Inc.,
dated as of October 8, 1992; incorporated by reference to Exhibit
4.23 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.23 Master Capitalized Interest Note in favor of Bank of America
National Trust and Savings Association as agent for certain banks in
the amount of $10,750,830.46 dated as of October 8, 1992;
incorporated by reference to Exhibit 4.24 to the Form 10-K/A No.1 for
the year ended January 30, 1993.
4.24 Master Principal Note in favor of Bank of America National
Trust and Savings Association as agent for certain banks in the
amount of $89,662,700.00 dated as of October 8, 1992; incorporated by
reference to Exhibit 4.25 to the Form 10-K/A No.1 for the year ended
January 30, 1993.
4.25 Stockholder's Agreement between Carter
Hawley Hale Stores, Inc. and First Plaza Group Trust, by its Trustee
Mellon Bank, N.A., dated as of January 25, 1993; incorporated by
reference to Exhibit 4.16 to the Form 10-K for the year ended January
30, 1993..
4.26 Waiver Agreement, dated as of May 13, 1993 by and between
Carter Hawley Hale Stores, Inc. and First Plaza Group Trust, by its
trustee Mellon Bank, N.A.; incorporated by reference to Exhibit 28.2
to Form S-3 filed May 14, 1993.
4.27 Waiver Agreement, dated as of December 8, 1993 by and between
Carter Hawley Hale Stores, Inc. and First Plaza Group Trust, by its
trustee Mellon Bank, N.A.; incorporated by reference to Exhibit 28.1
to Form S-3 filed December 8, 1993.
4.28 Receivables-Backed Credit Agreement among CHH Receivables, Inc., Blue
Hawk Funding Corporation and General Electric Capital Corporation, as
Agent; incorporated by reference to Exhibit 10.1 to the Form 10-K for
the year ended January 30, 1993.
4.29 Amendment No. 1 to Receivables-Backed Credit Agreement, dated
as of September 28, 1993, among CHH Receivables, Inc., Blue Hawk
Funding Corporation and General Electric Capital Corporation, as
Agent; incorporated by reference to Exhibit 4.1 to Form 8-K filed
September 13, 1994.
4.30 Amendment No. 2 to Receivables-Backed Credit Agreement, dated
as of September 13, 1994, among Broadway Receivables, Inc., Blue Hawk
Funding Corporation and General Electric Capital Corporation;
incorporated by reference to Exhibit 4.2 to Form 8-K filed September
13, 1994.
4.31 Assignment and Security Agreement among CHH Receivables, Inc., Blue
Hawk Funding Corporation, Cash Collateral Bank and General Electric
Corporation, as Agent, Letter of Credit Agent, Liquidity Agent and
Collateral Agent; incorporated by reference to Exhibit 10.2 to the
Form 10-K for the year ended January 30, 1993.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.32 Amended and Restated Assignment and Security Agreement dated
as of September 13, 1994 among Broadway Receivables, Inc. and Blue
Hawk Funding Corporation; incorporated by reference to Exhibit 4.3 to
Form 8-K filed September 13, 1994.
4.33 Receivables Purchase Agreement among Carter Hawley Hale Stores, Inc.
and CHH Receivables, Inc.; incorporated by reference to Exhibit 10.3
to the Form 10-K for the year ended January 30, 1993.
4.34 Amendment No. 1 to Receivables Purchase Agreement, dated as
of September 13, 1994 by and between Broadway Receivables, Inc. and
Broadway Stores, Inc.; incorporated by reference to Exhibit 4.4 to
Form 8-K filed September 13, 1994.
4.35 Promissory Note made by CHH Receivables, Inc. in favor of
Blue Hawk Funding Corporation; incorporated by reference to Exhibit
10.4 to the Form 10-K for the year ended January 30, 1993.
4.36 Letter of Credit Reimbursement Agreement among CHH Receivables, Inc.,
Blue Hawk Funding Corporation, and General Electric Capital
Corporation, as Letter of Credit Agent; incorporated by reference to
Exhibit 10.5 to the Form 10-K for the year ended January 30, 1993.
4.37 First Amendment, dated as of September 13, 1994, to the Letter of
Credit Reimbursement Agreement, dated as of October 8, 1992 among
Broadway Receivables, Inc., Blue Hawk Funding Corporation, the
financial institutions party thereto and General Electric Capital
Corporation; incorporated by reference to Exhibit 4.6 to Form 8-K
filed September 13, 1994.
4.38 Subordinated Retailer Security Agreement made by Carter
Hawley Hale Stores, Inc. in favor of CHH Receivables, Inc.;
incorporated by reference to Exhibit 10.6 to the Form 10-K for the
year ended January 30, 1993.
4.39 Credit Agreement, dated as of October 8, 1992, among Carter
Hawley Hale Stores, Inc., Certain Commercial Lending Institutions,
and General Electric Capital Corporation, as the Agent for the
Lenders; incorporated by reference to Exhibit 10.9 to the Form 10-K
for the year ended January 30, 1993.
4.40 Form of Revolving Credit Note; incorporated by reference to
Exhibit 10.10 to the Form 10-K for the year ended January 30, 1993.
4.41 Pledge and Security Agreement made by Carter Hawley Hale
Stores, Inc. in favor of General Electric Capital Corporation;
incorporated by reference to Exhibit 10.11 to the Form 10-K for the
year ended January 30, 1993.
4.42 Trademark Security Agreement made by Carter Hawley Hale
Stores, Inc. in favor of General Electric Capital Corporation;
incorporated by reference to Exhibit 10.12 to the Form 10-K for the
year ended January 30, 1993.
4.43 Letter agreement dated as of April 29, 1993, by and between
General Electric Capital Corporation, as agent and as a lender, and
Carter Hawley Hale Stores, Inc.; incorporated by reference to Exhibit
4.1 to the Form 10-Q for the period ended May 1, 1993.
4.44 Second Amendment to Credit Agreement, dated as of May 14,
1993, among Carter Hawley Hale Stores, Inc., various financial
institutions and General Electric Capital Corporation, as agent for
the lenders; incorporated by reference to Exhibit 4.2 to the
Form 10-Q for the period ended May 1, 1993.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.45 Amended and Restated Second Amendment to Credit Agreement,
dated as of August 20, 1993, among Carter Hawley Hale Stores, Inc.,
various financial institutions and General Electric Capital
Corporation, as agent for the lenders; incorporated by reference to
Exhibit 4.1 to the Form 10-Q for the period ended July 31, 1993.
4.46 Third Amendment to Credit Agreement, dated as of September
30, 1993, among Carter Hawley Hale Stores, Inc., various financial
institutions and General Electric Capital Corporation, as agent for
the lenders; incorporated by reference to the Form 8-K dated October
25, 1993.
4.47 Fourth Amendment to Credit Agreement, dated as of October 31,
1993, among Carter Hawley Hale Stores, Inc., various financial
institutions and General Electric Capital Corporation, as agent for
the lenders; incorporated by reference to the Form 8-K dated November
8, 1993.
4.48 Fifth Amendment to Credit Agreement, dated as of December 10,
1993, among Carter Hawley Hale Stores, Inc., various financial
institutions and General Electric Capital Corporation, as agent for
the lenders; incorporated by reference to the Form 8-K dated December
21, 1993.
4.49 Sixth Amendment to Credit Agreement, dated as of February 26, 1994,
among Carter Hawley Hale Stores, Inc., various financial institutions
and General Electric Capital Corporation, as agent for the lenders;
incorporated by reference to the Form 8-K dated March 9, 1994.
4.50 Seventh Amendment to Credit Agreement, dated as of September 13, 1994
among Broadway Stores, Inc., a Delaware Corporation previously known
as Carter Hawley Hale Stores, Inc., the financial institutions
parties thereto and General Electric Capital Corporation, a New York
Corporation, as agent for the Lenders; incorporated by reference to
Exhibit 4.11 to Form 8-K filed September 13, 1994.
4.51 Eighth Amendment to Credit Agreement, dated as of March 3,
1995 among Broadway Stores, Inc., a Delaware Corporation previously
known as Carter Hawley Hale Stores, Inc., the financial institutions
parties thereto and General Electric Capital Corporation, a New York
Corporation, as agent for the Lenders; incorporated by reference to
Exhibit 4.1 of Form 8-K filed on March 6, 1995.
4.52 Indenture dated as of December 21, 1993, between Carter Hawley Hale
Stores, Inc. and Continental Bank, National Association, as Trustee,
relating to Carter Hawley Hale Stores, Inc.'s 61/4% Convertible
Senior Subordinated Notes due 2000, incorporated by reference to
Exhibit 4.1 to Form S-3 filed January 7, 1994.
4.53 Form of Convertible Senior Subordinated Notes (included in
Exhibit 4.1 to the Registration Statement on Form S-3 filed on
January 7, 1994), incorporated by reference to Exhibit 4.2 to the
Form S-3 filed January 7, 1994.
4.54 Registration Agreement, dated December 21, 1993, between
Carter Hawley Hale Stores, Inc. and Salomon Brothers Inc.,
incorporated by reference to Exhibit 4.3 to Form S-3 filed January 7,
1994.
The Company has outstanding certain other long-term indebtedness.
Such long-term indebtedness does not exceed 10% of the total assets
of the Company and its subsidiaries; therefore, copies of instruments
defining the rights of holders of such indebtedness are not included
as exhibits. The Company agrees to furnish copies of such instruments
to the Securities and Exchange Commission upon request.
</TABLE>
63
<PAGE>
COMPENSATION ARRANGEMENTS
-------------------------
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.1 Deferred Compensation Plan of Carter Hawley Hale Stores, Inc.
dated as of June 3, 1976 and amended as of February 4, 1977;
incorporated by reference to Exhibit 15 to the Form 10-K for the
fiscal year ended January 29, 1977.
10.2 Amendment to the Deferred Compensation Plan of Carter Hawley
Hale Stores, Inc. executed on February 6, 1980; incorporated by
reference to Exhibit 20 to the Form 10-K for the fiscal year ended
February 2, 1980.
10.3 Amendment to the Deferred Compensation Plan of Carter Hawley
Hale Stores, Inc. executed on April 7, 1983; incorporated by
reference to Exhibit 10.13 to the Form 10-K for fiscal year ended
January 29, 1983.
10.4 Amendment 1990-I to the Deferred Compensation Plan of Carter Hawley
Hale Stores, Inc. effective as of August 1, 1990, incorporated by
reference to Exhibit 4.6 to Post-Effective Amendment No. 7 to the
Registration Statement (No. 2-6810) of Carter Hawley Hale Stores,
Inc. filed November 7, 1990.
10.5 Amendment to the Deferred Compensation Plan of Carter Hawley Hale
Stores, Inc.; incorporated by reference to Exhibit 4.5 to Post-
Effective Amendment No. 5 to the Registration Statement (No. 2-68102)
of Carter Hawley Hale Stores, Inc. filed July 31, 1987.
10.6 Carter Hawley Hale Savings & Investment Plan, as amended and
restated as of March 1, 1993; incorporated by reference to Exhibit
4.1 to the Registration Statement (No. 33-58478) of Carter Hawley
Hale Stores, Inc. filed February 17, 1993.
10.7 Carter Hawley Hale Stores, Inc. 1992 Stock Incentive Plan, as
amended; incorporated by reference to Exhibit 10.19 to the Form 10-K
for the year ended January 30, 1993.
10.8 Carter Hawley Hale Stores, Inc. Executive Retention Incentive
Plan effective as of February 1, 1991; incorporated by reference to
Exhibit 10.15 of the Form 10-K for the year ended February 1, 1992.
10.9 Carter Hawley Hale Store, Inc. Special Severance Pay Plan
effective as of February 1, 1991; incorporated by reference to
Exhibit 10.16 of the Form 10-K for the year ended February 1, 1992.
10.10 Carter Hawley Hale Stores, Inc. Retirement Plan for Non-
employee Directors dated as of February 1, 1989; incorporated by
reference to Exhibit 10.17 of the Form 10-K for the year ended
February 1, 1992.
10.11 Carter Hawley Hale Stores, Inc. Directors Deferred
Compensation Plan effective as of February 1, 1986; incorporated by
reference to Exhibit 10.18 of the form 10-K for the year ended
February 1, 1992.
10.12 Carter Hawley Hale Stores, Inc. Management Deferred
Compensation Plan; incorporated by reference to Exhibit 10.19 to the
Registration Statement (No. 33-16115) of Carter Hawley Hale Stores,
Inc. filed July 28, 1987.
10.13 Carter Hawley Hale Stores, Inc. Deferred Compensation Plan
for Executives; incorporated by reference to Exhibit 10.20 to the
Registration Statement (No. 33-16115) of Carter Hawley Hale Stores,
Inc. filed July 28, 1987.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.14 Pension Plan for Employees of Carter Hawley Hale
Stores, Inc.; incorporated by reference to Exhibit 10.14 to the Form
10-K/A No. 1 for the year ended January 30, 1993.
10.15 Carter Hawley Hale Stores, Inc. Supplemental Executive
Retirement Plan; incorporated by reference to Exhibit 10.14 to the
Form 10-K for the fiscal year ended January 28, 1984.
10.16 Amendment No. 4 to Supplemental Executive Retirement Plan of
Carter Hawley Hale Stores, Inc. dated January 7, 1991; incorporated
by reference to Exhibit 10.17 to Form 10-K/A No. 1 for the year ended
January 30, 1993.
10.17 Form of employment agreement between Carter Hawley Hale
Stores, Inc. and certain officers; incorporated by reference to
Exhibit 10.17 to the Form 10-K for the year ended January 30, 1993.
10.18 Listing of officers covered as of January 29, 1994 by form
of employment agreement referenced at Exhibit 10.17; incorporated by
reference to Exhibit 10.18 to Form 10-K for the year ended January
29, 1994.
10.19 Employment agreement between Carter Hawley Hale Stores, Inc.
and Mr. David L. Dworkin dated March 24, 1993; incorporated by
reference to Exhibit 10.19 to Form 10-K for the year ended January
29, 1994.
10.20 Loan agreement between Carter Hawley Hale Stores, Inc. and
Mr. Robert J. Lambert dated January 3, 1994; incorporated by
reference to Exhibit 10.20 to Form 10-K for the year ended January
29, 1994.
10.21 Assumption and amendment to employment agreement between
Carter Hawley Hale Stores, Inc. and Philip M. Hawley, dated August
14, 1992; incorporated by reference to Exhibit 10.30 to Form 10-K for
the year ended January 30, 1993.
10.22 Agreement between Carter Hawley Hale Stores, Inc. and Philip
M. Hawley, dated October 12, 1992; incorporated by reference to
Exhibit 10.31 to Form 10-K for the year ended January 30, 1993.
10.23 Agreement between Carter Hawley Hale Stores, Inc. and Philip
M. Hawley, dated December 30, 1992; incorporated by reference to
Exhibit 10.32 to the Form 10-K for the year ended January 30, 1993.
10.24 Form of indemnification agreement between Carter Hawley Hale
Stores, Inc. and each of its directors; incorporated by reference to
Annex XV to the Registration Statement (No. 33-16115) of Carter
Hawley Hale Stores, Inc. filed July 28, 1987.
10.25 Form of indemnification agreement between Carter Hawley Hale
Stores, Inc. and certain of its officers; incorporated by reference
to Exhibit 10.31 to the Registration Statement (No. 33-16115) of
Carter Hawley Hale Stores, Inc. filed July 28, 1987.
10.26 Employee Benefits Agreement dated as of July 24, 1987
between Carter Hawley Hale Stores, Inc. and The Neiman Marcus Group,
Inc.; incorporated by reference to Exhibit 3 to the Form 8-K dated
August 20, 1987.
10.27 Postpetition Store Modernization Facility Conversion
Agreement dated as of August 18, 1992 between Carter Hawley Hale
Stores, Inc. and Zell/Chilmark Fund, L.P.; incorporated by reference
to Exhibit 10.7 to the Form 10-K for the year ended January 30, 1993.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.28 Agreement by and among Carter Hawley Hale Stores, Inc., the
Neiman Marcus Group, Inc. and General Cinema Corporation, dated July
7, 1992; incorporated by reference to Exhibit 10.8 to the Form 10-K
for the year ended January 30, 1993.
11. Computation of Earnings per Share included on page 67.
21. Broadway Stores, Inc. Subsidiaries included on page 68.
23. Consent of Price Waterhouse LLP included on page 35.
27. Financial Data Schedules.
</TABLE>
Copies of any of the foregoing exhibits may be obtained by making a written
request to the Secretary of the Company at the address shown on the cover.
Copies will be furnished at a price of $.20 per page with a minimum charge of
$10 per exhibit.
66
<PAGE>
BROADWAY STORES, INC. EXHIBIT 11
Computation of Earnings per Share/*/
(In thousands, except per share data)
<TABLE>
<CAPTION>
Seventeen Weeks
Year Ended Year Ended Ended
January 28, January 29, January 30,
1995 1994 1993
------------ ------------ ---------------
<S> <C> <C> <C>
Net earnings (loss) used to compute
earnings (loss) per common share $ (37,360) $ (95,920) $ 22,720
=========== =========== ========
Weighted average number of common
shares outstanding during this period/(1)/ 46,881 41,671 35,087
=========== =========== ========
Earnings (loss) per common share/(2)/ $ (.80) $ (2.30) $ .65
=========== =========== ========
</TABLE>
/(1)/ The weighted average number of shares outstanding reflects all shares of
Common Stock expected to be issued in accordance with the POR as if they
had been issued on the Emergence Date.
/(2)/ Per share data for period prior to the Emergence Date have been omitted
as these amounts do not reflect the current capital structure.
67
<PAGE>
EXHIBIT 21
BROADWAY STORES, INC.
Subsidiaries as of January 28, 1995
<TABLE>
<CAPTION>
Percentage State
of of
Ownership Incorporation
----------- -------------
<S> <C> <C>
Active:
- -------
Broadway Receivables, Inc. 100% Delaware
Inactive:
- ---------
Camelback Funding Corp. 100% Delaware
Carter Hawley Hale Properties, Inc. 100% California
</TABLE>
68
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-END> JAN-28-1995
<CASH> 18,318
<SECURITIES> 0
<RECEIVABLES> 635,900
<ALLOWANCES> (19,000)
<INVENTORY> 504,522
<CURRENT-ASSETS> 1,199,278
<PP&E> 953,258
<DEPRECIATION> 65,000
<TOTAL-ASSETS> 2,127,076
<CURRENT-LIABILITIES> 336,141
<BONDS> 1,280,929
<COMMON> 469
8
0
<OTHER-SE> 385,175
<TOTAL-LIABILITY-AND-EQUITY> 2,127,076
<SALES> 2,086,804
<TOTAL-REVENUES> 2,178,134
<CGS> 1,560,035
<TOTAL-COSTS> 1,560,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,383
<INTEREST-EXPENSE> 100,904
<INCOME-PRETAX> (37,210)
<INCOME-TAX> (150)
<INCOME-CONTINUING> (37,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,360)
<EPS-PRIMARY> (.80)
<EPS-DILUTED> (.80)
</TABLE>
