1994-1995
ANNUAL REPORT
(Brendles Logo appears here)
<PAGE>
To the Shareholders of Brendle's Incorporated:
After emerging from Chapter 11 on April 29, 1994, Brendle's Incorporated
began the all-important task of rebuilding its customer base. Through
strong promotional and other advertising campaigns, the Company was able
to achieve a 5.7% growth in sales volume on same store sales during the
past fiscal year. Although these promotions were successful in
increasing customer traffic in our stores, they had a negative effect on
our gross margin. The Company achieved a gross margin of 25.6% this
past fiscal year compared to a gross margin of 26.8% a year ago. The
net effect of these reduced margins was that the Company had an
operating loss of approximately $432,000 compared to an operating profit
of $2.5 million the previous year. Although we are disappointed in
these final results, we are, at the same time, excited about this
comparable store sales increase. In future months, we will attempt to
leverage these increased sales with a heightened focus on higher margin
product categories.
The Company's net income, after interest, depreciation, restructuring
charges and extraordinary income (which includes $32.3 million of debt
forgiveness) was 22.0 million dollars compared to a loss of 19.7 million
dollars the previous year.
With the Chapter 11 proceedings successfully behind us, and the strong
support of our vendors and our primary lender, Foothill Capital
Corporation, the Brendle's organization is completely focused on
achieving our objectives in all areas of our business for the current
fiscal year. Some of our key objectives for this year are:
(bullet) continue our strong growth in our jewelry business which
achieved a same store sales increase of 10.6% over the
previous year and produces some of our highest gross margins.
(bullet) focus on improving under-performing categories through
improved merchandising and promotions.
(bullet) develop a program of special events to create more sales and
customer interest.
(bullet) evaluate opportunities for relocating stores in key markets.
These are all key elements to a successful year and many have already
been put in place.
We are also in the final stages of installing a new
merchandise/financial management system, the Richter system, which we
expect to be fully operational by June 15, 1995. This system includes
automatic replenishment, event planning and in-depth financial analysis
of all the components of our business. This will greatly aid our
merchants in controlling inventory and planning successful promotions.
1
<PAGE>
In addition, we are constantly looking for new product categories to
enhance our appeal to our customers. It is a very competitive
marketplace today, and we plan to be a leader in aggressive
merchandising and marketing. We are confident that our plans will help
us fulfill our goals of providing the best values to our customers,
opportunities for our employees, successful partnerships with our
vendors and returns for our stockholders.
On a personal note, I am very proud to be a part of the Brendle's
management team. We are a company with a powerful potential in the
marketplace. We are the leading fine jewelry retailer in North
Carolina. We offer the best values and one of the largest selections of
name brand small kitchen appliances, floor care, personal care, audio
products and many other categories. We plan to build on these strengths
to return this Company to profitability again. By focusing on a precise
execution of our management's key objectives, we believe we can achieve
our goals. Thank you for your continued support.
Sincerely,
Joseph M. McLeish, Jr.
President and Chief Executive Officer
2
<PAGE>
Selected Financial Data.
The following selected financial data of Brendle's at and for each year
on the five-year period ended January 28, 1995, have been extracted from
audited financial statements filed with the Securities and Exchange
Commission. The selected financial data should be read in conjunction
with Management's Discussion and Analysis and Brendle's consolidated
financial statements and the notes thereto.
(In thousands, except share, per share and ratios and rates data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $166,520 $171,073 $235,090 $301,359 $311,001
Income (loss) before interest,
depreciation, amortization,
restructuring and taxes
(OPEARN) (432) 2,487 (3,216) 6,457 14,325
Net income (loss) 21,963 (19,619)(a) (19,899)(a) (26,374)(a) 1,242
Net income (loss) per share 1.88 (2.36) (2.45) (3.28) 0.15
RATIOS & RATES:
Gross margin to total revenues 25.62% 26.92% 28.16% 26.63% 27.21%
Selling, operating and
administrative expenses to
total revenues 25.88% 25.47% 29.53% 24.49% 22.61%
OPEARN to total revenues (.26%) 1.45% (1.37)% 2.14% 4.61%
Effective tax rate - - - (7)% 38%
Net income (loss) to total
revenues 13.19% (11.47)% (8.46)% (8.75)% 0.40%
Current ratio 2.10 0.93 0.91 1.32 1.30
Weighted average shares
outstanding 11,671 8,297 8,120 8,041 8,021
Number of shareholders 2,607 1,130 1,138 1,163 1,115
Number of stores 30 30 43 52 57
FINANCIAL POSITION:
Inventories $48,451 $54,133 $57,893 $78,757 $103,553
Working capital 27,506 (b) (b) 21,216 24,972
Total assets 62,128 107,563 147,487 136,591 166,628
Long-term obligations (c) 2,713 (b) (b) 14,973 9,557
Shareholders' equity 34,357 5,460 24,766 44,172 69,606
Book value per share 2.94 0.66 3.05 5.49 8.68
Sales per square foot of
selling space 187 187 160 185 212
</TABLE>
(a) Net income (loss) has been reduced/increased by $3,473,000,
$16,090,000, $4,572,000, and $20,350,000 as a result of the
provision for restructuring for the years ended January 28,
1995, January 29, 1994, January 30, 1993, and February 1, 1992,
respectively.
(b) Not applicable. The majority of the amounts comprising this
item have been reclassed to liabilities subject to compromise.
(c) Includes both long-term debt and capitalized lease obligations.
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
Comparison of Operations
Net sales for the fiscal year ended January 28, 1995 ("Fiscal
1995") were $166,278,000 compared to net sales of $170,345,000 for the
fiscal year ended January 29, 1994 ("Fiscal 1994"), a decrease of
$4,067,000, or 2.4%. This decrease in sales was primarily the result of
operating 13 fewer stores during the first four months of Fiscal 1995
compared to Fiscal 1994. This decrease was partially offset by a 5.7%
increase in sales for the 30 stores open a full year in both years. This
increase in the comparable store sales was primarily the result of a
planned increase in promotional activity designed to increase sales and
market share. These promotional activities included Senior Citizen
Days, VIP Nights, additional pages of advertising and increased
circulation. Net sales for Fiscal 1994 were $170,345,000 compared to
$233,889,000 for Fiscal 1993, a decrease of $63,544,000, or 27.2%. This
decrease in sales resulted primarily from operating fewer stores in
Fiscal 1994 partially offset by a 6.0% comparable stores sales increase
for the year.
The Company's business is a seasonal one with a significant portion
of its sales occurring in the fourth quarter of its fiscal year. Fourth
quarter revenues accounted for 45.1% of total revenues in Fiscal 1995,
compared to 42.5% of total revenues in Fiscal 1994 and 41.3% in Fiscal
1993.
Other income for Fiscal 1995, 1994 and 1993 was $242,000, $728,000
and $1,201,000, respectively. Fiscal 1995 other income included
miscellaneous receipts from sale of scrap materials., NSF check fees,
and other nonrecurring items. Fiscal 1994 Other Income included
nonrecurring items such as rental income from the distribution center
and prior-year bad debt recovery. Fiscal 1993 Other Income included
shelf allowances, proceeds from insurance recoveries and other
nonrecurring items. Interest on short-term investments which was
classified as other income in Fiscal 1993 was offset against
Reorganization expense in Fiscal 1994 in accordance with AICPA Statement
of Position 90-7 (Financial Reporting by Entities Reorganizing under the
Bankruptcy Code).
The Cost of Merchandise Sold in Fiscal 1995 was $123,851,000, or
$1,164,000 less than Fiscal 1994 primarily due to the sales decline
discussed above. The gross margin as a percentage of revenues for
Fiscal 1995 was 25.6% compared to 26.9% for Fiscal 1994. The decrease
in gross margin percentage was primarily the result of the increased
promotional activity and the continuing competitive retail environment
offset, partially, by an increase in the jewelry sales mix, which
typically has a higher gross margin percentage.
Selling, Operating and Administrative expenses ("SO & A") for
Fiscal 1995 were $43,101,000, compared to $43,571,000 for Fiscal 1994.
This decrease in SO & A is primarily the result of operating fewer
stores, offset by an increase in advertising expense. The
4
<PAGE>
increase in advertising expense is due to the increased promotional
activities and reduced vendor co-op recovery which was the result of
decreased purchase of inventory in Fiscal 1995 compared to Fiscal 1994.
SO & A expenses, as a percentage of revenues, were 25.9% and 25.5%,
respectively, for Fiscal 1995 and Fiscal 1994.
Depreciation and amortization for Fiscal 1995 and Fiscal 1994 was
$3,561,000 and $4,877,000, respectively. Expenses for fixed asset
depreciation and amortization are less for Fiscal 1995 because the
Company is operating fewer stores. Also, the Company no longer owns the
distribution center in Elkin, North Carolina, and certain other assets
have become fully depreciated.
Interest on capital leases for Fiscal 1995, Fiscal 1994 and Fiscal
1993 were $454,000, $756,000 and $1,199,000, respectively. No
additional capital leases have been signed during the three-year period
discussed, and all remaining capital leases are in the later years of
their term resulting in a book expense reduction.
Interest expense on debt other than capital leases was $2,484,000,
$383,000 and $3,728,000 for Fiscal 1995, 1994 and 1993, respectively.
The increase in interest expense is due to increased borrowings under
the Company $45 million Revolving Credit Facility and the rising
interest rates during the fiscal year. The borrowings increased
because, upon emerging from Chapter 11, the Company paid its creditors
approximately $48 million of which the Company had approximately $30
million on cash. The balance of the payments to creditors, as well as
the Company's working capital needs for Fiscal 1995, were funded from
the Company's $45 million Revolving Credit Facility. Fiscal 1994
interest reflected the fact that the Company discontinued accruing
interest on its interest-bearing, pre-petition debt obligations on the
petition date in accordance with the Bankruptcy Code and AICPA Statement
of Position 90-7 (Financial Reporting by Entities Reorganizing under the
Bankruptcy Code).
Reorganization costs for Fiscal 1995 are $3,473,000 compared to
$16,090,000 for Fiscal 1994. Reorganization costs for Fiscal 1995
include professional fees associated with the Chapter 11 Proceedings,
expenses for stores closed in prior years and employee severance costs.
The Reorganization costs for Fiscal 1994 primarily relate to the costs
associated with the closing of certain stores, including the write-off
of the remaining book value of assets, the loss on the sale of real
property, lease liabilities, employee severance costs, inventory,
liquidation, and professional fees incurred by the Company and the
Creditor's Committee.
Debt Forgiveness for Fiscal 1995 was $32,367,000. This amount
represents prepetition debt of $39,630,000 that was forgiven under the
Plan of Reorganization, reduced by $7,263,000, the ascribed value at the
date of issuance of 4,469,191 shares of stock issued to the Unsecured
Creditors per the Plan of Reorganization.
5
<PAGE>
Net income for Fiscal 1995 was $21,963,000, or $1.88 per share,
compared to a net loss for Fiscal 1994 and Fiscal 1993 of $19,619,000
and $19,899,000, or ($2.36) and ($2.45) per share, respectively. The
net income for Fiscal 1995 reflects reorganization costs of $3,473,000
and debt forgiveness of $32,367,000, both a result of the Company's
Chapter 11 Proceeding. For Fiscal 1995, the Company experienced an
Operating Loss (Net income before interest, taxes, depreciation,
restructuring costs and extraordinary items) of $432,000 compared to
Operating Income of $2,487,000 for Fiscal 1994. The loss was primarily
the result of increased promotional activities which produced lower
margins and which increased the Company's advertising expense. The
Fiscal 1994 net loss reflected reorganization costs from the Chapter 11
Proceeding and store closings of $16,090,000. The Fiscal 1993 loss
included a restructuring charge of $4,572,000 which was a result of the
effects of the Chapter 11 Proceeding on operations.
Liquidity and Capital Resources
The Company's cash balance at January 28, 1995 was $1.8 million
compared to $34.8 million at January 29, 1994. The decrease in the cash
balance was the result of the Company's substantial consummation of its
Plan of Reorganization which included making payments to creditors of
approximately $48 million. Those payments were funded from the cash on
hand of approximately $30 million with the balance from borrowings from
the Company's $45 million Revolving Credit Facility.
Merchandise inventories were $48.5 million at January 28, 1995,
compared to $54.1 million at January 29, 1994. The decline in
inventories is the result of a planned reduction in the number of units
kept in stock.
Current liabilities at January 28, 1995 were $25.1 million,
compared to $6.4 million at January 29, 1994. This increase in current
liabilities is due to increased accounts payable resulting from improved
vendor credit terms; the reclassification of the current portion of
capitalized lease obligations from liabilities subject to compromise to
current liabilities; and the increase in notes payable due to borrowings
against the Revolving Credit Facility to fund payments to creditors and
working capital needs.
"Liabilities Subject to Compromise," which represented the
pre-petition debt of the Company, had been settled as of January 28,
1995. "Liabilities Subject to Compromise" at January 29, 1994 were
$95.7 million and included $42.7 million of pre-petition debt borrowings
under credit agreements with lender banks; $1.6 million of debt
borrowings from related parties; and $51.4 million of pre-petition
liabilities for accounts payable and other liabilities.
On April 20, 1994, the Company received Bankruptcy Court Approval
for a five-year, $45 million Revolving Credit Facility which was used to
fund payments to creditors described above while the balance of the
facility may be used to fund working capital, inventory purchases,
capital expenditures, and other general corporate purposes. The $45
6
<PAGE>
million Revolving Credit Facility includes restrictions on capital
expenditures as well as standard covenants found in similar agreements.
These include two financial ratio covenants: (1) current ratio, and (2)
total liabilities to tangible net worth ratio. At January 28, 1995, the
Company was in compliance with all covenants.
Under the Revolving Credit Facility, the lender agrees to make
revolving loans and issue or guarantee letters of credit for the Company
in an amount not exceeding the lesser of the Borrowing Base (as defined
in the Loan Agreement), or $45 million. The Revolving Credit Facility
includes a sublimit of $10 million for documentary and stand-by letters
of credit.
The Revolving Credit Facility provides that each loan shall bear
interest at a rate of prime plus one and forty-four one hundredths
(1.44) percentage points. Interest on these loans shall be payable
monthly in arrears on the first day of each month. Also, under the
Revolving Credit Facility, the Company pays an unused line fee for an
amount equal to one-half of one percent (.50%) per annum on the unused
portion of the Revolving Credit Facility and a letter of credit fee
equal to two and one-half percent (2.5%) per annum on the average daily
balance of the aggregate undrawn letters of credit and letter of credit
guarantees outstanding during the immediately preceding month and
certain other fees. The Revolving Credit Facility also requires an
annual facility fee equal to one-half of one percent (.50%) of the
maximum amount of the facility payable on each anniversary of the
Facility closing date and a monthly servicing fee of $3,500 per month.
The Company also paid an initial, one-time fee of $450,000 in order to
establish the Revolving Credit Facility.
At January 28, 1995, the Company had borrowed $15,368,000 from the
Revolving Credit Facility and had outstanding $1,062,000 in open letters
of credit, for a total of $16,430,000. At January 28, 1995, the total
available under the Revolving Credit Facility based on the borrowing
base formula was $24,697,000.
The Company's capacity to continue as a going concern is dependent,
in part, on the Company's ability to obtain merchandise on a timely
basis from its vendors under favorable credit terms. Since the filing
of the Chapter 11 Proceeding, the Company's ability to obtain credit
through arrangements such as the Revolving Credit Facility, and vendor
credit lines has continued to improve and is at the highest level
experienced since the Chapter 11 filing. Management of the Company
believes that its ability to obtain credit should continue to improve
based on the acceptable performance of the Company.
In Fiscal 1995, the Company used approximately $536,000 for capital
expenditures. The Company anticipates capital expenditures for Fiscal
1996 of approximately $1,300,000, primarily for normal facility
maintenance and the implementation of the new fully integrated
merchandising and financial information system, including point-of-sale
equipment.
Management believes the Revolving Credit Facility, together with
the cash from operations and vendor credit, should be adequate to cover
working capital requirements and capital expenditures.
7
<PAGE>
Brendle's Incorporated
Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
January 28, January 29,
1995 1994
<S> <C> <C>
Assets
Current assets:
Cash and temporary cash investments (Note 2) $ 1,781 $ 34,774
Receivables (Note 3) 971 1,480
Merchandise inventories (Note 2) 48,451 54,133
Other current assets 1,361 970
Total current assets 52,564 91,357
Property and equipment, less accumulated depreciation
and amortization (Notes 2 and 4) 8,776 15,767
Other assets 788 439
$ 62,128 $ 107,563
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility (Note 7) $ 15,368 $ -
Accounts payable - trade 5,245 3,002
Current portion of capitalized lease obligations (Note 6) 1,241 -
Current portion of other long-term liabilities 139 -
Current portion of restructuring reserve (Note 5) 445 509
Other accrued liabilities 2,620 2,843
Total current liabilities 25,058 6,354
Capitalized lease obligations, less current portion (Note 6) 449 -
Restructuring reserve, less current portion (Note 5) 980 -
Other long-term liabilities 1,284 -
Liabilities subject to compromise (Notes 1 and 6) - 95,749
Total liabilities 27,771 102,103
Shareholders' equity:
Common stock, $1 par value, 20,000,000 shares
authorized, 12,758,717 shares issued and outstanding
at January 28, 1995 and 8,299,454 shares issued and
outstanding at January 29, 1994 12,759 8,299
Capital in excess of par value 20,896 18,112
Retained earnings (deficit) 702 (20,951)
Total shareholders' equity 34,357 5,460
$ 62,128 $ 107,563
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these statements.
8
<PAGE>
Brendle's Incorporated
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal year ended
January 28, January 29, January 30,
1995 1994 1993
<S> <C> <C> <C>
Net sales $ 166,278 $ 170,345 $ 233,889
Other income 242 728 1,201
Total revenues 166,520 171,073 235,090
Costs and expenses:
Cost of merchandise sold 123,851 125,015 168,879
Selling, operating and
administrative expenses 43,101 43,571 69,427
Depreciation and amortization 3,561 4,877 7,184
Interest expense 2,484 383 3,728
Capitalized lease interest expense 454 756 1,199
Provision for restructuring (Note 5) 3,473 16,090 4,572
176,924 190,692 254,989
Loss before provision for income taxes
and extraordinary item (10,404) (19,619) (19,899)
Provision for income taxes (Note 9) - - -
Loss before extraordinary item (10,404) (19,619) (19,899)
Extraordinary item - gain from forgiveness
of debt (Note 1) 32,367 - -
Net income (loss) $ 21,963 $ (19,619) $ (19,899)
Net income (loss) per share: (Note 2)
Loss before extraordinary item $ (.89) $ (2.36) $ (2.45)
Extraordinary item - gain from forgiveness
of debt (Note 1) 2.77 - -
Net income (loss) per share $ 1.88 $ (2.36) $ (2.45)
Weighted average number of shares outstanding 11,671 8,297 8,120
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these statements.
9
<PAGE>
Brendle's Incorporated
Statements of Changes in Shareholders' Equity
(In thousands, except share data)
<TABLE>
<CAPTION>
Common Common Capital in Retained Total
Stock Stock Excess of Earnings Shareholders'
Shares Amount Par Value (Deficit) Equity
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1992 8,053,702 $ 8,054 $ 17,816 $ 18,302 $ 44,172
Net loss - - - (19,899) (19,899)
Reclassification to other
deferred credit (Note 8) - - - (37) (37)
Issuance of stock 235,574 235 295 - 530
Balance, January 30, 1993 8,289,276 8,289 18,111 (1,634) 24,766
Net loss - - - (19,619) (19,619)
Reclassification from other
deferred credit (Note 8) - - - 302 302
Issuance of stock 10,178 10 1 - 11
Balance, January 29, 1994 8,299,454 8,299 18,112 (20,951) 5,460
Net income - - - 21,963 21,963
Reclassification from other
deferred credit (Note 8) - - - (310) (310)
Issuance of stock 4,469,701 4,470 2,793 - 7,263
Retirement of stock (10,438) (10) (9) - (19)
Balance, January 28, 1995 12,758,717 $12,759 $20,896 $ 702 $ 34,357
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these statements.
10
<PAGE>
Brendle's Incorporated
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Fiscal year ended
January 28, January 29, January 30,
1995 1994 1993
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 21,963 $ (19,619) $ (19,899)
Items not requiring (providing) cash:
Depreciation and amortization 3,561 4,877 7,184
Loss on sale of property and equipment 75 11,839 712
Restructuring reserve 916 (4,109) (6,239)
Extraordinary item - gain from forgiveness of debt (32,367) - -
Other - - (1,040)
Changes in assets and liabilities:
Accounts receivable 509 4,856 (2,246)
Income taxes refundable - - 2,851
Merchandise inventories 5,682 3,760 20,864
Other current assets (391) 4,664 (4,237)
Accounts payable and other liabilities 2,159 (4,278) 19,745
Cash provided by operating activities 2,107 1,990 17,695
Investing activities:
Additions to property and equipment (870) (823) (1,630)
Proceeds from sale of property and equipment 4,225 8,704 880
Other (659) 529 49
Cash provided (used) by investing activities 2,696 8,410 (701)
Financing activities:
Payment of liabilities subject to compromise (56,119) - -
Increase (decrease) in capitalized lease obligations 1,690 (1,356) (2,028)
Net borrowings on revolving credit facility 15,368 (10,875) 28,239
Increase (decrease) in other long-term liabilities 1,284 - (8,375)
Issuance of common stock - 11 530
Retirement of common stock (10) - -
Decrease in capital in excess of par value (9) - -
Cash (used) provided by financing activities (37,796) (12,220) 18,366
Net (decrease) increase in cash and temporary
cash investments (32,993) (1,820) 35,360
Cash and temporary cash investments
- beginning of year 34,774 36,594 1,234
Cash and temporary cash investments
- end of year $ 1,781 $ 34,774 $ 36,594
Interest paid during the year $ 2,547 $ 383 $ 3,746
Supplemental disclosure of non-cash financing activities:
During fiscal year 1995, the company issued 4,469,201 shares of common stock valued at $7,263,000 to creditors
under the terms of its Plan of Reorganization which resulted in an increase in capital in excess of par value of
$2,793,000.
</TABLE>
The accompanying Notes to Financial Statements are an integral
part of these statements.
11
<PAGE>
Brendle's Incorporated
Notes to Financial Statements
NOTE 1 - EMERGENCE FROM CHAPTER 11
On November 22, 1992 (the Petition Date), Brendle's Incorporated and its
primary operating subsidiary, Brendle's Stores, Inc., filed a voluntary
petition for relief under Chapter 11 of the Federal Bankruptcy Code in
the U.S. Bankruptcy Court for the Middle District of North Carolina (the
Bankruptcy Court). As of the Petition Date, actions to collect
prepetition indebtedness were stayed and other contractual obligations
could not be enforced against the Company. Certain prepetition
liabilities were approved by the Bankruptcy Court for payment in the
ordinary course of business.
The Bankruptcy Code allows a debtor to either assume or reject certain
executory contracts, subject to approval of the Bankruptcy Court.
Parties to contracts which are rejected are entitled to file claims for
losses or damages sustained as a result of the rejection. Claims that
resulted from contracts that management rejected were included within
liabilities subject to compromise. Liabilities subject to compromise
represent those liabilities and obligations whose disposition was
dependent upon the outcome of the Chapter 11 proceedings (See Note 6).
On December 23, 1993, the Bankruptcy Court confirmed the Company's plan
of reorganization (the "Plan") contingent upon the Company's obtaining
exit financing in order to fund payments to creditors under the Plan.
The Company obtained this reorganization revolving credit facility (the
"Credit Facility") for $45,000,000 from Foothill Capital Corporation on
April 21, 1994 (See Note 7). Interest will be paid monthly with the
facility expiring on April 29, 1999. As further discussed in Note 2, at
January 29, 1994, cash of $31,032,000 was provided by the Company to
fund a portion of the payments of secured and general unsecured,
undisputed claims. On April 29, 1994, the Company disbursed $45,382,000
in payment of secured and general unsecured claims. This payment was
funded through cash on hand and borrowings under the Credit Facility.
In addition on April 29, 1994, Brendle's Incorporated issued 4,469,201
shares of Brendle's Incorporated Common Stock to Arnold Zahn (the
"Escrow Agent"). These shares will be issued to creditors as the
remaining claim amounts are reconciled. As of January 28, 1995 there
were 357,094 shares remaining with the Escrow agent. See discussion of
specific provisions related to claim payments under "General Unsecured
Claims" below.
Extraordinary Gain
An extraordinary gain of $32,367,000 on the forgiveness of prepetition
debt was recorded during fiscal 1995. The extraordinary gain does not
reduce the Company's net operating loss carryforwards for income tax
purposes, and accordingly has no income tax effect. The extraordinary
gain has been included in the Company's results of operations for the
year ended January 28, 1995.
The federal income tax law generally limits the use of net operating
loss carryforwards in the event of a change in ownership of a company.
Further, such net operating loss carryforwards are generally reduced
where the debts of a company are reduced, and cancellation of
indebtedness income is realized. However, such reduction in net
operating loss carryforwards can be avoided where stock is issued to
creditors in a Chapter 11 proceeding in exchange for debt reduction.
12
<PAGE>
The limitation due to a change in ownership generally occurs when more
than 50% of the outstanding shares change hands in any three year
period. Complex rules govern the measurement of this 50% change. It is
management's view that no change in ownership which warrants the
limitation of net operating loss carryforwards has occurred as a result
of the Plan.
As a general rule the cancellation of debt requires a taxpayer to reduce
tax attributes to the extent of the cancellation of debt income. An
exception to the general rule provides a reduction in net operating loss
carryforwards can be avoided under income tax law where stock is issued
to creditors in a Chapter 11 proceeding in exchange for a debt
reduction. For this "stock for debt exception" to apply, among other
tests; 1) the stock issued must not be "nominal or token", 2) the stock
must not be redeemable, and 3) the distribution of shares must be fairly
proportionate to the amount of debt reduction for each creditor. It is
the Company's view that these tests are met, and that the issuance of
Common Stock to creditors called for by the Plan will have the result of
preventing any reduction of the net operating loss carryforwards of the
Company.
The Plan provided for the following:
Secured Claims
The Bank Group received the sum of $16,000,000 less all amounts paid to
the Bank Group by the Company subsequent to July 8, 1993 in full and
complete satisfaction of the allowed secured portion of their claim.
The Brenco and Douglas D. Brendle secured claims were treated similarly,
receiving a recovery in the same proportion as the Bank Group's
recovery. The balance of the Bank Group claim, approximately
$35,000,000 was treated as a general unsecured claim.
General Unsecured Claims
Holders of unsecured claims received the following for their claims in
accordance with the Plan (a) the claim-holder's pro rata share of a
total distribution to all general unsecured claim holders of 35% of the
issued and outstanding Common Stock of the reorganized Company; and (b)
the opportunity to elect one of the following options: (i) a cash
payment equal to 52% of the amount of the general unsecured claim ("the
cash option"); or (ii) a reorganization note in a principal amount equal
to 80% of the general unsecured claim, bearing interest at the rate of
8% per annum and payable over ten years ("the note option").
During the balloting, all of the holders of unsecured claims elected the
cash option with the exception of holders of approximately $161,000 in
unsecured claims.
Common Stock
The holders of the outstanding shares of the Company's existing Common
Stock retained their stock and are entitled to all the rights and
privileges of shareholders.
13
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
the payment of liabilities in the ordinary course of business. The
continued viability of the Company subsequent to Chapter 11 is dependent
upon, among other factors, the ability to generate sufficient cash from
operations and financing sources to meet obligations. The consolidated
financial statements do not include any adjustments or reclassifications
that might be necessary should the Company be unable to continue as a
going concern.
Basis of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. During fiscal 1995, all subsidiaries of
Brendle's Incorporated were merged into the parent company. The merger
of the subsidiaries had no financial statement impact since all
intercompany balances and transactions are eliminated in consolidation.
Cash and temporary cash investments
Temporary cash investments are defined as short-term investments having
an original maturity of three months or less. Cash at January 29, 1994
included $31,032,000, of restricted cash related to the bankruptcy
proceedings. There was no such restricted cash at January 28, 1995.
Merchandise inventories
Merchandise inventories are stated at the lower of cost or market, with
cost being determined by the last-in, first-out (LIFO) method. The
stated LIFO value of merchandise inventories approximates replacement
cost.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance
and repairs which do not improve or extend the life of an asset are
charged to expense as incurred. Major renewals and betterments are
capitalized. Upon retirement or sale of an asset, its cost and related
accumulated depreciation or amortization are removed from the property
accounts and any gain or loss is recorded as income or expense.
Depreciation and amortization of property and equipment owned or leased
under capital leases are provided on the straight-line method over their
estimated useful lives.
14
<PAGE>
Net income (loss) per share
Net income or loss per share is computed using the weighted average
number of common shares outstanding during each period.
Fair value of financial instruments
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107). SFAS 107 is effective
for the Company's financial statements issued subsequent to December 15,
1995.
Income taxes
Income taxes are provided based upon income reported for financial
statement purposes. See discussion of deferred income taxes in Note 9.
Issuance of stock
During fiscal 1995, 4,469,701 shares were issued to the Company's
creditors in accordance with the plan of reorganization. In fiscal
1994, 12,378 shares were issued to the Company's defined contribution
retirement savings plan, a voluntary compensation deferral plan under
Section 401(k) of the Internal Revenue Code. See further discussion in
Note 10.
Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classification.
NOTE 3 - RECEIVABLES
Receivables consist of the following:
January 28, January 29,
(In thousands) 1995 1994
Customer $ 127 $ 131
Advertising rebates 242 281
Other 602 1,068
Total $ 971 $ 1,480
15
<PAGE>
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated January 28, January 29,
(In thousands) useful life 1995 1994
<S> <C> <C> <C>
Land and improvements $ 434 $ 1,666
Buildings:
Capitalized leases 10 to 25 years 10,703 10,703
Owned 19 to 25 years 1,818 5,379
12,521 16,082
Property and equipment:
Furniture, fixtures and equipment 5 to 10 years 23,590 23,570
Leasehold improvements 10 years 9,666 9,380
Transportation equipment 3 to 7 years 681 691
Construction in progress - 334 141
34,271 33,782
47,226 51,530
Less - Accumulated depreciation
and amortization 38,450 35,763
$ 8,776 $ 15,767
</TABLE>
Accumulated depreciation and amortization includes $10,112,000 at
January 28, 1995 and $9,562,000 at January 29, 1994 relating to capital
leases. The charge to operations resulting from amortization of capital
leases is included in depreciation and amortization expense in the
consolidated statements of operations.
NOTE 5 - RESTRUCTURING CHARGES
During fiscal 1995, the Company recorded charges of $3,473,000 for
restructuring. These charges are comprised of professional fees,
severance packages for certain employees which left as a result of the
Company's reorganization and other costs associated with the completion
of the Chapter 11 proceedings.
Unpaid restructuring costs related to this reorganization were
$1,425,000 and $4,628,000 at January 28, 1995 and January 29, 1994,
respectively. Of these costs at January 29, 1994, $4,119,000 related to
leases for closed stores and were classified as liabilities subject to
compromise.
16
<PAGE>
NOTE 6 - LIABILITIES SUBJECT TO COMPROMISE AND CONTINGENCIES
At January 29, 1994, liabilities subject to compromise included
substantially all of the current and noncurrent liabilities of the
Company as of the Petition Date. As discussed further in Note 1,
prepetition liabilities, including the maturity of debt obligations,
were stayed while the Company continued to operate. Certain prepetition
obligations were secured by both real and personal prepetition property
of the Company; however, these obligations were recorded as liabilities
subject to compromise as the ultimate adequacy of security for any
secured prepetition debt could not be determined until a plan of
reorganization was confirmed.
Liabilities subject to compromise are summarized as follows:
January 29,
(In thousands) 1994
Revolving credit facility from banks $ 32,722
Term loan from banks 10,029
Notes payable to affiliated parties 1,613
Capitalized lease obligations 4,657
Restructuring expenses 4,119
Accounts payable and other liabilities 42,609
Total $ 95,749
In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code," interest on
secured prepetition obligations after the Petition Date ceased accruing
as the outstanding debt and accrued interest exceeded the estimated fair
value of the collateral. Interest on the unsecured debt also ceased
accruing on the Petition Date. Interest accrued on prepetition secured
debt through the Petition Date was $257,000. While future debt service
and related interest expense could not be determined before conclusion
of the reorganization period, had interest been accrued on all debt
under prefiling terms and conditions, interest expense would have
increased by approximately $853,000 and $4,225,000 in fiscal 1995 and
fiscal 1994, respectively, and the gain from forgiveness of debt would
be increased by a corresponding amount.
17
<PAGE>
Loans payable to banks
In October 1991, the Company obtained a revolving credit facility for up
to $49,000,000 from its primary lenders. In February 1992, the facility
was amended and extended through April 1993. Under the amended agreement
the facility was seasonally adjusted with a maximum amount of
$44,000,000. The revolving credit facility was to bear interest at the
lender banks' prime rate plus two percent with step-downs to prime plus
one percent based on debt reduction. There was $32,722,000 outstanding
under this agreement at January 29, 1994. No amounts were outstanding
at January 28, 1995. In addition, there was no accrued interest on this
agreement at January 28, 1995 and January 29, 1994.
In October 1991, the Company obtained a $20,000,000 term loan from its
primary lenders. In February 1992, the term loan was amended, resulting
in a reduction to $13,000,000 and an extension to December 31, 1993.
The payment schedule for the term loan required a $3,000,000 payment on
September 30, 1992, a $4,000,000 payment on July 31, 1993 and a final
payment of $2,982,000 on December 31, 1993. The term note was to bear
interest at the lenders' prime rate plus two percent with step-downs to
prime plus one percent based on debt reduction. There was $10,029,000
outstanding under this agreement at January 29, 1994. No amounts were
outstanding at January 28, 1995. In addition, there was no accrued
interest on this agreement at January 28, 1995 and January 29, 1994.
The revolving credit facility and term loan were secured by
substantially all the assets of the Company, excluding inventory, prior
to the Chapter 11 filing with the Bankruptcy Court. The amended
agreements contained covenants which stipulated minimum net worth levels
and financial ratios.
Notes payable to affiliated parties
In October 1991, the Company entered into two $1,000,000 note payable
agreements with an affiliate entity owned by executive officers of the
Company and with an executive officer of the Company. The notes had a
stated interest rate of prime plus two percent payable monthly and a
maturity date of December 31, 1993. There was $1,613,000 outstanding
under these agreements at January 29, 1994. No amounts were outstanding
at January 28, 1995. In addition, there was no accrued interest on
these agreements at January 28, 1995 and January 29, 1994. These notes
were secured by substantially all assets of the Company, excluding
inventory, prior to the Chapter 11 filing with the Bankruptcy Court.
18
<PAGE>
Capital lease obligations
The Company has capital and operating lease commitments for stores,
equipment and its corporate headquarters facility expiring on varying
dates from fiscal 1996 to 2007. The leases generally include renewal
options and rental escalation clauses. Future minimum lease
commitments, including leases with affiliates (See Note 11) at January
28, 1995 are as follows:
<TABLE>
<CAPTION>
(In thousands) Capitalized Operating
Fiscal year leases leases
<S> <C> <C>
1996 $ 1,410 $ 3,231
1997 235 2,859
1998 226 2,609
1999 99 1,834
2000 - 1,507
Thereafter - 3,333
Total minimum lease payments 1,970 $ 15,373
Less - Amount representing interest 280
Present value of capitalized lease obligations 1,690
Less - Current maturities 1,241
Long-term capitalized lease obligations $ 449
</TABLE>
NOTE 7 - REVOLVING CREDIT FACILITY
As discussed in Note 1, on April 21, 1994, the Company entered into a
five year, $45,000,000 revolving credit facility. The Credit Facility
was used to fund the negotiated Plan payments to creditors, with the
balance of the facility to be used to fund working capital requirements,
inventory purchases, capital expenditures, and other general corporate
purposes. The Credit Facility includes restrictions on capital
expenditures as well as standard covenants found in similar agreements.
The Company was in compliance with such covenants at January 28, 1995.
Under the Credit Facility, the lender agrees to make revolving loans and
issue or guarantee letters of credit for the Company. The Credit
Facility includes a sublimit of $10,000,000 for documentary and stand-by
letters of credit. The Company had borrowed $15,368,000 against the
Credit Facility at January 28, 1995. The weighted average interest rate
on borrowings against the Credit Facility was 9.21% during the year
ended January 28, 1995.
The Credit Facility provides that each loan shall bear interest at a
rate of prime plus one and forty-four one hundredths percent. Interest
on these loans is payable monthly in arrears on the first day of each
month. Also under the Credit Facility, the Company pays an unused line
fee for an amount equal to one-half of one percent per annum on the
unused portion of the Credit Facility and a letter of credit fee equal
to two and one-half percent per annum on the average daily balance of
the aggregate undrawn letters of credit and letter of credit guarantees
outstanding during the immediately preceding month and certain other
fees. The Credit Facility requires an annual facility fee equal to
one-half of one percent of the maximum amount of the facility payable on
each anniversary of the
19
<PAGE>
Credit Facility closing date and a monthly servicing fee of $3,500 per
month. The Company also paid an initial, one-time fee of $450,000 in
order to establish the Credit Facility.
NOTE 8 - SHAREHOLDERS' EQUITY
In April 1986, four shareholders of the Company entered into an
agreement whereby they cannot transfer or sell their Common Stock to any
unrelated party (as defined) without the written consent of the other
parties to the agreement. In addition, in the event of the death of one
of the four shareholders, the Company can be required to purchase their
Common Stock at fair value up to the life insurance proceeds, consisting
of policies with a face value of $5,250,000, $5,000,000, $3,070,000 and
$3,000,000, respectively. Outstanding borrowings against the cash
surrender value of these policies were approximately $1,835,000 and
$1,828,000 at the January 28, 1995 and January 29, 1994, respectively.
An amount equal to the cash surrender value of these policies not
borrowed against at January 28, 1995 and January 29, 1994 of $529,000
and $219,000, respectively, has been shown as an other deferred credit
on the balance sheet and as a liability subject to compromise with a
corresponding reduction in retained earnings.
20
<PAGE>
NOTE 9 - PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
Fiscal Fiscal Fiscal
(In thousands) 1995 1994 1993
Currently payable (refundable):
Federal $ - $ - $ -
State and local - - -
- - -
Deferred taxes - - -
Total income taxes $ - $ - $ -
The components of the deferred provision for income taxes are as follows:
Deferred income taxes:
Depreciation $ (601) $(1,728) $ 493
Capital lease book charges (over) under
rental charges for tax purposes 918 (37) (222)
Additional inventory costs capitalized
for tax purposes 37 30 (157)
Deferred compensation 20 4 (7)
Provision for store closings 208 - (59)
Restructuring reserve 876 1,561 (2,064)
Other 411 89 203
Interaction of net operating loss carryforward (1,869) 81 1,813
$ $ $
21
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the deferred tax liabilities and
assets are as follows:
Fiscal Fiscal
(In thousands) 1995 1994
Deferred tax liabilities:
Book-tax basis difference in property and equipment $ 228 $ 228
Other 81 127
Gross deferred tax liabilities 309 355
Deferred tax assets:
Net operating loss carryforward 24,920 20,967
Reorganization cost 541 1,418
Capital leases for books 428 1,346
Additional inventory costs capitalized for tax purposes 508 555
Other 842 914
Gross deferred tax assets 27,239 25,200
Valuation allowance for deferred tax assets 26,930 24,845
Net deferred tax assets 309 355
Net deferred taxes $ - $ -
The following is a reconciliation of the effective income tax rate with
the statutory rate:
Fiscal Fiscal Fiscal
1995 1994 1993
Statutory federal income tax rate (34)% (34)% (34)%
Limitation of tax loss carrybacks 34 34 34
22
<PAGE>
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 mandates the use of the liability
method in accounting for deferred income taxes. SFAS 109 is effective
for fiscal year 1994 and permits restatement of earlier years or
presentation of the cumulative effect of the change in the year of
adoption. The Company has adopted SFAS 109 prospectively in fiscal 1994
and the adoption has not materially impacted the Company's financial
condition or results of operations and has not resulted in a material
cumulative effect of a change in accounting principles.
No income tax payments were made in fiscal 1995, 1994 and 1993. The
Company has net operating loss carryforwards of approximately
$66,000,000 for financial reporting purposes and approximately
$64,000,000 for tax purposes at January 28, 1995. These net operating
loss carryforwards expire beginning in fiscal 2007.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company had a defined contribution profit-sharing plan covering
substantially all employees who had met certain age and length of
service requirements. Effective September 17, 1993, all assets of the
defined contribution profit sharing plan were merged with the defined
contribution retirement savings plan. Contributions to the
profit-sharing plan were determined by the Board of Directors. No
contribution was made for fiscal year 1995, 1994 or 1993.
The Company has a defined contribution retirement savings plan (the
"Plan"), a voluntary compensation deferral plan under Section 401(k) of
the Internal Revenue Code. The Plan allows participants to contribute
up to 15% of their annual compensation to the Plan. As of January 31,
1993, the Board of Directors of the Company adopted an amendment to the
Plan whereby the employer matching contribution was discontinued with
respect to salary reduction contributions made for compensation earned
after January 31, 1993. The Company has made no contributions in fiscal
1995 and contributed the minimum contribution of $40,000 and $169,000
for fiscal years 1994 and 1993, respectively.
The Brendle's Incorporated 1990 Stock Option Plan approved by the
shareholders on May 31, 1990, authorizes the grant of stock options for
the purchase of up to 300,000 shares of Common Stock to be made to
unaffiliated directors, officers and other key employees of the Company
in order to provide incentives to remain in the employment of the
Company. The plan permits the issuance of incentive stock options,
nonqualified stock options and stock appreciation rights ("Right") in
tandem with stock options. Incentive stock options may be granted at
not less than 100%, and nonqualified stock options may be granted at not
less than 95%, of market value. Options granted are exercisable only
after one year of continuous employment with the Company immediately
following the date of grant. The Stock Option Committee may prescribe
longer time periods and additional requirements with respect to the
exercise of a stock option or Right.
23
<PAGE>
The Brendle's Incorporated 1986 Incentive Stock Option Plan, as adopted
by the shareholders of the Company on January 31, 1986, authorizes the
grant of both incentive stock options and nonqualified options to
purchase up to 400,000 shares of Common Stock to officers and other key
employees of the Company. Incentive stock options may be granted at not
less than 100%, and nonqualified options at not less that 95%, of market
value. Options granted to date become exercisable at the rate of 20%
annually, subject to continuous employment with the Company, beginning
one year and expiring six years from the date of grant.
On April 10, 1986, the shareholders of the Company adopted the Brendle's
Incorporated 1986 Nonqualified Stock Option Plan, which authorizes the
grant of stock options to non-employee directors of the Company for the
purchase of up to 10,000 shares of Common Stock. All of these options
have been granted as of January 28, 1995.
On December 1, 1994, the shareholders of the Company granted stock
options for the purchase of 500,000 shares of Common Stock to officers
and other key employees of the Company in order to provide incentives to
remain in the employment of the Company. These options were issued
under both the 1986 and the 1990 Brendle's Incorporated Stock Option
Plans.
The following table summarizes the changes in stock options for the
plans for the three years ended January 28, 1995.
Shares subject to option:
Number Per share
of shares option price
Balance, February 1, 1992 221,790 $5.50-$14.50
Granted - -
Exercised - -
Cancelled 25,790 $7.00-$14.50
Balance, January 30, 1993 196,000 $5.50-$14.50
Granted - -
Exercised - -
Cancelled 25,680 $7.00-$14.50
Balance, January 29, 1994 170,320 $5.50-$14.50
Granted 500,000 $.625
Exercised -
Cancelled 153,250 $.625-$14.50
Balance, January 28, 1995 517,070 $.625-$14.50
Exercisable at end of year 26,570
Shares reserved for future grant:
Beginning of year 539,680
End of year 192,930
24
<PAGE>
Effective February 1, 1988, the Company entered into deferred
compensation agreements with three former employees. The agreements
provide monthly payments for a period of fifteen years commencing on the
respective retirement dates. The present value of the obligations
totalled $384,000 for fiscal year ended January 28, 1995, and is
included in other long-term liabilities on the accompanying balance
sheet. The present value of the obligations totalled $436,000 for
fiscal year ended January 29, 1994, and was included in liabilities
subject to compromise on the accompanying balance sheet.
Effective August 18, 1989, the Board of Directors of the Company adopted
the Brendle's Key Employee Stock Appreciation Rights Plan and the
Brendle's Incorporated Unaffiliated Directors Stock Appreciation Rights
Plan. The Key Employee SAR Plan and the Unaffiliated Directors' SAR
Plan provide for the issuance of up to a maximum of 75,000 and 15,000
stock appreciation rights, respectively. The Company, at January 28,
1995 and January 29, 1994, had 40,000 outstanding stock appreciation
rights under the plans, at prices from $7.00 to $8.25. Compensation
expense for stock appreciation rights, measured by the difference
between the market value and the option price, was zero for each of the
fiscal years ending January 28, 1995, January 29, 1994 and January 30,
1993.
NOTE 11 - RELATED PARTIES
The Company has capital and operating lease commitments with affiliates
of certain executive officers for stores, equipment and its corporate
headquarters facility. Real estate leases, as amended, generally
provide for renewal options and escalation of rent to reflect 60% of any
increase in the Consumer Price Index at the lease extension dates.
Additionally, certain of these leases provide for contingent rental
payments in that annual rental payments are the greater of a base rental
amount or a defined percentage of the sales of a particular location.
Also, the Company can be required to purchase the properties at
appraised market value, subject to approval by the outside directors.
Future minimum lease commitments to affiliates at January 28, 1995 are
as follows:
(In thousands) Capitalized Operating
Fiscal year leases leases
1996 $ 945 $ 850
1997 - 684
1998 - 488
1999 - 150
Total minimum lease payments $ 945 $ 2,172
Less amount representing interest 60
Present value of capitalized lease obligations $ 885
Lease payments to affiliates of the Company were $2,312,000, $2,501,000
and $2,724,000 for the years ended January 28, 1995, January 29, 1994
and January 30, 1993, respectively.
25
<PAGE>
NOTE 12 - GOING CONCERN
In response to past performance, Management has evaluated markets and
closed under-performing stores, sold its distribution center, reduced
corporate office staffing and implemented other cost control measures.
The Company has purchased fully integrated point-of-sale merchandising
and financial systems which will enable the Company to better monitor
inventory and financial performance, as well as make it more responsive
to changes in customer preference. In addition, the Company has revised
its advertising strategy to include more targeted distribution of its
promotional flyers and catalogs, and has continued to refine its
merchandise mix in response to the changing needs of its customers.
Management believes these changes will facilitate the Company's return
to profitability.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Brendle's Incorporated
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of changes in
shareholders' equity and of consolidated cash flows present
fairly, in all material respects, the financial position of
Brendle's Incorporated (the Company) at January 28, 1995 and
January 29, 1994, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended
January 28, 1995, 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.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. Since its
emergence from Chapter 11 bankruptcy as discussed in Note 1 to the
financial statements, the Company has continued to suffer
recurring losses from operations which raises substantial doubt
about its ability to continue as a going concern. The continued
viability of the Company in its present form is dependent upon,
among other factors, the Company's ability to generate sufficient
cash from operations or other sources that will meet ongoing
obligations over a sustained period. Managements' plans in regard
to these matters are described in Note 12. The accompanying
financial statements do not include any adjustments relating to
the recoverability and classification of reported asset amounts or
the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going
concern.
(Signature of Price Waterhouse LLP appears here)
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
March 17, 1995
27
<PAGE>
Market and Dividend Information.
The Company's Common Stock is traded on the NASDAQ National Market
system under the symbol BRDL. At January 28, 1995, there were
approximately 2,607 shareholders of record. The Company has not
declared any cash dividends since January 31, 1983. The current policy
of the Board of Directors is to retain earnings in order to finance the
development of the Company's business.
The following table shows quarterly high and low prices for the Common
Stock from January 31, 1994 to January 28, 1995.
Fiscal Year Fiscal Year
1995 1994
High Low High Low
First Quarter $1 7/8 $1 1/4 $1 3/8 $7/8
Second Quarter $2 1/8 $1 1/2 $1 1/8 $7/8
Third Quarter $2 1/8 $7/8 $1 1/4 $3/8
Fourth Quarter $1 1/8 $9/16 $2 1/8 $1
28
<PAGE>
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS
<S> <C>
EXECUTIVE OFFICERS BOARD OF DIRECTORS
Joseph M. McLeish, Jr. Douglas D. Brendle
President and Director
Chief Executive Officer
S. Floyd Brendle
William V. Grady Director
Senior Vice President of Marketing,
Advertising and Store Operations William F. Cosby
Director
Gregory S. Stegall
Senior Vice President of Merchandising Patty Brendle Redway
Director
David R. Renegar
Vice President and Thomas H. Davis
Chief Financial Officer Director
Retired Chairman of the
CORPORATE DATA Executive Committee of
Piedmont Aviation, Inc.
CORPORATE OFFICES Robert R. Dunn
Brendle's Incorporated Director
1919 North Bridge Street Extension President of The Finley Group, Inc.
Elkin, North Carolina 28621
(910) 526-5600 James B. Edwards, D.M.D.
Director
TRANSFER AGENT President of the Medical
Wachovia Bank and Trust University of South Carolina
Winston-Salem, North Carolina
John D. Gray
LEGAL COUNSEL Director
Blanco Tackabery Combs & Matamoros, P.A. Chairman Emeritus of the Board
Winston-Salem, North Carolina and Retired Chief Executive Officer of
Hartmarx Corporation
INDEPENDENT ACCOUNTANTS
Price Waterhouse John A. Northen
Winston-Salem, North Carolina Director
Partner in the law firm of
ANNUAL MEETING Northen, Blue, Rooks, Thibaut,
Time: 10:00 AM (EDT) Anderson & Woods
Date: June 1, 1995
Place: Elkin/Jonesville
Holiday Inn Jonesville,
North Carolina
</TABLE>
FORM 10-K
Information about Brendle's Incorporated, including a copy of the Company's
Annual Report on Form 10-K, may be obtained without charge by writing to
Mr. David R. Renegar, Chief Financial Officer, at the Company's corporate
offices.
