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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required) For the fiscal
year ended January 27, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No FeE Required)
For the transition period from to
Commission file number
Brendle's Incorporated
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
North Carolina 56-497852
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1919 North Bridge Street, Elkin, North Carolina 28621
- ------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(910) 526-5600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange
on Which Registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value per share
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
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State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing: $1,772,609 based on the average of the high and low sales prices
as of April 30, 1996, of the Registrant's Common Stock (which is the
Registrant's only outstanding class of voting equity security) on the National
Association of Securities Dealers Automated Quotation System for National Market
Issues. The foregoing market value excludes the dollar amount attributable to
shares of the Registrant's Common Stock held by certain executive officers and
directors of the Registrant. A determination of "affiliate" status for a
particular individual for the purpose of providing information in response to
the foregoing inquiry shall not be deemed a determination of "affiliate" status
for any other purpose.
Indicate by check mark whether the registrant has filed all documents
and reports to be filed by Section 12, 13, or 15(d) of the Securities Exchange
Act of 1934 subject to the distribution of securities under a plan confirmed by
a court.
Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Number outstanding at
Class April 30, 1996
Common Stock, $1.00 Par Value
Per Share. . . . . . . . . . . . . . . . 12,756,284
Documents Incorporated by Reference: None.
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PART I
ITEM 1. BUSINESS
DESCRIPTION AND DEVELOPMENT OF BUSINESS
General
Brendle's Incorporated (the "Company") and its subsidiaries originated
in 1919 as a rural supply company and the parent company was incorporated in
1947 in North Carolina. As of January 27, 1996, the Company operated 31 retail
stores in North Carolina, South Carolina, Virginia, and Tennessee offering, for
the most part, nationally advertised, brand-name merchandise at prices typically
less than the manufacturers' suggested retail prices for such merchandise. The
operation of these stores constitutes the sole industry segment in which the
Company operates and the above-named southeastern states encompass its sole
geographic area of operation. The Company's stores, have historically been
operated under the name "Brendle's," and merchandised as if they were a group of
specialty stores under one roof, and have historically offered in-depth lines of
jewelry, consumer electronics, small appliances, photographic equipment,
sporting goods, toys, gifts, house-wares, juvenile items, silver, crystal,
lamps, clocks, and other miscellaneous products. All sales operations are the
Company's and there are no leased department sales. On April 29, 1994, Brendle's
Stores, Inc., the Company's wholly-owned operating subsidiary, was merged into
the Company. See "Holding Company Status."
Brendle's stores average approximately 50,000 square feet in size,
approximately 59% of which is selling space. The stores generally are among the
principal or so-called "anchor" tenants in strip shopping centers, as opposed to
shopping malls. While many of the Company's stores are located in cities of less
than 100,000 people, the Company has competed in larger markets including
Greensboro, Raleigh, and Winston-Salem, North Carolina. During Fiscal 1994, the
Company introduced its mail order business.
The Company monitors its inventory and sales, both by store and by
item, at cost, on a daily basis through its computerized management information
system consisting of a central computer, point-of-sale terminals, and
administrative terminals. Specific item data captured at point-of-sale using bar
code and price look-up technology allows the Company's merchandising staff to
monitor sales and inventory levels by reference to each inventory item's own
stock-keeping number, thus enabling prompt response to rapidly selling or
out-of-stock items. A typical store carries approximately 15,000 different types
of inventory and is designed to direct customer attention and traffic to higher
profit margin products such as jewelry and gifts.
The Company sells few apparel or soft goods items. The Company believes
that it has historically offered broader assortments of jewelry and other hard
goods than are normally carried by other retailers of similar size. In addition,
the Company maintains a program of direct import purchases of jewelry which
assists in a more timely delivery and improved profit margins for jewelry
products.
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1992 CHAPTER 11 PROCEEDINGS
Near the end of the fiscal year ended February 1, 1992 ("Fiscal 1992"),
significant steps were taken to develop and implement a strategic turnaround
plan for the Company. The plan included restructuring bank debt, organizational
and administrative changes, and strategic adjustments necessary, in management's
opinion, to meet the competition in the market place and to manage in the
current economic environment in retailing in the Company's market area. The
stated objective of the Company's turnaround plan for the fiscal year ended
January 30, 1993 ("Fiscal 1993"), was to reverse the trend of declining earnings
from recent years while developing an improved merchandising strategy to become
a more focused specialty retailer.
The Company achieved moderate success during the first two quarters of
Fiscal 1993 in the implementation of its strategic turnaround plan. In September
and October 1992, however, the Company began experiencing increased pressure
from its vendors and a diminution in the credit terms that were available from
its vendors. This tightening of available credit terms from vendors, coupled
with unexpected significant decreases in sales during the third quarter of
Fiscal 1993, created substantial cash management difficulties. The Company's
inability to obtain inventory on historical terms and the decrease in sales
prevented the Company from being able to maintain required inventory levels and
to purchase at planned levels the inventory it required for the 1992 Christmas
season. As the restriction in credit terms from vendors persisted, the resulting
decrease in inventory levels compounded the Company's sales decrease due to lack
of sufficient inventory.
Management of the Company explored various alternatives to the cash
management crisis it faced, including discussions with its primary lenders
regarding modification to its then existing Loan Agreements. After careful
consideration of these alternatives, management of the Company and its Board of
Directors determined that in order to give the Company the time that it needed
to implement its strategic turnaround plan, it was in the best interest of its
shareholders, employees, and customers to seek protection under Chapter 11 of
the United States Bankruptcy Code.
On November 22, 1992, the Company and its then wholly-owned principal
operating subsidiary, Brendle's Stores, Inc. ("BSI"), initiated Chapter 11
reorganization proceedings by filing petitions with the United States Bankruptcy
Court (the "Bankruptcy Court") for the Middle District of North Carolina (the
"Chapter 11 Proceeding").
Following the date the Chapter 11 proceeding was filed, the Company
worked diligently to develop a Joint Plan of Reorganization (the "Plan") which
set forth the payment terms to creditors and provided for other organizational
and operational changes of the reorganized Company. An Order confirming the Plan
was entered on December 20, 1993, for the Company and on December 23, 1993, for
BSI. The Plan developed by the Company and confirmed by the Bankruptcy Court
generally provided for the full payment of all claims of The CIT Group/Business
Credit, Inc., the Company's debtor-in-possession lender, and all allowed secured
claims, priority claims and administrative claims (as those claims were defined
in the Plan). The Plan further provided that general unsecured creditors could
elect to receive either (i) a cash payment equal in amount to fifty-two percent
(52%) of the amount of their unsecured claim, or (ii) a Reorganization Note
equal to eighty percent (80%) of their allowed unsecured claims. The
Reorganization Notes, which are dated as of April 30, 1994, bear interest at the
rate of eight percent (8%) per annum and are payable over a ten (10)-year term.
For the first two (2) years, the Reorganization Notes will accrue interest only,
and no payments are to be made to Reorganization Note holders. At the end of two
(2) years,
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the principal amount of the Reorganization Notes, plus accrued but unpaid
interest, are to be capitalized, and during the third year, interest on the
capitalized principal balance shall be paid semi-annually. Thereafter, interest
on the unpaid principal balance will be due and payable semi-annually. Annual
principal payments are to be made at the end of years four (4) through ten (10)
in their respective amounts as follows: 11%, 12%, 13%, 14.1%, 15.3%, 16.6%, and
18%. The Reorganization Notes also include standard default provisions. The
creditors were solicited to make their election in November, 1993, and over 99%
of the creditors, representing approximately $85 million in unsecured
obligations, elected to receive the cash payment, with less than 1% of the
creditors, representing approximately $160,000 in unsecured obligations electing
to receive the Reorganization Notes. Reorganization Notes are unsecured
obligations of the Company.
In addition to the items set forth above, all general unsecured
creditors received, with respect to their allowed claims, a pro rata
distribution of stock in the Company, which, in the aggregate, constituted
thirty-five percent (35%) of the outstanding stock of the Company at April 29,
1994, the date the Plan of Reorganization was substantially consummated.
The Plan further provided that certain of the Company's creditors could
appoint two (2) directors to serve on the Company's Board of Directors for a
period of one (1) year following substantial consummation. The creditors
appointed Robert D. Dunn and John A. Northen to serve as members of the
Company's Board of Directors and these gentlemen continue to serve on the
Company's Board of Directors. Information regarding these directors is set forth
under Item 10 hereof entitled "Directors and Executive Officers of the Company."
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1996 CHAPTER 11 PROCEEDING
On April 16, 1996 the Company again filed a Chapter 11 reorganization
petition in the United States Bankruptcy Court for the Middle District of North
Carolina. The reorganization filing was necessitated by a series of significant
strategic changes management determined to undertake as a result of a detailed
analysis of its existing business, merchandise areas where management expected
significant opportunity, and changes in the competitive landscape in the markets
it served. As a result of this intense review, management decided, among other
things, to close 18 of its 30 stores. From an immediate financial perspective,
the store closure program resulted in a lease liability in excess of $12.0
million. Due to losses in Fiscal 1996 the Company's working capital was severely
depleted. Taken together with the investment necessary to restructure itself
both strategically and operationally, these short-term cash requirements put
significant additional pressure on the Company's working capital.
During the last six (6) years catalog showroom retailers and their
hybrids across the country, like Brendle's, have fallen out of favor with
customers. The successful development of two specific types of stores, "category
killers" and large format retailers, and their expansion into many of the
markets the Company has served well for decades, have provided the consumer with
attractive alternatives to traditional retailers like the Company. The Company
had developed a number of strategies to attempt to successfully compete with
these companies, but continues to suffer from lagging sales and/or margins. From
a merchandising perspective the Company has generally not made any significant
changes. Management has now committed the Company to focusing on and investing
in those businesses it believes it can profitably sell and, possibly, dominate
in the markets it will serve.
While the Company's first Chapter 11 proceeding succeeded in paring a
substantial amount of debt from the balance sheet, and therefore providing the
Company with a more appropriate capital structure, the Company did not
significantly change its merchandise offering to counter the significant changes
in the retail climate which had occurred. The Company believed it could continue
to offer brand name merchandise at a discount and through changed promotion
programs thwart the in-roads on its business being made by its competitors. The
Company has continued, however, to lose ground to other retailers who positioned
themselves as the retailer of choice in certain key categories such as consumer
electronics, or as perceived price leaders in a wide array of merchandise.
This reorganization being proposed for the Company now, is primarily
intended to effect a substantial, strategic repositioning of the Company: what
it sells, how it sells and where it will sell its goods. To a certain extent the
Company has structured a merchandise strategy similar in nature to, and used to
great success by, the category killers who now dominate consumer electronics,
computer equipment and software, and sporting goods. The Company intends to have
the dominant selection of merchandise in selected categories in its stores - and
intends to be the destination store for these products in the markets it serves.
Current Status
During the last five years the Company has experienced serious erosion
in several of its businesses, most significantly in consumer electronics, toys
and selected sporting goods. Huge increases in retail space and the shopping
alternatives made available to the consumer have created an atmosphere where
stores are cherry-picked for their offerings. This, in turn, has put tremendous
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pressure on merchandise categories which carry historically low margins even
without any promotional activity. Generally, a substantial portion of the
Company's business has been promotionally driven. The Company uses circulars
which highlight particular products within merchandise categories as a central
tenet of its advertising and promotion program, and as a primary means of
attracting customer traffic in its stores.
This strategy left the Company in the position of carrying a wide and
expensive assortment of certain merchandise with limited opportunity for gross
margin dollars and acceptable levels of return on investment. While in the past
these businesses have generated considerable sales dollars, they nevertheless
have failed to provide an adequate contribution to the Company to warrant their
continuing existence. Management has made the decision to either exit from or
substantially reduce its exposure to these businesses and to focus its resources
on merchandise categories in which it believes it can provide the most
compelling offering in the markets it serves.
Strategic Repositioning
Management expects the elimination of these and other exited businesses
to have a significant, positive effect on the Company's balance sheet and income
statement. This strategy should result in a reduced inventory investment, an
increase in gross margin percent, and an increase in gross margin return on
investment. The elimination of these businesses creates another significant and
positive impact as well, and that is the reduction of the competitive threat
from certain large format retailers, including Wal Mart and K Mart, and
"category killers." including Best Buy and Circuit City, from the Company's
competitor landscape. Management believes that, for the first time in many
years, a substantial portion of Brendle's merchandise offering will be somewhat
insulated from national retailers.
The strategic objective is for the Company to become a destination
store for the home, for family and personal health in the markets it serves.
Brendle's merchandise program will be centered around six core businesses which
include jewelry, party goods, crafts, for the home, giftware and personal
fitness or leisure. The Company expects to position itself to attempt to be the
dominant player in the categories it offers in the markets it serves. Brendle's
already enjoys this status in jewelry, for the home and giftware categories.
Importantly, the merchandise shifts now underway and those soon to be
implemented are all targeted to the consumer the Company is very familiar with -
the 25 to 54 year old female with an average income range of $25,000 to $40,000
who CURRENTLY SHOPS at Brendle's. The Company will be offering products it has
previously sold or are natural extensions to its business. Both the party goods
and crafts business offer an additional dimension to the Company's merchandise
mix, in that consumers for these categories make multiple purchases throughout
the year. In fact, several crafts retailers report that 60% of their customers
shop at the crafts store at least twice a month.
Go-Forward Stores
In order to be successful in making the aforementioned merchandise
changes, the Company requires a store base which demonstrates a reasonable per
store cash contribution in the short-term as well as the opportunity for
long-term returns. A number of criteria were established to evaluate the stores
with the objective of reducing the store count to those which would provide the
Company
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with the greatest financial return and which could best leverage off a
substantially reduced corporate and distribution overhead structure. It was
determined that 18 stores should be closed. In each of the last four (4) years
the 12 go-forward stores outperformed the closed stores as measured by operating
profit. In fiscal 1996 the 12 go-forward stores generated an average operating
profit nearly 10 times that of the 18 closed stores and nearly five times that
of the 16 stores which had been opened throughout the previous four (4) years.
INVESTMENT SPENDING
There has been no material store investment spending for several years
and the Company believes this lack of investment has impeded its performance. As
an integral part of its merchandise strategy the Company plans to upgrade its
stores to best serve both the product changes and the destination shopping
environment. The existing layouts do not encourage the consumer to shop
departments. Instead, the consumer is directed to buying specific products. The
setting reinforces the image of Brendle's as a promotion or flyer driven
retailer in which the consumer focuses on the items on sale. The environment
does not offer the consumer the opportunity to walk through the store, evaluate
the offering throughout a department and make a purchase. Impulse purchasing is
an important element in the merchandise strategy and the new store formats
encourage this type of shopping experience.
STORE CHANGES
During the fiscal year ended January 27, 1996 ("Fiscal 1996"), the
Company relocated the Chapel Hill store to Cary, North Carolina and opened a
store in Rock Hill, South Carolina. As part of the Company's restructuring, the
Company closed a Greensboro, North Carolina store in February, 1996. The 1996
strategic restructuring plan (the "1996 Strategic Plan") will close 18 stores
located in Greensboro, Cary, Concord, Jacksonville, Roanoke Rapids, Wilmington,
New Bern, Fayetteville, Winston-Salem, Enka and Raleigh [two (2)], North
Carolina; Rock Hill, Spartanburg, and Florence, South Carolina; Roanoke and
Christiansburg, Virginia; and Kingsport, Tennessee.
DISTRIBUTION CENTER
The Company's distribution and warehousing activities have been
conducted principally through a distribution center which it previously owned.
The distribution center contains in excess of 388,000 square feet and is located
in Elkin, North Carolina. Due primarily to the reduction of the number of stores
that the Company operated, management of the Company determined that it no
longer required 388,000 square feet of distribution space. Consequently, the
Company sold the distribution center on January 31, 1994, for a purchase price
of $5,250,000. Under the terms of the sale, the Company was permitted to lease
back from the purchaser approximately 224,000 square feet of the distribution
facility. The terms of the lease provided that the Company pay initial annual
rent in the amount of $504,000 with increases annually fixed in accordance with
the lease terms. The initial term of this lease will expire on January 31, 2003.
The net sale proceeds of the distribution center were used to pay the Company's
secured lenders who had perfected security interests in the distribution center
securing pre-petition debt. The 1996 strategic plan will result in a further
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reduction of distribution space required. The Company plans to further downsize
the existing distribution center or move the distribution function.
HOLDING COMPANY STATUS
From January 31, 1987, through April 29, 1994, substantially all of the
activities of the Company were performed through subsidiaries wholly owned,
directly or indirectly, by the Company, thus making the corporate structure of
the Company and its subsidiaries as follows: Brendle's Incorporated, a North
Carolina holding company owning the active wholly owned subsidiaries; Brendle's
Stores, Inc., which owned more than ninety-one percent (91%) of the Company's
operating assets; Brendle Transport, Inc., which owned or leased the
transportation equipment utilized in the Company's operations; The Electronic
Sports Collection USA, Inc., an import buying subsidiary of the Company;
Brendle's Acceptance Corporation, which was formed to manage the Company's
credit finance operations; and BFS, Inc., an investment management and holding
subsidiary organized under the laws of the State of Delaware.
As a component of the Company's substantial consummation of its Plan of
Reorganization, Brendle's Stores, Inc. was merged into the Company effective as
of April 29, 1994. Management of the Company believed that this merger would
help to streamline its operations and that the benefits once available to the
Company through the holding company structure no longer provided the Company
with sufficient operational efficiencies to justify the expense of remaining
separate. The Company merged all subsidiaries into the Company prior to June 30,
1994.
SEASONALITY
The Company's retail business (its sole industry segment) is seasonal
in nature, being strongest in the Company's fourth fiscal quarter. The Company
typically has made, and anticipates to make in the future, in excess of
one-third of its revenues for the fiscal year during the fourth fiscal quarter
of operations.
REVENUES, PROFITS, ASSETS, WORKING CAPITAL AND OTHER FINANCIAL ITEMS
For information relating to changes in revenues, profits, assets,
working capital and its components and other financial information, reference is
made to Management's Discussion and Analysis appearing under Item 7 of this
Annual Report on Form 10-K and incorporated herein by reference and to the
Company's financial statements and the related notes and schedules thereto which
appear under appropriate captions elsewhere in this Annual Report on Form 10-K.
CUSTOMERS
No material part of the business of the Company is dependent on a
single customer or a limited number of customers or a group of commonly
controlled or affiliated customers. No purchases by any such customer or group
comprised 10% or more of the total revenues of the Company for the fiscal year
ended January 27, 1996.
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RESEARCH AND DEVELOPMENT ACTIVITIES
The Company is not engaged in manufacturing operations. During the last
three fiscal years, the Company has not expended substantial dollar amounts in
research and development activities relating to its products or services.
However, the executive officers of the Company, as well as its merchandising
managers and staff, are continually engaged, individually and through focus
groups, in evaluating the sales performance of various products and in the
development of operating efficiencies by the use of marketing focus groups,
normal market visits, and discussions with key suppliers.
INVENTORY AND SUPPLIES: PRODUCTS AND SERVICES
The Company has no long-term contracts with its suppliers for inventory
or supplies, but believes that there are adequate sources of supply available
for the products which it sells or anticipates selling. No single supplier
accounts for a material amount of the total inventory purchased by the Company.
During the last three fiscal years of the Company, no class of similar products
or services accounted for ten percent or more of the Company's consolidated
revenue for such periods.
COMPETITION
The Company has numerous and significant competitors in the general
merchandise retail and discount retail areas, including large discount
retailers, department stores, catalog showrooms, mail order houses, and other
related operations.
EMPLOYEES
As of January 27, 1996, the Company had approximately 1,591 employees.
The Company considers its relations with its employees to be satisfactory.
ENVIRONMENTAL REGULATION
The Company's business activities are not significantly affected by
federal, state, or local environmental regulation.
FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
During each of the Company's last three fiscal years, the Company's
operations and assets in foreign areas and sales by domestic operations to
foreign customers, if any, were not material to the Company's business as a
whole. All of the Company's domestic operations are conducted in a single
four-state geographic area of the southeastern United States.
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PATENTS AND TRADEMARKS
The Company believes that the name "Brendle's," used both alone and
with the distinctive diamond apostrophe, has acquired commercial value and has
helped to promote the Company's reputation in its business. The Company has
obtained federal registered trademark protection for the name used in these
ways.
ITEM (UNNUMBERED). EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to Item 401 (b) of Regulation S-K and General Instruction G to
Form 10-K, the following information is furnished concerning the executive
officers of the Company. All officers are elected by the Board of Directors to
serve at the pleasure of the Board of Directors for a period of one year or
until the next annual meeting of the Board of Directors, and until their
respective successors are duly elected. For information regarding the share
ownership of the executives named in the Summary Compensation Table included in
Item 11, see "Item 12 - Security Ownership of Certain Beneficial Owners and
Management."
<TABLE>
<CAPTION>
Name Age All Positions and Offices with Periods of Service
and business experience for last five years (1)
<S> <C> <C>
Joseph M. McLeish, Jr. 47 President and Chief Executive Officer of the Company since
February, 1995; President of Merchandisers Association,
Inc. from January, 1992 to February, 1995; Executive
Director of Merchandisers Association, Inc. from February,
1991 to December, 1991; Vice President of David Weis
Wholesale Jewelers, Inc. from January, 1980 to February,
1991.
William V. Grady(2) 49 Senior Vice President of Marketing - Advertising and Store
Operations of the Company from December, 1992 to
December, 1995. National Director of Field Marketing for
General Electric Capital Corporation from February, 1988,
to December, 1992. Previously Mr. Grady was Operating
Vice President of Marketing and Sales Promotion for
Service Merchandise. Prior to Service Merchandise, Mr.
Grady retired from Lowe's Companies, Inc., holding a
variety of positions over 19 years.
David R. Renegar 44 Vice President and Chief Financial Officer of the Company
since February, 1992. Treasurer of the Company since
April, 1990; Secretary and Controller of the Company since
February, 1986.
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Gregory S. Stegall 44 Senior Vice President of Merchandising for the Company
since April, 1995; Vice President of Jewelry Merchandising
for the Company from August, 1994 to March, 1995;
Divisional Vice President - Jewelry for the Company from
July, 1989 to August, 1994.
</TABLE>
(1) Each executive officer of the Company held the identical offices with
Brendle's Stores Inc., previously a wholly owned subsidiary of the Company which
was merged into the Company effective April 29, 1994. Brendle's Stores, Inc.
previously owned the substantial part of the operating assets of the Company.
(2) William V. Grady served as the Company's Vice President of Marketing -
Advertising and Store Operations from December 1992 to December 1995 when he
resigned his position with the Company.
ITEM 2. PROPERTIES
The corporate headquarters and principal executive offices of the
Company are located at 1919 North Bridge Street, Elkin, North Carolina 28621 in
leased premises of approximately 121,000 square feet under a lease, with an
affiliate of the Company, scheduled to expire on September 30, 2000, with
options to renew for up to 20 additional years.
The Company's distribution center, opened in December, 1986 in Elkin,
North Carolina, previously encompassed over 388,000 square feet of space. On
February 1, 1994, the Company sold the distribution center for a purchase price
of $5,250,000. Pursuant to the terms of the sales contract, the Company was
permitted to lease back 244,000 square feet of distribution center space. The
terms of this lease are summarily described under "Item 1. - Description of
Business - Distribution Center."
Set forth below is a list of all the Company's stores open on January
27, 1996, the cities in which the stores are located, the year in which the
stores were first opened in that city, and their present approximate square
footage, separately indicating both selling space and warehouse (storage) space
at each store. Certain stores have changed or may change locations within a
given city.
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<TABLE>
<CAPTION>
Year of Approximate Approximate
Store Open- Selling Area Warehouse Total
ing in Square Square Square
City Location Footage Footage Footage
- ---- -------- ------- ------- -------
<S> <C> <C> <C> <C>
1967 ( 1) Elkin, NC 30,418 11,305 41,723
1968 ( 2) Winston-Salem, NC 25,000 35,000 60,000
1971 ( 3) Hickory, NC 30,000 32,000 62,000
1972* ( 4) Greensboro, NC 28,500 21,500 50,000
1976 ( 5) Asheville, NC 33,000 37,000 70,000
1977* ( 6) Kingsport, TN 23,100 14,700 37,800
1978* ( 7) Concord, NC 30,277 7,881 38,158
1978* ( 8) Raleigh, NC 32,067 27,933 60,000
1978* ( 9) Winston-Salem, NC 22,000 5,000 27,000
1980 (10) Burlington, NC 35,000 25,000 60,000
1982 (11) Wilson, NC 30,993 29,007 60,000
1982 (12) Myrtle Beach, SC 30,993 29,007 60,000
1982* (13) Raleigh, NC 28,700 35,300 64,000
1982** (14) Greensboro, NC 32,000 31,747 63,747
1983* (15) Jacksonville, NC 23,000 29,861 52,861
1983* (16) Roanoke, VA 33,468 16,532 50,000
1985 (17) Boone, NC 30,000 27,000 57,000
1985 (18) Kinston, NC 28,516 33,101 61,617
1985* (19) Roanoke Rapids, NC 30,000 21,000 51,000
1985 (20) Salisbury, NC 28,779 15,221 44,000
1985 (21) Anderson, SC 27,500 12,500 40,000
1985* (22) Spartanburg, SC 21,500 23,500 45,000
1985* (23) Florence, SC 29,248 10,752 40,000
1986* (24) Enka/Candler, NC 27,263 26,390 53,653
1987* (25) Wilmington, NC 28,993 21,007 50,000
1988 (26) Greenville, NC 28,993 21,007 50,000
1989* (27) Christiansburg, VA 29,248 10,752 40,000
1989* (28) New Bern, NC 24,241 5,759 30,000
1990* (29) Fayetteville, NC 29,248 5,064 34,312
1995* (30) Cary, NC 44,000 10,000 54,000
1995* (31) Rock Hill, SC 60,000 7,000 67,000
TOTAL FOR 31 OPEN STORES 936,045 638,826 1,574,871
</TABLE>
* These stores are planned to close in Fiscal 1997 as a result of the 1996
Strategic Plan.
**This store was closed in February, 1996.
13
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The Company owned in fee two of these stores, one each in Salisbury and
Enka, North Carolina. These stores are not pledged and encumbered under the
terms of the Company's revolving credit facility with Foothills Capital
Corporation; however, they may at some future date become additional collateral
for the loan. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity." Thirteen (13) of these stores are leased
from an affiliate of the Company, and the remaining fifteen (15) stores are
leased from third parties.
For a discussion of capital and operating lease commitments for the
Company's stores, equipment and corporate headquarters facility, reference is
made in Notes to Consolidated Financial Statements, which discussion is
incorporated herein by reference.
The Company plans to close (18) low or marginal performing stores in
Fiscal 1997. The closing stores are located in Greensboro, Cary, Concord,
Jacksonville, Roanoke Rapids, Wilmington, New Bern, Fayetteville, Winston-Salem,
Enka and Raleigh [two (2)], North Carolina; Rock Hill, Spartanburg, and
Florence, South Carolina; Roanoke and Christiansburg, Virginia; and Kingsport,
Tennessee.
Leases on stores planned to be closed during Fiscal 1997 will be
rejected or assumed and assigned to third parties pursuant to Bankruptcy Court
orders.
ITEM 3. LEGAL PROCEEDINGS.
On April 16, 1996, Brendle's filed a Voluntary Petition with the United
States Bankruptcy Court for the Middle District of North Carolina instituting a
Chapter 11 reorganization proceeding. The case has been assigned number
B-96-50495C-11W. Subsequent to the filing, pursuant to motions filed by
Brendle's, the United States Bankruptcy Court authorized the closing of 18
stores and the liquidation of the inventory located in those stores through
going out of business sales. Also, pursuant to Motion filed by Brendle's, an
Order has been entered approving interim post-petition financing from Foothill
Capital Corporation in the amount of $25,000,000. It is anticipated that a Final
Order will approve post-petition financing in an approximate amount of $12-15
million which the Company feels will be adequate for the needs of the Company
while it is a debtor-in-possession. In addition to the official unsecured
creditors committee which is routinely appointed in Chapter 11 reorganization
cases, the United States Bankruptcy Court, pursuant to a motion filed by
Brendle's, has also approved the formation of an official Equity Security
Holders Committee, which is now actively functioning in the Chapter 11
proceeding. During the course of court proceedings, Brendle's has announced on
the record that it intends to file its plan of reorganization prior to August
14, 1996, which is the last day of the original exclusivity period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the Company's fiscal year covered by this report.
14
<PAGE>
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ National Market
system under the symbol BRDL. At January 27, 1996, there were approximately
2,625 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 help finance the development of the Company's
business.
The following table shows quarterly high and low prices for the common
stock from January 28, 1995 to January 27, 1996.
<TABLE>
<CAPTION>
FISCAL YEAR Fiscal Year
1996 1995
HIGH Low High Low
<S> <C> <C> <C> <C> <C>
First Quarter $ 1 $ 3/8 $ 1 7/8 $ 1 1/4
Second Quarter $ 7/8 $ 1/2 $ 2 1/8 $ 1 1/2
Third Quarter $ 5/8 $ 5/16 $ 2 1/8 $ 7/8
Fourth Quarter $ 5/8 $ 7/32 $ 1 1/8 $ 9/16
</TABLE>
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
SELECTED FINANCIAL DATA.
The following selected financial data of Brendle's at and for each year in the
five-year period ended January 27, 1996, 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>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Revenues $ 154,581 $ 166,520 $ 171,073 $ 235,090 $ 301,359
Income (loss) before interest,
depreciation, amortization,
restructuring and taxes
(OPEARN) (1,911) (432) 2,487 (3,216) 6,457
Net income (loss) (8,663) 21,963 (a) (19,619) (a) (19,899)(a) (26,374) (a)
Net income (loss) per share (.68) 1.88 (2.36) (2.45) (3.28)
RATIOS & RATES:
Gross margin to total revenues 25.64% 25.62% 26.92% 28.16% 26.63%
Selling, operating and
administrative expenses to
total revenues 29.22% 25.88% 25.47% 29.53% 24.49%
OPEARN to total revenues (1.24%) (.26%) 1.45% (1.37)% 2.14%
Effective tax rate -- -- -- -- (7)%
Net income (loss) to total revenues (5.60%) 13.19% (11.47)% (8.46)% (8.75)%
Current ratio 1.55 2.10 0.93 0.91 1.32
Weighted average shares outstanding 12,757 11,671 8,297 8,120 8,041
Number of shareholders 2,625 2,607 1,130 1,138 1,163
Number of stores 31 30 30 43 52
FINANCIAL POSITION:
Inventories $ 50,147 $ 48,451 $ 54,133 $ 57,893 $ 78,757
Working capital 19,093 27,506 (b) (b) 21,216
Total assets 61,988 62,128 107,563 147,487 136,591
Long-term obligations (c) 2,242 2,713 (b) (b) 14,973
Shareholders' equity 24,806 34,357 5,460 24,766 44,172
Book value per share 1.95 2.94 0.66 3.05 5.49
Sales per square foot of selling space 189 187 187 160 185
</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. There was no
provision for restructing during fiscal 1996.
(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.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
On November 22, 1992, the Company filed for protection under Chapter 11
of the Bankruptcy Code. While in Chapter 11, the Company closed twenty-one of
its fifty stores, sold its distribution center, leased back approximately 62% of
the square footage in the distribution center, downsized the corporate overhead
structure and adjusted the existing catalog showroom and merchandising mix. The
Company emerged from Chapter 11 on April 20, 1994, and has continued to operate
the business under the catalog showroom format. Due to the weak retail
environment during the 1995 Christmas selling season and the continued decline
in the popularity of the catalog showroom format, and competition in the general
merchandise categories, the Company has decided to implement a significant
restructuring of its merchandising strategy. The restructuring is planned to be
implemented under Chapter 11 of the Bankruptcy Code by virtue of its petition
filed on April 16, 1996.
Management is in the process of evaluating markets and has indicated
its intention to close 18 of its 30 stores, reduce corporate office staffing and
implement other cost control measures. Management has announced its intention,
subject to Board of Directors and Bankruptcy Court approval, to reformat the
Company's stores in an attempt to market the Company as a destination shopping
point. The Company will focus on jewelry, housewares, small appliances,
ready-to- assemble furniture, gifts, crafts, party goods and health and fitness
items. Management believes these changes in the Company's focus and merchandise
mix will facilitate the Company's return to profitability.
Comparison of Operations
Net sales for the fiscal year ended January 27, 1996 ("Fiscal 1996")
were $154,242,000 compared to net sales of $166,278,000 for the fiscal year
ended January 28, 1995 ("Fiscal 1995"), a decrease of $12,036,000, or 7.2%. This
decrease in sales was the result of a comparable store sales decrease of 8.2%
offset by sales from a net one new store opened during Fiscal 1996. This
decrease in the comparable store sales was primarily the result of a planned
decrease in promotional activity during the first six months of Fiscal 1996,
heavy competition in general merchandise categories, and a generally weak retail
environment. Net sales for Fiscal 1995 were $166,278,000 compared to
$170,345,000 for Fiscal 1994, a decrease of $4,067,000, or 2.4%. This decrease
in sales resulted primarily from operating 13 fewer stores during the first four
months of Fiscal 1995 compared to Fiscal 1994.
The Company's business is a seasonal one with a significant portion of
its sales occurring in the fourth quarter of the Fiscal year. Fourth quarter
revenues accounted for 45.8% of total revenues in Fiscal 1996, compared to 45.1%
of total revenues in Fiscal 1995 and 42.5% in Fiscal 1994.
Other income for Fiscal 1996, 1995 and 1994 was $339,000, $242,000 and
$728,000, respectively. Fiscal 1996 other income included miscellaneous receipts
from prior bad debt recovery and other nonrecurring items. Fiscal 1995 other
income included miscellaneous receipts
17
<PAGE>
from sale of scrap materials, NSF check fees, and other non-recurring items.
Fiscal 1994 other income included non-recurring items such as rental income from
the distribution center and prior-year bad debt recovery.
The Cost of Merchandise Sold in Fiscal 1996 was $114,952,000, or
$8,899,000 less than Fiscal 1995 primarily due to the sales decline discussed
above. The gross margin as a percentage of revenues for Fiscal 1996 was 25.6%
compared to 25.6% for Fiscal 1995.
Selling, Operating and Administrative expenses ("SO & A") for Fiscal
1996 were $45,167,000, compared to $43,026,000 for Fiscal 1995. This increase in
SO & A is primarily the result of higher advertising expense due to increased
paper costs. SO & A expenses, as a percentage of revenues, were 29.2% and 25.8%,
respectively, for Fiscal 1996 and Fiscal 1995.
Depreciation and amortization expense for Fiscal 1996 and Fiscal 1995
was $3,190,000 and $3,561,000, respectively. Expenses for fixed asset
depreciation and amortization are less because certain assets have become fully
depreciated.
Interest on Capital Leases for Fiscal 1996, Fiscal 1995 and Fiscal 1994
were $168,000, $454,000 and $756,000, respectively. Store leases that have been
renewed during the current year will be accounted for as operating leases and
all remaining capital leases are in the later years of their term resulting in a
book expense reduction.
Bank fees and interest expense on debt other than Capital Leases were
$3,394,000, $2,484,000 and $383,000 for Fiscal 1996, 1995 and 1994,
respectively. The increase in interest expense since Fiscal 1994 is due to
borrowings under the Company's $45 million revolving credit facility and
increased interest rates. The borrowings increased because, upon emerging from
Chapter 11, the Company paid its creditors approximately $48.0 million of which
the Company had approximately $30 million in 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 Reorganization under the Bankruptcy Code).
Reorganization costs for Fiscal 1995 of $3,473,000 include professional
fees associated with the 1992 Chapter 11 Proceedings, expenses for stores closed
in prior years and employee severance costs.
Gain on sale of facilities of $1,026,000 for Fiscal 1996 resulted from
the sale of the Company's lease at its Chapel Hill, North Carolina store, which
was relocated to Cary, North Carolina, the sale of a portion of the warehouse at
the store in Enka, North Carolina and other retirements of fixtures and
equipment in the ordinary course of business.
Gain from proceeds on life insurance was $2,601,000 for Fiscal 1996
which resulted from life insurance proceeds on Patty B. Redway, a director of
the Company, who died on September 29, 1995 and proceeds from the death of
another employee of the Company.
18
<PAGE>
Debt Forgiveness for Fiscal 1995 was $32,367,000. This amount
represents pre-petition 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
Net loss for Fiscal 1996 was ($8,663,000), or ($.68) per share,
compared to net income/loss for Fiscal 1995 and Fiscal 1994 of $21,963,000 and
($19,619,000), or $1.88 and ($2.36) per share, respectively. The Fiscal 1996
loss included a gain on sale of facilities of $1,026,000 and a gain from life
insurance proceeds of $2,601,000. The net income for Fiscal 1995 reflects
reorganization costs of $3,473,000 and debt forgiveness of $32,367,0000, both a
result of the Company's Chapter 11 Proceeding. The Fiscal 1994 net loss
reflected reorganization costs from the Chapter 11 proceeding and store closings
of $16,090,000.
EBITDA (loss) for Fiscal 1996 was ($5,538,000) compared to ($357,000)
for Fiscal 1995. Management believes earnings (loss) before interest, taxes,
depreciation, amortization and reorganization items ("EBITDA") is a useful tool
for measuring performance.
Liquidity and Capital Resources
Net cash used by operating activities was $5.6 million for Fiscal 1996
compared to $2.1 million provided by operations for Fiscal 1995. The decrease in
the current year cash flow was due primarily to the increase in the operating
loss due to the weak retail environment during the Christmas season, as
discussed in the Comparison of Operations. The Company's cash balance at January
27, 1996 was $1.4 million compared to $1.8 million at January 28, 1995.
Merchandise inventories were $50.1 million at January 27, 1996, compared to
$48.5 million at January 28, 1995. The increase in inventory was primarily due
to the Company operating 31 stores on January 27, 1996, compared to 30 stores on
January 28, 1995.
Current liabilities at January 27, 1996 were $34.9 million, compared to
$25.1 million at January 28, 1995. This increase in current liabilities is due
primarily to increased borrowings under the Company's revolving credit facility,
the result of the operating loss for Fiscal 1996; and increased account payables
resulting from improved vendor terms.
On April 20, 1994, the Company received Bankruptcy Court Approval for
its five (5)-year, $45 million revolving credit facility which was used to fund
payments to creditors and to fund working capital, inventory purchases, capital
expenditures, and other general corporate purposes. The 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 27, 1996, the Company was in compliance with all covenants.
Under the revolving credit facility, the lender agreed 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 $45.0 million. The revolving credit facility included a sublimit of $10
million for documentary and stand-by letters of credit.
19
<PAGE>
The revolving credit facility provided that each loan shall bear
interest at a rate of prime plus two (2.00) percentage points. Interest on these
loans were payable monthly in arrears on the first day of each month. Also,
under the revolving credit facility, the Company paid 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 required 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 27, 1996, the Company had borrowed $22,275,000 from the
revolving credit facility and had outstanding $1,515,000 in open letters of
credit, for a total of $23,790,000. At January 27, 1996, the total available
under the Facility based on the borrowing base formula was $25,089,000.
Due to the net operating loss for Fiscal 1996, coupled with the working
capital requirements of a thirty-store operation, it was Management's opinion
that the funds available under the revolving credit facility, based on the
borrowing base formula would not be adequate to fund the Company's cash
requirements for Fiscal 1997.
On April 16, 1996, the Company 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. Under the Chapter 11 Proceeding, the
Company plans to implement a significant restructuring of its merchandise
strategy. The Plan also calls for closing eighteen of the Company's 30 stores.
Proceeds from liquidation of the stores will be used to pay down the Company's
revolving credit facility and fund the Plan of Reorganization. The Company feels
that the funds generated from the liquidation of the eighteen stores and the
Debtor-In-Possession Financing Agreement will be adequate to cover capital
expenditures and working capital requirements.
On April 30, 1996, the Company received Bankruptcy Court Approval for a
one-year $25 million Debtor-In-Possession Revolving Credit Facility ("DIP
Facility") to be used to retire Foothill's pre-petition secured loan and, to the
extent necessary, fund working capital requirements. The $25 million DIP
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.
Under the DIP 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 $25
million. The maximum borrowing capacity will be reduced to $15 million by June
2, 1996. The DIP Facility includes a sublimit of $2 million for documentary and
stand-by letters of credit.
The DIP Facility provides that each loan shall bear interest at a rate
of prime plus two (2.00) percentage points. Interest on these loans shall be
payable monthly in arrears on the first day of each month. Also, under the DIP
Facility, the Company pays an unused line fee for an
20
<PAGE>
amount equal to one-half of one percent (.50%) per annum on the unused portion
of the DIP 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 DIP Facility also requires a monthly
servicing fee of $3,500 per month. The Company also paid a one-time fee of
$150,000 in order to establish the DIP Facility.
In Fiscal 1996, the Company used approximately $2,274,000 for capital
expenditures. The Company anticipates capital expenditures for Fiscal 1997 of
approximately $1,300,000, primarily for normal facility maintenance and the
refurbishing of the twelve (12) go-forward stores in accordance with the
Company's 1996 strategic plan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this Form 10-K
Annual Report:
Report of Independent Accountants
Consolidated Balance Sheets at January 27, 1996, and
January 28, 1995
Consolidated Statements of Operations for the three years
ended January 27, 1996
Consolidated Statements of Changes In Shareholders' Equity for the
three years ended January 27, 1996
Consolidated Statements of Cash Flows for the three years
ended January 27, 1996
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
No such changes in accountants or disagreements on accounting or
financial disclosure occurred in fiscal 1996 or 1995.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information as to executive officers is set forth in Part I
hereof under the caption "Executive Officers of the Company." The additional
information required by this item is set forth below:
Set forth below are the names of the members of the Board of
Directors, their principal occupation or employment during the past five years,
all their positions with the Company, the Common Stock of the Company
beneficially owned by each of them as well as that beneficially owned by all
directors and executive officers as a group, in each case as of April 15, 1996,
and certain other information with respect to such directors
<TABLE>
<CAPTION>
Director Common
of Stock
Principal Occupation for Past 5 Company Beneficially % of
Name Age Years and other Information(1) Since Owned(2) Class
- ---- --------------------------- ----- ----- -----
<S> <C> <C> <C> <C>
Douglas D. Brendle 67 Chairman of the Board of 1954 2,102,816(6) 16.5%
Directors of the Company
from February, 1986 to
February, 1995; Chief
Executive Officer of the
Company from
November, 1984, to June
2, 1992, and from
January 13, 1993, to
present; President of the
Company from
November, 1984, to June,
1989, and from April 13,
1993, to present.(3)(4)(5)
S. Floyd Brendle 65 Executive Vice President 1954 1,723,515(7) 13.5%
of the Company from
November, 1984, to
February, 1989, and from
January 13, 1993, to
April 13, 1993.(3)(5)
22
<PAGE>
William F. Cosby(9) 55 President and Chief 1973 450,797 3.5%
Operating Officer of the
Company from January, 1993 to April,
1993; Senior vice President of the
Company from February, 1986 to June,
1989; for in excess of one year prior
thereto he was Vice President of the
Company.
Stephen T. 52 President and Chief 1995 -0- *
Westerfield(10) Executive Officer of STW
International, a retail
consulting firm since
October, 1992; President
and Chief Executive Officer
of Office Mart Holdings
Corp. from June, 1989 to
October, 1992; Executive
Vice President of Silo, Inc.,
a consumer electronics
retailer from June, 1987 to
June, 1989. (9)
John A. Northen 45 Partner in the law firm of 1994 -0-
Northen, Blue, Rooks,
Thibaut, Anderson &
Woods, located in Chapel
Hill, North Carolina.(11)
Robert R. Dunn 49 President of The Finley 1994 -0-
Group, Inc., a turn-
around management firm
located in Charlotte,
North Carolina, since
October, 1993; Vice
President of The Finley
Group, Inc., since
1986.(11)
Patty Brendle 68 Director of the Company 1984 749,858(13) 5.8%
Redway(12) from 1984 until her death
on September 29, 1995.(5)
23
<PAGE>
- ------------------------------
All directors and ___ ___ ___ 5,665,850(14) 44.4%
officers as a group (9
persons, including the
above)(1)
</TABLE>
- -------------------------------------------------------------------------------
(1) Each director and officer of the Company previously held the
identical directorships and offices with Brendle's Stores, Inc., a wholly-owned
subsidiary of the Company. Brendle's Stores, Inc. was merged into the Company
effective April 29, 1994.
(2) As reported to the Company by the directors. Includes, where
appropriate, shares held by spouses, minor children, family companies,
partnerships and trusts.
(3) Douglas D. Brendle and S. Floyd Brendle are brothers.
(4) Douglas D. Brendle serves on Advisory Boards of Appalachian State
University and Campbell University and for the Business School of the University
of South Carolina.
(5) By virtue of their stockholdings in the Company, positions
with the Company and family relationships, including relationships by
marriage, each of Douglas D. Brendle, S. Floyd Brendle, and the estate
of Patty Brendle Redway may be deemed to be a controlling person of
the Company within the meaning of the rules of the Securities and
Exchange Commission.
(6) The information as to beneficial ownership set forth in footnote (3)
under Item 12 is incorporated herein by reference.
(7) The information as to beneficial ownership set forth in footnote (5)
under Item 12 is incorporated herein by reference.
(9) Mr. Cosby resigned from the Board on September 8, 1995.
(10) Mr. Westerfield resigned from the Board on March 22, 1996.
(11) Mr. Northen and Mr. Dunn became members of the Board of Directors
upon substantial consummation of the Company's Plan of Reorganization on April
29, 1994. The Plan of Reorganization provided that certain of the Company's
creditors had the right to appoint two individuals to the Company's Board of
Directors for a period of one (1) year following substantial consummation. Mr.
Northen and Mr. Dunn have filled these positions and continue to serve as
members of the Board of Directors.
(12) Patty Brendle Redway was the widow of J. Harold Brendle, who was
the brother of Douglas D. Brendle and S. Floyd Brendle. Ms. Redway passed away
on September 29, 1995.
(13) The information as to beneficial ownership set forth in footnote
(6) under Item 12 is incorporated herein by reference.
24
<PAGE>
(14) Includes 16,460 shares which may be acquired upon the exercise of
options exercisable April 30, 1996, or within 60 days thereafter. Also includes
certain shares as to which beneficial ownership is disclaimed by certain
directors and officers as referred to in these footnotes.
Committees
The Board of Directors has an Audit Committee consisting of Robert R. Dunn
and John A. Northen. The Audit Committee recommends matters involving the
engagement and discharge of independent auditors, directs and supervises special
investigations, reviews the plans for and results of the Company's procedures
for internal auditing, and reviews the adequacy of the Company's system of
internal accounting controls.
Other standing committees of the Board of Directors include the Stock
Option Committee, which administers the Company's stock option plans; the Stock
Appreciation Rights Committee, which administers the Company's Unaffiliated
Director Stock Appreciation Rights Plan; the Unaffiliated Directors Committee,
which reviews and approves or disapproves certain transactions between the
Company and any of its affiliates; and the Compensation Committee, which reviews
and approves or disapproves certain compensation and employee benefit matters
and makes recommendations to the full Board of Directors regarding compensation
in general. The Stock Option Committee consists of Douglas D. Brendle and S.
Floyd Brendle. The Unaffiliated Directors Committee consists of Robert R. Dunn
and John A. Northen. The Compensation Committee consists of Douglas D. Brendle
and S. Floyd Brendle. There is a nominating committee of the Board of Directors
on which Douglas D. Brendle alone serves.
During the fiscal year ended January 27, 1996, the Board of Directors held
a total of eight meetings. The Compensation Committee met four times, and the
Audit Committee and Unaffiliated Directors Committee each met once. Also during
such fiscal year, no director attended fewer than a total of 75% of the
aggregate of all meetings of the Board of Directors and all meetings held by all
committees of the Board of Directors on which he served.
Each of the directors receives a standard fee of $10,000 annually for
service as a director plus $500 for each Board of Directors' meeting attended.
Members of the Audit Committee and the Compensation Committee receive $250 for
each meeting attended.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table presents information relating to total compensation
during the fiscal year ended January 27, 1996, of the Chief Executive Officer,
Joseph M. McLeish, Jr. and the Company's Senior Vice President (as of January
27, 1996), William V. Grady and two of the Company's Vice Presidents, David R.
Renegar and Gregory S. Stegall (the "Named Executives"). All remaining Executive
Officers of the Company, who served in such capacities on January 27, 1996, were
paid less than $100,000 in total compensation for the fiscal year ending January
27, 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION
AWARDS
NAME AND OTHER ANNUAL(1) OPTIONS/SAR ALL OTHER (2)
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (SHARES) COMPENSATION
------------------
<S> <C> <C> <C> <C> <C> <C>
JOSEPH M. MCLEISH,JR. (3) 1995-96 $154,808 -0- 1,385 -0- $21,994
PRESIDENT AND CHIEF 1994-95 -0- -0- -0- -0- -0-
EXECUTIVE OFFICER 1993-94 -0- -0- -0- -0- -0-
DOUGLAS D. BRENDLE (4) 1995-96 $203,844 -0- 12,896 -0- -0-
DIRECTOR 1994-95 $199,992 -0- -0- -0- $20,239
1993-94 $199,992 -0- -0- -0- $20,596
DAVID R. RENEGAR 1995-96 $108,004 -0- 744 -0- -0-
VICE PRESIDENT AND 1994-95 $102,617 5,000 -0- 25,000 $ 735
CHIEF FINANCIAL OFFICER 1993-94 $110,006 -0- -0- -0- $6,186
GREGORY S. STEGALL 1995-96 $111,081 -0- 776 -0- -0-
VICE PRESIDENT 1994-95 $100,318 5,000 -0- 25,000 $ 743
1993-94 $ 98,000 -0- -0- -0- $ 710
WILLIAM V. GRADY (5) 1995-96 $110,584 -0- 25,713 -0- -0-
VICE PRESIDENT- MARKETING 1994-95 $116,930 5,000 -0- 25,000 $1,250
ADVERTISING AND OPERATIONS 1993-94 $110,006 -0- -0- -0- $6,186
</TABLE>
(1) NONE OF THE NAMED EXECUTIVES RECEIVED PERQUISITES OR OTHER PERSONAL BENEFITS
IN EXCESS OF THE LESSER OF $50,000 PR 10% OF THE TOTAL OF HIS SALARY AND BONUS
FOR ANY OF THE REPORTED YEARS.
(2) INCLUDES VALUE OF PREMIUM PAYMENTS ON LIFE INSURANCE POLICIES FOR THE NAMED
EXECUTIVES MAINTAINED BY THE COMPANY AND MOVING EXPENSES FOR WILLIAM D. GRADY IN
1992.
(3) DURING FISCAL 1996, JOSEPH M. MCLEISH, JR. WAS PAID $178,187 IN TOTAL
COMPENSATION, INCLUDING RELOCATION OF $6,600 AND REIMBURSEMENT FOR AUTOMOBILE
EXPENSES OF $15,394. MR. MCLEISH JOINED THE COMPANY IN FEBRUARY, 1995. SEE
"EMPLOYMENT AGREEMENTS WITH NAMED EXECUTIVES" BELOW.
(4) ON FEBRUARY 27, 1995, DOUGLAS D. BRENDLE RESIGNED AS THE COMPANY'S CHAIRMAN
OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER. UNDER THE TERMS OF THE
RETIREMENT AND CONSULTING AGREEMENT, MR. BRENDLE WAS PAID SALARY OF $16,666 PER
MONTH BEGINNING IN MAY, 1995.
(5) ON DECEMBER 2, 1995, WILLIAM V. GRADY, SENIOR VICE PRESIDENT OF MARKETING,
ADVERTISING AND STORE OPERATIONS, RESIGNED HIS POSITION WITH THE COMPANY. DURING
FISCAL 1996, MR. GRADY WAS PAID $136,297 IN TOTAL
26
<PAGE>
COMPENSATION, INCLUDING SEVERANCE OF $24,521. MR. GRADY WILL RECEIVE $88,050
FROM THE COMPANY AS A SEVERANCE PAYMENT PURSUANT TO THE TERMS OF HIS EMPLOYMENT
AGREEMENT WITH THE COMPANY.
OPTION/SAR GRANTS TABLE
No separate stock options or stock appreciation rights were granted during
Fiscal 1996.
27
<PAGE>
OPTIONS/SAR EXERCISES AND YEAR-END VALUE TABLE
The following table provides information as to options exercised or held by
the Named Executives during Fiscal 1996. No options were exercised during Fiscal
1996.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Number of Options/SARs at Options/SARs
Shares FY-End (#) at FY-End ($)
Acquired on Value Exercisable/ Exercisable
Name Exercise (#) Realized ($) Unexercisable (1) Unexercisable (1)
<S> <C> <C> <C> <C>
Douglas D. Brendle - - - -
William V. Grady(2) - - /25,000 -0-
David R. Renegar - - 8960/16,040 -0-
Gregory S. Stegall - - 7500/17,500 -0-
</TABLE>
- ------------------------
(1) The number of unexercised options and/or SARs available at Fiscal year
end, whether exercisable or unexercisable, includes out-of-the-money options,
and the value of unexercisable options and/or SARs available at Fiscal year end
does not include out-of-the money options.
(2) On December 2, 1995, Mr. Grady resigned his position with the Company.
Upon his resignation, all stock options and SAR's held by Mr. Grady terminated.
28
<PAGE>
Employee Benefit Plans
The Company maintains a variety of employee benefit plans, including a
NonContributory Profit Sharing Plan, the Brendle's Incorporated 1990 Stock Plan,
and the Brendle's Incorporated 1986 Non-Qualified Stock Option Plan. A
description of these plans is included in Note 11 to the Consolidated Financial
Statements of the Company included in this Annual Report on Form 10-K and is
incorporated herein by reference. Only the named Executives indicated in the
footnotes to the above tables participate in the Company's Stock Option Plans
(with no executive having currently exercisable options which are in-the-money),
and none of the Named Executives receive perquisites or other forms of
employment benefits that exceeds $50,000.
Employment Agreements with Named Executives
The Company has employment agreements (the "Agreements") with all the Named
Executives. The Agreements with the Named Executives, other than Mr. McLeish,
were executed effective August 1, 1994, and, with respect to Messrs. Renegar and
Stegall, replaced employment agreements executed in 1992. Mr. Renegar's
Agreement was also modified on February 27, 1996. Each of the Agreements
provides for the payment of severance compensation in the form of a lump sum
severance benefit to the Named Executive in the amount of one times the
officer's base salary then in effect on the date of termination, if the
employment of the Named Executive is terminated for any reason other than the
officer's death or disability, or "Cause," as defined in the Agreements. If the
employment of a Named Executive is terminated for death or for Cause, he will be
entitled only to his base salary through the date of termination. If his
employment is terminated by reason of his disability, he will be entitled to
receive his base salary for a twelve-month period from the date disabled. The
Agreements provide that the Named Executives will not engage in various
activities competitive with the business of the Company for a period of one
year, depending on the respective severance pay period allowed the Named
Executive.
Mr. Doug Brendle retired as President and Chief Executive Officer on
February 27, 1995. Effective on March 1, 1995, the Company entered into a
Retirement and Consulting Agreement with Mr. Doug Brendle to serve as a
consultant to the Company, for a five-year period from the effective date, in
order that the Company may continue to benefit from Brendle's experience,
knowledge, reputation and contacts in the industry, and to perform all duties
delegated to him by the Board of Directors or President on an as-needed basis.
Mr. Doug Brendle was named Chairman Emeritus of the Board of Directors, at no
additional compensation. The Retirement and Consulting Agreement provides for
annual retirement payments of $200,000 per year for five years (which payments
can be accelerated in the event of the sale of all or substantially all of the
Company's assets); for health and life insurance for the remainder of his life;
and for the continuation of other benefits. The Retirement and Consulting
Agreement also provides for a term of three years the annual sum of $5,000 as an
allowance for office space, telephone and secretary, for an office for Mr.
Brendle located outside of the Company headquarters. The Retirement and
Consulting Agreement also provides that the Company continue health insurance
coverage for Mr. Brendle's wife, Lydia U. Brendle, for the remainder of her
life. The Agreement requires that Mr. Brendle not compete with the Company nor
solicit Company employees to enter into competition with the Company during the
five years through February 29, 2000.
29
<PAGE>
On February 27, 1995, the Company entered into an employment agreement with
Joseph M. McLeish, Jr. to serve as President and Chief Executive Officer of the
Company (the "Employment Agreement"). The Employment Agreement provides for an
annual base salary of $175,000 and a possible cash bonus, depending on the
Company reaching certain performance levels set by the Board. Mr. McLeish's
formula incentive compensation amounts are subject to such modifications as the
Board deems appropriate.
Mr. McLeish was also granted, on February 27, 1995, pursuant to the terms
of a Stock Option Grant Agreement of that date, a total of 50,000 stock options
to purchase 50,000 shares of Company stock under the Company's 1986 Stock Option
Plan for 62.5(cent) per share, representing the fair market value of the shares
on February 27, 1995. The options become exercisable, subject to continuous
employment with the Company, at the rate of 30% on February 27, 1996; 30% on
February 27, 1997, and 40% on February 27, 1998. No portion of the options are
exercisable after February 27, 2000. Pursuant to the Employment Agreement, the
Company also agreed to reimburse Mr. McLeish for expenses incurred in connection
with his relocation and for certain automobile and other expenses.
Upon the occurrence of certain triggering events, the Employment Agreement
entitles Mr. McLeish to severance pay in a lump sum in the amount of two times
his annual base salary then in effect. The triggering events include termination
of the Employment Agreement by Mr. McLeish in response to a change in the
majority control of the Company, whether in a transaction which is a sale,
merger or other business combination. Additional triggering events include
termination of the Employment Agreement by the Company for any reason other than
Mr. McLeish's death or disability or "Cause," as defined in the Employment
Agreement. If Mr. McLeish's employment is terminated for "Cause" or on account
of his death, or if he resigns other than in response to a triggering event, he
will be entitled only to his earned base salary to the date of termination. If
his employment is terminated on account of his disability, he will be entitled
to six months in salary from the date of disability.
The Employment Agreement further provides that Mr. McLeish will not engage
in various activities competitive with the business of the Company during the
period of his employment under the Employment Agreement and for a period of two
years following termination thereof. Mr. McLeish is also restricted during the
term of his employment from disclosing confidential information acquired by him
during employment with the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, the Company's only class of
equity voting security, as of April 30, 1996, by each person, including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), known by the Company to be the
beneficial owner of more than five percent of the Company's outstanding Common
Stock, or that may be a member of a control group owning more than five percent
(5%) of the Company's outstanding stock:
30
<PAGE>
<TABLE>
<CAPTION>
Common Stock Beneficially Owned(1)
Amount and Nature Percentage
Name and Address of Beneficial Owner(2) of Beneficial of Class
Ownership
<S> <C> <C>
Douglas D. Brendle 2,102,816(3) 16.5%
D & L Brendle Associates 1,035,000(4) 8.1%
S. Floyd Brendle 1,723,515(5) 13.5%
Estate of Patty Brendle Redway (Trust
under Agreement with J. Harold Brendle) 749,858(6) 5.9%
William V. Grady(7) 4,000 *
David R. Renegar 8,960(8) *
Gregory S. Stegall 593,904(9) 4.7%
First Union National Bank 1,009,615 7.9%
</TABLE>
(1) Except as otherwise indicated, none of the persons or entities indicated
own any shares subject to options exercisable on April 30, 1996 or
within 60 days thereafter.
(2) The address of these beneficial owners, except First Union National Bank
and Patty Brendle Redway, is c/o Brendle's Incorporated, 1919 North
Bridge Street Extension, Elkin, North Carolina 28621. The address of
Patty Brendle Redway is c/o Wachovia Bank and Trust Company, N.A., Trust
Department, Post Office Box 3099, Winston-Salem, North Carolina 27102.
The address for First Union National Bank is P.O. Box 889, Elkin, North
Carolina 28621.
(3) Douglas D. Brendle served as the Company's Chief Executive Officer and
President until February 27, 1995. Of such 2,135,372 shares, Douglas D.
Brendle may be deemed to have sole voting power as to 956,886 shares,
shared voting power as to 1,178,486 shares, sole investment power as to
956,886 shares, and shared investment power as to 1,178,486 shares.
The above shares include (i) 1,035,000 shares held by D & L Brendle
Associates, a North Carolina limited partnership in which the general
partners are Lydia U. Brendle, wife of Douglas D. Brendle, and a
corporation controlled by Douglas D. Brendle and members of his family,
(ii) 133,036 shares held by Lydia U. Brendle as trustee for their
daughter, as to which shares Lydia U. Brendle has sole voting and
investment power, (iii) 5,450 shares held individually by Lydia U.
Brendle, (iv) 5,000 shares held jointly by Douglas D. Brendle and Lydia
U. Brendle, (v) 869,629 shares held of record by Lydia U. Brendle under
a trust agreement with Douglas D. Brendle which is revocable by him and
as to which shares he retains all voting and dispositive powers, and
(vi) 54,701 shares of which Mr. Brendle is the sole record and
beneficial owner.
31
<PAGE>
Mr. Brendle disclaims beneficial ownership of the shares described in
items (i), (ii) and (iii) above and any other shares held by D & L
Brendle Associates and also disclaims membership in any "group," within
the meaning of the Exchange Act.
(4) D& L Brendle Associates may be deemed to have sole voting and investment
power as to all of such 1,035,000 shares and shared voting and
investment power as to none of such shares. D & L Brendle Associates
disclaims beneficial ownership of any additional shares in excess of the
1,035,000 shares over which it has sole voting and dispositive power and
also disclaims membership in any "group," within the meaning of the
Exchange Act.
(5) Of such 1,723,515 shares, S. Floyd Brendle may be deemed to have sole
voting power as to 1,223,515 shares, shared voting power as to 500,000
shares, sole investment power as to 1,223,515 shares, and shared
investment power as to 500,000 shares.
The above shares include 500,000 shares held by K & F Brendle
Associates, a North Carolina limited partnership in which the general
partners are Kathryn C. Brendle, wife of S. Floyd Brendle, and a
corporation controlled by S. Floyd Brendle and members of his family.
Excluded are an aggregate of 1,740 shares represented by presently
exercisable options held by Mr. Brendle's son, respectively, who is an
adult not living in his home.
Mr. Brendle disclaims beneficial ownership of any shares held by K & F
Brendle Associates as well as the shares excluded above and also
disclaims membership in any "group," within the meaning of the Exchange
Act.
(6) Of such 749,858 shares, The Estate of Patty Brendle Redway may be deemed
to have sole voting and investment power as to all of such shares, and
shared voting and investment power as to none of such shares.
All of the above 749,858 shares are held in a trust created under an
agreement dated October 20, 1982, with J. Harold Brendle. Wachovia Bank
and Trust Company, N.A., a subsidiary of The First Wachovia Corporation,
is trustee of this trust.
(7) Mr. Grady resigned from the Company on December 2, 1995.
(8) Includes 8,960 shares represented by presently exercisable options.
(9) Includes 7,500 shares represented by presently exercisable options and
586,404 shares beneficially owned by Mr. Stegall's wife, JoAnne Brendle
Stegall.
The Common Stock holdings of Douglas D. Brendle, S. Floyd Brendle, and
the Estate of Patty Brendle Redway (her holdings being with respect to shares
forming a part of the Trust created under an Agreement with J. Harold Brendle),
certain members of their immediate families and the family partnerships
described above (collectively, the "Brendle Family") aggregate in excess of 45%
of the Company's outstanding Common Stock. If all or certain members of the
Brendle Family were to vote in the same manner concerning certain matters
subject to a vote of shareholders of the Company, the Brendle Family or such
members could significantly impact the
32
<PAGE>
outcome of any such vote. Accordingly, under proper circumstances the Brendle
Family may be said to be in "control" of the Company within the meaning of that
term under the Exchange Act. However, the Brendle Family has not agreed to act
in concert or as a group in connection with voting any of the Company's Common
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Shareholders' Agreement
In April of 1986, prior to the initial public offering of the Company's
Common Stock, all of the then shareholders of the Company (including Douglas D.
Brendle, S. Floyd Brendle, Patty Brendle Redway, and William F. Cosby) entered
into a Shareholders' Agreement with the Company. Therein, the shareholders
agreed, among other things, to restrict the transfer of their Common Stock to
any unrelated party (as defined) without the written consent of all remaining
shareholders who are parties to the Agreement unless the transferring
shareholder gives a right of first refusal to related parties (as defined) of
the transferring shareholder and to the remaining shareholders who are parties
to the Agreement, and such right of first refusal is not exercised. In addition,
the Shareholders' Agreement gives the right, exercisable within nine months of
death, to the personal representative of certain deceased shareholders who were
parties to the Agreement, to cause the Company to redeem from the deceased
shareholder's estate up to that number of shares of Common Stock of the Company
owned by the deceased shareholder at his death valued at the average of the
closing prices for the 20 trading days prior to the date of death, not to exceed
the life insurance proceeds received by the Company as a result of such death.
On September 29, 1995, Patty Brendle Redway, one of the four shareholders, died.
The Company subsequently recognized gain of approximately $2,550,000 from life
insurance proceeds, which represents the face value of the policy ($3,000,000)
less cash surrender value previously recorded. The Company received notice prior
to the Chapter 11 filing that the estate intended to exercise its "put" option.
Due to the Chapter 11 proceeding, the Company will not be able to comply with
the terms of this Agreement without approval of the Bankruptcy Court.
The Company has purchased life insurance in the face amounts set forth
below at a net aggregate cost (premiums less dividends and increase in cash
surrender value) for the fiscal year ended January 27, 1996 of approximately
$3,856: Douglas D. Brendle, $5,000,000; S. Floyd Brendle, $5,250,000 and William
F. Cosby, $3,070,000. The Company has borrowed $1,852,000, in the aggregate,
against these policies.
One effect of the Shareholders' Agreement may be to make it more
difficult for a third party to acquire a significant equity position in the
Company. Conversely, the Shareholders' Agreement may make it easier for a party
to the Shareholders' Agreement, including incumbent management of the Company,
to retain significant equity positions in the Company or to retain their
management positions with the Company. In addition, implementation of certain of
the aforesaid rights may, under proper circumstances, cause a change in control
of the Company.
33
<PAGE>
Split Dollar Insurance Agreements
The Company has entered into split dollar life insurance agreements for
the benefit of six of its executive officers and/or directors or their spouses
and families. Upon the death of any such officer or director, the Company will
receive not less than the net premiums paid, and the insured's beneficiary will
receive the balance of the insurance proceeds. Pursuant to the agreements, life
insurance coverage, the premiums for which are paid by the Company, has been
purchased on the following persons in the following aggregate policy amounts:
Douglas D. Brendle, $3,000,000; S. Floyd Brendle, $2,000,000; Greg Stegall
$127,439 and David R. Renegar, $113,220. The Company's net aggregate cost
(premiums less dividends and increase in cash surrender value) for such
insurance for the fiscal year ended January 27, 1996 was approximately $63,359.
Leases
Brenco, a partnership consisting of Douglas D. Brendle, S. Floyd
Brendle, William F. Cosby, and two Trusts under an Agreement with J. Harold
Brendle, dated October 20, 1982, ("Brenco"), leases 13 stores and the Company's
corporate office building. During the fiscal year ended January 27, 1996, the
Company paid or accrued to Brenco an aggregate of approximately $2,237,525 with
respect to these leases. All of the leases are for a 10-year period from their
respective dates of origin, except for one lease which is for a 7-year period,
with remaining lease terms ranging from one (1) year to five (5) years, and the
leases have certain extension options. All of the leases grant to Brenco the
right to require the Company to purchase any or all of the premises under any or
all of the leases at a purchase price equal to the fair market value of the
respective premises purchased, as such fair market value is determined by a
third party appraiser acceptable to both the Company and Brenco, provided,
however, that, in each event, the purchase of the premises is first approved by
the Committee of Unaffiliated Directors of the Company in their sole discretion.
The total amount owing under the Brenco leases for their remaining terms is
approximately $5,480,000.
Brenco is the owner and franchisee of the Holiday Inn located in
Jonesville, North Carolina, in which the Company held various meetings and
corporate functions during the fiscal year ended January 27, 1996. The Company
was charged the standard corporate rates for these services and paid an
aggregate of $30,297 therefore.
Management of the Company believes that the terms of all these leases
are no less favorable to the Company than would have been available from
unaffiliated third parties.
Transportation Activities
During the fiscal year ended January 27, 1996 the Company occasionally
used an airplane owned by Sky-Lease, Inc., the voting securities of which are
owned by Douglas D. Brendle, S. Floyd Brendle, William F. Cosby, and a Trust
under an Agreement dated October 20, 1982 with J. Harold Brendle, and Sky-Lease,
Inc. was paid an aggregate of $13,970 in rent charges for such airplanes. The
Company previously leased two airplanes from Sky-Lease, Inc., however, such
leases were terminated effective December 31, 1991, by mutual agreement of the
parties and
34
<PAGE>
as a condition to the loan agreement entered into between the Company and its
lenders in October 1991.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
<TABLE>
<CAPTION>
Page in
10-K
<S> <C> <C>
(a) The following documents are filed as part of this report:
Financial Statements:
The Financial Statements listed in Item 8 of Part II
are filed as part of this Form 10-K Annual Report. F-1 to F-18
(b) The Company filed a Form 8-K on April 29, 1996, reporting under
Item 3 the filing of the April 1996 Chapter 11 Proceeding.
(c) See the Exhibit Index attached hereto.
(d) All required financial statements and schedules are filed
herewith.
</TABLE>
35
<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.
BRENDLE'S INCORPORATED
(Registrant)
Date: June 4, 1996 By: Joseph M. McLeish /s/
----------------------
Joseph M. McLeish
President and Chief Executive Officer
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: Joseph M. McLeish /s/
Joseph M. McLeish
President and Chief Executive Officer
Date: Douglas D. Brendle /s/
Douglas D. Brendle,
Director
Date: S. Floyd Brendle /s/
S. Floyd Brendle,
Director
Date: Robert R. Dunn /s/
Robert R. Dunn,
Director
Date: John A. Northen /s/
John A. Northen,
Director
Date: David R. Renegar /s/
David R. Renegar,
Chief Financial Officer
principal accounting officer)
37
<PAGE>
To the Board of Directors and Shareholders
of Brendle's Incorporated
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 27, 1996 and January
28, 1995, and the results of its operations and its cash flows for each of the
three fiscal years in the period ended January 27, 1996, 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. As discussed in Note 1 to the
financial statements, on April 16, 1996, Brendle's Incorporated filed a
voluntary petition for relief under Chapter 11, Title 11, of the United States
Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the Middle
District of North Carolina. The filing and issues surrounding it raise
substantial doubt about the entity's 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.
Management's plans in regard to these matters are also described in Note 1. 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, nor do these financial statements include
any adjustments relating to the recoverability and classification of reported
asset amounts or adjustments relating to the establishment, settlement and
classification of liabilities that may be required in connection with
restructuring the Company under the Bankruptcy Code.
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
March 29, 1996, except as to Notes 1 and 8, which are as of April 30, 1996.
F-1
<PAGE>
BRENDLE'S INCORPORATED
<TABLE>
<CAPTION>
BALANCE SHEETS
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------
JANUARY 27, JANUARY 28,
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments (Note 3) $ 1,380 $ 1,781
Receivables (Note 4) 1,295 971
Merchandise inventories (Note 3) 50,147 48,451
Other current assets 1,211 1,361
Total current assets 54,033 52,564
Property and equipment, less accumulated depreciation
and amortization (Notes 3 and 5) 7,387 8,776
Other assets 568 788
$ 61,988 $ 62,128
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility (Note 8) $ 22,275 $ 15,368
Accounts payable - trade 8,141 5,245
Current portion of capitalized lease obligations (Note 7) 168 1,241
Current portion of other long-term liabilities 288 139
Current portion of restructuring reserve (Note 6) 206 445
Other accrued liabilities 3,862 2,620
Total current liabilities 34,940 25,058
Capitalized lease obligations, less current portion (Note 7) 282 449
Restructuring reserve, less current portion (Note 6) 867 980
Other long-term liabilities 1,093 1,284
Total liabilities 37,182 27,771
Shareholders' equity:
Common stock, $1 par value, 20,000,000 shares authorized, 12,756,284 shares
issued and outstanding at January 27, 1996 and 12,758,717 shares issued
and
outstanding at January 28, 1995 12,756 12,759
Capital in excess of par value 20,895 20,896
Retained earnings (deficit) (8,845) 702
Total shareholders' equity 24,806 34,357
$ 61,988 $ 62,128
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-2
<PAGE>
BRENDLE'S INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
- -------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 154,242 $ 166,278 $ 170,345
Other income 339 242 728
Total revenues 154,581 166,520 171,073
Costs and expenses:
Cost of merchandise sold 114,952 123,851 125,015
Selling, operating and
administrative expenses 45,167 43,026 43,571
Depreciation and amortization 3,190 3,561 4,877
Interest expense 3,394 2,484 383
Capitalized lease interest expense 168 454 756
Provision for restructuring (Note 6) -- 3,473 16,090
(Gain) on life insurance (Note 14) (2,601) -- --
(Gain) loss on sale of property and
equipment (Note 15) (1,026) 75 --
163,244 176,924 190,692
Loss before provision for income taxes
and extraordinary item (8,663) (10,404) (19,619)
Provision for income taxes (Note 10) -- -- --
Loss before extraordinary item (8,663) (10,404) (19,619)
Extraordinary item - gain from forgiveness
of debt (Note 2) -- 32,367 --
Net income (loss) $ (8,663) $ 21,963 $ (19,619)
Net income (loss) per share: (Note 3)
Loss before extraordinary item $ (.68) $ (.89) $ (2.36)
Extraordinary item - gain from forgiveness
of debt (Note 2) -- 2.77 --
Net income (loss) per share $ (.68) $ 1.88 $ (2.36)
Weighted average number of shares outstanding 12,757 11,671 8,297
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-3
<PAGE>
BRENDLE'S INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------------------------------
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, 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 9) - - - 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 9) - - - (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
Net income - - - (8,663) (8,663)
Reclassification from other
deferred credit (Notes 9 and 14) - - - (884) (884)
Retirement of stock (2,433) (3) (1) - (4)
Balance, January 27, 1996 12,756,284 $ 12,756 $ 20,895 $ (8,845) $ 24,806
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-4
<PAGE>
BRENDLE'S INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(In thousands)
- ------------------------------------------------------------------------------------------------------------------
FISCAL YEAR ENDED
JANUARY 27, JANUARY 28, JANUARY 29,
1996 1995 1994
---- ---- ----
Operating activities:
<S> <C> <C> <C>
Net income (loss) $ (8,663) $ 21,963 $ (19,619)
Items not requiring (providing) cash:
Depreciation and amortization 3,190 3,561 4,877
(Gain) loss on sale of property and equipment (1,026) 75 11,839
Restructuring reserve (352) 916 (4,109)
Extraordinary item - gain from forgiveness of debt -- (32,367) --
Changes in assets and liabilities:
Accounts receivable (324) 509 4,856
Merchandise inventories (1,696) 5,682 3,760
Other current assets 150 (391) (3,976)
Accounts payable and other liabilities 3,150 2,159 2,292
Cash provided (used) by operating activities (5,571) 2,107 1,990
Investing activities:
Additions to property and equipment (1,956) (870) (823)
Proceeds from sale of property and equipment 1,181 4,225 8,704
Other 220 (349) 227
Cash provided (used) by investing activities (555) 3,006 8,108
Financing activities:
Payment of labilities subject to compromise -- (56,119) --
Increase (decrease) in capitalized lease obligations (1,240) 1,690 (1,356)
Net borrowings on revolving credit facility 6,907 15,368 (10,875)
Increase (decrease) in other long-term liabilities 62 974 --
Issuance of common stock -- -- 11
Retirement of common stock (3) (10) --
Decrease in capital in excess of par value (1) (9) --
Cash (used) provided by financing activities 5,725 (38,106) (12,220)
Net decrease in cash and temporary cash investments (401) (32,993) (1,820)
Cash and temporary cash investments - beginning of year 1,781 34,774 36,594
Cash and temporary cash investments - end of year $ 1,380 $ 1,781 $ 34,774
Supplemental disclosures of cash flow information:
Interest paid during the year $ 2,982 $ 2,547 $ 383
Supplemental disclosure of non-cash financing activities:
The Company has recorded liabilities associated with the potential repurchase
of common stock from certain shareholders in the event of their death. At
January 27, 1996 such liabilities totaled $1,413,000 with a corresponding
cumulative reduction in retained earnings. (At January 27, 1996, $988,000 has
been recorded in other accrued liabilities while $425,000 has been recorded
in other long-term liabilities). At January 28, 1995 and January 29, 1994
such liabilities totaled $529,000 and $521,000, respectively, with
corresponding cumulative reductions in retained earnings. (At January 28,
1995 the amount was included in other long-term liabilities, while at January
29, 1994 the amount was included in liabilities subject to compromise).
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.
The accompanying Notes to Financial Statements are an integral part of these
statements.
F-5
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - PROCEEDINGS UNDER CHAPTER 11
On April 16, 1996 (the "Petition Date"), Brendle's Incorporated (the "Company")
filed a voluntary petition for relief under Chapter 11 of the Federal Bankruptcy
Code (the "Bankruptcy Code") in the U.S. Bankruptcy Court for the Middle
District of North Carolina (the "Bankruptcy Court"), and is currently operating
as a Debtor-in-Possession ("DIP"). As a Debtor-in-Possession, the Company is
authorized to operate its business, but may not engage in transactions outside
of the normal course of business without approval, after notice and hearing, of
the Bankruptcy Court. A creditors' committee will be formed, which will have the
right to review and object to business transactions outside the ordinary course
and participate in any plan or plans of reorganization.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The continued viability of the Company
under Chapter 11 and subsequent to Chapter 11 is dependent upon, among other
factors, confirmation of a plan of reorganization and the ability to generate
sufficient cash from operations and financing sources to meet obligations.
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 are subject to approval by the Bankruptcy Court
for payment in the ordinary course of business.
The Bankruptcy Code allows the debtor to either assume or reject certain
executory contracts, subject to Bankruptcy Court approval. Parties to contracts,
which are rejected, are entitled to file claims for losses or damages sustained
as a result of the rejection.
Management is in the process of evaluating markets and has indicated its
intention to close 18 of its 30 stores, reduce corporate office staffing and
implement other cost control measures. Management has announced its intention,
subject to Board of Directors and Bankruptcy Court approval, to reformat the
Company's stores in an attempt to market the Company as a destination shopping
point. The Company will focus on jewelry, housewares, small appliances,
ready-to-assemble furniture, gifts, crafts, party goods and health and fitness
items. Management believes these changes in the Company's focus and merchandise
mix will facilitate the Company's return to profitability.
NOTE 2 - PREVIOUS EMERGENCE FROM CHAPTER 11
On November 22, 1992, the Company and its primary operating subsidiary,
Brendle's Stores, Inc., filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code in the Bankruptcy Court.
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 ("Foothill")
(See Note 8). Interest is paid monthly with the facility expiring on April 29,
1999. 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.
F-6
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 were issued to creditors as the remaining claim amounts were reconciled.
As of January 27, 1996 all shares had been issued to creditors. 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 did not reduce the Company's
net operating loss carryforwards for income tax purposes, and accordingly had 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 under the tax laws in effect at the date of this reorganization, such
reduction in net operating loss carryforwards could be avoided where stock is
issued to creditors in a Chapter 11 proceeding in exchange for debt reduction.
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. At the date of this
reorganization, an exception to the general rule existed which allowed the
Company to avoid a reduction in net operating loss carryforwards by issuing
stock to creditors in exchange for 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 were met, and that the
issuance of Common Stock to creditors called for by the Plan had 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.
F-7
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The Company is a retail merchandiser operating catalog showrooms in four states.
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 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. (See Note 1.)
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.
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.
F-8
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
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
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure about the fair value of
certain instruments. Cash, receivables, the revolving credit facility, accounts
payable, and accrued liabilities are reflected in the financial statements at
fair value because of the short-term maturity of these instruments. The
difference between the carrying amount and the fair value of other long-term
liabilities and the restructuring reserve is immaterial for disclosure proposes.
INCOME TAXES
Income taxes are provided based upon income reported for financial statement
purposes. See discussion of deferred income taxes in Note 10.
ISSUANCE OF STOCK
During fiscal 1995, 4,469,701 shares were issued to the Company's creditors in
accordance with the plan of reorganization.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with current year
classification.
F-9
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - RECEIVABLES
Receivables consist of the following:
</TABLE>
<TABLE>
<CAPTION>
JANUARY 27, JANUARY 28,
(IN THOUSANDS) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Customer $ 124 $ 127
Advertising rebates 345 342
Other 945 602
1,414 1,071
Less allowance for doubtful accounts 119 100
Total $ 1,295 $ 971
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED JANUARY 27, JANUARY 28,
(IN THOUSANDS) USEFUL LIFE 1996 1995
- -------------- ----------- ---- ----
<S> <C> <C> <C>
Land and improvements $ 434 $ 434
Buildings:
Capitalized leases 10 to 25 years 10,021 10,703
Owned 19 to 25 years 1,705 1,818
11,726 12,521
Property and equipment:
Furniture, fixtures and equipment 5 to 10 years 23,698 23,590
Leasehold improvements 10 years 9,851 9,666
Transportation equipment 3 to 7 years 674 681
Construction in progress - 17 334
34,240 34,271
46,400 47,226
Less - Accumulated depreciation
and amortization 39,013 38,450
$ 7,387 $ 8,776
</TABLE>
Accumulated depreciation and amortization includes $9,843,000 at January 27,
1996 and $10,112,000 at January 28, 1995 relating to capital leases. The charge
to operations resulting from amortization of capital leases is included in
depreciation and amortization expense in the statements of operations.
F-10
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - 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 November
1992 Chapter 11 proceedings. No such restructuring charges were incurred during
fiscal 1996.
Unpaid restructuring costs were $1,073,000 and $1,425,000 at January 27, 1996
and January 28, 1995, respectively.
NOTE 7 - CONTINGENCIES
The Company has capital and operating lease commitments for stores, equipment
and its corporate headquarters facility expiring on varying dates from fiscal
1997 to 2006. The leases generally include renewal options and rental escalation
clauses. Future minimum lease commitments, including leases with affiliates (See
Note 12) at January 27, 1996 are as follows:
(IN THOUSANDS) CAPITALIZED OPERATING
FISCAL YEAR LEASES LEASES
1997 $ 235 $ 5,721
1998 226 4,854
1999 100 3,426
2000 - 2,888
2001 - 2,294
Thereafter - 3,843
Total minimum lease payments 561 $ 23,026
Less - Amount representing interest 111
Present value of capitalized lease obligations 450
Less - Current maturities 168
Long-term capitalized lease obligations $ 282
NOTE 8 - REVOLVING CREDIT FACILITY
On April 30, 1996, the Company received approval from the Bankruptcy Court
related to the debtor-in- possession financing agreement (the "DIP Facility")
dated April 30, 1996 with Foothill Capital Corporation that established a
revolving credit facility in the maximum amount of $25,000,000. The DIP Facility
has a first priority security interest in and lien upon any and all of the
Company's assets, junior in priority only to any valid, perfected and
enforceable liens in existence on the Petition Date that are senior in priority
to the security interests and liens of Foothill granted pursuant to the Credit
Facility (described below). The terms of the DIP Facility call for maximum
borrowing availability to be reduced to $15,000,000 by June 2, 1996. The DIP
Facility will be used first to retire the Credit Facility and second, to the
extent necessary, by the Company to support its operations.
F-11
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As discussed in Note 2, 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
27, 1996 and January 28, 1995. However, as further discussed in Note 1, on April
16, 1996, the Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code. This resulted in a violation of such covenants. All
borrowings under the Credit Facility have been reflected as current liabilities
in the balance sheet as of January 27, 1996 and 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 $22,275,000 and $15,368,000 against the Credit Facility at
January 27, 1996 and January 28, 1995, respectively. The weighted average
interest rate on borrowings against the Credit Facility was 10.31% and 9.21%
during the years ended January 27, 1996 and January 28, 1995, respectively.
The Credit Facility provides that each loan shall bear interest at a rate of
prime plus two 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 Credit Facility closing date and
a monthly servicing fee of $3,500 per month.
The Company paid an initial, one-time fee of $450,000 in order to establish the
Credit Facility. Total unused lines of credit fees under the Credit Facility
amounted to $113,000 and $86,000 for years ended January 27, 1996 and January
28, 1995, respectively. Total unused letters of credit fees under the Credit
Facility amounted to $34,000 and $20,000 for the years ended January 27, 1996
and January 28, 1995, respectively.
Under the previous financing arrangement with CIT, the Company has unused lines
of credit fees of $71,000 and no unused letters of credit fees for the year
ended January 29, 1994.
NOTE 9 - 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 $1,419,000
and $1,835,000 at the January 27, 1996 and January 28, 1995, respectively.
F-12
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company has recorded liabilities associated with the potential repurchase of
Common Stock from these shareholders of $1,413,000 and $529,000 at January 27,
1996 and January 28, 1995, respectively. These liabilities are offset with a
corresponding cumulative reduction in retained earnings. At January 27, 1996,
$988,000 has been recorded in other accrued liabilities while $425,000 has been
recorded in other long-term liabilities. At January 28, 1995, the entire
$529,000 was recorded in other long-term liabilities. See discussion in Note 14
concerning the death of one of the four shareholders and the corresponding
financial statement impact.
NOTE 10 - PROVISION FOR INCOME TAXES
At January 27, 1996, the Company has net operating loss carryforwards of
approximately $74,000,000. Utilization of such carryforwards is dependent upon
the realization of taxable income by the Company and will begin to expire in
fiscal 2007. Management has analyzed its net operating loss carryforwards and
believes that it is more likely than not that these carryforwards may expire
before they are realized. Accordingly, a valuation allowance of $27,453,000 and
$26,930,000 has been recorded against the related deferred tax assets at January
27, 1996 and January 28, 1995, respectively. As these loss carryforwards have
been generated over the last several years , and the Company has continued to
generate taxable losses, no current or deferred income tax provision or benefit
was recorded in fiscal 1996, 1995 and 1994.
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
(IN THOUSANDS) 1996 1995 1994
- -------------- ---- ---- ----
The components of the deferred provision for income taxes are as follows:
<S> <C> <C> <C>
Deferred income taxes:
Depreciation $ (497) $ (601) $ (1,728)
Capital lease book charges (over) under
rental charges for tax purposes 315 918 (37)
Additional inventory costs capitalized
for tax purposes 21 37 30
Deferred compensation 25 20 4
Provision for store closings -- 208 --
Restructuring reserve 134 876 1,561
Other 19 411 89
Interaction of net operating loss carryforward (17) (1,869) 81
$ -- $ -- $ --
</TABLE>
F-13
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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:
<TABLE>
<CAPTION>
FISCAL FISCAL
(IN THOUSANDS) 1996 1995
- -------------- ---- ----
<S> <C> <C>
Deferred tax liabilities:
Book-tax basis difference in property and equipment $ 228 $ 228
Other 79 81
Gross deferred tax liabilities 307 309
Deferred tax assets:
Net operating loss carryforward 28,048 24,920
Reorganization cost 408 541
Capital leases for books 114 428
Additional inventory costs capitalized for tax purposes 486 508
Other (1,296) 842
Gross deferred tax assets 27,760 27,239
Valuation allowance for deferred tax assets 27,453 26,930
Net deferred tax assets 307 309
Net deferred taxes $ -- $ --
</TABLE>
The following is a reconciliation of the effective income tax rate with the
statutory rate:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate (34)% (34)% (34)%
Limitation of tax loss carrybacks 34 34 34
- - -
</TABLE>
F-14
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
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 1996, 1995 and 1994.
NOTE 11 - 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
1994.
The Company has a defined contribution retirement savings plan (the "Savings
Plan"), a voluntary compensation deferral plan under Section 401(k) of the
Internal Revenue Code. The Savings Plan allows participants to contribute up to
15% of their annual compensation to the Savings Plan. As of January 31, 1993,
the Board of Directors of the Company adopted an amendment to the Savings 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 1996 or 1995 and
contributed the minimum contribution of $40,000 for fiscal year 1994.
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.
F-15
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 27, 1996.
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 27, 1996.
Shares subject to option:
NUMBER PER SHARE
OF SHARES OPTION PRICE
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
Granted --
Exercised --
Cancelled 163,570
Balance, January 27, 1996 353,500 $.625
Exercisable at end of year 353,500
Shares reserved for future grant:
Beginning of year 192,930
End of year 356,500
F-16
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 totaled $352,000 for fiscal year ended January
27, 1996, of which $35,000 is included in the current portion of other long-term
liabilities and $317,000 in other long-term liabilities on the accompanying
balance sheet. The present value of the obligations totalled $384,000 for fiscal
year ended January 28, 1995, of which $32,000 is included in the current portion
of other long-term liabilities and $352,000 in other long-term liabilities 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 had no outstanding stock appreciation rights under the
plans at January 27, 1996 or January 28, 1995. Furthermore, there was no
compensation expense related to the stock appreciation rights for the three
years ended January 27, 1996.
NOTE 12 - RELATED PARTIES
The Company had capital and operating lease commitments with affiliates of
certain current and former executive officers for stores, equipment and its
corporate headquarters facility during fiscal 1995. All capital lease
commitments with affiliates expired during fiscal 1996 and were renewed as
operating leases. 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.
Future minimum lease commitments to affiliates at January 27, 1996 are as
follows:
(IN THOUSANDS) OPERATING
FISCAL YEAR LEASES
1997 $ 2,164
1998 1,348
1999 832
2000 682
2001 454
Thereafter --
Total minimum lease payments $ 5,480
Lease payments to affiliates of the Company were $2,251,000, $2,312,000 and
$2,501,000 for the years ended January 27, 1996, January 28, 1995 and January
29, 1994, respectively.
F-17
<PAGE>
BRENDLE'S INCORPORATED
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - ADVERTISING COSTS
In fiscal 1996, the Company adopted the provisions of the Accounting Standards
Executive Committee's Statement of Position 93-7, "Reporting on Advertising
Costs" (SOP 93-7). The Company expenses advertising costs the first time the
advertising takes place. Adoption of SOP 93-7 did not have a material impact on
the Company's results of operations. The Company had prepaid advertising of
$186,000 and $304,000 at January 27, 1996 and January 28, 1995, respectively.
Advertising expense charged to income was $6,655,000, $5,929,000, and $9,977,000
for the years ended January 27, 1996, January 28, 1995, and January 29, 1994,
respectively.
NOTE 14 - GAIN ON INSURANCE POLICY
As discussed in Note 9, one of the four shareholders, passed away on September
29, 1995. The Company subsequently received life insurance proceeds of
$3,000,000, less outstanding loans on the policy of $445,000, for net proceeds
of $2,555,000. Pursuant to the shareholders' agreement and as detailed in Note
9, the estate of the shareholder can require the Company to purchase the
shareholder's Common Stock at fair value up to the life insurance proceeds. The
fair value of the deceased shareholder's Common Stock was determined to be
$988,000 based on the average closing market price of the Company's Common Stock
for the twenty days preceding the shareholder's death. This average market price
was computed as $0.5163 per share and the deceased shareholder owned 1,912,667
shares of the Company's Common Stock. Accordingly, at January 27, 1996 the
Company recorded a liability of $988,000 in other accrued liabilities for the
potential purchase of this Common Stock with a corresponding cumulative
reduction in retained earnings. The remaining gain of $46,000, net of
outstanding loans, is the result of the death of another officer of the Company.
NOTE 15 - GAIN ON SALE OF PROPERTY AND EQUIPMENT
The Company recorded a gain on the sale of facilities of $1,026,000 in the
current year. This gain is primarily comprised of $963,000 in proceeds received
by the Company to surrender its lease on the close of the Chapel Hill, N.C.
store in September, 1995. The remaining $63,000 is the result of other
miscellaneous transactions during fiscal 1996.
F-18
<PAGE>
<PAGE>
EXHIBIT INDEX
Any document referred to below as being incorporated by reference is so
incorporated to the files of the Securities and Exchange Commission, Washington,
DC 20549. The term "Company" herein refers to Brendle's Incorporated or its
wholly-owned subsidiary, Brendle's Stores, Inc.
<TABLE>
<CAPTION>
Number in
Exhibit Number per Sequential
Item 601 of Numbering
Regulation S-K Description of Exhibit* System
<S> <C> <C>
3 Articles of Incorporation and By-Laws
(incorporated by reference to Exhibit 3 of the
Company's Annual Report on Form 10-K for
the fiscal year ended February 2, 1991)
3.1 The Company's Restated charter, as amended
by: (1) Articles of Amendment dated May 13,
1986, and (2) Articles of Amendment dated
June 3, 1988 (incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on
Form 10-K for the fiscal year ended January 31,
1988)
3.2 The Company's By-Laws, as amended on April
20, 1994. (incorporated by reference to Exhibit
3.2 of the Company's Annual Report on Form
10-K for the fiscal year ended January 28,
1995)
3.3 Articles of Amendment amending the
Company's Articles of Incorporation effective
April 27, 1994.
3.4 Articles and Plan of Merger providing for the
merger of Brendle's Stores, Inc. into the
Company effective April 29, 1994.
(incorporated by reference to Exhibit 3.4 of the
Company's Annual Report on Form 10-K for
the fiscal year ended January 28, 1995)
4 Instruments defining the rights of security
holders, including indentures: Not Applicable.
(See the Company's Restated Charter, as
amended, incorporated by reference to Exhibit
3.1 above, and the Company's By-Laws, as
amended, incorporated by reference to Exhibit
3.2 above)
9 Voting Trust Agreement: Not Applicable. (See
the Shareholders' Agreement dated April 10,
1986, incorporated by reference to Exhibit
10.15 to the Company's report on Form 10-K
for the fiscal year ended January 31, 1988
<PAGE>
10 Material Contracts:
10.1 Brendle's Incorporated Amended and Restated
Employee's Profit-Sharing Plan and Trust
Agreement effective February 1, 1989
(incorporated by reference to the company's
report on Form 10-K for the fiscal year ended
January 31, 1989; as amended by the First
Amendment dated December 29, 1989) as
further amended by the Second Amendment
dated December 1, 1990 (incorporated by
reference to the Company's Annual Report on
Form 10-K for the fiscal year ended February 2,
1991).
10.2 Brendle's Incorporated 1986 Incentive Stock
Option Plan, as amended (incorporated by
reference to Exhibit 4(a) to the Company's
Registration Statement on Form S-8 dated April
24, 1987; Reg. No. 33-13622)
10.3 Brendle's Incorporated 1986 Nonqualified
Stock Option Plan, as amended (incorporated
by reference to Exhibit 4(b) to the Company's
Registration Statement on Form S-8 dated April
24, 1987; Reg. No. 33-13622)
10.4 Brendle's Incorporated 1990 Stock Option Plan
(incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended February 2, 1991).
10.5 Aircraft Lease between Brendle Transport, Inc.
and Sky-Lease, Inc. dated February 4, 1990
(incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended February 2, 1991).
10.6 Hold Harmless Agreement between the
Company and John D. Gray (incorporated by
reference to Exhibit 10.9 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)
10.7 Hold Harmless Agreement between the
Company and James B. Edwards (incorporated
by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)]
<PAGE>
10.8 Hold Harmless Agreement between the
Company and Thomas H. Davis (incorporated
by reference to Exhibit 10.14 to the Company's
report on form 10-K for the fiscal year ended
January 31, 1988)
10.9 Shareholders' Agreement dated April 10, 1986,
among the then shareholders of the Company
(incorporated by reference to Exhibit 10.11 to
the Company's Registration Statement on Form
S-1 dated April 11, 1986)
10.10 Last Will and Testament of James Harold
Brendle (incorporated by reference to Exhibit
10.12 to the Company's Registration Statement
on Form S-1 dated April 11, 1986)
10.11 Split-Dollar Life Insurance Agreement dated
January 8, 1982, between the Company and the
Trustee of the Douglas D. Brendle Irrevocable
Life Insurance Trust (incorporated by reference
Exhibit 10.13 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.12 Split-Dollar Life Insurance Agreement dated
January 8, 1982, between the Company and the
Trustee of the Sidney Floyd Brendle Irrevocable
Life Insurance Trust (incorporated by reference
Exhibit 10.14 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.13 Form of Split-Dollar Life Insurance Trust
Agreement adopted April 7, 1986 (incorporated
by reference Exhibit 10.16 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)
10.14 Schedule Identifying Omitted Split-Dollar Life
Insurance Agreements dated April 7 and April
8, 1986, which are substantially identical to the
form of Split-Dollar Life Insurance Agreement
(incorporated by reference Exhibit 10.21 to the
Company's report on form 10-K for the fiscal
year ended January 31, 1988) and to the
Company's Registration Statement on form S-1
dated April 11, 1986 (incorporated by reference
Exhibit 10.17 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.15 Split-Dollar Life Insurance Agreement dated
June 1, 1988, between the Company and
Douglas D. Brendle (incorporated by reference
to the Company's report on Form 10-K for the
fiscal year ended January 31, 1989)
<PAGE>
10.16 Split-Dollar Life Insurance Agreement dated
September 13, 1988, between the Company and
Jeffrey D. Mick (incorporated by referenced to
the Company's report on Form 10-K for the
fiscal year ended January 31, 1989)
10.17 Split-Dollar Life Insurance Agreement dated
September 13, 1989, between the Company and
Johanna L. Johnson (wife of Dennis B.
Johnson)
10.18 Triple Net Lease between Edna A. Brendle and
the Company dated October 1, 1985 re: a
portion of former Store #1, (now service center
location) Elkin, NC (incorporated by reference
to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.19 Triple Net Lease between Brendle Brothers and
the Company dated October 1, 1985 re: former
Store #1, Elkin, NC (now service center
location) (incorporated by reference to Exhibit
10.19 to the Company's Registration Statement
on Form S-1 dated April 11, 1986)
10.20 First Amendment to Triple Net Lease (re:
former Store #1, Elkin, NC) among Brendle
Brothers, the Company and a subsidiary, dated
August 2, 1987 (incorporated by reference to
Exhibit 10.25 to the Company's report on Form
10-K for the fiscal year ended January 31,
1988)
10.21 Triple Net Lease between Brenco and the
Company effective November 18, 1988 re:
Store #1, Elkin, NC (incorporated by reference
to the Company's Annual Report on Form 10-K
for the fiscal year ended February 2, 1991).
10.22 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #2,
Winston-Salem, NC (incorporated by reference
to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.23 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #3,
Hickory, NC (incorporated by referenced to
Exhibit 10.21 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
<PAGE>
10.24 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #5,
Chapel Hill, NC (incorporated by reference to
Exhibit 10.22 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.25 Shopping Center Store-Space Lease between
Brenco and the Company dated October 1,
1985 re: Store #6, Asheville, NC (incorporated
by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)
10.26 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #7,
Kingsport, TN (incorporated by reference to
Exhibit 10.24 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.27 Shopping Center Store-Space Lease between
Brenco and the Company dated October 1,
1985 re: Store #12, Salem, VA (incorporated by
reference to Exhibit 10.25 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)
10.28 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #13,
Burlington, NC (incorporated by reference to
Exhibit 10.26 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.29 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #14,
Wilson, NC (incorporated by reference to
Exhibit 10.27 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.30 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #15,
Myrtle Beach, SC (incorporated by reference to
Exhibit 10.28 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.31 Shopping Center Store-Space Lease between
Brenco and the Company dated October 1,
1985 re: Store #16, Raleigh, NC (incorporated
by reference to Exhibit 10.29 to the Company's
Registration Statement on Form S-1 dated April
11, 1986)
10.32 Shopping Center Store-Space Lease between
Brenco and the Company dated October 1,
1985 re: Store #17, Greensboro, NC
<PAGE>
(incorporated by reference to Exhibit 10.30 to
the Company's Registration Statement on Form
S-1 dated April 11, 1986)
10.33 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Store #23,
Boone, NC (incorporated by reference to
Exhibit 10.31 to the Company's Registration
Statement on Form S-1 dated April 11, 1986)
10.34 Triple Net Lease between Brenco and the
Company dated October 1, 1985 re: Elkin, NC
Corporate Headquarters and Warehouse
Facility (incorporated by reference to Exhibit
10.32 to the Company's Registration Statement
on Form S-1 dated April 11, 1986)
10.35 Master First Amendment to Leases (re: Leases
between the Company and Brenco in effect on
August 2, 1987) among Brenco, the Company
and a subsidiary, dated August 2, 1987
(incorporated by reference to Exhibit 10.39 to
the Company's report on Form 10-K for the
fiscal year ended January 31, 1988)
10.36 Triple Net Lease between Brenco and the
Company dated as of September 14, 1987, re:
Store #38, Wilmington, NC (incorporated by
reference to the Company's report on Form 10-
K for the fiscal year ended January 31, 1989)
10.37 Triple Net Lease between Brenco and the
Company dated April 29, 1988, re: Store #42,
Greenville, NC (incorporated by reference to
the Company's report on Form 10-K for the
fiscal year ended January 31, 1989)
10.38 Consulting Agreement with S. Floyd Brendle,
dated February 17, 1989 (incorporated by
reference to the Company's report on Form 10-
K for the fiscal year ended February 3, 1990)
10.39 Brendle's Incorporated Stock Savings Plan and
Trust Agreement dated August 1, 1989
(incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 3, 1990)
10.40 Brendle's Key Employee Stock Appreciation
Rights Plan, dated effective August 18, 1989
(incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 3, 1990)
<PAGE>
10.41 Brendle's Unaffiliated Directors' Stock
Appreciation Rights Plan, dated effective
August 18, 1989 (incorporated by reference to
the Company's report on Form 10-K for the
fiscal year ended February 3, 1990)
10.42 Bill of Sale and Lease Termination dated
September 29, 1989 (incorporated by reference
to the Company's report on Form 10-K for the
fiscal year ended February 3, 1990)
10.43 Employment Agreement dated May 12, 1990
between the Company and Dennis B. Johnson
(incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended February 2, 1991).
10.44 Loan Agreement between the Company and its
Lender banks dated October 18, 1991 in
connection with its $49,000,000 Revolving
Line of Credit and $20,000,000 Term Loan.
(Incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 1, 1992.)
10.45 Agency Agreement between the Company and
Schottenstein Stores Corporation with
amendments. (Incorporated by reference to the
Company's report on Form 10-K for the fiscal
year ended February 1, 1992.)
10.46 Master amendment to leases and amended and
restated master amendment to leases entered
into between the Company and Brenco.
(Incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 1, 1992.)
10.47 AirCraft Lease Termination Agreement.
(Incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 1, 1992.)
10.48 Letter Agreement between the Company and
The GDL Group, Inc. for consulting services.
(Incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 1, 1992.)
<PAGE>
10.49 First amendment to Brendle's Incorporated
Stock Savings Plan and Trust Agreement.
(Incorporated by reference to the Company's
report on Form 10-K for the fiscal year ended
February 1, 1992.)
10.50 Employment Agreement dated December 9,
1992 between the Company and William V.
Grady. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.51 Employment Agreement dated November 17,
1992 between the Company and Steve W.
Luka. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.52 Employment Agreement dated November 17,
1992 between the Company and A.L. Miller, Jr.
(Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 30, 1993.)
10.53 Employment Agreement dated November 17,
1992 between the Company and David R.
Renegar. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.54 Employment Agreement dated November 17,
1992 between the Company and W. Steven
Day. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.55 Employment Agreement dated November 17,
1992 between the Company and Gregory S.
Stegall. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.56 Letter Amendment Agreement dated June 2,
1992 between the Company and The GDL
Group, Inc. for consulting services.
(Incorporated by reference to the Company's
Annual Report on Form 10-K for the fiscal year
ended January 30, 1993.)
<PAGE>
10.57 Management and Consulting Contract dated
November 17, 1992 between The GDL Group,
Inc. and Brendle's Stores, Inc. for consulting
services. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.58 First Amendment to Loan Agreement dated
May 14, 1992 between the Company (and
Brendle's Stores, Inc.) and its primary lender
banks. (Incorporated by reference to the
Company's Annual Report on Form 10-K for
the fiscal year ended January 30, 1993.)
10.59 Lease Agreement effective February 1, 1994
between the Company and P.B. Realty, Inc. for
the lease of distribution center space.
(incorporated by reference to Exhibit 10.59 of
the Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1995)
10.60 Loan and Security Agreement between the
Company and Foothill Capital Corporation
dated April 21, 1994. (incorporated by
reference to Exhibit 10.60 of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 28, 1995)
11 Statement regarding computation of per share
earnings: no statement setting forth the
computation of per share earnings has been
made since the computation can be clearly
determined from material contained in this
report, including the consolidated financial
statements and related notes, with particular
reference to Note 1 thereto.
12 Statement regarding computation of ratios: Not
Applicable
16 Letter regarding change in certifying
accountants: Not Applicable
18 Letter regarding change in accounting
principles: Not Applicable
19 Previously unfiled documents: Not Applicable
22 Subsidiaries of the Company. (incorporated by
reference to Exhibit 10.60 of the Company's
Annual Report on Form 10-K for the fiscal
year ended January 28, 1995)
<PAGE>
23 Published report regarding matters submitted to
vote of security holders: Not Applicable
24 Consent of Price Waterhouse
25 Powers of Attorney: Not Applicable
28 Additional Exhibits: Not Applicable
29 Information from reports furnished to state
insurance regulatory authorities: Not
Applicable
</TABLE>
*The Company's Registration Statement on Form S-1 dated April 11, 1986 to which
certain documents are incorporated by reference herein is Registration No.
33-4774.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-13622) of Brendle's Incorporated of our report
dated March 29, 1996, except as to Notes 1 and 8, which are as of April 30,
1996, appearing on page F-1 of the Annual Report to Shareholders on Form 10-K
for the year ended January 27, 1996.
PRICE WATERHOUSE LLP
Winston-Salem, North Carolina
May 30, 1996
