SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 1994
Commission file number 33-27126
PEEBLES INC.
Virginia 54-0332635
(State of incorporation) (I.R.S. Employer
Identification No.)
One Peebles Street
South Hill, Virginia 23970-5001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 447-5200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the registrant $12,268,158 (determined by including all shares
of Peebles common stock owned by persons, (1) who hold less than 10% of the
outstanding shares of common stock and(2) are not an executive officer of the
registrant. Aggregate value is based upon the estimated fair value of common
stock as of January 29, 1994.)
As of April 20, 1994, 2,933,562 shares of common stock of Peebles Inc.
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and
the Part of the Form 10-K into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or information statement;
and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly described for
identification purposes.
NONE
<PAGE>
PART I
Item 1. Business.
THE COMPANY
Peebles Inc. ("Peebles" or the "Company") is the successor to a group of
related companies that has operated a retail department store business since
1891 under the name "Peebles." The Company currently operates a chain of 54
department stores located primarily in small and medium-sized communities in
Delaware, Kentucky, Maryland, New Jersey, North Carolina, South Carolina,
Tennessee and Virginia and, at January 29, 1994, had approximately 956
full-time employees and approximately 1,316 part-time employees. The
Company, which attempts to position itself as the dominant fashion specialty
retailer in a local area, seeks to provide middle-income customers with
quality brand-name and private label merchandise, including women's, men's
and children's apparel, accessories and shoes, cosmetics, gifts and home
fashions. The Company's merchandising strategy appeals to value conscious
customers and positions the Company between the discounters and traditional
department stores. The Company believes that it is presently the dominant
fashion specialty retailer, on the basis of sales, in 38 of the 54 markets in
which it operates. The Company's stores are located primarily in "strip"
shopping centers and enclosed local and regional malls.
On January 31, 1992, Peebles completed an exchange offer (the "Exchange
Offer") pursuant to which Peebles exchanged shares of its common stock, par
value $0.10 per share (the "Common Stock"), for all amounts of principal and
interest payable pursuant to its 14-3/4% Senior Subordinated Notes Due 1999
(the "Notes"). The Notes were issued by Peebles in July, 1989, to refinance
indebtedness incurred in connection with the acquisition, in January, 1989,
of all of the outstanding common stock of Peebles' parent, Peebles Holdings,
Inc., a Delaware corporation ("Peebles Holdings") by PBL Acquisition Corp.,
a Delaware corporation ("PBL"). As a result of the Exchange Offer, those
persons previously owning Notes were issued approximately 95% of the
outstanding shares of the Company's Common Stock in exchange for their Notes.
The Exchange Offer was part of a recapitalization plan (the
"Recapitalization") pursuant to which (i) Peebles Holdings was merged with
and into PBL on December 31, 1991, and PBL was merged with and into the
Company on January 23, 1992, with the Company being the surviving corporation
(the "Mergers"), and (ii) the Company and its lender, NatWest USA Credit
Corp. (the "Bank"), entered into a Second Amended and Restated Credit
Agreement (the "Credit Agreement") on January 31, 1992 which amended certain
provisions of the Company's existing credit facility to, among other things,
extend its maturity until 1996, reduce the amount of the required principal
payments, provide for a limited overadvance facility, revise the covenants to
reflect the Recapitalization and increase the level of permissible capital
expenditures.
MERCHANDISE AND MARKETING
The Company's stores offer a wide assortment of first-quality, popular
and moderate priced fashions for the family and the home including women's,
men's and children's apparel, accessories and shoes, cosmetics, gifts and
home fashions. The Company's merchandise is classified into 15 divisions
which include: linens and domestics, decorative home, accessories, intimate
apparel, children and boys, misses sportswear, men's, shoes, young mens,
ready-to-wear, junior sportswear, petite sportswear, women's sportswear,
cosmetics, and better misses sportswear.
The Company's merchandising mix consists of two main components. The
predominant component is well known, nationally advertised, "brand name"
merchandise. This includes merchandise in the "popular" price ranges from
vendors such as Levi Strauss, Alfred Dunner, Van Heusen, Keds, Buster Brown,
Londontown, Fieldcrest, Hanes, Arrow, Bugle Boy, Haggar, Nike, Reebok,
Jantzen, Byer of California and Koret, and, in the higher price ranges,
merchandise from prestige vendors such as Estee Lauder, Elizabeth Arden,
Monet, Esprit, Etienne Aigner, Napier and Liz Claiborne. The second
component is domestic and imported private-label merchandise, which the
Company believes meets customer demand for quality merchandise comparable to
certain national brands, at prices lower than the national brands.
The Company's marketing strategy is to appeal to the fashion-conscious,
middle-income customers in small-to-medium sized communities. To appeal to
these customers, the Company attempts to position itself as the dominant
fashion specialty retailer in a local area. Based on the Company's
continuous monitoring of its sales volumes compared to the sales volumes of
competitors of the same type, the Company believes that it is presently the
dominant fashion specialty retailer in 38 of the 54 markets in which it
operates. The Company endeavors to establish a visual merchandising image
consistent with this strategy. In its remodelings and new store openings,
the Company attempts to create a friendly and modern environment. The
Company also offers a broad range of customer services, including
alterations, gift-wrap, and gift certificates. The Company offers the
customer various payment options in addition to cash including layaway, major
credit cards, and the Company's own proprietary charge card.
The Company uses primarily newspaper advertisements, newspaper inserts,
direct mail and charge statement inserts in its marketing and promotional
programs. The Company's promotional strategy is to target specific groups of
customers based on their historical purchases, including the over 550,000
Peebles charge card holders.
The Company strengthened in 1993 an everyday fair pricing program which
is designed to keep the Company competitive on the initial pricing of the
merchandise offered in our store. The Company is less promotional than the
traditional department store which enables it to offer the customer
consistently lower prices everyday.
The Company is a member and stockholder of Frederick Atkins, Inc., an
international cooperative buying service, and as such, is entitled to make
purchases through Frederick Worldwide Corp., a wholly owned subsidiary of
Frederick Atkins, Inc. The membership provides the Company with, (i) buying
opportunities on domestic and imported merchandise; (ii),information on
current retailing trends and competition, and (iii), the ability to utilize
Frederick Atkins' private label programs which are jointly developed with the
other members. Furthermore, the Company's executives in merchandising,
marketing, finance and operations participate in conferences and meetings
arranged by Frederick Atkins, Inc., which serve as an important source of
market data and industry contacts.
Most significant merchandising decisions, including pricing, sales
promotion, inventory allocations and markdowns, affecting the Company and its
stores are made centrally. However, the Company continually alters its
strategy to appeal to customers in individual store locations. The
merchandise area is composed of 22 buyers with appropriate support personnel
who report to one of seven merchandise managers and one general merchandise
manager. The merchants participate in an incentive plan based primarily on
the gross margin dollars generated versus an established plan, pursuant to
which they are eligible for an annual bonus.
PURCHASING AND DISTRIBUTION
The Company purchases its merchandise from approximately 1,200 suppliers
and is not dependent on any single source of supply. Frederick Worldwide
Corp. continuously offers Atkins' members merchandise purchasing
opportunities, which the Company has taken advantage of particularly in
connection with its imported private-label merchandise. During the fiscal
years ended February 1, 1992, January 30, 1993, and January 29, 1994
Frederick Worldwide Corp. was the Company's largest supplier, accounting for
retail purchases totaling approximately $26,450,000, $32,018,151 and
$34,657,266, respectively, which represented approximately 13.6%, 17.4% and
17.0%, respectively, of total retail purchases by the Company during such
years. The Company is not aware of any reason why the Frederick Worldwide
Corp. would not continue to supply the Company. In the event such a
situation arose, the Company believes that it could avoid significant
disruptions in its purchasing process or significant changes to its
merchandise mix through the use of other resources.
The Company maintains no long-term commitments with any supplier. The
Company believes that there will continue to be an adequate supply of
merchandise to satisfy its current anticipated requirements.
The Company distributes merchandise through its distribution center
located in South Hill, Virginia which was expanded to approximately 117,000
square feet during the fiscal year ended January 29, 1994. Merchandise is
shipped from vendors directly to the distribution center, where it is
inspected, marked and shipped to individual stores on trucks owned by the
Company. The Company believes that the distribution center enables it to
monitor vendor shipments more effectively, to obtain greater discounts from
vendors through volume purchase discounts, to reduce related transportation
and marking costs and to improve inventory control and reduce inventory
shrinkage.
STORE LOCATIONS
The Company's store location strategy is to locate stores in the
dominant shopping areas in mid-sized and smaller markets. The Company
targets communities with between 10,000 and 25,000 households, although,
since 1972, the Company also has been entering larger markets and urban
fringe areas with 25,000 to 40,000 households. The Company prefers to locate
these stores in "strip" shopping centers and enclosed malls. Of the 54 stores
currently in operation, 31 are located in strip shopping centers, 17 in
enclosed malls, and 6 in downtown locations. See "Item 2. Properties."
STORE EXPANSION
The Company opened five new stores during the third and fourth quarters
of the fiscal year ended January 29, 1994. The Company currently plans to
open 150,000 in new store square footage in each of the fiscal years ending
1995, 1996 and 1997. As of April 1, 1994 the Company has signed four new
store leases representing approximately 102,000 in total square footage and
is negotiating leases for additional stores. The Company has typically
leased its new stores under long-term leases, with renewal options, and
expects that the stores it currently plans to open will also be leased.
The following table sets forth, for each of the last five fiscal years,
the number of stores acquired, the number of new stores opened, the number of
stores closed and the number of stores operated by the Company at fiscal year
end:
FISCAL YEARS ENDED
1990 1991 1992 1993 1994
Beginning of Year Stores 48 48 50 50 49
Stores Acquired......... - 1 - - 1
New Store Openings...... 1 2 3 1 4
Store Closing........... (1) (1) (3) (2) -
End of Year Stores...... 48 50 50 49 54
==== ==== ==== ==== ====
The Company is constantly evaluating locations that meet its site
selection criteria involving customer profiles, market size, competitive
dynamics and financial parameters. The Company is currently studying
approximately 45 sites, primarily in the eight-state business area where it
now operates. The Company believes that future expansion is likely in such
states and in contiguous states and that the working capital required to
support its expansion plans will be provided primarily by internally
generated funds and drawings under the Credit Agreement.
In addition to new store growth, the Company plans to continue upgrading
existing stores in order to maximize selling space while providing its
customers with a fashionable, pleasant shopping environment. The Company
will also pursue the relocation of selected stores within the same market
areas to accomplish its goal of being the dominant fashion specialty retailer
in the market area. In fiscal 1994, the Company plans to relocate two of its
stores.
During the past five years, the Company has continued to improve its
management information capabilities and to centralize control of many
activities previously conducted at the store level. As a result of these
operational improvements and the restructuring of the Company's capital
structure, the Company believes that it has positioned itself for significant
new store expansion with corporate overhead expenses increasing at a slightly
slower rate than sales.
The Company's Credit Agreement prohibits capital expenditures in excess
of approximately $8,750,000 per year plus any carryover of unused funds from
previous years not to exceed $1,000,000 in total. The Company's capital
expenditures are planned to be within this restriction.
STORE OPERATIONS
Each store has a manager who reports to one of eight regional managers.
The Regional Manager also manages a store. Regional Managers visit stores
frequently to review merchandise presentation, personnel training and
performance, enforcement of the Company's security procedures and adherence
to Company operating procedures. Each store is encouraged to tailor its
operation to the local market in order to achieve the goal of being the
dominant fashion retailer in the market. Store managers participate in an
incentive plan based on their respective store's sales and inventory shortage
control versus established goals, pursuant to which each such manager may
become entitled to an annual bonus.
The Company conducts a management training program, which coordinates
instruction at the Company's corporate headquarters facility with on-the-job
experience. The Company stresses promotion from within, and substantially
all of the current store managers have been selected in this manner.
Most stores typically employ several assistant managers, and
approximately 35 sales associates, a number of whom are part-time. Non-sales
personnel are minimal due to the control functions performed at the corporate
office. The Company uses periodic productivity reports and personal reviews
to apprise each employee of his or her performance.
INFORMATION SYSTEMS
The Company maintains central management information and data processing
systems at its corporate headquarters facility, and each of its stores is
equipped with compatible point-of-sale devices, which are polled every
evening by the central system to gather sales, accounts receivable and
inventory information. Almost all of the Company's accounting systems are
computerized, with detailed budget systems for both expenses and
merchandising. The Company's management information and data processing
systems provide comprehensive reports on all income and expense categories,
receivables, payables, merchandise planning, dollar merchandise reporting,
merchandise unit information, payroll, productivity and other similar items.
Furthermore, the Company's management information and data processing systems
use primarily proprietary software developed internally. The Company
continues to make improvements in up-to-date computer hardware technology as
well as modifications to software applications to enhance management
information and data processing systems. The enhancement in technological
support are critical to the integration of store and corporate office
operations.
<PAGE>
CREDIT POLICY
The Company offers its customers various methods of payment including
the Peebles charge card, cash, certain major credit cards and a lay-away
plan. Peebles charge card sales represent an important element in the
Company's marketing strategy because the Company believes that Peebles charge
card holders shop more regularly and are likely to buy more merchandise than
the customer who pays cash. The following table presents a percentage
breakdown of the various payment methods:
Fiscal Year Ended
1990 1991 1992 1993 1994
Peebles Charge Card Sales 44.2% 45.4% 44.3% 42.9% 42.0%
Cash Sales............... 40.5 39.0 39.6 40.7 40.7
Major Credit Card Sales.. 11.6 12.2 12.9 13.4 14.8
Layaway Sales............ 3.7 3.4 3.2 3.0 2.5
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
The following table presents a summary of information relating to the
charge card program:
Fiscal Years Ended
1990 1991 1992 1993 1994
Number of Peebles Charge
Accounts at Period-end 486,553 516,174 569,718 568,483 569,131
Average Billed Accounts. 161,377 165,638 160,563 152,224 151,359
Average Balance of
Billed Accounts....... $167.61 $165.86 $163.39 $166.10 $171.59
The Company's credit plans provide for the option of paying in full
within 30 days of the billed date with no finance charge or with revolving
credit terms. Terms of the short-term revolving charge accounts require
customers to make minimum monthly payments in accordance with prescribed
schedules.
The following table presents a summary of information relating to the
Company's charge card sales and receivables (in thousands).
<TABLE>
<CAPTION>
Period-End Allowance
For Doubtful Accounts
Net Bad Debt Expenses
Fiscal Years % of Period-End Total % of Total
Ended Sales Amount Sales Customer Receivables Amount Receivables
<S> <C> <C> <C> <C> <C> <C>
1990..... $65,805 $1,580 2.40 $30,930 $1,201 3.88
1991..... 63,100 1,433 2.27 30,000 1,355 4.52
1992..... 62,178 1,152 1.85 29,474 1,345 4.57
1993..... 60,443 822 1.36 27,805 1,100 3.96
1994..... 63,696 696 1.09 29,329 950 3.24
</TABLE>
SEASONALITY
The Company experiences a significant level of seasonality, typical in
most retailing operations. Peak sales periods regularly occur during the
Christmas, Easter and back-to-school seasons. The fourth fiscal quarter,
which includes the Christmas season, generates approximately 34% of the
Company's net sales for the fiscal year.
EMPLOYEES
At January 29, 1994, the Company had approximately 956 full-time
employees and approximately 1,316 part-time employees. None of the Company's
employees is covered by a collective bargaining agreement. The Company
considers its employee relations to be good. Sales per 1,000 hours per full-
time equivalent for the fiscal years ended February 1, 1992, January 30, 1993
and January 29, 1994 were $110.70, $116.67 and $123.71.
COMPETITION
The retail business in which the Company is involved is highly
competitive, with numerous competitors having substantially greater financial
resources than the Company. The Company's stores regularly compete with
other fashion-oriented specialty store operators, department stores and
discount merchandisers on the basis of quality, fashion, price and service.
The Company's fundamental store location strategy involves the placement of
its stores in small and medium-sized communities where the Company attempts
to position itself as the dominant fashion specialty retailer. Based on the
Company's continuous monitoring of its sales volumes compared to the sales
volumes of competitors of the same type, the Company believes that it is
presently the dominant fashion specialty retailer in 38 of the 54 markets in
which it operates. In several of the Company's markets, however, demographic
changes in recent years have altered the character of the market. In
particular, several markets that represented small or medium-sized
communities at the time Peebles entered those markets have grown in size and
sophistication. In those markets, the Company is experiencing increased
competition from discount stores and other fashion merchandisers. Principal
competitors in one or more of the Company's markets are Penney's, Sears,
Leggett's, Belk's, Goody's and Hecht's.
PATENTS AND TRADEMARKS, ETC.
The Company owns no patents and believes that patents do not represent
a significant factor within its segment of the retail industry. The
"Peebles" name is registered as a trademark and a servicemark of the Company.
Additionally, the Company has registered several merchandise labels as
trademarks under which it sells quality merchandise such as "Cape Classic",
"Private Expressions", "Meherrin River Outfitters" and "Sonoma Bay".
REGULATION
The Company is subject to federal, state and local laws and regulations
affecting retail department stores generally. The Company believes that it
is in substantial compliance with these laws and regulations.
Item 2. Properties.
All but one of the Company's stores are leased, and most of the leases
contain renewal options. The stores range in size from approximately 8,000
square feet to 65,000 square feet, and average approximately 31,000 square
feet. The following table indicates the locations and states of the
Company's stores in operation as of January 29, 1994:
Leased Store Locations
Delaware Kentucky
Rehoboth Beach Hopkinsville
Seaford Madisonville
Maryland New Jersey
Bowie Rio Grande
Chestertown North Carolina
Easton Aberdeen
Edgewood Charlotte
Eldersburg Eden
Elkton Jacksonville
Lexington Park Monroe
Prince Frederick Roxboro
Salisbury Statesville
Waldorf
Virginia South Carolina
Ashland Conway
Blackstone Florence
Christiansburg Myrtle Beach
Colonial Heights Tennessee
Covington Columbia
Danville Cookeville
Emporia Dyersburg
Front Royal Hermitage
Hayes Murfreesboro
Hampton
Hopewell
Leesburg
Lexington
Manassas
Onley
Richmond
Rocky Mount
Smithfield
South Hill
Warrenton
Waynesboro
Williamsburg
Woodbridge
Owned Store Location
Virginia
Lawrenceville
Store leases provide for a base rent of between $1.00 and $6.00 per
square foot per year. The leased stores have lease expiration dates ranging
from 1994 (two stores) to 2033. Most leases also have formulas requiring the
payment of a percentage of sales as additional rent when sales reach
specified levels. For the fiscal years ended February 1, 1992, January 30,
1993 and January 29, 1994 the Company's aggregate rental payments were
approximately $5,511,000, $5,574,000 and $5,968,000, respectively.
As part of its continuous evaluation of store locations and operations,
the Company may close, expand or relocate existing stores as well as expand
into new locations. The Company closed 7 stores during the last five fiscal
years, however none were closed during the fiscal year ended January 29,
1994. These stores were closed because they were either only marginally
profitable or unprofitable; were relocated; or were an exception to the
current Company strategy. Based on prior practice, the Company believes that
additional stores may be closed during the next five years for similar
reasons.
The Company's corporate headquarters and distribution center facilities
are located in South Hill, Virginia. The Company owns the property subject
to deeds of trust and security interests granted in connection with the
Credit Agreement. The location provides the Company with adequate undeveloped
space to expand the corporate headquarters, distribution center or both to
meet future growth requirements.
Item 3. Legal Proceedings.
The Company is from time to time involved in routine litigation. The
Company believes that none of the litigation in which it is currently
involved is material to its financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
MARKET INFORMATION
There is no existing market for the Common Stock, nor is the Common
Stock listed on any exchange. All currently outstanding shares of common
stock were issued pursuant to exemptions from registration under the
Securities Act of 1933, as amended (the "Act"), and any resales of such
shares of Common Stock can only be made pursuant to an effective registration
statement or an exemption from the registration requirements of the Act.
HOLDERS
As of April 1, 1994, there were 88 holders of Common Stock.
DIVIDENDS
The Company does not currently pay any dividends on its Common Stock.
The Credit Agreement prohibits the payment of dividends absent the consent of
the Bank. Accordingly, the Company does not currently intend to declare any
dividends to the holders of the Common Stock in the foreseeable future.
<PAGE>
Item 6. Selected Financial Data.
The following selected historical financial data for Peebles for the
five fiscal years ended January 29, 1994 are derived from the Company's
audited financial statements. The Recapitalization was effective on January
31, 1992. The data should be read in conjunction with the financial
statements, related notes and other financial information included herein.
(This space intentionally left blank)
<PAGE>
<TABLE>
PEEBLES INC.
Fiscal Years Ended
(In Thousands of Dollars Except Per Share, Ratio, and Operating Data)
February 1, February 2, February 1, January 30, January 29,
1990 (4) 1991 1992 1993 1994
STATEMENT OF OPERATIONS DATA: POST
RECAPITALIZATION
<S> <C> <C> <C> <C> <C>
Net sales..................... $ 148,406 $ 138,736 $ 140,044 $140,943 $151,772
Cost of sales................ 88,341 82,412 85,706 84,033 91,134
Gross margin................. 60,065 56,324 54,338 56,910 60,638
Selling, general and
administrative............. 37,183 34,670 37,977 37,717 40,320
Depreciation and
amortization............... 5,772 5,823 5,634 5,557 6,029
Revaluation of goodwill...... - - 26,315 - -
Operating income (loss)...... 17,110 15,831 (15,588) 13,636 14,289
Other income (expenses)...... 12 42 135 (145) (1)
Interest..................... 25,389 20,568 19,277 4,981 4,248
Income (loss) before
income taxes and
extraordinary item......... (8,267) (4,695) (34,730) 8,510 10,040
Income taxes (benefit)....... (2,587) (1,068) (1,275) 3,952 4,513
Income (loss) before
extraordinary item......... (5,680) (3,627) (33,455) 4,558 5,527
Extraordinary item (1)....... - - 33,563 - -
Net income (loss)............ $ (5,680) $(3,627) $ 108 $4,558 $5,527
======== ======== ======== ======== ========
Net income (loss) before
extraordinary item.......... $ (5,680) $(3,627) $(33,455) $4,558 $5,527
Net income (loss) per share.. $(2,634.51) $(1,682.28) $(1,800.40) $1.56 $1.88
Dividends per share.......... $115.95 $215.68 $43.02 - -
BALANCE SHEET DATE (AT
END OF PERIOD):
Working capital ............. $ 44,171 $(41,062) $ 42,441 $41,226 $44,348
Total assets................. 178,658 175,182 145,565 137,543 143,727
Long-term debt (2)........... 137,677 54,460 47,071 39,879 37,669
Common stock warrants........ - - 142 153 164
Stockholders equity......... 9,203 5,111 62,938 68,537 74,530
OPERATING DATA:
Number of stores: 48 48 50 50 49
Stores acquired.............. - 1 - - 1
New store openings........... 1 2 3 1 4
Store closings............... (1) (1) (3) (2) -
End of period stores....... 48 50 50 49 54
====== ====== ====== ====== ======
Net sales per selling
square foot (3)............ $121.99 $114.32 $109.60 $110.63 $116.39
Comparable store sales
growth..................... 7.6% (7.0%) (5.0%) (2.0%) 4.3%
Sales per 1,000 hours
per full time employee
equivalent................. $ 96.70 $106.20 $110.70 $116.67 $123.71
OTHER DATA:
Capital expenditures......... $ 3,610 $ 3,255 $ 2,862 $6,137 $7,372
Depreciation and
amortization............... 5,772 5,823 5,634 5,557 6,029
Amortization of deferred
financing costs...... 4,180 955 876 445 435
<FN>
(1) For the fiscal year ended February 1, 1992, the extraordinary item
reflects the gain on the exchange of the Notes including interest accrued
on the Notes which is partially offset by the write-off of deferred
financing costs associated with the Notes and the write-off of expenses
incurred during the Recapitalization.
(2) Includes the long-term portion of the capital lease obligations.
(3) Sales and square footage based on stores open for one full year.
(4) Fiscal year ending February 3, 1990 contained 53 weeks instead of 52
weeks.
(5) The Revaluation of Goodwill is a result of the Recapitalization which
was completed on January 31, 1992. See Note A to Peebles' financial
statements included elsewhere in this Form 10-K.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following management's discussion and analysis provides information
with respect to the results of operations for the three fiscal years ended
January 29, 1994.
(This space intentionally left blank)
<PAGE>
The following table presents for Peebles, for the periods indicated,
statements of operations data as a percentage of net sales:
<TABLE>
Fiscal Years Ended
February 3, February 2, February 1, January 30, January 29,
1990 1991 1992 1993 1994
Post
Recapitalization
<S> <C> <C> <C> <C> <C>
Net Sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Sales................ 59.5 59.4 61.2 59.6 60.0
Gross Margin................. 40.5 40.6 38.8 40.4 40.0
Selling, general,
and administrative.......... 25.1 25.0 27.1 26.8 26.5
Depreciation and
amortization.............. 3.9 4.2 4.0 3.9 4.0
Revaluation of goodwill...... - - 18.8 - -
Operating income (loss)...... 11.5 11.4 (11.1) 9.7 9.4
Other income................. 0.0 0.0 0.0 0.0 0.0
Interest expense............. 17.1 14.8 13.7 3.6 2.8
Income (loss) before
income taxes and
extraordinary item......... (5.6) (3.4) (24.8) 6.1 6.6
Income taxes (benefit)....... (1.8) ( .8) ( .9) 2.8 3.0
Income (loss) before
extraordinary item......... (3.8%) (2.6%) (23.9%) 3.3% 3.6%
======= ======= ======= ======= =======
</TABLE>
FISCAL YEAR ENDED JANUARY 29, 1994 COMPARED TO FISCAL YEAR
ENDED JANUARY 30, 1993
For the fiscal year ended January 29, 1994, the Company's net sales
totaled $151,772,000 which was approximately an 8% increase from prior year
levels. The opening of five stores during fiscal 1993 and a complete year of
operation of one store opened during fiscal 1992 had a positive effect on net
sales. The comparable store sales increase in the current fiscal year was
approximately 4%. This increase was caused by the improvement in the general
economic conditions in the Company's markets. Comparable store sales in the
fourth quarter of fiscal 1993 showed a 9% increase in comparison to the same
period in the prior fiscal year. The first three quarters of fiscal 1993
showed a 2% comparable store sales increase over the comparable fiscal
periods in the prior year.
Cost of sales for the fiscal year ended January 29, 1994 was
$91,134,000, or 60.0% of net sales, compared with $84,033,000, or 59.6% of
net sales, in the prior fiscal year. The increase in the cost of sales in
dollars is due to higher sales, while the increase in percent is due to an
increase in merchandise inventory along with an increase in the cost of
inventory to the Company which resulted in a LIFO charge to cost of sales of
$1,144,000 in the current fiscal year versus $349,000 for the prior year.
Additionally, the initial markup on merchandise as part of the everyday fair
pricing strategy was lower in comparison to the prior year.
Selling, general and administrative expenses, including depreciation and
amortization, for the current fiscal year totaled $46,349,000, or 30.5% of
net sales, compared to $43,274,000, or 30.7% of net sales for the prior
fiscal year. These expense dollars increased due to higher sales and the
additional cost associated with the new store openings. However, the
decrease in percent is due to efficiencies gained because certain expenses
increase at a rate slower than sales.
Interest expense was $4,248,000 and $4,981,000 for the fiscal years
ended January 29, 1994 and January 30, 1993, respectively. The decrease is
attributable to lower interest on the amounts outstanding under the Credit
Agreement because of the lower prime interest rates and the lower balance
under the Credit Agreement during the first half of fiscal 1993. The lower
balance during the first half of fiscal 1993 was primarily the result of
higher accounts payable and accrued expense balances when compared to the
prior period. The principal balance outstanding under the Credit Agreement
rose during the third and fourth quarters of the current fiscal year to meet
the increased working capital requirements of the new stores and their
related capital expenditures.
As a result of the changes in operating components discussed above, net
income before taxes and extraordinary item was $10,040,000 for the fiscal
year ended January 29, 1994 compared with $8,510,000 for the fiscal year
ended January 30, 1993.
The income taxes for the fiscal year ended January 29, 1994 were
$4,513,000 compared to $3,952,000 for the fiscal year ended January 30, 1993.
The effective income tax rate for the current fiscal year is 45.0% compared
to 46.4% for the previous fiscal year. This is higher than the statutory
rate due to differences associated with the amortization of intangible assets
recorded in an acquisition of the Company that are nondeductible for income
tax purposes. The changes associated with the Ominbus Budget Reconciliation
Act of 1993 did not have a material impact on income tax expense.
As a result of the changes discussed above, net income for the fiscal
year ended January 29, 1994 was $5,527,000 as compared to net income of
$4,558,000 for the fiscal year ended January 30, 1993.
FISCAL YEAR ENDED JANUARY 30, 1993 COMPARED TO FISCAL YEAR
ENDED FEBRUARY 1, 1992
For the fiscal year ended January 30, 1993, the Company's net sales
totaled $140,943,000 which was approximately a 1% increase from prior year
levels. The opening of one store during fiscal 1992, a complete year of
operation of three stores opened during fiscal 1991, and the closing of two
stores at the end of fiscal year 1992 had a net positive effect on net sales.
This increase was partially offset by competition in several of the Company's
markets and the recession which has had an adverse effect on sales since the
second half of fiscal year 1990. The comparable store sales decrease for the
fiscal year was 2%. This decrease was caused by the effects of additional
competition and the recession. The sales performance in comparable stores in
the fourth quarter of fiscal 1992 was flat when compared to the previous year
versus down 3% for the previous three quarters compared to the previous year.
Cost of sales for the fiscal year ended January 30, 1993 was
$84,033,000, or 59.6% of net sales, compared with $85,706,000, or 61.2% of
net sales, in the prior fiscal year. The decrease in the cost of sales in
both dollars and percent is due to better inventory control during the year
and slightly better sales performance in the fourth quarter of fiscal 1992.
Selling, general and administrative expenses, including depreciation and
amortization, for the current fiscal year totaled $43,274,000, or 30.7% of
net sales, compared to $43,611,000, or 31.1% of net sales for the prior
fiscal year. These expenses decreased due to a decrease in compensation
expense associated with the grants under the Equity Incentive Plan to
$792,000 for the current fiscal year compared with $1,590,000 for the
previous year. In connection with the institution of the 1993 Stock Option
Plan, the Company's Equity Incentive Plan was terminated.
The Revaluation of Goodwill occurred in fiscal 1991 and was a result of
the Recapitalization.
Interest expense was $4,981,000 and $19,277,000 for the fiscal years
ended January 30, 1993 and February 1, 1992, respectively. The interest
expense for the fiscal year ended February 1, 1992 includes accrued interest
in the amount of $11,800,000 on the Notes which was not paid when due on July
15, 1991 and January 15, 1992. The accrued interest as well as the Notes
themselves were exchanged for common stock in the Company as part of the
Recapitalization. The decrease is also attributable to lower interest on the
amounts outstanding under the Credit Agreement and because of lower prime
interest rates. Finally, the principal balance outstanding under the Credit
Agreement was lower during the current fiscal year due to the return to
normal credit terms with the Company's vendors and factors, and improved
performance.
As a result of the changes in operating components discussed above, net
income before taxes and extraordinary item was $8,510,000 for the fiscal year
ended January 30, 1993 compared with a net loss before taxes and
extraordinary item of $34,730,000 for the fiscal year ended February 1, 1992.
The income taxes for the fiscal year ended January 30, 1993 were
$3,952,000 compared to a (benefit) of $(1,275,000) for the fiscal year ended
February 1, 1992. The effective income tax rate for the current fiscal year
is 46.4%. This is higher than the statutory rate due to differences
associated with the amortization of intangible assets recorded in an
acquisition of the Company that are nondeductible for income tax purposes. If
the Revaluation of Goodwill is excluded, the effective income tax rate for
the previous fiscal year is a (benefit) of (15.2%).
The extraordinary item occurred in fiscal 1991 and was a result of the
Exchange.
As a result of the changes discussed above, net income for the fiscal
year ended January 30, 1993 was $4,558,000 as compared to net income of
$108,000 for the fiscal year ended February 1, 1992.
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended January 29, 1994, the cash flow provided by
operating activities decreased to $5,765,000 from $21,328,000 for the fiscal
year ended January 30, 1993. The net income of $5,527,000 was increased by
noncash adjustments such as depreciation and amortization but decreased by
the net negative change in operating assets and liabilities. The net
negative change in operating assets and liabilities was caused primarily by
increases in inventory and accounts receivable due to additional sales volume
and new stores. The Company believes the cash flow generated from operating
activities together with funds available under the Credit Agreement will be
sufficient to fund the investing activities and the required payments under
the Credit Agreement.
Continued business growth, both in terms of increased sales in existing
stores and as a result of new store openings, will also require funding of
additional working capital for which the Company must depend on internally
generated funds and borrowings under the Credit Agreement as discussed below.
The Company opened five new stores in the fiscal year ended January 29, 1994
and plans to open approximately 150,000 in new store square footage in each
of fiscal years ending 1995, 1996 and 1997. The prototypical Peebles store
is approximately 25,000 to 30,000 square feet. Due to the build-up of
inventory for the Christmas, Easter and back-to-school seasons, the Company
also has seasonal working capital requirements.
The Company's capital expenditures were $2,862,000, $6,137,000 and
$7,372,000, in the fiscal years ended February 1, 1992, January 30, 1993 and
January 29, 1994, respectively, reflecting primarily expenditures for
leasehold improvements and fixtures for new leased stores and renovation of
existing stores.
The locations for certain of the anticipated new stores have not been
specifically identified, and the availability of suitable locations is not
certain. As of April 1, 1994, however, the Company has signed four new leases
which are scheduled for opening throughout the fiscal year ending January 28,
1995 and are located in the Company's current or contiguous states of
operation. The total square footage of the four stores is approximately
102,000. The Company believes that under the Credit Agreement it has
sufficient flexibility within the restrictions on capital expenditures to
fund the capital expenditures necessary to open the new stores as well as
additional planned projects.
In order to finance its operational and capital needs, including its
debt service payments, the Company expects to use funds available to it under
the revolving credit portion of the Credit Agreement (the "Revolving
Facility") and internally generated funds. Under the Revolving Facility, the
Company may borrow up to the lesser of (i) $76,000,000 less the aggregate
amount outstanding under the term loan portion (the "Term Facility") and the
aggregate amount of outstanding letter of credit obligations or (ii) a
borrowing base which is a percentage of eligible accounts receivable and
inventory. As of January 29, 1994, approximately $45,372,000 was available
under the Revolving Facility, of which approximately $30,000,000 was drawn as
of such date. The Revolving Facility has no specific paydown provisions. The
borrowing base formula is adjusted to accommodate seasonal working capital
requirements. The principal payments under the Term Facility are $750,000
per quarter due on April 30, July 31, October 31, and January 31. The Credit
Agreement expires on February 1, 1996.
IMPACT OF INFLATION
Although inflation has slowed in recent years, Peebles continues to seek
ways to address inflationary effects. Slower inflation coupled with Peebles
aggressive position on everyday fair pricing has resulted in an increased
unit volume, accounting for the sales increases reported in the audited
financial statements for the three most recent fiscal years.
Peebles uses the retail inventory method applied on a LIFO basis in
accounting for its inventories. Under this method, the cost of products sold
reported in the financial statements approximates current costs and thus
reduces the distortion in reported income or loss due to increasing costs.
Item 8. Financial Statements and Supplementary Data.
Information with respect to this Item is contained in the financial
statements and financial statement schedules of Peebles indicated in the
Indices on Pages F-0 and S-1 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
(This space intentionally left blank.)
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information with respect to
each of the directors and executive officers of Peebles as of April 1,
1994.
Name Age Positions Held During the Past Five Years
Michael F. Moorman 51 Chairman of the Board and a Director of
Peebles since September, 1989; Chief
Executive Officer of Peebles since May,
1989; Chief Financial Officer and Treasurer
of Peebles from August, 1989 to June, 1992,
Secretary of Peebles from August 1989 to
June 1990; President of Peebles since June,
1988; Employed by Peebles since 1964.
Ronnie W. Palmore 45 Senior Vice President, Merchandising, of
Peebles since September 1989; Senior Vice
President, Stores, of Peebles from June
1988 to August 1989; Assistant Secretary of
Peebles since 1988; Employed by Peebles
since 1973.
Russell A. Lundy, Sr. 58 Senior Vice President, Stores,of Peebles
since September, 1989; Vice President,
Stores of Peebles from 1984 to August,
1989; Employed by Peebles since 1954.
E. Randolph Lail 38 Senior Vice President, Finance, of Peebles
since June, 1993; Chief Financial Officer,
and Treasurer of Peebles since June, 1992;
Secretary of Peebles since June,1990; Vice
President, Finance, of Peebles from June,
1990 to June, 1993; Controller of Peebles
from January 1988 to June, 1990; Employed
by Peebles since January, 1988.
Marvin H. Thomas, Jr. 38 Senior Vice President, Operations, of
Peebles since June, 1993; Vice President,
Operations, of Peebles from June, 1990 to
June 1993; Vice President, Merchandise
Manager, of Peebles from May, 1988 to June,
1990; Employed by Peebles since 1979.
Wellford L. Sanders, Jr. 48 Director of Peebles since February, 1992.
Partner, law firm of McGuire, Woods, Battle
& Boothe; Director of Club Car, Inc.,
Catherines Stores Corporation and General
Medical Corporation.
William C. DeRusha 44 Director of Peebles since March 1992.
Chairman of the Board and Chief Executive
Officer of Heilig-Meyers Company; Director
of Heilig-Meyers Company and Signet
Banking Corporation.
Malcolm S. McDonald 55 Director of Peebles since April, 1992.
President, Chief Operating Officer and
Director of Signet Banking Corporation and
President and Chief Executive Officer of
Signet Bank/Virginia. Prior to April,1990,
Vice chairman of SignetBank/Maryland and
SignetBank/Virginia. Prior to July, 1988,
Vice Chairman of Signet Banking Corporation
and Chairman of Signet Bank, N.A.
At April 1, 1994, there remains one vacancy on the Board of Directors.
Executive officers of Peebles are elected annually and serve at the
discretion of the Board of Directors. Each director who is not an employee
of the Company is paid an annual retainer of $20,000, payable quarterly in
arrears, and is reimbursed for expenses incurred in attending meetings of
the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of the directors and
officers of Peebles pursuant to which Peebles agrees to indemnify such
director or officer from claims, liabilities, damages, expenses, losses,
costs, penalties or amounts paid in settlement incurred by such director or
officer and arising out of his capacity as a director, officer, employee
and/or agent of the corporation of which he is a director or officer to the
maximum extent provided by applicable law. In addition, such director or
officer shall be entitled to an advance of expenses to the maximum extent
authorized or permitted by law to meet the obligations indemnified against.
Such agreements also obligate the Company to purchase and maintain
insurance for the benefit and on behalf of its directors and officers
insuring against all liabilities that may be incurred by such director or
officer, in or arising out of his capacity as a director, officer, employee
and/or agent of the Company.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables sets forth a summary of compensation paid by the
Company to its five highest paid executive officers during the fiscal years
ended February 1, 1992, January 30, 1993 and January 29, 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation
Awards Payout
Number of
Other Annual Options/ Long-term
Name and Salary Bonus Compensation Warrants Incentive Plan All Other
Principal Position Year ( $) ($), (1) ($)(2)(3)(4) Granted(5) Payouts($)(6) Compensation
<S> <C> <C> <C> <C> <C> <C> <C>
Michael F. Moorman
Chairman of the Board 1993 232,796 345,282 103,010 84,227 170,569 0
President, and Chief 1992 214,121 488,099 209,835 7,200 0 0
Executive Officer 1991 203,200 152,400 0 0 0 0
Ronnie W. Palmore
Senior Vice President- 1993 129,964 117,169 32,235 26,860 68,227 0
Merchandising; 1992 117,987 148,361 69,222 2,680 0 0
Assistant Secretary 1991 103,768 38,110 0 0 0 0
Russell A. Lundy, Sr. 1993 104,472 90,292 22,255 18,679 37,525 0
Senior Vice President- 1992 98,816 102,407 49,154 2,100 0 0
Stores 1991 93,455 37,624 0 0 0 0
E. Randolph Lail
Senior Vice President- 1993 77,588 53,207 14,837 12,107 22,174 0
Finance, CFO, 1992 67,741 72,505 33,795 1,260 0 0
Secretary and Treasurer 1991 54,781 17,850 0 0 0 0
Marvin H. Thomas, Jr. 1993 69,482 50,103 15,710 12,107 22,174 0
Senior Vice President- 1992 62,716 66,905 33,955 1,260 0 0
Operations 1991 57,091 14,955 0 0 0 0
<FN>
(1) Bonus amounts for the fiscal years 1991, 1992, and 1993 for each of
the Named Executives include the accrued cash bonus paid under the
Company's officers annual incentive plans. Additionally, the fair
market value of shares granted under the Peebles Inc. 1991
Stock/Warrant Plan (the "1991 Plan") are included in 1992 and 1993.
(2) The value of perquisites received by the Named Executives for the
fiscal years 1991, 1992 and 1993 were not required to be reported
under the Securities and Exchange Commission's executive compensation
disclosure rules as the amounts were below the required reporting
threshold.
(3) The benefits to be received by each of the Named Executives as a
result of grants of discounted warrants under the 1991 Plan were
excluded for the fiscal year 1993 because the warrants were exchanged
for stock options on June 9, 1993 under the 1993 Stock Option Plan
(the "1993 Plan"). The amounts shown for the fiscal year 1993
represent the tax gross-up payments to cover the executive's tax
withholding obligations resulting from the corresponding stock grants
under the 1991 Plan.
(4) For the 1992 fiscal year, each Named Executive received a grant of
discounted warrants and a tax gross-up payment to cover the
executive's tax withholding obligations resulting from the grant of
the discounted warrants and a corresponding grant of shares under the
1991 Plan. The value of the discount on warrants granted and the tax
gross-up payments to the Named Executives is Mr. Moorman, $57,600 and
$152,235; Mr. Palmore, $21,440 and $47,782; Mr. Lundy, $16,800 and
$32,354; Mr. Lail, $10,080 and $23,715; and Mr. Thomas, $10,080 and
$23,875. The discounted warrants were later exchanged for options in
fiscal 1993 pursuant to the 1993 Plan.
(5) Option/Warrant grants for the fiscal year 1993 to the Named
Executives do not include any grants of warrants under the 1991 Plan.
The warrants granted in the fiscal year 1992 were exchanged for stock
options under the 1993 Plan.
(6) The cash incentive payouts under the Company's long-term incentive
plan were based upon performance versus established goals for the
three year period from fiscal 1991 to fiscal 1993. In fiscal 1993,
there were no long-term incentive stock option grants.
The following tables set forth the options granted or exercised by the
Company to its five highest paid executive officers, and options exercised by
those same executives during the fiscal year ended January 29, 1994.
</TABLE>
<TABLE>
Options Granted in Last Fiscal Year
Potential Realizable Value
Upon Exercise at the end of
Individual Grants 10 year Option Term if there is
% of Total
Options Options Exercise Fair 0% 5% 10%
Granted Granted to or Base Market Value Compound Compound Compound
Name and in 1993 Employees in Price on Date of Expiration Growth Growth Growth
Principal Position (1) (2) 1993 (3) ($/Sh) Grant($/sh) Date ($)(2) ($)(2) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Moorman 84,227 36.4% 23.75 23.75 Feb.8, 0 1,258,350 3,187,992
Chairman of the Board, 2003
President and Chief
Executive Officer
Ronnie W. Palmore 26,860 11.6% 23.75 23.75 Feb.8, 0 356,468 1,016,651
Senior Vice President- 2003
Merchandising,
Assistant Secretary
Russell A. Lundy, Sr. 18,679 8.1% 23.75 23.75 Feb.8, 0 279,064 707,000
Senior Vice President- 2003
Stores
E. Randolph Lail 12,107 5.2% 23.75 23.75 Feb.8, 0 180,878 458,250
Senior Vice President- 2003
Finance, CFO, Secretary
and Treasurer
Marvin H. Thomas, Jr. 12,107 5.2% 23.75 23.75 Feb.8, 0 180,878 458,250
Senior Vice President- 2003
Operations.
<FN>
(1) Each of the Named Executives received the first grant which was a one-
time grant made under the 1993 Plan in exchange for warrants previously
granted under the 1991 Plan in the 1992 and 1993 fiscal years and
possibility of additional grants of stock and warrants under the plan
in the 1994, 1995, and 1996 fiscal years.
(2) All stock option grants to the Named Executives vest in equal
proportions over three years except for 21,050, 21,050, and 18,679 in
incentive stock options granted to Mr. Moorman, Mr. Palmore and Mr.
Lundy, respectively, which vest 20% per year over five years.
(3) Assumes a total of 231,794 stock options.
(4) The Potential Realizable Values upon exercise of a stock option are
equal to the product of the number of shares underlying the options and
the difference between (i) the respective hypothetical stock prices on
the date of option exercise and (ii) the exercise price per share of
the option. The hypothetical stock prices are equal to the Company's
common stock price per share as of the date of the option grant
compounded annually at the rates of 0%, 5%, and 10%, respectively, over
the ten year term of the option. The rates of appreciation used are
required by the Securities and Exchange Commission and do not represent
a projection or estimate by the Company on the potential growth of its
common stock. Therefore, there can be no assurance that the rate of
stock price appreciation presented in this table can be achieved.
</TABLE>
<TABLE>
Options Exercised in Last Fiscal Year
Individual Grants
Number of Unexercised Value of Unexercised
Value Options at Year end In-the-Money Options at
Shares Acquired Realized Exercisable/ Year end Exercisable/
Name and Principal Position on Exercise (1) ($) Unexercisable(2) Unexercisable ($) (3)
<S> <C> <C> <C> <C>
Michael F. Moorman 0 0 84,227 U 0
Chairman of the Board, President
and Chief Executive Officer
Ronnie W. Palmore 0 0 26,860 U 0
Senior Vice President-
Merchandising, Assistant
Secretary
Russell A. Lundy, Sr. 0 0 18,679 U 0
Senior Vice President-Stores
E. Randolph Lail 0 0 12,107 U 0
Senior Vice President-Finance
CFO, Secretary and Treasurer
Marvin H. Thomas, Jr. 0 0 12,107 U 0
Senior Vice President-Operations
<FN>
(1) There were no stock options exercised by the Named Executives in the
1993 fiscal year.
(2) The options vest in equal proportions over specified periods. The
first vesting date is February 8, 1994; therefore, none of the options
were exercisable as of the fiscal year ended January 29, 1994.
(3) The value of the unexercised is based on the Company's common stock
price at the end of the 1993 fiscal year. There was no public market
for the Company's common stock as of the end of fiscal 1993. The Board
of Directors with the assistance of an appraisal by an independent
investment banking firm determined the value of the common stock was
not in excess of the $23.75 exercise price. Therefore, there are no
options in the money.
</TABLE>
As of the fiscal year ended January 29, 1994, there were no projected
long-term incentive payouts because the Peebles Inc. Long-Term Incentive Plan
terminated as of the three year period ended January 29, 1994.
PENSION PLAN
Peebles maintains a non-contributory qualified defined benefit pension
plan that covers all employees of Peebles who (i) complete 1,000 hours of
service during a one-year period with Peebles and (ii) attain age 21
("Participant"). Contributions to the plan are determined on an actuarial
basis without allocation to individuals or groups.
Retirement benefits are based on a Participant's years of benefit
service and the earnings during the five consecutive calendar years which
produce the highest average. Earnings, as evidenced on the Participant's
Internal Revenue Service Form W-2, are limited to $150,000 in any one year
and years of benefit service are limited to 30. A Participant is fully
vested after completing five years of benefit service.
Benefits are payable to vested Participants at normal retirement (age
65), early retirement (age 55) upon a vested Participant's permanent and
total disability, or upon a vested Participant's termination of employment.
The monthly pension payable at normal retirement or upon permanent and
total disability is determined as follows: The amount of monthly pension
payable for the Participant's lifetime is the larger of (a) or (b):
(a) The Participant's benefit determined under the plan's formula as
in effect before January 28, 1989; or
(b) The sum of:
(i) .65% of final average earnings multiplied by years of
benefit service (not to exceed 30); plus
(ii) .65% of final average earnings in excess of covered
compensation, multiplied by years of benefit service
(not to exceed 30); or
(iii) $2.00 multiplied by the Participant's benefit service
with such product in no event less than $20.00.
Covered compensation is the average amount of annual compensation with
respect to which Social Security benefits will be provided and is determined
pursuant to tables published by the Internal Revenue Service.
The monthly pension payable at early retirement and termination of
employment is a normal retirement benefit reduced for early payment. The
normal form of payment for a married
participant is a qualified joint and survivor annuity. The normal form of
payment for an unmarried participant is a single life annuity.
The plan provides that upon the death of any Participant who (i) meets
the age and service requirements for early or normal retirement but who has
not begun to receive benefits under the plan, (ii) retires under the
disability provisions of the plan, or (iii) has a vested benefit but has not
yet begun to receive benefits under the plan, the Participant's beneficiary
shall be entitled to receive a death benefit.
The following table shows estimated annual retirement benefits payable
to Participants under the pension plan upon normal retirement at age 65 under
various assumptions as to final average annual earnings, date of retirement
and years of continuous service without regard to the current earning limit
of $150,000.
Final Years of Service
Average
Salary 15 20 25 30 35
$ 75,000........ $12,402 $16,536 $20,670 $24,804 $ 24,804
100,000........ 17,277 23,036 28,795 34,554 34,554
125,000........ 22,152 29,536 36,920 44,304 44,304
150,000........ 27,027 36,036 45,045 54,054 54,054
175,000........ 31,902 42,536 53,170 63,804 63,804
200,000........ 36,777 49,036 61,295 73,554 73,554
225,000........ 41,652 55,536 69,420 83,304 83,304
250,000........ 46,527 62,036 77,545 93,054 93,054
300,000........ 56,277 75,036 93,795 112,554 112,554
350,000........ 66,027 88,036 110,045 132,054 132,054
400,000........ 75,777 101,036 126,295 151,554 151,554
450,000........ 85,527 114,036 142,545 171,054 171,054
As of January 29, 1994, the credited years of service for Michael F.
Moorman, Ronnie W. Palmore, Russell A. Lundy, Sr., Marvin H. Thomas, Jr., and
E. Randolph Lail were 30, 21, 40, 15 and 6, respectively.
Peebles reserves the right at any time by action of its Board of
Directors to terminate the plan, although it currently
has no intention to do so. If the plan is terminated and appropriately
funded at such time, Peebles will not be required to make any further
contributions to the plan and each participant shall become 100% vested in
his benefit under the plan. Each Participant's benefit will be paid to him
after termination of the plan according to the terms of the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 29, 1994, the Company had no
formally established compensation committee. The Board of Directors
established compensation for the Company's officers for such year. Michael
F. Moorman, the sole officer or employee of the Company who is also a member
of the Board of Directors, made recommendations to the Board of Directors
concerning executive compensation but did not otherwise participate in or
vote upon the executive compensation decisions made by the Board of Directors
for such fiscal year.
Wellford L. Sanders, Jr., a member of the Board of Directors of the
Company, is a partner in the law firm of McGuire, Woods, Battle & Boothe,
which rendered legal services to the Company during fiscal 1993.
(This space intentionally left blank)
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
OWNERSHIP OF COMMON STOCK
The following table sets forth the ownership of Common Stock as of April
1, 1994 by holders having beneficial ownership of 5% or more of the
outstanding Common Stock, by each director and executive officer of the
Company and by all directors and executive officers of the Company as a
group.
No. of Shares (a) % Ownership (a)
Kemper Financial Services Inc.(b)... 727,118 24.79
120 South LaSalle St.
Chicago, Illinois 60603
Jackson National Life Insurance
Company........................... 578,603 19.72
c/o PPM of America
227 West Monroe
Chicago, Illinois 60606
PaineWebber Incorporated............ 375,299 12.79
1285 Avenue of the Americas
New York, New York 10019
California Public Employees
Retirement System................. 308,589 10.52
400 P. Street
Sacramento, California 95812
Apollo Investment Fund, L.P. (c).... 192,868 6.57
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, NY 10577
Lion Advisors, L.P. (c)(d).......... 192,868 6.57
Two Manhattanville Road
Purchase, NY 10577
First Investors Corp.(b)............ 192,870 6.57
120 Wall Street
New York, New York 10005
Michael F. Moorman.................. 23,706 *
Ronnie W. Palmore................... 7,068 *
Russell A. Lundy, Sr................ 4,712 *
E. Randolph Lail.................... 3,036 *
Marvin H. Thomas, Jr................ 3,141 *
Wellford L. Sanders, Jr............. 0 0
William C. DeRusha.................. 0 0
Malcolm S. McDonald................. 0 0
All directors and executive officers
of Peebles as a group(8 persons) .. 41,664 1.42
* Less than one percent.
(a) Does not include (i) 231,794 options to purchase shares of Common
Stock, pursuant to the 1993 Stock Option Plan of which 84,227, 26,860,
18,679, 12,107 and 12,107 were held by Messrs. Moorman, Palmore, Lundy,
Lail and Thomas and 153,980 were held by all executive officers as a group,
respectively; and (ii) 6,486 shares issuable upon exercise of the
outstanding Peebles Warrants described below.
(b) Kemper Financial Services, Inc. and First Investors Corp. manage the
funds in which the shares of Common Stock listed are held.
(c) The managing general partner of Apollo Investment Fund, L.P.is Apollo
Advisors, L.P. which may be deemed to be an affiliate of Lion Advisors,
L.P.
(d) Lion Advisors, L.P. holds the indicated shares for the benefit of an
account under management over which Lion Advisors, L.P. holds exclusive
investment, voting and dispositive power. Lion Advisors, L.P. and Apollo
Advisors, L.P. may be deemed to be affiliates.
PREVIOUSLY OUTSTANDING WARRANTS
Upon completion of the Mergers on January 23, 1992, there were 6,486
warrants (the "Peebles Warrants") to purchase shares of Common Stock issued
and outstanding. These Peebles Warrants are exercisable any time on or after
July 15, 1994 (the "Determination Date") for one share of Common Stock at the
exercise price of zero dollars ($0.00) per share. All Peebles Warrants issued
and outstanding existing on July 15, 1999 will be deemed automatically
exercised. In the event that certain defined conditions do not occur, the
Company is required to repurchase the Peebles Warrants at the fair market
value of the Common Stock at the Determination Date. Prior to the issuance of
common stock, the Peebles Warrants will be accreted to fair market value and
reflected as an adjustment to retained earnings.
Item 13. Certain Relationships and Related Transactions.
See "Item 10. Directors and Executive Officers of the Registrant" and
"Item 11. Executive Compensation" for a description of certain arrangements
with respect to present and
former executive officers and directors of Peebles.
(This space intentionally left blank.)
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements.
Information with respect to this Item is contained in the
financial statements indicated on the Indices on Page F-0 of
this Annual Report on Form 10-K.
2. Financial statement schedules.
Information with respect to this Item is contained on Pages S-1
to S-4 of this Annual Report on Form 10-K.
3. Exhibits.
The exhibits listed on the accompanying index to exhibits are
filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
NONE
(c) Exhibits.
3.1+ Amended and Restated Articles of Incorporation of
Peebles Inc.
3.2+ Amended and Restated Bylaws of Peebles Inc.
4.1** Form of Common Stock Certificate
4.2* Form of Warrant Agreement between PBL Acquisition
Corp. and the Warrant Agent
4.3* Form of Warrant Certificate (included in the Warrant
Agreement filed as Exhibit 4.2 hereto)
10.1+ Second Amended and Restated Credit Agreement dated
January 31, 1992 by and between NatWest USA Credit
Corp. and Peebles Inc. (the "Credit Agreement").
10.2+ Form of Term Note
10.3+ Form of Credit Note
10.4+ Amended and Restated Continuing General Borrower
Security Agreement made January 31, 1992 by and
between Peebles Inc. and NatWest USA Credit Corp.
10.5+ Trademark Security Agreement made January 31, 1992
between Peebles Inc. and NatWest USA Credit Corp.
10.6* Deed of Trust made January 20, 1989 by and among
Peebles Inc., the Trustee party thereto and NatWest
USA Credit Corp.
10.7* Peebles Inc. Qualified Defined Benefit Pension Plan.
10.8* Standard Service Agreement, as amended, dated June 1,
1984 between Frederick Atkins, Incorporated and W.S.
Peebles and Co. Inc. (the predecessor to Peebles Inc.)
10.9++ Waiver and Amendment No. 1 dated, January 4, 1993, to
the Credit Agreement.
10.10++ 1993 Stock Option Plan and form of Incentive Stock
Option Agreement.
10.11*** Form of Indemnification, Guarantee and Contribution
Agreement dated as of March 13, 1991 among PBL
Acquisition Corp., Peebles Holdings, Inc., Peebles
Inc. and each of the directors and officers of Peebles
Inc.
10.12++ Form of Agreement providing for cash payment upon
certain changes of control of the Company.
10.13+ Peebles Inc. 1991 Stock Warrant Plan.
10.14 Waiver and Amendment No. 2 dated March 24, 1993 to the
Credit Agreement
22 Subsidiaries of the Registrant.
___________________
* Incorporated by reference from the Registration Statement of PBL and
Peebles on Form S-1 (Registration No. 33-27126), which was declared
effective by the Commission on July 14, 1989.
** Incorporated by reference from the Registration Statement of PBL on
Form S-1 (Registration No. 33-30895), which was declared effective by the
Commission on September 14, 1989.
*** Incorporated by reference from the Form 10-K of PBL and the Company
for the fiscal year ended February 2, 1991.
+ Incorporated by reference from the Form 10-K of the Company
for the fiscal year ended February 1, 1992.
++ Incorporated by reference from the Form 10-K of the Company
for the fiscal year ended January 30, 1993.
<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.
PEEBLES INC.
(Registrant)
By /s/Michael F. Moorman Date: April 20, 1994
Michael F. Moorman, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/E. Randolph Lail Date: April 20, 1994
E. Randolph Lail, Senior Vice President
Finance, CFO, (Principal Financial
and Accounting Officer)
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.
By /s/ Wellford L. Sanders, Jr. Date: April 20, 1994
Wellford L. Sanders, Jr.,
Director
By /s/ William C. DeRusha Date: April 20, 1994
William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: April 20, 1994
Malcolm S. McDonald, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Company has furnished to the Commission a copy of its proxy
statement and form of proxy sent to its security holders in connection with
the Company's April 20, 1994 special meeting of stockholders.
<PAGE>
Audited Financial Statements
PEEBLES INC.
January 29, 1994
Report of Independent Auditors........................................ 1
Balance Sheet......................................................... 2
Statement of Operations............................................... 3
Statement of Changes in Stockholders' Equity.......................... 4
Statement of Cash Flows............................................... 5
Notes to Financial Statements.......................................... 6
<PAGE>
Report of Ernst & Young, Independent Auditors
Board of Directors
Peebles Inc.
We have audited the accompanying balance sheet of Peebles Inc. as of January
29, 1994 and January 30, 1993, and the related statements of operations,
changes in stockholders' equity, and cash flows for each of the three fiscal
years in the period ended January 29, 1994. Our audits also included the
financial statement schedules listed in the index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peebles Inc. at January 29,
1994 and January 30, 1993, and the results of its operations and its cash
flows for each of the three fiscal years in the period ended January 29,
1994, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Ernst & Young
March 23, 1994
Richmond, Virginia
<PAGE>
<TABLE>
BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
January 29, 1994 January 30, 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 99 $ 93
Accounts receivable, net 28,386 26,866
Merchandise Inventories 41,652 36,994
Prepaid expenses 246 202
Other 848 1,685
TOTAL CURRENT ASSETS 71,231 65,840
PROPERTY AND EQUIPMENT
Fixtures and equipment 40,569 34,135
Land and building 5,751 4,588
Leasehold improvements 502 502
46,822 39,225
Accumulated depreciation
and amortization 21,919 18,402
24,903 20,823
Buildings under capital leases, net 1,400 1,587
OTHER ASSETS
Excess of cost over net assets
acquired, net 38,800 40,477
Deferred financing costs, net 582 1,017
Beneficial leaseholds, net 3,723 4,101
Sundry 3,088 3,698
46,193 49,293
$ 143,727 $ 137,543
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,306 $ 9,726
Accrued compensation and
other expenses 5,627 5,373
Deferred income taxes 4,957 4,524
Current maturities of long-term debt 8,538 4,783
Other 455 208
TOTAL CURRENT LIABILITIES 26,883 24,614
LONG-TERM DEBT 35,602 37,640
LONG-TERM CAPITAL LEASE OBLIGATIONS 2,067 2,239
DEFERRED INCOME TAXES 4,481 4,360
COMMON STOCK WARRANTS
Subject to redemption, with an exercise
price of $0.00; 6,486 warrants issued and
outstanding 164 153
STOCKHOLDERS' EQUITY
Preferred stock--no par value, authorized
1,000,000 shares, none issued or
outstanding --- ---
Common stock--par value $.10 per share,
authorized 5,000,000 shares, issued and
outstanding 2,933,562 and 2,913,562,
respectively 293 291
Additional capital 64,174 63,699
Retained earnings:
Accumulated from February 1, 1992, subsequent
to a deficit elimination of $10,477
on that date 10,063 4,547
74,530 68,537
$ 143,727 $ 137,543
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
PEEBLES INC.
(dollars in thousands, except per share amounts)
FISCAL YEARS ENDED
January 29, 1994 January 30, 1993 February 1, 1992
<S> <C> <C> <C>
NET SALES $ 151,772 $ 140,943 $ 140,044
COSTS AND EXPENSES
Cost of sales 91,134 84,033 85,706
Selling, general and administrative (includes depreciation and
amortization of $6,029, $5,557 and $5,634, respectively) 46,349 43,274 43,611
Revaluation of goodwill --- --- 26,315
OPERATING INCOME (LOSS) 14,289 13,636 (15,588)
OTHER INCOME (EXPENSE) (1) (145) 135
INTEREST EXPENSE 4,248 4,981 19,277
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND EXTRAORDINARY ITEM 10,040 8,510 (34,730)
INCOME TAXES (BENEFIT)
Current 3,960 3,447 (400)
Deferred 553 505 (875)
4,513 3,952 (1,275)
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 5,527 4,558 (33,455)
EXTRAORDINARY ITEM---DEBT RESTRUCTURE --- --- 33,563
NET INCOME $ 5,527 $ 4,558 $ 108
EARNINGS (LOSS) PER SHARE
Earnings (loss) before extraordinary item $ 1.88 $ 1.56 $(1,800.40)
Extraordinary item --- --- 1,806.21
NET INCOME $ 1.88 $ 1.56 $ 5.81
Average common stock and common stock equivalents
outstanding 2,932,905 2,918,352 15,582
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC.
(dollars in thousands, except per share amounts)
Common Stock Predecessor Retained
Par Additional Basis Earnings
Shares Value Capital Adjustment (Deficit)
<S> <C> <C> <C> <C> <C>
Balance February 2, 1991 2,156 $ 1 $ 20,704 $ (5,102) $ (10,492)
Dividends paid --- $43.02 per share - - - - (93)
Common stock issued in the Mergers, net 21,417 1 - - -
Common stock issued in the Exchange 2,849,989 285 52,424 5,102 -
Net income - - - - 108
Balance February 1, 1992 prior to quasi-reorganization 2,873,562 287 73,128 (10,477)
Quasi-reorganization - - (10,477) - 10,477
Balance February 1, 1992 2,873,562 287 62,651 - -
Common stock issued in connection with the Equity
Incentive Plan 40,000 4 872 - -
Common stock warrants issued in connection with
the Equity Incentive Plan - - 176 - -
Common stock warrants redemption price adjustment - - - - (11)
Net income - - - - 4,558
Balance January 30, 1993 2,913,562 291 63,699 - 4,547
Common stock issued in connection with the Equity
Incentive Plan 20,000 2 475 - -
Common stock warrants redemption price adjustment - - - - (11)
Net income - - - - 5,527
Balance January 29, 1994 2,933,562 $ 293 $ 64,174 $ - $ 10,063
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
FISCAL YEARS ENDED
January 29, 1994 January 30, 1993 February 1, 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) before extraordinary item $ 5,527 $ 4,558 $ (33,455)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 3,088 2,787 2,740
Amortization 3,376 3,215 3,770
Deferred income taxes 553 505 (875)
Provision for doubtful accounts 546 577 1,143
LIFO reserve adjustment 1,144 349 413
Revaluation of goodwill -- -- 26,315
Changes in operating assets and liabilities
Accounts receivable (2,066) 949 (567)
Merchandise inventories (5,802) 2,424 (1,977)
Accounts payable (2,420) 2,783 (137)
Interest payable 265 (381) 12,318
Other assets and liabilities 1,554 3,562 (3,676)
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,765 21,328 6,012
INVESTING ACTIVITIES
Purchase of property and equipment (7,372) (5,747) (2,862)
Other (105) (105) (117)
NET CASH USED IN INVESTING ACTIVITIES (7,477) (5,852) (2,979)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-term debt 163,554 139,305 149,288
Reduction in revolving line of credit and long-term debt (161,836) (154,785) (152,493)
Dividends paid -- -- (93)
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,718 (15,480) (3,298)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6 (4) (265)
Cash and cash equivalents beginning of period 93 97 362
CASH AND CASH EQUIVALENTS END OF PERIOD $ 99 $ 93 $ 97
</TABLE>
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PEEBLES INC.
January 29, 1994
(dollars in thousands, except per share amounts)
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION: Peebles Inc.
("Peebles" or the "Company") is the successor to a group of related companies
that has operated a retail department store business since 1891 under the
name "Peebles". The Company currently operates a chain of 54 department
stores in small and medium-sized communities in eight Mid-Atlantic States.
On January 31, 1992, Peebles completed an exchange offer (the "Exchange") as
part of a recapitalization plan (the "Recapitalization") pursuant to which
Peebles (i) became the surviving corporation of a merger with its former
parent corporation and a related holding company (the "Mergers"), and (ii)
entered into a Second Amended and Restated Credit Agreement (the "Credit
Agreement") with its lender.
The Exchange resulted in an extraordinary gain of $33,563 for the fiscal year
ended February 1, 1992. The gain calculation considered the principal
outstanding of $80,000 related to the 14-3/4% Senior Subordinated Notes Due
1999 (the "Notes"), the accrued interest of $18,454, the $57,954 appraised
equity value, $3,666 in direct costs incurred and $3,271 of net deferred
financing costs written off.
FISCAL YEAR: The Company's fiscal year ends on the Saturday nearest January
31. Fiscal years 1993, 1992 and 1991 ended on January 29, 1994, January 30,
1993, and February 1, 1992, respectively. Results of operations for each of
these years consisted of fifty-two weeks. References to years relate to
fiscal years rather than calendar years.
QUASI-REORGANIZATION: As a result of the Recapitalization, a quasi-
reorganization was implemented as of February 1, 1992. Accordingly, an
accumulated deficit of $10,477 was transferred to additional capital.
STATEMENT OF CASH FLOWS: Peebles considers all highly liquid investments
with a maturity of three months or less when purchased to be cash
equivalents. There were no cash equivalents at January 29, 1994 or January
30, 1993.
The $80,000 of principal related to the Notes, exchanged for approximately
$57,811 in total equity in the Exchange, which resulted in an extraordinary
gain of $33,563, has been excluded from the Statement of Cash Flows for 1991
as a non-cash transaction. In addition, the issuance of certain common stock
and common stock warrants under the Equity Incentive Plan increased
shareholders' equity by $475 and $1,048, for 1993 and 1992, respectively,
and, accordingly, has been excluded from the Statement of Cash Flows as a
non-cash transaction.
MERCHANDISE INVENTORIES: Merchandise inventories are accounted for by the
retail inventory method applied on a LIFO basis. In connection with an
acquisition of the Company in January, 1989, the recorded value of
merchandise inventories was increased to fair value (the "Fair Value
Adjustment"). The Fair Value Adjustment of $14,209 is included in
merchandise inventories at the end of fiscal years 1993 and 1992. Exclusive
of the Fair Value Adjustment, current costs exceed the amounts recorded in
inventory by $3,020 and $1,876 at January 29, 1994 and January 30, 1993,
respectively. During 1992, reduced inventory levels resulted in a LIFO
decrement which reduced the Fair Value Adjustment by $321, increasing cost of
sales.
PROPERTY AND EQUIPMENT: Property and equipment is stated on the basis of
cost. Depreciation of property and equipment is provided primarily by the
straight-line method over their estimated useful lives for financial
reporting purposes and by accelerated methods for income tax purposes. The
cost of leasehold improvements is amortized over the shorter of their
economic lives or the terms of the leases by the straight-line method.
Amortization of buildings under capital leases is computed by the straight-
line method over the lease term and is included in depreciation and
amortization expense.
STORE OPENING COSTS: In general, store opening costs are charged to selling,
general and administrative expenses as incurred.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
EXCESS OF COST OVER NET ASSETS ACQUIRED: The excess of cost over net assets
acquired ("Goodwill") is being amortized on a straight-line basis over a
twenty-five year period beginning February 2, 1992. Accumulated amortization
at January 29, 1994 and January 30, 1993 was $3,371 and $1,685, respectively.
In connection with the Recapitalization, management reduced the value of
Goodwill by $26,315 to the estimated fair value at February 1, 1992.
DEFERRED FINANCING COSTS: Deferred financing costs are being amortized by
the interest method over a period ending February 1, 1996. Amortization
expense of $435, $445, and $876 for deferred financing costs are included in
interest expense for 1993, 1992, and 1991 respectively. Accumulated
amortization at January 29, 1994 and January 30, 1993 was $2,346 and $1,924,
respectively.
BENEFICIAL LEASEHOLDS: Amortization is provided by the straight-line basis
over the estimated composite useful lives of the related leases. Accumulated
amortization at January 29, 1994 and January 30, 1993 was $1,739 and $1,393,
respectively.
INCOME TAXES: Prepaid and deferred income taxes are provided for temporary
differences between income and expense for financial reporting purposes and
for income tax purposes.
EARNINGS PER SHARE: Earnings per share were based on the weighted-average
number of shares and common stock equivalents outstanding.
NOTE B-ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $950 and $1,100 representing the
allowance for uncollectible accounts at January 29, 1994 and January 30,
1993, respectively. The provision for doubtful accounts was $546, $577, and
$1,143 for 1993, 1992, and 1991, respectively. Finance charges on credit
sales, included as a reduction of selling, general and administrative
expenses, aggregated $4,576, $4,652, and $4,953 for 1993, 1992, and 1991,
respectively.
As a service to its customers, the Company offers credit through the use of
its own charge card, certain major credit cards and a layaway plan. The
Peebles' customer is usually a local resident of the community, located in
either Virginia, Maryland, North Carolina, South Carolina, Tennessee,
Kentucky, Delaware or New Jersey, the states served by Peebles. The Company
does not require collateral from its customers.
NOTE C-SUNDRY ASSETS
Sundry consisted of:
January 29, 1994 January 30, 1993
Investment in and advances to
buying office $ 1,586 $ 1,509
Pension asset 1,176 1,324
Other 326 865
$ 3,088 $ 3,698
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE D-LONG-TERM DEBT
Long-term debt consisted of the following:
January 29, 1994 January 30, 1993
Senior Revolving Facility,
prime plus 1-1/2% $ 30,000 $ 25,070
Senior Term Facility,
prime plus 1-1/2% due in
quarterly installments
through February 1996 13,840 16,840
Other 300 513
44,140 42,423
Less current maturities 8,538 4,783
$ 35,602 $ 37,640
The Credit Agreement provides the Company with a Senior Revolving Facility
("Revolving Facility") and a Senior Term Facility ("Term Facility"). The
maturity date for each facility is February 1, 1996. The Credit Agreement
provides the Company with working capital and funds for capital expenditures.
Restrictive covenant provisions of the Credit Agreement prohibit payment of
cash dividends in any fiscal year. The Credit Agreement is secured by a
first priority security interest in substantially all the personal property
and certain real property of Peebles.
The amount available for borrowings under the Revolving Facility is
determined by a defined asset base formula with maximum borrowings limited to
$76,000 less amounts outstanding under the Term Facility. The Company pays
a fee of 1/4% per annum on any unused portion of the Revolving Facility. The
Revolving Facility has no specific paydown provisions. Based on the
anticipated operations of the Company in the succeeding year, $24,600 and
$23,500 were considered long-term obligations at January 29, 1994 and January
30, 1993, respectively, representing the minimum outstanding balance of the
Revolving Facility for an uninterrupted period extending beyond one year from
the balance sheet date. The Term Facility has scheduled principal payments
of $750 per quarter.
Peebles has commitments for letters of credit with a bank which totaled $455
and $761 at January 29, 1994 and January 30, 1993, respectively.
Approximately $46 expire during 1994, and the remainder expires August 1,
1998.
During 1993, 1992 and 1991, Peebles made cash interest payments of $3,548,
$4,917, and $6,082, respectively.
Aggregate principal payments on long-term debt for the next five fiscal years
are: 1994--$8,538, 1995--$35,602, 1996--$0, 1997--$0, 1998--$0.
NOTE E-LEASES
The Company leases substantially all of its store locations under capital and
operating leases with initial terms ranging from 1 to 25 years and renewal
options of 1 to 5 years expiring at various dates through 2033. The
following is a summary of assets under capitalized leases:
January 29, 1994 January 30, 1993
Buildings under capital leases $ 3,018 $ 3,570
Less--accumulated amortization (1,618) (1,983)
$ 1,400 $ 1,587
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE E-LEASES--Continued
Future minimum lease payments under capital leases and noncancellable
operating leases at January 29, 1994 were as follows:
<TABLE>
Capital Operating
Fiscal Year Leases Leases
<S> <C> <C>
1994 $ 487 $ 4,997
1995 487 4,317
1996 487 4,056
1997 487 3,778
1998 378 3,477
Thereafter 1,536 22,466
Total minimum lease payments 3,862 $ 43,091
Less: amounts representing interest (1,623)
Present value of net minimum lease payments,
including current maturities of $172, with interest
rates ranging from 11.3% to 18.1% $ 2,239
</TABLE>
Total rental expense under operating leases was as follows:
1993 1992 1991
Minimum $ 5,479 $ 5,162 $ 5,078
Contingent 490 412 433
$ 5,969 $ 5,574 $ 5,511
Contingent rentals are based upon a percentage of annual sales in excess of
specified amounts.
NOTE F-COMMON STOCK WARRANTS
Upon completion of the Mergers, warrants to purchase one share of Common
Stock ("Warrant") were issued on January 23, 1992. These Warrants are
exercisable any time on or after July 15, 1994 (the "Determination Date") for
one share of Peebles common stock, $.10 par value (the "Common Stock") at the
exercise price of zero dollars ($0.00) per share. All Warrants issued and
outstanding existing on July 15, 1999 will be deemed automatically exercised.
In the event that certain defined conditions do not occur, the Company is
required to repurchase the Warrants at the fair market value of the Common
Stock at the Determination Date. Prior to the issuance of common stock, the
Warrants will be accreted to fair market value and reflected as an adjustment
to retained earnings.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE G-EQUITY INCENTIVE PLAN
The Recapitalization provided that the Company contribute 120,000 shares of
Common Stock to an incentive plan (the "Equity Incentive Plan") established
for management and other key employees. In addition, the Company irrevocably
contributed 105,000 warrants to purchase one share of Common Stock per
warrant (the "Management Warrants") to the Equity Incentive Plan.
As of January 30, 1993, 60,000 shares of Common Stock had been made available
for allocation (the "Available Shares") and 42,000 Management Warrants had
been made available for grant. Through January 30, 1993, 40,000 of the
Available Shares and 21,000 of those Management Warrants (the "Allocated
Management Warrants") had been allocated to certain members of management.
On February 8, 1993, the Board of Directors approved, subject to shareholder
approval, i) a stock option plan (the "1993 Stock Option Plan") to replace
the Equity Incentive Plan and ii) an initial grant of 231,794 options,
expiring February 7, 2003, each to purchase one share of Common Stock at an
exercise price of $23.75, based upon estimated fair value, (the "1993
Options") to participants in the Equity Incentive Plan (the "Equity
Participants"). The 1993 Options vest in equal proportions over a three year
period beginning February 7, 1994, except for 60,779 options which vest
equally over a five year period. Under the 1993 Stock Option Plan, 450,000
shares of Common Stock are reserved for issuance as a long-term incentive to
key employees. The Board of Directors has the authority and complete
discretion to, among other things, determine the date of grant, the recipient
employee, the exercise price and the expiration date of the options to
purchase Common Stock issued under the 1993 Stock Option Plan.
On April 21, 1993, the shareholders of the Company approved the 1993 Stock
Option Plan.
On June 9, 1993, the Equity Participants unanimously consented (the
"Consent") to exchange the Allocated Management Warrants for the 1993
Options. Upon receipt of the Consent, the Equity Participants were allocated
and issued the remaining 20,000 Available Shares under the Equity Incentive
Plan. Accordingly, the Equity Incentive Plan was terminated.
For 1992 and 1991, the Company recorded $792 and $1,590, respectively of
additional compensation expense in selling, general and administrative
expenses related to the Equity Incentive Plan.
NOTE H - INCOME TAXES
The provisions for income taxes (benefits) on income (loss) before
extraordinary items consisted of the following:
1993 1992 1991
Current: Federal $ 3,273 $ 2,844 $ (350)
State 687 603 (50)
Deferred: Federal 455 422 (775)
State 98 83 (100)
$ 4,513 $ 3,952 $(1,275)
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE H - INCOME TAXES--Continued
Income taxes (benefits) differ from the amounts computed by applying the
applicable federal statutory rates due to the following:
<TABLE>
1993 1992 1991
<S> <C> <C> <C>
Taxes (benefits) at the federal statutory rate $ 3,514 $ 2,893 $ (11,808)
Increases (decreases):
Revaluation of goodwill -- -- 8,947
Change in valuation allowance -- -- 1,200
State income taxes, net of federal tax 518 453 (100)
Amortization of purchase accounting adjustments 574 574 626
Other (93) 32 (140)
$ 4,513 $ 3,952 $ (1,275)
</TABLE>
Significant components of deferred tax liabilities and assets are as follows:
January 29, 1994 January 30, 1993
Deferred tax liabilities:
Inventory valuation $ 5,134 $ 5,253
Depreciation and amortization 4,169 4,029
Pensions 452 509
Other 190 --
9,945 9,791
Deferred tax assets:
Net operating loss carryover (1,200) (1,200)
Compensation -- (305)
Doubtful accounts (366) (424)
Other (141) (178)
(1,707) (2,107)
Valuation allowance 1,200 1,200
(507) (907)
Net deferred tax liabilities $ 9,438 $ 8,884
At January 29, 1994, Peebles has a net operating loss carryover of $3,000 for
income tax purposes which expires in 2007. For financial reporting purposes,
a valuation allowance of $1,200 has been recognized to offset the deferred
tax asset related to this carryover due to certain limitations. If realized,
the tax benefit for this carryover will be applied to increase additional
capital.
Peebles made cash income tax payments of $4,175, $3,509 and $159 for 1993,
1992 and 1991, respectively.
The Internal Revenue Service has completed examinations of the Company's
federal income tax returns for the fiscal years ended February 3, 1990 and
January 28, 1989. The federal income tax returns for the fiscal years ended
January 30, 1993, February 1, 1992, and February 2, 1991 are currently under
examination, and adjustments are being contested. In the opinion of
management, the outcome of such action is not expected to materially affect
the financial position or results of operations of the Company.
<PAGE>
NOTES TO FINANCIAL STATEMENTS--Continued
PEEBLES INC.
NOTE I-PENSION PLAN
Peebles has a defined benefit pension plan covering substantially all
employees. The benefits are based on years of service and the employee's
compensation during the five consecutive calendar years which produce the
highest average. Peebles makes annual contributions to the Plan equal to the
contribution required to satisfy minimum funding standards under ERISA.
Net periodic pension cost included the following components:
<TABLE>
1993 1992 1991
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 297 $ 263 $ 251
Interest cost on projected benefit obligation 443 413 388
Actual return on plan assets (463) (198) (1,108)
Net amortization and deferral (129) (402) 584
Net periodic pension cost $ 148 $ 76 $ 115
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in Peebles balance sheet:
<TABLE>
January 29, 1994 January 30, 1993
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including
vested benefits of $4,428 and $4,003,
respectively $ (4,861) $ (4,376)
Projected benefit obligation $ (6,313) $ (5,693)
Plan assets at fair value, primarily listed
stocks and U.S. Government Treasury Bonds 6,876 6,702
Plan assets in excess of projected benefit
obligations 563 1,009
Prior service costs 76 89
Unrecognized net loss 626 330
Unrecognized net asset (89) (104)
Net pension asset recognized in the balance sheet $ 1,176 $ 1,324
</TABLE>
In calculating the present value of projected benefit obligations for 1993
and 1992, weighted-average discount rates of 7.5% and 8% and weighted-
average rates of compensation of 5.0% and 5.5%, respectively, were used. The
expected long-term rate of return on plan assets was 9% for 1993, 1992, and
1991.
NOTE J - RELATED PARTY TRANSACTIONS
Interest Expense for 1991 included $2,315 related to the Notes.
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
Peebles Inc.
Schedule I. Marketable Securities - Other Investments N/A
Schedule II. Amounts Receivable from Related Parties and
Underwriters, Promoters and Employees other
than Related Parties N/A
Schedule III. Condensed Financial Information of
Registrant N/A
Schedule IV. Indebtedness of and to Related Parties -
Not Current N/A
Schedule V. Property, Plant and Equipment N/A
Schedule VI. Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment N/A
Schedule VII. Guarantees of Securities of Other Issuers N/A
Schedule VIII. Valuation and Qualifying Accounts S-2
Schedule IX. Short-term Borrowings N/A
Schedule X. Supplementary Income Statement Information S-3
Schedule XI. Real Estate and Accumulated Depreciation N/A
Schedule XII. Mortgage Loans on Real Estate N/A
Schedule XIII. Other Investments N/A
Schedule XIV. Supplemental Information Concerning Property-
Casualty Insurance Operations N/A
<PAGE>
<TABLE>
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
PEEBLES INC.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
DESCRIPTION BALANCE AT
BEGINNING DEDUCTIONS BALANCE AT END
OF PERIOD CHARGED TO COSTS CHARGED TO OTHER -DESCRIBE OF PERIOD
AND EXPENSES ACCOUNTS-DESCRIBE
<S> <C> <C> <C> <C>
Year Ended January 29, 1994
Deducted from asset accounts:
Allowance for doubtful accounts $1,100,000 $ 546,000 $ 696,000 (1) $ 950,000
LIFO Reserve $1,876,063 $ 1,144,218 $ 3,020,281
Year Ended January 30, 1993
Deducted from asset accounts:
Allowance for doubtful accounts $1,345,000 $ 577,000 $ 822,000 (1) $ 1,100,000
LIFO Reserve $1,527,222 $ 348,841 $ 1,876,063
Year Ended February 1, 1992
Deducted from asset accounts:
Allowance for doubtful accounts $1,355,000 $ 1,143,000 $1,153,000 (1) $ 1,345,000
LIFO Reserve $1,114,698 $ 412,524 $ 1,527,222
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
<TABLE>
SCHEDULE X -- SUPPLEMENTAL INCOME STATEMENT INFORMATION
PEEBLES INC.
COLUMN A COLUMN B
ITEM CHARGED TO COSTS AND EXPENSES
FISCAL YEARS ENDED
1/29/94 1/30/93 2/01/92
<S> <C> <C> <C>
Maintenance and repairs (1) (1) (1)
Depreciation and amortization of intangible assets,
preoperating costs and similar deferrals $3,376,000 $3,215,000 $3,770,000
Taxes other than payroll and income taxes:
Real estate (1) (1) (1)
Personal property (1) (1) (1)
Other (1) (1) (1)
Royalties None None None
Advertising costs $4,539,657 $4,223,774 $4,144,000
(1) Amounts for maintenance and repairs and taxes other than payroll and
income taxes are not presented as such amounts are less than 1% of
total sales and revenue.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
10.14 Waiver and Amendment No. 2 dated March 24, 1993
1993 to the Credit Agreement.
22 Subsidiaries of the Registrant.
EXHIBIT 10.14
Waiver and Amendment No. 2 dated March 24, 1993
to the Credit Agreement
[ NatWest USA Credit Corp. letterhead]
NatWest USA Credit Corp.
175 Water Street
New York, NY 10038-4924
Peebles, Inc.
One Peebles Street
South Hill, VA 23970
Ladies and Gentlemen:
Re: Second Amended and Restated Credit Agreement
dated January 31, 1992
Reference is made to the Second Amended and Restated Credit Agreement dated
January 31, 1992 between Peebles, Inc. (the "Borrower") and NatWest USA
Credit Corp. (the "Lender"), as amended (the "Credit Agreement"). Terms not
otherwise defined herein shall having the respective meanings ascribed
thereto in the Credit Agreement.
The Borrower has requested that the Lender waive certain provisions of the
Credit Agreement in Connection with the proposed acquisition by the
Borrower of the fixtures, equipment and leasehold interest of Hess
Department Stores located in New River Valley Mall in Blacksburg, Virginia
(the "Acquisition"). The Lender hereby consents to the Acquisition and
hereby waives the provisions of Section 7.4 of the Credit Agreement solely
in connection with the Acquisition.
Except as expressly set forth herein, the Credit Agreement shall remain in
full force and effect without waiver or amendment.
Very truly yours,
NATWEST USA CREDIT CORP.
By: /s/ Kevin R. Rogers
Kevin R. Rogers
EXHIBIT 22
Subsidiaries of the Registrant
None
