SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-Q
Quarterly Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended October 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 (804) 447-5200
(Address of principal executive offices) (Telephone Number)
Indicate by check (x) 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_____.
As of October 29, 1994, 2,939,142 shares of Common Stock of Peebles
Inc. were outstanding.
<PAGE>
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
October 29, January 29, October 30,
1994 1994 1993
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
<S> <C> <C> <C>
Cash $ 73 $ 99 $ 76
Accounts receivable, net 26,144 28,386 24,872
Merchandise Inventories 51,885 41,652 51,286
Prepaid expenses 461 246 517
Other 336 848 811
------------ ------------ ----------
TOTAL CURRENT ASSETS 78,899 71,231 77,562
PROPERTY AND EQUIPMENT, net 27,343 24,903 24,592
BUILDINGS UNDER CAPITAL LEASES, net 1,260 1,400 1,395
OTHER ASSETS
Excess of cost over net assets
acquired, net 37,536 38,800 39,211
Other 6,710 7,393 8,132
------------ ------------ ----------
44,246 46,193 47,343
------------ ------------ ----------
$ 151,748 $ 143,727 $ 150,892
============ ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $12,691 $ 7,306 $ 12,670
Accrued compensation and other expenses 4,480 5,627 5,299
Deferred income taxes 4,957 4,957 4,524
Current maturities of long-term debt 11,554 8,538 14,881
Other 41 455 188
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 33,723 26,883 37,562
LONG-TERM DEBT 33,502 35,602 35,290
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,962 2,067 2,134
DEFERRED INCOME TAXES 4,481 4,481 4,360
COMMON STOCK WARRANTS 23 164 153
STOCKHOLDERS' EQUITY
Common stock--par value $.10 per share,
authorized 5,000,000 shares;2,939,142,
2,933,562, and 2,933,562 shares
issued and outstanding 294 293 293
Additional capital 64,306 64,174 64,174
Retained earnings:
Accumulated from February 1, 1992,
subsequent to a deficit
elimination on that date 13,457 10,063 6,926
----------- ----------- -----------
78,057 74,530 71,393
----------- ----------- -----------
$ 151,748 $ 143,727 $ 150,892
=========== =========== ===========
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
CONDENSED STATEMENT OF INCOME
PEEBLES INC.
(dollars in thousands, except per share amounts)
(Unaudited)
Three-Month Period Ended Nine-Month Period Ended
October 29, October 30, October 29, October 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
NET SALES $ 41,025 $ 37,277 $ 112,574 $ 100,210
COSTS AND EXPENSES
Cost of sales 24,843 22,673 67,395 60,036
Selling, general and
administrative 11,157 10,585 31,058 28,549
Depreciation and amortization 1,768 1,459 5,278 4,299
------------ ---------- ----------- ----------
37,768 34,717 103,731 92,884
------------ ---------- ----------- ----------
OPERATING INCOME 3,257 2,560 8,843 7,326
OTHER INCOME 58 119 395 179
INTEREST EXPENSE 1,139 1,065 3,247 3,100
------------ ---------- ----------- ----------
INCOME BEFORE INCOME TAXES 2,176 1,614 5,991 4,405
INCOME TAXES
Federal, state and deferred 946 742 2,605 2,026
------------ ---------- ----------- ----------
NET INCOME $ 1,230 $ 872 $ 3,386 $ 2,379
============ ========== =========== ==========
EARNINGS PER SHARE $ .42 $ .30 $ 1.15 $ .81
============ ========== =========== ==========
Average common stock and common
stock equivalentsoutstanding 2,940,048 2,946,315 2,940,048 2,938,277
============ ========== =========== ==========
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
CONDENSED STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
(Unaudited)
Nine-Month Period Ended
October 29, October 30,
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 3,386 $ 2,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2,826 2,235
Amortization 2,778 2,390
Changes in operating assets and liabilities:
Accounts receivable 2,242 1,994
Merchandise inventories (10,233) (14,292)
Accounts payable 5,385 2,944
Current maturities of long-term debt 3,016 10,093
Other assets and liabilities (1,488) 942
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,912 8,685
INVESTING ACTIVITIES
Purchase of property and equipment (5,663) (6,322)
Other (276) 65
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (5,939) (6,257)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and long-
term debt 119,023 109,254
Reduction in revolving line of credit and long- (121,022) (111,699)
term debt ----------- ---------
NET CASH USED IN FINANCING ACTIVITIES (1,999) (2,445)
----------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (26) (17)
Cash and cash equivalents beginning of period 99 93
----------- ---------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 73 $ 76
=========== =========
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC.
(dollars in thousands)
(Unaudited)
Common Stock
Par Additional Retained
Shares Value Capital Earnings
<S> <C> <C> <C> <C>
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 ---
Net income --- --- --- 2,379
---------- ------ ----------
Balance October 30, 1993 2,933,562 $ 293 $ 64,174 $ 6,926
========== ====== ========== ===========
Common Stock
Par Additional Retained
Shares Value Capital Earnings
Balance January 29, 1994 2,933,562 $ 293 $ 64,174 $ 10,063
Common stock issued in connection
with common stock warrant
redemption 5,580 1 132 8
Net income --- --- --- 3,386
---------- ------ ---------- ----------
Balance October 29, 1994 2,939,142 $ 294 $ 64,306 $ 13,457
========== ====== ========== ===========
</TABLE>
See notes to condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
October 29, 1994
(dollars in thousands, except per share amounts)
NOTE A_BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal and recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month period (or "Fiscal
Quarter") and nine-month period ended October 29, 1994 are not
necessarily indicative of the results that may be expected for
the fiscal year ended January 28, 1995, due to the seasonal
nature of the business of Peebles Inc. ("Peebles" or the
"Company"). For further information, refer to the financial
statements and footnotes thereto included in Peebles' annual
report on Form 10-K for the fiscal year ended January 29, 1994.
NOTE B_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $950, $950 and $1,100
representing the allowance for uncollectible accounts at October
29, 1994, January 29, 1994 and October 30, 1993, 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_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 the merchandise inventories at October 29, 1994,
January 29, 1994 and October 30, 1993, respectively. Exclusive
of the Fair Value Adjustment, current costs exceed the amounts
recorded in inventory by $3,345, $3,020, and $2,393 at October
29, 1994, January 29, 1994 and October 30, 1993, respectively.
NOTE D_LONG-TERM DEBT
On September 30, 1994, the Company and its bank signed Amendment
No. 2 to Second Amended and Restated Credit Agreement (the
"Amendment"). The Amendment (i) extended the maturity date of
the Credit Agreement, including both the Revolving Facility and
the Term Facility, to February 1, 1997; (ii) reduced the interest
rate to Prime plus 1%, unless specific operating criteria are met
quarterly, which will reduce the interest rate to Prime plus
3/4%; (iii) reduced the quarterly principal payments due under
the Term Facility to $500; (iv) increased the allowable amount of
annual capital expenditures; and (v) increased the flexibility of
certain of the financial covenants. All other significant
provisions of the Credit Agreement remain in effect.
NOTE D_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. During the nine-month period ended October
29,1994, the Company opened two new store locations during the
third Fiscal Quarter in Georgetown, South Carolina and Norfolk,
Virginia and one new store during the first Fiscal Quarter in
Luray, Virginia. During the nine-month period ended October 29,
1994, noncancellable operating leases for four future store
openings were signed for store locations in Gettysburg,
Pennsylvania; Geneva, New York; Stafford, Virginia; and Marion,
North Carolina. The stores in Gettysburg and Geneva will open in
November 1994. The stores in Marion and Stafford are expected to
open in the Spring of 1995. The total aggregate annual base rent
for these six new store locations is approximately $650, and the
initial lease terms for these locations range between four and
sixteen years.
NOTE E_COMMON STOCK
Under the 1993 Stock Option Plan, options for the purchase of up
to 450,000 shares of Common Stock may be granted to key personnel
at the discretion of the Board of Directors. On April 20, 1994,
the Board of Directors granted to certain key employees of the
Company 218,206 options to purchase one share of Common Stock at
an exercise price of $23.75 per share, the estimated fair value
of the common stock on the date of grant. These options vest
ratably over a three-year period beginning April 19, 1995 and
expire on April 19, 2004.
On October 29, 1994, i) a total of 450,000 options had been
granted, all at an exercise price of $23.75 per share, the
estimated fair value of the common stock on the dates of grant,
ii) 69,636 options had vested, and iii) no options had been
exercised or canceled.
During the third Fiscal Quarter 5,580 Warrants were redeemed at
an exercise price of $0.00 for 5,580 shares of Common Stock. The
Warrants became exercisable any time on or after July 15, 1994,
and the exercise period extends to July 15, 1999.
NOTE F_INCOME TAXES
Differences between the effective rate of income taxes and the
statutory rate arise principally from the state income taxes and
non-deductible amortization related to certain purchase
accounting adjustments.
During the nine-month period ended October 29, 1994, the Company
received several refunds related to prior years' federal income
tax. The interest income portion of these checks totaled
approximately $240,000 and this amount has been included in other
income.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands, except per share amounts)
The following management's discussion and analysis provides
information with respect to the results of operations for the
three-month period and nine-month period ended October 29, 1994
in comparison with the three-month period and nine-month period
ended October 30, 1993.
Net sales for the three-month period ended October 29, 1994
totaled $41,025, a 10.1% increase over the total net sales for
the comparable three-month period ended October 30, 1993. For
the nine-month period ended October 29, 1994, net sales were
$112,574, up 12.3% from the $100,210 recorded in the nine-month
period ended October 30, 1993. These increases are attributable
to a combination of new store openings and strong comparable
stores sales growth. During the twelve-month period succeeding
October 30, 1993, the Company has opened a total of seven new
stores and closed one store. Additionally, two stores which were
opened for less than 45 days at October 30, 1993, have been in
operation for the entire nine-month period ended October 29,
1994. Comparable stores total net sales of $37,935 and $104,555
for the three-month period and nine-month period ended October
29, 1994, respectively, represented increases of 4.6% and 6.0%
over the comparable prior year periods. The comparable stores
sales increase is primarily attributable to improvement in the
general economic conditions of a number of the markets in which
the Company operates.
Cost of sales in the current year, measured as a percentage of
sales, has remained stable in comparing both the three-month
periods and the nine-month periods ended October 29, 1994 and
October 30, 1993, respectively. Cost of sales as a percentage of
total net sales was 60.6% and 59.9% for the three-month period
and nine-month period ended October 29, 1994, compared to 60.8%
and 59.9% for the same periods in the prior year.
Selling, general and administrative expenses, exclusive of
depreciation and amortization, for the three-month period and
nine-month period ended October 29, 1994 were 27.1% and 28.3% of
total net sales for those periods, respectively. This compared
favorably to the same periods in the prior year, where these
expenses were 27.6% and 28.5% of total net sales, respectively.
The Company has been successful in controlling expenses during a
period of overall growth, thereby realizing the economies of
scale. Depreciation and amortization expense for the three-month
period and nine-month period ended October 29, 1994 showed
increases of $309, and $979, respectively, over the comparable
prior year periods due primarily to the new store openings.
Interest expense for the three-month period ended October 29,
1994 was $1,139 compared to $1,065 for the three-month period
ended October 30, 1993. For the nine month period ended October
29, 1994, interest expense was $3,247, up from $3,100 during the
comparable period ended October 30, 1993. The general increase
in interest expense is primarily attributable to increases in the
prime lending rate, offset by a lower average balance under the
Credit Facility due to the Company's increased liquidity
resulting from greater profitability.
As a result of the changes in operating components discussed
above, the income before taxes was $2,176 for the Fiscal Quarter
ended October 29, 1994 and $5,991 for the nine-month period then
ended. This compares favorably with the $1,614 and $4,405
recorded in the three-month period and nine-month period ended
October 30, 1993, respectively.
The income taxes for the three-month period and nine-month period
ended October 29, 1994 were $946 and $2,605, respectively. In
the prior year comparable periods, income taxes were $742 and
$2,026, respectively. The effective income tax rate for both the
three-month period and nine-month period ended October 29, 1994
is 43.5% versus 46.0% in the comparable prior year periods. The
effective tax rate differs from the statutory rate primarily due
to nondeductible amortization relating to certain acquisition
related assets.
As a result of the changes discussed above, net income for the
three-month period ended October 29, 1994 was $1,230 compared to
net income of $872 for the three-month period ended October 30,
1993. For the nine-month periods ended October 29, 1994 and
October 30, 1993, net income was $3,386 and $2,379, respectively.
Earnings per share increased to $.42 and $1.15 for the three-
month period and nine-month period ended October 29, 1994,
representing a 40% and 42% increase over the comparable periods
in the prior year, respectively.
Liquidity and Capital Resources
For the nine-month period ended October 29, 1994, the cash flow
provided by operating activities decreased to $7,912 from $8,685
for the comparable period ended October 30, 1993. Net income in
the current year of $3,386 was increased by noncash adjustments
such as depreciation and amortization, and additionally, by the
net change in operating assets and liabilities. Operations
during the nine-month period ended October 29, 1994 provided
greater liquidity than the nine-month period ended October 30,
1993. Exclusive of the increase in current maturities of long-
term debt, operating activities for the nine-month period ended
October 29, 1994 provided net cash of $4,896, comparing favorably
to the $1,408 use of cash recorded for the comparable prior year
period. 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.
Anticipated 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. During the nine-
month period ended October 29, 1994, the Company opened three new
stores with an aggregate total of 71,500 gross square feet and
has signed noncancellable operating leases for an additional
80,000 in new store square footage due to open in November of
1994. These November openings will meet the Company's plan of
150,000 in new store square footage in fiscal 1994. The
Company's present plans are to open 150,000 in new store square
footage in each of the fiscal years ending 1996 and 1997. In
general, future locations for anticipated new store square
footage have not been specifically identified, and the
availability of suitable locations is not certain. The Company
has, however, signed leases for two new store locations scheduled
to open in the Spring of 1995. Because the Peebles store is
sized to fit the needs of the community, square footage can be as
small as 10,000 square feet or as large as 50,000 square feet,
with the majority of stores between 20,000 and 40,000 square
feet. Due to the buildup of inventory for Christmas, Easter, and
back-to-school seasons, the Company also has seasonal working
capital requirements.
In order to finance its operations and capital needs, including
its debt service payments, the Company expects to use funds
available to it under the Revolving Facility and internally
generated funds. Under the Revolving Facility, the Company may
borrow up to the lesser of (i) $76,000 less the aggregate amount
outstanding under 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 October 29, 1994, approximately $53,221 was
available under the Revolving Facility, of which approximately
$33,016 was drawn as of such date. The Company has seasonal
working capital requirements, which it anticipates financing with
borrowings under the Revolving Facility. The borrowing base
formula for the Revolving Facility is adjusted to accommodate
seasonal working capital requirements. On September 30, 1994, the
Company and its bank signed Amendment No. 2 to Second Amended and
Restated Credit Agreement (the "Amendment"). The Amendment (i)
extended the maturity date of the Credit Agreement, including
both the Revolving Facility and the Term Facility, to February 1,
1997; (ii) reduced the interest rate to Prime plus 1%, unless
specific operating criteria are met quarterly, which will reduce
the interest rate to Prime plus 3/4%; (iii) reduced the quarterly
principal payments due under the Term Facility to $500; (iv)
increased the allowable amount of annual capital expenditures;
and (v) increased the flexibility of certain of the financial
covenants. All other significant provisions of the Credit
Agreement remain in effect.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None.
b. Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements 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.
Date: November 28, 1994 By /s/ Michael F. Moorman
----------------------------
Michael F. Moorman
President and Chief Executive
Officer (Principal
Executive Officer)
By /s/ E. Randolph Lail
-------------------------
E. Randolph Lail
Chief Financial Officer,
Senior Vice President-
Finance, Treasurer and
Secretary (Principal
Financial Officer)
