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 April 29, 1995
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 April 29, 1995, 2,942,690 shares of Common Stock of
Peebles Inc. were outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED BALANCE SHEET
PEEBLES INC.
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
April 29, January 28, April 30,
1995 1995 1994
<S> <C> <C> <C>
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash $ 74 $ 408 $ 89
Accounts receivable, net 26,344 28,812 25,542
Merchandise Inventories 48,240 44,703 42,166
Prepaid expenses 412 306 301
Other 119 840 590
------- -------- -------
-- -- --
TOTAL CURRENT ASSETS 75,189 75,069 68,688
PROPERTY AND EQUIPMENT, net 29,403 28,951 25,490
BUILDINGS UNDER CAPITAL LEASES, net 1,183 1,230 1,353
OTHER ASSETS
Excess of cost over net assets
acquired, net 36,690 37,111 38,379
Other 6,845 6,593 7,165
------- -------- -------
43,535 43,704 45,544
------- -------- -------
$149,310 $148,954 $141,075
======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,599 $ 8,722 $ 6,976
Accrued compensation and other expenses 3,310 5,587 4,007
Deferred income taxes 4,472 4,472 4,957
Current maturities of long-term debt 8,294 5,850 7,958
Other 590 566 293
------- -------- -------
TOTAL CURRENT LIABILITIES 25,265 25,197 24,191
LONG-TERM DEBT 33,740 34,240 34,852
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,814 1,865 2,032
DEFERRED INCOME TAXES 5,416 5,416 4,481
COMMON STOCK WARRANTS 2 2 164
STOCKHOLDERS' EQUITY
Common stock--par value $.10 per share,
authorized 5,000,000 shares, issued and
outstanding 2,942,690, 2,942,690 and
2,933,562 shares, respectively 294 294 293
Additional capital 64,390 64,390 64,174
Retained earnings:
Accumulated from February 1, 1992,
subsequent to a deficit elimination of
$10,477 on that date 18,389 17,550 10,888
------- -------- -------
83,073 82,234 75,355
------- -------- -------
$149,310 $148,954 $141,075
======== ======== ========
</TABLE>
See notes to condensed financial statements
<PAGE>
CONDENSED STATEMENT OF INCOME
PEEBLES INC.
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three-Month Period Ended
April 29, April 30,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 36,518 $ 34,767
COSTS AND EXPENSES
Cost of sales 21,585 21,091
Selling, general and administrative
expenses 10,832 9,651
Depreciation and amortization 1,760 1,743
-------- --------
34,177 32,485
-------- --------
OPERATING INCOME 2,341 2,282
OTHER INCOME 77 176
INTEREST EXPENSE 1,057 998
-------- --------
INCOME BEFORE INCOME TAXES 1,361 1,460
INCOME TAXES
Federal, state and deferred 524 635
-------- --------
NET INCOME $ 837 $ 825
======== ========
EARNINGS PER SHARE $ .28 $ .28
======== ========
Average common stock and common stock
equivalents outstanding 2,942,785 2,940,048
See notes to condensed financial statements
</TABLE>
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
<TABLE>
<CAPTION>
Three-Month Period Ended
April 29, April 30,
1995 1994
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 837 $ 825
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 1,076 929
Amortization 736 923
Changes in operating assets and
liabilities:
Accounts receivable 2,468 2,844
Merchandise inventories (3,537) (514)
Accounts payable (123) (330)
Other assets and liabilities (1,874) (1,650)
-------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (417) 3,027
INVESTING ACTIVITIES
Purchase of property and equipment (1,679) (1,644)
Other (182) (63)
-------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,861) (1,707)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term debt 44,628 38,696
Reduction in revolving line of credit
and long-term debt (42,684) (40,026)
-------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 1,944 (1,330)
DECREASE IN CASH AND CASH EQUIVALENTS (334) (10)
Cash and cash equivalents beginning of
period 408 99
-------- -------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 74 $ 89
======= =======
See notes to condensed financial statements
</TABLE>
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
April 29, 1995
(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 ended April 29, 1995
are not necessarily indicative of the results that may be
expected for the fiscal year ended February 3, 1996, 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 28, 1995.
NOTE B_CHANGE IN CONTROL
On June 9, 1995, PHC Retail Holding Company ("PHC Retail"), an
affiliate of Kelso & Company ("Kelso"), an investment firm
located in New York, New York, acquired all of the outstanding
common stock, $.10 par value (the "Common Stock"), of Peebles as
a result of the merger of a wholly-owned subsidiary of PHC Retail
with and into Peebles. Prior to the merger, the outstanding
shares of Common Stock were owned by approximately 75
shareholders, each of whom received $30 per share in cash for
their shares of Common Stock as a result of the merger.
Approximately $60 million of the funds required to effect the
transaction was provided by affiliates of Kelso and members of
the Company's management. The balance of the funding for the
transaction, in the form of a $120 million credit facility, was
provided by a group of financial institutions led by Natwest
Bank, N.A.
NOTE C_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $930, $930 and $950
representing the allowance for uncollectible accounts at April
29, 1995, January 29, 1994 and April 30, 1994, 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 usually resides in the
local community immediately surrounding the store location.
Peebles stores serve these local customers in Virginia, Maryland,
North Carolina, South Carolina, Tennessee, Kentucky, Delaware,
New Jersey, Pennsylvania and New York. The Company does not
require collateral from its customers.
NOTE D_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.
<PAGE>
ITEM 2. 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-month period (or "Fiscal Quarter") ended April 29, 1995 in
comparison with the Fiscal Quarter ended April 30, 1994.
Net sales for the three-month period ended April 29, 1995 totaled
$36,518,000, a 5.0% increase over the total net sales for the
comparable three-month period ended April 30, 1994. During the
twelve-month period succeeding April 30, 1994, the Company
opened five new stores, the latest opening on April 6, 1995,
closed one store and re-located three stores. The five new
stores opened subsequent to the Fiscal Quarter ended April 30,
1994, along with the new store opened April 29, 1994, accounted
for net sales of approximately $2,448,000 in the current year
Fiscal Quarter, while the store closed on July 2, 1994 had
accounted for $239,000 in the prior year Fiscal Quarter.
Comparable store sales declined $458,000, or 1.33%. The
comparable stores sales decrease is attributable to fewer fall
and winter clearance promotions relative to the prior year Fiscal
Quarter as merchandise inventory levels maintained during the
current Fiscal Quarter were down from the prior year and in line
with the Company's plans. In addition, the prior year fiscal
quarter was especially strong, up 11% from the three-month period
ended May 1, 1993 in comparison to the average 4% to 5%
comparable stores sales increases experienced in the seven Fiscal
Quarters preceding the current three-month period.
Cost of sales as a percentage of net sales for the three-month
periods ended April 29, 1995 and April 30, 1994 were 59.1% and
60.7%, respectively. This decrease in cost of sales percentage
in the current Fiscal Quarter results from the Company's
continuing efforts to lower initial markon percentage, and
thereby lowering subsequent markdowns, in its everyday fair
pricing strategy. In addition, fewer fall and winter clearance
markdowns were needed in the current Fiscal Quarter as inventory
levels were closer to plan in comparison to the prior year. The
Company believes that its customers are best served and the
overall profitability enhanced by selling merchandise at the
lowest possible initial prices, thereby reducing the need for
subsequent clearance promotions.
Selling, general and administrative expenses, including
depreciation and amortization, for the Fiscal Quarters ended
April 29, 1995 and April 30, 1994 were 34.5% and 32.8% of total
net sales. This increase is attributable primarily to the
additional expenses incurred in the opening of six new store
locations after April 29, 1994 and re-location of another three
stores during that same period. The Company has been successful
in controlling expenses during growth periods, and expects to
realize efficiencies through economies of scale in succeeding
Fiscal Quarters.
Interest expense for the three-month period ended April 29, 1995
was $1,057,000, up slightly from the $998,000 for the three-month
period ended April 30, 1994. This increase results from a
significantly higher prime lending rate in the current year three-
month period (9%) in comparison to the prior year (6%), offset by
a reduction in the contractual interest rate applied to the
Credit Facility provided by the Amendment.
As a result of the changes in operating components discussed
above, the net income before taxes was $1,361,000 for the Fiscal
Quarter ended April 29, 1995, compared to $1,460,000 for the
Fiscal Quarter ended April 30, 1994.
The income tax expense for the three-month period ended April 29,
1995 was $524,000 compared to $635,000 for the comparable period
ended April 30, 1994. The effective income tax rate for the
current Fiscal Quarter is 38.5%. versus 43.5% in the comparable
prior year period. 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 April 29, 1995 was $837,000 compared to
net income of $825,000 for the three-month period ended April 30,
1994.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the Fiscal Quarter ended April 29, 1995, operating activities
used cash of $417,000, compared to producing $3,027,000 in the
Fiscal Quarter ended April 30, 1994. Net income of $837,000 was
increased by non-cash adjustments such as depreciation and
amortization, as well as through the realization of some $2.5
million of accounts receivable. However, the funding needed for
the seasonal increase in merchandise inventories, and the payment
of certain cash bonuses accrued at January 28, 1995 and paid
during the current Fiscal Quarter offset the cash generated from
operations.
In connection with the merger described in Note B, the Company
and its bank, Natwest Bank N.A. , as a lender and an agent for
two additional lending institutions (together, the "Lenders")
entered into a $120 million credit facility (the "New Credit
Agreement") on June 9, 1995. The New Credit Agreement provides
for two term facilities (the "New Term Facilities") totaling $50
million and a $70 million revolving facility (the "New Revolving
Facility"). The Company believes the cash flow generated from
operating activities together with funds available under the New
Revolving Facility will be sufficient to fund the investing
activities and the required payments under the New 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 of which the
Company must depend on internally generated funds and borrowings
under the New Credit Agreement as discussed below. The Company
opened six new stores and closed one store during the twelve
month period succeeding April 29, 1994, increasing gross square
footage by approximately 150,000. During the nine-month period
ended February 3, 1996, the Company will open seven additional
new stores and re-locate one store, with no anticipated closings
of existing stores, increasing the gross square footage by
approximately 161,000. Capital expenditures for the three-month
period ended April 29, 1995 were approximately $1.7 million and
are expected total approximately $9.3 million for the fiscal year
ended February 3, 1996, attributable primarily to the new stores.
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 New Revolving Facility and internally
generated funds. Under the New Revolving Facility, the Company
may borrow up to the lesser of (i) $70,000,000 less 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 June 14, 1995, approximately
$41,695,000 was available under the New Revolving Facility, of
which approximately $28,614,000 was drawn as of such date. The
Company has seasonal working capital requirements, which it
anticipates financing with borrowings under the New Revolving
Facility. The borrowing base formula for the New Revolving
Facility is adjusted to accommodate seasonal working capital
requirements. The New Credit Agreement expires on June 9, 2000.
<PAGE>
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
Reports were filed on April 5, 1995 and May 11, 1995 reporting
Item 5, Other Events, and June 14, 1995, reporting a Change in
Control.
<PAGE>
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: June 15, 1995 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)
