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 May 4, 1996
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 May 4, 1996, 1,000 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>
May 4, February 3, April 29,
1996 1996 1995
ASSETS (Unaudited) (Unaudited)
(Prior to
1995
Acquisition)
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 59 $ 193 $ 74
Accounts receivable, net 26,108 28,534 26,344
Merchandise Inventories 45,155 42,684 48,240
Prepaid expenses 672 386 412
Other 99 62 119
------ ------- ------
- -
TOTAL CURRENT ASSETS 72,093 71,859 75,189
PROPERTY AND EQUIPMENT, net 33,578 32,248 29,403
BUILDINGS UNDER CAPITAL LEASES, net 1,018 1,060 1,183
OTHER ASSETS
Excess of cost over net assets
acquired, net 50,603 51,129 36,690
Other 8,645 9,257 6,845
------ ------- ------
59,248 60,386 43,535
------ ------- ------
$165,937 $165,553 $149,310
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 7,632 $ 9,957 $ 8,599
Accrued compensation and other expenses 2,378 3,955 3,310
Income taxes payable 998 855 388
Deferred income taxes 2,788 2,788 4,472
Current maturities of long-term debt 9,748 5,377 8,294
Other 449 532 202
------ ------- ------
TOTAL CURRENT LIABILITIES 23,993 23,464 25,265
LONG-TERM DEBT 69,475 69,774 33,740
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,567 1,627 1,814
DEFERRED INCOME TAXES 6,350 6,350 5,416
COMMON STOCK WARRANTS -- -- 2
STOCKHOLDERS' EQUITY
Common stock--par value $.10 per
share, authorized 5,000,000 shares,
issued and outstanding 1,000, 1,000
and 2,942,690 shares,respectively 1 1 294
Additional capital 59,307 59,307 64,390
Retained earnings: Accumulated from
May 27, 1995, May 27, 1995 and February
1, 1992,respectively; $10,477 deficit
eliminated February 1, 1992. 5,244 5,030 18,389
------ ------- ------
64,552 64,338 83,073
------ ------- ------
$165,937 $165,553 $149,310
====== ======== ======
</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
May 4, April 29,
1996 1995
(Unaudited) (Unaudited)
(Prior to
1995
Acquisition)
<S> <C> <C>
NET SALES $38,055 $ 36,518
COSTS AND EXPENSES
Cost of sales 22,607 21,585
Selling, general and administrative
expenses 11,541 10,832
Depreciation and amortization 1,724 1,760
-------- ---------
35,872 34,177
-------- ---------
OPERATING INCOME 2,183 2,341
OTHER INCOME 54 77
INTEREST EXPENSE 1,880 1,057
-------- ---------
INCOME BEFORE INCOME TAXES 357 1,361
INCOME TAXES
Federal, state and deferred 143 524
NET INCOME $ 214 $ 837
======== ========
EARNINGS PER SHARE $ 214 $ .28
======== ========
Average common stock and common stock
equivalents outstanding 1,000 2,942,785
======== =========
</TABLE>
See notes to condensed financial statements
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
PEEBLES INC.
(dollars in thousands)
<TABLE>
<CAPTION>
Three-Month Period Ended
May 4, April 29,
1996 1995
(Unaudited) (Unaudited)
(Prior to
1995
Acquisition)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 214 $ 837
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 1,097 1,076
Amortization 857 736
Changes in operating assets and liabilities:
Accounts receivable 2,426 2,468
Merchandise inventories (2,471) (3,537)
Accounts payable (2,325) (123)
Other assets and liabilities (1,804) (1,874)
-------- ----------
NET CASH USED IN OPERATING
ACTIVITIES (2,006) (417)
INVESTING ACTIVITIES
Purchase of property and equipment (2,429) (1,679)
Other 229 (182)
-------- ----------
NET CASH USED IN INVESTING ACTIVITIES (2,200) (1,861)
FINANCING ACTIVITIES
Proceeds from revolving line of credit
and long-term debt 54,349 44,628
Reduction in revolving line of credit
and long-term debt (50,277) (42,684)
-------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 4,072 1,944
-------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (134) (334)
Cash and cash equivalents beginning of 193 408
period
CASH AND CASH EQUIVALENTS END OF PERIOD $ 59 $ 74
======== ==========
</TABLE>
See notes to condensed financial statements
<PAGE>
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC.
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock
Par Additional Retained
Shares Value Capital Earnings
<S> <C> <C> <C> <C>
BALANCE JANUARY 28, 1995 2,942,690 $ 294 $64,390 $17,550
Net income -- -- -- 837
-------- ------ ------ ------
BALANCE APRIL 29, 1995 2,942,690 294 64,390 18,337
Net (loss) -- -- -- (2,315)
-------- ------ ------ ------
Balance May 27, 1995, prior to
1995 Acquisition 2,942,690 294 64,390 16,022
1995 Acquisition adjustments (2,941,690) (293) (5,083) (16,022)
-------- ------ ------ ------
Balance May 27, 1995, following
1995 Acquisition 1,000 1 59,307 --
Net income -- -- -- 5,030
-------- ------ ------ ------
Balance February 3, 1996 1,000 1 59,307 5,030
Net income -- -- -- 214
-------- ------ ------ ------
Balance May 4, 1996 1,000 $ 1 $59,307 $5,244
======== ====== ====== ======
</TABLE>
See notes to condensed financial statements.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
May 4, 1996
(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 May 4, 1996 are not necessarily indicative of the results
that may be expected for the fiscal year ended February 1,
1997, 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 February 3, 1996.
NOTE B_ACQUISITION OF PEEBLES INC.
1995 Acquisition (the "1995 Acquisition"): PHC Retail Holding
Company ("PHC Retail") acquired the entire equity interest of
Peebles Inc. ("Peebles" or the "Company") for approximately
$136 million, which included acquisition related expenses of
approximately $5.6 million and the refinancing of existing
debt. PHC Retail is owned by Kelso & Company ("Kelso"), an
investment firm located in New York, New York and management.
PHC Retail has no significant assets other than the shares of
Peebles common stock, $.10 par value (the "Common Stock") and
had no operations prior to the 1995 Acquisition.
The 1995 Acquisition has been accounted for using the purchase
method of accounting with an effective date of May 27, 1995,
and accordingly, a new accounting basis was begun. The 1995
Acquisition cost has been allocated to the assets and
liabilities of Peebles as follows:
Cash purchase price $135,558
Pre-acquisition debt refinanced (40,917)
Adjusted purchase price 94,641
Tangible net assets at historical cost (63,840)
Incremental acquisition debt 35,474
Purchase price to be allocated 66,275
Purchase price allocations:
Merchandise inventories $7,436
Buildings 1,133
Land 1,411
Beneficial leaseholds 3,232
Pension asset 533
------
13,745
--------
Excess of cost over net assets acquired $ 52,530
The excess of cost over net assets acquired is being amortized
on a straight-line basis over 25 years beginning May 27, 1995.
Beneficial leaseholds are amortized on a straight-line basis
over the composite useful lives of the related leases.
Buildings are amortized on a straight-line basis over their
estimated useful lives.
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
PEEBLES INC.
May 4, 1996
NOTE C_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $960, $960 and $930
representing the allowance for uncollectible accounts at May 4,
1996, February 3, 1996 and April 29, 1995, 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_MERCHANDISE INVENTORIES
The 1995 Acquisition was accounted for using the purchase
method of accounting with an effective date of May 27, 1995.
The normal seasonal increase in merchandise inventory between
January and May resulted in a significant LIFO increment in the
four-month period ended May 27, 1995. Consistent with the
purchase method of accounting, the LIFO reserve was eliminated,
the recorded value of merchandise inventories was increased to
fair value (the "Fair Value Adjustment") and a new LIFO base
year was established at May 27, 1995. Seasonal decreases in
inventory levels and costs from May to January resulted in LIFO
cost greater than FIFO cost, and a market reserve was
established.
Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
May 4, February 3, April 29,
1996 1996 1995
(Prior to
1995
Acquisition)
<S> <C> <C> <C>
Merchandise inventories
at FIFO cost $38,133 $ 35,662 $ 37,019
Fair Value Adjustment 7,436 7,436 14,209
LIFO reserve 315 449 (2,988)
------- ---------- ----------
Merchandise inventories
at LIFO cost 45,884 43,547 48,240
Market reserve (729) (863) --
------- ---------- ----------
Merchandise inventories
at lower of cost or
market $45,155 $ 42,684 $ 48,240
======= ========== ==========
</TABLE>
NOTE E_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.
NOTE F_SUBSEQUENT EVENT
On May 20, 1996, a merger (the "CRI Merger") was consumated
whereby Carlisle Retailers, Inc. ("Carlisle") became a wholly
owned subsidiary of Peebles Inc. Carlisle, an Ohio
corporation, operated seven department stores located in
Northeastern Ohio and Northwestern Pennsylvania. The CRI
Merger will be accounted for using the purchase method of
accounting. Subsequent to the CRI Merger date, the results of
operations and financial position of Carlisle will be reported
in the consolidated financial statements of Peebles Inc.
<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 (or "Fiscal Quarter") ended May 4, 1996 in
comparison with the Fiscal Quarter ended April 29, 1995. The
1995 Acquisition was accounted for using the purchase method of
accounting. Accordingly, a new basis of accounting was begun
on May 27, 1995. As a result, financial statements for periods
prior to the 1995 Acquisition are not comparable to periods
subsequent thereto.
Net sales for the three-month period ended May 4, 1996 totaled
$38,055, a 4.2% increase over net sales of $36,518 for the
comparable three-month period ended April 29, 1995. This
$1,537 increase is attributable to the seven new store
locations opened since April 6, 1995. These stores increased
net sales by $1,672 in comparing the three-month periods ended
May 4, 1996 and April 29, 1995, respectively. Net sales at
comparable stores were flat, decreasing $135 comparing the
current year and prior year Fiscal Quarters. Comparable stores
net sales continue to reflect weak consumer spending on apparel
in the Company's markets. Management expects apparel sales to
remain soft throughout fiscal 1996, and therefore plans for
growth in sales to come primarily from new store locations.
Cost of sales as a percentage of net sales for the three-month
periods ended May 4, 1996 and April 29, 1995 were 59.4% and
59.1%, respectively. In general, the stability in the cost of
sales percentage results from the Company's pricing strategy of
offering fair, consistent pricing every day, which reduces the
fluctuations caused by promotional markdowns. The slight
increase in the cost of sales as a percentage of net sales is,
in fact, related to promotional markdowns taken in current
Fiscal Quarter as opposed to the second Fiscal Quarter of the
previous year due to the timing of Mothers Day. In both the
current and prior year Fiscal Quarters, merchandise inventory
levels were in line with plan throughout the three-month
period, which again minimized the detrimental impact of
clearance markdowns.
Selling, general and administrative expenses, including
depreciation and amortization, for the Fiscal Quarters ended
May 4, 1996 and April 29, 1995 were 34.9% and 34.5% of net
sales, respectively. This increase is attributable primarily
to the additional expenses incurred in the opening of seven new
store locations after April 6, 1995 and the re-location of
another store during that same period. New stores typically
have higher occupancy, payroll, and advertising expenses as a
percenatge of net sales as compared to mature stores. 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 periods ended May 4, 1996
and April 29, 1995 was $1,880 and $1,057, respectively. The
increase results primarily from the increased debt assumed in
connnection with the 1995 Acquisition. The 1995 Credit
Agreement increased outstanding borrowings at the date of the
1995 Acquisition by approximately $35.5 million.
The income tax expense for the three-month period ended May 4,
1996 was $143 compared to $524 for the comparable period ended
April 29, 1995. The effective income tax rate for the current
Fiscal Quarter is 40.1% versus 38.5%. in the comparable prior
year period. The effective tax rate differs from the statutory
rate primarily due to state income taxes and nondeductible
amortization relating to certain acquisition related assets.
As a result of the changes discussed above, net income for the
three-month period ended May 4, 1996 was $214 compared to net
income of $837 for the three-month period ended April 29, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital
expenditures in connection with both the Company's new store
expansion and remodeling program and for working capital needs.
The Company's primary sources of funds are cash flow from
continuing operations, borrowings under the Credit Agreement
and trade accounts payable. The Company's inventory levels
typically build throughout the fall, peaking during the
Christmas selling season, while accounts receivable peak during
December and decrease during the first quarter. Capital
expenditures typically occur evenly throughout the first three
quarters of each year.
For the Fiscal Quarters ended May 4, 1996 and April 29, 1995,
operating activities used cash of $2,006 and $417,
respectively. The Company had working capital of $48.1 million
and $49.9 million in the three-month periods ended May 4, 1996
and April 29, 1995, respectively. Cash used in operations was
impacted by the increase in cash interest expense resulting
from incremental debt assumed to facilitate the 1995
Acquisition. In addition, working capital was reduced by a
greater reduction in trade accounts payable resulting primarily
from the timing of the April month end, offset by a less
significant increase in merchandise inventories.
Net cash used in investing activities increased from $1,861 to
$2,200 for the Fiscal Quarters ended April 29, 1995 and May 4,
1996, respectively. This cash was used primarily for capital
expenditures in existing store locations, as no new stores were
opened in the first Fiscal Quarter of either the current or
prior fiscal year. In the three-month period ended May 4,
1996, however, approximately $900 was expended for an expansion
of the distribution center in South Hill, scheduled for
completion in the second Fiscal Quarter of the current year.
The Company expects capital expenditures to total approximately
$11.7 million in fiscal 1996, with some $2.0 million allocated
to the distribution center. 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 of May 1996, the Company had signed non-cancellable leases
for seven new Peebles store locations, four of which are
scheduled to open in fiscal 1996 and three scheduled for fiscal
1997 openings. The Company expects to continue to lease its
stores, and the average new store is anticipated to average
approximately 22,500 square feet but may vary depending on the
market and real estate availability. New store locations
opening in 1996 and their respective gross square footage are:
1) Edenton, North Carolina (17,000); 2) Albertville, Alabama
(25,000); 3) Winchester, Tennessee (21,000); 4) Rochester, New
York (25,000). The Albertville store will be the Company's
first store location in Alabama. Based on historical
experience, the Company estimates that the cost of opening a new
store will include capital expenditures of approximately $425
for leasehold improvements and fixtures and approximately $425
for initial inventory, approximately one-third of which is
normally financed through vendor credit. Accounts receivable
for new stores typically build to 15% of net sales or
approximately $300 within 24 months of the store opening. The
Company may also incur capital expenditures to acquire existing
stores.
The CRI Merger provides the Company with five store locations
in Northeastern Ohio and two stores in Northwestern
Pennsylvania. The Ohio locations are the Company's first
stores in Ohio. These stores will operate as Carlisle/Peebles
increasing the gross square footage of the Company by
approximately 180,000 square feet.
The Company finances its operations, capital expenditures, and
debt service payments with funds available under the Senior
Revolving Facility. The maximum amount available under the
Senior Revolving Facility is $65 million less amounts
outstanding under letters of credit. The actual amount
available is determined by an asset based formula, adjusted for
seasonal working capital requirements. 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.
<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
27. Financial Data Schedule
b. Reports on Form 8-K
None
<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 14, 1996 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)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> MAY-04-1996
<CASH> 59
<SECURITIES> 0
<RECEIVABLES> 27,068
<ALLOWANCES> 960
<INVENTORY> 45,155
<CURRENT-ASSETS> 72,093
<PP&E> 53,838
<DEPRECIATION> 20,260
<TOTAL-ASSETS> 165,937
<CURRENT-LIABILITIES> 23,993
<BONDS> 69,475
<COMMON> 1
0
0
<OTHER-SE> 64,551
<TOTAL-LIABILITY-AND-EQUITY> 165,937
<SALES> 38,055
<TOTAL-REVENUES> 38,055
<CGS> 35,872
<TOTAL-COSTS> 35,872
<OTHER-EXPENSES> (54)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,880
<INCOME-PRETAX> 357
<INCOME-TAX> 143
<INCOME-CONTINUING> 214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214
<EPS-PRIMARY> 214
<EPS-DILUTED> 214
</TABLE>
