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 November 1, 1997
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 November 1, 1997, 1,000 shares of Common Stock of Peebles Inc. were
outstanding.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
PEEBLES INC. & SUBSIDIARY
(dollars in thousands, except per share amounts)
<TABLE>
<C> <C> <C>
November 1, 1997 February 1, 1997 November 2, 1996
---------------- ---------------- ----------------
ASSETS (Unaudited) (Unaudited)
CURRENT ASSETS
Cash $ 54 $ 228 $ 51
Accounts receivable, net 27,725 32,062 28,243
Merchandise inventories 69,230 54,431 63,055
Prepaid expenses 1,280 1,036 1,849
Other 981 69 166
------- --------- --------
TOTAL CURRENT ASSETS 99,270 87,826 93,364
PROPERTY AND EQUIPMENT,
net 38,139 33,460 37,594
OTHER ASSETS
Excess of cost over
net assets acquired, net 34,876 36,069 52,243
Deferred financing cost 2,171 2,808 3,007
Other 3,065 3,405 5,130
-------- -------- --------
40,112 42,282 60,380
-------- -------- --------
$ 177,521 $ 163,568 $ 191,338
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 17,464 $ 10,737 $ 14,370
Accrued compensation
and other expenses 2,708 5,000 3,281
Income taxes payable 206 675 734
Deferred income taxes 2,934 2,934 2,679
Current maturities of
long-term debt 21,089 9,665 20,764
Other 367 602 401
-------- ------- --------
TOTAL CURRENT
LIABILITIES 44,768 29,613 42,229
LONG-TERM DEBT 77,788 79,950 78,475
LONG-TERM CAPITAL
LEASE OBLIGATIONS 1,148 1,347 1,447
DEFERRED INCOME TAXES 3,235 3,235 4,484
STOCKHOLDERS' EQUITY
Preferred stock-
no par value, authorized
1,000,000 shares, none
issued and outstanding -- -- --
Common stock-- par
value $.10 per share,
authorized 5,000,000
shares, 1,000 issued
and outstanding. 1 1 1
Additional capital 59,307 59,307 59,307
Retained earnings
(deficit): accumulated
from May 27, 1995; (8,726) (9,885) 5,395
------- ------- -------
50,582 49,423 64,703
-------- -------- -------
$ 177,521 $ 163,568 $ 191,338
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
PEEBLES INC. & SUBSIDIARY
(dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Three-Month Period Ended Nine-Month Period Ended
<C> <C> <C> <C>
November 1, 1997 November 2, 1996 November 1, 1997 November 2, 1996
---------------- --------------- ---------------- ----------------
NET SALES $ 52,411 $ 47,540 $ 147,369 $ 127,961
COSTS AND EXPENSES
Cost of sales 32,077 29,462 89,854 76,874
Selling, general
and administrative
expenses 15,365 14,340 43,685 38,865
Depreciation and
amortization 1,813 1,839 4,992 5,383
---------- --------- ---------- ----------
49,255 45,641 138,531 121,122
---------- --------- ---------- ----------
OPERATING INCOME 3,156 1,899 8,838 6,839
OTHER INCOME 45 52 102 197
INTEREST EXPENSE 2,552 2,275 7,008 6,427
-------- -------- ---------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (BENEFIT) 649 (324) 1,932 609
INCOME TAXES (BENEFIT)
Federal, state
and deferred 260 (130) 773 244
--------- --------- --------- ---------
NET INCOME (LOSS) $ 389 $ (194) $ 1,159 $ 365
========= ========= ========= =========
EARNINGS (LOSS)
PER SHARE $ 389 $ (194) $ 1,159 $ 365
========= ========= ========= =========
Average common stock
and common stock
equivalents
outstanding 1,000 1,000 1,000 1,000
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
PEEBLES INC. & SUBSIDIARY
(dollars in thousands)
(Unaudited)
<TABLE>
Nine-Month Period Ended
<C> <C>
November 1, 1997 November 2, 1996
--------------- ---------------
OPERATING ACTIVITIES
Net Income $ 1,159 $ 365
Adjustments to reconcile
net income to net cash
used in operating
activities:
Depreciation 3,584 3,447
Amortization 2,101 2,626
Provision for doubtful
accounts 1,013 683
LIFO Reserve adjustment 600 122
Changes in operating
assets and liabilities:
Accounts receivable 3,324 2,811
Merchandise inventories (15,399) (16,555)
Accounts payable 6,727 4,413
Other assets and
liabilities (4,152) (2,176)
------- --------
NET CASH USED IN
OPERATING ACTIVITIES (1,043) (4,264)
INVESTING ACTIVITIES
Acquisition of Carlisle
Retailers, Inc. -- (11,549)
Purchase of property
and equipment (8,274) (7,857)
Other (119) (559)
------- ---------
NET CASH USED IN
INVESTING ACTIVITIES (8,393) (19,965)
FINANCING ACTIVITIES
Proceeds from revolving
line of credit and
long-term debt 228,473 203,700
Reduction in revolving
line of credit and
long-term debt (219,211) (189,826)
Proceeds from revolving
facilities-Acquisition of
Carlisle Retailers, Inc. -- 10,213
---------- --------
NET CASH PROVIDED
BY FINANCING ACTIVITIES 9,262 24,087
--------- ---------
DECREASE IN CASH AND
CASH EQUIVALENTS (174) (142)
Cash and cash equivalents
beginning of period 228 193
---------- --------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 54 $ 51
</TABLE>
See notes to condensed consolidated financial statements
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
PEEBLES INC. & SUBSIDIARY
(dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
Common Stock
---------------------
<C> <C> <C> <C>
Par Additional Retained
Shares Value Capital Earnings (Deficit)
-------- ------- ----------- ------------------
Balance January 28, 1995 2,942,690 $ 294 $ 64,390 $ 17,550
Net (loss) -- -- -- (1,528)
---------- ------- -------- ----------
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 -- -- -- 365
--------- ------- -------- -------
Balance November 2, 1996 1,000 1 59,307 5,395
Net (loss) -- -- -- (15,280)
--------- ------- -------- -------
Balance February 1, 1997 1,000 1 59,307 (9,885)
Net income -- -- -- 1,159
--------- ------- -------- -------
Balance November 1, 1997 1,000 $ 1 $ 59,307 $ (8,726)
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
November 1, 1997
(dollars in thousands, except per share amounts)
NOTE A-ORGANIZATION AND BASIS OF PRESENTATION
The 1995 Acquisition: Peebles Inc. was acquired by PHC Retail Holding Company
("PHC Retail") for approximately $136 million, which included acquisition
related expenses of approximately $5.6 million and the refinancing of
existing debt (the "1995 Acquisition"). PHC Retail, a closely held company,
has no significant assets other than the entire equity interest of Peebles Inc.
common stock, $.10 par value (the "Common Stock") and had no operations prior
to the 1995 Acquisition. The 1995 Acquisition was accounted for using the
purchase method of accounting with an effective date of May 27, 1995, and
accordingly, a new accounting basis was begun.
Acquisition of Carlisle Retailers, Inc.: On May 20, 1996, a merger (the "CRI
Merger") was consummated whereby Carlisle Retailers, Inc. ("Carlisle"), an
Ohio corporation, became a wholly owned subsidiary of Peebles Inc. (together
the "Company"). The $11,549 cash purchase price included $6,311 to common
shareholders of Carlisle, $3,458 to a financial services company for the
majority of the outstanding Carlisle proprietary credit card accounts
receivable portfolio, and $1,780 in acquisition expenses. The acquisition was
funded primarily by proceeds from the Senior Revolving Facility.
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. As a result of the 1995 Acquisition, the
financial statements and related footnote amounts for periods prior to the
acquisition are not comparable to the current period. In addition, the
operating results for the current fiscal periods are not necessarily
indicative of the results that may be expected for the fiscal year
ended January 31, 1998, due to the seasonal nature of the business of Peebles.
For further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the
fiscal year ended February 1, 1997.
NOTE B-ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $1,349, $1,224 and $1,087 representing the
allowance for uncollectible accounts at November 1, 1997, February 1, 1997
and November 2, 1996, 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, Alabama, Delaware, New Jersey, Ohio, Pennsylvania
and New York. The Company does not require collateral from its customers.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
November 1, 1997
NOTE C-MERCHANDISE INVENTORIES
Consistent with the purchase method of accounting used in the 1995 Acquisition,
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. The market reserve adjusts
inventory to lower of LIFO cost and market.
Merchandise inventories consisted of the following:
<TABLE>
<C> <C> <C>
November 1, 1997 February 1, 1997 November 2, 1996
---------------- ---------------- ----------------
Merchandise inventories
at FIFO cost $ 62,847 $ 47,448 $ 56,133
Fair Value Adjustment 7,436 7,436 7,436
LIFO reserve (213) 366 327
---------- ---------- ---------
Merchandise inventories
at LIFO cost 70,070 55,250 63,896
Market reserve (840) (819) (841)
Merchandise inventories at
lower of cost or market ---------- ---------- ----------
$ 69,230 $ 54,431 $ 63,055
</TABLE>
NOTE D-ASSET REVALUATION
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". The Company periodically reviews the
carrying value of long-lived assets to determine if impairment has occurred.
The primary indicators of impairment are, but not limited to, significant
changes in competition or demographics, recent historical operating
profitability, projected profitability and the related cash flows of each.
Projections are based on management's best estimates of future performance.
In the fourth quarter of fiscal 1996, on an individual store basis, increased
competition and shifting demographics in certain markets, together with
historical and projected store operations, indicated that the aggregate
estimated undiscounted cash flows to be generated would be less than the current
carrying values of certain store assets, related intangibles and allocated
goodwill. As a result, fair value was calculated using a multiple of discounted
projected cash flows and carrying values were reduced as follows:
Store fixtures and equipment $ 4,034
Related beneficial leaseholds 1,528
Allocated goodwill 15,220
--------
Total asset revaluation $ 20,782
=========
A fair value estimate is based on the best information available, including
prices for similar assets or the results of valuation techniques such as
discounting estimated future cash flows as if the decision to continue to
use the impaired asset was a new investment decision.
The Company continues to calculate the fair value of its assets and does not
expect a future material effect on the Company's consolidated financial
position or operating results from the application of SFAS 121.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
November 1, 1997
NOTE E - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<C> <C> <C>
November 1, 1997 February 1, 1997 November 2, 1996
---------------- ---------------- ----------------
Senior Revolving Facility $ 42,000 $ 43,000 $ 49,000
Senior Term Note A 15,950 17,725 18,150
Senior Term Note B 37,196 27,475 27,550
Swingline Facility 3,731 1,415 4,539
--------- --------- ---------
98,877 89,615 99,236
Less current maturities 21,089 9,665 20,764
--------- --------- ---------
$ 77,788 $ 79,950 $ 78,475
========= ========= =========
The Company has a $120 million credit facility (the "1995 Credit Agreement")
which provides a Senior Term Facility, a Senior Revolving Facility, and a
"Swingline Facility". The 1995 Credit Agreement is secured by a first
priority security interest in substantially all the personal property and
certain real property of Peebles. Restrictive covenants prohibit the payment
of cash dividends in any fiscal year. The Senior Term Facility includes two
notes, Senior Term Note A and Senior Term Note B, with original principal
balances of $20 million and $30 million, respectively. In conjunction with
an amendment of the 1995 Credit Agreement on July 30, 1997, the Company
transferred $10 million from the Senior Revolving Facility to Senior Term
Note B. Senior Term Note A and Senior Term Note B each require quarterly
payments, coinciding with the Company's fiscal quarters, of principal
(increasing annually from the current $675 and $102 per quarter,
respectively) and interest in arrears through maturity. Senior Term Note A and
Senior Term Note B mature on June 9, 2000 and 2002, respectively. Senior Term
Note A and Senior Term Note B bear interest at LIBOR plus 2.75% and LIBOR
plus 3.25%, respectively.
The amount available under the Senior Revolving Facility is determined by a
defined asset based formula with maximum borrowings limited to $65 million
less outstanding amounts under letters of credit. The Company pays a fee of
1/2 of 1% per annum on any unused portion of the Senior Revolving Facility.
The Senior Revolving Facility matures on June 9, 2000 and has no specific
paydown provisions. On May 20, 1996, the Company drew approximately $10,200
to consummate the CRI Merger. Based on the anticipated operations of the
Company in the succeeding twelve-month period, $27,500, $37,500 and $34,600
were considered long-term obligations at November 1, 1997, February 1, 1997
and November 2, 1996, respectively. The Senior Revolving Facility bears
interest at LIBOR plus 2.75%.
Loans under the Swingline facility are drawn and repaid daily based on the
operating activity of the Company. Aggregate amounts outstanding under the
Swingline Facility cannot exceed $5 million. Excess borrowings or
funding outside these amounts revert to the 1995 Senior Revolving Facility.
The Swingline Facility currently bears interest at prime plus 1-1/2% and has
no LIBOR conversion option.
NOTE F-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 ranging from 1 to 10 years expiring at various dates through 2033.
The Company has signed or obtained noncancelable operating leases for eight new
store locations opening in the fiscal year ended January 31, 1998. Included
are Milford, Delaware (32,000 square feet), Altavista, Virginia (29,500 square
feet), Kennett Square, Pennsylvania (25,000 square feet), Gardendale, Alabama
(24,000 square feet), Paris, Tennessee (21,200 square feet), Fayetteville,
Tennessee (24,000 square feet), New Castle, Pennsylvania (25,000 square feet),
and Bedford, Virginia (25,000 square feet). In addition, the Company has
also signed or obtained noncancelable operating leases for five new store
locations opening in the fiscal year ended January 30, 1999. Included are
Lebanon, Tennessee (19,800 square feet), Fort Payne, Alabama (15,400 square
feet), Mount Olive, North Carolina (20,000 square feet), Plymouth, North
Carolina (20,000 square feet), Mayfield, Kentucky (20,000 square feet). The
average annual base rent is $75 for each location with initial terms ranging
from 10 to 20 years and renewal options ranging from 2 to 5 years.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. & SUBSIDIARY
November 1, 1997
NOTE G-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
(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") and nine-month period ended November 1, 1997 in comparison with the
Fiscal Quarter and nine-month period ended November 2, 1996. With the
consummation of the CRI Merger on May 20, 1996, Carlisle Retailers Inc. became
a wholly owned subsidiary of Peebles Inc. These stores are included in the
results of consolidated operations beginning May 20, 1996.
Consolidated net sales and results of consolidated operations, expressed as
percentage of net sales are presented below for the three-month and nine-month
periods ended November 1, 1997 and November 2, 1996.
Three-Month Period Ended Nine-Month Period Ended
------------------------ -----------------------
</TABLE>
<TABLE>
<C> <C> <C> <C>
November 1, November 2, November 1, November 2,
1997 1996 1997 1996
----------- ----------- ---------- ----------
Net sales $ 52,411 $ 47,540 $ 147,369 $ 127,961
% increase 10.3% 11.7% 15.2% 8.4%
Comparable stores %
increase (decrease)
in sales: 7.0% (1.7%) 6.6% (1.5%)
Operations as a
Percentage of Net Sales:
Cost of sales (FIFO) 61.0% 62.1% 60.6% 60.1%
LIFO adjustment .2 (.1) .4 .0
----- ----- ----- -----
Cost of sales (LIFO) 61.2 62.0 61.0 60.1
Selling, general &
administrative
expenses 29.3 30.1 29.6 30.4
Depreciation and
amortization 3.5 3.9 3.4 4.2
----- ----- ----- -----
Operating Income 6.0 4.0 6.0 5.3
Interest Expense 4.8 4.8 4.7 5.0
Other income - .1 - .2
Provision for
income taxes .5 (.3) .5 .2
----- ----- ----- -----
Net Income .7% (.4%) .8% .3%
===== ======= ====== =====
</TABLE>
Net sales for the three-month period ended November 1, 1997 totaled $52,411,
a 10.3% increase over net sales of $47,540 for the comparable three-month
period ended November 2, 1996. Net sales at comparable stores were up 7% in
comparison to the prior year Fiscal Quarter, contributing $2,870 to the total
$4,871 net sales increase. This increase in sales at comparable stores resulted
primarily from i) a strong back-to-school selling season during August; ii) a
planned earlier and larger in-store inventory position of Fall fashion
merchandise, as summer merchandise was cleared earlier; iii) a seasonable and
temperate transition to Fall weather, particluarly in September, where 1996
sales were adversely affected by hurricane Fran; and iv) overall favorable
economic conditions. The remaining increase in net sales for the Fiscal
Quarter, $2,001, was provided by a net 7 new store locations, 4 of which
operated the entire Fiscal Quarter ended November 1, 1997, which were not in
operation in the comparable prior year Fiscal Quarter.
For the nine-month periods ended November 1, 1997 and November 2, 1996, net
sales were $147,369 and $127,961, respectively, an increase of 15.2%. In the
current year nine-month period, comparable sales were $124,333, up $7,733 or
6.6% in comparison to the prior year nine-month period ended November 2, 1996.
The remaining increase of $11,675 was due to operation of 6 Carlisle stores, and
a net 7 new Peebles stores for the entire current year nine-month period, and
6 new Peebles stores opened during the first and third current Fiscal Quarters.
For the third Fiscal Quarter, cost of sales, measured on a FIFO basis, improved
slightly from the prior year at 61.0%, versus 62.1% in the prior year. Cost of
sales was controlled during a Fiscal Quarter of significant sales growth and
new store growth due to the management of inventory levels during the Summer to
Fall transition and the Company's pricing strategy. For the nine-month period
ended November 1, 1997, cost of sales was 60.6%, up from 60.1% for the
comparable prior year period. This increase is attributed to a slower seasonal
inventory transition in the first Fiscal Quarter, the opening of 6 new stores
and the closing of one store during the current year nine-month period.
Benign inflation as measured through the Bureau of Labor's Department Store
Inventory Price Index has minimized LIFO reserve requirements since the
Company's re-establishment of LIFO base year in June 1995. In the current
year second Fiscal Quarter, however, indications of rising costs coupled with
the projected increase in inventory levels resulted in a greater accrual
adjusting FIFO to LIFO than in prior periods.
Selling, general and administrative expenses, exclusive of depreciation and
amortization, improved to 29.3% of net sales for the Fiscal Quarter ended
November 1, 1997, from the 30.1% for the comparable prior year period. For
the comparable nine-month period, selling, general and administrative expenses
improved to 29.6% of net sales from 30.4% in the prior year comparable period.
Reductions came from the Company's ability to successfully leverage its
selling, general and administrative expenses as the economies of scale are
realized in the central office and distribution facilities. Offsetting these
reductions in selling, general and administrative expenses, are the new stores
higher occupancy, payroll, and advertising expenses as a percentage of net sales
as compared to mature stores. The Company has been successful in controlling
these expenses during growth periods, and expects to realize further
efficiencies through economies of scale in succeeding Fiscal Quarters.
Depreciation and amortization was 3.5% and 3.4% as a percentage of net sales for
the Fiscal Quarter and nine-month period ended November 1, 1997, respectively.
In the prior year comparable three-month and nine-month periods ended November
2, 1996 depreciation and amortization was 3.9% and 4.2% of net sales,
respectively. This decrease is attributable primarily to the impact of lower
amortization of goodwill due to an asset revaluation in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in
the fourth quarter of 1996.
Interest expense for the Fiscal Quarters ended November 1, 1997 and November 2,
1996 was $2,552 and $2,275, respectively and $7,008 and $6,427, respectively
for the nine-month periods then ended. The increase results primarily from the
increased debt assumed in connection with the addition of the new stores,
including those acquired in the CRI Merger.
The income tax expense (benefit) for the three-month and nine-month period
ended November 1, 1997 was $260 and $773, respectively, compared to $(130) and
$244, respectively, for the comparable periods ended November 2, 1996. 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 and
nine-month periods ended November 1, 1997 was $389 and $1,159, respectively,
compared to net income (loss) of $(194) and $365 for the three-month and
nine-month period ended November 2, 1996.
<PAGE>
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 1995 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 nine-month period ended November 1, 1997 and November 2, 1996, operating
activities used cash of $1,043 and $4,264, respectively. The Company had
working capital of $54.5 million and $51.1 million at November 1, 1997 and
November 2, 1996, respectively. Operations used less net cash in the current
nine-month period in comparison to the prior year as i) accounts receivable
were collected ratably faster; ii) merchandise inventories were built slower;
iii) accounts payable increased with the operations breadth and iv) overall
operations produced greater net income.
Net cash used in investing activities, decreased to $8,393 from $19,965 for the
nine-month period ended November 1, 1997 and November 2, 1996, respectively.
The prior year amount includes $11,549 used in the CRI Merger. In the current
year, capital expenditures totaled $8,274, up from $7,857 in the prior year and
were primarily used to open three new stores in each of the first and third
Fiscal Quarters, and the relocation of three existing stores. With two
remaining stores to open in the fourth Fiscal Quarter, the Company expects
capital expenditures to total approximately $10.7 million in fiscal 1997.
Additional new stores, remodelings and relocations will continue to require
funding of additional working capital for which the Company must depend on
internally generated funds and borrowings under the 1995 Credit Agreement.
The Company will open eight new store locations, totaling some 205,700 square
feet during the current fiscal year. Six of these new store locations were
opened during the first three Fiscal Quarters of 1997. The cities,
states and gross square footage are as follows: 1) Milford, Delaware (32,000);
2) Altavista, Virginia (29,500); 3) Kennett Square, Pennsylvania (25,000);
4) Paris, Tennessee (21,200); 5) New Castle, Pennsylvania (25,000)
and 6) Gardendale Alabama (24,000). The two remaining stores in Bedford,
Virginia (25,000) and Fayetteville, Tennessee (24,000) open immediately prior to
Thanksgiving. The Company has already signed non-cancellable leases to open
five new store locations totaling some 95,300 square feet during fiscal 1998.
The store locations are in Tennessee, Alabama, North Carolina (2) and Kentucky.
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 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 Senior Revolving Facility
will be sufficient to fund the investing activities and the required payments
under the 1995 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: November 25, 1997 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)
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