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 February 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
(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 $-0- (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 February 1,
1997.)
As of April 1, 1997, 1,000 shares of common stock of Peebles
Inc. were outstanding.
<PAGE>
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.
GENERAL
Peebles operates 77 specialty department stores offering
merchandise for the entire family and selected decorative home
accessories. Founded in 1891, the Company operates primarily
in smaller communities in twelve predominately southeastern
and mid-Atlantic states. Peebles positions itself as the
leading fashion retailer in these communities, which typically
do not have a traditional mall-based department store, and
locates its stores in the primary shopping destinations in its
markets. Peebles offers its customers consistent value by
providing a broad assortment of moderately priced national
brands supplemented with quality private label merchandise.
Peebles' attractive stores and visual presentation,
advertising and promotional programs further reinforce its
image as the market's fashion leader.
References to 1992, 1993, 1994, 1995 and 1996 relate to
the fiscal years of the Company ending January 30, 1993,
January 29, 1994, January 28, 1995, February 3, 1996 and
February 1, 1997, respectively. Fiscal years 1992, 1993, 1994
and 1996 each include 52 weeks. Results of operations for
1995 consisted of fifty-three weeks, with 17 weeks included in
the four-month period ended May 27, 1995 and 36 weeks in the
eight month period ended February 3, 1996. References herein
to 1995 relate to the 53-week period ended February 3, 1996.
The entire equity interest of Peebles Inc. was acquired
by PHC Retail Holding Company ("PHC Retail"), effective May
27, 1995. PHC Retail is an affiliate of Kelso & Company
("Kelso"), an investment firm located in New York, New York.
PHC Retail has no significant assets other than the shares of
Peebles common stock, and had no operations prior to the 1995
Acquisition. The acquisition was accounted for using the
purchase method of accounting, and accordingly, a new
accounting base year was established. The acquisition has not
resulted in, and is not expected to result in any deviation
from the Company's pre-acquisition strategic plans involving
store operations, except that greater flexibility is afforded
through the New Credit Agreement, as defined, and the added
financial support of Kelso as an equity owner within that
agreement.
OPERATING STRATEGY
The following are key elements to Peebles operating strategy:
FOCUS ON SMALL MARKETS. Peebles locates its stores in
smaller communities that typically do not have a
traditional mall-based department store, thereby limiting
competition and allowing Peebles to be the leading
fashion retailer in these communities. The Company
believes its ability to successfully operate in markets
with as few as 5,000 households is an important
competitive advantage over large department stores, which
generally cannot profitably operate in such markets.
Peebles has operated in small communities for over 100
years and understands its markets and customers.
OPERATE SMALL STORES WITH LOWER COST STRUCTURE. Peebles,
with its focus on small communities, operates stores that
are significantly smaller than the traditional full-line
department store. Peebles' stores average 30,000 square
feet and vary in size from 10,000 to 65,000 square feet.
The Company operates profitably despite its smaller
stores and lower sales per square foot compared with
other department store companies due to its high gross
margins, emphasis on cost control and centralized
operations.
DELIVER FASHION TO SMALL COMMUNITIES. Peebles strives to
provide its customers with a shopping experience similar
to that found in a traditional mall-based department
store, although with fewer merchandise categories. The
Company emphasizes a broad selection of moderately-priced
national brands and private label merchandise, which
generally is not available through other retailers in the
market. Peebles' attractive stores and visual
presentation, advertising and promotional programs
further reinforce its image as the market's fashion
leader.
OFFER VALUE TO CUSTOMERS. Peebles emphasizes value
pricing and is less promotional than traditional
department stores. It is the Company's strategy to use
lower initial mark-ons and promote less, thereby
maintaining a high level of credibility with its
customers. Peebles' commitment to providing value to its
customers is integral to creating repeat customers, a
critical ingredient for success in smaller markets.
CENTRALIZE OPERATIONS, BUT TAILOR MERCHANDISE LOCALLY.
Peebles believes that centralized decision-making,
controls and support functions are critical to its cost-
efficient operations and enable the Company's store
personnel to maximize the time devoted to selling. In
contrast, Peebles employs a decentralized approach in
merchandising its individual stores. The merchandise mix
is tailored to individual stores to cater to local tastes
and preferences based on customer and sales associate
feedback and sales trends. Buyers and store associates
work together to optimize the use of Peebles' smaller
selling space to meet customer demand and maximize sales.
ADAPT TO LOCAL REAL ESTATE OPPORTUNITIES. Smaller stores
and a flexible store format give the Company the ability
to locate in a variety of new or existing sites. As a
result, Peebles' growth is not dependent upon the
development of new malls. Peebles attempts to position
its stores in the primary shopping destination in its
markets, which are typically strip shopping centers co-
anchored by leading discount, grocery and drug retailers.
The Company also operates successfully in enclosed malls
and downtown locations.
<PAGE>
EXPANSION STRATEGY
The Company has expanded by opening new stores, acquiring
and converting stores and groups of stores, and remodeling or
relocating existing stores. The Company anticipates expanding
its operations through the following:
OPENING NEW STORES. The Company presently intends to
open nine new stores in 1997 and eleven new stores in
1998. As of April 1, 1997 the Company has signed six
leases for stores scheduled to open in 1997, representing
approximately 158,000 in total square footage. The
Company's new stores will be located in existing and
contiguous markets where it can realize distribution
efficiencies and where the Peebles concept and
merchandise mix will correspond to local demographics.
The Company explores a wider range of real estate options
than retailers which rely only on new shopping center
development, and actively considers space vacated by
other retailers.
REMODELING AND RELOCATING STORES. In addition to new
store growth, the Company has an ongoing remodeling
program, both upgrading existing stores and reallocating
selling space to provide its customers a pleasant,
fashion-oriented shopping environment for the merchandise
mix for that market. The Company expects to relocate
three stores in 1997 to the desired shopping destination
in that market.
ACQUISITIONS. The Company is continually evaluating
acquisitions of both individual stores and groups of
stores. In 1996, the Company acquired ten stores in
Ohio, Pennsylvania, Tennessee and Alabama.
PEEBLES STORES
Peebles stores are designed and managed to create an
appealing shopping experience, foster customer convenience and
maximize operating efficiency. The Company's stores range in
size from 10,000 to 65,000 square feet and average 30,000
square feet, which is significantly smaller than the
traditional full-line department store. The Company does not
have a standard store format and instead adapts its stores to
existing real estate opportunities. The Company's stores
feature a bright, modern and accessible layout with an
emphasis on the visual presentation of merchandise. The store
layout is designed to draw the customer through the store,
creating opportunities for cross-selling.
The Company targets communities with between 10,000 and
25,000 households, although the Company operates profitably in
markets with as few as 5,000 households. In addition, the
Company enters larger markets and suburban areas with 25,000
to 40,000 households where the customer base and competitive
factors exhibit characteristics similar to markets where the
Company's operating strategy has proven successful. The
Company prefers to locate its stores in strip shopping centers
and enclosed malls where other anchors such as a leading
grocery, discount and drug retailers will create a destination
shopping location. Of the 77 stores currently in operation,
53 are located in strip shopping centers, 19 in enclosed malls
and 5 in downtown locations.
MERCHANDISING
The Company's merchandise, approximately 80% of which is
apparel, is targeted to middle income customers shopping for
their families and homes. The Company has fewer departments
than a traditional full-line department store, but strives to
carry a wide assortment of merchandise within its targeted
categories in order to appeal to a broad range of customers.
To position itself as the primary fashion retailer in the
community with merchandise not found elsewhere in the market,
the Company emphasizes moderately-priced national brands,
supplemented by a limited selection of prestige brand names
and a selection of quality private label merchandise. Peebles
merchandise is fashion responsive rather than fashion
forward, limiting the Company's inventory exposure. The
Company's stores carry apparel for the entire family,
accessories, shoes, cosmetics, and decorative home
accessories.
Management believes that brand name merchandise is a
significant attraction to its customers and intends to
continue emphasizing such merchandise in its stores. For
example, the Company carries nationally branded cosmetics in
as many of its stores as possible because Peebles is typically
the only retailer in the community where consumers can
purchase that merchandise. While the gross margins on
cosmetics are typically lower than the Company's average gross
margin, the availability of this merchandise generates store
traffic which facilitates the sale of higher margin
merchandise.
In 1996, a majority of the merchandise sold by the
Company was nationally branded merchandise. Key brands
featured by the Company include:
Ladies Liz Claiborne, Levi,
Etienne Aigner, Alfred Dunner, Oak Hill,
Koret, Monet, Hanes, Goodman Knitting,
Playtex, Forecaster, Norton McNaughten,
Shadowline, Pendleton, Michael
Stevens, Halmode Apparel, Michael Blake
Men's Levi, Haggar, Bugle Boy,
Arrow, Van Heusen, Nike, Swank
Young Men's and Juniors Levi,Bugle Boy, Currents Jeri-Jo, Byer of
California, Calvin Klein, Union Bay,
Lee, Polo, Bongo, Zeppelin, Fritzi of
California
Children's Buster Brown, Levi, Bugle
Boy, HealthTex, Oshkosh B'Gosh, William
Carter
Shoes Reebok, Nike, Brown Shoe,
Keds, Fila, Nunn Bush, Nine West
Home Springs, Pacific Home,
Fieldcrest, World Bazaars, Mikasa,
Cosmetics Estee Lauder, Elizabeth
Arden, Fashion Fair, Calvin Klein, Liz
Claiborne, Giorgio Beverly Hills,
Jessica McClintock, Aramis
As a complement to its national brand merchandise, the
Company offers private label merchandise in selected
departments to give its customers a wider range of products.
Management believes that its private label merchandise
provides value to the Peebles customer by offering a quality
merchandise alternative at prices lower than national brands.
In addition, private label merchandise often has higher gross
margins than brand name merchandise and allows the Company to
avoid direct price competition.
In order to efficiently utilize its smaller selling
space, Peebles tailors the merchandise selection at individual
stores. The Company utilizes its knowledge of its markets and
customers developed over 105 years along with input from the
store managers and sales associates to allocate merchandise to
the stores. The Company also maintains an inventory tracking
system which provides daily information as to sales and
inventory levels by store, department, vendor, class, style,
size and color. Based on this information, the Company
analyzes market trends, identifies fast or slow moving
merchandise and makes reordering and pricing decisions on a
daily basis.
Peebles emphasizes value pricing and is less promotional
than the traditional department store. It is the Company's
pricing strategy to use lower initial mark-ons and promote
less, thereby maintaining a high level of credibility with its
customers. Peebles' commitment to providing value to its
customers is integral to creating repeat customers, a critical
ingredient for success in smaller markets. Peebles is
committed to offering "Great Prices, Everyday". With this
program, Peebles prices merchandise as low as possible in
order to enhance sales. Products in this program are marketed
through special point of sale displays and are featured in the
Company's advertising.
ADVERTISING AND PROMOTION
The Company's advertising and promotion strategy is
designed to support its marketing goals of providing quality
merchandise at value-oriented prices and reinforces the
Company's image as the leading fashion retailer in its
markets. Peebles utilizes a direct mail program, which in
part employs information obtained from its charge card program
to target mailings to its charge card holders. The Company
emphasizes newspaper advertising and mailers rather than
television and radio, due to the size and nature of the
markets served. Peebles uses both black and white
advertisements and full color mailers to highlight promotional
items and events as well as products in its "Great Fashion,
Great Pricing" program.
In addition, the Company's advertising and promotional
staff organizes special events at the stores and arranges for
all Grand Opening and Grand Reopening events. In 1996, the
Company continued as an associate sponsor of a racing team in
the NASCAR Busch Grand National stock car racing series, which
the Company believes will increase its exposure in both
existing and potential markets.
The Company's net advertising expenses in 1994, 1995 and
1996 were 2.5% and 2.6% and 2.5% of net sales, respectively,
which the Company believes is lower than traditional
department stores due to emphasis on an everyday fair price
policy and a less promotional strategy.
PURCHASING AND DISTRIBUTION
The Company employs 25 buyers and six merchandise
managers who are responsible for most merchandising decisions
including purchasing, pricing, sales promotions, inventory
allocations and markdowns. While these decisions are made
centrally, the Company endeavors to refine its merchandise
assortment to appeal to the customers in each market.
Peebles' buying staff has developed specific knowledge with
regard to purchasing, inventory and promotions for the
Company's smaller sized stores. The merchandising group
participates in an incentive plan based on sales, gross margin
dollars generated and inventory turnover.
The Company places special emphasis on maintaining all
merchandise in stock, particularly advertised and basic
merchandise, to build and maintain credibility with its
customers. By monitoring unit sale information by store,
buyers are able to quickly determine the styles, colors and
sizes of merchandise to be reordered and distributed to
individual stores.
The Company purchases its merchandise from approximately
1,200 suppliers and is not dependent on any single source of
supply. The Company is a member of Frederick Atkins, Inc., an
international cooperative buying service. This cooperative
offers members merchandise purchasing opportunities, which the
Company has taken advantage of particularly in connection with
its imported private label merchandise. During 1994, 1995 and
1996, Frederick Atkins, Inc. was the Company's largest
supplier, accounting for retail purchases totaling
approximately 17.7%, 17.3% and 14.7%, respectively. The
Company believes it has a good relationship with Frederick
Atkins, Inc. and is not aware of a situation in which
Frederick Atkins, Inc. 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.
Virtually all merchandise is shipped directly from
vendors to the Company's distribution center where it is
inspected, sorted, marked, ticketed, packed and held in bins
for each individual store. The Company does not warehouse
merchandise and has a goal of processing goods through the
distribution center in three days. Merchandise is shipped to
each store an average of twice a week on Company-owned trucks.
The Company's distribution center is located on 31 acres
in South Hill, Virginia, adjacent to the Company's
headquarters and close to major interstates. In 1992, the
Company renovated and expanded the distribution center from
85,000 square feet to 117,000 square feet and further
automated its distribution process, including an extensive
network of conveyors and recycling equipment. In 1996, the
Company added an additional 30,000 square feet to the
distribution center. This expansion allows for the
distribution center to service approximately 110 stores. The
distribution center currently operates one eight hour shift
daily.
STORE OPERATIONS
The Company has structured its store operations to
maintain what management believes are key operating advantages
including a thorough knowledge of its customer base, the
ability to share information between the stores, and cost
efficient operations through centralized decision making.
Peebles performs as many functions as possible at the
corporate level so that store level management and sales
associates can spend most of their time with customers. Non-
sales store personnel are kept to a minimum due to control
functions performed at the corporate offices, including sales
associate scheduling, customer credit and marking merchandise.
All stores utilize a minimum 85% of their total payroll hours
in a selling capacity.
Peebles encourages the participation of all store level
management and sales associates in decision making, and
management regularly solicits input and suggestions from its
employees who are closest to the customer. In addition to its
management information systems, Peebles stays in close contact
with store operations through its seven regional managers.
Each store manager reports to a regional manager, who also
manages a store. Regional managers visit their stores at
least once a month to review merchandise presentation,
personnel training and performance, enforcement of the
Company's security procedures and adherence to Company
operating procedures. The regional managers meet quarterly to
share information.
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 30 sales associates, a number of whom are
part-time. All Peebles' store personnel, including assistant
store managers and sales associates, participate in incentive
plans. The Company uses periodic productivity reports and
personal reviews to apprise each employee of his or her
performance.
PEEBLES CHARGE CHARD
In 1994, 1995 and 1996, 40.4%, 38.8% and 37.2%,
respectively, of net sales were made using the Company's
proprietary credit card. As of February 1, 1997, the Company
had approximately 632,662 credit card accounts, of which
184,009 were billed accounts.
Peebles' charge card sales represent an important element
in its marketing strategy because the Company believes that
Peebles charge card holders generally constitute its most
loyal and active customers. Information regarding purchases
by the Company's credit card customers is recorded at the
stores' point-of-sale terminals and transmitted directly to
the Company's data processing center. This information is
used to bill accounts as well as to provide marketing
information regarding purchasing habits and merchandise
preferences. The Company uses this data to develop segmented
advertising and promotional programs to reach specific groups
of customers who have established purchasing patterns for
certain brands, departments and store locations.
Peebles administers all aspects of its credit card
program. Decisions with respect to the opening of new
accounts, extensions of "instant credit," adjustments to bills
and responses to customer inquiries are made by Company-
trained associates located at Peebles' headquarters.
Management believes this in-house credit program provides the
Company with an important customer relations advantage over
competing retailers which administer their credit programs
from remote processing locations or contract for such services
from unrelated third parties.
The Company's credit plans provide for the option of
paying in full within 28 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. Peebles bears the risk of the collecting its
credit card receivables. Peebles' credit card program has
had a positive impact on net income.
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
Net Bad Debt Expenses For Doubtful Accounts
---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Charge % of Period-End Total % of Total
Years Sales Amount Sales Customer Receivables Amount Receivables
----- ------- ------ ----- ---------------- ------ ----------
1994.... $67,651 $ 640 1.0 $29,742 $ 930 3.1
1995.... 68,216 766 1.1 29,494 960 3.3
1996.... 72,086 1,192 1.7 33,286 1,224 3.7
</TABLE>
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems provide the
daily financial and merchandising information to make timely
and effective pricing decisions and for inventory control.
The Company is able to allocate its inventory effectively as a
result of its management information systems and can tailor
the merchandise mix to meet the individual customer demands at
each store.
The Company maintains central management information and
data processing systems at its corporate headquarters. Each
of its stores is equipped with compatible point-of-sale
registers, which are polled every evening by the central
system to gather sales, accounts receivable and inventory
information.
The Company's management information and data processing
systems primarily use internally developed software. The
Company believes this allows management to more closely
control the quality, suitability and expense of management
information systems and data processing. The Company
continues to make selected improvements in computer hardware
technology as well as enhancements to software applications as
needed.
EMPLOYEES
At February 1, 1997, the Company had 1,165 full-time
employees and 1,520 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.
COMPETITION
The retail industry is highly competitive, with
selection, price, quality, service, location and store
environment being the principal competitive factors. The
Company competes with national and local retail stores,
specialty apparel chains, department stores, discount stores
and mail order merchandisers, many of which have substantially
greater financial and marketing resources than the Company.
Demographic changes may alter the character of the Company's
markets, which can result in increased competition from other
retailers.
TRADEMARKS
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, Harmony
Grove 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.
<PAGE>
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 10,000 square feet to 65,000 square feet, and
average 30,000 square feet. The following table indicates the
location of the Company's stores in operation as of April 1,
1997:
ALABAMA
Alexander City
Albertville
Talladega
DELAAWARE
Rehoboth Beach
Seaford
KENTUCKY
Hopkinsville
Madisonville
MARYLAND
Bowie
Chestertown
Easton
Eldersburg
Elkton
Lexington Park
Prince Frederick
Salisbury
Waldorf
NEW JERSEY
Rio Grande
NEW YORK
Geneva
Auburn
Rochester
NORTH CAROLINA
Aberdeen
Charlotte
Eden
Edenton
Jacksonville
Monroe
Marion
Roxboro
Statesville
OHIO
Alliance
Chardon
Madison
Medina
PENNSYLVANIA
Erie
Gettysburg
Meadeville
SOUTH CAROLINA
Conway
Florence
Georgetown
Myrtle Beach
TENNESSEE
Columbia
Cookeville
Dyersburg
Hermitage
Humbolt
Lawrenceburg
Murfreesboro
Winchester
VIRGINIA
Ashland
Appomattox
Blackstone
Christiansburg
Colonial Heights
Covington
Emporia
Front Royal
Hayes
Hampton
Hopewell
Lawrenceville
Leesburg
Lexington
Luray
Manassas
Norfolk
Onley
Richmond
Rocky Mount
Smithfield
South Hill
Stafford
Warrenton
Waynesboro
Williamsburg
Woodbridge
Woodstock
Wytheville
The Company owns the real estate upon which its Lawrenceville,
Virginia store is located.
Store leases provide for a base rent of between $1.00 and
$6.00 per square foot per year. Most leases also have formulas
requiring the payment of additional rent based on a percentage of
net sales above specified levels. In 1994, 1995 and 1996, the
Company's aggregate rental payments on operating leases were
approximately $6.4 million, $7.2 million and $8.2 million,
respectively.
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 Company's credit agreement. The
Company believes 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. Based on consultations with legal counsel, 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
All of the Company's common stock is owned by PHC Retail
Holding Company. See Item 12. "Security Ownership of Certain
Beneficial Owners and Management." 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.
DIVIDENDS
The Company does not currently pay any dividends on its Common
Stock. The Company's credit agreement prohibits the payment of
dividends absent the consent of the lender. Accordingly, the
Company does not currently intend to declare any dividends to the
holders of the Common Stock in the foreseeable future.
(This space intentionally left blank)
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical financial data for Peebles for the five fiscal
years ended February 1, 1997 are derived from the Company's audited financial
statements. Effective May 20, 1996, Peebles Inc. acquired Carlisle Retailers,
Inc. ("CRI Merger"). With the consummation of the CRI Merger, Carlisle
Retailers, Inc. became a wholly owned subsidiary of Peebles Inc. As such, the
financial data for 1996 reflects the incremental sales and expenses related to
this acquisition. Effective May 27, 1995, PHC Retail Holding Company ("PHC
Retail") acquired the entire equity interest of Peebles Inc. (the "1995
Acquisition"). The 1995 Acquisition was accounted for as a purchase; and
accordingly, a new basis of accounting was begun. As a result, the financial
data for the eight-month period subsequent to the 1995 Acquisition is not
comparable to the financial data for the prior periods. The Company was
recapitalized effective January 31, 1992. The data should be read in
conjunction with the financial statements, related notes and other financial
information included herein.
<TABLE>
<CAPTION>
(Dollars in thousands except per share and selected other data)
Fiscal Years Ended
January 30, January 29, January 28,
1993 1994 1995
--------------- ----------------- -------------
--- -----
<S> <C> <C> <C>
Income Statement Data:
Net sales $140,943 $151,772 $167,662
Cost of sales 84,033 91,134 98,066
-------- -------- --------
Gross margin 56,910 60,638 69,596
Selling, general and
administrative expenses 37,717 40,320 45,205
Depreciation and
amortization 5,557 6,029 6,729
Stock option settlement --- --- ---
Asset revaluation --- --- ---
-------- ------- --------
Operating income (loss) 13,636 14,289 17,662
Other income (expenses) (145) (1) 131
Interest expense 4,981 4,248 4,569
-------- ------- --------
Income (loss) before
Income taxes (benefit)
and Extraordinary item 8,510 10,040 13,224
Income taxes (benefit) 3,952 4,513 5,747
-------- ------- --------
Income (loss) before
Extraordinary item 4,558 5,527 7,477
Extraordinary item - - -
-------- ------- --------
Net income (loss) $ 4,558 $ 5,527 $ 7,477
Net income (loss) per share $ 1.56 $ 1.88 $ 2.54
Average common stock and
Common stock equivalents
outstanding 2,918,352 2,932,905 2,940,281
Selected Other Data:
Net sales per store
(000's) (1) $ 2,744 $ 2,962 $ 3,189
Selling sq. ft. per
store (1) 25,000 26,000 26,000
Net sales per selling
sq. ft. (2) $111 $116 $117
Comparable store net
sales increase (decrease) (1) (2.0%) 4.3% 4.6%
Number of stores
(end of period) 49 54 58
Total selling sq. ft.
(end of period) 1,276,000 1,385,000 1,510,000
Capital expenditures(000's) $6,137 $7,372 $8,454
Balance Sheet Data: January 30, January 29, January 28,
1993 1994 1995
----------- ------------- ---------------
Working capital $ 41,226 $ 44,348 $ 49,872
Net property and equipment 20,823 24,903 28,951
Total assets 137,543 143,727 148,954
Total debt (3) 44,662 46,207 41,955
Stockholders' equity (4) 68,537 74,530 82,234
</TABLE>
<TABLE>
<CAPTION>
Four Month Period Eight Month Period Fiscal Year Ended
Ended Ended
May 27, 1995 February 3, 1996 February 1, 1997
(Post 1995
Acquisition)
-------------------- --------------------- ---------------------
<S> <C> <C> <C>
Income Statement Data:
Net sales $49,163 $126,501 $194,206
Cost of sales 29,935 72,994 116,236
-------- -------- --------
Gross margin 19,228 53,507 77,970
Selling, general and
administrative expenses 14,639 33,275 54,667
Depreciation and amortization 2,349 4,339 7,574
Stock option settlement 3,089 --- ---
Asset revaluation --- --- 20,782
-------- -------- --------
Operating income (loss) (849) 15,893 (5,053)
Other income (expenses) 77 (52) 687
Interest expense 1,414 6,565 8,806
-------- -------- --------
Income (loss) before
income taxes (benefit) and
Extraordinary item (2,186) 9,276 (13,172)
Income taxes (benefit) (874) 4,246 1,743
-------- -------- --------
Income (loss) before
extraordinary item (1,312) 5,030 (14,915)
Extraordinary item (216) --- ---
-------- -------- --------
Net income (loss) $(1,528) $5,030 $(14,915)
Net income (loss) per share $ (.52) $5,030 $(14,915)
Average common stock and
common stock equivalents
outstanding 2,942,600 1,000 1,000
Twelve Month Data
Selected Other Data: ----------------------
Net sales per store (000's) (1) $ 3,032 $ 2,921
Selling sq. ft. per store (1) 26,300 26,000
Net sales per selling sq. $112 $108
Comparable store net sales
increase (decrease) (1) (1.0%)(5) (1.3%)(6)
Number of stores
(end of period) 65 77
Total selling sq. ft.
(end of period) 1,649,000 1,893,000
Capital expenditures (000's) $8,094 $8,783
Balance Sheet Data: January 28, 1995 February 3, 1996 February 1, 1997
------------------ ------------------ ------------------
(Post 1995
Acquisition)
Working capital $ 49,872 $ 48,395 $ 58,213
Net property and equipment 28,951 33,308 33,460
Total assets 148,954 165,553 163,568
Total debt (3) 41,955 76,778 90,962
Stockholders' equity (4) 82,234 64,338 49,423
Selected Financial Data Footnote Legend
1) Only reflects data for comparable stores. Comparable stores for the
current year are those stores which were open for the entire period in the
immediately preceding year.
2) Net sales per selling square feet per store is based on stores open one
full year.
3) Includes the long-term portion of the capital lease obligations and the
current portion of long-term debt.
4) Retained earnings, included in stockholders' equity has been adjusted to
zero on February 1, 1992 and May 27, 1995. On February 1, 1992, an accumulated
deficit of $10,477 was eliminated in a quasi-reorganization resulting from the
recapitalization of the Company. On May 27, 1995, accumulated earnings of
$16,022 were eliminated in purchase accounting.
5) Comparable store net sales decreased 1% comparing the 53-week period ended
February 3, 1996 versus the 52-week period ended January 28, 1995. Comparing
the 53-week period ended February 3, 1996 to the corresponding 53-week period
ended February 4, 1995, comparable store net sales decreased 2%.
6) Comparable store net sales decreased 1.3% comparing the 52-week period
ended February 1, 1997 versus the 53-week period ended February 3, 1996.
Comparable store net sales remained the same comparing the 52-week period ended
February 1, 1997 versus the 52 week period ended February 3, 1996.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The discussion and analysis included under the caption
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" appears on Page F-21 of this annual report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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.
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 Company's executive officers and directors, their ages,
positions and years with the Company are as follows:
<TABLE>
<CAPTION>
Years
Name Age Position with the Company
------ --- --------- ----------------
<S> <C> <C> <C>
Michael F. Moorman 54 Chairman of the Board, 33
President and Chief Executive
Officer
Ronnie W. Palmore 48 Senior Vice President, 24
Merchandising and Assistant
Secretary
Russell A. Lundy, Sr. 61 Senior Vice President, Stores 43
E. Randolph Lail 41 Senior Vice President, 9
Finance, Chief Financial
Officer, Secretary and
Treasurer
Marvin H. Thomas, Jr. 41 Senior Vice President, 18
Operations
William C. DeRusha 47 Director 5
Malcolm S. McDonald 58 Director 5
Wellford L. Sanders, Jr. 51 Director 4
Thomas R. Wall, IV 38 Director 2
Frank T. Nickell 49 Director 2
Michael F. Moorman has been Chairman of the Board, Chief
Executive Officer, President and a Director of PHC Retail
since June 9, 1995 . Mr. Moorman has also been Chairman of
the Board and a since September 1989, Chief Executive Officer
of the Company since May 1989 and President of the Company
since June 1988. Prior thereto, Mr. Moorman served as Chief
Financial Officer and Treasurer of the Company from August
1989 to June 1992 and Secretary of the Company from August
1989 to June 1990. Mr. Moorman has been employed by the
Company in various positions since 1964. Mr. Moorman has been
a Director of the Company since 1977.
Ronnie W. Palmore has been Senior Vice President,
Merchandising of PHC Retail since June 9, 1995 and of the
Company since September 1989 and Assistant Secretary of the
Company since 1988. Mr. Palmore served as Senior Vice
President, Stores of the Company from June 1988 to August 1989
and has been employed by the Company in various positions
since 1973.
Russell A. Lundy, Sr. has been Senior Vice President,
Stores of PHC Retail since June 9, 1995 and of the Company
since September 1989. Mr. Lundy served as Vice President,
Stores of the Company from 1984 to August 1989 and has been
employed by the Company in various positions since 1954.
E. Randolph Lail has been Senior Vice President, Finance,
Chief Financial Officer, Secretary and Treasurer of PHC Retail
since June 9, 1995. Mr. Lail has also been Senior Vice
President, Finance of the Company since June 1993, Chief
Financial Officer and Treasurer of the Company since June 1992
and Secretary of the Company since June 1990. Mr. Lail
served as Vice President, Finance of the Company from June
1990 to June 1993 and as Controller of the Company from
January 1988 to June 1990. Mr. Lail is a Certified Public
Accountant and has been employed by the Company since January
1988.
Marvin H. Thomas, Jr. has been Senior Vice President,
Operations of PHC Retail since June 9, 1995 and of the Company
since June 1993. Mr. Thomas served as Vice President,
Operations of the Company from June 1990 to June 1993 and Vice
President, Merchandise Manager of the Company from May 1988 to
June 1990. Mr. Thomas has been employed by the Company in
various positions since 1979.
William C. DeRusha has been a Director of PHC Retail
since June 9, 1995 and of the Company since March 1992. Mr.
DeRusha is Chairman of the Board and Chief Executive Officer
of Heilig-Meyers Company. Mr. DeRusha is a director of Heilig-
Meyers Company and Signet Banking Corporation.
Malcolm S. McDonald has been a Director of PHC Retail
since June 9, 1995 and of the Company since April 1992. Mr.
McDonald is Chairman of the Board and Chief Executive Officer
of Signet Banking Corporation. From May 25, 1996 to December
17, 1996, Mr. McDonald was President and Chief Executive
Officer of Signet Banking Corporation. Prior to May 25, 1996
he was President and Chief Operating Officer of Signet Banking
Corporation. Mr. McDonald is a director of Signet Banking
Corporation and American Trading and Production Corporation.
Wellford L. Sanders, Jr. has been a Director of PHC
Retail since June 9, 1995 and of the Company since February
1992. Mr. Sanders is a partner in the law firm of McGuire,
Woods, Battle & Boothe, L.L.P. Mr. Sanders is a director of
Catherines Stores Corporation.
Thomas R. Wall, IV has been a Director of PHC Retail and
the Company since June 9, 1995. Mr. Wall has been Managing
Director of Kelso since 1990 and prior thereto General Partner
of Kelso since 1989. Mr. Wall is also a director of AMF
Holdings Inc., CCA Holdings Corp., CCT Holdings Corp., IXL
Holdings, Inc., Mitchell Supreme Fuel Company, Mosler Inc.,
TransDigm, Inc. and Tyler Refrigeration Corporation.
Frank T. Nickell has been a Director of PHC Retail and
the Company since June 9, 1995. Mr. Nickell has been
President and a director of Kelso since March 1989. He is also
a director of CCA Holdings Corp., CCT Holdings Corp., The Bear
and Stearns Companies Inc., Earle M. Jorgensen Company and
Tyler Refrigeration Corporation.
On December 23, 1992, Kelso and its chief executive
officer, without admitting or denying the findings contained
therein, consented to an administrative order in respect of a
Commission inquiry relating to the 1990 acquisition of a
portfolio company by a Kelso affiliate. The order found that
Kelso's tender offer filing in connection with the acquisition
did not comply fully with the Commission's tender offer
reporting requirements, and required Kelso and its chief
executive officer to comply with these requirements in the
future.
Executive officers of Peebles are elected annually and
serve at the discretion of the Board of Directors.
DIRECTORS COMPENSATION
Mr. DeRusha, Mr. McDonald and Mr. Sanders are paid an
annual retainer of $20,000, payable quarterly in arrears, and
are reimbursed for expenses incurred in attending meetings of
the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of the
directors and officers of Peebles pursuant to which Peebles
agrees to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or
amounts paid in settlement incurred by such director or
officer and arising out of his capacity as a director,
officer, employee and/or agent of the corporation of which he
is a director or officer to the maximum extent provided by
applicable law. In addition, such director or officer shall
be entitled to an advance of expenses to the maximum extent
authorized or permitted by law to meet the obligations
indemnified against. Such agreements also obligate the
Company to purchase and maintain insurance for the benefit and
on behalf of its directors and officers insuring against all
liabilities that may be incurred by such director or officer,
in or arising out of his capacity as a director, officer,
employee and/or agent of the Company.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth a summary of compensation paid by the
Company to its five highest paid executive officers (the "Named
Executives") during 1994, 1995 and 1996.
</TABLE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------- ---------------------------
Awards Payout
----------- ---------
Other Annual Number of Long-term
Name and Salary Bonus Compensation Options/Warrants Incentive
Principal Position Year ($)(1) ($)(2) ($)(4)(5) Granted (3) Plan Payouts
------------------- ---- ------ ------- ----------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Moorman
Chairman of the Board 1996 $268,011 $ -- $ - -- --
President and Chief 1995 261,050 17,800 1,133,400 -- --
Executive Officer 1994 248,246 189,235 -- 75,000 --
Ronnie W. Palmore
Senior Vice President, 1996 150,838 8,050 -- -- --
Merchandising and 1995 144,087 15,872 329,062 -- --
Assistant Secretary 1994 136,767 68,211 -- 20,250 --
Russell A. Lundy, Sr. 1996 121,013 11,758 -- -- --
Senior Vice President, 1995 115,538 8,297 224,062 -- --
Stores 1994 109,996 49,534 -- 14,250 --
E. Randolph Lail
Senior Vice President 1996 122,254 9,375 1,268 -- --
Finance, CFO 1995 108,721 6,653 180,681 -- --
Secretary and Treasurer 1994 88,544 43,961 1,998 14,250 --
Marvin H. Thomas, Jr. 1996 95,425 6,382 1,030 -- --
Senior Vice President 1995 90,806 10,412 159,370 -- --
Operations 1994 81,894 28,958 1,900 10,856 --
_______________________________________
</TABLE>
(1) Salary amounts for 1994, 1995 and 1996 include tax-deferred contributions
of compensation to the Company's 401(K) Profit Sharing Plan (the "401-K
Plan"), adopted in October 1993. Salary compensation contributed to the
401-K Plan during 1994, 1995 and 1996 for each of the Named Executives is
Mr. Moorman $2,185 , $2,333 and $5,520; Mr. Palmore $2,129, $1,366 and
$3,098 ; Mr. Lundy $1,958, $458 and $0 ; Mr. Lail $1,621, $2,168 and $2,420
, and Mr. Thomas $1,425, $1,798 and $1,879.
(2) Bonus amounts for each of the Named Executives include the accrued bonus
paid under the Company's annual incentive plans in 1994, 1995 and 1996.
The 1994, 1995 and 1996 bonus amounts include tax-deferred contributions of
compensation to the 401-K Plan for each of the Named Executives as Mr.
Moorman, $6,809, $3,897 and $356 , Mr. Palmore, $2,639, $1,364 and $317,
Mr. Lundy, $1,806 $1,075 and $0 , Mr. Lail $1,033, $879 and $133, and Mr.
Thomas $971, $519 and $208.
(3) In 1994, the stock options were granted to certain members of senior
management under the 1993 Plan.
(4) The amounts shown in 1994 reflect the current value of the benefit to Mr.
Lail and Mr. Thomas, respectively of the portion of the premium paid by the
Company with respect to a split dollar insurance arrangements (see
"Employment Agreements"). In 1995 and 1996, amounts of $1,618 and $1,268
are included for Mr. Lail and $1,520 and $1,030 are included and Mr.
Thomas, respectively. The benefit was determined for each year by
calculating the time value of money (including the applicable long term
federal funds rate) of the premium paid by the Company in 1994 and 1995
($11,210 for Mr. Lail and $9,650 for Mr. Thomas per year) and in 1996
($18,729 for Mr. Lail and $15,221 for Mr. Thomas) for the appropriate
period.
(5) In connection with the 1995 Acquisition, the stock options outstanding
under the 1995 Stock Option Plan vested. The 1995 Acquisition mandated
that all options be settled for cash only, either for i) the difference
between the $30 per share price paid by PHC Retail for the common stock of
Peebles Inc. and the $23.75 exercise price, or ii) as specified by certain
change of control agreements. The amounts included in 1995 are $1,133,400,
$329,062, $224,062, $179,063 and $157,850 for Mr. Moorman, Mr. Palmore, Mr.
Lundy, Mr. Lail and Mr. Thomas, respectively. These amounts include tax-
deferred contributions of compensation to the 401-K Plan of $3,136, $6,581,
$3,581 and $3,157 for Mr. Moorman, Mr. Palmore, Mr. Lail and Mr. Thomas,
respectively.
OPTION GRANT TABLE. There were no options granted by the Company to
the Named Executives during 1996.
OPTION EXERCISE TABLE. The following table sets forth information
concerning the exercise of stock options during 1996 by each of the Named
Executives and the year end value of unexercised options.
<TABLE>
<CAPTION>
Options Exercised in 1996
Individual Grants
--------------------------
Number of Unexercised
Shares Value Options at Year end Value of Unexcercised In-the-
acquired on Realized Exercisable/ Money Options at Year end
Name and Principal Position on Exercise(1) ($) Unexercisable (2) Exercisable/Unexercisable ($)
--------------------------- ------------- ------- -------------------- -----------------------------
<S> <C> <C> <C> <C>
Michael F. Moorman 0 $0 0 $0
Chairman of the Board,President
and Chief Executive Officer
Ronnie W. Palmore 0 0 0 0
Senior Vice President,Merchandising,
Assistant Secretary
Russell A. Lundy, Sr. 0 0 0 0
Senior Vice President,Stores
E. Randolph Lail 0 0 0 0
Senior Vice President,Finance
Chief Financial Officer,
Secretary and Treasurer
Marvin H. Thomas, Jr. 0 0 0 0
Senior Vice President,Operations
</TABLE>
_______________________________________
(1) There were no stock options exercised by the Named Executives in 1996.
(2) There were no unexercised options at year end.
As of the fiscal year ended February 1, 1997 there were no projected
long-term incentive payouts.
PENSION PLAN
Peebles maintains a 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 (a "Participant"). The Company
contributes to the plan equal to the contribution, determined
on an actuarial basis, to satisfy minimum funding standards
under ERISA.
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
are limited to $160,000 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 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 $160,000.
Final Years of Service
Average ------------------------
Salary 15 20 25 30 35
--------- ---- ---- ----- ----- ------
$ 75,000 $11,993 $15,990 $19,988 $23,985 $ 23,985
100,000 16,868 22,490 28,113 33,735 33,735
125,000 21,743 28,990 36,238 43,485 43,485
150,000 26,618 35,490 44,363 53,235 53,235
175,000 31,493 41,990 52,488 62,985 62,985
200,000 36,368 48,490 60,613 72,735 72,735
225,000 41,243 54,990 68,738 82,485 82,485
250,000 46,118 61,490 76,863 92,235 92,235
300,000 55,868 74,490 93,113 111,735 111,735
350,000 65,618 87,490 109,363 131,235 131,235
400,000 75,368 100,490 125,613 150,735 150,735
450,000 85,118 113,490 141,863 170,235 170,235
As of February 1, 1997, the credited years of service for
Mr. Moorman, Mr. Palmore, Mr. Lundy, Sr., Mr. Thomas, Jr. and
Mr. Lail were 33, 24, 43, 18 and 9, 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.
In addition, Peebles also maintains a supplemental
executive retirement plan (the "SERP") for certain designated
executives. As of February 1, 1997, Mr. Moorman, and Mr.
Palmore, were participants in this plan. Retirement benefits
payable under the SERP are based on 60% of the participant's
earnings (without regard to the current earnings limit of
$160,000) during the five consecutive calendar years which
produce the highest average, reduced by the sum of the
participant's qualified defined benefit pension benefit
(computed with regard to the applicable earnings limit) and
the participant's social security benefits.
Benefits under the SERP are fully vested upon the earlier
of (1) the completion of five years of service with the
Company beginning with the date of participation in the SERP,
(2) the participant's permanent disability, or (3) the date on
which a change of control occurs.
Retirement benefits are payable to vested participant's
at normal retirement (age 65), early retirement (age 55 with
20 years of service), upon permanent and total disability, or
upon a vested participant's termination of employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of the Board of
Directors. For 1996, 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 year. Mr. Moorman is not a
member of the Compensation Committee
CERTAIN RELATIONSHIPS
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, L.L.P., which rendered legal
services to the Company during 1996.
Frank T. Nickell and Thomas R. Wall, IV, members of the
Board of Directors of the Company, are affiliated with Kelso,
which rendered management services to the Company during 1996.
EMPLOYMENT AGREEMENTS
During 1995, Peebles entered into employment agreements
(the "Employment Agreements") with twenty three officers of
Peebles including Mr. Lundy and Mr. Thomas. The Employment
Agreements, which expire during 1997 provide that if the
officer is terminated for any reason, other than for good
cause, he will be entitled to receive his salary at the rate
in effect immediately before such termination for the balance
of the term of the Employment Agreement. For purposes of the
Employment Agreements, good cause is defined as (a) the
commission of a serious crime, or (b) the officer, in
carrying out his duties under the Employment Agreements, is
guilty of (i) willful gross neglect, or (ii) willful gross
misconduct resulting in either case in material harm to the
Company or any of its subsidiaries.
In addition, Mr. Lail and Mr. Thomas participate in split
dollar insurance arrangements with the Company. The
executive owns, and therefore has a vested interest in the
cash surrender value of the policy in excess of the Company's
premium investment. At retirement, the executive can either
use the cash value for retirement income or keep the death
benefit or a combination of the two. The Company would
recover its cost at retirement. In the event of a change in
control, the executive would have a nonforfeitable right to
the Company's share of the cash surrender value of the
policy.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
All of the outstanding common stock of the Company is
owned by PHC Retail. The following table sets forth certain
information regarding the beneficial ownership of Common Stock
of PHC Retail, as of April 1, 1997, by (a) each person known
by the Company to be the beneficial owner of more than 5% of
the outstanding shares of Common Stock, (b) each of the
Company's directors and Named Executives who owns shares of
Common Stock and (c) all directors and Named Executives of the
Company as a group. Unless otherwise noted in the footnotes
to the table, the persons named in the table have sole voting
and investing power with respect to all shares of Common Stock
indicated as being beneficially owned by them.
CAPITAL STOCK OF PHC RETAIL
<TABLE>
<CAPTION>
Shares of Shares of
Voting Nonvoting
Common Percent Common Percent
Name of Beneficial Owner (1) Stock of Class Stock of Class
------------------------------- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Kelso Investment Associates V,L.P. (2),(3) 1,803,693 92.39 0 0
Kelso Equity Partners V,L.P. (2),(3) 52,973 2.71 0 0
Michael F. Moorman (6) 40,833 2.07 0 0
Ronnie W. Palmore (6) 11,301 * 0 0
Russell A. Lundy, Sr. (6) 7,792 * 0 0
E. Randolph Lail (6) 4,800 * 0 0
Marvin H. Thomas, Jr. (6) 4,100 * 0 0
William C. DeRusha 0 0 2,000 8.17
Malcolm S. McDonald 0 0 2,000 8.17
Wellford L. Sanders, Jr. 0 0 2,500 10.22
Joseph S. Schuchert (2),(3) 1,856,666 95.11 0 0
Frank T. Nickell (2),(3) 1,873,514(4) 95.97 0 0
George E. Matelich (2),(3) 1,856,666 95.11 0 0
Thomas R. Wall, IV (2),(3) 1,873,194 95.95 0 0
Michael B. Goldberg (2),(3) 1,856,666 95.11 0 0
All Directors and Named Executives
as a group (10 persons) (6) 1,942,340 98.70 6,500 26.56
</TABLE>
* Less than 1 Percent
____________________
(1) The information as to beneficial ownership is based on
statements furnished to the Company by the beneficial owners.
As used in this table, "beneficial ownership" means the sole or
shared power to vote, or direct the voting of a security, or
the sole or shared investment power with respect to a security
(i.e., the power to dispose of , or direct the disposition of).
A person is deemed as of any date to have "beneficial
ownership" of any security that such person has the right to
acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each
person named above, any security that such person has the right
to acquire within 60 days of the date of calculation is deemed
to be outstanding but is not deemed to be outstanding for
purposes of computing the percentage of any other person.
(2) The business address for such person(s) is C/O Kelso &
Company, 320 Park Avenue, 24th Floor, New York, New York
10022.
(3) Messrs. Schuchert, Nickell, Matelich, Wall and Goldberg may be
deemed to share beneficial ownership of shares of PHC Common Stock
owned of record by Kelso Investment Associates V, L.P. ("KIA V")
and Kelso Equity Partners V, L.P. ("KEP V"), by virtue of their
status as general partners of such partnerships. Messrs.
Schuchert, Nickell, Matelich, Wall and Goldburg share investment
and voting power with respect to securities owned by other Kelso
affiliates. Messrs. Schuchert, Nickell, Matelich, Wall and
Goldberg disclaim beneficial ownership of the shares of PHC Common
Stock owned of record by KIA V and KEP V and the securities owned
by other Kelso affiliates.
(4) Includes 1,848 shares of PHC Common Stock held by trusts of
which Mr. Nickell is trustee, as to which shares Mr. Nickell
disclaims beneficial ownership.
(5) Includes 15,334 shares of PHC Common Stock held by trusts of
which Mr. Wall is trustee, as to which shares Mr. Wall disclaims
beneficial ownership.
(6) Includes unexcercised vested stock options for the purchase of
PHC Common Stock in the amount of 5,833, 1,833, 1,292, 1,500, and
959 for Messrs. Moorman, Palmore, Lundy, Lail, and Thomas,
respectively.
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.
Schedule II Valuation and Qualifying
Accounts appears in Note I on page F-19 of this annual
report on Form 10-K.
All other schedules for which provision
is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable and
therefore have been omitted.
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.
2.1*** Form of Agreement and Plan of Merger dated April
3, 1995 among PHC Retail Holding Company, Peebles
Acquisition Corp. and Peebles Inc., exclusive of exhibits
and schedules. The Registrant hereby undertakes to
furnish to the Commission supplementally upon request a
copy of any omitted exhibit or schedule.
3.1+ Form of Amended and Restated Articles of
Incorporation of Peebles Inc.
3.2+ Form of Amended and Restated Bylaws of Peebles
Inc.
3.3*** Amendment to Amended and Restated Articles of
Incorporation dated May 3, 1993
3.4*+ Amendment to Amended and Restated Bylaws of
Peebles Inc.dated June 9, 1995.
3.5*+ Amendment to Amended and Restated
Articles of Incorporation dated June 9, 1995
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*+ Credit Agreement dated June 9, 1995, by
and among Peebles Inc. And NatWest Bank, N.A. as
Agent (the "Agent"), and the financial institutions
named therein. (the "Credit Agreement")
10.20*+ Form of A Term Note.
10.21*+ Form of B Term Note.
10.22*+ Form of Bridge Note.
10.23*+ Form of Revolving Note.
10.24*+ Form of Swingline Note.
10.3*+ Security Agreement made June 9, 1995 by
and between Peebles Inc. and the Agent.
10.4*+ Trademark Security Agreement made June 9,
1995 by and between Peebles Inc. and the Agent.
10.5*+ Guaranty Agreement made June 9, 1995 by
and between PHC Retail Holding Company and the
Agent.
10.6*+ Pledge Agreement made June 9, 1995 by and
between PHC Retail Holding Company and the Agent.
10.61*+ Equity Contribution Agreement made June 9,
1995 by and between Kelso & Company and the Agent.
10.62*+ Deed of Trust made June 9, 1995 by and
between Peebles Inc., the Trustee party thereto and
the Agent.
10.63*+ First Amendment of the Credit Agreement
dated September 15, 1995.
10.64*+ Second Amendment and Limited Consent to
the Credit Agreement dated March 8, 1996.
10.8*** Standard Service Agreement, as amended, dated
January 17, 1995 between Frederick Atkins, Incorporated
and Peebles Inc.
10.11*+ Form of Indemnification, Guarantee and
Contribution Agreement dated as of August 23, 1995 PHC
Retail Holding Company, Peebles Inc. and each of the
directors and officers of Peebles Inc.
10.16*** Form of Employment Agreement, dated March 30,
1995 entered into by Peebles Inc.and fourteen executives
of Peebles Inc.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
____________________________
* 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 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.
+++ Incorporated by reference from the Form 10-K of
the Company for the fiscal year ended January 29, 1994.
*** Incorporated by reference from the Form 10-
K of the Company for the fiscal year ended January
28, 1995.
*+ Incorporated by reference from the Form 10-
K of the Company for the fiscal year ended February
1, 1996.
(d) Financial Statement Schedules
Schedule II Valuation and Qualifying
Accounts appears in Note I on page F-19 of this annual
report on Form 10-K.
All other schedules for which provision
is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable and
therefore have been omitted.
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: May 1, 1997
--------------------------
Michael F. Moorman, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail Date: May 1, 1997
-------------------------
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: May 1, 1997
-------------------------------
Wellford L. Sanders, Jr., Director
By /s/ William C. DeRusha Date: May 1, 1997
-------------------------------
William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: May 1, 1997
-------------------------------
Malcolm S. McDonald, Director
By /s/ Frank T. Nickell Date: May 1, 1997
-------------------------------
Frank T. Nickell, Director
By /s/ Thomas R. Wall Date: May 1, 1997
-------------------------------
Thomas R. Wall, IV, Director
<PAGE>
Audited Consolidated Financial Statements
PEEBLES INC. AND SUBSIDIARY
February 1, 1997
Report of Independent Auditors F-1
Consolidated Balance Sheet F-2
Statement of Consolidated Operations F-3
Statement of Consolidated Changes in Stockholders' F-4
Equity
Statement of Consolidated Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Management's Discussion and Analysis of Financial F-15
Condition and Results of Operations
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Peebles Inc.
We have audited the accompanying consolidated balance sheets of
Peebles Inc. and subsidiary as of February 1, 1997 and February 3,
1996, and the related consolidated statements of operations,
changes in stockholders' equity, and cash flows for the fiscal
year ended February 1, 1997, for the eight-month period ended
February 3, 1996 and the four-month period ended May 27, 1995,
and for the fiscal year ended January 28, 1995. These financial
statements reflect the new basis of accounting established by the
acquisition of Peebles Inc. as described in Note A. These
financial statements 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.
As described in Note A to the financial statements, the Company
reflected a new basis of accounting on May 27, 1995 as a result of
the 1995 Acquisition.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Peebles Inc. and subsidiary at February 1, 1997 and
February 3, 1996, and the consolidated results of their operations
and their cash flows for the fiscal year ended February 1, 1997,
the eight-month period ended February 3, 1996 and the four-month
period ended May 27, 1995, and for the fiscal year ended January 28,
1995, in conformity with generally accepted accounting principles.
/s/ Ernst & Young
Richmond, Virginia
March 13, 1997
<PAGE>
CONSOLIDATED BALANCE SHEET
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
February 1, 1997 February 3, 1996
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 228 $ 193
Accounts receivable, net 32,062 28,534
Merchandise inventories 54,431 42,684
Prepaid expenses 1,036 386
Other 69 62
---------- ----------
TOTAL CURRENT ASSETS 87,826 71,859
PROPERTY AND EQUIPMENT
Fixtures and equipment 46,858 43,089
Land and building 7,818 7,785
Leasehold improvements 1,882 1,595
---------- ----------
56,558 52,469
Accumulated depreciation and
amortization 23,098 19,161
---------- ----------
33,460 33,308
OTHER ASSETS
Excess of cost over net assets
acquired, net 36,069 51,129
Deferred financing costs, net 2,808 3,659
Beneficial leaseholds, net 1,054 2,960
Sundry 2,351 2,638
---------- ----------
42,282 60,386
---------- ----------
- --
$ 163,568 $ 165,553
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,737 $ 9,957
Accrued compensation and other expenses 5,000 3,955
Income taxes payable 675 855
Deferred income taxes 2,934 2,788
Current maturities of long-term debt 9,665 5,377
Other 602 532
--------- ----------
TOTAL CURRENT LIABILITIES 29,613 23,464
LONG-TERM DEBT 79,950 69,774
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,347 1,627
DEFERRED INCOME TAXES 3,235 6,350
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,
1,000 issued and outstanding. 1 1
Additional capital 59,307 59,307
Retained earnings (deficit):
accumulated from May 27, 1995; (9,885) 5,030
--------- ---------
49,423 64,338
$ 163,568 $ 165,553
See notes to consolidated financial
statements.
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED OPERATIONS
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
---------------- ---------------- ------------ ----------------
(Prior to 1995 Acquisition)
<S> <C> <C> <C> <C>
NET SALES $ 194,206 $ 126,501 $ 49,163 $ 167,662
COSTS AND EXPENSES
Cost of sales 116,236 72,994 29,935 98,066
Selling, general and
administrative expenses 54,667 33,275 14,639 45,205
Stock option settlement -- -- 3,089 --
Depreciation and amortization 7,574 4,339 2,349 6,729
Asset revaluation 20,782 -- -- --
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (5,053) 15,893 (849) 17,662
OTHER INCOME (EXPENSE) 687 (52) 77 131
INTEREST EXPENSE 8,806 6,565 1,414 4,569
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND EXTRAORDINARY ITEM (13,172) 9,276 (2,186) 13,224
INCOME TAXES (BENEFIT)
Current 2,137 3,276 (474) 5,297
Deferred (394) 970 (400) 450
---------- ---------- ---------- ----------
1,743 4,246 (874) 5,747
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (14,915) 5,030 (1,312) 7,477
EXTRAORDINARY ITEM--DEBT
REFINANCING - - (216) --
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (14,915) $ 5,030 $ (1,528) $ 7,477
============ =========== =========== ==========
NET INCOME (LOSS) PER SHARE $ (14,915) $ 5,030 $ (.52) $ 2.54
============ =========== =========== ==========
Average common stock and common
stock equivalents outstanding 1,000 1,000 2,942,690 2,940,281
============ =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
STATEMENT OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC. AND SUBSIDIARY
(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 29, 1994 2,933,562 $ 293 $ 64,174 $ 10,063
Common stock issued in redemption of
common Stock Warrants 6,391 1 151 10
Common stock issued upon exercise of
common stock options 2,737 - 65 -
Net income - - - 7,477
--------- ----- ------- --------
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
Aquisition 1,000 1 59,307 -
Net income - - - 5,030
--------- ----- ------- -------
Balance February 3, 1996 1,000 1 59,307 5,030
Net (loss) - - - (14,915)
--------- ----- ------- -------
Balance February 1, 1997 1,000 1 59,307 $(9,885)
========= ====== ======= =======
See notes to consolidated financial statements.
</TABLE>
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
---------------- ---------------- ------------- ----------------
(Prior to 1995 Aquisition)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (14,915) $ 5,030 $ (1,528) $ 7,477
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 4,616 2,491 1,453 3,677
Amortization 3,842 2,502 896 3,508
Deferred income taxes (394) 970 (400) 450
Provision for doubtful accounts 1,192 531 265 620
Extraordinary loss, net - - 216 -
LIFO reserve adjustment 39 (970) 1,035 (182)
Asset revaluation 20,782 - - -
Changes in operating assets and liabilities
net of effects from acquisition adjustments
Accounts receivable (1,527) (2,199) 1,681 (1,046)
Merchandise inventories (8,088) (113) (2,217) (2,869)
Accounts payable 780 (658) 1,893 1,416
Other assets and liabilities (205) 692 (561) 19
----------- --------- ----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,122 8,276 2,733 13,070
INVESTING ACTIVITIES
Acquisition of Peebles Inc. - - (90,923) -
Acquisition of Carlisle Retailers Inc. (11,549)
Purchase of property and equipment (8,783) (5,683) (2,411) (8,454)
Other (219) - 281 (257)
------------ --------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (20,551) (5,683) (93,053) (8,711)
FINANCING ACTIVITIES
Proceeds from revolving line of credit and
long-term debt 272,013 227,686 58,145 173,754
Reduction in revolving line of credit and (267,762) (230,164) (56,129) (177,804)
long-term debt
Proceeds from revolving facilities-Acquisition
of Carlisle Retailers, Inc. 10,213 - - -
Proceeds from acquisition debt - - 76,390 -
Retirement of pre-acquisition debt - - (40,917) -
Proceeds from equity - - 59,308 -
Acquisition and financing Fees - - (6,807) -
------------ ----------- ----------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 14,464 (2,478) 89,990 (4,050)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 35 115 (330) 309
Cash and cash equivalents beginning of period 193 78 408 99
------------ ----------- ----------- ----------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 228 $ 193 $ 78 $ 408
============= ============ =========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. AND SUBSIDIARY
February 1, 1997
(dollars in thousands, except per share amounts)
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Financial Statement: 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.
As a result of the debt refinancing related to the 1995
Acquisition, Peebles Inc. recorded an extraordinary loss of $216,
net of $144 income tax benefit, in the four-month period ended May
27, 1995 as financing costs capitalized in periods prior to the
1995 Acquisition were written-off.
As a result of the 1995 Acquisition and due to certain change in
control provisions of the 1993 Stock Option Plan, all outstanding
options at May 27, 1995 vested. The 1995 Acquisition mandated that
all options would be settled for cash only. Accordingly, 432,699
options were settled for $3,089, which has been included as an
operating expense in the four-month period ended May 27, 1995.
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. 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 CRI
Merger has been accounted for using the purchase method of
accounting. The purchase price was allocated as follows:
Purchase price $11,549
Tangible net assets acquired:
Accounts receivable, net $3,330
Merchandise inventories, net 3,698
Fixed assets, net 244
Other assets 2,367
Operating liabilities (849)
---------
Total tangible net assets 8,790
-------
Excess of cost over net assets acquired $2,759
The excess of cost over net assets acquired is being amortized
over a twenty-five year period beginning May 20, 1996.
Consolidation: The consolidated financial statements include the
accounts of Peebles Inc. and Carlisle Retailers, Inc. (together
"Peebles" or the "Company"). All significant intercompany
balances and transactions have been eliminated.
Fiscal Year: The Company's fiscal year ends on the Saturday
nearest January 31. Fiscal years 1996, 1995, and 1994, ended on
February 1, 1997, February 3, 1996, and January 28, 1995,
respectively. Results of operations for 1996 and 1994 each
consisted of fifty-two weeks. Results of operations for 1995
consisted of fifty-three weeks, with 17 weeks included in the four-
month period ended May 27, 1995 and 36 weeks in the eight-month
period ended February 3, 1996. References to years relate to
fiscal years rather than calendar years.
Nature of Operations: Peebles currently operates 77 department
stores offering predominately soft-apparel, fashion merchandise
for the entire family, and other selected home accessories. The
Company operates primarily in small and medium sized communities,
which typically do not have a mall-based department store, in 12
predominately Southeastern and Mid-Atlantic States.
PEEBLES INC. AND SUBSIDIARY
NOTE A_SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Quasi-Reorganization: As a result of a recapitalization of the
Company completed January 31, 1992, a quasi-reorganization was
implemented as of February 1, 1992. An accumulated deficit of
$10,477 was transferred to additional capital on that date.
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
February 1, 1997 or February 3, 1996.
Merchandise Inventories: Merchandise inventories are accounted for
by the retail inventory method applied on a last in, first out
("LIFO") basis.
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 the estimated useful
lives of the related assets, generally 7 to 10 years for fixtures
and equipment and 20 years for buildings. 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: Store opening costs are charged to selling,
general and administrative expenses as incurred.
Advertising Costs: Advertising costs, charged to selling, general
and administrative expenses as incurred, aggregated $4,917,
$3,075, $1,449, and $4,255 for 1996, the eight-month period ended
February 3, 1996, the four-month period ended May 27, 1995, and
1994, respectively.
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. The Company
periodically analyzes the value of net assets acquired to
determine whether any impairment in value of such assets has
occurred. The primary indicators of recoverability used by the
Company are current or forecasted profitability of the related
acquired assets as compared to their carrying values. As described
in Note D, allocated goodwill was reduced by $15,220 in 1996.
Accumulated amortization at February 1, 1997 and February 3, 1996
was $3,656 and $1,401, respectively.
Deferred Financing Costs: Deferred financing costs are amortized
by the interest method over a period consistent with the related
financing. Amortization expense of $884, $585, $68, and $457 is
included in interest expense for 1996, the eight-month period
ended February 3, 1996, the four-month period ended May 27, 1995,
and 1994, respectively. Accumulated amortization at February 1,
1997 and February 3, 1996 was $1,436 and $585, respectively.
Beneficial Leaseholds: Amortization is provided by the straight-
line basis over the estimated composite useful lives of the
related leases. As described in Note D, beneficial leaseholds
were reduced by a net $1,528 in 1996, after the elimination of
accumulated amortization of $2,784. At February 3, 1996
accumulated amortization was $2,438.
Income Taxes: Deferred income taxes are provided for temporary
differences between income and expense for financial reporting
purposes and for income tax purposes.
Net Income per Share: Net Income per share is based on the
weighted-average number of shares and common stock equivalents
outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE B_ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $1,224 and $960, representing
the allowance for uncollectible accounts at February 1, 1997 and
February 3, 1996, respectively. The provision for doubtful
accounts was $1,192, $531, $265, and $620 for 1996, the eight-
month period ended February 3, 1996, the four-month period ended
May 27, 1995, and 1994, respectively. Finance charges on credit
sales, included as a reduction of selling, general and
administrative expenses, aggregated $5,050, $3,175, $1,643, and
$4,818, for 1996, the eight-month period ended February 3, 1996,
the four-month period ended May 27, 1995, and 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, Alabama, Delaware,
New Jersey, Ohio, Pennsylvania and New York. The Company does not
require collateral from its customers.
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 the lower of
LIFO cost and market.
Merchandise inventories consisted of the following:
<TABLE>
<CAPTION>
February 1, 1997 February 3, 1996 January 28, 1995
(Prior to 1995
Acquisition)
<S> <C> <C> <C>
Merchandise inventories at FIFO cost $ 47,448 $ 35,662 $ 33,332
Fair Value Adjustment 7,436 7,436 14,209
LIFO reserve 366 449 (2,838)
----------- ---------- ----------
Merchandise inventories at LIFO cost 55,250 43,547 44,703
Market reserve (819) (863) -
----------- ---------- ----------
Merchandise inventories at lower
of cost or market $ 54,431 $ 42,684 $ 44,703
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". Under
the provisions of SFAS No. 121, long-lived assets should be
reviewed for impairment when circumstances indicate that the
carrying amount of those assets, together with any related
identifiable intangible assets and allocated goodwill, might not
be recoverable, through future operations or sale. 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
The asset revaluation reduced deferred income taxes by
approximately $2,141.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE E_LONG-TERM DEBT
Long-term debt consisted of the following:
February 1, 1997 February 3, 1996
---------------- ----------------
1995 Senior Revolving Facility $ 43,000 $ 25,000
Senior Term Note A 17,725 19,250
Senior Term Note B 27,475 27,775
Swingline Facility 1,415 3,126
---------- ---------
89,615 75,151
Less current maturities 9,665 5,377
---------- ---------
$ 79,950 $ 69,774
On June 9, 1995, the Company entered into a $120 million credit
facility (the "1995 Credit Agreement") to i) refinance the
existing debt under the pre-acquisition Credit Agreement, ii)
provide the additional funding necessary to complete the 1995
Acquisition, and iii) provide working capital and funds for
capital expenditures. The 1995 Credit Agreement is secured by a
first priority security interest in substantially all the personal
property and certain real property of Peebles. The 1995 Credit
Agreement provides a Senior Term Facility, a Senior Revolving
Facility (the "1995 Revolving Facility"), and a "Swingline
Facility". 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. 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 $425 and $75 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. Prior to November
1995, Senior Term Note A and Senior Term Note B bore interest at
prime plus 1-1/2% and prime plus 2%, respectively.
The amount available under the 1995 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 1995 Senior Revolving Facility. The
1995 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, $37,500 and $24,600 were considered long-term
obligations at February 1, 1997 and February 3, 1996,
respectively. During 1996, the Senior Revolving Facility was
converted to an annual interest rate of LIBOR plus 2.75% from the
prime plus 1-1/2% rate effective during 1995.
In compliance with the 1995 Credit Agreement, the Company has
entered into a three-year interest rate protection agreement
covering a principal amount of $40,000 against increases in the
prime rate above 7.5% per annum.
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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE E_LONG-TERM DEBT - Continued
Peebles has commitments for letters of credit with a bank which
totaled $573 and $307 at February 1, 1997 and February 3, 1996,
respectively. Approximately $397 expire during 1997, and the
remainder expires August 1, 1998.
Peebles made cash interest payments of $7,866, $6,353, $973, and
$4,091 for fiscal year 1996, the eight-month period ended February
3, 1996, the four-month period ended May 27, 1995, and the fiscal
year 1994, respectively.
Aggregate principal payments on long-term debt for the next five
fiscal years are: 1997--$9,665, 1998-- $6,375, 1999--$10,125 ,2000-
- -$49,250 and 2001--$12,900.
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 of 1 to 10 years expiring at various
dates through 2033. Total rental expense under operating leases
was as follows:
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
---------------- ---------------- ------------ ----------------
(Prior to 1995 Acquisition)
<S> <C> <C> <C> <C>
Minimum $ 7,742 $ 4,552 $ 2,276 $ 5,915
Contingent 453 275 138 531
---------- ---------- --------- ----------
$ 8,195 $ 4,827 $ 2,414 $ 6,446
</TABLE>
Contingent rentals are based upon a percentage of annual sales in
excess of specified amounts. Future minimum lease payments under
capital leases and noncancellable operating leases at February 1,
1997 were as follows:
Capital Operating
Fiscal Year Leases Leases
----------- ------- ---------
1997 $ 487 $ 7,612
1998 377 7,267
1999 377 7,077
2000 377 6,577
2001 180 6,106
Thereafter 602 39,098
--------- ---------
Total minimum lease payments 2,400 $ 73,737
Less: amounts representing interest (773)
---------
Present value of net minimum lease
payments, including current
maturities of $280, with interest
rates ranging from 11.3% to 18.1% $ 1,627
=========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE G_EMPLOYEE BENEFIT PLANS
The Employees Retirement Plan of Peebles Inc.: The Company
provides a defined benefit pension plan (the "Pension Plan") which
covers substantially all employees. Participation is dependent on
meeting certain age and service requirements. Benefits are based
on total years of benefit service and the employee's compensation
during the five consecutive calendar years which produce the
highest average. Peebles makes annual contributions to the
Pension Plan equal to the contribution required to satisfy minimum
funding standards under ERISA.
<PAGE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
---------------- ---------------- ------------ -----------------
(Prior to 1995 Acquisition)
<S> <C> <C> <C> <C>
Service cost-benefits earned during
the period $ 345 $ 207 $ 104 $ 323
Interest cost on projected benefit
obligation 543 332 166 448
Actual return on plan assets (109) (649) (324) 177
Net amortization and deferral (460) 275 138 (804)
--------- -------- -------- -------
Net periodic pension cost $ 319 $ 165 $ 84 $ 144
</TABLE>
The following table sets forth the Pension Plan's funded status and amounts
recognized in Peebles balance sheet:
<TABLE>
February 1, 1997 February 3, 1996
--------------- ----------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations including
vested benefits of $5,316 and $5,677,
respectively $ (5,707) $ (6,147)
---------- ----------
Projected benefit obligation $ (7,299) $ (7,770)
Plan assets at fair value, primarily listed
Stocks and U.S. Government Treasury Bonds 6,509 7,062
---------- ----------
Plan assets in excess (deficient) of projected
Benefit obligations (790) (708)
Prior service costs 73 -
Unrecognized net loss 682 992
---------- ----------
Net pension asset (liability) recognized in the
balance sheet $ (35) $ 284
</TABLE>
In calculating the present value of projected benefit obligations
for 1996 and 1995, a 4.41% and 5.0% weighted average rate of
compensation was used, respectively, and a weighted-average
discount rate of 7.25%. The expected long-term rate of return on
plan assets was 9% for 1996, 1995 and 1994.
The Peebles Inc. 401 (k) Profit Sharing Plan: The Company
maintains a qualified profit sharing and retirement savings plan,
which under Section 401 (k) of the Internal Revenue Code, allows
tax deferred contributions from eligible employees of up to 12% of
their annual compensation. The Company does not currently
contribute to the plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE G_EMPLOYEE BENEFIT PLANS--Continued
Supplemental Benefits Program: The Company maintains a benefits
program designed to provide certain key executives supplemental
retirement income, such that together with Social Security
payments and amounts payable under the Pension Plan, the
executives will receive replacement income in retirement equal to
60% of final average compensation, as defined in the Pension Plan.
The program is funded through life insurance contracts covering
the participating executives. At February 1, 1997 and February 3,
1996, the Company had a net obligation of $75 and $65,
respectively, recognized in the balance sheet based upon a
discount rate of 7.5% for 1996 and 1995. The Company recognized
net expense related to the program of $238, $146 and $73 in the
fiscal year ended February 1, 1997, the eight-month period ended
February 3, 1996 and the four-month period ended May 27, 1995,
respectively.
NOTE H - INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
--------------- ---------------- ------------- -----------------
(Prior to 1995 Acquisition)
<S> <C> <C> <C> <C>
Current: Federal $ 1,591 $ 2,703 $ (382) $ 4,354
State 546 573 (92) 943
Deferred: Federal (214) 805 (323) 371
State (180) 165 (77) 79
--------- -------- -------- ---------
$ 1,743 $ 4,246 $ (874) $ 5,747
</TABLE>
Income taxes differ from the amounts computed by applying the applicable
federal statutory rates due to the following:
<TABLE>
Fiscal Year Eight-Month Four-Month Fiscal Year
Ended Period Ended Period Ended Ended
February 1, 1997 February 3, 1996 May 27, 1995 January 28, 1995
---------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
(Prior to 1995 Acquisition)
Taxes at the federal statutory rate $ (4,479) $ 3,248 $ (765) $ 4,628
Increases (decreases):
State income taxes, net of federal tax 232 469 (110) 676
Amortization of purchase
accounting adjustments 745 484 190 574
Asset revaluation 5,175 - - -
Other 70 45 (189) (131)
---------- -------- -------- ---------
$ 1,743 $ 4,246 $ (874) $ 5,747
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE H - INCOME TAXES--Continued
At February 1, 1997, the Company has net operating loss
carryforwards of approximately $5,000 for income tax purposes,
which primarily expire in 2010.
Significant components of deferred tax liabilities and assets are
as follows:
February 1, 1997 February 3, 1996
---------------- -----------------
Deferred tax liabilities:
Inventory valuation $ 3,404 $ 3,158
Depreciation and amortization 4,843 6,255
Other 318 110
-------- --------
8,565 9,523
Deferred tax assets:
Doubtful accounts (471) (370)
Net operating loss carryforwards (1,925)
Other - (15)
-------- --------
(2,396) (385)
-------- --------
Net deferred tax liabilities $ 6,169 $ 9,138
Peebles made cash income tax payments of $2,100, $2,782, and
$6,183 for 1996, 1995 and 1994, respectively.
NOTE I - VALUATION AND QUALIFYING ACCOUNTS
Activity related to valuation and qualifying accounts is as
follows:
Allowance for
Doubtful
Accounts LIFO Reserve
------------- ------------
Balance January 29, 1994 950 3,020
Charges to expense 620 (182)
Deductions - net write-off of
uncollectible accounts (640) -
--------- ---------
Balance January 28, 1995 930 2,838
Charges to expense 265 1,035
Deductions - net write-off of
uncollectible accounts (265) -
--------- ---------
Balance May 27, 1995 930 3,873
Purchase accounting elimination - (3,873)
Charges to expense 531 (449)
Deductions - net write-off of
uncollectible accounts (501) -
--------- ---------
Balance February 3, 1996 960 (449)
Charges to expense 1,192 83
Increase due to Acquisition of
Carlisle Retailers, Inc. 264 -
Deductions - net write-off of
uncollectible accounts (1,192) -
---------- ----------
Balance February 1, 1997 $ 1,224 $ (366)
========== ===========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)
The 1995 Acquisition was effective May 27, 1995. As a result, the first
quarter of 1995, and the first fiscal month of the second quarter of 1995
reflect operating results prior to the 1995 Acquisition. Operating income in
the second quarter of 1995 was reduced by $3,089 related to the settlement of
the 1993 Stock Option Plan. The acquisition of Carlisle Retailers, Inc. was
completed on May 20, 1996. As a result, the second, third and fourth quarters
of 1996 reflect the incremental sales and expenses related to this acquisition.
Operating income in the fourth quarter of 1996 was affected by
the asset revaluation in accordance with SFAS No. 121 of $20,782.
<TABLE>
FISCAL QUARTER
----------------
First Second Third Fourth
1996 1995 1996 1995 1996 1995 1996 1995
----------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $38,055 $36,518 $42,366 $38,963 $47,540 $42,562 $66,245 $57,621
Cost of Sales 22,607 21,585 24,805 23,508 29,462 25,093 39,362 32,743
Gross Margin 15,448 14,933 17,561 15,455 18,078 17,469 26,883 24,878
Operating Income(Loss) 2,183 2,341 2,757 (875) 1,899 3,296 (11,892) 10,282
Net Income (Loss)
before extraordinary item 214 837 346 (1,690) (194) 560 (15,281) 4,011
Net Income (Loss) Per Share
before extraordinary item $ 214 $ .28 $ 346 $ (1.87) $ (194) $ 560 $(15,281) $ 4,011
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Peebles operates specialty department stores primarily in small
and medium sized communities which do not typically have a mall-
based department store. The stores, located in twelve
predominately Southeastern and Mid-Atlantic states, offer
customers a broad selection of moderately-priced fashion
merchandise and selected home accessories, which is generally not
available through other retailers in the market.
With the consummation of the CRI Merger on May 20, 1996, seven
stores of Carlisle Retailers, Inc. became a wholly owned
subsidiary of Peebles Inc. These seven stores are included in the
consolidated results of operations beginning May 20, 1996. One
Carlisle store was closed in January 1997, consistent with the
Company's plan of acquisition.
The entire equity interest of Peebles Inc. was acquired by PHC
Retail Holding Company, effective May 27, 1995. The acquisition
was accounted for using the purchase method of accounting and a
new accounting basis was established. Accordingly, the audited
financial statements present the Peebles Inc. results of
operations for 1995 as the eight-month period ended February 3,
1996 and the four-month period ended May 27, 1995.
Consolidated net sales and results of consolidated operations,
expressed as percentages of net sales, are presented below for the
1996 and 1994 fiscal years and the twelve-month period ended
February 3, 1996.
(dollars in thousands) 1996 1995 1994
------ ------ -------
Net sales $194,206 $175,664 $167,662
% increase 10.6% 4.8% 10.5%
Comparable stores % increase
(decrease) in sales:
52-week 1996 vs. 53-week 1995 (1.3%) (1.0%) 4.6%
52 week periods ended February 1,
1997 and February 3, 1996 Even(0%) N/A N/A
Total stores 77 65 58
Operations as a Percentage of Net Sales:
Cost of sales 59.9% 58.6% 58.5%
Selling, general & administrative
expenses 28.1 27.3 27.0
Asset revaluation 10.7 - -
Settlement of the 1993 Stock Option Plan - 1.7 -
Depreciation and amortization 3.9 3.8 4.0
----- ---- -----
Operating Income (Loss) (2.6) 8.6 10.5
Interest Expense 4.5 4.5 2.7
Other income (expense) .4 (.1) .1
Provision for income taxes .9 1.9 3.4
----- ----- -----
Net Income (Loss) (7.7)% 2.1% 4.5%
Net sales in 1996 increased over 1995 as the Company opened or
acquired fourteen new store locations during the year, closed two, and had
a full year of operations from seven new stores opened in 1995.
The Carlisle stores acquired in the CRI Merger provided
approximately $12,683 in net sales, representing some 68% of the
1996 increase over 1995. In September 1996, the Company began
operations as Peebles at three store locations purchased from the
Belk Companies ("Belk"). In conjunction with this purchase, the
Company agreed to sell one store location to Belk. The three
former Belk stores acquired contributed $2,255 to 1996 net sales.
The store sold had contributed $1,438 through September 1996.
Net sales at comparable stores, stores opened the entire twelve
months in both the current and previous fiscal years, declined
approximately $2,071, or 1.3%, when comparing 52-week fiscal 1996
to 53-week fiscal 1995. When comparing the 52-week periods ended
February 1, 1997 and February 3, 1996, net sales at these
comparable stores remained the same. Comparable store sales were
weakest in the second and third fiscal quarters of 1996, adversely
impacted by Hurricane Bertha in July, Hurricane Fran in September
and an unseasonably cool summer. Comparable store sales recovered
in the fourth fiscal quarter, increasing approximately 1.8% over
the comparable quarter in 1995. The majority of the increase
noted in the fourth fiscal quarter came in January, where prior
year sales were adversely impacted by severe snowstorms.
The Company's cost of sales increased in 1996 to 59.9%, up from
58.6% in 1995 and 58.5% in 1994. The current year increase is
primarily attributed to a) the new store locations, where opening
promotions adversely impact gross margin; b) the Carlisle stores,
where the inventory mix and pricing strategy were adjusted from a
narrow assortment and a high-low emphasis to a wider assortment
and less promotional, every day fair pricing; and c) higher
clearance markdowns resulting from the weaker sales described
above.
Selling, general and administrative ("SG&A") expenses increased to
28.1% of 1996 net sales, up from 27.3% and 27.0% in 1995 and 1994,
respectively. This increase is primarily due to the opening of
new stores, which typically have higher occupancy, payroll and
advertising expenses as a percentage of net sales as compared to
mature stores. The 14 new stores opened and acquired during 1996
represented the Company's largest single year increase in number
of store locations. During 1996, the Company completed an
expansion to the distribution facility in South Hill, Virginia to
accommodate current and future growth. While adding to SG&A in
1996, future efficiencies in processing and economies of
scale are expected in succeeding fiscal years.
As discussed in Note D to the audited consolidated financial
statements, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for Impairment of Long-
Lived Assets and Long-Lived Assets to be Disposed Of" in the first
fiscal quarter of 1996. Management assessed, on an individual
store basis, increased competition, shifting demographics,
projected store operations and historical store operations through
the fourth fiscal quarter and determined that the aggregate
estimated undiscounted cash flows to be generated would be less
than the current carrying values of the store assets, related
intangibles and allocated excess of cost over net assets acquired
("Goodwill"). As a result, fair value was calculated using a
multiple of discounted projected cash flows and the Company
increased operating expenses by $20,782, as i) selected store
fixtures and equipment were reduced $4,034; ii) related beneficial
leaseholds were reduced a net $1,528; and iii) the allocated
Goodwill was reduced by $15,220. Deferred taxes decreased by
$2,141, for a resulting decrease in net income of $18,641.
As discussed in Note A to the audited consolidated financial
statements, the Company recorded compensation expense of $3,089 in
1995, representing 1.7% of 1995 total net sales, for the
settlement of the 1993 Stock Option Plan. This non-recurring
expense recognized in 1995 represents the entire liability of the
Company under the 1993 Stock Option Plan.
Depreciation and amortization expense as a percentage of net sales
was 3.9%, 3.8% and 4.0% in 1996, 1995 and 1994, respectively.
Depreciation expense has increased to 2.4% in 1996, up from 2.2%
in both 1995 and 1994, as capital expenditures have increased due
to the new store openings and distribution center expansion.
Amortization expense has been affected by purchase accounting
adjustments related to the 1995 Acquisition and the CRI Merger.
As a result of the above factors, the Company had an operating
loss in 1996 of 2.6%, compared to operating income of 8.6% and
10.5% in 1995 and 1994, respectively. Adjusting for the effects
of the asset revaluation in accordance with SFAS No. 121 in 1996
and the 1995 non-recurring compensation expense related to the
settlement of the 1993 Stock Option Plan, operating income would
have totaled 8.1% and 10.3% as a percentage of net sales for 1996
and 1995, respectively.
Interest expense as a percentage of net sales was 4.5% for both
1996 and 1995, up from 2.7% in 1994. The general increase from
1994 to 1995 resulted from a combination of increased debt assumed
in connection with the 1995 Acquisition and a higher prime lending
rate throughout 1995 in comparison to 1994. The 1995 Credit
Agreement increased outstanding borrowings at the date of
acquisition by approximately $35.5 million. In 1996, the Company
increased the outstanding balance of the Senior Revolving Facility
by approximately $10.2 million to consummate the CRI Merger. In
addition, the inventory requirements of the new store locations
required additional funding. Interest expense did increase from
$7,979 in 1995 to $8,806 in 1996, but did not increase
proportionately to debt, primarily due to the conversion from
prime lending rates in 1995 to LIBOR based rates in 1996, as
described in Note E to the audited consolidated financial
statements.
As a result of the asset revaluation, the Company recorded income
tax expense of $1,743, even though experiencing a pre-tax loss
$13,172. The $20,782 gross revaluation write-down lowered
deferred taxes by $2,141, as the Goodwill ($15,220 impairment) and
beneficial leaseholds ($1,528) are permanent book-tax differences.
The Company recorded an extraordinary loss, net of tax, of $216 at
May 27, 1995, related to the write-off of unamortized financing
costs related to the pre-1995 Acquisition Credit Agreement.
As a result of the above factors, the Company had a 1996 net loss
of 7.7% as a percentage of net sales, compared to 1995 net income
of 2.1%, and 4.5% in 1994. Adjusting for the effect of the asset
revaluation in accordance with SFAS No. 121 in 1996, net income
would have been 1.9% as a percentage of net sales.
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.
Operating activities provided net cash of $6.1 million, $11.0
million, and $13.1 million in 1996, 1995 and 1994, respectively.
Profitable operations continued to be the source of net cash in
1996. The write down associated with the asset revaluation in
accordance with SFAS No.121 was a non-cash transaction. In 1996,
the merchandise inventory requirements and the funding of accounts
receivable at the new store locations represented the primary decrease
in the net cash provided by operating activities. This impact, together
with current assets acquired in the CRI Merger, increased the
Company's working capital to $58.2 million at the close of 1996,
up from $48.3 million at 1995. The settlement of the 1993 Stock
Option Plan in 1995 required some $3.1 million of operating cash,
which together with the increased cash payments of interest
expense, primarily accounted for the decline in net cash generated
by operations in comparison to 1994.
Net cash used in investing activities, exclusive of the CRI Merger
and the 1995 Acquisition, was $8.8 million, $8.1 million, and $8.7
million in 1996, 1995 and 1994, respectively. In 1996, capital
expenditures included $2.1 million for new stores, $1.1 million in
the acquired Carlisle stores, and $3.2 million related to the
distribution center expansion. In 1995 and 1994, new store
capital expenditures were $4.3 million and $2.6 million,
respectively, and an additional $1.8 million and $3.4 million,
respectively, for major store remodelings. No major store
remodelings were performed in 1996.
Exclusive of the CRI Merger and the 1995 Acquisition transactions,
the Company drew net cash from the revolving debt of some $4.3 million
in 1996, primarily to fund the new store growth. In 1995,
cash was used to reduce outstanding debt by a net of $.5 million.
In the four-month period prior to the 1995 Acquisition, Peebles
had funded operating and investing activities with $2.0 million in
net proceeds from revolving debt. To facilitate the 1995
Acquisition, the pre-acquisition debt was refinanced, providing
the Company $35.5 in net incremental cash and increasing debt by
the same amount. In the eight-month period following the 1995
Acquisition, the Company used cash to reduce outstanding debt by a
net $2.5 million. In 1994, outstanding debt was reduced using
cash of $4.1 million.
In 1997, the Company's capital expenditures are expected to total
approximately $10.9 million, which reflect the opening of nine new
store locations at approximately $3.8 million and the relocation
of four existing stores at $2.2 million. As of March 1997, the
Company had signed leases for six new store locations, three of
which will open in Spring 1997. 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 . Based on historical
experience, the Company estimates that the cost of opening a new
store will include capital expenditures of approximately $425,000
for leasehold improvements and fixtures and approximately $425,000
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
$300,000 within 24 months of the store opening. The Company may
also incur capital expenditures to acquire existing stores. The
distribution center expansion is expected to serve the Company's
growth to 110 store locations.
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.
SEASONALITY AND INFLATION
As a retailer offering predominately soft-apparel and selected
home accessories, the Company's business is seasonal, although
less heavily weighted in the fourth quarter than retailers with
comparable offerings of merchandise. Over the past three fiscal
years, quarterly sales as a percentage of total sales have been
consistent at approximately 20%, 22%, 24% and 34% for the first
through fourth quarters, respectively. Peebles' positioning of
its stores in small to medium sized communities with limited
competition, along with the Company's less-promotional, every day
fair value, pricing strategy, produces operations less dependent
on the fourth quarter. However, the third and fourth quarters are
bolstered by the important back-to-school and Christmas holiday
selling seasons.
The Company does not believe that inflation has had a material
effect on its results of operations during the past three 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 likelihood of a
material impact that increases costs. However, there can be no
assurance that the Company's business will not be impacted by
inflation in the future.
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
2.1*** Form of Agreement and Plan of Merger dated April 3, 1995 among
PHC Retail Holding Company, Peebles Acquisition Corp. and
Peebles Inc., exclusive of exhibits and schedules. The
Registrant hereby undertakes to furnish to the Commission
supplementally upon request a copy of any omitted exhibit or
schedule.
3.1+ Form of Amended and Restated Articles of
Incorporation of Peebles Inc.
3.2+ Form of Amended and Restated Bylaws of Peebles Inc.
3.3*** Amendment to Amended and Restated Articles of Incorporation
dated May 3, 1993
3.4*+ Amendment to Amended and Restated Bylaws of Peebles
Inc. dated June 9, 1995.
3.5*+ Amendment to Amended and Restated Articles of
Incorporation dated June 9, 1995
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*+ Credit Agreement dated June 9, 1995, by and among Peebles
Inc. And NatWest Bank, N.A. as Agent (the "Agent"), and
the financial institutions named therein. (the "Credit
Agreement")
10.20*+ Form of A Term Note.
10.21*+ Form of B Term Note.
10.22*+ Form of Bridge Note.
10.23*+ Form of Revolving Note.
10.24*+ Form of Swingline Note.
10.3*+ Security Agreement made June 9, 1995 by and between
Peebles Inc. and the Agent.
10.4*+ Trademark Security Agreement made June 9, 1995 by and
between Peebles Inc. and the Agent.
10.5*+ Guaranty Agreement made June 9, 1995 by and between PHC
Retail Holding Company and the Agent.
10.6*+ Pledge Agreement made June 9, 1995 by and between PHC
Retail Holding Company and the Agent.
10.61*+ Equity Contribution Agreement made June 9, 1995 by and
between Kelso & Company and the Agent.
10.62*+ Deed of Trust made June 9, 1995 by and between Peebles
Inc., the Trustee party thereto and the Agent.
10.63*+ First Amendment of the Credit Agreement dated September
15, 1995.
10.64*+ Second Amendment and Limited Consent to the Credit
Agreement dated March 8, 1996.
10.8*** Standard Service Agreement, as amended, dated January 17, 1995
between Frederick Atkins, Incorporated and Peebles Inc.
10.11*+ Form of Indemnification, Guarantee and Contribution Agreement
dated as of August 23, 1995 PHC Retail Holding Company,
Peebles Inc. and each of the directors and officers of Peebles
Inc.
10.16*** Form of Employment Agreement, dated March 30, 1995 entered into
by Peebles Inc.and fourteen executives of Peebles Inc.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule
____________________________
* 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 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.
+++ Incorporated by reference from the Form 10-K of the
Company for the fiscal year ended January 29, 1994.
*** Incorporated by reference from the Form 10-K of
the Company for the fiscal year ended January 28, 1995.
*+ Incorporated by reference from the Form 10-K of
the Company for the fiscal year ended February 1, 1996.
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary Jurisdiction in which organized
------------------------- --------------------------------
Carlisle Retailers, Inc. Ohio
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 33286
<ALLOWANCES> 1224
<INVENTORY> 46858
<CURRENT-ASSETS> 87826
<PP&E> 56558
<DEPRECIATION> 23098
<TOTAL-ASSETS> 163568
<CURRENT-LIABILITIES> 29613
<BONDS> 81297
<COMMON> 1
0
0
<OTHER-SE> 49422
<TOTAL-LIABILITY-AND-EQUITY> 163568
<SALES> 194206
<TOTAL-REVENUES> 194206
<CGS> 116236
<TOTAL-COSTS> 116236
<OTHER-EXPENSES> (687)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8806
<INCOME-PRETAX> (13172)
<INCOME-TAX> 1743
<INCOME-CONTINUING> (14195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14915)
<EPS-PRIMARY> (14915)
<EPS-DILUTED> (14915)
</TABLE>
