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 January 31, 1998
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, 1998, 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 84 specialty department stores offering predominately
soft-apparel, fashion 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 1993, 1994, 1995, 1996 and 1997 relate to the fiscal years of the
Company ending January 29, 1994, January 28, 1995, February 3, 1996, February
1, 1997 and January 31, 1998, respectively. Fiscal years 1993, 1994, 1996 and
1997 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 fifty-three week period ended February 3, 1996.
Peebles Inc. was acquired by PHC Retail Holding Company ("PHC Retail"),
effective May 27, 1995. PHC Retail, a closely held company, has no significant
assets other than the shares of Peebles common stock, and had no operations
prior to the acquisition. The acquisition was accounted for using the purchase
method of accounting, and accordingly, a new accounting base year was
established.
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 29,000 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 by maintaining a merchandise assortment
conducive to consistently higher gross margins, emphasizing strict cost
controls and centralizing traditional "back office" store operations.
Deliver Fashion to Small Communities. Peebles strives to provide its customers
with a shopping experience similar to that found in a larger, mall-based
department store. Soft-apparel fashion merchandise is predominate on the
selling floor, as 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. Cosmetics and selected home accessories
are the primary compliments to the apparel assortment, as fewer hard-line
merchandise categories are offered. 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 developing 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
spaces 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.
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 intends to open eleven new stores in 1998 and
twelve new stores in 1999. As of April 1, 1998 the Company has signed seven
leases for stores scheduled to open in 1998, representing approximately 150,000
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 successfully relocated three stores in 1997 to the desired shopping
destination in that market. In 1998, remodeling and/or space reallocation are
planned for seven store locations to better meet customer preferences.
Acquisitions. The Company believes that from time to time opportunities may
arise for the acquisition of individual stores or groups of stores. In 1997,
three of eight new store locations were acquired from a retailer exiting those
markets, and in 1996, ten of the 14 new stores were acquired. The Company is
continually evaluating acquisitions of both individual stores and groups of
stores for opportunities to compliment or expand existing markets.
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
29,000 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 84 stores currently in operation, 60 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
and 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 1997, a majority of the merchandise sold by the Company was nationally
branded merchandise. Key brands featured by the Company include:
Ladies............... Alfred Dunner, Koret, Kellwood, Liz Claiborne, Etienne
Aigner, Levi Strauss, Hanes, Oak Hill, Halmode Apparel,
Michael Blake, Woolrich, Jantzen, Pendleton, Playtex,
Goodman Knitting, Item Eyes, Lee, E.M. Lawrence, LJJ,
Forecaster of Boston, Monet, J.B.S. Limited, Ultra
Dress, Periwinkle, Shadowline, Sally Lou Fashions, Trio
Knitting Mills, Totes, Rosetti Handbags, R G Barry
Men's ............... Levi, Haggar, Nike, Van Heusen, Bugle Boy, Tropical
Sportswear, Swank, Foria International, Nutmeg Mills
Young Men's and Juniors Levi, Calvin Klein, Union Bay,
Bugle Boy, JNCO by Revatex, Tommy Jeans/Pepe, Byer of
California, Currants Jeri-Jo, Fritzi of California,
Polo, Deummer Boy, Nike, Bongo
Children's .......... William Carter, American Character, Gerson & Gerson,
HealthTex, Buster Brown, Baby Togs
Shoes ............... Reebok, Nike, Maxwell Shoe, Aerosoles, Wolverine World
Wide, Brown Shoe, Nunn Bush, Keds, Candies
Home ................ Springs, World Bazaars, Hugh Country Linens,
Fieldcrest, Whiting, Mikasa, Westpoint-Stevens
Cosmetics .......... Estee Lauder, Elizabeth Arden, Calvin Klein, Clinique,
Liz Claiborne, Giorgio Beverly Hills, Aramis, Fashion
Fair, Paul Sebastian
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 selling space, Peebles tailors the
merchandise selection at individual stores. The Company utilizes its knowledge
of its markets and customers developed over 106 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,
reallocation 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 Fashions, Great
Prices, Everyday". With this program, Peebles prices merchandise as low as
possible in order to drive 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 Fashions, Great
Prices, Everyday" 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 1997, 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 1995, 1996 and 1997 were 2.6%, 2.5%
and 2.1% 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 26 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 over 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 1995, 1996 and 1997, Frederick Atkins, Inc. was the
Company's largest supplier, accounting for retail purchases totaling
approximately 17%, 15% and 10%, 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
shipped to the individual stores. 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 150,000 square foot distribution center is located on 31 acres in
South Hill, Virginia, adjacent to the Company's headquarters and close to major
interstates. The distribution center features automated processing over an
extensive network of conveyors and sortation equipment. The distribution center
currently operates one eight hour shift daily at which growth can be supported
to approximately 110 stores.
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 traditional "back-office" functions as possible at the
corporate level so that store 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 may also manage a store. Regional managers visit each
store in their region 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. Each quarter,
corporate merchandising and operations executives meet with the regional
managers to share information.
The Company conducts a management training program, where on-the-job training
with seasoned store management and regional managers is coordinated with
instruction at the Company's corporate headquarters. 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 CARD
In 1995, 1996 and 1997, 38.8%, 37.1% and 34.3%, respectively, of net sales were
made using the Company's proprietary credit card. As of January 31, 1998, the
Company had approximately 620,000 credit card accounts, of which 158,000 were
billed that month.
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. Peebles charge transactions are
captured via store point-of-sale terminals and transmitted directly to the
corporate credit mainframe computer system, where Peebles charge customer
account information is updated. 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 in-house. The
extension of credit is governed by risk models and matrices, which are developed
and reviewed by corporate credit executives. Through a communication network
linking the store locations to the corporate office and a credit bureau,
in-store credit applications are scored within minutes and the actual
credit limit is assigned and available for purchases. Inquiries by Peebles
charge customers and in-store associates are answered by a corporate customer
service department. Monthly customer statements are produced at the corporate
office and when prepared for mailing, can be combined with selective promotional
material or delinquency notices. 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
_____________________ ______________________
% of Period-End Total % of Total
Years Sales Amount Sales Customer Receivables Amount Receivables
<C> <C> <C> <C> <C> <C> <C>
1995 68,216 766 1.1 29,494 960 3.3
1996 72,086 1,192 1.7 33,286 1,224 3.7
1997 74,657 1,327 1.8 32,981 1,400 4.2
</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 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 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 January 31, 1998, the Company had 1,188 full-time employees and 1,716
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 TM,
Private Expressions TM, Meherrin River Outfitters TM, Harmony Grove TM and
Sonoma Bay TM.
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.
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 29,000 square feet. The Company's stores and net
selling square footage at January 31, 1998 was as follows:
<TABLE>
State Stores Net SQ Ft State Stores Net SQ Ft
<S> <C> <C> <C> <C> <C>
Virginia 31 662,325 Ohio 4 79,181
Tennessee 10 258,001 Delaware 3 80,611
North Carolina 9 196,402 New York 3 84,983
Maryland 8 250,838 Kentucky 2 61,918
Pennsylvania 5 117,581 New Jersey 1 25,580
South Carolina 4 108,658
Alabama 4 77,564 Totals 84 2,003,642
</TABLE>
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 1995, 1996
and 1997, the Company's aggregate rental payments on operating leases were
approximately $7.2 million, $8.2 million and $9.4 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 January 31, 1998 are derived from the Company's audited
financial statements. 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 periods 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>
(Dollars in thousands except per share and selected other data)
<CAPTION>
Four-Month Eight-Month
Fiscal Years Ended Period Ended Period Ended Fiscal Years Ended
January 29, January 28, May 27, February 3, February 1, January 31,
1994 1995 1995 1996 1997 1998
------------ ---------- ------------ ------------- ---------- ----------
(Pre-1995 Acquisition) (Post 1995 Acquisition)
<C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $151,772 $167,662 $49,163 $126,501 $194,206 $217,694
Cost of sales 91,134 98,066 29,935 72,994 116,236 130,820
-------- -------- ------- -------- -------- --------
Gross margin 60,638 69,596 19,228 53,507 77,970 86,874
Selling, general and
Administrative expenses 40,320 45,205 14,639 33,275 54,400 60,324
Depreciation and
Amortization 6,029 6,729 2,349 4,339 7,499 6,648
Stock option settlement --- --- 3,089 --- --- ---
Asset impairment --- --- --- --- 20,782 ---
-------- -------- ------ ------- ------- --------
Operating income (loss) 14,289 17,662 (849) 15,893 (4,711) 19,902
Other income (expenses) (1) 131 77 (52) 687 444
Interest expense 4,248 4,569 1,414 6,565 9,148 9,609
-------- -------- ------ ------- ------- -------
Income (loss) before
income taxes (benefit)
and Extraordinary item 10,040 13,224 (2,186) 9,276 (13,172) 10,737
Income taxes (benefit) 4,513 5,747 (874) 4,246 1,743 4,687
-------- -------- ------- ------- -------- --------
Income (loss) before
extraordinary item 5,527 7,477 (1,312) 5,030 (14,915) 6,050
Extraordinary item - - (216) --- --- ---
-------- -------- -------- ------- -------- -------
Net income (loss) $ 5,527 $ 7,477 $(1,528) $ 5,030 $(14,915) $ 6,050
Net income (loss)
per share $ 1.88 $ 2.54 $ (.52) $ 5,030 $(14,915) $ 6,050
Average common stock and
common stock equivalents
Outstanding 2,932,905 2,940,281 2,942,600 1,000 1,000 1,000
SELECTED OTHER DATA: Twelve Month Data
-----------------
Net sales per
store (000's) (1) $ 2,962 $ 3,189 $ 3,032 $ 2,921 $ 2,835
Selling sq. ft. per
store (1) 26,000 26,000 26,300 26,032 24,550
Net sales per selling
sq. ft. (2) $116 $117 $112 $108 $113
Comparable store net sales
increase (decrease) (1) 4.3% 4.6% (5) (1.0%) (6) (1.3%) 5.3%
Number of stores
(end of period) 54 58 65 78 84
Total selling sq. ft.
(end of period) 1,385,000 1,510,000 1,649,000 1,893,000 2,004,000
Capital expenditures
(000's) $7,372 $8,454 $8,094 $8,783 $10,226
<CAPTION>
BALANCE SHEET DATA: January 29, January 28, February 3, February 1, January 31,
1994 1995 1996 1997 1998
----------- ----------- ----------- ------------ -----------
(Post 1995 Acquisition)
<S> <C> <C> <C> <C> <C>
Working capital $ 44,348 $ 49,872 $ 48,395 $ 58,213 $ 62,889
Net property
and equipment 24,903 28,951 33,308 33,460 38,749
Total assets 143,727 148,954 165,553 163,568 172,456
Total debt (3) 46,207 41,955 76,778 90,962 87,299
Stockholders' equity (4) 74,530 82,234 64,338 49,423 55,473
</TABLE>
Selected Financial Data Footnote Legend
N/M*- Not meaningful.
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.
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-14 of this annual report on Form 10-K.
RECENT DEVELOPMENTS
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is contained in the consolidated
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>
Years
Name Age Position with the Company
- --------------------- ------ ---------- ----------------
<S> <C> <C> <C>
Michael F. Moorman 55 Chairman of the Board, President and Chief 34
Executive Officer
Ronnie W. Palmore 49 Senior Vice President, Merchandising and 25
Assistant Secretary
Russell A. Lundy, Sr. 62 Senior Vice President, Stores 44
E. Randolph Lail 42 Senior Vice President, Finance, Chief Financial 10
Officer, Secretary and Treasurer
Marvin H. Thomas, Jr. 42 Senior Vice President, Operations 19
William C. DeRusha 48 Director 6
Malcolm S. McDonald 59 Director 6
Wellford L. Sanders, Jr. 52 Director 5
Thomas R. Wall, IV 39 Director 3
Frank T. Nickell 50 Director 3
</TABLE>
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 Director of the Company 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 Furniture Company. Mr. DeRusha is a director
of Heilig-Meyers Furniture Company and First Union National Bank VA/MD/DC.
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 of First
Union National Bank VA/MD/DC. From December 1996 until November 1997, Mr.
McDonald was Chairman of the Board and Chief Executive Officer of Signet Banking
Corporation. From May 1996 to December 1996, Mr. McDonald was President and
Chief Executive Officer of Signet Banking Corporation. Prior to May 1996 he was
President and Chief Operating Officer of Signet Banking Corporation. Mr.
McDonald is a director of First Union 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 Managing Director of
Wheat First Union. Until April 1996, Mr. Sanders was 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 a General Partner of Kelso since 1989. Mr. Wall is also a director of
AMF Bowling Inc., CCA Holdings Corp., CCT Holdings Corp., Charter Communications
Long Beach, Inc., Consolidated Vision Group, Inc., Cypnus Publishing, Inc.,
Hillside Broadcasting of North Carolina, IXL Holdings, Inc., Mitchell Supreme
Fuel Company, Mosler Inc., TransDigm, Inc. and 21st Century Newspapers, Inc.
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., Charter
Communications Long Beach, Inc., Earle M. Jorgensen Company, and The
Bear and Stearns Companies Inc.
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
$20,000, payable quarterly in arrears, and are reimbursed for expenses incurred
in attending meetings of the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of the directors and officers of
Peebles pursuant to which Peebles agrees to indemnify such director or officer
from claims, liabilities, damages, expenses, losses, costs, penalties or amounts
paid in settlement incurred by such director or officer and arising out of his
capacity as a director, officer, employee and/or agent of the corporation of
which he is a director or officer to the maximum extent provided by applicable
law. In addition, such director or officer shall be entitled to an advance of
expenses to the maximum extent authorized or permitted by law to meet the
obligations indemnified against. Such agreements also obligate the Company to
purchase and maintain insurance for the benefit and on behalf of its directors
and officers insuring against all liabilities that may be incurred by such
director or officer, in or arising out of his capacity as a director, officer,
employee and/or agent of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth a summary of compensation paid by the Company to
its five highest paid executive officers (the "Named Executives") during 1995,
1996 and 1997.
<TABLE>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payout
------ ------
Number of
Other Annual Options/ Long-term
Name and Salary Bonus Compensation Warrants Incentive Plan
Principal Position Year ($)(1) ($)(2) ($)(3)(4) Granted Payouts ($)
- ------------------ ---- ------ ------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael F. Moorman
Chairman of the Board, 1997 $ 286,354 $ 177,000 $ -- -- --
President and Chief 1996 270,954 -- -- -- --
Executive Officer 1995 261,050 17,800 1,133,400 -- --
Ronnie W. Palmore
Senior Vice President, 1997 $ 156,973 $ 48,090 $ -- -- --
Merchandising and 1996 150,838 8,050 -- -- --
Assistant Secretary 1995 144,087 15,872 329,062 -- --
Russell A. Lundy, Sr. 1997 $ 126,200 $ 41,237 $ -- -- --
Senior Vice President, 1996 121,013 11,758 -- -- --
Stores 1995 115,538 8,297 224,062 -- --
E. Randolph Lail
Senior Vice President, 1997 $ 130,048 $ 36,206 $ 1,264 -- --
Finance, CFO, 1996 122,254 9,375 1,268 -- --
Secretary and Treasurer 1995 108,721 6,653 180,681 -- --
Marvin H. Thomas, Jr. 1997 $ 99,325 $ 28,688 1,027 -- --
Senior Vice President, 1996 95,425 6,382 1,030 -- --
Operations 1995 90,806 10,412 159,370 -- --
</TABLE>
_______________________________________
(1) Salary amounts for 1995, 1996 and 1997 include tax-deferred contributions of
compensation to the Company's 401(K) Profit Sharing Plan (the "401-K Plan").
Salary compensation contributed to the 401-K Plan during 1995, 1996 and 1997
for each of the Named Executives is Mr. Moorman $2,333, $5,520 and $4,367;
Mr. Palmore $1,366, $3,098 and $4,150; Mr. Lundy $458, $0 and $2,233; Mr.
Lail $2,168, $2,420 and $3,437; and Mr. Thomas $1,798, $1,879 and $2,573,
respectively.
(2) Bonus amounts for each of the Named Executives include the accrued bonus
earned under the Company's annual incentive plans in 1995, 1996 and 1997 and
include tax-deferred contributions of compensation to the 401-K Plan for
each of the Named Executives as follows: Mr. Moorman, $356, $0 and $5,310;
Mr. Palmore, $317, $161 and $1,443; Mr. Lundy, $0, $0 and $1,237; Mr. Lail,
$133, $188 and $1,086; and Mr. Thomas, $208 $128 and $861, respectively.
(3) The amounts shown (in 1995, $1,618 and $1,520 for Mr. Lail and Mr. Thomas,
respectively) reflect the current value of the benefit to Mr. Lail and Mr.
Thomas, respectively, of the portion of premiums paid by the Company with
respect to a split dollar insurance arrangement. 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 1995 ($11,210 for Mr. Lail and $9,650 for Mr. Thomas); in 1996 and in
1997 ($18,729 for Mr. Lail and $15,221 for Mr. Thomas per year).
(4) 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 $3,157 for Mr. Moorman, Mr. Palmore, Mr. Lail and Mr. Thomas,
respectively.
<PAGE>
OPTION GRANT TABLE. There were no options granted by the Company to the
Named Executives during 1997.
OPTION EXERCISE TABLE. The following table sets forth information concerning
the exercise of stock options during 1997 by each of the Named Executives and
the year end value of unexercised options.
Options Exercised in 1997
<TABLE>
Individual Grants
-----------------
Number of Unexercised
Value Options at Year end Value of Unexercised In-the-
Shares Acquired Realized Exercisable/ Money Options at Year end
Name and Principal Position on Exercise (1) ($) 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 1997.
(2) There were no unexercised options at year end.
As of the fiscal year ended January 31, 1998 there were no projected
long-term incentive payouts.
<PAGE>
PENSION PLAN
Through January 31, 1998, the Company provided one non-contributory qualified
defined benefit pension plan, The Employees Retirement Plan of Peebles Inc.
("Plan I"), which covered all employees of Peebles who (i) completed 1,000 hours
of service during a one-year period with Peebles and (ii) attained age 21 (a
"Participant").
On November 19, 1997, the Board of Directors approved i) the adoption of The
Employees Retirement Plan II of Peebles Inc. ("Plan II") to be effective
February 1, 1998, and ii) the fifth amendment to Plan I. Under this amendment,
the benefits of certain participants in Plan I are frozen at February 1, 1998
(the "Curtailment Date"), and those same participants are spun-off to Plan II.
After the Curtailment Date, participation in Plan I and Plan II was closed to
new employees. Participants spun-off to Plan II are 100% vested in their
accrued benefits as calculated on the Curtailment Date and will not accrue any
additional benefit service. Participants remaining in Plan I continue to accrue
retirement benefits.
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 Company makes contributions to Plan I equal to the contribution required to
satisfy minimum funding standards under ERISA. Contributions to the plan are
determined on an actuarial basis without allocation to individuals or groups.
The Board of Directors has directed the Trustee of Plan I to transfer assets and
liabilities attributable to the benefits of Plan II to the Trustee of Plan II as
of the Curtailment Date.
The following table shows estimated annual retirement benefits payable to
Participants 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........ $11,700 $15,600 $19,500 $23,400 $23,400
100,000........ 16,575 22,100 27,625 33,150 33,150
125,000........ 21,450 28,600 35,750 42,900 42,900
150,000........ 26,325 35,100 43,875 52,650 52,650
175,000........ 31,200 41,600 52,000 62,400 62,400
200,000........ 36,075 48,100 60,125 72,150 72,150
225,000........ 40,950 54,600 68,250 81,900 81,900
250,000........ 45,825 61,100 76,375 91,650 91,650
300,000........ 55,575 74,100 92,625 111,150 111,150
350,000........ 65,325 87,100 108,875 130,650 130,650
400,000........ 75,075 100,100 125,125 150,150 150,150
450,000........ 84,825 113,100 141,375 169,650 169,650
As of January 31, 1998, the credited years of service for Mr. Moorman, Mr.
Palmore, Mr. Lundy, Sr., Mr. Thomas, Jr. and Mr. Lail were 34, 25, 44, 19 and
10, respectively.
Peebles reserves the right at any time by action of its Board of Directors to
terminate either or both Plans. On November 19, 1997, the Board of Directors
terminated Plan II effective May 1, 1998. The Company intends to maintain Plan
I until all participants have either retired or otherwise separated from
Peebles. With the transfer of assets from Plan I, Plan II is fully funded
and Peebles will not be required to make any further contributions to this plan.
Participants in Plan II will be paid their accrued benefits in a lump sum.
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
1997, 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,
was a partner through April 1997 in the law firm of McGuire, Woods, Battle &
Boothe LLP, which rendered legal services to the Company during 1997.
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 1997.
EMPLOYMENT AGREEMENTS
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, 1998, 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>
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 (3) 91.22 0 0
Kelso Equity
Partners V, L.P. (2),(3) 52,973 2.68 0 0
Michael F. Moorman (6) 43,750 2.21 0 0
Ronnie W. Palmore (6) 12,218 * 0 0
Russell A. Lundy, Sr. (6) 8,438 * 0 0
E. Randolph Lail (6) 5,550 * 0 0
Marvin H. Thomas, Jr. (6) 4,578 * 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 (3) 93.90 0 0
Frank T. Nickell (2),(3) 1,873,514 (4) 94.76 0 0
George E. Matelich (2),(3) 1,856,666 (3) 93.90 0 0
Thomas R. Wall, IV (2),(3) 1,873,194 (5) 94.74 0 0
Michael B. Goldberg (2),(3) 1,856,666 (3) 93.90 0 0
All Directors and Named Executives
as a group (10 persons) (6) 1,948,048 98.52 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 Goldberg
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 unexercised vested stock options for the purchase of PHC Common
Stock in the amount of 8,750, 2,750, 1,938, 2,250, and 1,437 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 consolidated
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-
13 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
10.1*+ Credit Agreement dated June 9, 1995, by and amoung 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.
10.62*+ 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.
10.65 Third Amendment to the Credit Agreement dated May 16, 1997.
10.66 Fourth Amendment to the Credit Agreement dated July 30, 1997.
10.67 Fifth Amendment to the Credit Agreement dated April 9, 1998.
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.
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-13 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.
<PAGE>
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: April 15, 1998
--------------------------------
Michael F. Moorman, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail Date: April 15, 1998
-------------------------------
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 Date: April 15, 1998
-------------------------------
Wellford L. Sanders, Jr., Director
By /s/ William C. DeRusha Date: April 15, 1998
-------------------------------
William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: April 15, 1998
-------------------------------
Malcolm S. McDonald, Director
By /s/ Frank T. Nickell Date: April 15, 1998
-------------------------------
Frank T. Nickell, Director
By /s/ Thomas R. Wall, IV Date: April 15, 1998
-------------------------------
Thomas R. Wall, IV, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
<PAGE>
Audited Consolidated Financial Statements
PEEBLES INC. AND SUBSIDIARY
January 31, 1998
Report of Independent Auditors F-1
Consolidated Balance Sheet F-2
Statement of Consolidated Operations F-3
Statement of Consolidated Changes in
Stockholders' Equity F-4
Statement of Consolidated Cash Flows F-5
Notes to Consolidated Financial Statements F-6
Management's Discussion and Analysis of
Financial Condition and Results of Operations F-14
F-0
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Peebles Inc.
We have audited the accompanying consolidated balance sheet of Peebles Inc. and
subsidiary as of January 31, 1998 and February 1, 1997, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the fiscal years ended January 31, 1998 and February 1, 1997, for the
eight-month period ended February 3, 1996 and the four-month period ended May
27, 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 consolidated financial position of Peebles
Inc. and subsidiary at January 31, 1998 and February 1, 1997, and the
consolidated results of their operations and their cash flows for the fiscal
years ended January 31, 1998 and February 1, 1997, the eight-month period ended
February 3, 1996 and the four-month period ended May 27, 1995, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young
-------------------
Richmond, Virginia
March 11, 1998, except for Note E as to which the date is April 9, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEET
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands, except per share amounts)
January 31, 1998 February 1, 1997
---------------- ----------------
ASSETS
CURRENT ASSETS
Cash $ 432 $ 228
Accounts receivable, net 31,581 32,062
Merchandise inventories 57,967 54,431
Prepaid expenses 1,145 1,036
Income taxes receivable 303 --
Other 773 69
-------- --------
TOTAL CURRENT ASSETS 92,201 87,826
PROPERTY AND EQUIPMENT
Fixtures and equipmen 50,588 46,858
Land and building 10,348 7,818
Leasehold improvements 1,725 1,882
-------- --------
62,661 56,558
Accumulated depreciation
and amortization 23,912 23,098
-------- --------
38,749 33,460
OTHER ASSETS
Excess of cost over net assets
acquired, net 35,460 36,069
Deferred financing costs, net 2,442 2,808
Beneficial leaseholds, net 897 1,054
Sundry 2,707 2,351
-------- --------
41,506 42,282
-------- --------
$ 172,456 $ 163,568
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 13,606 $ 10,737
Accrued compensation and other
expenses 5,055 5,000
Income taxes payable -- 675
Deferred income taxes 4,592 2,934
Current maturities of long-term debt 4,653 9,665
Other 1,406 602
-------- --------
TOTAL CURRENT LIABILITIES 29,312 29,613
LONG-TERM DEBT 81,507 79,950
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,139 1,347
DEFERRED INCOME TAXES 5,025 3,235
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 (3,835) (9,885)
--------- ---------
55,473 49,423
--------- ---------
$ 172,456 $ 163,568
========== ===========
See notes to consolidated financial statements.
F-2
<PAGE>
STATEMENT OF CONSOLIDATED OPERATIONS
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Period Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
----------------- ---------------- ----------------- -------------
(Prior to 1995
Acquisition)
<S> <C> <C> <C> <C>
NET SALES $ 217,694 $ 194,206 $ 126,501 $ 49,163
COSTS AND EXPENSES
Cost of sales 130,820 116,236 72,994 29,935
Selling, general and
administrative expenses 60,324 54,400 33,275 14,639
Stock option settlement -- -- -- 3,089
Depreciation and amortization 6,648 7,499 4,339 2,349
Asset revaluation -- 20,782 -- --
------------ ------------- ----------- -----------
OPERATING INCOME (LOSS) 19,902 (4,711) 15,893 (849)
OTHER INCOME (EXPENSE) 444 687 (52) 77
INTEREST EXPENSE 9,609 9,148 6,565 1,414
------------ ------------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) AND EXTRAORDINARY ITEM 10,737 (13,172) 9,276 (2,186)
INCOME TAXES (BENEFIT)
Current 1,238 2,137 3,276 (474)
Deferred 3,449 (394) 970 (400)
------------ ------------- ----------- -----------
4,687 1,743 4,246 (874)
------------ ------------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 6,050 (14,915) 5,030 (1,312)
EXTRAORDINARY ITEM--DEBT REFINANCING -- -- -- (216)
------------ ------------- ----------- -----------
NET INCOME (LOSS) $ 6,050 $ (14,915) $ 5,030 $ (1,528)
============ ============= =========== ===========
NET INCOME (LOSS) PER SHARE $ 6,050 $ (14,915) $ 5,030 $ (.52)
============ ============= =========== ===========
Weighted average common stock
outstanding 1,000 1,000 1,000 2,942,690
============ ============= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<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 28, 1995 2,942,690 $ 294 $ 64,390 $ 17,550
Net (loss) -- -- -- (1,528)
---------- -------- --------- ---------
Balance May 27, 1995,
prior to 1995
Acquisition 2,942,690 294 64,390 16,022
1995 Acquisition
adjustments (2,941,690) (293) (5,083) (16,022)
---------- -------- --------- ---------
Balance May 27, 1995,
following 1995
Acquisition 1,000 1 59,307 --
Net income -- -- -- 5,030
---------- -------- --------- ---------
BALANCE FEBRUARY 3, 1996 1,000 1 59,307 5,030
Net (loss) -- -- -- (14,915)
---------- -------- --------- --------
BALANCE FEBRUARY 1, 1997 1,000 1 59,307 (9,885)
Net income -- -- -- 6,050
---------- -------- --------- ---------
BALANCE JANUARY 31, 1998 1,000 $ 1 $ 59,307 $ (3,835)
======= ===== ======== =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
PEEBLES INC. AND SUBSIDIARY
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Period Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
----------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 6,050 $ (14,915) $ 5,030 $ (1,528)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 4,710 4,616 2,491 1,453
Amortization 2,902 3,842 2,502 896
Deferred income taxes 3,449 (394) 970 (400)
Provision for doubtful accounts 1,503 1,192 531 265
Extraordinary loss, net -- -- -- 216
LIFO/market reserve adjustment 250 39 (970) 1,035
Asset revaluation -- 20,782 -- --
Changes in operating assets and
liabilities net of effects from
acquisition adjustments
Accounts receivable (1,022) (1,527) (2,199) 1,681
Merchandise inventories (3,786) (8,088) (113) (2,217)
Accounts payable 2,794 780 (658) 1,893
Other assets and liabilities (1,762) (205) 692 (561)
----------- --------- -------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 15,088 6,122 8,276 2,733
INVESTING ACTIVITIES
Acquisition of Peebles Inc. -- -- (90,923)
Acquisition of Carlisle
Retailers Inc. -- (11,549)
Purchase of property and
equipment (10,226) (8,783) (5,683) (2,411)
Other (879) (219) -- 281
----------- --------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (11,105) (20,551) (5,683) (93,053)
FINANCING ACTIVITIES
Proceeds from revolving
line of credit and
long-term debt 324,662 272,013 227,686 58,145
Reduction in revolving
line of credit and
long-term debt (328,441) (267,762) (230,164) (56,129)
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 (3,779) 14,464 (2,478) 89,990
--------- --------- -------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 204 35 115 (330)
Cash and cash equivalents
beginning of period 228 193 78 408
--------- --------- -------- ---------
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 432 $ 228 $ 193 $ 78
========= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. AND SUBSIDIARY
January 31, 1998
(dollars in thousands, except per share amounts)
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Peebles operates retail department stores offering
predominately soft-apparel, fashion merchandise for the entire family, and other
selected home accessories. At January 31, 1998, the Company was operating 84
stores located primarily in small and medium sized communities which typically
do not have a mall-based department store. The stores serve communities in 12
states, located predominately in the Southeast and Mid-Atlantic.
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION: 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.
THE 1995 ACQUISITION: Peebles Inc. was acquired by PHC Retail Holding Company
("PHC Retail") for approximately $136 million on May 27, 1995 in an acquisition
accounted for using the purchase method of accounting, and accordingly, a new
accounting basis was begun. 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.
ACQUISITION OF CARLISLE RETAILERS, INC.: On May 20, 1996, Peebles Inc. acquired
Carlisle Retailers, Inc., an Ohio corporation, ("Carlisle's") for approximately
$11,549 in cash which 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 "CRI Merger"). Carlisle's is now a wholly owned subsidiary of
Peebles Inc. The CRI Merger was accounted for using the purchase method of
accounting, and as such, the purchase price was allocated to the fair value of
tangible assets and the excess of cost over net assets acquired.
FISCAL YEAR: The Company's fiscal year ends on the Saturday nearest January 31.
Fiscal years 1997, 1996 and 1995, ended on January 31, 1998, February 1, 1997
and February 3, 1996, respectively. Results of operations for 1997 and 1996
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. Certain amounts in
the 1996 consolidated financial statements have been reclassified to conform to
the fiscal 1997 presentation.
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.
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 January 31, 1998 or February 1, 1997.
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 their 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.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
ADVERTISING COSTS: Advertising costs, charged to selling, general and
administrative expenses as incurred, aggregated $4,551, $4,917, $3,075 and
$1,449 for 1997, 1996, the eight-month period ended February 3, 1996, and the
four-month period ended May 27, 1995, respectively.
LONG-LIVED ASSETS: The Company periodically reviews the carrying value of long-
lived assets to determine if an impairment has occurred. The primary indicators
of impairment are, but not limited to, significant changes in competition or
demographics, recent historical operating profitability, projected profitability
and the related cash flows of each. See Note D for 1996 details.
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. As described in Note D, allocated goodwill was reduced by
$15,220 in 1996. Accumulated amortization at January 31, 1998 and February 1,
1997 was $5,144 and $3,656, respectively.
DEFERRED FINANCING COSTS: Deferred financing costs are amortized by the
interest method over a period consistent with the related financing.
Amortization expense of $965, $884, $585 and $68 is included in interest expense
for 1997, 1996, the eight-month period ended February 3, 1996, and the four-
month period ended May 27, 1995, respectively. Accumulated amortization at
January 31, 1998 and February 1, 1997 was $2,327 and $1,436, 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 January 31, 1998,
accumulated amortization was $157.
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 outstanding.
NOTE B-ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $1,400 and $1,224, representing the
allowance for uncollectible accounts at January 31, 1998 and February 1, 1997,
respectively. The provision for doubtful accounts was $1,503, $1,192, $531
and $265 for 1997, 1996, the eight-month period ended February 3, 1996, and the
four-month period ended May 27, 1995, respectively. Finance charges on credit
sales, included as a reduction of selling, general and administrative expenses,
aggregated $5,089, $5,050, $3,175 and $1,643, for 1997, 1996, the eight-month
period ended February 3, 1996, and the four-month period ended May 27, 1995,
respectively. As a service to its customers, the Company offers credit through
the use of its own charge card, certain major credit cards and a layaway plan.
The Peebles' customer usually resides in the local community immediately
surrounding the store location. Peebles stores serve these local customers in
Virginia, Maryland, North Carolina, South Carolina, Tennessee, Kentucky,
Alabama, Delaware, New Jersey, Ohio, Pennsylvania and New York. The Company does
not require collateral from its customers.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
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 net effect of the LIFO and market
reserves adjusts inventory to the lower of LIFO cost and market.
Merchandise inventories consisted of the following:
January 31, 1998 February 1, 1997
---------------- ----------------
Merchandise inventories at FIFO cost $ 51,234 $ 47,448
Fair Value Adjustment 7,436 7,436
LIFO/market reserve (703) (453)
---------- ----------
Merchandise inventories at lower of cost
or market $ 57,967 $ 54,431
========== ===========
NOTE D-ASSET REVALUATION
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of". The Company periodically reviews the carrying
value of long-lived assets to determine if impairment has occurred. The primary
indicators of impairment are, but not limited to, significant changes in
competition or demographics, recent historical operating profitability,
projected profitability and the cash flows of each. Projections are based on
management's best estimates of future performance.
In the fourth quarter of 1996, on an individual store basis, increased
competition and shifting demographics in certain markets, together with
historical and projected store operations, indicated that the aggregate
estimated undiscounted cash flows to be generated would be less than the current
carrying values of certain store assets, related intangibles and allocated
goodwill. As a result, fair value was calculated using a multiple of discounted
projected cash flows and carrying values were reduced as follows:
Store fixtures and equipment $ 4,034
Related beneficial leasehold 1,528
Allocated goodwill 15,220
-----------
Total asset revaluation $ 20,782
===========
The fair value estimate is based on the best information available, including
prices for similar assets or the results of valuation techniques such as
discounting estimated future cash flows as if the decision to use the impaired
asset was a new investment decision.
The asset revaluation reduced 1996 deferred income taxes by approximately
$2,141.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE E-LONG-TERM DEBT
Long-term debt consisted of the following:
January 31, 1998 February 1, 1997
---------------- ----------------
Senior Revolving Facility $ 32,000 $ 43,000
Senior Term Note A 15,275 17,725
Senior Term Note B 37,094 27,475
Swingline Facility 1,791 1,415
---------- ----------
86,160 89,615
Less current maturities:
Senior Term Notes A & B 4,083 3,000
Senior Revolving & Swingline
Facilities 570 6,665
---------- ----------
Total current maturities 4,653 9,665
---------- ----------
$ 81,507 $ 79,950
========== ==========
The Company has a $127 million credit facility (the "Credit Agreement") which
provides a Senior Term Facility, a Senior Revolving Facility, and a Swingline
Facility. Restrictive covenants prohibit the payment of cash dividends in any
fiscal year and the Credit Agreement is secured by a first priority security
interest in substantially all the personal property and certain real property of
Peebles. The Credit Agreement was amended on July 30, 1997, primarily to allow
for the transfer of $10 million from the Senior Revolving Facility to Senior
Term Note B. The Credit Agreement was again amended on April 9, 1998 (the "1998
Amendment"), primarily to i) reduce principal payments on the senior term debt;
ii) reduce the interest rates on the senior debt; iii) increase the maximum
borrowings under the Senior Revolving Facility to $75 million (from $65 million)
, and iv) extend the maturity dates of Senior Term Note A and the Senior
Revolving Facility from June 9, 2000 to January 31, 2002 and June 9, 2002,
respectively.
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 bore interest during
1997 at LIBOR plus 2.75% and LIBOR plus 3.25%, respectively. Under the 1998
Amendment, Senior Term Note A and Senior Term Note B bear interest at LIBOR plus
2.25% and LIBOR plus 2.75%, respectively. Scheduled principal payments and
interest are payable quarterly in arrears. Senior Term Note A matures January
31, 2002 and Senior Term Note B matures June 9, 2002.
The amount available under the Senior Revolving Facility (the "Revolver") is
determined by a defined asset based formula with maximum borrowings limited to
$75 million less outstanding amounts under letters of credit. The Revolver
matures on June 9, 2002. The Revolver has no specific paydown provisions. The
Company classifies a portion of the Revolver outstanding balance as short-term,
if based on the projected operations during the next fiscal year, the Revolver
outstanding balance is expected to be less at any fiscal month end than the
outstanding balance at the fiscal year end. The Company pays a fee of 1/2 of 1%
per annum on any unused portion of the Senior Revolving Facility. The Revolving
Facility bore interest at LIBOR plus 2.75%. Under the 1998 Amendment, the
interest rate is LIBOR plus 2.25%.
The Company has a three-year interest rate protection agreement, expiring June,
1998, 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 Senior Revolving Facility. The Swingline
Facility bears interest at prime plus 1-1/2% and has no LIBOR conversion option.
Aggregate principal payments on the long-term debt for the next five fiscal
years are: 1998-- $4,653, 1999--$6,280, 2000--$7,500, 2001--$10,475, and
2002--$57,252.
Peebles has commitments for letters of credit with a bank which totaled $172 and
$573 at January 31, 1998 and February 1, 1997, respectively. The commitments
expire August 1, 1998.
Peebles made cash interest payments of $8,311, $7,866, $6,353 and $973, for
fiscal year 1997, 1996, the eight-month period ended February 3, 1996, and the
four-month period ended May 27, 1995, respectively.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
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:
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Period Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
---------------- ---------------- ---------------- -------------
(Prior to 1995
Acquisition)
Minimum $ 8,913 $ 7,742 $ 4,552 $ 2,276
Contingent 483 453 275 138
----------- ---------- ---------- ----------
$ 9,396 $ 8,195 $ 4,827 $ 2,414
=========== ========== ========== ==========
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 January 31, 1998 were as follows:
Capital Operating
Fiscal Year Leases Leases
- ----------- ------- ----------
1998 $ 377 $ 8,467
1999 377 8,114
2000 377 7,591
2001 180 7,175
2002 180 6,453
Thereafter 421 40,650
------- ---------
Total minimum lease payments 1,912 $ 78,450
Less: amounts representing
interest (565)
--------
Present value of net minimum
lease payments, including
current maturities of $208,
with interest rates ranging
from 11.3% to 18.1% $ 1,347
=========
NOTE G-EMPLOYEE BENEFIT PLANS
Defined Benefit Pension Plans: Through January 31, 1998, the Company provided
one defined benefit plan, The Employees Retirement Plan of Peebles Inc. ("Plan
I") which covered substantially all employees. Participation in Plan I is
dependent on meeting certain age and service requirements. On November 19,
1997, the Board of Directors approved i) the adoption of The Employees
Retirement Plan II of Peebles Inc. ("Plan II") to be effective February 1, 1998
(the "Curtailment Date"), and ii) the fifth amendment to Plan I. Under the
amendment, the benefits of certain participants are frozen at the Curtailment
Date and those participants spun-off to Plan II. No employee will become a
participant in either Plan I or Plan II after February 1, 1998. Participants
spun-off to Plan II will not accrue any benefit service after the Curtailment
Date. Plan II will be terminated effective as of May 1, 1998. Plan II
participants are 100% vested in their accrued benefits as calculated on the
Curtailment Date.
Participants in Plan I which were not spun-off to Plan II will continue to
accrue benefits. Benefits under both Plan I and Plan II 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. The Board of
Directors has directed the Trustee of Plan I to transfer assets and liabilities
attributable to the benefits of Plan II participants to the trustee of Plan II
as of the Curtailment Date.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE G-EMPLOYEE BENEFIT PLANS--Continued
The net periodic pension cost of Plan I included the following components:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Peroid Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
---------------- ---------------- ---------------- -------------
(Prior to 1995 Acquisition)
<S> <C> <C> <C> <C>
Service cost-benefits
earned during the period $ 372 $ 345 $ 207 $ 104
Interest cost on projected
benefit obligation 501 543 332 166
Actual return on plan assets (1,632) (109) (649) (324)
Net amortization and deferral 1,091 (460) 275 138
------- -------- -------- --------
Net periodic pension cost $ 332 $ 319 $ 165 $ 84
======= ======== ======== ========
Net curtailment gain $ 231 N/A N/A N/A
=======
</TABLE>
The net curtailment gain has been calculated considering the estimated net
decrease in projected benefit obligation, net of the elimination of capitalized
prior service costs.
The following table sets forth the Pension Plan's funded status and amounts
recognized in Peebles balance sheet:
January 31, 1998 February 1, 1997
Actuarial present value of
benefit obligations:
Accumulated benefit obligations
including vested benefits of
$5,756 and $5,316, respectively $ (6,303) $ (5,707)
=========== ============
Projected benefit obligation $ (7,465) $ (7,299)
Plan assets at fair value,
primarily listed stocks and U.S.
Government Treasury Bonds 7,419 6,509
----------- ------------
Projected benefit obligations in
excess of Plan assets (46) (790)
Prior service costs 63 73
Unrecognized net (gain) loss (384) 682
----------- ------------
Net pension liability recognized
in the balance sheet $ (367) $ (35)
=========== ============
In calculating the present value of projected benefit obligations for 1997 and
1996, a 4.5% and 4.4% weighted average rate of compensation increase 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 1997, 1996 and 1995.
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 did not contribute to
the plan in the prior three fiscal years. Effective February 1, 1998, the
Company will begin matching employee contributions up to 50% of an employee's
first 6% of eligible compensation.
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 Plan I,
the executives will receive replacement income in retirement equal to 60% of
final average compensation, as defined in Plan I. The program is funded through
life insurance contracts covering the participating executives. At January 31,
1998 and February 1, 1997, the Company had a net obligation of $75, recognized
in the balance sheet based upon a discount rate of 7.5% for 1997 and 1996. The
Company recognized net expense related to the program of $213, $238, $146 and
$73 in the fiscal years ended January 31, 1998, and February 1, 1997, the eight-
month period ended February 3, 1996 and the four-month period ended May 27,
1995, respectively.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE H - INCOME TAXES
The provisions for income taxes consisted of the following:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Period Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
---------------- ---------------- ---------------- -------------
(Prior to
1995 Acquisition)
<S> <C> <C> <C> <C>
Current: Federal $ 1,089 $ 1,591 $ 2,703 $ (382)
State 149 546 573 (92)
Deferred: Federal 2,861 (214) 805 (323)
State 588 (180) 165 (77)
-------- --------- -------- --------
$ 4,687 $ 1,743 $ 4,246 $ (874)
========= ========= ======== ========
</TABLE>
Income taxes differ from the amounts computed by applying the applicable federal
statutory rates due to the following:
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Eight-Month Four-Month
Ended Ended Period Ended Period Ended
January 31, 1998 February 1, 1997 February 3, 1996 May 27, 1995
---------------- ---------------- ---------------- -------------
(Prior to 1995
Acquisition)
<S> <C> <C> <C> <C>
Taxes at the federal
statutory rate $ 3,650 $ (4,479) $ 3,248 $ (765)
Increases (decreases):
State income taxes, net
of federal tax 486 232 469 (110)
Amortization of purchase
accounting adjustments 478 745 484 190
Asset revaluation -- 5,175 -- --
Other 73 70 45 (189)
-------- --------- -------- --------
$ 4,687 $ 1,743 $ 4,246 $ (874)
======== ========= ======== =======
</TABLE>
At January 31, 1998, the Company has net operating loss carryforwards of
approximately $4,700 for income tax purposes, which expire in 2010.
Significant components of deferred tax liabilities and assets are as follows:
January 31, 1998 February 1, 1997
---------------- ----------------
Deferred tax liabilities:
Inventory valuation $ 3,092 $ 3,404
Depreciation and amortization 6,657 4,843
Accounts receivable valuation 2,052 --
Other 308 318
----------- ----------
12,109 8,565
Deferred tax assets:
Doubtful accounts (539) (471)
Net operating loss carryforwards (1,835) (1,925)
Other (118) --
----------- ----------
(2,492) (2,396)
----------- ----------
Net deferred tax liabilities $ 9,617 $ 6,169
=========== ==========
Peebles made cash income tax payments of $2,506, $2,100 and $2,782 for 1997,
1996 and 1995, respectively.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARY
NOTE I - VALUATION AND QUALIFYING ACCOUNTS
Activity related to valuation and qualifying accounts is as follows:
Allowance for Doubtful Net LIFO/
Accounts Market Reserve
----------------------- --------------
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 531 414
Deductions - net write-off of
uncollectible accounts (501) --
--------- --------
BALANCE FEBRUARY 3, 1996 960 414
Charges to expense 1,192 39
Increase due to Acquisition of
Carlisle Retailers, Inc. 264 --
Deductions - net write-off of
uncollectible accounts (1,192) --
--------- ---------
BALANCE February 1, 1997 1,224 453
Charges to expense 1,503 250
Deductions - net write-off of
uncollectible accounts (1,327) --
--------- ---------
BALANCE JANUARY 31, 1998 $ 1,400 $ 703
========= =========
NOTE J - QUARTERLY FINANCIAL DATA (UNAUDITED)
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.
(dollars in thousands)
<TABLE>
<CAPTION>
FISCAL QUARTER
First Second Third Fourth
1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales...... $45,150 $38,055 $49,808 $42,366 $52,411 $47,540 $70,325 $ 66,245
Cost of Sales.. 28,262 22,607 29,515 24,805 32,077 29,462 40,966 39,362
Gross Margin.......... 16,888 15,448 20,293 17,561 20,334 18,078 29,359 26,883
Operating Income (Loss) 2,192 2,183 3,490 2,757 3,156 1,899 11,064 (11,550)
Net Income (Loss)..... 49 214 721 346 389 (194) 4,891 (15,281)
Net Income (Loss) Per Share $ 49 $ 214 $ 721 $ 346 $ 389 $ (194) $ 4,891 $(15,281)
</TABLE>
F-13
<PAGE>
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. The consolidated operations of the Company include the
results of 78 stores operating either the entire year or opened under the
"Peebles" name and 6 stores belonging to its wholly-owned subsidiary,
Carlisle's. The name on these six stores was changed from Carlisle's to
Peebles in August 1997.
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 1997 and 1996 fiscal years
and the twelve-month period ended February 3, 1996.
(dollars in thousands) 1997 1996 1995
Net sales $ 217,694 $ 194,206 $ 175,664
% increase 12.1% 10.6% 4.8%
Comparable stores % increase
(decrease) in sales:
52-week periods 5.3% Even (0%) (1.0%)
52-week period ended
February 1, 1997 versus
53-week period ended
February 3, 1996 N/A (1.3%) N/A
Total stores 84 77 65
Operations as a Percentage
of Net Sales:
Cost of sales 60.1% 59.9% 58.6%
Selling, general &
administrative expenses 27.7 28.0 27.3
Asset revaluation -- 10.7 --
Settlement of the 1993
Stock Option Plan -- -- 1.7
Depreciation and
amortization 3.1 3.8 3.8
----- ----- ----
Operating Income (Loss) 9.1 (2.4) 8.6
Interest Expense 4.4 4.7 4.5
Other income (expense) .2 .4 (.1)
Provision for income taxes 2.1 .9 1.9
----- ----- ----
Net Income (Loss) 2.8% (7.7)% 2.1%
Net sales in 1997 grew $23,488, or 12.1%, over 1996 as net sales at comparable
stores increased $9,085, or 5.3%, and net sales at non-comparable stores
provided an increase of $14,403. A comparable store has operations for the
entire twelve-month period in both the current and previous fiscal years.
Comparable store net sales, totaling $181,442, showed relative strength
throughout 1997, with fiscal quarter increases over 1996 of 5.1%, 7.7%, 6.9%
and 3.3% for the first through fourth fiscal quarters, respectively.
During 1997, the Company opened 8 new stores which contributed $8,964, or 4.1%,
to net sales, and closed 1 marginally profitable store. All 8 new stores were
opened as Peebles stores and are located in states where the Company has
existing stores. In 1996, the Company added a net total of 13 stores operating
for the entire year in 1997. Of these 13 stores opened or acquired in 1996, 7
new Peebles stores contributed $11,487, or 5.3%, to 1997 net sales and the six
Carlisle's stores added $14,106, or 6.5% of total net sales.
F-14
<PAGE>
The Company's cost of sales were 60.1%, 59.9% and 58.6% in 1997, 1996 and 1995,
respectively. The increases in 1997 and 1996 are primarily attributed to the
new store locations, where market penetration promotions adversely impact gross
margin. The company has increased the number of stores in operation at the
respective fiscal year end from 65 in 1995 to 84 in 1997, a 29.2% increase. In
addition, at the Carlisle stores, the inventory mix and pricing strategy
required an adjustment from a narrow assortment and a high-low emphasis to a
wider assortment and less promotional, every day fair pricing which resulted in
higher markdowns. In June 1996, the Company began a twelve-month process to
make these changes at a pace designed not to adversely impact customer
expectations. New stores generally attain the Company's mature store average
gross margin in 24 to 36 months.
Selling, general and administrative ("SG&A") expenses were 27.7%, 28.0% and
27.3% of net sales in 1997, 1996 and 1995, respectively. In general, the
opening of new stores with their higher occupancy, payroll and advertising
expenses as a percentage of net sales than mature stores, results in increases
to SG&A. The 14 new stores opened and acquired during 1996 represented the
Company's largest single year increase in number of store locations. Also in
1996, the Company completed an expansion to the distribution facility in South
Hill, Virginia to accommodate growth and enhance processing efficiency. In
1997, the total net reduction in the advertising costs of opening 8 stores
versus 14, cost controls over variable expenses and the realization of economies
of scale in the fixed SG&A expenses resulted in the decrease as a percentage of
net sales in comparison to 1996.
As discussed in Note D to the audited consolidated financial statements, the
Company periodically reviews the carrying value of long-lived assets to
determine if impairment has occurred, as defined under the provision of SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of". In 1996, management determined that the aggregate estimated
undiscounted cash flows to be generated by certain store assets would be less
than the current carrying values of those assets, related intangibles and
allocated 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, or 10.7% of 1996 net sales. No impairment adjustment was considered to
be necessary in 1997.
In conjunction with the 1995 Acquisition, the Company settled a stock option
plan and recorded additional compensation expense of $3,089 in 1995, or 1.7% of
1995 net sales.
Depreciation and amortization expense as a percentage of net sales was 3.1%,
3.8% and 3.8% in 1997, 1996 and 1995, respectively. The 1997 decrease is
primarily attributed to less amortization expense on the intangible assets,
Goodwill and beneficial leaseholds, resulting from the reduced carrying values
after the impairment revaluation in 1996. Capital expenditures increased
depreciation expense, but the revaluation of certain store fixtures and
equipment after the 1996 revaluation mitigated their impact.
As a result of the above factors, 1997 operating income was 9.1% of net sales,
compared to an operating loss of 2.4% in 1996 and operating income of 8.6% in
1995. Adjusting for the effects of SFAS No. 121 revaluation in 1996 and the
1995 non-recurring compensation expense, 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 4.4%, 4.7% and 4.5% for 1997,
1996 and 1995, respectively. The capital and inventory requirements of fewer
new store locations in 1997 versus 1996, and the increase in 1996 debt to
consummate the CRI Merger are primarily responsible for the current year
decrease as a percentage of net sales.
In 1997, income taxes, current and deferred, totaled $4,687, an effective tax
rate of 43.6%. The effective tax rate is higher than the statutory rates
because of non-deductible amortization expense. In 1996, 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.
F-15
<PAGE>
As a result of the above factors, the Company had net income of 2.8% in 1997, a
net loss of 7.7% in 1996 and net income of 4.5% in 1995. Adjusting for the
effects of adopting SFAS No. 121 in 1996, net income would have been 3.0% 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.
The Company's operating activities provided net cash of $15.1 million, $6.1
million and $11.0 million in 1997, 1996 and 1995, respectively. Profitable
operations were again the primary source of net cash in 1997. The return on
continuing operation's net assets grew to 20.8% in 1997 from 18.9% in 1996.
Return on the continuing operation's net assets represents operating income as
a percentage of the average investment in operating assets, calculated as: i)
current assets, plus ii) net property and equipment, less iii) current
liabilities and capital leases. In the 1996 percentage, the effects of the
SFAS No. 121 asset revaluation have been added back to operating income. The
Company's working capital increased to $62.9 million at the close of 1997, up
from $58.2 million at the close of 1996, as increases in merchandise inventory
were partially offset by a decrease in net accounts receivable and an increase
in trade accounts payable.
Net cash used in investing activities, exclusive of the CRI Merger and the 1995
Acquisition, was $11.1 million, $9.0 million and $7.8 million in 1997, 1996 and
1995, respectively. In 1997, capital expenditures for the purchase of property
and equipment totaled $10.2 million. Included in this total are the capital
expenditures for eight new store locations opened in 1997, totaling some $3.6
million, and the relocation of three stores where capital expenditures totaled
$3.1 million. Existing stores accounted for the remainder, and included capital
expenditures to i) change the signage and fixturing from "Carlisle's" to
"Peebles" in six stores, ii) upgrade register systems in certain stores, iii)
add new Clinique cosmetic fixtures to those stores now carrying this
merchandise, and iv) general enhancements to existing store fixturing and visual
display.
In 1997, cash was used to reduce outstanding debt by a net of $3.8 million.
Exclusive of the CRI Merger in 1996 and the 1995 Acquisition transactions, the
Company drew cash from the revolving debt of some $4.3 million net in 1996,
and cash was used to reduce outstanding debt by a net of $.5 million in 1995.
In 1998, the Company's capital expenditures are expected to total approximately
$11.5 million, which reflect the opening of eleven new store locations at
approximately $5.0 million and the major remodeling and space re-allocation of
seven stores at $2.0 million. As of March 1998, the Company had signed leases
for seven new store locations, four of which will open in Spring 1998. 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 $75 million less amounts
outstanding under letters of credit. The actual amount available is determined
by an asset based formula.
F-16
<PAGE>
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.
YEAR 2000 TECHNOLOGICAL ISSUES
In 1997, the Company began a comprehensive analysis of its information systems
to determine the impact of date-related processing when the year changes to 2000
and the systems do not recognize this year as greater than 1999. The Company's
primary information systems are on two IBM AS400 mainframes, with the majority
of the software developed internally. Packaged software and certain PC systems
serve as supplemental support to the mainframe systems. The costs associated
with this evaluation, and the costs of any necessary modifications to the
software will be expensed as incurred. Although the comprehensive analysis will
not be completed until the second quarter of 1998, management currently
anticipates the costs to ensure year 2000 compliance will primarily be in the
form of additional payroll cost and will not be material to the operations of
the Company. Year 2000 compliance is expected by the first quarter of 1999.
FORWARD-LOOKING STATEMENTS
Certain statements in this annual report are forward-looking, based on the
Company's evaluation of historical information and judgments on future events,
based on the best information available at the time. Underlying these
statements are risks and uncertainties which could cause actual results to
differ materially from those forward-looking statements. These risks and
uncertainties include, but are not limited to: i) consumer demand for the
Company's soft-apparel merchandise; ii) competitive and consumer demographic
shifts within the Company's markets; iii) the Company's access to, and cost of,
capital; iv) the Company's ability to locate and open new store locations on a
timely and profitable basis; and v) the successful management of inventory
levels, related costs and selling, general and administrative costs.
F-17
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Description Number
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
10.1*+ Credit Agreement dated June 9, 1995, by and amoung 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.
10.62*+ 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.
10.65 Third Amendment to the Credit Agreement dated May 16, 1997.
10.66 Fourth Amendment to the Credit Agreement dated July 30, 1997.
10.67* Fifth Amendment to the Credit Agreement dated April 9, 1998.
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.
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 10.65
THIRD AMENDMENT AND
LIMITED CONSENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT AND LIMITED CONSENT TO CREDIT AGREEMENT, dated as of May
16, 1997 (this "Amendment"), is by and among Peebles Inc., a Virginia
corporation (the "Borrower"), the undersigned financial institutions in their
capacities as lenders (the "Lenders"), Societe Generale, Southwest Agency and
Internationale Nederlanden (U.S.) Capital Corporation, as co-agents
(the "Co-Agents"), and Fleet Bank, N.A. (formerly known as NatWest Bank N.A.),
as agent (the "Agent") for the Lenders.
RECITALS:
WHEREAS, the Borrower, the Agent, the Co-Agents and the Lenders are parties to
that certain Credit Agreement, dated as of June 9, 1995, as amended by that
certain First Amendment of Credit Agreement, dated as of September 15, 1995, by
and among the Borrower, the Agent, the Co-Agents and the Lenders and that
certain Second Amendment and Limited Consent to Credit Agreement, dated as of
March 8, 1996, by and among the Borrower, the Agent, the Co-Agents and the
Lenders (and as further amended, restated, supplemented or otherwise modified
from time to time, collectively, the "Credit Agreement"); and
WHEREAS, the Borrower, the Agent, the Co-Agents and the Lenders desire to amend
certain provisions of the Credit Agreement on the terms and conditions set forth
herein; and
WHEREAS, the Borrower requests that the Agent, the Co-Agents and the Lenders
consent to a certain action under the Credit Agreement on the terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, all capitalized
terms used herein have the meanings assigned to such terms in the Credit
Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is, as of
the date hereof, hereby amended as follows:
(a) The definition of "Projections" appearing in Section 10 of the Credit
Agreement is hereby deleted in its entirety and the following is hereby inserted
in lieu thereof:
"Projections" shall have the meaning provided in Section 5.22(i) for the period
from the Initial Borrowing Date to and including the fiscal year ended January
31, 1997 and shall mean the projected financial statements for the Borrower and
its Subsidiaries dated April 14, 1997 for the period from the fiscal year
commenced February 1, 1997 to and including the fiscal year ending January 31,
2001."
(b) Section 8.11 of the Credit Agreement is hereby deleted in its entirety and
the following is hereby inserted in lieu thereof:
"8.11 Minimum Consolidated EBITDA. The Borrower will not permit Consolidated
EBITDA for any Test Period ending at the end of any fiscal quarter of the
Borrower on or about the dates set forth below (with each such date being
adjusted to correspond to the Borrower's actual fiscal quarter end) to be less
than the amount set forth opposite such fiscal quarter:
Fiscal Quarter Amount
Fiscal quarter ended July 31, 1995 $19,855,000
Fiscal quarter ended October 31, 1995 $20,478,000
Fiscal quarter ended January 31, 1996 $20,849,000
Fiscal quarter ended April 30, 1996 $21,301,000
Fiscal quarter ended July 31, 1996 $21,913,000
Fiscal quarter ended October 31, 1996 $22,539,000
Fiscal quarter ended January 31, 1997 $23,634,000
Fiscal quarter ended April 30, 1997 $22,200,000
Fiscal quarter ended July 31, 1997 $23,175,000
Fiscal quarter ended October 31, 1997 $25,125,000
Fiscal quarter ended January 31, 1998 $24,500,000
Fiscal quarter ended April 30, 1998 $23,525,000
Fiscal quarter ended July 31, 1998 $24,100,000
Fiscal quarter ended October 31, 1998 $24,625,000
Fiscal quarter ended January 31, 1999 $25,725,000
Fiscal quarter ended April 30, 1999 $26,150,000
Fiscal quarter ended July 31, 1999 $26,750,000
Fiscal quarter ended October 31, 1999 $27,350,000
Fiscal quarter ended January 31, 2000 $28,525,000
Fiscal quarter ended April 30, 2000 $29,075,000
Fiscal quarter ended July 31, 2000 $30,150,000
Fiscal quarter ended October 31, 2000 $30,950,000
Fiscal quarter ended January 31, 2001 $31,775,000
Fiscal quarter ended April 30, 2001 $32,650,000
Fiscal quarter ended July 31, 2001 $33,500,000
Fiscal quarter ended October 31, 2001 $34,400,000
Fiscal quarter ended January 31, 2002 $35,250,000
Fiscal quarter ended April 30, 2002 $36,225,000"
(c) Section 8.12 of the Credit Agreement is hereby deleted in its entirety and
the following is hereby inserted in lieu thereof:
"8.12 Leverage Ratio. The Borrower will not permit the Leverage Ratio as of the
end of any fiscal quarter of the Borrower on or about the dates set forth below
(with each such date being adjusted to correspond to the Borrower's actual
fiscal quarter end) to be more than the ratio set forth opposite such fiscal
quarter:
Fiscal Quarter Ratio
Fiscal quarter ended July 31, 1995 4.21 to 1.00
Fiscal quarter ended October 31, 1995 4.46 to 1.00
Fiscal quarter ended January 31, 1996 4.05 to 1.00
Fiscal quarter ended April 30, 1996 4.18 to 1.00
Fiscal quarter ended July 31, 1996 4.01 to 1.00
Fiscal quarter ended October 31, 1996 4.28 to 1.00
Fiscal quarter ended January 31, 1997 3.72 to 1.00
Fiscal quarter ended April 30, 1997 4.03 to 1.00
Fiscal quarter ended July 31, 1997 3.74 to 1.00
Fiscal quarter ended October 31, 1997 3.82 to 1.00
Fiscal quarter ended January 31, 1998 3.34 to 1.00
Fiscal quarter ended April 30, 1998 3.67 to 1.00
Fiscal quarter ended July 31, 1998 3.67 to 1.00
Fiscal quarter ended October 31, 1998 3.96 to 1.00
Fiscal quarter ended January 31, 1999 3.16 to 1.00
Fiscal quarter ended April 30, 1999 3.28 to 1.00
Fiscal quarter ended July 31, 1999 3.27 to 1.00
Fiscal quarter ended October 31, 1999 3.52 to 1.00
Fiscal quarter ended January 31, 2000 2.78 to 1.00
Fiscal quarter ended April 30, 2000 2.87 to 1.00
Fiscal quarter ended July 31, 2000 2.94 to 1.00
Fiscal quarter ended October 31, 2000 3.16 to 1.00
Fiscal quarter ended January 31, 2001 2.56 to 1.00
Fiscal quarter ended April 30, 2001 2.62 to 1.00
Fiscal quarter ended July 31, 2001 2.65 to 1.00
Fiscal quarter ended October 31, 2001 2.85 to 1.00
Fiscal quarter ended January 31, 2002 2.32 to 1.00
Fiscal quarter ended April 30, 2002 2.37 to 1.00"
(d) Section 8.13 of the Credit Agreement is hereby deleted in its entirety and
the following is hereby inserted in lieu thereof:
"8.13 Interest Coverage Ratio. The Borrower will not permit the Interest
Coverage Ratio as of the end of any fiscal quarter of the Borrower on or about
the dates set forth below (with each such date being adjusted to correspond to
the Borrower's actual fiscal quarter end) to be less than the ratio set forth
opposite such fiscal quarter:
Fiscal Quarter Ratio
Fiscal quarter ended July 31, 1995 3.57 to 1.00
Fiscal quarter ended October 31, 1995 2.95 to 1.00
Fiscal quarter ended January 31, 1996 2.56 to 1.00
Fiscal quarter ended April 30, 1996 2.22 to 1.00
Fiscal quarter ended July 31, 1996 2.26 to 1.00
Fiscal quarter ended October 31, 1996 2.29 to 1.00
Fiscal quarter ended January 31, 1997 2.38 to 1.00
Fiscal quarter ended April 30, 1997 2.60 to 1.00
Fiscal quarter ended July 31, 1997 2.70 to 1.00
Fiscal quarter ended October 31, 1997 2.80 to 1.00
Fiscal quarter ended January 31, 1998 2.80 to 1.00
Fiscal quarter ended April 30, 1998 2.80 to 1.00
Fiscal quarter ended July 31, 1998 2.90 to 1.00
Fiscal quarter ended October 31, 1998 3.00 to 1.00
Fiscal quarter ended January 31, 1999 3.20 to 1.00
Fiscal quarter ended April 30, 1999 3.30 to 1.00
Fiscal quarter ended July 31, 1999 3.30 to 1.00
Fiscal quarter ended October 31, 1999 3.40 to 1.00
Fiscal quarter ended January 31, 2000 3.60 to 1.00
Fiscal quarter ended April 30, 2000 3.70 to 1.00
Fiscal quarter ended July 31, 2000 3.80 to 1.00
Fiscal quarter ended October 31, 2000 3.90 to 1.00
Fiscal quarter ended January 31, 2001 4.00 to 1.00
Fiscal quarter ended April 30, 2001 4.20 to 1.00
Fiscal quarter ended July 31, 2001 4.30 to 1.00
Fiscal quarter ended October 31, 2001 4.40 to 1.00
Fiscal quarter ended January 31, 2002 4.50 to 1.00
Fiscal quarter ended April 30, 2002 4.60 to 1.00"
SECTION 3. Limited Consent. The Agent, the Co-Agents and the Lenders hereby
consent to the Borrower incurring additional Consolidated Capital Expenditures
pursuant to Section 8.05(c) of the Credit Agreement for the fiscal year
commencing February 1, 1998 and ending January 31, 1999 in the aggregate amount
of $7,096,000, thereby waiving the effect of the EBITDA Shortfall for the fiscal
year ended January 31, 1997 on the calculation of additional Consolidated
Capital Expenditures for the fiscal year commencing February 1, 1998 and ending
January 31, 1999 pursuant to the proviso set forth at the end of Section 8.05(c)
of the Credit Agreement. The consent by the Agent, the Co-Agents and the
Lenders as described above shall not operate as a consent or waiver of (i) any
other right, power or remedy of the Agent, the Co-Agents or the Lenders under
the Loan Documents or (ii) any other Event of Default under the Credit
Agreement. Such consent is only applicable and shall only be effective in the
specific instance and for the specific purpose for which made or given.
SECTION 4. Representations and Warranties of the Borrower. The Borrower
represents and warrants to the Agent, the Co-Agents and the Lenders:
(a) The representations and warranties contained in the Credit Agreement and
the other Loan Documents are true and correct in all material respects at and as
of the date hereof as though made on and as of the date hereof (except to the
extent specifically made with regard to a particular date).
(b) No Event of Default or Default has occurred and is continuing.
(c) The execution, delivery and performance of this Amendment has been
duly authorized by all necessary action on the part of, and duly executed and
delivered by, the Borrower, and this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms, except as the enforcement thereof may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law).
(d) The execution, delivery and performance of this Amendment do not conflict
with or result in a breach by the Borrower of any term of any material contract,
loan agreement, indenture or other agreement or instrument to which the Borrower
is a party or is subject.
SECTION 5. Execution in Counterparts. This Amendment may be executed in
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF
LAWS PROVISIONS THEREOF.
SECTION 7. Amendment; Reaffirmation of Loan Documents. The parties hereto
agree and acknowledge that nothing contained in this Amendment in any manner or
respect limits or terminates any of the provisions of the Credit Agreement or
the other Loan Documents other than as expressly set forth herein and further
agree and acknowledge that the Credit Agreement and each of the other Loan
Documents remain and continue in full force and effect and are hereby ratified
and reaffirmed in all respects.
SECTION 8. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized as of the date
above first written.
PEEBLES INC.
By:
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), individually and as
Agent
By:
Name:
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY, individually and as Co-Agent
By:
Name:
Title:
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION,
individually and as Co-Agent
By:
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
Name:
Title:
THE SUMITOMO BANK, LTD.,
CHICAGO BRANCH
By:
Name:
Title:
PILGRIM AMERICA PRIME RATE
TRUST
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
Exhibit 10.66
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of July
30, 1997 (this "Amendment"), is by and among Peebles Inc., a
Virginia corporation (the "Borrower"), the undersigned financial
institutions in their capacities as lenders (the "Lenders"),
Societe Generale, Southwest Agency, as co-agent (the "Co-Agent"),
and Fleet Bank, N.A. (formerly known as NatWest Bank N.A.), as
agent (the "Agent") for the Lenders.
RECITALS:
WHEREAS, the Borrower, the Agent, the Co-Agent and the
Lenders are parties to that certain Credit Agreement, dated as of
June 9, 1995, as amended by that certain First Amendment of
Credit Agreement, dated as of September 15, 1995, by and among
the Borrower, the Agent, the Co-Agent and the Lenders, that
certain Second Amendment and Limited Consent to Credit Agreement,
dated as of March 8, 1996, by and among the Borrower, the Agent,
the Co-Agent and the Lenders and that certain Third Amendment and
Limited Consent to Credit Agreement, dated as of May 16, 1997, by
and among the Borrower, the Agent, the Co-Agent and the Lenders
(and as further amended, restated, supplemented or otherwise
modified and in effect from time to time, collectively, the
"Credit Agreement"), pursuant to which the Lenders have provided
to the Borrower credit facilities and other financial
accommodations; and
WHEREAS, the Borrower has requested that the Agent, the Co-
Agent and the Lenders amend the Credit Agreement in certain
respects as set forth herein, and the Agent, the Co-Agent and the
Lenders are agreeable to the same, subject to the terms and
conditions hereof;
NOW THEREFORE, in consideration of the premises and of the
mutual covenants contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined herein,
all capitalized terms used herein have the meanings assigned to
such terms in the Credit Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit
Agreement is, as of the Effective Date (as defined below), hereby
amended as follows:
(a) The definition of "Borrowing Base" appearing in
Section 10 of the Credit Agreement is hereby amended by deleting
such definition in its entirety and inserting the following in
lieu thereof:
""Borrowing Base" shall mean, as of any date of
determination, the sum of (i) 85% of the book value of all
Eligible Accounts of the Borrower and the Subsidiary
Guarantors plus (ii) the lesser of (A) 60% of the value
(determined at the lower of cost (calculated on a first-in,
first-out basis) or market) of all Eligible Inventory of the
Borrower and the Subsidiary Guarantors or (B) 40% of all
Eligible Inventory of the Borrower and the Subsidiary
Guarantors valued at the retail price of such Eligible
Inventory as then being offered to the Borrower's customers
(net of any applicable discounts) in the ordinary course of
business. The Borrowing Base shall be determined on a
consolidated basis in accordance with GAAP and as set forth
in the last Borrowing Base Certificate delivered by the
Borrower pursuant to Section 5.22 or 7.01(g) as the case may
be, provided that the Borrowing Base shall be zero at any
time when a Default (to the extent arising from a failure to
deliver a Borrowing Base Certificate under Section 7.01(g))
has occurred and is continuing."
(b) The following definition shall be inserted between
the definitions of "Contingent Obligations" and "Credit Card
Agreement" appearing in Section 10 of the Credit Agreement:
""Conversion Date" shall mean July 30, 1997."
(c) The following definition shall be inserted between
the definitions of "Fixed Charge Coverage Ratio" and "GAAP"
appearing in Section 10 of the Credit Agreement:
""Fleet Bank" shall mean Fleet Bank, N.A. (formerly
known as NatWest Bank N.A.), in its individual capacity, and
its successors."
(d) Schedule 1.01 of the Credit Agreement is hereby
amended by deleting such Schedule in its entirety and replacing
it with Schedule 1.01 attached to this Amendment.
(e) Section 1.01(b) of the Credit Agreement is hereby
amended by deleting such subsection in its entirety and inserting
the following in lieu thereof:
"(b) Loans under the B Term Facility (each a "B Term
Loan" and, collectively, the "B Term Loans") (i) shall be
made pursuant to (A) a drawing by the Borrower on the
Initial Borrowing Date and (B) a pro rata repayment to the
Lenders of $10,000,000 in principal amount of outstanding
Revolving Loans owing to the Lenders by a $10,000,000
principal amount B Term Loan made by Fleet Bank to the
Borrower on the Conversion Date, (ii) shall be made and
initially maintained as Borrowings of Base Rate Loans
(subject to the option to convert such B Term Loans pursuant
to Section 1.06) and (iii) shall not exceed in aggregate
principal amount for any Lender at the time of occurrence
thereof the B Term Commitment, if any, of such Lender. Once
repaid, B Term Loans borrowed hereunder may not be
reborrowed."
(f) Section 1.01(d) of the Credit Agreement is hereby
amended by adding the following sentence at the end thereof:
"The Borrower, the Agent, the Co-Agent and all of the
Lenders agree and acknowledge that, as of the Conversion
Date, $10,000,000 in principal amount of outstanding
Revolving Loans owing to the Lenders will be repaid pro rata
from the proceeds of a $10,000,000 principal amount B Term
Loan made by Fleet Bank to the Borrower pursuant to Section
1.01(b)."
(g) Section 4.02(A)(b)(ii) of the Credit Agreement is
hereby amended by deleting such subsection in its entirety and
inserting the following in lieu thereof:
"(ii) The Borrower shall be required to repay the
principal amount of B Term Loans on each date set forth
below as set forth opposite such date:
Repayment Date Amount
July 31, 1995 $75,000
October 31, 1995 $75,000
January 31, 1996 $75,000
April 30, 1996 $75,000
July 31, 1996 $75,000
October 31, 1996 $75,000
January 31, 1997 $75,000
April 30, 1997 $75,000
July 31, 1997 $102,000
October 31, 1997 $102,000
January 31, 1998 $102,000
April 30, 1998 $102,000
July 31, 1998 $102,000
October 31, 1998 $102,000
January 31, 1999 $102,000
April 30, 1999 $102,000
July 31, 1999 $1,229,000
October 31, 1999 $1,229,000
January 31, 2000 $1,229,000
April 30, 2000 $1,229,000
July 31, 2000 $4,095,000
October 31, 2000 $4,095,000
January 31, 2001 $4,095,000
April 30, 2001 $4,095,000
July 31, 2001 $4,504,000
October 31, 2001 $4,504,000
January 31, 2002 $4,504,000
Final Maturity Date $3,776,000 or the
then outstanding
principal amount of B
Term Loans"
SECTION 3. Amendment Fee. In consideration of the execution
of this Amendment by the Agent, the Co-Agent and the Lenders, the
Borrower hereby agrees to pay a fee of $2,500 (the "Amendment
Fee") to each Lender.
SECTION 4. Representations and Warranties of the Borrower.
The Borrower represents and warrants to the Agent, the Co-Agent
and the Lenders:
(a) the representations and warranties contained in
the Credit Agreement (as amended hereby) and the other Loan
Documents are true and correct in all material respects at
and as of the date hereof as though made on and as of the
date hereof (except to the extent specifically made with
regard to a particular date);
(b) no Event of Default or Default has occurred and is
continuing;
(c) the execution, delivery and performance of this
Amendment has been duly authorized by all necessary action
on the part of, and duly executed and delivered by, the
Borrower, and this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower
in accordance with its terms, except as the enforcement
thereof may be subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law);
and
(d) the execution, delivery and performance of this
Amendment do not conflict with or result in a breach by the
Borrower of any term of any material contract, loan
agreement, indenture or other agreement or instrument to
which the Borrower is a party or is subject.
SECTION 5. Conditions Precedent to Effectiveness of
Amendment. This Amendment shall become effective on the date
(the "Effective Date") each of the following conditions precedent
is satisfied:
(a) the Borrower, the Agent, the Co-Agent and all of
the Lenders shall have executed and delivered this
Amendment;
(b) the Borrower shall have executed and delivered to
Fleet Bank a new B Term Note in the principal amount of
outstanding B Term Loans owing to Fleet Bank on the
Effective Date; promptly following the Effective Date and
its receipt of a new B Term Note, Fleet Bank shall deliver
its original B Term Note to the Agent for cancellation and,
upon its receipt and cancellation thereof, the Agent shall
return such B Term Note to the Borrower;
(c) the Borrower shall have paid in full the Amendment
Fee for each Lender to the Agent for distribution to each
Lender; and
(d) the pro rata repayment of $10,000,000 in principal
amount of outstanding Revolving Loans owing to the Lenders with
the proceeds of a $10,000,000 principal amount B Term Loan made
by Fleet Bank to the Borrower shall have occurred.
SECTION 6. Execution in Counterparts. This Amendment may
be executed in counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
SECTION 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS
OF LAWS PROVISIONS THEREOF.
SECTION 8. Effect of Amendment; Reaffirmation of Loan
Documents. The parties hereto agree and acknowledge that (i)
nothing contained in this Amendment in any manner or respect
limits or terminates any of the provisions of the Credit
Agreement or the other Loan Documents other than as expressly set
forth herein and (ii) the Credit Agreement (as amended hereby)
and each of the other Loan Documents remain and continue in full
force and effect and are hereby ratified and reaffirmed in all
respects.
SECTION 9. Headings. Section headings in this Amendment
are included herein for convenience of reference only and shall
not constitute a part of this Amendment for any other purposes.
[signature page follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective officers
thereunto duly authorized as of the date above first written.
PEEBLES INC.
By:
Name:
Title:
FLEET BANK, N.A. (formerly
known as NatWest Bank N.A.),
individually and as Agent
By:
Name:
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY, individually and as
Co-Agent
By:
Name:
Title:
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By:
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
Name:
Title:
By:
Name:
Title:
PILGRIM AMERICA PRIME RATE
TRUST
By:
Name:
Title:
SCHEDULE 1.01
COMMITMENTS
<TABLE>
<CAPTION>
A Term B Term Bridge Revolving
Lender Commitment Commitment Commitment Commitment
<S> <C> <C> <C> <C>
Fleet Bank, N.A.
(formerly known as
NatWest Bank N.A.) $6,764,000.00 $20,046,400.00 $6,623,286.00 $37,017,500.00
Societe Generale,
Southwest Agency $3,420,000.00 $0.00 $0.00 $20,293,000.00
Van Kampen American
Capital Prime Rate
Income Trust $0.00 $11,572,440.00 $0.00 $0.00
The Sumitomo Bank,
Ltd., Chicago Branch $2,366,000.00 $0.00 $0.00 $7,689,500.00
Pilgrim America Prime
Rate Trust $7,450,000.00 $8,381,160.00 $0.00 $0.00
TOTAL: $20,000,000.00 $40,000,000.00 $6,623,286.00 $65,000,000.00
</TABLE>
<PAGE>
Exhibit 10.67
FIFTH AMENDMENT
TO CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO CREDIT AGREEMENT, dated as of April 9, 1998
(this "Amendment"), is by and among Peebles Inc., a Virginia corporation (the
"Borrower"), PHC Retail Holding Company, a Delaware corporation ("Holdings"),
Carlisle Retailers, Inc., an Ohio corporation ("Carlisle"), the undersigned
financial institutions in their capacities as lenders (the "Lenders"), Societe
Generale, Southwest Agency, as co-agent (the "Co-Agent"), and Fleet Bank, N.A.
(formerly known as NatWest Bank N.A.), as agent (the "Agent") for the Lenders.
RECITALS:
WHEREAS, the Borrower, the Agent, the Co-Agent and the Lenders are parties to
that certain Credit Agreement dated as of June 9, 1995, as amended by the First
Amendment of Credit Agreement dated as of September 15, 1995, the Second
Amendment and Limited Consent to Credit Agreement dated as of March 8, 1996, the
Third Amendment and Limited Consent to Credit Agreement dated as of May 16, 1997
and the Fourth Amendment to Credit Agreement dated as of July 30, 1997 (as so
amended and as further amended, restated, supplemented or otherwise modified and
in effect from time to time, collectively, the "Credit Agreement"), pursuant to
which the Lenders have provided to the Borrower credit facilities and other
financial accommodations; and
WHEREAS, the Borrower has requested that the Agent, the Co-Agent and the Lenders
amend the Credit Agreement in certain respects as set forth herein, and the
Agent, the Co-Agent and the Lenders are agreeable to the same, subject to the
terms and conditions hereof;
NOW THEREFORE, in consideration of the premises and of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Defined Terms. Unless otherwise defined herein, all capitalized
terms used herein have the meanings assigned to such terms in the Credit
Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is, as of
the Effective Date (as defined below), hereby amended as follows:
(a) Section 1.05(b) of the Credit Agreement is amended by deleting "the Expiry
Date" appearing in clause (iv) of such Section and substituting therefor "the A
Term Loan Maturity Date".
(b) Section 1.08(c) of the Credit Agreement is amended by inserting "for
Revolving Loans" immediately after "Applicable Base Rate Margin" appearing in
clause
(ii) of such Section.
(c) Section 1.09(a) of the Credit Agreement is amended by deleting clause (v)
of such Section in its entirety and substituting therefor the following:
"(v) no Interest Period shall extend beyond the Expiry Date (in the case of
Revolving Loans), the A Term Loan Maturity Date (in the case of A Term
Loans) or the Final Maturity Date (in the case of B Term Loans);"
(d) Section 3.01(a) of the Credit Agreement is amended by deleting "1/2 of 1%
per annum on the daily average of such Lender's Unutilized Revolving Commitment"
appearing in such Section and substituting therefor "the Applicable Commitment
Fee".
(e) Section 3.03(e) of the Credit Agreement is amended by deleting such Section
in its entirety and substituting therefor the following:
"(e) Intentionally Omitted."
(f) Section 4.02(A)(b)(i) of the Credit Agreement is amended by deleting such
Section in its entirely and substituting therefore the following:
"(i) On each date set forth below, the Borrower shall be required to
repay the principal amount of A Term Loans set forth opposite such date
(each such repayment, together with each repayment of B Term Loans
required by clause (b)(ii) below, a "Scheduled Repayment"):
Repayment Date Amount
July 31, 1995 $250,000
October 31, 1995 $250,000
January 31, 1996 $250,000
April 30, 1996 $250,000
July 31, 1996 $425,000
October 31, 1996 $425,000
January 31, 1997 $425,000
April 30, 1997 $425,000
July 31, 1997 $675,000
October 31, 1997 $675,000
January 31, 1998 $675,000
April 30, 1998 $918,750
July 31, 1998 $918,750
October 31, 1998 $918,750
January 31, 1999 $918,750
April 30, 1999 $1,000,000
July 31, 1999 $1,000,000
October 31, 1999 $1,000,000
January 31, 2000 $1,000,000
April 30, 2000 $1,000,000
July 31, 2000 $1,000,000
October 31, 2000 $1,000,000
January 31, 2001 $1,000,000
April 30, 2001 $900,000
July 31, 2001 $900,000
October 31, 2001 $900,000
A Term Loan Maturity Date
$900,000 or the then outstanding
principal amount of A Term Loans"
(g) Section 4.02(A)(b)(ii) of the Credit Agreement is amended by deleting such
Section in its entirety and substituting therefor the following:
"(ii) The Borrower shall be required to repay the principal amount of B Term
Loans on each date set forth below as set forth opposite such date:
Repayment Date Amount
July 31, 1995 $75,000
October 31, 1995 $75,000
January 31, 1996 $75,000
April 30, 1996 $75,000
July 31, 1996 $75,000
October 31, 1996 $75,000
January 31, 1997 $75,000
April 30, 1997 $75,000
July 31, 1997 $102,000
October 31, 1997 $102,000
January 31, 1998 $102,000
April 30, 1998 $102,000
July 31, 1998 $102,000
October 31, 1998 $102,000
January 31, 1999 $102,000
April 30, 1999 $570,000
July 31, 1999 $570,000
October 31, 1999 $570,000
January 31, 2000 $570,000
April 30, 2000 $875,000
July 31, 2000 $875,000
October 31, 2000 $875,000
January 31, 2001 $875,000
April 30, 2001 1,718,750
July 31, 2001 $1,718,750
October 31, 2001 $1,718,750
January 31, 2002 $1,718,750
Final Maturity Date $24,031,000 or the then outstanding
principal amount of B Term Loans"
(h) Section 8.05 of the Credit Agreement is amended by deleting such Section in
its entirety and substituting therefor the following:
"8.05 Capital Expenditures. (a) The Borrower will not, and will not permit
any of its Subsidiaries to, incur Consolidated Capital Expenditures; provided,
however, that the Borrower and the Subsidiary Guarantors may make Consolidated
Capital Expenditures during each fiscal year set forth below (taken as one
accounting period, with each such period being adjusted to correspond to the
Borrower's actual fiscal year) so long as the aggregate amount of such
Consolidated Capital Expenditures does not exceed for any period set forth
below, the amount set forth opposite such period:
Period Amount
January 29, 1995 - February 3, 1996 $9,318,000
February 4, 1996 - January 31, 1997 $10,804,000
February 1, 1997 - January 31, 1998 $11,792,000
February 1, 1998 - January 31, 1999 $11,503,000
February 1, 1999 - January 31, 2000 $12,260,000
February 1, 2000 - January 31, 2001 $13,306,000
February 1, 2001 - January 31, 2002 $13,278,000
February 1, 2002 - January 31, 2003 $17,314,750
provided, further, in the event that Consolidated EBITDA for any Test Period is
less than Projected EBITDA for such Test Period, the amount of such additional
Consolidated Capital Expenditures permitted to be made pursuant to this Section
8.05(a) during the four consecutive fiscal quarters of the Borrower commencing
on the anniversary of the last day of such Test Period shall be reduced as
follows: (i) if the EBITDA Shortfall Percentage is equal to or greater than
95%, then no reduction shall occur; (ii) if the EBITDA Shortfall Percentage is
equal to or greater than 90% but less than 95%, then by an amount equal to
$600,000; and (iii) if the EBITDA Shortfall Percentage is less than
90%, then by an amount equal to (x) the EBITDA Shortfall for such Test Period
multiplied by (y) 150%.
(b) In the event that the maximum amount which is permitted to be expended in
respect of Consolidated Capital Expenditures during any fiscal year pursuant to
Section 8.05(a) (without giving effect to this clause (b)) is not fully expended
during such fiscal year, the maximum amount which may be expended in respect of
Consolidated Capital Expenditures during the immediately succeeding fiscal year
pursuant to Section 8.05(a) shall be increased by such unutilized amount
provided that such increase shall not exceed $1,000,000 in any fiscal year."
(i) Section 9.11 of the Credit Agreement is amended by deleting such Section in
its entirety and substituting therefor the following:
"9.11 Intentionally Omitted;"
(j) Section 10 of the Credit Agreement is amended by inserting the following
new definitions in their appropriate alphabetical order:
""A Term Loan Maturity Date" shall mean January 31, 2002.
"Adjustment Date" shall mean (a) the second Business Day following receipt by
the Agent of both (i) the financial statements required to be delivered pursuant
to Section 7.1(b) after the end of each of the first three fiscal quarters of
each fiscal year of the Borrower and pursuant to Section 7.1(a) after the end of
each fiscal year of the Borrower, as the case may be, for the most recently
completed fiscal period and (ii) the compliance certificate required pursuant to
Section 7.01(e) with respect to such financial statements or (b) if such
compliance certificate and financial statements have not been delivered in a
timely manner, the date upon which such compliance certificate and financial
statements were due; provided, however, that in the event that the Adjustment
Date is determined in accordance with the provisions of clause (b) of this
definition, then the date which is two (2) Business Days following the date of
receipt of the financial statements and compliance certificate referenced in
clause (a) of this definition also shall be deemed to constitute an Adjustment
Date; and provided further, that the first Adjustment Date shall not occur
until the deliveries referenced in clause (a) of this definition are made for
the fiscal quarter ended April 30, 1998.
"Applicable Commitment Fee" shall mean the rates per annum set forth below
under the column heading opposite the Level of Total Leverage Ratio determined
on the most recent Adjustment Date:
Level Applicable
Commitment
Fee
Level I: Total Leverage Ratio less
than 2.00 to 1.00 .25%
Level II: Total Leverage Ratio equal
to or greater than 2.00 to 1.00 but
less than 2.75 to 1.00 .375%
Level III: Total Leverage Ratio
equal to or greater than 2.75 to 1.00 .50%
; provided, however, that for purposes of this definition (a) the Applicable
Commitment Fee commencing on the Fifth Amendment Effective Date shall be that
set forth opposite Level III above until the first Adjustment Date for which the
Total Leverage Ratio falls within a different Level, (b) the Applicable
Commitment Fee determined for any Adjustment Date shall remain in effect until
a subsequent Adjustment Date for which the Total Leverage Ratio falls within a
different Level, (c) if the financial statements and related compliance
certificate for any fiscal period are not delivered by the date due pursuant
to Sections 7.01(a), (b) and (e), the Applicable Commitment Fee shall be that
set forth above opposite Level III until the subsequent Adjustment Date, and
(d) the Applicable Commitment Fee shall be that set forth above opposite Level
III at all times when there shall exist a Default or Event of Default under
Section 9.01 or any other Event of Default."
"Fifth Amendment Effective Date" shall mean April 9, 1998.
"Total Leverage Ratio" shall mean, for any Adjustment Date, the ratio of (i)
the aggregate amount of all Indebtedness of the Borrower and its Subsidiaries
on such date, determined on a consolidated basis as determined in accordance
with GAAP, to (ii) Consolidated EBITDA of the Borrower and its Subsidiaries for
the Test Period ended on such date (taken as one accounting period)."
(k) Section 10 of the Credit Agreement is further amended by deleting the
definition of "Applicable Base Rate Margin" appearing in such Section in its
entirety and substituting therefore the following:
""Applicable Base Rate Margin" shall mean the rates per annum set forth below
under the relevant column heading opposite the Level of Total Leverage Ratio
determined on the most recent Adjustment Date:
Level Applicable Applicable
Base Rate Base Rate
Margin for Margin for B
Revolving Term Loans
Loans and A
Term Loans
Level I: Total Leverage Ratio
less than 2.00 to 1.00 .50% 1.25%
Level II: Total Leverage Ratio
equal to or greater than 2.00
to 1.00 but less than 2.75 to
1.00 .75% 1.50%
Level III: Total Leverage Ratio
equal to or greater than 2.75
to 1.00 1.00% 1.50%
; provided, however, that for purposes of this definition (a) the Applicable
Base Rate Margin commencing on the Fifth Amendment Effective Date shall be that
set forth opposite Level III above until the first Adjustment Date for which the
Total Leverage Ratio falls within a different Level, (b) the Applicable Base
Rate Margin determined for any Adjustment Date shall remain in effect until a
subsequent Adjustment Date for which the Total Leverage Ratio falls within a
different Level, (c) if the financial statements and related compliance
certificate for any fiscal period are not delivered by the date due pursuant to
Sections 7.01(a), (b) and (e), the Applicable Base Rate Margin shall be that set
forth above opposite Level III until the subsequent Adjustment Date, and (d) the
Applicable Base Rate Margin shall be that set forth above opposite Level III at
all times when there shall exist a Default or Event of Default under Section
9.01 or any other Event of Default."
(l) Section 10 of the Credit Agreement is further amended by deleting the
definition of "Applicable Eurodollar Margin" appearing in such Section in its
entirety and substituting therefor the following:
""Applicable Eurodollar Margin" shall mean the rates per annum set forth below
under the relevant column heading opposite the Level of Total Leverage Ratio
determined on the most recent Adjustment Date:
Level Applicable Applicable
Eurodollar Eurodollar
Margin for Margin for B
Revolving Term Loans
Loans and A
Term Loans
Level I: Total Leverage Ratio less
than 2.00 to 1.00 1.75% 2.25%
Level II: Total Leverage Ratio equal
to or greater than 2.00 to 1.00 but
less than 2.75 to 1.00 2.00% 2.50%
Level III: Total Leverage Ratio
equal to or greater than 2.75 to 1.00 2.25% 2.75%
; provided, however, that for purposes of this definition (a) the Applicable
Eurodollar Margin commencing on the Fifth Amendment Effective Date shall be
that set forth opposite Level III above until the first Adjustment Date for
which the Total Leverage Ratio falls within a different Level, (b) the
Applicable Eurodollar Margin determined for any Adjustment Date shall remain in
effect until a subsequent Adjustment Date for which the Total Leverage Ratio
falls within a different Level, (c) if the financial statements and related
compliance certificate for any fiscal period are not delivered by the date due
pursuant to Sections 7.01(a), (b) and (e), the Applicable Eurodollar Margin
shall be that set forth above opposite Level III until the subsequent Adjustment
Date, and (d) the Applicable Eurodollar Margin shall be that set forth above
opposite Level III at all times when there shall exist a Default or Event of
Default under Section 9.01 or any other Event of Default."
(m) Section 10 of the Credit Agreement is further amended by deleting the
definition of "Expiry Date" appearing in such Section in its entirety and
substituting therefor the following:
""Expiry Date" shall mean June 9, 2002."
(n) Section 10 of the Credit Agreement is further amended by deleting the
definition of "Margin Reduction Discount" appearing in such Section in its
entirety.
(o) Section 10 of the Credit Agreement is further amended by deleting the
definition of "Projections" appearing in such Section in its entirety and
substituting therefor the following:
""Projections" shall have the meaning provided in Section 5.22(i) for the period
from the Initial Borrowing Date to and including the fiscal year ended January
31, 1997, and shall mean (i) the projected financial statements for the Borrower
and its Subsidiaries dated April 14, 1997 for the period from the fiscal year
commenced February 1, 1997 to and including the fiscal year ending January 31,
1998 and (ii) the projected financial statements for the Borrower and its
Subsidiaries dated February 5, 1998 for the period from the fiscal year
commenced February 1, 1998 to and including the fiscal year ending
January 31, 2002."
(p) Section 12.12 of the Credit Agreement is amended by inserting ", the A
Term Loan Maturity Date" immediately following "the Final Maturity Date"
appearing in clause (i) of such Section.
(q) Schedule 1.01 of the Credit Agreement is amended by deleting such Schedule
in its entirety and substituting therefor Schedule 1.01 attached to this
Amendment.
(r) Exhibit 7.01(e) of the Credit Agreement is amended by deleting such Exhibit
in its entirety and substituting therefore Exhibit 7.01(e) attached to this
Amendment.
SECTION 3. Termination of the Equity Contribution Agreement. The Agent, the
Co-Agent and the Lenders hereby agree that, effective as of the Effective Date,
the Equity Contribution Agreement shall be terminated and of no further force
and effect, and Kelso shall have no further obligations thereunder.
SECTION 4. Representations and Warranties of the Borrower. The Borrower
represents and warrants to the Agent, the Co-Agent and the Lenders:
(a) the representations and warranties contained in the Credit Agreement (as
amended hereby) and the other Loan Documents are true and correct in all
material respects at and as of the date hereof as though made on and as of the
date hereof (except to the extent specifically made with regard to a particular
date);
(b) no Event of Default or Default has occurred and is continuing;
(c) the execution, delivery and performance of this Amendment has been duly
authorized by all necessary action on the part of, and duly executed and
delivered by, the Borrower, and this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in accordance with
its terms, except as the enforcement thereof may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and general principles of equity
(regardless of whether such enforcement is sought in a proceeding in equity or
at law); and
(d) the execution, delivery and performance of this Amendment do not conflict
with or result in a breach by the Borrower of any term of any material contract,
loan agreement, indenture or other agreement or instrument to which the Borrower
is a party or is subject.
SECTION 5. Conditions Precedent to Effectiveness of Amendment. This Amendment
shall become effective on the date (the "Effective Date") each of the following
conditions precedent is satisfied:
(a) the Borrower, the Agent, the Co-Agent and all of the Lenders shall have
executed and delivered this Amendment;
(b) the Borrower shall have executed and delivered to the Agent for each Lender
with a Revolving Commitment a new Revolving Note in the amount of such Lender's
Revolving Commitment;
(c) the Agent shall have received from the Borrower an opinion of McGuire Woods
Battle & Bothe LLP, counsel to the Borrower, in form and substance satisfactory
to the Agent;
(d) the Agent shall have received from the Borrower an incumbency certificate
dated the Effective Date, signed by the President or any Vice-President of the
Borrower and attested to by a Secretary or any Assistant Secretary of the
Borrower, together with copies of the certificate of incorporation and by-laws
of the Borrower and resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Amendment
and the transactions contemplated hereby, in each case certified by the
Secretary or any Assistant Secretary of the Borrower, and all in form and
substance satisfactory to the Agent;
(e) the Agent shall have received payment of all fees and expenses separately
agreed to by the Borrower, including the payment of the fees and disbursements
of Winston & Strawn in connection with the execution and delivery of this
Amendment; and
(f) the Agent shall have received from the Borrower such certificates and other
opinions with respect hereto as the Agent may reasonably require.
SECTION 6. Consent of Guarantors. Each of Holdings and Carlisle hereby
acknowledges and consents to this Amendment and the terms and provisions hereof,
and hereby confirms that the Holdings Guaranty and the Holdings Pledge
Agreement, in the case of Holdings, and the Security Agreement dated as of May
20, 1996 between Carlisle and the Agent and the Guaranty dated as of May 20,
1996 by Carlisle in favor of the Agent and the Lenders, in the case of Carlisle,
and each other Loan Document to which it is a party is and shall continue to be
in full force and effect and is hereby ratified and confirmed in all respects
except that, upon the occurrence of the Effective Date, all references in such
Loan Documents to the Credit Agreement, "thereunder", "thereof", or words of
like import shall mean the Credit Agreement as amended by this Amendment.
SECTION 7. Execution in Counterparts. This Amendment may be executed in
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO THE INTERNAL CONFLICTS OF
LAWS PROVISIONS THEREOF.
SECTION 9. Effect of Amendment; Reaffirmation of Loan Documents. The parties
hereto agree and acknowledge that (i) nothing contained in this Amendment in any
manner or respect limits or terminates any of the provisions of the Credit
Agreement or the other Loan Documents other than as expressly set forth herein
and (ii) the Credit Agreement (as amended hereby) and each of the other Loan
Documents remain and continue in full force and effect and are hereby ratified
and reaffirmed in all respects.
SECTION 10. Headings. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
SECTION 11. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
[signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed by their respective officers thereunto duly authorized as of the date
above first written.
PEEBLES INC.
By:
Name:
Title:
PHC RETAIL HOLDING COMPANY
By:
Name:
Title:
CARLISLE RETAILERS, INC.
By:
Name:
Title:
FLEET BANK, N.A. (formerly known as
NatWest Bank N.A.), individually and as
Agent
By:
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
Name:
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY, individually and as Co-Agent
By:
Name:
Title:
PILGRIM AMERICA PRIME RATE
TRUST
By:
Name:
Title:
AMSOUTH BANK
By:
Name:
Title:
SUNTRUST BANK, ATLANTA
By:
Name:
Title:
SCHEDULE 1.01
COMMITMENTS
Revolving
Lender A Term Loans B Term Loans Commitment
Fleet Bank, N.A. $2,111,005 $11,171,229.04 $27,712,500
Societe Generale,
Southwest Agency $2,612,025 $23,415,000
Van Kampen American
Capital Prime Rate
Income Trust $10,731,702.23
AmSouth Bank $1,807,032.50 $ 8,872,500
Pilgrim America Prime
Rate Trust $5,689,937.50 $ 7,772,268.73
SunTrust Bank, Atlanta $3,055,000 $ 7,418,800 $15,000,000
TOTAL: $15,275,000 $ 37,094,000 $75,000,000
EXHIBIT 7.01 (e)
COMPLIANCE CERTIFICATE
The undersigned, being the chief financial officer of Peebles Inc., a Virginia
corporation (the "Borrower"), pursuant to that certain Credit Agreement dated
as of June 9, 1995, as amended (as so amended and as further amended, restated,
supplemented or otherwise modified from time to time, collectively, the "Credit
Agreement"; capitalized terms used but not otherwise defined herein have the
meanings ascribed to such terms in the Credit Agreement) by and among the
Borrower, Fleet Bank, N.A. (formerly known as NatWest Bank N.A.), as agent (the
"Agent"), Societe Generale, Southwest Agency and Internationale Nederlanden
(U.S.) Capital Corporation, as co-agent (the "Co-Agent"), and the Lenders party
thereto, hereby certifies on behalf of the Borrower that:
(i) The Borrower has complied and is in compliance with all the terms,
covenants and conditions of the Credit Agreement, except as set forth on
Schedule I hereto;
(ii) There exists no Default or Event of Default under the Credit Agreement,
except as set forth below;
(iii) The representations and warranties contained in the Credit Agreement and
in the other Loan Documents are true and correct in all material respects on the
date hereof; and
(iv) Schedule I attached hereto sets forth financial data and computations
evidencing compliance with the covenants set forth in Sections
8.02, 8.03, 8.04, 8.05, 8.06, 8.08, 8.10, 8.11, 8.12 and 8.13 of the
Credit Agreement, all of which data and computations are true,
complete and correct.
Described below are the exceptions, if any, to paragraph (ii) by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Compliance
Certificate in support hereof, are made and delivered this ____ day of
__________, ____.
PEEBLES INC.
By:
Name:
Title:
Schedule I
Section 8.02(e) -- Consolidation, Merger, Sale or Purchase of Assets, etc.
Asset Sales for the applicable fiscal year
(a) Permitted Asset Sales* $500,000
(b) Actual Asset Sales made pursuant to $
Section 8.02(e) for the applicable
fiscal year
*Note: must also demonstrate that (i) each such sale is in an amount at least
equal to the fair market value thereof and for proceeds consisting solely of
not less than 80% cash, (ii) seller indebtedness is evidenced by promissory
notes which notes shall be pledged and delivered to Agent pursuant to a pledge
agreement in form and substance satisfactory to Agent and (iii) the Net Cash
Proceeds of any such sale are applied to repay the Loans to the extent required
by Section 4.02(A)(c)
Section 8.03 -- Liens
1. Section 8.03(i)
(a) Permitted aggregate Indebtedness secured
by purchase money Liens $500,000
(b) Actual aggregate Indebtedness secured by purchase
money Liens under Section 8.03(i) $
Section 8.04 -- Indebtedness
1. Section 8.04(c)
(a) Actual aggregate Capital Lease Obligations
under all Capital Leases under Section 8.04(c) $
2. Section 8.04(f)
(a) Permitted aggregate additional Indebtedness $500,000
(b) Actual aggregate additional
Indebtedness under Section 8.04(f) $
Section 8.05 -- Capital Expenditures
1. Section 8.05(a) and (b)
(a) Permitted aggregate Consolidated Capital
Expenditures for the applicable fiscal year plus
lesser of (i) unutilized amount from the
immediately preceding fiscal year or
(ii) $1,000,000 $
(b) Actual aggregate Consolidated Capital
Expenditures for the applicable fiscal year
under Section 8.05(a) $
(c) Consolidated EBITDA for Test Period
from , 19 to _______, 19 $
(d) Projected EBITDA for Test Period in (c) above $
(e) EBITDA Shortfall for Test Period in (c) above $
(f) Amount of reduction in Section 8.05(a) -
Capital Expenditures calculated pursuant to
Section 8.05(a) (attach calculations) $
Section 8.06 -- Advances, Investments and Loans
1. Investments in additional retail stores for
the applicable period $
Section 8.08 -- Capital Stock and Dividends
1. Permitted amount of cash dividends to
Holdings to redeem or repurchase
Common Stock during the applicable calendar year $
2. Actual amount of cash dividends to Holdings
to redeem or repurchase Common Stock during the
applicable calendar year under Section 8.08(a)(ii) $
Section 8.10 -- Fixed Charge Coverage Ratio
1. Required Fixed Charge Coverage Ratio for the
applicable Test Period 1.0 to 1.0
2. Actual Fixed Charge Coverage Ratio for the
applicable Test Period:
(a) Consolidated EBITDA plus aggregate payments
(including, without limitation, any property
taxes paid as additional rent or lease payments) by the
Borrower under agreements to rent or lease any real
or personal property (exclusive of Capitalized
Lease Obligations) minus Consolidated Capital
Expenditures $
(b) Consolidated Fixed Charges $
(c) Ratio of (a) to (b) to 1.0
Section 8.11 -- Minimum Consolidated EBITDA
1. Required minimum Consolidated EBITDA for
the applicable Test Period $
2. Actual Consolidated EBITDA for the
applicable Test Period $
Section 8.12 -- Leverage Ratio
1. Required Leverage Ratio for the
applicable Test Period to 1.0
2. Actual Leverage Ratio for the
applicable Test Period:
(a) Consolidated Senior Debt at the end
of the applicable Test Period $
(b) Consolidated EBITDA for the applicable
Test Period $
(c) Ratio of (a) to (b) to 1.0
Section 8.13 -- Interest Coverage Ratio
1. Required Interest Coverage Ratio for the
applicable Test Period $
2. Actual Interest Coverage Ratio for the
applicable Test Period:
(a) Consolidated EBITDA for the applicable
Test Period $
(b) Consolidated Interest Expense for the
applicable Test Period $
(c) Ratio of (a) to (b) to 1.0
Total Leverage Ratio
1. Actual Total Leverage Ratio for
the applicable Test Period
(a) Consolidated total Indebtedness at the
end of the applicable Test Period $
(b) Consolidated EBITDA for the applicable
Test Period $
(c) Ratio of (a) to (b) to 1.0
<PAGE>
Exhibit 21
Subsidiaries of Registrant
Name of Subsidiary Jurisdiction in which organized
Carlisle Retailers, Inc. Ohio
<PAGE>
Exhibit 27
Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 432
<SECURITIES> 0
<RECEIVABLES> 32981
<ALLOWANCES> 1400
<INVENTORY> 57967
<CURRENT-ASSETS> 92201
<PP&E> 62661
<DEPRECIATION> 23912
<TOTAL-ASSETS> 172456
<CURRENT-LIABILITIES> 29312
<BONDS> 81507
0
0
<COMMON> 1
<OTHER-SE> 55472
<TOTAL-LIABILITY-AND-EQUITY> 172456
<SALES> 217694
<TOTAL-REVENUES> 217694
<CGS> 130820
<TOTAL-COSTS> 197792
<OTHER-EXPENSES> 444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9609
<INCOME-PRETAX> 10737
<INCOME-TAX> 4687
<INCOME-CONTINUING> 6050
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6050
<EPS-PRIMARY> 6050.00
<EPS-DILUTED> 6050.00
</TABLE>
