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 29, 2000
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Commission file number 33-27126
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PEEBLES INC.
(Exact name of registrant as specified in its charter)
Virginia 54-0332635
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(State of incorporation) (I.R.S. Employer Identification No.)
One Peebles Street
South Hill, Virginia 23970-5001
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(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, 1999.)
As of April 1, 2000, 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 Inc. and its subsidiaries (together, "Peebles"
or the "Company") operate 121 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 15 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.
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 it owns, and had no
operations prior to the acquisition. The acquisition was
accounted for using the purchase method of accounting, and,
accordingly, a new accounting basis was established. The
subsidiaries of Peebles Inc. are Carlisle Retailers, Inc.
("Carlisle's"), acquired in May 1996, and Ira A. Watson Co.
("Watson's"), acquired in June 1998. All store locations
operate under the Peebles name.
The Company's corporate headquarters is located in
South Hill, Virginia. The Company operates two distribution
centers, one adjacent to the corporate offices, and the
other in Knoxville, Tennessee. The Knoxville facility was
acquired in June 1998 in connection with the acquisition of
Watson's.
References to 1995, 1996, 1997, 1998 and 1999 relate to
the Company's fiscal years ended February 3, 1996, February
1, 1997, January 31, 1998, January 30, 1999 and January 29,
2000, respectively. Fiscal years 1996, 1997, 1998 and 1999
each include 52 weeks. Fiscal year 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.
OPERATING STRATEGY
The following are key elements of Peebles' operating
strategy:
FOCUS ON SMALL MARKETS, DELIVER VALUE: Peebles locates
its stores in smaller communities that typically do not
have a fashion retailer. A Peebles market is generally
between 10,000 and 25,000 households, but the Company
is able to successfully operate in communities with as
few as 5,000 households. Peebles provides the
community with a shopping experience similar to that
found in a larger, mall-based department store, but
with a value emphasis. Lower initial markons and less
promotional pricing result in a higher level of
credibility with customers. Peebles' commitment to
providing value to its customers is integral to
developing repeat customers, a critical ingredient for
success in smaller markets.
OPERATE SMALLER, FLEXIBLE STORES: Peebles operates
stores that are significantly smaller than the
traditional full-line department store. Peebles'
stores range in size from 11,000 to 72,000 square feet
and average 29,400 gross square feet, 23,800 of which,
on average, is devoted to selling. The Company
operates profitably by varying the store size and
layout to meet the needs of the individual market. A
Peebles store remains as dynamic as the market, with
space re-allocations performed regularly to meet
changing customer demand.
TAILOR FASHION TO LOCAL TASTES: The merchandise mix is
tailored to individual stores to cater to local tastes
and preferences. 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 complements to the apparel assortment, as
fewer hard-line merchandise categories are offered.
Customer feedback and store level, detailed sales
information allow corporate buyers and store associates
to work together to optimize the use of Peebles'
smaller, yet flexible selling spaces to best meet
customer demand. The store layout and visual
presentation, customized to the individual market,
targeted advertising and promotional programs, complete
the Peebles image as the market's fashion leader.
DEVOTION TO THE SALES FLOOR THROUGH A CENTRALIZED BACK
OFFICE: Peebles believes successful operations are
directly related to the time devoted to the sales
floor. Store management and sales associates spend over
85% of their hours in a selling and customer service
capacity. To make this possible, "back office"
functions are centralized where efficient.
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 does not depend
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 plans to open five new
stores in 2000 and six new stores in 2001. As of April
1, 2000, the Company had signed three leases for stores
scheduled to open in 2000, representing approximately
55,000 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
relying only on new shopping center development, and
Peebles 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. In 2000, the Company
will relocate two existing stores to the desired
shopping destinations in those markets, and six stores
will undergo major remodeling.
ACQUISITIONS: The Company is continually evaluating
acquisitions of individual stores, groups of stores or
entire chains for opportunities to compliment or expand
existing markets. In 1998, 29 of the 33 new store
locations were acquired from other retailers.
PEEBLES STORES
Peebles stores are designed to create an appealing and
satisfying shopping experience for the customer. The layout
is bright, modern and accessible, with an emphasis on the
visual presentation of the merchandise and the creation of
cross-selling opportunities. The Company's stores are
significantly smaller than the traditional full-line
department store and do not have a standard format. Rather,
they are designed for operational efficiency, including
flexible inventory management adapted to meet the needs of
the individual community.
The Company targets communities having 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 121 stores currently in operation, 89 are located in
strip shopping centers, 23 in enclosed malls and 9 in
downtown locations.
MERCHANDISING
The Company's merchandise, approximately 85% 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 1999, a majority of the merchandise sold by the
Company was nationally branded merchandise. Key brands
featured by the Company include:
Ladies Tommy Hilfiger Jeans, Alfred Dunner, Koret,
Kellwood, Liz Claiborne, Woolrich, Etienne Aigner,
Playtex, Vanity Fair, Periwinkle, Halmode Apparel,
Hanes, Item Eyes, Crystal Kobe, Byer of California,
Gloria Vanderbilt, Levi, Pendleton, Lee;
Men's Ralph Lauren, Haggar, Levi, Nike, Arrow, Van
Heusen, Bugle Boy, Foria
International, Bayer Clothing,
Tropical Sportswear;
Young Men's and Juniors Levi, Tommy Hilfiger Jeans,
Calvin Klein, Currants Jeri-Jo,
Union Bay, Byer of California,
Global Gold, Fritzi of
California, LEI, Wrapper, JNCO by
Revatex, Jones Apparel;
Children's American Character, H.H. Cutler, Gerson &
Gerson, Kids Headquarters, Baby
Togs, William Carter, Buster
Brown,
Shoes Reebok, Nike, Nine West, Easy Spirit, Sketchers,
Adidas, Keds, Candies, Aerosoles,
Brown Shoe, Wolverine, Candies;
Home Springs, Westpoint-Stevens, World Bazaars, Dan
River, International Silver, New
Creative Enterprises, Mikasa;
Cosmetics Estee Lauder, Clinique, Elizabeth Arden, Liz
Claiborne, Calvin Klein, Aramis,
Belae Brands, Lancaster Group,
Jessica McClintock; Designer
Fragrance;
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 108 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 markons
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
generate 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 primarily 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.
The Company's net advertising expenses in 1997, 1998
and 1999 were 2.1%, 2.4% and 2.7% 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. Net
advertising expenses were higher in 1998 and 1999 due to the
significant number of new store locations added in 1998.
PURCHASING AND DISTRIBUTION
The Company employs 34 buyers and 6 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 has been a member of an international
cooperative buying service (the "Co-Operative"), which the
Company has taken advantage of particularly in connection
with its imported private label merchandise. During 1997,
1998 and 1999, the Co-Operative was the Company's largest
supplier, representing approximately 10%, 9% and 7%,
respectively, of total purchases. The Co-Operative has
announced it will cease operation in third fiscal quarter
of 2000. The Company is currently working on obtaining
access to, or purchasing, certain private label trademarks
of the Co-Operative. The Co-Operative will continue to
assist in the purchase of imported merchandise to be sold
through the third fiscal quarter. The Company has obtained,
or is in the process of obtaining, resources to supply the
private label program. The Company believes that any disruption
to the flow of merchandise as a result of the Co-Operative
no longer being available as a resource will not be material
to the overall purchasing process or the Company's merchandise mix.
Virtually all merchandise is shipped directly from
vendors to the Company's distribution centers where it is
inspected, sorted, marked, ticketed, packed and shipped to
the individual stores. The Company does not warehouse
merchandise and has a three-day processing goal through the
distribution centers. Merchandise is shipped floor ready to
each store an average of twice a week on Company-owned
trucks.
The Company's distribution centers feature modern
merchandise handling equipment and are located close to
major interstates. Using one eight hour shift at each
facility, future growth in existing and contiguous markets
can be supported to approximately 200 store locations.
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 centralization.
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 merchandise ticketing. All stores use at least
85% of their total payroll hours in a selling capacity.
Peebles encourages active participation of all store
level management and sales associates in decisions affecting
store operations and merchandise mix. 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 eleven regional managers. Each
store manager reports to a regional manager. Regional
managers visit their stores regularly 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 inform each employee of his
or her performance.
PEEBLES CHARGE CARD
In 1997, 1998 and 1999, 34.3%, 28.5% and 27.6%,
respectively, of net sales were made using the Company's
proprietary credit card. The decrease in 1998 and 1999
primarily reflects the impact of the former Watson's stores
which had a proprietary charge percentage of approximately
6% when acquired in June 1998. As of January 29, 2000, the
Company had approximately 730,000 credit card accounts, of
which 190,000 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 through 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 collecting its credit
card receivables. Peebles believes its 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
(dollars in thousands):
Period-End Allowance
Net Bad Debt For Doubtful
Expenses Period-End Accounts
---------------- Total --------------------
Charge % of Chg Customer % of Total
Years Sales Amount Sales Receivables Amount Receivables
------ ----- ------ -------- ------------ ------ -----------
1997 74,657 1,327 1.8% $32,981 1,400 4.2%
1998 75,601 1,330 1.8% 35,195 1,700 4.8%
1999 82,954 1,563 1.9% 39,749 1,800 4.5%
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 29, 2000, the Company had 1,610 full-time
employees and 2,054 part-time employees. None of the
Company's employees is covered by a collective bargaining
agreement. The Company considers its relations with its
employees 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 ClassicT,
Private ExpressionsT, Meherrin River OutfittersT and Sonoma
BayT.
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. In gross square
footage, the stores range in size from 11,000 square feet to
72,000 square feet, and average 29,400 square feet. In net
selling square footage by state at January 29, 2000, the
Company's stores were as follows:
State Stores Net SQ Ft State Stores Net SQ Ft
- ----------- ------ -------- ---------- ------ ---------
Virginia 36 798,252 Pennsylvania 5 117,581
Tennessee 14 369,393 New York 4 111,884
North Carolina 13 260,822 Ohio 4 75,971
Kentucky 11 297,083 Delaware 3 80,611
Maryland 8 250,838 New Jersey 2 52,807
South Carolina 6 149,557 Indiana 2 49,614
West Virginia 6 130,580 Missouri 1 24,625
Alabama 6 107,039 ---- -------
Totals 121 2,876,657
=== =========
Store leases generally provide for a base rent of
between $1.00 and $8.00 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 1997, 1998 and 1999, the Company's
aggregate rental payments on operating leases were
approximately $9.4 million, $12.5 million and $15.3 million,
respectively.
The Company's owns, subject to deeds of trust and
security interests granted in connection with the Company's
Credit Agreement, i) the corporate headquarters and the
150,000 square foot distribution center facility located on
31 acres in South Hill, Virginia; and ii) the 100,000 square
foot distribution center in Knoxville, Tennessee. The
Company believes these locations provide the Company with
adequate undeveloped space to expand the corporate
headquarters and/or distribution centers 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 or traded on any exchange or other market. 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
resale 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 intend to pay any
dividends to the holders of the Common Stock in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected historical consolidated financial data for Peeb
les for the five fiscal years ended January 29, 2000 are
derived from the Company's audited consolidated 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. The data
should be read in conjunction with the consolidated
financial statements, related notes and other financial
information included on Page F-0 of this annual report on
Form 10-K.
(Dollars in thousands except per share and selected other data)
<TABLE>
<CAPTION>
Four- Eight-
Month Month Fiscal Fiscal Fiscal Fiscal
Period Period Year Year Year Year
Ended Ended Ended Ended Ended Ended
May 27 February February January January January
1995 3, 1996 1, 1997 31, 1998 30, 1999 29, 2000
------ -------- -------- -------- -------- --------
(Pre-1995
Acquisition)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales $49,163 $126,501 $194,206 $217,694 $265,215 $300,839
Cost of sales 29,935 72,994 116,236 130,820 159,067 178,657
------ ------- ------- ------- ------- --------
Gross margin 19,228 53,507 77,970 86,874 106,148 122,182
Selling, general
& administrative
expenses 14,639 33,275 54,400 60,324 76,402 86,139
Depreciation and
amortization 2,349 4,339 7,499 6,648 8,057 9,926
Stock option
Settlement 3,089 --- --- --- --- ---
Asset --- --- --- --- --- 2,182
impairment
Asset --- --- 20,782 --- --- ---
revaluation
------ ------ ------ ------ ------ ------
Operating
income (loss) (849) 15,893 (4,711) 19,902 21,689 23,935
Other income
(expenses) 77 (52) 687 444 9 --
Interest
expense 1,414 6,565 9,148 9,609 10,804 11,521
------ ------ ------ ------ ------ ------
Income (loss)
before income
taxes (benefit)
and extraordinary
item (2,186) 9,276 (13,172) 10,737 10,894 12,414
Income taxes
(benefit) (874) 4,246 1,743 4,687 4,837 5,385
------ ------ ------ ------ ------ ------
Income (loss)
before
extraordinary
item (1,312) 5,030 (14,915) 6,050 6,057 7,029
Extraordinary
item (216) --- --- --- --- ---
------ ------ ------ ------ ------ ------
Net income
(loss) $(1,528) $ 5,030 $(14,915) $ 6,050 $ 6,057 $ 7,029
======= ======= ======== ======= ======= =======
Net income
(loss) per
share $ .52 $ 5,030 $(14,915) $ 6,050 $ 6,057 $ 7,029
======= ======= ======== ======= ======= =======
Weighted
average
common stock
Outstanding 2,942,600 1,000 1,000 1,000 1,000 1,000
SELECTED OTHER DATA Twelve-
Month
Data
Net sales per
store (000's)(1) $3,032 $2,921 $2,835 $2,750 $2,705
Selling sq.ft.
per store (1) 26,300 26,032 24,550 24,305 24,070
Net sales per
selling sq.ft. (2) $112 $108 $113 $113 $112
Comparable store
net sales increase
(decrease)(1) (5)(1.0%) (6)(1.3%) 5.3% 0.9% 1.3%
Number of stores
(end of period) 65 77 84 117 121
Total selling sq.
ft. (end of period) 1,656,000 1,879,000 2,022,000 2,803,000 2,880,000
Capital expenditures $8,094 $8,783 $10,226 $13,391 $9,151
(000's)
BALANCE SHEET DATA February February January January January
3, 1996 1, 1997 31, 1998 30, 1999 29, 2000
Working capital $48,395 $58,213 $63,459 $75,246 $84,234
Net property and
equipment 33,308 33,460 38,749 51,949 53,063
Total assets 165,553 163,568 172,456 208,286 210,217
Total debt (3) 76,778 90,962 87,299 110,921 106,991
Stockholders'
equity (4) 64,338 49,423 55,473 61,530 68,559
SELECTED FINANCIAL DATA FOOTNOTE LEGEND
N/M*- Not meaningful.
<FN>
<FN1>
(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.
<FN2>
(2) Net sales per selling square feet per store is based on
stores open one full year.
<FN3>
(3) Includes the long-term portion of the capital lease
obligations and the current portion of long-term debt.
<FN4>
(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.
<FN5>
(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%.
<FN6>
(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.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The discussion and analysis included under the caption
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" appears on Page F-14 of this
annual report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Information with respect to this Item is included under
the caption "Market Risk" on Page F-17 of this annual report
on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information with respect to this Item is contained in
the 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
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 as of April 1, 2000, are as
follows:
Years
Name Age Position with the
Company
Michael F. Moorman 57 Chairman of the Board, 35
President and Chief Executive Officer
Ronnie W. Palmore 50 Senior Vice President, 27
Merchandising and Assistant
Secretary
E. Randolph Lail 44 Senior Vice President, 12
Finance, Chief Financial Officer,
Secretary and Treasurer
Russell A. Lundy II 37 Senior Vice President, Stores 15
Marvin H. Thomas,Jr.44 Senior Vice President, 18
Operations
William C. DeRusha 50 Director 8
Malcolm S. McDonald 61 Director 8
Wellford L. 54 Director 7
Sanders, Jr.
Thomas R. Wall, IV 41 Director 5
Frank T. Nickell 52 Director 5
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.
Concurrently, 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 including store manager and buyer. 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 including store manager.
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.
RUSSELL A. LUNDY II has been Senior Vice President,
Stores of PHC Retail and the Company since June 1999. Mr.
Lundy served as Vice President, Human Resources of PHC
Retail since June 9, 1995 and of the Company since June
1990. Mr. Lundy has been employed by the Company in
variance positions since 1983 including store manager.
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 including store
manager and buyer.
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
and a director of Heilig-Meyers Company.
MALCOLM S. MCDONALD has been a Director of PHC Retail
since June 9, 1995 and of the Company since April 1992. Mr.
McDonald has retired from 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.
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 First Union
Securities, Inc. Until April 1997, Mr. Sanders was a
partner in the law firm of McGuire, Woods, Battle & Boothe,
L.L.P.
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 & Company since 1990 and prior
thereto a General Partner of Kelso since 1989. Mr. Wall is
also a director of AMF Bowling Inc., Citation Corporation,
Consolidated Vision Group, Inc., Cygnus Publishing, Inc.,
iXL Enterprises, 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 & Company since March 1989
and Chief Executive Officer since September 1997. March
1989. He is also a director of Blackrock, Inc., Earle M.
Jorgensen Company and The Bear 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 $20,000, payable quarterly in arrears. No
other Director is paid a fee for serving as a Director. All
Directors are reimbursed for expenses incurred in attending
meetings of the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of its
Directors and officers of Peebles pursuant to which Peebles
has agreed to indemnify such Director or officer from
claims, liabilities, damages, expenses, losses, costs,
penalties or amounts paid in settlement incurred by such
Director or officer and arising out of his capacity as a
Director, officer, employee and/or agent of the corporation
of which he is a director or officer to the maximum extent
provided by applicable law. In addition, such Director or
officer shall be entitled to an advance of expenses to the
maximum extent authorized or permitted by law to meet the
obligations indemnified against. Such agreements also
obligate the Company to purchase and maintain insurance for
the benefit and on behalf of its Directors and officers
insuring against all liabilities that may be incurred by
such director or officer, in or arising out of his capacity
as a director, officer, employee and/or agent of the
Company.
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth a summary of
compensation paid by the Company to its five highest paid
executive officers (the "Named Executives") and during 1997,
1998 and 1999.
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term Compensation
----------------------
Awards Payout
-------- ------
Long-
Number of term
Annual Compensation Options/ Incentive
Other Warrants Plan
Name and Year Salary Bonus Compensation Granted Payout
Principal Position ($) ($) ($) ($)
(1) (1), (2) (3)
<S> <C> <C> <C> <C> <C> <C>
MICHAEL F. MOORMAN
Chairman of the 1999 $382,689 $422,428 $ --- --- $ ---
Board, President 1998 327,643 336,119 $ --- --- $ ---
and Chief 1997 291,240 184,965 $ --- --- $ ---
Executive Officer
RONNIE W. PALMORE
Senior Vice 1999 $212,478 $ 94,734 $ --- --- $ ---
President,
Merchandising and 1998 185,243 65,411 $ --- --- $ ---
Assistant 1997 160,807 49,533 $ --- --- $ ---
Secretary
E. RANDOLPH LAIL
Senior Vice 1999 $175,182 $ 87,791 $1,244 --- $ ---
President, Finance 1998 153,442 75,041 $1,079 --- $ ---
CFO, Secretary and 1997 133,159 37,385 $1,264 --- $ ---
Treasurer
RUSSELL A. LUNDY, SR. (4)
Vice President 1999 $147,313 $ 50,231 $ --- --- $ ---
Loss Prevention 1998 143,660 51,982 $ --- --- $ ---
1997 128,056 43,092 $ --- --- $ ---
MARVIN H. THOMAS, JR
Senior Vice 1999 $129,847 $ 63,291 $1,009 --- $ ---
President, 1998 115,094 39,287 $ 877 --- $ ---
Operations 1997 101,800 29,979 $1,027 --- $ ---
RUSSELL LUNDY II (4)
Senior Vice 1999 $121,666 $ 51,570 $ --- --- $ ---
President, 1998 91,819 31,020 $ --- --- $ ---
Stores 1997 78,131 21,234 $ --- --- $ ---
<FN>
<FN1>
(1) Salary and bonus amounts for 1997, 1998 and 1999 include tax-
deferred contributions of compensation to the Peebles Inc. 401-K
Profit Sharing Plan. Also included in salary amounts for 1998 and
1999, and the bonus amounts for 1997, 1998 and 1999, are the
matching contributions made by the Company on behalf of the Named
Executives to the Peebles Inc. 401-K Profit Sharing Plan.
<FN2>
(2) Bonus amounts for each of the Named Executives include the
accrued bonus earned under the Company's annual incentive plans
for the years shown.
<FN3>
(3) The amounts shown reflect the current value of the benefit to
Mr. Lail and Mr. Thomas, respectively, of the portion of the
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 the years shown ($18,729 for Mr. Lail and $15,221 for Mr.
Thomas per year)
<FN4>
(4) Mr. Lundy, Sr. served as Senior Vice President, Stores until
June 1999 when he became Vice President, Loss Prevention. Mr.
Lundy II became Senior Vice President, Stores in June 1999 and had
been Vice President, Human Resources.
OPTION GRANT TABLE. There were no options granted by
the Company to the Named Executives during 1999.
OPTION EXERCISE TABLE. The following table sets forth
information concerning the exercise of stock options during
1999 by each of the Named Executives and the year end value
of unexercised options.
OPTIONS EXERCISED IN 1999
Number of Value of
Unexercised Unexercised in
Shares Options at Money Options
Acquired Year End at Year End
Name and on Value Exercisable/ Exercisable/
Principal Exercise Realized Unexercisable Unexercisable
Position (2)
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
E. RANDOLPH LAIL 0 $0 0 $0
Senior Vice President,
Finance, Chief Financial
Officer, Secretary and
Treasurer
RUSSELL A. LUNDY, SR. 0 $0 0 $0
Vice President, Loss
Prevention
MARVIN H. THOMAS, JR. 0 $0 0 $0
Senior Vice President,
Operations
RUSSELL A. LUNDY II 0 $0 0 $0
Senior Vice President,
Stores
-----------------------------------------
(1) There were no stock options exercised by the Named Executives
in 1999.
(2) There were no unexercised options at year end.
As of the fiscal year ended January 29, 2000 there were
no projected long-term incentive payouts.
PENSION PLAN
The following table shows the annual benefit payable
upon normal retirement at age 65 to persons in specified
earnings and years of service classifications under the
Employee's Retirement Plan of Peebles Inc. ("Plan I").
Effective for the 1999 Plan I year, the Internal Revenue
Code limited the amount of earnings that could be taken into
account for purposes of calculating benefits to $160,000,
and limited the maximum annual benefit which could be paid
from the Plan to any participant to $130,000. The benefits
shown below do not reflect these limits.
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
Benefits under Plan I are based on a designated
percentage of the participant's average earnings for the
participant's five highest years of earnings, weighted
according to years of credited service, and integrated with
Social Security covered compensation. Earnings are based on
the participant's total taxable wages for the year,
including certain pre-tax contributions to employee benefit
plans, but excluding reimbursements, certain expense
allowances, deferred compensation, welfare and fringe
benefits. For Plan I purposes, earnings for the Named
Executives are substantially the same as the amounts listed
in the Summary Compensation Table. Benefits are computed on
a straight life annuity basis.
Prior to 1998, Plan I covered substantially all
employees. In 1997, the Board of Directors approved the
adoption of The Employees Retirement Plan II of Peebles Inc.
("Plan II") effective February 1, 1998. The Plan I benefits
of certain participants were frozen and spun-off to Plan II
and no further benefits would accrue under Plan II.
Further, Plan I and Plan II were closed to new participants
at February 1, 1998. Plan II was terminated and all Plan II
participant benefits were disbursed by January 30, 1999.
Mr. Moorman, Mr. Palmore, Mr. Lail, Mr. Lundy II and
Mr. Thomas have no accrued benefits under Plan I. Mr.
Lundy, Sr. continues to be covered and have an accrued
benefit under Plan I.
The estimated years of credited years as of normal
retirement at age 65 for purposes of computing benefits
under Plan I Mr. Lundy, Sr. is 47 years.
The Company maintains a supplemental benefits program
designed to provide certain key executives retirement
benefits. The Executive Employee Supplemental Retirement
Plan (the "SERP"), maintained for certain designated
executives, includes Mr. Moorman, Mr. Palmore, and Mr.
Lundy, Sr. The SERP is a non-qualified retirement plan that
provides each participant with a lump sum benefit based on
60% of the participant's earnings during the five
consecutive calendar years which produce the highest average
reduced by the sum of the benefits payable to the
participant under the Pension Plan, Executive Employee
Benefit Restoration Plan (the "Restoration Plan") and Social
Security. Benefits under the SERP are fully vested upon the
earliest of the participant's completion of five years of
service with the Company, the participant's permanent
disability or the date on which there is a change of control
of the Company. The Restoration Plan is a non-qualified
plan designed to provide supplemental benefits to certain
employees, including Mr. Moorman, whose accrued benefits
under the Pension Plan were transferred to and distributed
from the Pension Plan II. The benefit under the Restoration
Plan is payable in a single lump sum. A participant's
benefits are forfeited under the SERP and Restoration Plan
if his employment is terminated for cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of the Board
of Directors. For 1999, 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. No interlocking
relationship currently exists between any member of the
Compensation Committee and any member of any other company's
board of directors or compensation committee, nor did any
such interlocking relationship exist during 1999.
CERTAIN RELATIONSHIPS
Frank T. Nickell and Thomas R. Wall, IV, members of the
Board of Directors of the Company, are affiliated with Kelso
& Company, which rendered management services to the Company
during 1999 and affiliates of which own substantially all
the common stock of PHC Retail. From time to time Kelso &
Company has provided financial advice to the Company for
which the Company has reimbursed certain of Kelso &
Company's expenses.
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, 2000, 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
Shares of Shares of
Voting Common Percent Nonvoting Percent
Name of Beneficial Owner(1) Stock of Class Common Stock of Class
Kelso Investment Associates V, 1,803,693 (3) 90.09 0 0
L.P. (2),(3)
Kelso Equity Partners V, L.P. 52,973 2.65 0 0
(2),(3)
Michael F. Moorman (6) 52,500 2.62 0 0
Ronnie W. Palmore (6) 14,968 * 0 0
Russell A. Lundy, Sr. 10,376 * 0 0
E. Randolph Lail (6) 7,800 * 0 0
Marvin H. Thomas, Jr. (6) 6,015 * 0 0
Russell A. Lundy II (6) 3,106 * 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) 92.74 0 0
Frank T. Nickell (2),(3) 1,873,848(4),(5) 93.59 0 0
George E. Matelich (2),(3) 1,856,666(3) 92.74 0 0
Thomas R. Wall, IV (2),(3) 1,873,848(4),(5) 93.59 0 0
Michael B.Goldberg (2),(3) 1,856,666(3) 92.74 0 0
David I. Wahrhaftig (2),(3) 1,856,666(3) 92.74 0 0
Frank K. Bynum, Jr. (2),(3) 1,856,666(3) 92.74 0 0
Philip E. Berney (2),(3) 1,856,666(3) 92.74 0 0
All Directors and Named
Executives as a group
(10 persons) (6),(7) 1,958,237 97.81 6,500 26.56
* 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, Goldberg,
Wahrhaftig, Bynum and Berney 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, Goldberg, Wahrhaftig, Bynum and Berney share investment and
voting power with respect to securities owned by other Kelso
affiliates. Messrs. Schuchert, Nickell, Matelich, Wall,
Goldberg, Wahrhaftig, Bynum and Berney 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 17,500, 5,500, 3,876, 4,500,
1,500, and 2,874 for Messrs. Moorman, Palmore, Lundy, Sr., Lail,
Lundy II and Thomas, respectively.
(7) Mr. Lundy, Sr. was not a Named Executive at January 29,
2000, and therefore, his ownership of PHC Common Stock and
unexercised vested stock options for the purchase of PHC Common
Stock are excluded from the group total of all Directors and
Named Executives.
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.
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 J 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**+ Amended and Restated Credit Agreement,
dated as of June 29, 1998 by and among Peebles
Inc., Fleet Bank, N.A., as agent, and the
financial institutions as parties thereto,
exclusive of exhibits and schedules. The
Registrant hereby undertakes to furnish the
Commission supplementally upon request a copy of
any omitted exhibit or schedule.
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 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 28, 1995.
*+ Incorporated by reference from the Form 10-K
of the Company for the fiscal year ended
February 3, 1996.
**+ Incorporated by reference from Exhibit
10.68 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 1, 1998.
(d) Financial Statement Schedules
Schedule II Valuation and Qualifying
Accounts appears in Note J 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 20, 2000
------------------------------
Michael F. Moorman, President
and Chief Executive Officer
(Principal Executive Officer)
By /s/ E. Randolph Lail Date: April 20, 2000
------------------------------
E. Randolph Lail, Senior Vice President
Finance, CFO, (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By /s/ Wellford L. Sanders, Jr. Date: April 20, 2000
------------------------------
Wellford L. Sanders, Jr., Director
By /s/ William C. DeRusha Date: April 20, 2000
------------------------------
William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: April 20, 2000
------------------------------
Malcolm S. McDonald, Director
By /s/ Frank T. Nickell Date: April 20, 2000
------------------------------
Frank T. Nickell, Director
By /s/ Thomas R. Wall Date: April 20, 2000
------------------------------
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>
Exhibit 21
Subsidiaries of Registrant
Name of Subsidiary Jurisdiction in which organized
----------------------- -------------------------------
Carlisle Retailers, Inc. Ohio
Ira A. Watson, Co. Delaware
<PAGE>
Audited Consolidated Financial Statements
PEEBLES INC. AND SUBSIDIARIES
January 29, 2000
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Income F-3
Consolidated Statements of Changes in Stockholders' F-4
Equity
Consolidated Statements of 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 sheets of
Peebles Inc. and subsidiaries as of January 29, 2000 and January 30,
1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three fiscal
years in the period ended January 29, 2000. 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 auditing standards
generally accepted in the United States. 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.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Peebles Inc. and subsidiaries at January 29,
2000 and January 30, 1999, and the consolidated results of their
operations and their cash flows for each of the three fiscal years in
the period ended January 29, 2000 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
----------------------
Richmond, Virginia
March 8, 2000
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
PEEBLES INC. AND SUBSIDIARIES
(in thousands, except shares and per share amounts)
January 29, January 30,
2000 1999
----------- ----------
ASSETS
CURRENT ASSETS
Cash $ 1,008 $ 64
Accounts receivable, net 37,949 33,495
Merchandise inventories 70,181 71,362
Prepaid expenses 709 536
Income taxes receivable 1,201 1,045
Other 2,670 1,289
------- -------
TOTAL CURRENT ASSETS 113,718 107,791
PROPERTY AND EQUIPMENT
Fixtures and equipment 73,250 65,456
Land and building 14,593 14,734
Leasehold improvements 1,727 1,725
------- -------
89,570 81,915
Accumulated depreciation and amortization 36,507 29,966
------- -------
53,063 51,949
OTHER ASSETS
Excess of cost over net assets acquired,net 39,100 41,017
Deferred financing costs, net 1,895 3,289
Sundry 2,441 4,240
------- -------
43,436 48,546
------- -------
$210,217 $208,286
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,795 $ 17,516
Accrued compensation and other expenses 7,268 6,625
Deferred income taxes 2,139 2,433
Current maturities of long-term debt 3,700 3,700
Other 3,582 2,271
------ -------
TOTAL CURRENT LIABILITIES 29,484 32,545
LONG-TERM DEBT 102,677 106,325
LONG-TERM CAPITAL LEASE OBLIGATIONS 614 896
DEFERRED INCOME TAXES 8,883 6,990
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: accumulated from
May 27, 1995 9,251 2,222
------ -------
68,559 61,530
------ -------
$210,217 $208,286
======= =======
See notes to consolidated financial statements.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PEEBLES INC. AND SUBSIDIARIES
(in thousands, except shares and per share amounts)
Fiscal Years Ended
-------------------------------------
January 29, January 30, January 31,
2000 1999 1998
---------- ----------- -----------
NET SALES $ 300,839 $ 265,215 $ 217,694
COSTS AND EXPENSES
Cost of sales 178,657 159,067 130,820
Selling, general and
administrative expenses 86,139 76,402 60,324
Depreciation and
amortization 9,926 8,057 6,648
Asset impairment 2,182 -- --
-------- -------- --------
OPERATING INCOME 23,935 21,689 19,902
OTHER INCOME -- 9 444
INTEREST EXPENSE 11,521 10,804 9,609
-------- -------- --------
INCOME BEFORE INCOME TAXES 12,414 10,894 10,737
INCOME TAXES (BENEFIT)
Current 3,786 5,031 1,238
Deferred 1,599 (194) 3,449
-------- -------- --------
5,385 4,837 4,687
-------- -------- --------
NET INCOME $ 7,029 $ 6,057 $ 6,050
======== ======== ========
NET INCOME PER SHARE $ 7,029 $ 6,057 $ 6,050
======== ======== ========
Weighted average common
stock outstanding 1,000 1,000 1,000
======== ======== ========
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
PEEBLES INC. AND SUBSIDIARIES
(in thousands, except share amounts)
Common Stock
--------------
Par Additional Retained
Shares Value Capital Earnings
------- ----- ---------- -------- - -- --
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)
Net income -- -- -- 6,057
----- ---- ------- -------
BALANCE JANUARY 30, 1999 1,000 1 59,307 2,222
Net income -- -- -- 7,029
----- ---- ------- -------
BALANCE JANUARY 29, 2000 1,000 $ 1 $ 59,307 $ 9,251
===== ==== ======= =======
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PEEBLES INC. AND SUBSIDIARIES
(in thousands)
Fiscal Years Ended
---------------------------------
January January January
29, 2000 30, 1999 31, 1998
--------- ---------- ----------
OPERATING ACTIVITIES
Net income $ 7,029 $ 6,057 $ 6,050
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 7,305 5,953 4,710
Amortization 4,015 3,415 2,902
Deferred income taxes 1,599 (194) 3,449
Provision for doubtful accounts 1,663 1,330 1,503
LIFO/market reserve adjustment (371) 51 250
Asset impairment 2,182 -- --
Changes in operating assets
and liabilities net of effects
from acquisition adjustments:
Accounts receivable (6,217) (1,759) (1,022)
Merchandise inventories 1,923 (3,498) (3,786)
Accounts payable (4,721) 3,452 2,794
Other assets and liabilities (546) (984) (1,762)
--------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 13,861 13,823 15,088
INVESTING ACTIVITIES
Acquisition of Ira A. Watson Co. -- (4,451) --
Purchase of property and
equipment (9,151) (13,394) (10,226)
Other (217) (204) (879)
--------- --------- ---------
NET CASH USED IN INVESTING
ACTIVITIES (9,368) (18,049) (11,105)
FINANCING ACTIVITIES
Proceeds from revolving line
of credit and long-term debt 420,528 414,155 324,662
Reduction in revolving line
of credit and long-term debt (424,077) (414,789) (328,441)
Proceeds from 1998 Credit
Agreement-acquisition of
Ira A. Watson Co. -- 24,000 --
Retirement of Ira A. Watson
Co. pre-acquisition bank
Debt and trade liabilities -- (17,895) --
Financing fees - 1998 Credit
Agreement -- (1,613) --
--------- --------- ---------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (3,549) 3,858 (3,779)
--------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 944 (368) 204
Cash beginning of period 64 432 228
--------- --------- ---------
CASH END OF PERIOD $ 1,008 $ 64 $ 432
========= ========= =========
See notes to consolidated financial statements.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PEEBLES INC. AND SUBSIDIARIES
January 29, 2000
(in thousands, except shares and per share amounts)
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Peebles Inc. and subsidiaries ("Peebles"
or the "Company") operate retail department stores offering
predominately fashion merchandise for the entire family and
selected home accessories. At January 29, 2000, the Company was
operating 121 stores located primarily in small and medium sized
communities which typically do not have a mall-based department
store. The stores serve communities in 15 states, located
primarily in the Southeast and Mid-Atlantic.
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
Consolidation: Peebles Inc. is a wholly owned subsidiary of PHC
Retail Holding Company ("PHC Retail"). 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"). The consolidated financial statements include
the accounts of Peebles Inc. and its wholly owned subsidiaries,
Carlisle Retailers, Inc. ("Carlisle's") and Ira A. Watson Co.
("Watson's"). All significant intercompany balances and
transactions have been eliminated.
FISCAL YEAR: The Company's fiscal year ends on the Saturday
nearest January 31. Fiscal years 1999, 1998 and 1997 ended on
January 29, 2000, January 30, 1999 and January 31, 1998,
respectively. Results of operations consisted of fifty-two weeks
in all three fiscal years. References to years relate to fiscal
years rather than calendar years. Certain amounts in the fiscal
1998 consolidated financial statements have been reclassified to
conform to the fiscal 1999 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.
REVENUE: Retail sales are of merchandise. "Net Sales" as shown
are net of actual returns for the period and exclude all taxes.
Revenue from in-store services and finance charges on credit
balances are recorded as a reduction to selling, general and
administrative expenses.
CASH AND CASH EQUIVALENTS: 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 29, 2000 or January 30, 1999.
MERCHANDISE INVENTORIES: Merchandise inventories are accounted
for by the retail inventory method applied on a last in, first
out ("LIFO") basis.
PROPERTY AND EQUIPMENT: Property and equipment is stated on the
basis of cost. Depreciation of property and equipment is
provided primarily by the straight-line method over the estimated
useful lives of the related assets, generally 7 to 10 years for
fixtures and equipment and 20 years for buildings. The cost of
leasehold improvements is amortized over the shorter of the
economic lives or the terms of the leases by the straight-line
method. Amortization of buildings under capital leases is
computed by the straight- line method over the lease term and is
included in depreciation and amortization expense.
STORE OPENING COSTS: Store opening costs are charged to selling,
general and administrative expenses as incurred.
ADVERTISING COSTS: Advertising costs, charged to selling,
general and administrative expenses as incurred, were $8,015,
$6,462 and $4,551 for 1999, 1998 and 1997, respectively.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
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. Projections
are based on management's best estimates of future performance.
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. Goodwill amortization
expense for 1999, 1998 and 1997 was $1,917, $1,796 and $1,488,
respectively. Accumulated amortization was $8,857 and $6,940 at
January 29, 2000 and January 30, 1999, respectively.
DEFERRED FINANCING COSTS: Deferred financing costs are amortized
by the interest method over a period consistent with the related
financing. Amortization expense of $1,394 $1,294 and $965, is
included in interest expense for 1999, 1998 and 1997,
respectively. Accumulated amortization at January 29, 2000 and
January 30, 1999 was $4,965 and $3,794, respectively.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of the
Company's customer receivables, accounts payable and long-term
debt approximate fair value.
NOTE B-ACQUISITIONS OF WATSON'S
THE WATSON MERGER: On June 29, 1998, Peebles Inc. acquired the
Ira A. Watson Co. ("Watson's") for a cash purchase price of
$4,451, which included $1,848 paid to the equity holders of
Watson's, $1,352 paid to a financial services company for the
proprietary credit card accounts receivable, and $1,251 in
acquisition expenses. The purchase method of accounting was used
to allocate the purchase price. The excess of cost over net
assets acquired, $6,102, is being amortized over a twenty-five
year period beginning June 29, 1998.
NOTE C-ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $1,800 and $1,700,
representing the allowance for uncollectible accounts at January
29, 2000 and January 30, 1999, respectively. The provision for
doubtful accounts was $1,663, $1,330 and $1,503, for 1999, 1998
and 1997, respectively. Finance charges on credit sales,
included as a reduction of selling, general and administrative
expenses, aggregated $5,416, $5,103 and $5,089 for 1999, 1998 and
1997, respectively.
As a service to its customers, the Company offers credit through
the use of its own charge card and certain major credit cards.
The Peebles' customer usually resides in the local community
immediately surrounding the store location. Peebles stores serve
these local customers in 15 states: Virginia, Tennessee, North
Carolina, Maryland, Kentucky, West Virginia, Alabama,
Pennsylvania, South Carolina, Ohio, Delaware, New York, Indiana,
New Jersey and Missouri. The Company does not require collateral
from its customers.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE D-MERCHANDISE INVENTORIES
Merchandise inventories are accounted for by the retail inventory
method applied on a last-in, first-out ("LIFO") basis. In
connection with an acquisition of the Company in May 1995
accounted for using the purchase method, the then existing LIFO
reserve was eliminated and a new LIFO base year was established
which included an adjustment to fair value (the "Fair Value
Adjustment"). The "LIFO/Market Reserve" adjusts inventory to the
lower of LIFO cost or market.
Merchandise inventories consisted of the following:
January 29, January 30,
2000 1999
------------- --------------
Merchandise inventories at
FIFO cost $ 63,736 $ 65,288
Fair Value Adjustment 7,436 7,436
LIFO/Market Reserve (991) (1,362)
--------- ---------
Merchandise inventories at
lower of cost or market $ 70,181 $ 71,362
========= =========
NOTE E-ASSET IMPAIRMENT
In 1999, the Company determined that an investment in a co-
operative buying office, included in "Sundry" on the consolidated
balance sheets in prior years, no longer had any economic fair
value. The resulting impairment, representing the Company's
entire investment in the buying office, reduced both operating
income and income before income taxes by $2,182, and reduced
current income taxes by $866.
NOTE F-LONG-TERM DEBT
Long-term debt consisted of the following:
January 29, January 30,
2000 1999
----------- ------------
Senior Revolving Facility $ 34,000 $ 34,000
Senior Term Note A 9,750 12,750
Senior Term Note B 58,950 59,550
Swingline Facility 3,277 3,225
Other 400 500
--------- ---------
106,377 110,025
Less current maturities: 3,700 3,700
--------- ---------
Long-term debt $ 102,677 $ 106,325
========= =========
The Company has a credit facility (the "Credit Agreement") which
provides a Senior Term Facility, a Senior Revolving Facility, and
a Swingline Facility. The Credit Agreement was amended and
restated on June 29, 1998 to facilitate the Watson Merger. The
Company deferred $1,613 in financing fees to amend and restate
the Credit Agreement. These financing fees are being amortized
over a five-year period. The Credit Agreement is secured by a
first priority security interest in substantially all the
personal and real property of Peebles. Restrictive covenants
prohibit the payment of cash dividends in any fiscal year.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE F-LONG-TERM DEBT--Continued
The Senior Term Facility includes two notes, Senior Term Note A
and Senior Term Note B. Senior Term Note A and Senior Term Note
B accrue interest quarterly in arrears at a LIBOR based rate
which is expected to vary 25 to 50 basis points, dependent
primarily on the Company's operating performance in relation to
outstanding debt at the end of each fiscal quarter. Senior Term
Note A and Senior Term Note B currently bear interest at LIBOR
plus 2.50% and LIBOR plus 3.00%, respectively. Scheduled
principal payments are payable quarterly in arrears. Senior Term
Note A and Senior Term Note B mature April 30, 2003 and 2004,
respectively.
The total amount available under the Senior Revolving Facility
(the "Revolver") and the Swingline Facility is determined by a
defined asset based formula with maximum borrowings limited to
$75,000, less outstanding amounts under letters of credit. At
January 29, 2000, the total amount available to borrow was
$68,390, of which $37,277 was in use. The Revolver matures on
April 30, 2003 and has no specific paydown provisions. The
Company pays a fee of 1/2 of 1% per annum on any unused portion
of the Revolver. The Revolver bears interest at the same rate as
Senior Term Note A.
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 Revolver. The Swingline Facility bore interest at
prime plus 1.25% and 1.50% on January 29, 2000 and January 30,
1999, respectively, and has no LIBOR conversion option.
The Company had commitments under letters of credit of $5,021 and
$176 at January 29, 2000 and January 30, 1999, respectively. The
letters of credit, issued by a bank, are primarily to secure
international shipments of merchandise.
The Company made cash interest payments of $9,952, $8,562 and
$8,311 for 1999, 1998 and 1997, respectively.
Aggregate scheduled principal payments on the long-term debt are
as follows: 2000 -- $3,700; 2001 -- $3,700; 2002 -- $3,700;
2003 -- $38,727; 2004 -- $56,550; thereafter -- $0.
NOTE G-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 2048. Total rental expense under operating leases
was as follows:
1999 1998 1997
-------- -------- --------
Minimum $ 14,924 $ 12,141 $ 8,913
Contingent 392 363 483
-------- -------- -------
$ 15,316 $ 12,504 $ 9,396
======== ======== =======
Contingent rentals are based upon a percentage of annual sales in
excess of specified amounts.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE G-LEASES--Continued
Future minimum lease payments under capital leases and
noncancellable operating leases at January 29, 2000 were as
follows:
Capital Operating
Fiscal Year Leases Leases
--------------------------- --------- ---------
2000 $ 377 $ 12,753
2001 180 11,996
2002 180 10,946
2003 181 9,540
2004 181 8,376
Thereafter 60 47,329
------ --------
Total minimum lease payments 1,159 $ 100,940
Less: amounts representing ========
interest (262)
------
Present value of net minimum
lease payments, including
current maturities of $283,
with interest rates ranging
from 12.0% to 17.8% $ 897
======
NOTE H-EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS: The Company provided one defined
benefit pension plan in 1999, The Employees Retirement Plan of
Peebles Inc. ("Plan I"). Prior to 1998, Plan I covered
substantially all employees. In 1997, the Board of Directors
approved the adoption of The Employees Retirement Plan II of
Peebles Inc. ("Plan II") effective February 1, 1998. The Plan I
benefits of certain participants were frozen and spun-off to Plan
II and no further benefits would accrue in Plan II. Further,
both Plan I and Plan II were closed to new participants at
February 1, 1998. Plan II was terminated and all Plan II
participant benefits were disbursed by January 30, 1999.
SUPPLEMENTAL BENEFITS PROGRAM: The Company maintains a benefits
program designed to provide certain key executives supplemental
retirement income equal to 60% of final average compensation.
The following information relative to the above plans is
disclosed in accordance with the requirements of Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which the
Company adopted in 1998.
1999 1998
CHANGE IN BENEFIT ----------- ----------
OBLIGATION:
Benefit obligation at
beginning of year $ 5,686 $ 8,030
Service cost 157 117
Interest cost 379 520
Plan Amendments 91 --
Actuarial loss 583 440
Benefit payments 560 3,421
------- -------
Benefit obligation at
end of year $ 6,336 $ 5,686
======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at
beginning of year $ 4,986 $ 7,419
Actual return on plan assets 629 587
Employer contribution 28 401
Benefit payments 560 3,421
------- -------
Fair value of plan assets at
end of year $ 5,083 $ 4,986
======= =======
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE H-EMPLOYEE BENEFIT PLANS-Continued
1999 1998
----------- ---------
FUNDED STATUS:
Funded status $ (1,254) $ (700)
Unrecognized actuarial loss (gain) 148 (230)
Unrecognized prior service cost 562 542
-------- -------
Accrued pension liability $ (544) $ (388)
======== =======
COMPONENTS OF NET PERIODIC
PENSION COST:
Service cost $ 157 $ 117
Interest cost 379 520
Expected return on plan assets 422 649
Prior service cost recognized 70 60
Recognized gains -- (20)
Loss due to curtailment -- 22
-------- -------
Net periodic pension cost $ 184 $ 50
======== =======
WEIGHTED AVERAGE ASSUMPTIONS
AS OF MEASUREMENT DATE:
Discount rate 8.00% 6.80%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increase 5.00% 4.42%
The projected benefit obligation, accumulated benefit obligation,
and fair value of plan assets for the Supplemental Benefits
Program with accumulated benefit obligations in excess of plan
assets were $2,432, $970 and $0, respectively, as of January 29,
2000 and $1,157, $867 and $0, respectively, as of January 30,
1999.
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. On February 1, 1998, the Company
began matching employee contributions up to 50% of an employee's
first 6% of eligible compensation. The Company contributed $325
and $260 in 1999 and 1998, respectively.
NOTE I - INCOME TAXES
The provisions for income taxes consisted of the following:
1999 1998 1997
--------- --------- ---------
Current: Federal $ 3,161 $ 4,201 $ 1,089
State 625 830 149
Deferred: Federal 1,335 (162) 2,861
State 264 (32) 588
-------- -------- --------
$ 5,385 $ 4,837 $ 4,687
======== ======== ========
Income taxes differ from the amounts computed by applying the
applicable federal statutory rates due to the following:
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE I - INCOME TAXES-Continued
1999 1998 1997
-------- -------- --------
Taxes at the federal
statutory rate $ 4,345 $ 3,813 $ 3,650
Increases (decreases):
State income taxes, net
of federal tax 581 526 486
Amortization of Goodwill 531 531 478
Other (72) (33) 73
------- ------- -------
$ 5,385 $ 4,837 $ 4,687
======= ======= =======
At January 29, 2000, the Company has net operating loss
carryforwards of approximately $3,200 for income tax purposes,
which expire in 2010.
Significant components of deferred tax liabilities and assets are
as follows:
January 29, January 30,
2000 1999
------------ -----------
Deferred tax liabilities:
Inventory valuation $ 1,707 $ 1,603
Depreciation and amortization 10,658 9,021
Accounts receivable valuation 779 1,168
Other 313 332
--------- ---------
13,457 12,124
Deferred tax assets:
Doubtful accounts (709) (669)
Net operating loss carryforwards (1,393) (1,635)
Other (333) (397)
--------- ---------
(2,435) (2,701)
--------- ---------
Net deferred tax liabilities $ 11,022 $ 9,423
========= =========
Peebles made cash income tax payments of $5,316, $5,369 and
$2,506 for 1999, 1998 and 1997, respectively.
NOTE J - VALUATION AND QUALIFYING ACCOUNTS
Activity related to valuation and qualifying accounts is as
follows:
Allowance for Net LIFO/
Doubtful Market
Accounts Reserve
------------- ----------
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
Charges to expense 1,330 51
Increase due to acquisition of
Watson's 300 608
Deductions - net write-off of
uncollectible accounts (1,330) --
-------- -------
BALANCE JANUARY 30, 1999 1,700 1,362
Charges (credits) to expense 1,663 (371)
Deductions - net write-off of
uncollectible accounts (1,563) --
-------- -------
BALANCE JANUARY 29, 2000 $ 1,800 $ 991
======== =======
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
PEEBLES INC. AND SUBSIDIARIES
NOTE K - QUARTERLY FINANCIAL DATA (UNAUDITED)
The Watson Merger was completed on June 29, 1998. As a result,
the second, third and fourth quarters of 1998 reflect the related
incremental sales and expenses.
</TABLE>
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Quarter
-------------------------------------------------------------
First Second Third Fourth
------------- -------------- ------------- ---------------
1999 1998 1999 1998 1999 1998 1999 1998
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $64,422 $51,013 $70,547 $57,698 $69,723 $65,601 $96,147 $90,903
Cost of Sales 39,063 31,225 41,228 33,512 41,915 40,512 56,451 53,818
Gross Margin 25,359 19,788 29,319 24,186 27,808 25,089 39,696 37,085
Operating 3,517 3,126 5,876 4,891 3,520 3,200 11,022 10,472
Income
Net Income 427 563 1,711 1,456 360 206 4,531 3,832
====== ====== ====== ====== ====== ====== ====== ======
Net Income
Per Share $ 427 $ 563 $1,711 $1,456 $ 360 $ 206 $4,531 $3,832
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
F-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Peebles operates specialty department stores offering
predominately fashion merchandise for the entire family and other
selected home accessories to small and medium sized communities
that do not typically have a mall-based department store. At
January 29, 2000, the Company operated 121 stores in 15 states,
located primarily in the Southeast and Mid-Atlantic regions. The
Company defines a comparable store as having operations for the
entire twelve-month period in both the current and previous
fiscal year. For fiscal 1999, 1998 and 1997, the Company had 84,
77 and 65 comparable stores, respectively.
Consolidated net sales and results of consolidated operations of
the Company, expressed as percentages of net sales, are presented
below for the 1999, 1998 and 1997 fiscal years.
(dollars in thousands) 1999 1998 1997
------- ------- --------
Net sales $300,839 $265,215 $217,694
% increase 13.4% 21.8% 12.1%
Comparable stores % increase
in sales: 1.3% 0.9% 5.3%
Total stores in operation at
period end 121 117 84
OPERATIONS AS A PERCENTAGE OF NET SALES:
- ---------------------------------------
Cost of sales 59.4% 60.0% 60.1%
Selling, general &
administrative expenses 28.6 28.8 27.7
Depreciation and amortization 3.3 3.0 3.1
Asset impairment .7 -- --
----- ----- -----
Operating income 8.0 8.2 9.1
Interest expense 3.8 4.1 4.4
Other income -- -- .2
Provision for income taxes 1.9 1.8 2.1
----- ----- -----
Net income 2.3% 2.3% 2.8%
===== ===== =====
The $35,624 increase in 1999 net sales over 1998 was primarily
due to new store growth. The Company opened a net 33 stores
during 1998, primarily in the third and fourth fiscal quarters,
and five new store locations were opened during 1999. The 1998
new store openings contributed $67,285 to 1999 net sales, an
increase of $26,343 over their contribution to 1998 net sales.
The 1999 new store openings contributed $6,327 to 1999 net sales.
Net sales increases at comparable stores accounted for the
remainder of the total increase.
Comparable store net sales increases (decreases) by fiscal
quarter as a percentage of the prior year comparable quarter,
were as follows for the last three fiscal years:
Fiscal Quarter
-------------------------------
First Second Third Fourth Total Year
------ ------ ------ ------ ----------
1999 vs. 1998 (2.6%) 3.6% 0.4% 3.2% 1.3%
1998 vs. 1997 6.2% 2.9% (2.8%) (1.2%) 0.9%
1997 vs. 1996 5.1% 7.7% 6.9% 3.3% 5.3%
Comparable store net sales continued to benefit from the overall
strength of consumer demand for soft apparel. In comparing
fiscal quarters from one year to the next, unseasonable weather
variations have influenced "buy now, wear now" consumer demand.
Weather related variations, however, have not been considered
significant to net sales in total for any fiscal year.
F-14
<PAGE>
In comparing 1999 to 1998, the Company entered the first fiscal
quarter with less clearance merchandise than in the prior year,
and accordingly, net sales suffered, but corresponding decreases
in cost of sales resulted in 1999 and 1998 gross margin dollars
that were approximately equivalent. Exceptionally strong sales
of summer merchandise in June and July offset slower May sales in
the second fiscal quarter. As in 1998, the August sales were
disappointing in 1999, but gained strength with cooler
temperatures in September and October. The Holiday selling
season, with consistent weekly net sales increases, highlighted
the 1999 fourth fiscal quarter.
The Company's cost of sales as a percentage of net sales were
59.4%, 60.0%, and 60.1% in 1999, 1998 and 1997, respectively.
The improvement results from consistent gross margin percentages
at comparable stores, and improvement in the gross margins at new
and acquired stores. New and acquired stores typically run a
higher cost of sales percentage relative to mature stores,
especially those in markets new to the Company, due to a stronger
promotional effort and lack of comparable sales history. After
approximately 24 to 36 months of operation, a new location
generally attains the Company's mature store average cost of
sales. The cost of sales percentage in 1999 comparable stores
was 58.7% and 59.3% for 1999 and 1998, respectively. At non-
comparable stores, the cost of sales percentage was 61.0% and
63.7%, respectively. Again, a net 33 new and acquired store
locations were opened during 1998, versus only 5 in 1999.
Overall, the Company's commitment to a less promotional, value
priced, merchandise strategy has favorably influenced cost of
sales during periods of inconsistent consumer demand and
significant store growth.
Selling, general and administrative ("SG&A") expenses, exclusive
of depreciation and amortization, were 28.6%, 28.8% and 27.7% of
net sales in 1999, 1998 and 1997, respectively. New and acquired
stores typically have a higher expense structure than mature
stores for the first 12 to 18 months after opening as advertising
and payroll expenses are planned at a higher percentage of sales
to achieve a market presence. In addition, new stores frequently
have higher occupancy costs than mature stores. In 1998, the
Company began operating a second distribution center, located in
Knoxville, Tennessee, upon completion of the Watson Merger. The
increased processing capacity of this second facility will
continue to be leveraged through economies of scale, but in
comparison to 1997, SG&A has been adversely impacted as a
percentage of total sales in 1999 and 1998.
Depreciation and amortization expenses as a percentage of net
sales were 3.3%, 3.0% and 3.1% in 1999, 1998 and 1997,
respectively. Subsequent to the Watson Merger, increased
capital expenditures in the third and fourth fiscal quarters of
1998 were necessary to fixture those stores in a manner
consistent with a typical Peebles store.
The asset impairment as a percentage of 1999 net sales was .7%,
or $2,182. The asset impairment represents the Company's entire
investment in a co-operative buying office (the "Co-Operative").
The Company has been a member of the Co-Operative, and therefore
had an investment in it, for well over a decade. Although
purchases through the Co-Operative, primarily imported
merchandise in support of the Company's private label program,
totaled approximately 7% of total 1999 purchases, the percentage
of total purchases has been declining over the last four fiscal
years. Purchases through the Co-Operative represented 9%, 10%
and 15% of total purchases in 1998, 1997 and 1996, respectively.
The Company purchases merchandise from over 1,200 vendors and is
not dependent on any single source of supply. The Company has
plans in place for fiscal 2000 such that any disruption in
purchasing through the Co-Operative will not materially impact
the Company's financial condition or results of operations.
As a result of the factors discussed above, operating income in
1999, 1998 and 1997 as a percentage of total net sales was 8.0%,
8.2% and 9.1%, respectively.
F-15
<PAGE>
Interest expense as a percentage of net sales was 3.8%, 4.1%, and
4.4% for 1999, 1998 and 1997, respectively. Long-term debt
increased in 1998, primarily as a result of the Watson Merger,
which added $24,000 to Senior Term Notes A and B at June 29,
1998. As a result, interest expense increased 6.6%, from $10,804
in 1998 to $11,521 in 1999. In both 1999 and 1998, increases in
average borrowings and effective interest rates have not been
proportionate to increases in net sales.
Total income taxes as a percentage of net sales were 1.9%, 1.8%
and 2.1% in 1999, 1998 and 1997, respectively. The effective tax
rate for 1999, 1998 and 1997 was 43.4% 44.4% and 43.6%,
respectively The effective tax rate in all three fiscal years is
higher than statutory rates because of non-deductible
amortization of intangible assets.
As a result of the above factors, the Company had net income as a
percentage of net sales of 2.3%, 2.3% and 2.8% in 1999, 1998 and
1997 respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for capital
expenditures in connection with the 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 $13,861,
$13,823 and $15,088 in 1999, 1998 and 1997, respectively, as cash
provided by profitable operations exceeded the funding required
to increase working capital. Working capital increased to
$84,234 at January 29, 2000, an increase of $8,988 from $75,246
at January 30, 1999. The return on net assets was 19.9% in 1999,
excluding the impact of the asset impairment, and 18.2% with the
asset impairment included. In 1998 and 1997, the return on net
assets was 19.0% and 20.8%, respectively. Return on 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.
Net cash used in investing activities was $9,368, $18,049 and
$11,105 in 1999, 1998 and 1997, respectively. Investing
activities included capital expenditures, primarily for fixturing
and point of sale equipment in new and acquired store locations,
of $9,151, $13,394 and $10,226 in 1999, 1998 and 1997,
respectively. In 1999, new store openings accounted for $1,900
in capital expenditures for fixtures and point of sale equipment.
Stores opened in 1998 used $2,400 in 1999 as planned upgrades
continued. Remodeling and space re-allocation at existing stores
used $3,200 of capital expenditures, and corporate office systems
and distribution center enhancements used $1,600. In 1998,
capital expenditures included $8,800 at the 33 new and acquired
stores and $4,300 at existing stores, used primarily in
remodeling and space re-allocations. In 1997, capital
expenditures at new and acquired stores totaled $3,600 and three
existing stores were relocated, using an additional $3,100. The
acquisition of Watson's in 1998 used $4,451.
Financing activities reduced outstanding borrowings by $3,549 in
1999. Scheduled debt service, primarily principal payments on
the Senior Term Facility, used $3,700, The total balance of the
Revolver and Swingline Facility were $37,277 and $37,225 at
January 29, 2000 and January 30, 1999, respectively. Exclusive
of the funding related to the Watson Merger in 1998, the Company
reduced outstanding borrowings by $634 in 1998 and $3,779 in
1997.
In June 1998, the Company amended and restated the Credit
Agreement, at a cost of $1,613, to facilitate the Watson Merger.
As a result, borrowings under Senior Term Notes A and B were
increased by $24,000, retiring $17,895 of Watson's pre-
acquisition debt and trade liabilities, and funding the $4,451
cash purchase price. The cash purchase price included $1,848 for
the entire equity interest, $1,352 to a third party for the
proprietary charge card receivables, and $1,251 in acquisition
fees.
F-16
<PAGE>
In 2000, the Company's capital expenditures are expected to total
approximately $8,500, which reflect the planned opening of 5 new
store locations at approximately $2,600 and the relocation/major
remodeling/space re-allocation of 9 stores at $3,000. Remaining
capital expenditure dollars are allocated to fixturing at
existing stores and continuing upgrades to corporate office and
distribution center systems.
As of March 2000, the Company had signed leases for three new
store locations due to open the third fiscal quarter of 2000.
The Company expects to continue to lease its stores, and the
typical new store is anticipated to average approximately 21,600
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 Company finances its operations, capital expenditures, and
debt service payments in part with funds available under its
Revolver. The maximum amount available under the Revolver is $75
million less amounts outstanding under letters of credit. The
actual amount available is determined by an asset-based formula.
The Company believes the cash flow generated from operating
activities together with funds available under the Revolver will
be sufficient to fund its investing activities and the debt
service of the Credit Agreement.
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 four fiscal
years, quarterly sales as a percentage of total sales have been
consistent at approximately 20%, 23%, 24% and 33% 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 generally bolstered by the 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.
MARKET RISK
The Company's interest expense is affected by changes in short-
term interest on the debt outstanding under the Credit Agreement.
The Credit Agreement bears interest at rates based on both the
LIBOR and prime lending rates (the "Borrowing Rates"). Assuming:
i) the Borrowing Rates vary by 100 basis points from their
current levels in any given fiscal month, and ii) the Company
maintains an aggregate outstanding debt balance subject to these
rates of $106,377 during the fiscal month of variance, interest
expense would vary by approximately $89 for that fiscal month.
F-17
<PAGE>
YEAR 2000 TECHNOLOGICAL ISSUES
In the third fiscal quarter of 1999, the Company completed
testing and remediation of all major information technology
systems to ensure that proper processing would occur after the
year changed to 2000. Further, non-information systems critical
to the Company's operations had been certified by appropriate
third parties to operate properly after January 1, 2000. The
Company experienced no significant disruptions in either it's
information technology systems or non-information systems on or
after January 1, 2000. The Company believes these systems
successfully responded to the date change to year 2000. The
Company will continue to monitor these systems throughout the
year 2000 to ensure any latent date-related matters that may
arise are addressed properly. The costs associated with the
evaluation and modification of information and non-information
systems were expensed as incurred and were not material to the
financial position or results of operations of the Company.
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; v) the Company's ability to
integrate acquired stores into Peebles' overall operations on a
timely basis; vi) the successful management of inventory levels,
related costs and selling, general and administrative costs.; and
vii) the timely resolution of year 2000 compliance issues by the
Company and its vendors.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> JAN-29-2000
<CASH> 1,008
<SECURITIES> 0
<RECEIVABLES> 39,749
<ALLOWANCES> (1,800)
<INVENTORY> 70,181
<CURRENT-ASSETS> 113,718
<PP&E> 89,570
<DEPRECIATION> 36,507
<TOTAL-ASSETS> 210,217
<CURRENT-LIABILITIES> 29,484
<BONDS> 103,291
0
0
<COMMON> 1
<OTHER-SE> 68,558
<TOTAL-LIABILITY-AND-EQUITY> 210,217
<SALES> 300,839
<TOTAL-REVENUES> 300,839
<CGS> 178,657
<TOTAL-COSTS> 178,657
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,521
<INCOME-PRETAX> 12,414
<INCOME-TAX> 5,385
<INCOME-CONTINUING> 7,029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,029
<EPS-BASIC> 7,029
<EPS-DILUTED> 7,029
</TABLE>
