UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
COMMISSION FILE NO. 33-62001
SPECIALTY RETAILERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 04-3034294
incorporation or organization) (I.R.S. Employer Identification No.)
10201 MAIN STREET, HOUSTON, TEXAS 77025
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (713) 667-5601
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 at least 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]
The aggregate market value of the voting common stock held by
non-affiliates as of March 6, 1996 was zero. At March 6, 1996, there were 5,000
shares of common stock, all held by the registrant's parent, Apparel Retailers,
Inc.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
(J)(1)(a) AND (b) AND IS THEREFORE FILING THIS FORM UNDER THE REDUCED DISCLOSURE
FORMAT FOR CERTAIN ITEMS.
<PAGE>
PART I
THE FISCAL YEARS DISCUSSED HEREIN END ON THE SATURDAY NEAREST TO
JANUARY 31 IN THE FOLLOWING CALENDAR YEAR. REFERENCES TO YEARS MEAN THE
RESPECTIVE FISCAL YEAR. FOR EXAMPLE, REFERENCES TO "1995" MEAN THE FISCAL YEAR
ENDED FEBRUARY 3, 1996.
ITEM 1. BUSINESS
GENERAL
Specialty Retailers, Inc. ("SRI" or the "Company") operates family
apparel stores primarily under the names "Bealls", "Palais Royal" and "Stage"
offering branded fashion apparel, accessories and footwear for women, men and
children. During 1993, at the direction SRI's shareholders, SRI become the
wholly-owned subsidiary of Apparel Retailers, Inc. ("ARI"). ARI has no
operations of its own and its primary asset is the common stock of SRI.
The Company currently operates 268 stores in thirteen states located
throughout the central United States. The Company's stores are typically between
eighteen and thirty thousand square feet, averaging twenty-three thousand square
feet in size. These stores are smaller than typical department stores yet larger
than most specialty stores. The store format allows the Company to operate in
small towns and communities with as few as fifteen thousand people or in large
metropolitan and suburban areas. The Company's store format is large enough to
offer branded fashion apparel, accessories and footwear for all members of the
family and small enough to allow for strategic location in rural markets or in
numerous, convenient locations in metropolitan and suburban areas.
During 1993, management formalized its new growth strategy to expand
into small market areas where the Company can become the dominant retailer by
providing quality, branded merchandise for the entire family at a fair price.
The Company will implement this strategy by either opening new stores in select
locations or through the acquisition of select apparel retail concerns or their
related store leases. During 1994, this strategy resulted in the opening of ten
new stores in Texas, Oklahoma and Missouri and the acquisition of forty-five
store leases from the Beall-Ladymon Corporation ("Beall-Ladymon"), located
primarily in Louisiana, Arkansas and Mississippi. The former Beall-Ladymon
stores reopened in the first quarter of 1995 under the name of Stage, the banner
the Company has registered nationally and intends to promote in all new markets
where its traditional names are unrecognized. In addition to the former
Beall-Ladymon stores, another twenty-three stores were opened during 1995. The
majority of these stores were in new markets including Missouri, Illinois,
Kansas and Iowa. Management continues to actively search for locations that meet
its site selection criteria including market size, economic demographics,
customer profile and competitive environment and, as a result, anticipates the
opening of approximately thirty-five new stores during 1996.
During the fourth quarter of 1994, the Company approved a store closure
plan (the "Store Closure Plan") that provided for the closure of forty Fashion
Bar stores. See Note 4 to the Consolidated Financial Statements. These stores
were primarily located in major regional malls within the Denver area.
Management determined that the merchandising strategy and market position of
such stores were not compatible with the Company's overall merchandising
philosophies or growth strategy. Management substantially completed the Store
Closure Plan during 1995. As of February 3, 1996, thirteen of the former Fashion
Bar stores remain open, twelve of which were not included in the Store Closure
Plan. Nine of the thirteen Fashion Bar stores have been converted to Stage
stores. The remaining four stores are being operated under a discount/outlet
store concept. Management anticipates that three of the discount/outlet stores
will close once lease termination agreements are reached with the respective
landlords or upon the expiration of their leases between August 1996 and January
1998. Management is optimistic that merchandising and pricing strategies
consistent with its other stores can be successfully applied to the stores which
will remain open.
The Company's merchandising strategy focuses on the traditionally
higher margin categories of women's, men's and children's branded apparel,
accessories and footwear. Merchandise mix may vary from store to store to
accommodate differing demographic factors. The Company offers a selected
assortment of moderately priced, branded
1
merchandise which is divided into distinct departments as follows (percentages
represent each department's contribution to Company sales):
Department 1994 1995
- ---------------------------------- ----------- -----------
Men's/Young Men................... 20% 22%
Misses Sportswear................. 15 15
Juniors........................... 15 13
Accessories & Gifts............... 10 9
Children.......................... 9 9
Shoes............................. 8 8
Intimate.......................... 6 6
Special Sizes..................... 5 5
Cosmetics......................... 4 5
Misses Dresses.................... 4 4
Boys.............................. 3 3
Furs & Coats...................... 1 1
----------- -----------
100% 100%
=========== ===========
The Company purchases merchandise from a vendor base of over two
thousand vendors. The Company's leading vendors for 1995 were Levi, Liz
Claiborne, Nike, Reebok, Haggar, Hanes and Guess. Levi accounted for 8.9% of the
Company's 1995 retail purchases. No other vendor accounted for more than 2.8%.
In addition, the Company, through its membership in Associated Merchandising
Corporation ("AMC", a cooperative buying service), purchases imported
merchandise for its private label program. The membership provides the Company
with synergistic purchasing opportunities allowing it to augment its branded
merchandise assortments. Private label merchandise purchased through AMC
accounted for approximately 9.4% of the Company's total retail purchases for
1995.
The Company's integrated merchandising systems are designed to provide
its buyers with necessary information and analytical support regarding sales and
inventory productivity. These systems include, among others, (i) an automated
merchandise planning and allocation system which recognizes the attributes and
current merchandise needs by classification for each store, (ii) a staple stock
replenishment system to ensure the Company's stores are in stock on basic items
such as hosiery, foundation garments, dress shirts and jeans, (iii) an automated
markdown and merchandise transfer system which monitors slow and fast moving
merchandise and enables the Company to transfer or markdown merchandise to
improve inventory productivity and (iv) an assortment planning system to closely
tailor the merchandise assortment in each store based on local demographics and
historical trends and to automatically allocate merchandise accordingly.
The Company's culture focuses on a high level of customer service.
Sales associates are encouraged to adopt a "can do" attitude in order to exceed
customer service expectations. All sales associates are evaluated and
compensated based on sales and their ability to meet specific customer service
standards such as offering prompt assistance to a customer upon entering a
department, suggesting additional complimentary items, attending to fitting room
needs such as responding to rings from the "call button" mounted inside fitting
rooms in certain stores, sending thank-you notes to charge customers,
telephoning customers about promotional events and maintaining consistent
contact with customers in order to build their customer bases. A "never say no"
policy forbids sales associates or anyone else from saying "no" to a customer's
request without involving their immediate supervisor. The Company monitors
customer service and actively solicits feedback on a daily basis by conducting
3,000 customer telephone surveys each month.
The Company's private label credit card program is also an important
element of its customer service. All stores offer private label credit cards
with extended payment terms. The Company's private label credit card holders
represent a large and important group of customers and the Company seeks to
develop and grow credit card purchases through a marketing strategy emphasizing
(i) direct mail of promotional materials to existing cardholders to communicate
new merchandise offerings, (ii) promotion of customer incentive programs tied to
purchase volume and (iii) the issuance of new credit through the opening of new
accounts and extension of credit on existing accounts. State-of-the-art computer
credit systems, which include point and behavioral point scoring, approve new
and additional credit and monitor account performance. Management believes that
private label credit card holders shop more regularly and purchase more
merchandise than customers who pay cash. The private label credit card program
includes over 1.5 million active accounts which accounted for 55.6% of sales
during 1995.
2
The Company's private label credit card program is supported by an
efficient credit operation which relies upon an internally developed and highly
automated systems to assist in all phases of the operation. A dedicated
communications system links the corporate headquarters with each store enabling
immediate point-of-sale credit approval. The automated system also analyzes
customer payment histories, automatically approves or rejects credit
applications and point-of-sale transactions and enables account representatives
to efficiently contact delinquent customers and respond to customer inquiries.
The Company maintains a four-hundred fifty thousand square foot
distribution center with the current capacity to support in excess of one
billion dollars in aggregate annual sales volume. Management believes that the
distribution center capacity could be expanded, with certain enhancements, to
handle additional Company needs. The automated and centralized distribution
center enables the Company to distribute the majority of merchandise it receives
within forty-eight hours of receipt. The distribution center, as opposed to
direct store shipments, provides a more efficient allocation of merchandise to
stores, lower freight costs and reduced accounts payable processing costs. The
design of the distribution center is based on an efficient "space saver" concept
which allows the Company to maximize the available cubic space of the building.
Virtually all merchandise is received at the distribution center. Once
received, it is recorded, inspected, tagged with a computer generated price
ticket, sorted and shipped. Pursuant to a unique partnership agreement with a
major freight forwarder, merchandise is sent directly from the distribution
center to the individual stores on a daily basis to ensure a continous flow of
new goods and merchandise assortments to its stores.
GENERAL ECONOMIC CONDITIONS AND SEASONALITY
The Company's business is seasonal and sales and profits are typically
lower during the first nine months of the year (February through October) and
higher during the last three months of the year (November through January). See
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The Company currently operates 268 stores in thirteen states primarily
throughout the central United States. As a result, the Company's operations are
affected by local economic conditions which are beyond the Company's control.
For example, during the latter portion of 1994, deteriorating economic
conditions in Mexico resulted in the devaluation of the peso. Although this
devaluation had a broad impact in the Texas market, which is difficult to
measure, the poor economic conditions in Mexico directly affected sales of six
stores located on the Texas-Mexico border. Sales for these stores decreased from
$38.8 million during 1994 to $27.7 million during 1995 (based on a comparable
fifty-two week year) as a result of the reduced Mexican trade. Sales for these
six stores have now stabilized and, barring any further decline in the economic
conditions in Mexico, management does not expect any significant sales
deterioration in the near future.
COMPETITION
The apparel retail industry is highly competitive and the Company faces
varying degrees of competition in each of the markets it serves. Management
perceives a significant difference in the level of competition in urban versus
small markets. In urban markets, the Company faces competition from numerous
national and regional department and specialty stores, carrying apparel goods in
both branded and non-branded formats. Some of these store chains are
considerably larger than the Company and have substantially greater financial
and other resources. The Company believes, however, that its store format,
merchandising strategy, customer service, knowledge of these markets developed
over seventy years of service and an emphasis on operating systems and
technology enable it to effectively compete in those markets. In small markets,
where management has focused its growth strategy, the level of competition is
significantly lower than in urban areas. Although competition exists in these
markets, the Company is well positioned as the dominant retailer of branded
apparel in most of the small markets it serves. As a result, management believes
the Company has a competitive advantage over local retailers who have fewer
resources than the Company.
3
EMPLOYEES
During 1995, the Company employed an average of 9,946 full and
part-time employees, of which 1,069 were salaried and 8,877 were hourly. Central
office (which includes corporate, credit and distribution center offices)
employees averaged 296 salaried and 684 hourly during 1995. In its stores during
1995, the Company employed an average of 773 salaried and 8,193 hourly
employees. Such averages will vary during the year as the Company traditionally
hires additional employees and increases the hours of part-time employees during
peak seasonal selling periods. There are no collective bargaining agreements in
effect with respect to any of the Company's employees. The Company believes that
relationships with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in a one hundred thirty
thousand square foot building in Houston, Texas. The Company leases the building
and most of the land at its Houston facility. See Item 13 "Certain Relationships
and Related Transactions." The Company owns its four-hundred fifty thousand
square foot distribution center and its credit department facility, both located
in Jacksonville, Texas. The Jacksonville distribution center collateralizes the
Company's Credit Agreement (as defined herein). See Note 5 to the Consolidated
Financial Statements.
At February 3, 1996, the Company operated 257 stores located in
thirteen states as follows: Texas (161 stores); Louisiana (26 stores); Colorado
(13 stores); Oklahoma (13 stores); Arkansas (12 stores); New Mexico (8 stores);
Mississippi (6 stores); Illinois (5 stores); Missouri (4 stores); Alabama (3
stores); Iowa (3 stores); Kansas (2 stores) and Wyoming (1 store). Stores range
in size from eight to fifty-nine thousand square feet with the majority between
eighteen and thirty thousand square feet. In general: Bealls stores are located
in rural markets in Texas, Oklahoma, New Mexico and Alabama; Palais Royal stores
are located in metropolitan Houston and Stage stores are located in states other
than Texas, Oklahoma, New Mexico and Alabama. The stores are primarily located
in strip shopping centers.
All store locations are leased except for three Bealls stores and two
Stage stores which are owned. All leases provide for a base rent amount plus
contingent rentals, generally based upon a percentage of gross sales.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of the Company's
business. Management believes that none of the matters in which the Company or
its subsidiaries are currently involved, either individually or in the
aggregate, is material to the financial position or results of operations of the
Company or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
This Item is omitted pursuant to general instruction J of Form 10-K.
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Authorized common equity securities consists of 5,000 shares of $0.01
par value common stock. Common stock outstanding at March 5, 1996 was 5,000
shares all of which was owned by ARI.
ITEM 6. SELECTED FINANCIAL DATA
This Item is omitted pursuant to general instruction J of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company operates family apparel stores primarily in the central
United States under the names Bealls, Palais Royal and Stage offering branded
fashion apparel, accessories and footwear for women, men and children.
ARI was formed during 1993 and concurrently became the direct parent of
SRI when the existing stockholders of SRI exchanged all of their common stock
for common stock of ARI. Concurrent with the formation of ARI, ARI completed its
refinancing (the "Refinancing") and distribution (the "Distribution") plans. The
Refinancing included the implementation of the Accounts Receivable Program and
the issuance of new SRI long-term debt instruments which replaced certain
previously existing SRI debt. The Refinancing, together with funds generated
internally, provided capital to finance new store openings and the Beall-Ladymon
lease acquisition. Pursuant to the Distribution, ARI issued $149.1 million
aggregate principal amount of 12 3/4% ARI Senior Discount Debentures due 2005
(the "ARI Senior Discount Debentures") which were issued at a discount of
approximately $69.1 million. Substantially all of the $80.0 million in proceeds
were used to make a distribution to the shareholders of ARI. See Note 5 to the
Consolidated Financial Statements and "Liquidity and Capital Resources".
The financial information, discussion and analysis that follow should
be read in conjunction with the Consolidated Financial Statements and Item 1 -
"Business".
RESULTS OF OPERATIONS
1994 COMPARED TO 1995. 1995 was highlighted by the opening of
sixty-eight new stores as a result of the implementation of management's growth
strategy to expand into small market areas where the Company can become the
dominant retailer. The following should be considered when evaluating the
Company's results of operations: (i) the Company incurred one-time costs
associated with opening the sixty-eight new stores; (ii) the Company closed
thirty-nine Fashion Bar stores during the fourth quarter of 1994 and the first
quarter of 1995 pursuant to the Store Closure Plan; (iii) during December 1994,
deteriorating economic conditions in Mexico resulted in the devaluation of the
peso which directly affected sales of six stores located on the Texas-Mexico
border and (iv) 1995 consisted of fifty-three weeks. The following is a
discussion of the Company's 1995 results of operations as compared to 1994.
Sales for 1994 and 1995 were $581.5 million and $682.6 million,
respectively, representing an increase of $101.1 million or 17.4%. This increase
was due to (i) increased sales in stores opened during 1994 and 1995 of $112.5
million or 19.3%, (ii) an increase in sales of comparable stores of $5.4 million
or 1.0% and (iii) sales in all stores during the fifty-third week of 1995 of
$10.0 million or 1.7%. Such increases were partially offset by decreased sales
in stores closed during 1994 and 1995 pursuant to the Store Closure Program of
$23.7 million or 4.1% together with decreased sales in stores operated as
Fashion Bar outlet stores of $3.1 million or 0.5%. Comparable store sales,
excluding the six stores affected by the weak economic conditions in Mexico,
increased 3.3%.
5
Gross profit as a percentage of sales was 31.4% for 1994 and 1995.
Gross profit for 1995 was favorably impacted by the growth in new stores which
traditionally experience lower markdown activity during the first six months of
operation and the application of buying, occupancy and distribution costs over a
larger sales base. Also impacting gross margin was an increase in mark-downs
resulting from additional promotional events during the Christmas season
intended to increase sales and an increase in shrinkage due to the rapid store
growth in 1995. The increase in shrinkage was offset by the favorable impact of
LIFO inventories.
Selling, general and administrative expenses as a percentage of sales
were 23.2% and 23.4% for 1994 and 1995, respectively. The increase resulted from
costs associated with the certificates outstanding under the Accounts Receivable
Program, partially offset by the application of fixed costs to a greater volume
of sales and the reversal of a $0.8 million reserve as a result of a favorable
court ruling in a litigation matter. Advertising expenses as a percentage of
sales for 1994 and 1995 were 3.8% and 3.9%, respectively. The increase was due
to advertising campaigns in areas where the Company previously did not operate,
particularly the newly acquired Beall-Ladymon locations.
Service charge income increased from $8.5 million for 1994 to $10.5
million for 1995. Without giving effect to the Accounts Receivable Program (see
Note 2 to the Consolidated Financial Statements), 1995 service charge income was
$41.3 million, a $6.1 million increase as compared to 1994. Such increases were
due to an increase in average accounts receivable balances resulting from the
17.4% increase in sales discussed above combined with the fifty-third week of
1995.
The 1994 store opening and closure costs were due primarily to a $5.2
million provision for the Store Closure Plan. The 1995 store opening and closure
costs were primarily due to the opening of sixty-eight new stores.
Operating income as a percentage of sales increased from 8.8% for 1994
to 9.0% for 1995 as a result of the items discussed above. Store opening and
closure costs accounted for the largest change. Excluding the effect of such
costs, operating income as a percentage of sales would have been 9.7% for 1994
and 9.5% for 1995.
Net interest expense increased from $28.1 million for 1994 to $30.5
million for 1995. The increase in net interest expense was due primarily to
interest related to the 11% Series C Senior Subordinated Notes due 2003 (the
"Series C Senior Subordinated Notes") issued in the aggregate principal amount
of $18.3 million during the second quarter of 1995, increased borrowings and
associated fees under the Credit Agreement and higher interest rates on certain
other debt. Interest income decreased during 1995 as compared to 1994 due to
lower cash balances as a result of store expansion during 1995.
1993 COMPARED TO 1994. Sales for 1993 and 1994 were $557.4 million and
$581.5 million, respectively, representing an increase of $24.1 million or 4.3%.
Comparable store sales were $525.2 and $541.7 million for 1993 and 1994,
respectively, representing an increase of $16.5 million or 3.1%. The overall
increase in sales was a result of an increase in comparable store sales combined
with a net increase in sales from store openings and closings during 1994.
Gross profit as a percentage of sales was 31.0% and 31.4% of sales for
1993 and 1994, respectively. The increase in the gross profit percentage was due
primarily to increased sales in the Company's private label apparel which
generally has higher margins than brand name apparel.
Selling, general and administrative expenses as a percentage of sales
were 24.2% and 23.2% for 1993 and 1994, respectively. These decreases are due to
the sale of accounts receivable to a trust pursuant to the Accounts Receivable
Program which began during August 1993. Without giving effect to the Accounts
Receivable Program, selling, general and administrative expenses would have
increased from $147.4 million to $151.6 million for 1993 and 1994, respectively.
These amounts as a percentage of sales would have decreased from 26.4% to 26.1%
for 1993 and 1994, respectively. Such decrease was due to the Company's ability
to effectively manage variable selling, general and administrative expenses.
Advertising expenses as a percentage of sales for 1993 and 1994 were 4.0% and
3.8%, respectively, a decrease of 0.2%.
6
Service charge income decreased from $20.0 million for 1993 to $8.5
million for 1994 due to the sale of accounts receivable pursuant to the Accounts
Receivable Program. Without giving effect to the Accounts Receivable Program,
1994 service charge income would have increased $2.7 million from 1993 as a
result of an increase in average accounts receivable balances due to the 4.3%
increase in sales and the purchase of certain accounts receivable from
Beall-Ladymon.
Store opening and closure costs increased from $0.2 million for 1993 to
$5.6 million for 1994. This increase was due to $5.2 million of expenses
associated with the Store Closure Plan which were recorded during 1994.
Operating income as a percentage of sales decreased from 10.3% for 1993
to 8.8% for 1994 as a result of the items discussed above. The $5.2 million
provision associated with the Store Closure Plan recorded during 1994 (see Note
4 to the Consolidated Financial Statements) combined with the impact of the
implementation of the Accounts Receivable Program in 1993 (see Note 2 to the
Consolidated Financial Statements) represented the two largest changes.
Net interest expense decreased $2.8 million from $30.9 million for 1993
to $28.1 million for 1994. The decrease in net interest expense is due to the
purchase and retirement of $20.0 million of 10% Senior Notes Due 2000 (the
"Senior Notes").
SEASONALITY AND INFLATION
The Company's business is seasonal and sales and profits traditionally
are lower during the first nine months of the year (February through October)
and higher during the last three months of the year (November through January).
Working capital requirements fluctuate during the year and generally reach their
highest levels during the third and fourth quarters.
<TABLE>
<CAPTION>
1994 1995
--------------------------------------------- ---------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
--------- ---------- --------- --------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 128,073 $ 132,060 $ 134,939 $ 186,391 $ 142,353 $ 154,578 $ 159,161 $ 226,532
Gross profit............ 39,856 39,163 41,110 62,675 46,283 46,555 48,659 72,780
Operating income........ 11,944 10,574 10,030 18,412 14,839 11,073 9,725 25,854
Quarters' operating
income as a percent
of annual............. 23% 21% 20% 36% 24% 18% 16% 42%
Income before
extraordinary item.... $ 3,081 $ 2,286 $ 1,963 $ 7,202 $ 4,569 $ 2,198 $ 1,190 $ 11,716
Net income.............. 2,755 2,286 2,001 7,182 4,569 2,198 1,190 11,716
</TABLE>
The Company does not believe that inflation had a material effect on
its results of operations during the past two years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
LIQUIDITY AND CAPITAL RESOURCES
The Refinancing eliminated certain SRI high cost debt and all of its
outstanding preferred stock. At February 3, 1996, the Company's consolidated
long-term debt included $130.0 million of Senior Notes, $118.3 million of Senior
Subordinated Notes (as defined below), $2.0 million of indebtedness under
industrial development revenue bonds and certain other debt of its subsidiaries.
Management estimates the market value of all SRI and subsidiaries' debt to be
$259.2 million at February 3, 1996. See Note 5 to the Consolidated Financial
Statements.
7
Working capital was $147.6 million and $166.5 million at January 28,
1995 and February 3, 1996, respectively. The increase in working capital during
1995 was a result of the issuance of the Series C Senior Subordinated Notes
together with an increase in working capital generated by operations. Such
increases were partially offset by capital expenditures primarily related to the
sixty-eight new store openings and store remodelings.
Significant changes within working capital included cash, accounts
receivable and merchandise inventories. The increase in merchandise inventories
and the decrease in cash was due primarily due to capital expenditures and
working capital needs related to the sixty-eight store openings. Accounts
receivable decreased $4.6 million during 1995 as a result of the issuance of
$25.0 million of term certificates under the Accounts Receivable Program which
was partially offset by an increase in accounts receivable resulting from the
17.4% increase in sales.
The Company's primary capital requirements are for working capital
(including interest payments on debt), capital expenditures and principal
payments on debt. Based upon the current capital structure, management
anticipates interest payments to be comparable to the 1995 level during the next
two fiscal years adjusting for the borrowings issued in 1995. Generally, capital
expenditures are for new store openings, remodeling of existing stores and
customary store maintenance. Capital expenditures increased during from $19.7
million during 1994 to $28.9 million during 1995 as a result of opening
sixty-eight new stores during 1995 compared to ten new stores during 1994.
Management expects capital expenditures to be comparable to the 1995 level
during the next two fiscal years due in part to increased store maintenance and
renovations at the corporate headquarters. Aggregate principal payments on debt
total $2.4 million during the next two fiscal years.
The Company's short-term liquidity needs are provided by (i) existing
cash balances, (ii) operating cash flows, (iii) the Accounts Receivable Program
which provides a source of funds from the sale of accounts receivable to a trust
and (iv) the Revolving Credit Agreement (as defined below). Long-term liquidity
needs traditionally have been raised through the private placement of debt.
Pursuant to the Accounts Receivable Program, the Company sells, on a
daily basis, all of the accounts receivable generated by the holders of the
Company's private label credit card accounts to its wholly-owned subsidiary, SRI
Receivables Purchase Co., Inc. ("SRPC"). SRPC is a separate limited-purpose
subsidiary that is operated in a fashion intended to ensure that its assets and
liabilities are distinct from those of the Company and its other affiliates as
SRPC's creditors have a claim on its assets prior to becoming available to any
creditor of the Company. SRPC sells, on a daily basis, the accounts receivable
purchased from the Company to a master trust (the "Trust") in exchange for cash
or a certificate representing an undivided interest in the Trust. Since its
inception, the Trust has issued $165.0 million of term certificates and a $40.0
million revolving certificate representing undivided interests in the Trust. The
holder of the revolving certificate agreed to purchase interests in the Trust
equal to the amount of accounts receivable in the Trust above the level required
to support the term certificates and the transferor's retained interest
(currently $204.1 million), up to a maximum of $40.0 million. If receivable
balances in the Trust fall below the level required to support the term
certificates and revolving certificates, certain principal collections may be
retained in the Trust until such time as the receivable balances exceed the
certificates then outstanding and the required transferor's interest. The Trust
may issue additional series of certificates from time to time. Terms of any
future series will be determined at the time of issuance.
The Company has a revolving credit agreement with a bank (the "Credit
Agreement") under which it may draw up to $25.0 million. Of this amount, $15.0
million may be used to support letters of credit. As of February 3, 1996, $8.4
million of the total commitment was used to collateralize letters of credit
resulting in available funds of $16.6 million. The Company also has a separate
agreement with the bank under which it may borrow an additional $10.0 million
for seasonal working capital needs (the "Seasonal Credit Agreement" and together
with the Credit Agreement, the "Revolving Credit Agreement"). Funds are
available under the Seasonal Credit Agreement from August 15 through January 15
of each calendar year (the "Seasonal Period"). The Revolving Credit Agreement is
available through February 3, 1998. During 1995, the availability under the
Credit Agreement was never less than $4.5 million. During the Seasonal Period,
the availability under the Revolving Credit Agreement was never less than $11.5
million.
During the second quarter of 1995, SRI issued $18.3 million in
aggregate principal amount of Series C Senior Subordinated Notes which were
subsequently exchanged for 11% Series D Senior Subordinated Notes due 2003 (the
"Series D Senior Subordinated Notes"). The form and terms of the Series D Senior
Subordinated Notes are the same as the form and terms of the Series C Senior
Subordinated Notes except that the Series D Senior Subordinated Notes are
registered under the Securities Act of 1933 and, therefore, are public
securities that do not bear legends restricting their transfer. Such notes were
issued at a discount of $1.8 million and bear interest at 11% payable
semi-annually on February 15 and August 15 of each year. Substantially all of
such proceeds were used for new store openings and other general corporate
purposes. The Series D Senior Subordinated Notes rank pari passu with the
existing 11% Series B Senior Subordinated Notes due 2003 (collectively, the
"Senior Subordinated Notes"). No Series C Senior Subordinated Notes remain
outstanding.
8
Management believes that funds provided by operations, together with
funds available under the Credit Agreement, the Seasonal Credit Agreement and
the Accounts Receivable Program will be adequate to meet the Company's
anticipated requirements for working capital (at its projected growth rates),
interest payments, planned capital expenditures and principal payments on debt.
Estimates as to working capital needs and other expenditures may be materially
affected if the foregoing sources are not available or if the current growth
forecasts are not met.
ARI is dependent on the cash flow of SRI and its subsidiaries in order
to meet its debt service obligations. Management believes that ARI will receive
sufficient distributions from SRI to enable it to service the cash interest
payments on the ARI senior discount debentures when they become due; however,
there can be no assurance that such distributions will be adequate to satisfy
either the cash interest on, or the repayment of such debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included on page 17
for information required under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSUREL
None.
9
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information with respect to the
directors and executive officers of the Company. Pursuant to an equity stock
purchase agreement (the "Equity Purchase Agreement"), the Company, Bain Venture
Capital ("Bain"), certain affiliates of Bain, Citicorp Venture Capital Ltd.
("Citicorp"), Acadia Partners, L.P. ("Acadia") and certain other stockholders
have agreed that until certain designated events occur, such parties will vote
for Bain's nominee to the Board of Directors, and that so long as Acadia and its
affiliates hold at least 5% of the outstanding Common Stock, such parties will
vote for one Acadia nominee to the Board of Directors. Certain affiliates of
Bain, an affiliate of Citicorp, Acadia and certain of Acadia's affiliates are
stockholders. See Item 12 - "Security Ownership of Certain Beneficial Owners and
Management". The current Bain nominees serving on the Board of Directors are
Joshua Bekenstein and Adam Kirsch. The current Acadia nominee serving on the
Board of Directors is Peter Mulvihill.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- -------- ---------------------------------------------------
<S> <C> <C>
Bernard Fuchs (1) 69 Chairman of the Company
Joshua Bekenstein (1) 37 Director
Carl Tooker 48 Director, President and Chief Executive Officer
Mark Shulman 47 Executive Vice President/Chief Merchandising Officer
James Marcum 36 Executive Vice President/Chief Financial Officer
Stephen Lovell 40 Executive Vice President/Director of Stores
Jerry Ivie 63 Senior Vice President, Secretary and Treasurer
Ron Lucas 48 Senior Vice President/Human Resources
Adam Kirsch (2) 34 Director, Vice President and Assistant Secretary
Peter Mulvihill (2) 36 Director
Lasker Meyer 70 Director
</TABLE>
- -------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Mr. Fuchs has been involved in retailing since 1944. He began his
career with Grayson shops of California and subsequently served as Executive
Vice President and Chief Operating Officer of S. Klein in New York from 1960
through 1967. He came to Palais Royal as Executive Vice President and Chief
Operating Officer in 1967 and became President and Chief Executive Officer in
1979. Mr. Fuchs was Chairman and Chief Executive Officer of the Company from
December 1988 until July 1994 when Mr. Tooker was appointed Chief Executive
Officer. Mr. Fuchs continues to serve as Chairman of the Company.
Mr. Bekenstein has been a director since December 1988 and was elected
Vice Chairman and Chief Financial Officer of the Company in May 1992. Mr.
Bekenstein was Vice Chairman and Chief Financial Officer of the Company from May
1992 until June 1995 when Mr. Marcum was appointed Chief Financial Officer.
During March 1996, Mr. Bekenstein resigned as Vice Chairman of the Company. Mr.
Bekenstein continues to serve as a director. Mr. Bekenstein has been a Managing
Director of Bain Capital, Inc. ("Bain Capital") since May 1993 and a General
Partner of Bain Capital since its inception in 1987. Mr. Bekenstein also
currently serves on the Board of Directors of Waters Corporation.
10
Mr. Tooker joined the Company as a Director, President and Chief
Operating Officer on July 1, 1993 and, effective July 1, 1994, Mr. Tooker was
appointed Chief Executive Officer. Mr. Tooker has twenty-four years of
experience in the retail industry, eighteen of which were spent with the May
Company where he served as Chairman and Chief Operating Officer of Filene's of
Boston from 1988 to 1990. In 1990, Mr. Tooker joined Rich's, a division of
Federated Department Stores, Inc., as President and Chief Operating Officer, and
in 1991 Mr. Tooker was promoted to Rich's Chief Executive Officer.
Mr. Shulman joined the Company in January 1994 as Executive Vice
President and Chief Merchandising Officer with twenty-four years of retailing
experience. Prior to joining the Company, Mr. Shulman held varying positions
with Bloomingdales, Rikes and I. Magnin, all of which are divisions of Federated
Department Stores, Inc. Since 1985, Mr. Shulman has served as President of Ann
Taylor (Allied Stores), Henri Bendel (The Limited), Bon Jour and most recently,
Leslie Fay.
Mr. Marcum joined the Company in June 1995 as Executive Vice President
and Chief Financial Officer. Prior to joining the Company, Mr. Marcum served as
Treasurer of the Melville Corporation from 1986 to 1989, Vice President and
Controller of Marshalls, Inc., a division of the Melville Corporation, from
1989-1990 and most recently as Senior Vice President and Chief Financial Officer
of Marshalls, Inc.
Mr. Lovell joined the Company in June 1995 as Executive Vice President
and Director of Stores. Prior to joining the Company, Mr. Lovell spent fifteen
years with Hit or Miss, a division of TJX Companies. Mr. Lovell's first position
with Hit or Miss was Store Manager. He served as a District Manager, Regional
Manager, Territorial Vice President and since January 1987, Senior Vice
President and Director of Stores.
Mr. Ivie has served as Senior Vice President, Secretary and Treasurer
since December 1988 and was with Palais Royal since 1976. Mr. Ivie previously
spent fifteen years in the finance department of Burdine's, a division of
Federated Department Stores.
Mr. Lucas joined the Company in July 1995 as Senior Vice President,
Human Resources. Prior to joining the Company, Mr. Lucas served as Vice
President, Human Resources at two different divisions of Limited, Inc., the
Limited Stores Division and Lane Bryant. Previously, he spent seventeen years at
the Venture Stores Division of May Co. ending as Vice President, Organization
Development.
Mr. Kirsch has been a Managing Director of Bain Capital since May 1993
and a General Partner of Bain since 1990 and was an Associate and Principal of
Bain Capital from 1987 to 1990. Mr. Kirsch also currently serves as a director
of Brookstone, Inc., Duane Reade Holding Corp., Dade Holdings, Inc. and the
Wesley-Jessen Corporation.
Mr. Mulvihill has been a director since December 1988. Mr. Mulvihill
has served as a Managing Director of Oak Hill Partners, Inc. ("Oak Hill" the
management company for Acadia) since 1993. From 1987 to 1993, Mr. Mulvihill
worked for and was associated with Rosecliff Inc. ("Rosecliff", the predecessor
of Oak Hill). Prior to joining Rosecliff, Mr. Mulvihill was an investment banker
with Drexel Burnham Lambert Incorporated in the corporate finance division from
1985 to 1987. Mr. Mulvihill also serves as a director of Harvest Foods, Inc., an
Arkansas based grocery chain.
Mr. Meyer served as Vice-Chairman and Chief Merchandising Officer from
May 1989 until he retired in December 1993. Mr. Meyer has been a director since
1988 and continues to serve as a director. Mr. Meyer was with Foley's from 1959
until 1987, when he retired from his position as Chairman and Chief Executive
Officer. From 1987 until May 1989, Mr. Meyer was an officer and director of
Spoetzel Brewery, Inc.
11
ITEM 11. EXECUTIVE COMPENSATION
This item is omitted pursuant to general instruction J of Form 10-K.
12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All common stock of the Company is owned by ARI.
ARI's authorized equity consists of common stock (the "Common Stock")
and Class B Common Stock (the "Class B Common Stock"). Except as otherwise
described herein, all shares of Common Stock and Class B Common Stock are
identical and entitle the holders thereof to the same rights and privileges
(except as described below). Holders of Class B Common Stock may elect at any
time to convert any or all of such shares into Common Stock, on a
share-for-share basis, to the extent the holder thereof is not prohibited from
owning additional voting securities by virtue of regulatory restrictions. The
holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Except as required by law, holders of Class B
Common Stock do not have the right to vote on any matters to be voted upon by
the stockholders. As of March 6, 1996, 1,468,750 shares of Class B Common Stock
were outstanding, 1,320,198 of which is owned by Court Square Capital Limited
(see note (3) to ownership table below). Except as described in note (3) below,
the percentage of shares of Common Stock is calculated assuming no Class B
Common Stock is converted.
The table below sets forth certain information regarding ownership of
Common Stock as of March 6, 1996 assuming exercise of options exercisable within
sixty days of such date by (i) each person or entity who owns of record or
beneficially 5% or more of the Common Stock, (ii) each director and named
executive officer and (iii) all executive officers and directors as a group.
Each of such stockholders is assumed to have sole voting and investment power as
to the shares shown. Known exceptions are noted.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF
SHARES OF COMMON
NAME COMMON STOCK STOCK (7)
---- ------------ ---------
<S> <C> <C>
Joshua Bekenstein (5)................................................. 5,363,143 45.7%
Adam Kirsch (5)....................................................... 5,340,645 45.5%
Bain Capital and the Tyler Entities (1)............................... 5,291,911 45.1%
Acadia Partners, L.P. (2)............................................. 3,515,466 30.0%
Bernard Fuchs (4)..................................................... 1,117,550 9.5%
Court Square Capital, Limited (3)..................................... 390,667 3.3%
Carl Tooker (4)....................................................... 99,800 --
Mark Shulman.......................................................... 40,000 --
Jerry Ivie............................................................ 33,970 --
Lasker Meyer ......................................................... 12,925 --
Steve Lovell ......................................................... -- --
James Marcum ......................................................... -- --
Peter Mulvihill (6)................................................... -- --
All executive officers and directors as a group
(10 Persons) (4)...................................................... 6,720,822 57.3%
</TABLE>
13
(1) The Tyler Entities include Tyler Capital Fund, L.P., Tyler
Massachusetts, L.P., and Tyler International, L.P.-II. Such entities
are managed by Bain. Bain is a California limited partnership with
seven individuals serving as general partners, including Joshua
Bekenstein and Adam Kirsch who are Directors of the Company. The
address of Bain and the Tyler Entities is Bain Capital, Two Copley
Place, Boston, Massachusetts 02116.
(2) Amounts shown represent shares held by the nominee of Acadia and shares
held by FWHY-Coinvestment I Partners, L.P. ("FCP") and Oak Hill, both
affiliates of Acadia. The address of Acadia and FCP is 201 Main Street,
Fort Worth, Texas 76102. The address of Oak Hill is 65 East 55th
Street, New York, New York 10022.
(3) Court Square Capital Limited, a Delaware corporation, is a direct
wholly-owned subsidiary of Citicorp Banking Corporation, a Delaware
corporation, which is a direct wholly-owned subsidiary of Citicorp, a
Delaware corporation. Amount and percentage shown do not include
1,320,198 shares of non-voting Class B Common Stock owned by Court
Square Capital Limited. Each share of non-voting Class B Common Stock
is convertible, subject to substantial restrictions, into one share of
Common Stock. Assuming full conversion of all shares of non-voting
Class B Common Stock, Court Square Capital Limited would hold 13.2% of
the then outstanding Common Stock. The address of Court Square Capital
Limited is 399 Park Avenue, 6th Floor, New York, New York 10043.
(4) Amounts shown include shares of Common Stock that such persons or group
could acquire upon the exercise of options exercisable within sixty
days. Options for 669,300 shares of Common Stock were held by all
executive officers and directors as a group (10 persons) of which
179,380 are exercisable within sixty days. Amount shown for Mr. Fuchs
includes (i) 470,000 shares held by The Fuchs Family Limited
Partnership for which Mr. Fuchs may be deemed to possess beneficial
ownership and (ii) 46,900 options which are exercisable.
(5) Amounts shown include shares beneficially owned by Bain and the Tyler
Entities. Mr. Bekenstein and Mr. Kirsch may be deemed to share voting
and dispositive power as to all shares owned by Bain and the Tyler
Entities.
(6) Mr. Mulvihill is a director and a managing director of the investment
advisor to Acadia. In addition, Mr. Mulvihill holds indirectly a
limited interest in Acadia and holds directly a limited interest in Oak
Hill. However, he does not hold or share voting or dispositive power as
to shares beneficially owned by Acadia or Oak Hill.
(7) No percentage of class is shown for holdings less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This Item is omitted pursuant to general instruction J of Form 10-K.
14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) and (d) Financial Statements
see "Index to Financial Statements and Schedules" on Page 17.
(b) Reports on Form 8-K
None.
(c) Exhibits - See "Exhibit Index" at X-1.
15
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.
SPECIALTY RETAILERS, INC.
/s/ CARL TOOKER April 3, 1996
Carl Tooker
-----------------------
Director, President and
Chief Executive 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 date indicated.
/s/ BERNARD FUCHS Director and Chairman April 3, 1996
- -------------------------
Bernard Fuchs
/s/ JOSHUA BEKENSTEIN Director April 3, 1996
- -------------------------
Joshua Bekenstein
/s/ CARL TOOKER Director, President and April 3, 1996
- ------------------------- Chief Executive Officer
Carl Tooker
/s/ JAMES MARCUM Executive Vice President and April 3, 1996
- ------------------------- Chief Financial Officer
James Marcum
/s/ ADAM KIRSCH Director April 3, 1996
- -------------------------
Adam Kirsch
/s/ JERRY IVIE Senior Vice President, April 3, 1996
- ------------------------- Secretary and Treasurer
Jerry Ivie (Principal Accounting Officer)
16
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
FINANCIAL STATEMENTS NUMBER
- -------------------- ------
Report of Independent Accountants.................................. F-1
Consolidated Balance Sheet at January 28, 1995 and
February 3, 1996................................................. F-2
Consolidated Statement of Income for the fiscal years
1993, 1994 and 1995.............................................. F-3
Consolidated Statement of Cash Flows for the fiscal years
1993, 1994 and 1995.............................................. F-4
Consolidated Statement of Stockholder's Equity for the
fiscal years 1993, 1994 and 1995................................. F-6
Notes to Consolidated Financial Statements......................... F-7
SCHEDULES
VIII Valuation Accounts........................................... S-1
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
17
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Specialty Retailers, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Specialty Retailers, Inc. and its subsidiaries at January 28, 1995
and February 3, 1996, and the results of their operations and their cash flows
for each of the three years in the period ended February 3, 1996, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Houston, Texas
March 15, 1996
F-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
CONSOLIDATED BALANCE SHEET
(in thousands, except par value and number of shares)
January 28, February 3,
1995 1996
----------- -----------
ASSETS
Cash and cash equivalents ...................... $ 27,797 $ 20,264
Accounts receivable ............................ 70,356 65,740
Merchandise inventories ........................ 118,039 150,032
Restricted investments ......................... 338 438
Prepaid expenses and other current assets ...... 17,824 24,019
-------- --------
Total current assets ..................... 234,354 260,493
Property, equipment and leasehold
improvements, net ............................ 75,602 93,118
Goodwill, net .................................. 31,865 30,876
Other assets ................................... 20,700 18,331
-------- --------
$362,521 $402,818
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable ............................... $ 38,330 $ 41,494
Accrued interest ............................... 11,372 12,327
Accrued employee compensation costs ............ 8,696 7,795
Accrued expenses and other
current liabilities .......................... 25,719 28,955
Accrued taxes, other than income taxes ......... 2,642 3,375
-------- --------
Total current liabilities ................ 86,759 93,946
Long-term debt ................................. 213,827 226,022
Related party debt ............................. 39,200 44,200
Deferred income taxes .......................... 4,244 2,018
Other long-term liabilities .................... 13,665 14,214
-------- --------
Total liabilities ........................ 357,695 380,400
-------- --------
Common stock, par value $0.01, 5,000 shares
authorized, issued and outstanding ........... -- --
Additional paid-in capital ..................... 3,317 3,317
Retained earnings .............................. 1,509 19,101
-------- --------
Stockholder's equity ........................... 4,826 22,418
-------- --------
Commitments and contingencies .................. -- --
-------- --------
$362,521 $402,818
======== ========
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
CONSOLIDATED STATEMENT OF INCOME
(in thousands)
Fiscal Year
-----------------------------------
1993 1994 1995
--------- --------- ---------
Net sales ............................... $ 557,422 $ 581,463 $ 682,624
Cost of sales and related buying,
occupancy and distribution expenses ... (384,843) (398,659) (468,347)
--------- --------- ---------
Gross profit ............................ 172,579 182,804 214,277
Selling, general and
administrative expenses ............... (135,010) (134,712) (159,620)
Service charge income ................... 20,003 8,515 10,523
Store opening and closure costs ......... (199) (5,647) (3,689)
--------- --------- ---------
Operating income ........................ 57,373 50,960 61,491
--------- --------- ---------
Interest income ......................... 1,212 1,654 763
--------- --------- ---------
Interest expense:
Related party ......................... (5,908) (2,902) (4,355)
Other ................................. (24,852) (25,604) (25,486)
Amortization of debt issue costs ...... (1,377) (1,237) (1,423)
--------- --------- ---------
(32,137) (29,743) (31,264)
--------- --------- ---------
Income before income tax and
extraordinary item ................... 26,448 22,871 30,990
Income tax expense ...................... (9,330) (8,339) (11,317)
--------- --------- ---------
Income before extraordinary item ........ 17,118 14,532 19,673
Extraordinary item - early
extinguishment of debt ................ (16,208) (308) --
--------- --------- ---------
Net income .............................. $ 910 $ 14,224 $ 19,673
========= ========= =========
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 910 $ 14,224 $ 19,673
--------- -------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 9,259 9,997 12,816
Deferred income taxes ......................................................... (1,022) 271 337
Accretion of discount ......................................................... 563 772 871
Amortization of debt issue costs .............................................. 1,377 1,237 1,423
Issuance of long-term debt in lieu of interest payment ........................ 1,214 282 147
Loss on early extinguishment of debt .......................................... 25,032 474 --
Changes in operating assets and liabilities:
Increase in accounts receivable ............................................. (18,822) (5,378) (20,206)
Increase in merchandise inventories ......................................... (10,862) (14,077) (31,650)
Increase in other assets .................................................... (6,292) (2,347) (6,660)
Increase (decrease) in accounts receivable sold ............................. 147,100 (7,100) 25,000
Increase in accounts payable and accrued liabilities ........................ 6,087 11,545 5,224
--------- -------- --------
Total adjustments ......................................................... 153,634 (4,324) (12,698)
--------- -------- --------
Net cash provided by operating activities ................................... 154,544 9,900 6,975
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in restricted investments ................................... (2,150) 10,812 (100)
Acquisitions, net of cash acquired .............................................. -- (20,840) (1,167)
Payments to former Bealls and Palais Royal shareholders ......................... (252) -- --
Additions to property, equipment and leasehold improvements ..................... (8,503) (19,706) (28,638)
--------- -------- --------
Net cash used in investing activities ....................................... (10,905) (29,734) (29,905)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Short-term debt ............................................................... 19,135 -- --
Long-term debt ................................................................ 272,041 -- 16,458
Common stock .................................................................. 293 -- --
Payments on:
Working capital facility ...................................................... (1,000) -- --
Short-term debt ............................................................... (24,992) -- --
Long-term debt ................................................................ (337,254) (10,442) (266)
Redemption of redeemable preferred stock ...................................... (19,797) -- --
Redemption of common stock .................................................... (33) -- --
Additions to debt issue costs ................................................. (8,928) (448) (795)
--------- -------- --------
Net cash provided by (used in) financing activities ......................... (100,535) (10,890) 15,397
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................ 43,104 (30,724) (7,533)
Cash and cash equivalents:
Beginning of year ............................................................. 15,417 58,521 27,797
--------- -------- --------
End of year ................................................................... $ 58,521 $ 27,797 $ 20,264
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1993 1994 1995
--------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid ................................................................... $ 30,142 $ 28,784 $ 27,845
========= ======== ========
Income taxes paid ............................................................... $ 3,857 $ 5,198 $ 5,939
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
The Company purchased a significant portion of the assets of
Beall-Ladymon, Inc. for $20,840 in cash during 1994. In addition,
the Company purchased Mammouth, Inc. and Szolds, Inc. ("Szolds")
for $1,067 and $493, respectively, during 1995. Pursuant to the
Szolds purchase agreement, $393 was paid at closing to Szolds during
February 1996. In conjunction with these acquisitions, liabilities
were assumed as follows.
Fair value allocated to assets acquired ......................................... $ -- $ 24,043 $ 1,702
Cash paid for assets acquired, including acquisition expenses ................... -- (20,840) (1,167)
Purchase price payable at closing ............................................... -- -- (393)
Liabilities assumed ............................................................. $ -- $ 3,203 $ 142
========= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands, except numbers of shares)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------
Class B
--------------------- Additional Accumulated
Shares Shares Paid-in Equity
Outstanding Amount Outstanding Amount Capital (Deficit) Total
----------- ----- ---------- ------ ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1993 ............. 10,559,167 $ 106 1,468,750 $ 15 $ 899 $(10,625) $ (9,605)
----------- ----- ---------- ---- ------ -------- --------
Net income ............................ -- -- -- -- -- 910 910
Dividends on preferred stock .......... -- -- -- -- -- (1,596) (1,596)
Accretion on preferred stock .......... -- -- -- -- -- (701) (701)
Tax benefits from stock
option activity ..................... -- -- -- -- 2,037 -- 2,037
Adjustment for minimum
pension liability ................... -- -- -- -- -- (568) (568)
Issuance of stock ..................... 773,924 7 -- -- 286 -- 293
Retirement of stock ................... (11,328,091) (113) (1,468,750) (15) 95 -- (33)
----------- ----- ---------- ---- ------ -------- --------
Balance, January 29, 1994 ............. 5,000 $-- -- $-- $3,317 $(12,580) $ (9,263)
----------- ----- ---------- ---- ------ -------- --------
Net income ............................ -- -- -- -- -- 14,224 14,224
Adjustment for minimum
pension liability ................... -- -- -- -- -- (135) (135)
----------- ----- ---------- ---- ------ -------- --------
Balance, January 28, 1995 ............. 5,000 $-- -- $-- $3,317 $ 1,509 $ 4,826
----------- ----- ---------- ---- ------ -------- --------
Net income ............................ -- -- -- -- -- 19,673 19,673
Adjustment for minimum
pension liability ................... -- -- -- -- -- (2,081) (2,081)
Balance, February 3, 1996 ............. 5,000 $-- -- $-- $3,317 $ 19,101 $ 22,418
=========== ===== ========== ==== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
SPECIALTY RETAILERS, INC.
(A wholly-owned subsidiary of Apparel Retailers, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS: Specialty Retailers, Inc. ("SRI" or the
"Company") operates family apparel stores primarily under the
names "Bealls", "Palais Royal" and "Stage" offering branded
fashion apparel and accessories for women, men and children.
SRI is a wholly-owned subsidiary of Apparel Retailers, Inc.
("ARI"). ARI conducts its business exclusively through SRI and
its primary asset is the common stock of SRI. SRI currently
operates 268 stores in thirteen states located throughout the
central United States.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions have
been eliminated in consolidation.
On October 31, 1994, Palais Royal, Inc., a wholly-owned
subsidiary of the Company, purchased a significant portion of
the assets of the Beall-Ladymon Corporation ("Beall-Ladymon")
for $20.8 million in cash. The assets acquired consisted
primarily of customer accounts receivable and fixed assets. In
addition, the Company assumed leases for forty-five store
locations which the Company opened as Stage stores during the
first quarter of 1995. Beall-Ladymon was a regional apparel
retailer which operated stores primarily in Louisiana,
Arkansas and Mississippi.
The following unaudited pro forma information gives effect to
the Beall-Ladymon acquisition as if it had occurred at the
beginning of the periods presented and includes operating
activity of Beall-Ladymon prior to the beginning of the
closure period (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------
1993 1994
----------- -----------
(unaudited)
<S> <C> <C>
Net sales.................................. $ 609,857 $ 613,994
=========== ===========
Income before extraordinary item........... $ 17,051 $ 12,144
=========== ===========
Net income ................................ $ 843 $ 11,836
=========== ===========
</TABLE>
The above amounts are based on certain estimates and
assumptions which the Company believes are reasonable. The pro
forma results do not purport to be indicative of the results
which would have occurred if the acquisition had actually
taken place at the beginning of the periods presented, nor are
they necessarily indicative of the results of any future
periods.
The Beall-Ladymon acquisition was accounted for under the
purchase method of accounting. Accordingly, the total
acquisition cost was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values.
The excess of the purchase price over the estimated fair value
of such assets and liabilities was recognized as goodwill and
is being amortized on a straight-line basis over fifteen
years.
FISCAL YEAR: The fiscal years discussed herein end on the Saturday
nearest to January 31 in the following calendar year. For
example, references to "1995" mean the fiscal year ended
February 3, 1996. All fiscal years consist of fifty-two weeks
except for 1995 which consists of fifty-three weeks.
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.
MERCHANDISE INVENTORIES: The Company states its merchandise inventories
at the lower of cost or market, cost being determined using
the retail last-in, first-out ("LIFO") method. Market is
estimated on a pool-by-pool basis.
The Company believes that the LIFO method, which charges the
most recent merchandise costs to the results of current
operations, provides a better matching of current costs with
current revenues in the determination of operating results.
Some companies use the retail first-in, first-out ("FIFO")
method in valuing their inventories. If the retail FIFO method
had been used, inventories at January 28, 1995 and February 3,
1996 would have been higher by $0.4 million and lower by $3.5
million, respectively.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Property, equipment and
leasehold improvements are stated at cost and depreciated over
their estimated useful lives using the straight line method.
The estimated useful lives of leasehold improvements do not
exceed the term, including renewal options, of the related
lease. The estimated useful lives in years are as follows:
Buildings.................................... 20-25
Store and office fixtures and equipment...... 7-12
Warehouse equipment.......................... 5-15
Favorable leases and leasehold improvements.. 15-50
INCOME TAXES: The provision for income taxes is computed based on the
pretax income included in the consolidated statement of
operations. The asset and liability approach is used to
recognize deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
The Company is included in the consolidated federal tax return
of its parent. As a result, federal tax amounts for 1993, 1994
and 1995 have been determined for the entities in the
consolidated group, including the Company, based upon the
impact of each entity's tax attributes on the consolidated
federal tax provision.
DEBT ISSUE COSTS: Debt issue costs are accounted for as a deferred
charge and amortized on a straight-line basis over the term of
the related issue.
GOODWILL AND OTHER INTANGIBLES: The Company amortizes goodwill and
intangible assets on a straight-line basis over the estimated
future periods benefited, not to exceed forty years.
Amortization periods for goodwill and other intangibles
associated with acquisitions are currently five to forty
years. Each year, the Company evaluates the remaining useful
life associated with goodwill based upon, among other things,
historical and expected long-term results of operations.
Accumulated amortization of goodwill was $3.7 million and $4.7
million at January 28, 1995 and February 3, 1996,
respectively.
F-8
STORE PRE-OPENING EXPENSES: Pre-opening expenses of new stores are
deferred and charged to operations in the year the store
opens.
ADVERTISING EXPENSES: Advertising costs are charged to operations when
the related advertising first takes place. Advertising costs
were $22.3 million, $22.3 million, and $25.9 million for 1993,
1994 and 1995, respectively. Prepaid advertising costs were
$0.6 million and $0.5 million at January 28, 1995 and February
3, 1996, respectively.
STATEMENT OF CASH FLOWS: The Company considers highly liquid
investments with initial maturities of less than three months
to be cash equivalents in its statement of cash flows.
FINANCIAL INSTRUMENTS: The Company records all financial instruments at
cost. The fair values of accounts receivable and accounts
payable approximate cost.
IMPAIRMENT OF ASSETS: The Company has not elected early adoption of
Statement of Financial Accounting Standard No. 121 ("SFAS
121"), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of." SFAS 121 becomes
effective beginning with the Company's first quarter of 1996.
The Company does not believe that the adoption of SFAS 121
will have a material effect on the Company's financial
position or results of operations.
STOCK BASED COMPENSATION: The Company has not elected early adoption
of Statement of Financial Accounting Standard No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation." SFAS 123
becomes effective beginning with the Company's first quarter
of 1996 and will not have a material effect on the Company's
financial position or results of operations. Upon adoption of
SFAS 123, the Company will continue to measure compensation
plans using the intrinsic value method prescribed by APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and
will provide pro forma disclosures of net income and earnings
per share as if the fair value-based method prescribed by SFAS
123 had been applied in measuring compensation expense.
RECLASSIFICATIONS: The accompanying consolidated financial statements
include reclassifications from financial statements issued in
previous years.
F-9
NOTE 2 - ACCOUNTS RECEIVABLE:
Accounts receivable balances were as follows (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
------------------- --------------------
<S> <C> <C>
Gross customer accounts receivable.......................... $ 210,941 $ 228,354
Accounts receivable sold.................................... (140,000) (165,000)
Other receivables........................................... 2,647 5,146
------------- -------------
73,588 68,500
Less - allowance for doubtful accounts...................... (3,232) (2,760)
------------- -------------
$ 70,356 $ 65,740
============= =============
</TABLE>
During 1993, the Company implemented an accounts receivable
securitization program (the "Accounts Receivable Program") which provides a
source of funds from the sale of accounts receivable to a master trust (the
"Trust"). Pursuant to the Accounts Receivable Program, the Company sells all of
the accounts receivable generated by the holders of the Company's private label
credit card accounts to its wholly-owned subsidiary, SRI Receivables Purchase
Co., Inc. ("SRPC"), on a daily basis. SRPC is a separate limited-purpose
subsidiary that is operated in a fashion intended to ensure that its assets and
liabilities are distinct from those of the Company and its other affiliates as
SRPC's creditors have a claim on its assets prior to becoming available to any
creditor of the Company. SRPC sells, on a daily basis, the accounts receivable
purchased from the Company to the Trust in exchange for cash or a certificate
representing an undivided interest in the Trust. The Trust currently has $165.0
million of term certificates and a $40.0 million revolving certificate
outstanding which represent undivided interests in the Trust. The holder of the
revolving certificate has agreed to purchase interests in the Trust equal to the
amount of accounts receivable in the Trust above the level required to support
the term certificates and the transferor's retained interest (currently $204.1
million), up to a maximum of $40.0 million. If receivable balances in the Trust
fall below the level required to support the term certificates and revolving
certificates, certain principal collections may be retained in the Trust until
such time as the receivable balances exceed the certificates then outstanding
and the required transferor's interest. The Company owns an undivided interest
in the accounts receivable in the Trust not represented by the term or revolving
certificates and continues to service all of the accounts receivable in the
Trust. The Trust may issue additional series of certificates from time to time.
Terms of any future series will be determined at the time of issuance. The
outstanding balances of the term certificates totaled $140.0 million and $165.0
at January 28, 1995 and February 3, 1996, respectively. There was no portion of
the revolving certificate outstanding at January 28, 1995 and February 3, 1996.
Total accounts receivable sold to the Trust during 1993, 1994 and 1995
were $285.1 million, $278.6 million and $306.8 million, respectively. The cash
flows generated from the accounts receivable in the Trust are dedicated to (i)
the purchase of new accounts receivable generated by the Company, (ii) payment
of a return on the certificates and (iii) the payment of a servicing fee to SRI.
Any remaining cash flows are remitted to the Company. The term certificates
entitle the holders to receive a return, based upon the London Interbank Offered
Rate ("LIBOR"), plus a specified margin paid on a quarterly basis. Principal
payments commence in December 31, 1999 but can be accelerated upon occurrence of
certain events. The revolving certificate entitles the holder to receive a
return based upon a floating LIBOR rate, plus a specified margin, or prime rate,
at the option of the Company paid on a monthly basis. The Company is currently
protected against increases above 12% under an agreement entered into with a
bank. The Company is exposed to loss in the event of non-performance by the
bank. However, the Company does not anticipate non-performance by the bank. At
February 3, 1996, the average rate of return on the term certificates was 6.8%.
The purchase commitment for the Revolving certificate is five years, subject to
renewal at the option of the parties. The revolving certificate holders are
entitled to repayment in the event the accounts receivable decrease below that
required to support such certificates.
F-10
Subsequent to the implementation of the Accounts Receivable Program in
1993, the Company's financial statements do not reflect accounts receivable,
finance charge income, bad debt expense or servicing costs attributable to the
Trust accounts receivable supporting the outstanding term or revolving
certificates. The Company recognized an initial gain of $2.7 million on the sale
of accounts receivable during 1993 which was reflected as a reduction of
selling, general and administrative expenses. Subsequent gains on the sale of
accounts receivable were not material.
The provision for doubtful accounts was $6.6 million, $2.6 million and
$3.8 million for 1993, 1994 and 1995, respectively. The provision for doubtful
accounts does not reflect the Company's recourse obligations under the Accounts
Receivable Program which have been included in the calculation of the gain on
the sale of accounts receivable.
NOTE 3 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements were as follows (in
thousands):
January 28, 1995 February 3, 1996
---------------- ----------------
Land............................. $ 3,074 $ 3,074
Buildings........................ 16,313 16,313
Fixtures and equipment........... 72,624 88,794
Leasehold improvements........... 37,542 49,290
-------- --------
129,553 157,471
Less - accumulated depreciation.. (53,951) (64,353)
-------- --------
$ 75,602 $ 93,118
======== ========
Depreciation expense was $8.3 million, $8.5 million and $10.8 million
for 1993, 1994 and 1995, respectively.
NOTE 4 - STORE CLOSURES:
During 1994, the Company approved a store closure plan (the "Store
Closure Plan") which provided for the closure of forty Fashion Bar stores. These
stores were primarily located in major regional malls within the Denver area.
Management determined that the merchandising strategy and market positions of
such stores were not compatible with the Company's overall merchandising
philosophies or growth strategy. The Company accrued $5.2 million for the
expected costs associated with the Store Closure Plan which include: occupancy
($4.2 million); severance ($0.4 million); write-off of fixed assets and other
intangibles ($0.9 million); other expenses ($0.8 million) and the write-off of
negative goodwill ($1.1 million) allocated to the stores to be closed. The
Company substantially completed the Store Closure Plan during 1995. At January
28, 1995 and February 3, 1996, the balance of the Store Closure Plan accrual was
$4.8 million and $1.0 million, respectively, primarily reflecting the lease
costs associated with closed stores. During 1995, the Company charged $3.8
million to the accrual.
F-11
Net sales and operating income attributable to the stores closed were
as follows (in thousands):
Fiscal Year
----------------------------
1993 1994 1995
------- ------- ----
Net sales................ $25,442 $23,174 $605
======= ======= ====
Operating income (loss).. $ (213) $ 618 $ 32
======= ======= ====
At the date of the acquisition of Bealls, the Company undertook a
centralization and consolidation program which included the expected closure of
twenty-six store locations (the "Store Closure Program") and certain operating
facilities, as well as the consolidation of certain duplicate administrative and
distribution functions. At January 30, 1993, twenty-one stores remained in the
Store Closure Program, sixteen of which had been closed. During 1993, based on
the Company's ongoing assessment of scheduled store closures, the remaining five
open stores were removed from the Store Closure Program. As a result of the
removal of these five stores from the Store Closure Program, the Company reduced
its consolidation and centralization accrual by $2.3 million. Of this amount,
$1.1 million, before applicable taxes, was credited to goodwill and the
remaining $1.2 million credited to long-term liabilities to reflect the ongoing
adverse lease commitments associated with the removed stores. At January 28,
1995 and February 3, 1996, the balance of the consolidation and centralization
accrual was $4.7 million and $4.1 million, respectively, primarily reflecting
the lease costs associated with closed stores. During 1993, 1994 and 1995, the
Company charged $0.8 million, $0.7 million and $0.6 million, respectively, to
the accrual.
F-12
NOTE 5 - LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
------------------- --------------------
HELD BY THIRD PARTIES:
<S> <C> <C>
Senior Notes................................................ $ 90,800 $ 85,800
Senior Subordinated Notes, net of discount.................. 100,000 116,530
Revolving Credit Agreement.................................. -- --
Bealls Holding Subordinated Notes, net of discount.......... 10,686 11,319
FB Holdings Subordinated Notes, net of discount............. 3,939 4,125
Bealls Holding Junior Subordinated Debentures, net of
discount................................................ 6,095 6,221
Port Arthur IDRB............................................ 2,117 2,002
Other long term debt........................................ 451 301
------------- -------------
214,088 226,298
Less - current maturities................................... (261) (276)
------------- -------------
$ 213,827 $ 226,022
============= =============
HELD BY RELATED PARTY:
Senior Notes................................................ $ 39,200 $ 44,200
============= =============
</TABLE>
During 1993, the Company completed its refinancing (the "Refinancing")
which included (i) the replacement of the existing accounts receivable facility
with the Accounts Receivable Program and (ii) the issuance of 10% Senior Notes
Due 2000 (the "Senior Notes") and 11% Series B Senior Subordinated Notes Due
2003 (the "Series B Senior Subordinated Notes"). The proceeds from the
Refinancing were used primarily to replace certain previously outstanding debt.
As a result of the Refinancing, the Company recorded an extraordinary charge of
$16.2 million net of applicable income taxes of $8.8 million during 1993.
The Senior Notes were originally issued with a principal amount of
$150.0 million and bear interest at 10% payable semi-annually on February 15 and
August 15. The Company is required to make a mandatory sinking fund payment on
August 15, 1999 equal to twenty five percent of the original principal amount.
The Company has purchased $20.0 million of the Senior Notes which satisfied a
portion of the August 15, 1999 sinking fund requirement. The Senior Notes are
general unsecured obligations and rank senior to all subordinated debt of the
Company including the Senior Subordinated Notes.
The Series B Senior Subordinated Notes were originally issued with a
principal amount of $100.0 million and bear interest at 11% payable
semi-annually on February 15 and August 15. The Company is required to make a
mandatory sinking fund payment on August 15, 2002 equal to forty percent of the
original principal amount. The Series B Senior Subordinated Notes are
subordinated to the obligations under the Senior Notes.
F-13
During 1995, the Company issued $18.3 million in aggregate principal
amount of 11% Series D Senior Subordinated Notes Due 2003 (the "Series D Senior
Subordinated Notes"). The Series D Senior Subordinated Notes were issued at a
discount of $1.8 million and bear interest at 11% payable semi-annually on
February 15 and August 15 of each year. The original issue discount is being
charged to interest expense over the term to maturity using the effective
interest method. The combination of coupon interest payments and original issue
discount results in an effective interest rate of 13.0%. The Company is required
to make a mandatory sinking fund payment on September 15, 2002 equal to forty
percent of the original aggregate principal amount of Series D Senior
Subordinated Notes. The Series D Senior Subordinated Notes rank pari passu with
the existing Series B Senior Subordinated Notes (collectively, the "Senior
Subordinated Notes").
The Senior Notes and Senior Subordinated Notes contain restrictive
covenants which, among other things (i) limit SRI's ability to sell certain
assets, pay dividends, retire its common stock or retire certain debt, (ii)
limit its ability to incur additional debt or issue stock and (iii) limit
certain related party transactions.
The Company has a revolving credit agreement with a bank (the "Credit
Agreement") under which it may draw up to $25.0 million. Of this amount, up to
$15.0 million may be used to support letters of credit. As of February 3, 1996,
$8.4 million of the total commitment was used to collateralize letters of credit
resulting in available funds of $16.6 million. The Company also has a separate
agreement with the bank under which it may borrow an additional $10.0 million
for seasonal working capital needs (the "Seasonal Credit Agreement" and together
with the Credit Agreement, the "Revolving Credit Agreement"). Funds are
available under the Seasonal Credit Agreement from August 15 through January 15
of each calendar year (the "Seasonal Period"). The Revolving Credit Agreement is
available through February 3, 1998 and provides for a commitment fee of 1/2 of
1% of the average daily unused portion of the commitment amount paid on a
quarterly basis. Interest is charged on outstanding loans at a base rate plus a
specified margin. The base rate is the higher of the bank's prime rate or 1/2 of
1% above the Federal Funds Effective Rate. The specified margin range is 1.25%
to 2.75% based on calculated debt service ratios as defined in the agreement.
During 1995, the availability under the Credit Agreement was never less than
$4.5 million. During the Seasonal Period, the availability under the Revolving
Credit Agreement was never less than $11.5 million. The Revolving Credit
Agreement contains covenants which, among other things, restricts the (i)
incurrance of additional debt, (ii) purchase of certain investments, (iii)
payment of dividends, (iv) formation of certain business combinations, (v)
disposition of certain assets, (vi) acquisition of subordinated debt, (vii) use
of proceeds received under the agreement, (viii) aggregate amount of capital
expenditures (including any expenditures made in connection with any permitted
acquisitions) to $31.0 million during 1995 and (iv) certain transactions with
related parties. The Revolving Credit Agreement also requires that SRI maintain
a debt service ratio above a predetermined level. The Revolving Credit Agreement
is secured by the Company's distribution center located in Jacksonville, Texas,
including equipment located therein, a pledge of SRPC stock and a pledge of the
Company's trademarks. The net book value of the distribution center was
approximately $10.7 million at February 3, 1996.
The increasing rate 3 Bealls Holding, Inc. ("Bealls Holding")
Subordinated Debentures Due 2002 (the "Bealls Holding Subordinated Debentures")
in aggregate principal amount of approximately $15.0 million bear interest at
10% through 1994, 11% in 1995 and 12% thereafter until maturity. Interest is
payable semi-annually on June 30 and December 31. Original issue discount of
$7.3 million is being charged to interest expense over the term to maturity
using the effective interest method. The combination of coupon interest payments
and original issue discount results in an effective interest rate of 20.9%. The
Bealls Holding Subordinated Debentures may be prepaid, at the Company's option,
at their face value. The Company is required to redeem the Bealls Holding
Subordinated Debentures beginning no later than December 31, 1997, in no more
than six equal annual installments. The Bealls Holding Subordinated Debentures
are subordinated to all debt except the ARI Senior Discount Debentures. SRI is
the primary obligor under these debentures.
F-14
In connection with the acquisition of Fashion Bar, FB Holdings, Inc.
("FB Holdings") issued approximately $3.6 million aggregate principal amount of
7% FB Holdings Subordinated Notes Due 2000 ("FB Holdings Subordinated Notes") to
former stockholders of Fashion Bar. The FB Holdings Subordinated Notes were
recorded at their estimated fair value at issuance date of $3.1 million. The
difference between the estimated fair value and principal amount of $0.5 million
is being charged to interest expense over the term to maturity using the
effective interest method. The FB Holdings Subordinated Notes are due in two
equal installments on June 30, 1999 and 2000. The FB Holdings Subordinated Notes
may be prepaid at any time in whole or in part at SRI's option. The FB Holdings
Subordinated Notes bear interest at 7% per annum, payable quarterly. The
combination of coupon interest payments and original issue discount results in
an effective interest rate of 9.0%. Prior to and including June 1995, SRI paid
interest in the form of additional FB Holdings Subordinated Notes; thereafter,
interest is being paid in cash. The principal amount of FB Holdings Subordinated
Notes at February 3, 1996 was $4.4 million. The FB Holdings Subordinated Notes
are subordinated to all debt except the ARI Senior Discount Debentures. SRI is
the primary obligor under these debentures.
In connection with the acquisition of Bealls, Bealls Holding issued the
7% Bealls Holding Junior Subordinated Debentures Due 2003 ("Bealls Holding
Junior Subordinated Debentures") at a face value of approximately $12.5 million,
net of discount of approximately $8.4 million. Such discount is being charged to
interest expense over the term to maturity using the effective interest method.
The Bealls Holding Junior Subordinated Debentures are limited to an aggregate
principal amount of approximately $18.3 million. Interest is payable
semi-annually on June 30 and December 31. The combination of coupon interest
payments and original issue discount results in an effective interest rate of
39.4%. The principal amount of Bealls Holding Junior Subordinated Debentures
outstanding at February 3, 1996 was $14.3 million. The Bealls Holding Junior
Subordinated Debentures are subordinated to all debt except the ARI Senior
Discount Debentures. SRI is the primary obligor under these debentures.
The Port Arthur Industrial Development Revenue Bond (the "Port Arthur
IDRB") bears interest at 75% of the prime rate payable monthly. The interest
rate applicable to the Port Arthur IDRB at February 3, 1996 was 6.6%. The Port
Arthur IDRB is collateralized by a building with a net book value of
approximately $1.7 million. Under a separate agreement, the Company is required
to make scheduled annual sinking fund payments ranging from $0.1 million to $0.2
million.
Aggregate maturities of long-term debt for the net five years are:
1996 - $0.3 million; 1997 - $2.1 million; 1998 - $2.1 million; 1999 - $21.7
million and 2000 - $116.6 million.
Management estimates the fair value of its long-term debt to be $246.0
million and $259.2 million at January 28, 1995 and February 3, 1996,
respectively. In developing its estimates, management considered quoted market
prices for each instrument, if available, current market interest rates in
relation to the coupon interest rates of each instrument, the relative
subordination of each instrument and the relative liquidity of the instrument as
indicated by the presence or lack of an active market.
Concurrently with its formation, ARI issued $149.1 million aggregate
principal amount of its 12 3/4% senior discount debentures due 2005 ( the "ARI
Senior Discount Debentures"), net of a $69.1 million discount. The discount
accretes though August 15, 1998 after which cash interest is payable at 12 3/4%
semi-annually through maturity. The ARI Senior Discount Debentures are secured
by a first priority lien and security interest in all of the issued and
outstanding stock and intercompany debt, if any, of the Company. However, since
the operations of ARI are conducted through the Company, ARI is dependent on the
cash flow of the Company to meet its obligations under the ARI Senior Discount
Debentures. As a result, the ARI Senior Discount Debentures are effectively
subordinated to all debt and all obligations of the Company, which would include
trade accounts payable.
F-15
NOTE 6 - MANDATORILY REDEEMABLE PREFERRED STOCK:
In connection with the Refinancing in 1993 (see Note 5), the Company
redeemed all of the outstanding shares of its 15% cumulative senior redeemable
preferred stock and 14% cumulative junior redeemable preferred stock (8,080 and
2,000 shares, respectively) at the aggregate of their liquidation value plus
accrued and unpaid dividends amounting to $16.0 million and $3.8 million,
respectively.
NOTE 7 - STOCK OPTION PLAN:
During 1993, the Company adopted the Third Amended and Restated Stock
Option Plan (the "Stock Option Plan") which was designed to provide incentives
to present and future key employees and advisors to the Company (the
"Participants") as selected by the compensation committee of the Board of
Directors (the "Board"). Options to purchase shares of the Company's common
stock may be granted to any Participant at any time, at such price and on such
terms as established by the Board. Options granted under the Stock Option Plan
may be either non-qualified or incentive stock options ("ISOs") within the
meaning of Section 422A of the Internal Revenue Code or in a form consistent
with the Stock Option Plan as the Board may determine.
The number of shares of common stock which may be granted under the
Stock Option Plan shall not exceed 2,000,000 shares. All Options issued as ISOs
under the Stock Option Plan are required to (i) have an exercise price not less
than 100% of the fair value of the common stock at the date of grant, (ii) not
be exercisable more than 10 years after grant date, (iii) be nontransferable and
(iv) be exercisable only during the holder's employment by the Company or a
period not exceeding three months following termination thereof. Options which
are not ISOs may provide that the holder receive cash equal to the excess of the
fair market value per share of common stock at the exercise date over the
exercise price per share, in lieu of issuance of common stock upon exercise of
the option. Upon termination of the Participant's employment with the Company,
the Company may, at its option, repurchase any vested common stock obtained
under the Stock Option Plan at the fair market value of the common stock. Any
unvested common stock obtained under the Stock Option Plan may be repurchased at
the Company's option, at the original issuance cost of the common stock. The
Stock Option Plan also provides that the Company may sell to any Participant
shares of common stock or preferred stock consistent with the Plan and at the
discretion of the Board.
During 1993, all of SRI's options with an exercise price of $0.10 were
exercised. Additionally, the Board granted active Participants who exercised
such options one ARI option with an exercise price of $2.15 for every ten SRI
options exercised. All of SRI's options with an exercise price of $5.00 remained
outstanding and were exchanged for ARI options with an exercise price of $0.10
and the right to receive a distribution of $0.95 per option which will be paid
as the options vest. This distribution is being recognized as compensation
expense over the vesting period.
All options exercised during 1993 were at an exercise price of $0.10
per share.
F-16
A summary of the activity in the Stock Option Plan follows:
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C>
Options outstanding at beginning of year................... 863,625 -- --
Granted............................................... 363,100 -- --
Surrendered........................................... (10,400) -- --
Exercised............................................. (736,725) -- --
Exchanged............................................. (479,600) -- --
Options outstanding and exercisable at end of year......... -- -- --
=========== =========== ===========
Options vested at end of year -- -- --
=========== =========== ===========
</TABLE>
F-17
NOTE 8 - EMPLOYEE BENEFIT PLANS:
Pension benefits for employees are provided under the SRI Retirement
Plan (the "Plan"), a qualified benefit plan. Benefits are administered through a
Trust arrangement which provides monthly payments or lump sum distributions. The
Plan covers substantially all employees who have completed one year of service
with one thousand hours of service. Benefits under the plan are based upon a
percentage of the participant's earnings during each year of credited service.
The following sets forth the funded status of the Plan and the amounts
recognized in the consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
---------------- ----------------
<S> <C> <C>
Actuarial present value of benefits:
Vested benefit obligations.............................. $ (18,590) $ (24,680)
========= =========
Accumulated benefit obligations......................... $ (19,630) $ (25,790)
========= =========
Projected benefit obligations............................... $ (24,530) $ (32,240)
Market value of Plan assets, primarily fixed income and
equity securities....................................... 16,320 20,000
--------- ---------
Pension obligations in excess of assets..................... (8,210) (12,240)
Unrecognized prior service income........................... (34) (28)
Unrecognized net loss....................................... 6,078 10,948
Adjustment required to recognize minimum liability.......... (1,144) (4,470)
---------
Accrued pension cost........................................ $ (3,310) $ (5,790)
========= =========
Assumptions utilized in determining projected obligations
and funding amounts:
Discount rate............................................... 8.75% 7.00%
Rate of increase in compensation levels..................... 4.00% 4.00%
Expected long-term rate of return on Plan assets............ 9.00% 9.00%
</TABLE>
The Company's funding policy for the Plan is to contribute the minimum
amount required by applicable regulations. During 1993, 1994 and 1995, in
accordance with Statement of Financial Accounting Standards No. 87, the Company
recorded adjustments of $1.1 million, $0.2 million and $3.2 million to recognize
the excess of the accumulated benefit obligation over the market value of the
Plan assets, respectively. Accordingly, the Company recorded a charge to
retained earnings of $0.6 million, $0.1 million and $2.1 million, net of
applicable tax and unrecognized prior service cost, for 1993, 1994 and 1995,
respectively.
F-18
The components of pension cost for the Plan were as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------
1993 1994 1995
--------- --------- --------
<S> <C> <C> <C>
Service cost............................. $ 743 $ 887 $ 771
Interest cost............................ 1,861 1,995 2,139
Actual loss (return) on Plan assets...... (1,955) 940 (3,377)
Net amortization and deferral............ 409 $ (2,174) 2,292
--------- -------- -------
$ 1,058 $ 1,648 $ 1,825
========= ======== =======
</TABLE>
Prior to its acquisition, 3 Beall Brothers 3, Inc. sponsored an
unfunded, nonqualified Benefit Restoration Plan which provided certain key
executives defined pension benefits in excess of limits imposed by federal tax
law. In February 1989, this plan was terminated. The recorded liability for this
plan was $1.3 million at February 3, 1996.
NOTE 9 - OPERATING LEASES:
The Company leases stores, service center facilities, the corporate
headquarters and equipment under operating leases. A number of store leases
provide for escalating minimum rent. Rental expense is recognized on a
straight-line basis over the life of such leases. The majority of the Company's
store leases provide for contingent rentals, generally based upon a percentage
of gross sales. The Company has renewal options for most of its store leases;
such leases generally require that the Company pay for utilities, taxes and
maintenance expense. A summary of rental expense associated with operating
leases follows (in thousands):
Fiscal Year
---------------------------------------------
1993 1994 1995
----------- ----------- -----------
Minimum rentals..... $ 22,319 $ 22,979 $ 26,943
Contingent rentals.. 2,818 2,874 2,618
Equipment rentals... 1,273 784 593
$ 26,410 $ 26,637 $ 30,154
=========== =========== ===========
F-19
Minimum rental commitments on long-term operating leases at February 3,
1996, net of sub-leases, are as follows (in thousands):
Fiscal Year:
1996............... $ 28,307
1997............... 27,028
1998............... 25,146
1999............... 23,527
2000............... 20,233
Thereafter.......... 84,999
$ 209,240
===========
The Company's corporate headquarters and six Palais Royal stores are
leased from a partnership in which a Company director is a general partner. The
lease relating to the corporate headquarters is for a term of fifty years
expiring in 2032 and includes an established minimum annual rate adjusted every
three years for changes in the Consumer Price Index. Three of the Palais Royal
store leases are for terms of twenty years expiring between 1999 and 2000. The
remaining three store leases are for terms of twenty-five years expiring between
2005 and 2010. All of the store leases provide options to extend the term of the
lease and for contingent rentals based on a percentage of gross sales. The
Company recognized rental expense of $1.9 million, $2.0 million and $2.1 during
1993, 1994 and 1995, respectively, for all such leases. Future minimum lease
payments total $44.7 million, $9.6 million of which is payable over the next
five fiscal years for all such leases. The Company believes that the terms of
all such leases are comparable to leases with unaffiliated third parties
covering similar properties.
NOTE 10 - RELATED PARTY TRANSACTIONS:
The Company's corporate headquarters and six Palais Royal stores are
leased from a partnership in which a Company officer is a general partner (see
Note 9).
An affiliate of a principal shareholder of the Company received fees
for professional services rendered and expense reimbursements in the amounts of
$1.5 million, $0.6 million and $0.8 million for 1993, 1994 and 1995,
respectively.
During 1993, the Company entered into an employment agreement with the
President and Chief Executive Officer of the Company. As part of this agreement,
the Company agreed to purchase his former residence for subsequent resale for
$1.2 million and loaned $0.3 million to him. Such loan is due October 2, 1996,
subject to extension, and bears a market rate of interest.
F-20
NOTE 11 - INCOME TAXES:
All Company operations are domestic. Income tax expense charged to
continuing operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------
1993 1994 1995
----------- ----------- -----------
Federal income tax expense (benefit):
<S> <C> <C> <C>
Current............................................... $ 9,989 $ 7,297 $ 9,920
Deferred.............................................. (601) 85 772
----------- ----------- -----------
9,388 7,382 10,692
----------- ----------- -----------
State income tax expense (benefit):
Current............................................... 1,250 771 1,060
Deferred.............................................. (1,308) 186 (435)
----------- ----------- -----------
(58) 957 625
----------- ----------- -----------
$ 9,330 $ 8,339 $ 11,317
=========== =========== ===========
</TABLE>
A reconciliation between the federal income tax expense charged to
continuing operations computed at statutory tax rates and the actual income tax
expense recorded follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Federal income tax expense at the statutory rate........... $ 9,256 $ 8,004 $ 10,847
State income taxes, net.................................... 125 797 406
Permanent difference, net.................................. (12) (462) 116
Other, net................................................. (39) -- (52)
----------- ----------- -----------
$ 9,330 $ 8,339 $ 11,317
=========== =========== ===========
</TABLE>
The 1993 income tax benefit relating to the extraordinary item of $8.8
million (see Note 5) is comprised of current federal tax benefit ($7.4 million),
deferred federal tax benefit ($1.3 million) and state tax benefit ($0.1
million). The 1994 income tax benefit relating to the extraordinary item
associated with the retirement of the SRI Senior Notes (see Note 5) is comprised
of $0.2 million current federal tax benefit.
F-21
Deferred tax liabilities (assets) consist of the following (in
thousands):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
------------------- --------------------
Gross deferred tax liabilities:
<S> <C> <C>
Depreciation and amortization.......................... $ 8,303 $ 7,485
Inventory reserves..................................... 3,175 1,406
Gain on sale of accounts receivable.................... 822 800
Other.................................................. 1,310 1,435
-------------
-------------
13,610 11,126
------------- -------------
Gross deferred tax assets:
Allowance for doubtful accounts........................ (3,174) (3,302)
Accrued consolidation costs............................ (1,968) (1,478)
Net operating loss carryforwards....................... -- (82)
Accrued expenses....................................... (1,518) (990)
Prepaid expenses....................................... -- --
Pensions............................................... (1,404) (2,686)
Escalating leases...................................... (962) (962)
Charitable contribution carryforward................... (620) (113)
Accrued payroll costs.................................. (1,196) (884)
Accrued store closure costs............................ (2,085) (558)
Other.................................................. (975) (780)
------------- -------------
(13,902) (11,835)
------------- -------------
Deferred tax assets valuation allowance..................... -- --
------------- -------------
$ (292) $ (709)
============= =============
</TABLE>
The utilization of any carryforwards which originated prior to the
Company's acquisition of Bealls or Fashion Bar are recorded as an adjustment to
goodwill or other intangibles associated with the respective acquisition.
F-22
NOTE 12 - SUBSIDIARY FINANCIAL INFORMATION:
Palais Royal guarantees the Senior Notes and the Senior Subordinated
Notes. Summarized financial information for Palais Royal and its wholly owned
subsidiary, SRPC, follows (amounts stated in thousands and exclude certain
intercompany transactions):
<TABLE>
<CAPTION>
January 28, 1995 February 3, 1996
------------------- --------------------
BALANCE SHEET INFORMATION:
<S> <C> <C>
Current assets............................................. $ 200,347 $ 234,738
Noncurrent assets.......................................... 122,998 132,616
Current liabilities........................................ 73,273 76,747
Noncurrent liabilities, including SRI debt allocated to
Palais Royal.......................................... 265,299 280,108
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS INFORMATION:
Net sales.................................................. $ 557,422 $ 581,463 $ 682,624
Gross margin............................................... 172,579 182,804 214,277
Operating income........................................... 58,392 51,172 56,524
Income before income tax................................... 28,266 23,371 27,522
Net income................................................. 3,977 14,581 17,182
STATEMENT OF CASH FLOW DATA:
Cash provided by operating activities ..................... $ 151,832 $ 45 $ 4,148
Cash used in investing activities.......................... (8,064) (38,563) (26,986)
Cash provided by (used in) financing activities including
SRI debt allocated to Palais Royal.................... (80,660) (11,189) 15,481
</TABLE>
NOTE 13 - COMMITMENTS AND CONTINGENCIES:
LITIGATION: The Company is subject to claims and litigation arising in
the normal course of its business. The Company does not
believe that any of these proceedings will have a material
adverse effect on its financial position or its results of
operations.
LETTERS OF CREDIT: The Company issues letters of credit to support
certain merchandise purchases which are required to be
collateralized. The Company had outstanding letters of credit
totaling $8.4 million at February 3, 1996, all of which were
collateralized by the Revolving Credit Agreement (see Note 5).
These letters of credit expire within twelve months of
issuance.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially
subject the Company to concentrations of credit risk are
primarily cash, short-term investments and accounts
receivable. The Company's cash management and investment
policies restrict investments to low risk, highly-liquid
securities and the Company performs periodic evaluations of
the relative credit standing of the financial institutions
with which it deals. The credit risk associated with the
Company's accounts receivable is limited by the large number
of customers in the Company's customer base. Substantially all
of the Company's customers reside in the central United
States.
F-23
<PAGE>
SCHEDULE VIII
SPECIALTY RETAILERS, INC.
VALUATION ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
-----------------------------
Balance at Charged Charged Balance
beginning to costs to other at end
of year and expenses accounts Deductions of year
---------- ------------ ---------- ---------- -------
DESCRIPTION
-----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts: (1)
Fiscal Year:
1993 .................................... $7,855 $6,590 $ -- $12,501(2) $1,944
====== ====== ========== ======= ======
1994 .................................... $1,944 $3,176 $ 486(3) $ 2,374 $3,232
====== ====== ========== ======= ======
1995 .................................... $3,232 $4,905 $ -- $ 5,377 $2,760
====== ====== ========== ======= ======
Reserve for Shrinkage:
Fiscal Year:
1993 .................................... $ 160 $4,042 $ -- $ 4,004 $ 198
====== ====== ========== ======= ======
1994 .................................... $ 198 $4,459 $ -- $ 4,459 $ 198
====== ====== ========== ======= ======
1995 .................................... $ 198 $8,967 $ -- $ 8,808 $ 357
====== ====== ========== ======= ======
</TABLE>
(1) Includes reserve for uncollectible service charge and late fee income.
(2) Includes $6.1 million which has been reclassified to accrued liabilities
as a result of the implementation of the Accounts Receivable Program.
(3) This represents the initial allowance for doubtful accounts associated
with the accounts receivable purchased in an acquisition.
S-1
<PAGE>
EXHIBIT INDEX
The following documents are the exhibits to the Form 10-K. For convenient
reference, each exhibit is listed according to the Exhibit Table of Regulation
S-K. The page number, if any, listed opposite an exhibit indicates the page
number in the sequential numbering system in the manually signed original of
this Form 10-K where such exhibit can be found.
SEQUENTIAL
EXHIBIT PAGE
NUMBER EXHIBIT NUMBER
------- ------- ----------
*3.1 Certificate of Incorporation of Specialty Retailers, Inc. --
(Incorporated by Reference to Exhibit 3.1 of Registration
No. 33-54504 on Form S-1).
*3.2 By-Laws of Specialty Retailers, Inc. (Incorporated by --
Reference to Exhibit 3.2 of Registration No. 33-27714 on
Form S-1).
*4.1 Indenture by and between Specialty Retailers, Inc. and The --
First National Bank of Boston, as Trustee, relating to the
11% Series C and Series D Senior Subordinated Notes due 2003
of Specialty Retailers, Inc. dated July 27, 1995 (including
form of note), (Incorporated by Reference to Exhibit 4.1 of
Registration No. 33-62001 on Form S-4).
*4.2 Indenture among Specialty Retailers, Inc., The First --
National Bank of Boston, as Trustee, and Palais Royal, Inc.,
as Guarantor, relating to the 10% Senior Notes due 2000 of
Specialty Retailers, Inc., (including form of note) dated
August 2, 1993 (Incorporated by Reference to Exhibit 4.1 of
Registration No. 33-68256 on Form S-4).
*4.3 Indenture among Specialty Retailers, Inc., The First --
National Bank of Boston, as Trustee, and Palais Royal, Inc.,
as Guarantor, relating to the 11% Senior Subordinated Notes
due 2003 of Specialty Retailers, Inc., (including form of
note) dated August 2, 1993 (Incorporated by Reference to
Exhibit 4.2 of Registration No. 33-68256 on Form S-4).
*4.4 Indenture between 3 Bealls Holding Corporation and Bankers --
Trust Company, as Trustee, relating to 3 Bealls Holding
Corporation's 9% Subordinated Debentures due 2002
(Incorporated by Reference to Exhibit 4.2 of Registration
No. 33-24571 on Form S-4) and First Supplemental Indenture
dated August 2, 1993 (Incorporated by Reference to Exhibit
4.3 of Registration No. 33-68256 on Form S-4).
*4.5 Indenture between 3 Bealls Holding Corporation and IBJ --
Schroder Bank and Trust Company, as Trustee, relating to 3
Bealls Holding Corporation's 7% Junior Subordinated
Debentures Due 2002 (Incorporated by Reference to Exhibit
4.3 of Registration No. 33-24571 of Form S-4) and First
Supplemental Indenture dated August 2, 1993 (Incorporated by
reference to Exhibit 4.4 of Registration No. 33-68256 on
Form S-4).
*4.6 Pooling and Servicing Agreement among SRI Receivables --
Purchase Co., Inc., Specialty Retailers, Inc., and Bankers
Trust (Delaware) (Incorporated by Reference to Exhibit 4.5
of Registration No. 33-68256 on Form S-4).
*4.7 Series 1993-1 Supplement among SRI Receivables Purchase Co., --
Inc., Specialty Retailers, Inc., and Bankers Trust
(Delaware) (Incorporated by Reference to Exhibit 4.7 of
Registration No. 33-68256 on Form S-4).
*4.8 Series 1993-2 Supplement among SRI Receivables Purchase Co., --
Inc., Specialty Retailers, Inc., and Bankers Trust
(Delaware) (Incorporated by Reference to Exhibit 4.8 of
Registration No. 33-68256 on Form S-4).
*4.9 Receivables Purchase Agreement among SRI Receivables --
Purchase Co., Inc., and Originators (Incorporated by
Reference to Exhibit 4.9 of Registration No. 33-68256 on
Form S-4).
*4.10 Certificate Purchase Agreement between SRI Receivables --
Purchase Co., Inc. and the Purchasers of the Series 1992-1
Offered Certificates (Incorporated by Reference to Exhibit
4.9 of Registration No. 33-68256 on Form S-4).
*4.11 Revolving Certificate Purchase Agreement between SRI --
Receivables Purchase Co., Inc., the Facility Agent and the
Revolving Purchasers with respect to the Class A-R
Certificates (Incorporated by Reference to Exhibit 4.10 of
Registration No. 33-68256 on Form S-4).
*4.12 Revolving Credit Agreement by and among Specialty --
Retailers, Inc., Palais Royal, Inc., and the First National
of Boston, as agent for itself and other financial
institutions (Incorporated by Reference to Exhibit A of
Current Report on Form 8-K of Specialty Retailers, Inc.,
dated February 9, 1994).
*4.13 First Amendment dated July 14, 1994 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc., and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.12
on Form 10-K of Specialty Retailers, Inc., dated January 28,
1995).
*4.14 Second Amendment dated October 31, 1994 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc., and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.13
on Form 10-K of Specialty Retailers, Inc., dated January 28,
1995).
*4.15 Third Amendment dated July 5, 1995 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc., and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.14
on Form 10-K of Specialty Retailers, Inc., dated January 28,
1995).
*4.16 Fourth Amendment dated March 31, 1995 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc., and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.14
on Form 10-K of Specialty Retailers, Inc., dated January 28,
1995).
*4.17 Fifth Amendment dated July 7, 1995 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc., and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.17
of Registration No. 33-62001 on Form S-4).
*4.18 Sixth Amendment dated July 27, 1995 to Revolving Credit --
Agreement by and among Specialty Retailers, Inc., Palais
Royal, Inc. and the First National Bank of Boston, as agent
of itself and other financial institutions dated as of
January 28, 1994 (Incorporated by Reference to Exhibit 4.18
of Registration No. 33-62001 on Form S-4).
*4.19 Seasonal Revolving Credit Agreement by and among Specialty --
Retailers, Inc., Palais Royal, Inc., and the First National
of Boston, as agent for itself and other financial
institutions dated March 31, 1995 (Incorporated by Reference
to Exhibit 4.16 on Form 10-K of Specialty Retailers, Inc.,
dated January 28, 1995).
*4.20 First Amendment dated July 7, 1995 to the seasonal --
Revolving Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc., and the First National Bank of
Boston, as agent for itself and other financial institutions
dated March 31, 1995 (Incorporated by Reference to Exhibit
4.20 of Registration No. 33-62001 on Form S-4).
*4.21 Second Amendment dated July 27, 1995 to the seasonal --
Revolving Credit Agreement by and among Specialty Retailers,
Inc., Palais Royal, Inc., and the First National Bank of
Boston, as agent for itself and other financial institutions
dated March 31, 1995 (Incorporated by Reference to Exhibit
4.21 of Registration No. 33-62001 on Form S-4).
*4.22 First Amendment to the Receivables Purchase Agreement among --
SRI Receivables Purchase Co., Inc. and Originators dated as
of October 7, 1994 (Incorporated by Reference to Exhibit 4.1
on Form 10-Q of Specialty Retailers, Inc., dated April 29,
1995).
*4.23 First Amendment to the Pooling and Servicing Agreement --
among SRI Receivables Purchase Co., Inc. and Originators
dated as of October 7, 1994 (Incorporated by Reference to
Exhibit 4.2 on Form 10-Q of Specialty Retailers, Inc., dated
April 29, 1995).
*4.24 Second Amendment to the Receivables Purchase Agreement --
among SRI Receivables Purchase Co., Inc. and Originators
dated as of January 31, 1995 (Incorporated by Reference to
Exhibit 4.3 on Form 10-Q of Specialty Retailers, Inc., dated
April 29, 1995).
*4.25 Second Amendment to the Pooling and Servicing Agreement --
among SRI Receivables Purchase Co., Inc. and Originators
dated as of January 31, 1995 (Incorporated by Reference to
Exhibit 4.4 on Form 10-Q of Specialty Retailers, Inc., dated
April 29, 1995).
*4.26 Amended and Restated Pooling and Servicing Agreement by and --
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust (Delaware) dated as of
August 11, 1995 (Incorporated by Reference to Exhibit 4.26
of Registration No. 33-62001 on Form S-4).
*4.27 Series 1995-1 Supplement by and among SRI Receivables --
Purchase Co., Inc., Specialty Retailers, Inc. and Bankers
Trust (Delaware) on behalf of the Series 1995-1
Certificateholders dated as of August 11, 1995 (Incorporated
by Reference to Exhibit 4.27 of Registration No. 33-62001 on
Form S-4).
*4.28 Amended and Restated Receivables Purchase Agreement among --
SRI Receivables Purchase Co., Inc. and Originators dated as
of August 11, 1995 (Incorporated by Reference to Exhibit
4.28 of Registration No. 33-62001 on Form S-4).
*4.29 Certificate Purchase Agreement among SRI Receivables --
Purchase Co., Inc., Specialty Retailers, Inc. and the
Certificate Purchaser dated as of August 11, 1995
(Incorporated by Reference to Exhibit 4.29 of Current Report
on Form 8-K dated December 20, 1995).
*4.30 First Amendment to the Series 1993-2 Supplement and --
Revolving Certificate Purchase Agreement by and among
Specialty Retailers, Inc., SRI Receivables Purchase Co.,
Inc., Bankers Trust (Delaware) as Trustee for the SRI
Receivables Master Trust, the financial institutions parties
thereto and National Westminster Bank Plc, New York branch
dated as of August 11, 1995 (Incorporated by Reference to
Exhibit 4.30 of Registration No. 33-62001 on Form S-4).
*10.1 Purchase Agreement dated July 20, 1995 by and among --
Specialty Retailers, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, relating to the sale of the
Company's 11% Series C Senior Subordinated Notes due 2003
(Incorporated by Reference to Exhibit 10.1 of Registration
No. 33-62001 on Form S-4).
*10.2 Purchase Agreement dated July 22, 1993 by and among --
Specialty Retailers, Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Bear, Stearns & Co. Inc., BT
Securities Corporation and Shearson Lehman Brothers, Inc.,
relating to the sale of the Company's 10% Senior Notes due
2000 and 11% Senior Subordinated Note due 2003 (Incorporated
by Reference to Exhibit 10.1 of Registration No. 33-68256 on
Form S-4).
*10.3 Registration Rights Agreement dated July 27, 1995 by and --
between Specialty Retailers, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation, relating to the sale of the
Company's 11% Series C Senior Subordinated Notes due 2003
(Incorporated by Reference to Exhibit 10.3 of Registration
No. 33-62001 on Form S-4).
*10.4 Registration Rights Agreement dated August 2, 1993 by and --
among Specialty Retailers, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Bear Stearns & Co. Inc.
relating to the sale of The Company's 10% Senior Notes due
2000 (Incorporated by Reference to Exhibit 10.2 of
Registration No. 33-68256 on Form S-4).
*10.5 Registration Rights Agreement dated August 2, 1993 by and --
among Specialty Retailers, Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Bear, Stearns & Co., Inc.
relating to the sale of The Company's 11% Senior
Subordinated Notes due 2003 (Incorporated by Reference to
Exhibit 10.3 of Registration No. 33-68256 on Form S-4).
*10.6 Senior Management Agreement and Stock Option Agreement --
between Specialty Retailers, Inc., Bain Venture Capital,
Citicorp Venture Capital, Ltd., and Bernard Fuchs, dated as
of May 26, 1989 (Incorporated by Reference to Exhibit 10.8
of Registration No. 33-27714 on Form S-1) and Amendment to
Senior Management Agreement and Stock Option Agreement dated
February 1, 1993 (Incorporated by Reference to Exhibit 10.4
of Registration No. 33-68256 on Form S-4).
*10.7 Equity Stock Purchase Agreement by and among Specialty --
Retailers, Inc., Tyler Capital Fund, L.P. Tyler
Massachusetts, L.P., Tyler International, L.P.-I, Tyler
International, L.P.-II, Bain Venture Capital, Citicorp
Capital Investors, Ltd., Acadia Partners, L.P., Drexel
Burnham Lambert Incorporated, and certain other Purchasers,
dated as of December 28, 1988 (Incorporated by Reference to
Exhibit 10.9 of Registration No. 33-27714 on Form S-1) and
Amendments to Equity Stock Purchase Agreement dated
September 21, 1992 and August 2, 1993 (Incorporated by
Reference to Exhibit 10.5 of Registration No. 33-68256 on
Form S-4).
*10.8 Registration Agreement by and among Specialty Retailers, --
Inc., Tyler Capital Fund, L.P. Tyler Massachusetts, L.P.,
Tyler International, L.P.-I, Tyler International, L.P.-II,
Bain Venture Capital, Citicorp Capital Investors, Ltd.,
Acadia Partners, L.P., Drexel Burnham Lambert Incorporated,
and certain other Purchasers, dated as of December 29, 1988
(Incorporated by Reference to Exhibit 10.10 of Registration
No. 33-27714 on Form S-1) and Amendment to Registration
Agreement dated August 2, 1993 (Incorporated by Reference to
Exhibit 10.6 of Registration No. 33-68256 on Form S-4).
*10.9 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of August 2, 1982 (Incorporated by Reference
to Exhibit 10.11 of Registration 33-27714 on Form S-1).
*10.10 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of March 15, 1979 (Incorporated by Reference
to Exhibit 10.12 of Registration 33-27714 on Form S-1).
*10.11 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of November 7, 1978, as amended (Incorporated
by Reference to Exhibit 10.13 of Registration 33-27714 on
Form S-1).
*10.12 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of October 4, 1983, as amended (Incorporated
by Reference to Exhibit 10.14 of Registration 33-27714 on
Form S-1).
*10.13 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of December 21, 1983, as amended
(Incorporated by Reference to Exhibit 10.15 of Registration
33-27714 on Form S-1).
*10.14 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of March 21, 1983, as amended (Incorporated
by Reference to Exhibit 10.16 of Registration 33-27714 on
Form S-1).
*10.15 Lease Agreement between PR Investments and Palais Royal, --
Inc., dated as of November 22, 1985, as amended
(Incorporated by Reference to Exhibit 10.17 of Registration
33-27714 on Form S-1).
*10.16 Apparel Retailers, Inc., Stock Option Plan (Incorporated --
By Reference to Exhibit 10.13 to Registration No. 33-68256
on Form S-4).
*10.17 Form of Stock Option Agreement between Apparel Retailers, --
Inc., and Executive to be named therein (Incorporated by
Reference to Exhibit 10.15 to Registration No. 33-68256 on
Form S-4).
*10.18 Form of Management Agreement by and among Specialty --
Retailers, Inc., the Bain Entities, Citicorp Venture
Capital, Ltd., and Executive to be named therein
(Incorporated by Reference to Exhibit 10.22 of Registration
No. 33-32045 on Form S-1) and Form of First Amendment
(Incorporated by Reference to Exhibit 10.16 to Registration
No. 33-68258 on Form S-1).
*10.19 Professional Services Agreement between Specialty --
Retailers, Inc., and Bain Capital Partners (Incorporated by
Reference to Exhibit 10.21 of Registration No. 33-54504 on
Form S-1).
*10.20 Employment Agreement between Specialty Retailers, Inc. and --
Carl E. Tooker dated June 9, 1993 (Incorporated by Reference
to Exhibit 10.18 to Registration No. 33-68256 on Form S-4).
*10.21 Stock Option Agreement between Specialty Retailers, Inc., --
and Carl E. Tooker dated June 9, 1993 (Incorporated by
Reference to Exhibit 10.19 to Registration No. 33-68256 on
Form S-4).
*10.22 Employment Agreement between Mark Shulman and Specialty --
Retailers, Inc., dated as of January 8, 1994 (Incorporated
by Reference to Exhibit 10.1 on Form 10-Q of Specialty
Retailers, Inc., dated April 29, 1995).
*10.23 Stock Option Agreement between Mark Shulman and Apparel --
Retailers, Inc., dated as of January 31, 1994 (Incorporated
by Reference to Exhibit 10.2 on Form 10-Q of Specialty
Retailers, Inc., dated April 29, 1995).
*10.24 Employment Agreement between James Marcum and Specialty --
Retailers, Inc., dated as of May 15, 1995 (Incorporated by
Reference to Exhibit 10.3 on Form 10-Q of Specialty
Retailers, Inc., dated April 29, 1995).
*10.25 Employment Agreement between Stephen Lovell and Specialty --
Retailers, Inc., dated as of May 19, 1995 (Incorporated by
Reference to Exhibit 10.4 on Form 10-Q of Specialty
Retailers, Inc., dated April 29, 1995).
**10.26 Agency Agreement between Specialty Retailers, Inc. and --
Palais Royal, Inc. dated January 29, 1995.
**12.1 Statement Regarding Computation of Ratio of Earnings to --
Fixed Charges.
*21.1 List of Registrants' Subsidiaries (Incorporated by --
Reference to Exhibit 21.1 of Registration No. 33-62001 on
Form S-4).
- ------------
* Previously Filed
** Filed Herewith
<PAGE>
EXHIBIT 10.26
AGENCY AGREEMENT
Agreement made as of the 29th day of January, 1995 by and between
Specialty Retailers, Inc., a Delaware corporation ("SRI") and Palais Royal,
Inc., a Texas corporation ("PRI").
WITNESSETH:
WHEREAS, PRI operates specialty retail stores; and
WHEREAS, SRI has the capability to provide certain administrative
services and to act as agent (including purchasing agent and construction agent)
and business consultant for PRI in connection with such services; and
WHEREAS, PRI desires to engage the services of SRI as hereinafter set
forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
1. APPOINTMENT. PRI hereby appoints SRI to provide
administrative services and to act as agent (including purchasing agent and
construction agent) and business consultant for PRI, and SRI hereby agrees to
act in such capacities, all in accordance with the terms and conditions of this
Agreement.
2. ADMINISTRATIVE SERVICES. SRI shall provide all administrative
services required by the business of PRI (the "Administrative Services"),
including but not limited to the following:
(i) purchasing, as purchasing agent, all merchandise to
be sold at PRI's retail stores;
(ii) searching for and selecting appropriate sites for
additional retail stores for PRI;
(iii) arranging for all construction and other
improvements, the purchase of all fixtures and
furniture and other fixed assets in connection with
the opening and continuation of retail stores of PRI;
(iv) providing warehousing and distribution services to
all PRI retail stores;
(v) arranging all promotion and advertising activities
for PRI's retail stores;
(vi) preparation and maintenance of accounting records;
(vii) tax planning and return preparation;
(viii) data processing and information management services;
and
(ix) cash management and treasury functions.
3. AGENCY. SRI shall act as the agent of PRI in the performance
of the Administrative Services and, in connection therewith, shall have full
authority to enter into on behalf of PRI contracts, agreements, leases, purchase
orders and other instruments, and otherwise to deal with third parties on behalf
of PRI and to hold itself out to third parties as PRI's agent.
4. BUSINESS CONSULTING. SRI shall also render from time to time
such business consulting services as may be requested by PRI, or as may be
necessary to fully perform the Administrative Services.
5. FEES. PRI shall reimburse SRI for all out-of-pocket costs
incurred by SRI pursuant to this Agreement, including the cost of supplies or
services purchased on behalf of PRI. In addition, as compensation for providing
the Administrative Services and acting as agent and business consultant, SRI
shall be paid by PRI all of its direct and allocated expenses in performing the
Administrative Services and acting as agent and business consultant, plus 10% of
such expenses (such additional 10%, the "Mark-Up Amount"). Such expenses shall
include 100% of all payroll and related employee benefits and all other expenses
associated with employees whose time is spent entirely on providing
Administrative Services to PRI, and an allocable portion, based on SRI's normal
accounting practices, of such expenses associated with employees (including
management) whose time is spent partially in providing Administrative Services
to PRI.
6. INTERCOMPANY ACCOUNT; PAYMENT OF FEES. (a) SRI shall maintain
records of all cash flows to and from SRI on behalf of PRI, including cash flows
resulting from transactions between SRI and PRI, whether pursuant to this
Agreement or otherwise.
2
Out-of-pocket costs, direct expenses and cash receipts shall be recorded as
incurred, as received, or in accordance with SRI's accounting procedures, and
allocated costs shall be recorded at such time as the allocation is made in
accordance with SRI's normal accounting practices. The net amount of such cash
flows (the "Average Account Balance") shall at any given time constitute a loan
that is payable upon the demand of the party in whose favor the Average Account
Balance stands at such time. Notwithstanding the foregoing, the Average Account
Balance shall not include (i) the Mark-Up Amount and (ii) interest charged on
the Average Account Balance as provided below.
(b) The Average Account Balance shall bear interest at an annual rate
equal to SRI's current alternate base rate as defined in the Series 1993-2
Supplement to the Accounts Receivable Pooling and Servicing Agreement. Interest
and the Mark-Up Amount shall be paid quarterly in arrears on the last day of
each calendar quarter. Any amounts due with respect to periods prior to the
execution hereof shall be paid as soon as practicable following the execution
hereof.
7. INDEMNIFICATION. As an inducement to SRI's rendering services
hereunder, PRI agrees that SRI shall not be liable for any actions or omissions
in connection with the Agreement, unless resulting from the gross negligence or
willful misconduct of SRI. PRI shall indemnify and hold harmless SRI, its
subsidiaries, affiliates, directors, officers and employees from any claims,
liabilities, costs and expenses incurred in connection with the Administrative
Services or this Agreement or the operations of PRI.
8. EFFECTIVE DATE; TERM. This Agreement shall be effective as of
the date hereof. The term of this Agreement shall initially consist of two
fiscal years of PRI and shall thereafter automatically be renewed for each
subsequent fiscal year of PRI, unless either party gives notice of termination
no later than three months prior to the end of such initial two-fiscal year term
or the end of any such subsequent fiscal year, as the case may be.
3
9. MISCELLANEOUS. This Agreement sets forth the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written and oral. This Agreement may be amended or modified
only by a written instrument signed by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first mentioned above.
SPECIALTY RETAILERS, INC.
By: /s/ JAMES A. MARCUM
PALAIS ROYAL, INC.
By: /s/ JERRY C. IVIE
4
EXHIBIT 12.1
SPECIALITY RETAILERS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income before extraordinary income ...................... $ 3,961 $12,235 $17,118 $14,532 $19,673
Minority interest in Bealls Holding ..................... 749 -- -- -- --
Income tax expense ...................................... 3,993 8,340 9,330 8,339 11,317
------- ------- ------- ------- -------
Income before income tax, minority interest
and extraordinary item .............................. 8,703 20,575 26,448 22,871 30,990
------- ------- ------- ------- -------
Fixed charges charged to expense:
Rental expense (1) .................................. 7,275 7,575 8,803 8,879 10,051
Interest expense .................................... 33,928 32,384 32,137 29,743 31,264
Dividend and accretion on redeemable
preferred stock of subsidiary .................... 749 -- -- -- --
------- ------- ------- ------- -------
Total fixed charges charged to expense .............. 41,952 39,959 40,940 38,622 41,315
------- ------- ------- ------- -------
Income before income tax, minority interest,
extraordinary item and fixed charges
charged to expense .................................. $50,655 $60,534 $67,388 $61,493 $72,305
======= ======= ======= ======= =======
Fixed charges charged to accruals:
Rental expense (1) .................................. $ 898 $ 803 $ 298 $ 446 $ 1,516
Interest expense .................................... 667 381 -- -- --
------- ------- ------- ------- -------
Total fixed charges charged to accruals ............. 1,565 1,184 298 446 1,516
------- ------- ------- ------- -------
Total fixed charges ..................................... $43,517 $41,143 $41,238 $39,068 $42,831
======= ======= ======= ======= =======
Ratio of earnings to fixed charges ...................... 1.16 1.47 1.63 1.57 1.69
======= ======= ======= ======= =======
</TABLE>
- ------------
(1) Rental expense comprises one-third of all rental expenses incurred during
the period. This is deemed by management to be representative of the
interest factor of rental payments.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SPECIALTY RETAILERS, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-END> FEB-03-1996
<CASH> 20,264
<SECURITIES> 0
<RECEIVABLES> 68,500
<ALLOWANCES> 2,760
<INVENTORY> 150,032
<CURRENT-ASSETS> 260,493
<PP&E> 157,471
<DEPRECIATION> 64,353
<TOTAL-ASSETS> 402,818
<CURRENT-LIABILITIES> 93,946
<BONDS> 270,222
0
0
<COMMON> 0
<OTHER-SE> 22,418
<TOTAL-LIABILITY-AND-EQUITY> 402,818
<SALES> 682,624
<TOTAL-REVENUES> 682,624
<CGS> 468,347
<TOTAL-COSTS> 163,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,905
<INTEREST-EXPENSE> 31,264
<INCOME-PRETAX> 30,990
<INCOME-TAX> 11,317
<INCOME-CONTINUING> 19,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,673
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
