ITEM 2. PROPERTIES
As of January 29, 1994, 24 of the Company's stores were owned, 16 were owned subject to ground leases and 43 were leased. Three of these leased stores are subject to separate ground and improvement leases. As of January 29, 1994, the total annual base rent due under the store leases is approximately $22.0 million. In addition to the base monthly rent, the Company is obligated under many of the leases, or under related agreements discussed below, for a portion of common area maintenance charges and real property taxes. Further, the Company is lessee under eleven other leases relating to various offices, distribution facilities, and parking facilities. As of January 29, 1994, the total annual base rent due under these additional leases is approximately $1.0 million. Leases are generally for periods of up to 30 years, with renewal options for substantial periods. Such leases are generally at fixed rental rates, except that certain leases provide for additional rental payments based on sales in excess of predetermined levels.
Since many of the Company's stores are located in regional shopping centers, the Company is also party to other agreements which are inextricably tied to the Company's ground or improvement leases or its ownership of the property. Anchor tenants such as the Company and shopping center developers commonly enter into reciprocal easement agreements which, among other things, establish certain operating covenants to which the anchor tenants are bound. In addition, individual anchor tenants often enter into separate agreements with the developers relating to, among other things, common area charges and operating covenants.
The Company operates distribution facilities in Los Angeles and Union City, California, and Tempe, Arizona. Information services and data processing support are centralized in a facility located in Anaheim,
California. Credit card and accounts payable administrative functions are provided from an administrative center located in Tempe, Arizona. All other management, marketing and sales promotion, merchandising departments, and support functions are located at the Company's corporate offices in Los Angeles, California.
At January 29, 1994, the square footage used in the Company's operations was as follows:
Thirty-one of the Company's stores and the Company's corporate offices and distribution center are encumbered by deeds of trust in favor of the Company's largest secured creditor. An additional nine of the Company's stores are encumbered by deeds of trust in favor of certain banks under the Company's loan agreements with such banks. One other stores and two non-store facilities are encumbered under individual mortgage agreements with other lenders.
For additional information related to the Company's properties, see "Item 1. Business -- Company Operations".
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
CHAPTER 11 PROCEEDINGS; UNRESOLVED CLAIMS
A discussion of the events surrounding the Company's bankruptcy filing and an explanation of the material terms of the Company's reorganization under the POR is set forth in "Item 1. Recapitalization." None of the Company's subsidiaries filed petitions for relief under the Bankruptcy Code. Notwithstanding the confirmation and effectiveness of the POR, the Court continues to have jurisdiction to, among other things, resolve disputed prepetition claims against the Company and to resolve other matters that may arise in connection with or relate to the POR.
Pursuant to the POR, the Company is required to distribute .046 shares of Common Stock for each $1.00 of allowed general unsecured claims. The POR estimated the total amount of such claims to be approximately $600.0 million, against which the Company reserved 27.6 million shares of Common Stock. As of January 29, 1994, approximately $52.9 million of disputed claims remained outstanding. Management believes such claims will ultimately be allowed upon settlement or litigation for approximately $19.0 million, for which the Company has reserved approximately 1.0 million shares. Management believes that reserved shares of Common Stock will be sufficient to meet the Company's obligations to such claim holders. If all disputed claims were allowed in full, such claim holders would be entitled to a total of 2.4 million shares of Common Stock, compared to the 1.0 million shares reserved, resulting in a dilution to holders of outstanding Common Stock of approximately 3%. Management regularly evaluates the status of remaining disputed claims and claim settlement experience and accordingly adjusts its estimate of the number of shares to be reserved for issuance with respect to such claims. In addition, the Company has reserved approximately 0.2 million shares for preconfirmation stockholders of the Company who have not yet claimed the distribution of Common Stock to which they were entitled under the POR. The total of 1.2 million shares is included in the Company's calculation of its outstanding Common Stock. In addition, 0.2 million Warrants will remain issuable to certain preconfirmation stockholders pursuant to the POR. There are no contractual restrictions on the resale of these securities. Such securities may be sold into a public market without restriction at any time, potentially resulting in an adverse effect on the market for, or the market price of, the Common Stock.
The Company is engaged in an ongoing effort to resolve these remaining disputed claims. Because of the disputed nature of these claims and the delays associated with litigation generally, Management anticipates that the settlement of these claims is likely to occur over an extended period of time.
OTHER LEGAL PROCEEDINGS
The Company is involved in various other legal proceedings incidental to the normal course of business. Management does not expect that any of such other proceedings will have a material adverse effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Information with respect to the principal market on which the Company's Common Stock is traded and the range of high and low closing market prices for the following periods during the past two fiscal years are set forth in the table below:
CLOSING MARKET PRICE RANGES OF COMMON STOCK
Although the Company's stock was publicly traded prior to the period from October 8 to October 31, 1992, the table above excludes data with respect to the Company's common stock outstanding prior to the Emergence Date, which data is not comparable with data related to the Common Stock.
The New York Stock Exchange is the principal market on which the Company's Common Stock is traded.
(b) There were 18,640 holders of record of shares of Common Stock of the Company as of April 25, 1994.
(c) The Company did not declare dividends during the 52-week period ended January 29, 1994 or the 52-week period ended January 30, 1993. In addition, the Company's credit agreement with GE Capital (the "GE Credit Agreement") and the Company's settlement agreement with BofA, as agent for the Banks (the "BOA Settlement Agreement") prohibit the Company from paying dividends to stockholders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
A five-year summary of certain financial information about the Company is presented in the following table:
FIVE YEAR FINANCIAL SUMMARY
(1) Effective as of February 2, 1991, the Company changed its fiscal year end from the Saturday closest to July 31 of each year to the Saturday closest to January 31 of each year.
(2) Sales decrease on a comparative 12 month basis excluding the 1990 sales of Thalhimers, which was sold.
(3) Sales decrease on a comparative six month basis, excluding sales for the comparable period for Thalhimers, which was sold.
(4) Includes gains on asset sales of $7.3 million in 1990, costs of the buying office closure of $12.1 million in 1990, and $6.0 million in 1989.
(5) Includes gain on debt discharge of $304.4 million in 1992, a charge for a change in accounting for post-retirement medical benefits of $30.0 million in 1991, an extraordinary charge of $16.5 million in 1990 for the uninsured loss associated with the October 1989 San Francisco earthquake, and income for changes in accounting for income taxes of $18.8 million in 1992 and $15.3 million in 1989, and costs relating to early retirements of debt of $16.9 million in 1991, $14.1 million in the Transition Period ended February 2, 1991, and $9.2 million in 1989.
(6) Earnings per common share were $.65 for the seventeen weeks ended January 30, 1993. Per share data for periods prior to the Emergence Date have been omitted as these amounts do not reflect the current capital structure.
(7) Includes 35.0 million shares of Common Stock expected to be issued in accordance with the POR. As of January 29, 1994, 1.2 million of these shares remain to be issued.
The following table sets forth the consolidated capitalization and short- term debt of the Company and its consolidated subsidiaries at January 29, 1994 (dollar amounts in thousands):
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The discussion of results of operations that follows is based upon the Company's consolidated financial statements set forth on pages 38-57. The discussion of liquidity and capital resources is based upon the Company's current financial position. Upon emergence from bankruptcy, the Company adopted the principles of fresh start reporting as of October 3, 1992 (the "Effective Date") to reflect the impact of the reorganization. As a result of the application of fresh start reporting, the financial condition and results of operations of the Company for dates and periods subsequent to the Effective Date are not necessarily comparable to those prior to the Effective Date.
RESULTS OF OPERATIONS
OVERVIEW. The Company has undertaken significant organizational changes during the past three years which have impacted operating results. In addition, there are inherent difficulties in comparing the pre- and post-emergence period financial statements due to the application of fresh start reporting effective October 3, 1992. Although separate reporting is required for the 35-week period ended October 3, 1992 and the 17-week period ended January 30, 1993, certain pre-petition and post-petition income and expense elements remain comparable.
The following table summarizes the results for the 36-months ended January 29, 1994 on a comparable period basis. During the current year, certain one- time charges were incurred due to the execution of the Company's new business strategy. These charges included $18.0 million of strategic inventory clearance markdowns, which are part of the Company's inventory repositioning program. These markdowns were taken over and above markdowns taken in the normal course of business. In the prior year periods, markdowns of this nature were charged to previously established inventory valuation reserves. The one-time charges also included a non-recurring charge of $25.0 million for costs to implement a strategic plan, the activity value analysis, to streamline the Company's organizational structure and reduce administrative costs. These measures have resulted in cost savings of approximately $7.0 million in the current year with additional annualized savings of $30.0 million and $3.0 million expected to be realized during fiscal 1994 and 1995. In the fourth quarter of the current year, the Company recorded an additional $20.0 million charge to cover $15.0 million of costs relating to the January 1994 Northridge earthquake and $5.0 million for severance and other costs associated with additional restructuring efforts.
The following table illustrates reported EBIT as well as proforma EBIT which adjusts for the one-time charges described above:
52-WEEK PERIOD ENDED JANUARY 29, 1994 ("1993"). Sales in the current year were $2.09 billion, 2.1 percent less than the $2.14 billion reported in 1992. The current year results reflect the impact of the January 17, 1994 Northridge earthquake which resulted in the temporary closing of 14 stores. Currently, four stores remain closed due to damage sustained in the earthquake. The prior year includes results for three Utah stores and the Anaheim, California store which were closed in January 1993. On a comparative store basis, current year sales increased 1.6 percent over the comparable prior year period. Sales per gross square foot increased to $138 in the current year compared to $137 in 1993.
Proforma operating FIFO EBIT of $43.0 million in the current year compares to $76.1 million for the combined pre- and post-emergence periods comprising the 52-week period ended January 30, 1993. Current year results were impacted by the necessary disruption associated with the implementation of programs to significantly reorganize and reposition the Company.
Proforma FIFO cost of goods sold was $1,580.0 million, 75.5 percent of sales in the current year compared to $1,582.8 million, 74.0 percent of sales in the comparable prior year period. The 1.5 percent increase as a percent to sales reflects a reduction in markup rate resulting primarily from a move to everyday low pricing strategies and reflects the impact of competitive pricing pressures. The LIFO credit of $8.9 million in the current year compares to a charge of $5.2 million in the comparable prior year period. The current year LIFO credit was calculated on the basis of an internally calculated inflation index. This method, which was adopted effective October 3, 1992, provides the company with an inflation measurement that is specific to its business and eliminates reliance on the Bureau of Labor Statistics (BLS) national index. The 4.7 percent deflation generated by the internal index reflects the inventory impact of the Company's move to value pricing during the current year. Had the Company used the BLS index, which indicated a 1.3 percent rate of inflation for the year, a LIFO charge of approximately $15.0 million would have resulted for fiscal 1993.
SG&A decreased to $551.1 million in the current year compared to $561.6 million in the comparable prior year period. Although SG&A as a percent to sales was 26.3 percent in both periods, the current year does begin to reflect the favorable impact of the AVA program with cost savings of $7.0 million reflected in the current year.
Finance charge revenue of $81.4 million in the current year compared to $82.7 million in the comparable prior year period, and represented 3.9 percent of sales in both years. Effective October 1993, changes in the terms of the Company's revolving charge accounts reduced the minimum monthly payment requirements on outstanding balances from 10 percent to 5 percent. This change is expected to result in increases in customer receivable balances outstanding and corresponding finance charge revenue gains next year.
Interest expense decreased to $84.9 million in the current year compared to $89.8 million in the comparable prior year period. The decrease in the current year interest expense results primarily from lower average borrowing rates under the Company's Receivables Facility for periods subsequent to the Emergence Date and the utilization of the net proceeds from the equity offering to lower borrowings under the Credit and Receivables Facilities subsequent to July 1993.
Limitations on the Company's ability to record income tax benefits for net operating loss carryforwards for financial statement purposes, together with the impact of an offsetting state tax provision requirement, resulted in no tax benefit being recognized on the current year $95.9 million net loss.
17-WEEK PERIOD ENDED JANUARY 30, 1993 ("POST-REORGANIZATION PERIOD"). Sales increased 3.5 percent to $889.8 million in the Post-reorganization Period from $859.6 million in the comparable prior-year 17-week period ended February 1, 1992. On a comparable store basis, the sales increase was also 3.5 percent. For the 13-week period ended January 30, 1993, comparable store sales increased 5.5 percent over the same prior year period, reflecting a generally strong holiday selling season and positive responses to the Company's sales and credit promotional activities.
Proforma operating FIFO EBIT increased to $49.5 million, 5.6 percent of sales in the Post-reorganization Period from $44.3 million, 5.2 percent of sales, in the comparable prior-year period. Proforma EBIT reflects the reversal of the cost-of-goods-sold adjustment described in note 1 to the table above. The improvement reflects the increased sales base and the realization of the benefits of cost reduction programs. Reported EBIT increased to $68.9 million, 7.7 percent of sales, in the Post-reorganization period.
Proforma FIFO cost of goods sold increased to 74.3 percent of sales, $660.8 million, in the Post-reorganization Period from 74.1 percent, $636.7 million, in the comparable prior-year period. Cost of goods sold as a percentage of sales increased .2 percent as a result of competitive pressures on gross margins which more than offset the impact of higher sales and lower buying and occupancy costs. The LIFO credit of $1.9 million for the Post-reorganization Period compares to a charge of $3.2 million in the comparable prior-year period. Since the Company was deemed a new entity effective October 3, 1992, its previous LIFO reserve was eliminated at that date. The credit for the 17-week period ended January 30, 1993 reflects the general price deflation during the period together with the deflationary impact on the Company's internally generated inflation index as a result of the movement to value pricing. The comparable prior year period charge of $3.2 million, was an allocation of a portion of the fiscal 1992 $5.2 million charge.
SG&A decreased to $206.8 million, 23.2 percent of sales, in the Post- reorganization Period from $209.3 million, 24.3 percent of sales, in the comparable prior-year period. This decrease is comprised of a $6.5 million decrease in other SG&A primarily reflecting reduced fixed costs resulting from the Company's consolidation programs, partially offset by a $4.2 million increase in sales promotion and selling expenses in response to competitive pressures during the holiday season.
Finance charge revenue decreased to $27.3 million, 3.1 percent of sales, in the Post-reorganization Period from $30.7 million, 3.6 percent of sales, in the comparable prior-year period, reflecting the conservative approach to credit purchases generally, including proprietary credit card purchases, taken by customers prior to the holiday season, and the continuation of the trends discussed under "Business -- Proprietary Credit Card Operations". In addition, during the past two years, including the Post-reorganization Period, the Company has experienced an accelerated collection rate on proprietary credit card accounts resulting in lower overall outstanding customer receivables.
Interest expense decreased to $29.6 million in the Post-reorganization Period from $32.1 million in the comparable prior-year period. This reduction was largely due to lower average interest rates.
Net earnings of $22.7 million in the Post-reorganization Period are net of taxes at statutory rates and reflect an effective tax rate of 42.2 percent.
The seasonal nature of the retail business results in a significant portion of the earnings from operations for the year being generated in the 17-week period. Interim operating results are thus not necessarily indicative of earnings from operations that will be realized for the full fiscal year.
52-WEEK PERIOD ENDED JANUARY 30, 1993 ("1992"). Although the adoption of fresh start reporting significantly affected comparability, certain income and expense elements for the Post-reorganization Period and the 35-week period ended October 3, 1992 (The "Pre-reorganization Period") remain comparable and are addressed in the following analysis of results of operations for 1992.
Sales for both 1992 and the prior fiscal year ended February 1, 1992 ("1991") were $2.1 billion. Sales growth during the first three quarters of 1992 was significantly limited by the weakness in the California economy from which approximately 90 percent of the Company's business is generated. On a comparable store basis, sales for 1992 increased 0.9 percent as compared to the prior year. Sales per gross square
foot increased to $137 in 1992 from $133 in the prior year as a result of the corresponding increase in sales.
Operating FIFO EBIT increased to $76.1 million, 3.6 percent of sales, in 1992 from $75.5 million, 3.5 percent of sales, in 1991. While EBIT was essentially unchanged, 1992 reflects the effect of overhead reductions resulting from the Company's consolidation programs substantially offset by increased promotional and selling expenses in response to economic and competitive factors particularly during the first three quarters of 1992.
FIFO cost of goods decreased to $1,582.8 million, 74.0 percent of sales, in 1992 from $1,586.5 million, 74.6 percent of sales, in 1991. The improvement reflects a 0.9 percent increase in gross margin representing the impact of reductions in fixed buying and occupancy costs partially offset by a 0.4 percent decline in gross margin resulting from lower purchase markup. The LIFO method of inventory accounting resulted in a charge of $5.2 million in both periods.
SG&A increased to $561.6 million in 1992 from $559.9 million in 1991. However, as a percentage of sales, SG&A was 26.3 percent in both years. Although there was no net improvement in SG&A as a percent of sales, 1992 reflects an $18.7 million decrease in other SG&A, reflecting the impact on fixed costs of the Company's consolidation programs, offset by a $20.8 million increase in promotional expenses and selling and support services required to stimulate business in the difficult California retail environment.
Finance charge revenue decreased to $82.6 million, 3.9 percent of sales, in 1992 from $94.0 million, 4.4 percent of sales, in 1991. The reduction reflects the impact of lower levels of consumer confidence in the California economy manifested by a decrease in credit purchases and an acceleration in the paydown of outstanding credit card balances.
Interest expense decreased to $89.8 million in 1992 from $102.3 million in 1991. This decline was largely due to lower average interest rates.
Net earnings of $1,178.6 million in 1992 reflect reorganization and debt discharge related gains of $1,188.5 million and a benefit of $18.8 million from the adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The change in accounting reflects the elimination of existing deferred income taxes through the recognition of net operating loss carryforwards for which no benefit could be recognized under the previous accounting standard. The $6.8 million tax benefit recognized in the Pre- reorganization Period reflects the reversal of existing tax reserves on the favorable resolution of income tax audits for tax years through July 1990. The tax provision of $16.6 million for the Post-reorganization Period reflects state and federal taxes at statutory rates on pre-tax earnings for that period.
The net loss of $217.0 million in 1991 includes a charge of $138.1 million for reorganization costs comprised of a $65.0 million provision for the consolidation of the Company into a single operating entity, a $34.0 million charge for settlement of certain disputed prepetition trade claims and valuation adjustments to reflect the effect of the Chapter 11 proceedings on the amounts to be realized for certain assets, a $29.4 million charge for professional fees and other costs directly related to the proceedings, and a $9.7 million charge to write-off unamortized debt issue costs related to the Company's then outstanding subordinated debt. In addition, the net loss reflects an extraordinary net-of-tax charge of $16.9 million on the early extinguishment of an interim receivables facility entered into as a result of the filing for bankruptcy and a net-of-tax charge of $30.0 million resulting from a change in the method of accounting for post-retirement medical and other benefits as a result of the adoption of Statement of Financial Accounting Standards No. 106, "Employers Accounting for Post retirement Benefits Other Than Pensions."
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW. During the current year the Company's liquidity was significantly enhanced by net proceeds of $147.5 million from the issuance of 11.45 million shares of common stock and from net proceeds of $137.9 million from an issuance of 6 1/4% Convertible Senior Subordinated Notes. Management believes that this infusion of funds, together with other actions taken with respect to covenant requirements under the Company's existing credit facilities, has positioned the Company to aggressively pursue its business strategy, including the modernization of its stores.
STOCK OFFERING. The July 1993 public offering of common stock raised net proceeds of $147.5 million. The 10 million initial share offering plus the 1.45 million of over-allotment option shares exercised were issued at a price of $13.75 per share. The proceeds were principally intended to make capital available for the execution of the Company's business plan with $9.0 million designated to prepay existing notes.
CONVERTIBLE SENIOR SUBORDINATED NOTES. On December 21, 1993, the Company issued and sold $143.75 million of 6.25% Convertible Senior Subordinated Notes due December 31, 2000 (the "Notes"). Interest on the Notes will be paid semi- annually on December 31 and June 30 of each year, commencing June 30, 1994. The Notes are convertible at the option of the holder thereof at any time after 90 days following the date of original issuance thereof and prior to maturity, unless previously redeemed, into shares of Common Stock, at a conversion price of $12.19 per share, subject to adjustment in certain events.
The net proceeds of $137.9 million from the Note issuance will be used to fund the Company's business strategy, including the modernization of stores. Until such capital expenditures are made, the proceeds have been used to eliminate outstanding borrowings under the Company's Credit Facility and to reduce the level of financing under the Receivables Facility.
CREDIT FACILITIES. As of the Emergence Date, the Company obtained a new three-year Credit Facility and a new three-year Receivables Facility. Subject to collateral limitations, the new facilities provide for up to $225.0 million in credit financing and up to $575.0 million to finance the Company's proprietary credit card receivables portfolio. As of January 29, 1994, no advances and $48.3 million in letters of credit were outstanding under the Credit Facility and $332.2 million of borrowings, $150.1 million less than the maximum available based on the level of customer receivables, were outstanding under the Receivables Facility.
A substantial portion of the Company's debt is variable rate debt. Assuming that the average borrowings and all other variables would have remained constant, an increase (or decrease) in the annual interest rates applicable to the variable rate portion of the Company's debt throughout the 52-week period ended January 29, 1994 of one percent would have increased (or decreased) the Company's interest expense for such period by $5.4 million.
The Credit Facility contains a number of operating and financial covenants, as well as significant negative covenants. The Credit Facility includes covenants for material adverse changes, minimum aggregate net cash flow and earnings before interest, taxes, depreciation and amortization ("EBITDA"). In addition, the Credit Facility prohibits the Company from paying dividends on its stock and places limitations on the Company's capital expenditures. The Company is currently in compliance with all covenants under the Credit Facility. For the three month period ended January 29, 1994, all financial covenant requirements other than the Company's net inventory ratio were waived. The Company's net inventory ratio at January 29, 1994 was 78.1% or 12.5% less than the maximum inventory ratio permitted under the Credit Facility. The Credit Agreement and the Company's agreements with its other principal secured creditors also contain other covenants and requirements.
Since July 1, 1993, the Company has had to amend its financial covenants in the Credit Facility as a result of charges incurred with respect to implementation of its business strategy, increased competitive pressure on sales and margins and the weak California economy. The charges included the $25 million charge in connection with the AVA program and the $18 million of inventory clearance markdowns designed to upgrade the Company's merchandise offerings. Subsequent to year end, the Credit Facility financial covenants were relaxed by an amendment which took into account the enhanced liquidity resulting from the Senior Subordinated Notes funding.
CAPITAL EXPENDITURES. The Company concentrated its $60.0 million of capital expenditures in 1993 on store modernization and selling space improvement in addition to ongoing required maintenance expenditures. In light of the bankruptcy proceedings, the Company's capital expenditure programs were curtailed in 1992 and 1991. Capital expenditures amounted to $38.2 million in 1992 and $34.9 million in 1991. Capital expenditures between 1994 and 1996 are expected to be approximately $336.0 million. During this period capital expenditures for modernization and selling space improvements, including capitalized interest, are expected to total approximately $276.0 million, and maintenance capital expenditures are expected to total approximately $60.0 million. The capital expenditure program may be
modified over time to accommodate market factors and the Company's then existing financial condition. In addition, from time to time the Company may consider proposals to close existing stores or open new stores.
The Company's ability to fund its capital expenditure program and to implement its business strategy will depend on cash flow from operations and the continued availability of borrowings under the Credit Facility. Operating cash flow will be affected by, among other things, the timing of results from the Company's business strategy, sales during the holiday season, and general competitive and economic conditions. The Company believes that operating cash flow and amounts available under the Credit Facility, together with proceeds from the 1993 Convertible Senior Subordinated Notes and equity offerings, will be sufficient to fund the major elements of its business strategy. However, the Company continuously evaluates increasing or decreasing the number of stores, the terms of its Credit Facility and Receivables Facility and other operating and financing alternatives.
OTHER MATTERS. At January 29, 1994, the Company has estimated federal tax net operating loss ("NOL") carryforwards of $495.0 million, which expire in years 2004 through 2008. The Company's ability to utilize the NOL carryforwards is limited on an annual basis as a result of the change in control that occurred at the emergence from bankruptcy. Notwithstanding this limitation, Management does not currently anticipate that the Company will have any significant cash requirements for income tax payments for the next several years based on the availability of the NOLs.
If within a three-year period, however, 50% or more of the stock of the Company changes ownership again, the future annual use of NOLs may be limited to a greater extent by a new annual limit. The new annual limitation would be calculated as the product of (i) the highest long-term tax-exempt rate for a designated period prior to the ownership change and (ii) the market value of the Company at such time. This annual limit would apply to any NOLs incurred prior to the new change in control, but after the change in control that occurred at the emergence from bankruptcy. Furthermore, if the new annual limit were lower than the current annual limit, the new annual limit would apply to all NOLs of the Company incurred prior to the new change in control and could increase cash requirements for income tax payments.
INFLATION
The effect of inflation on the Company's sales and cost of sales is, in the opinion of Management, most closely approximated by the available inflation factors utilized in the computation of LIFO inventories. Commencing with the 17-week period ended January 30, 1993, the Company is utilizing an internally developed inflation index based on an analysis of the Company's unique merchandise assortment. For periods prior to the Effective Date, the Company utilized the Department Store Inventory Price Index published by the Bureau of Labor Statistics (the "BLS Index"). For the 52-week period ended January 29, 1994, the internally developed index indicated deflation of 4.7 percent, consistent with the price reductions resulting from the movement to value pricing for a larger proportion of the Company's inventories. For this same period, the BLS Index indicated a 1.3 percent rate of inflation.
SEASONALITY
The department store business is seasonal in nature with a high proportion of sales and earnings generated in November and December. Working capital requirements fluctuate during the year, increasing somewhat in late Summer in advance of the Fall merchandising season and increasing substantially at the outset of the holiday season when the Company must carry significantly higher inventory levels. Quarterly sales and EBIT for the 36 months ended January 29, 1994 were as follows:
As a result of the seasonal nature of the Company's business, the Company follows the practice of allocating certain fixed buying and occupancy costs among quarters within the fiscal year in proportion to projected quarterly sales results. This allocation of costs, therefore, results in a higher portion of yearly fixed buying and occupancy costs being allocated to the fourth quarter.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data are as set forth in the "Index to Financial Statements" on page 34.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information required under this item with respect to directors of the Company, see "Nominees for Election as Directors" and "Compliance with Section 16(a) of the Exchange Act" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 17, 1994, which sections are hereby incorporated by reference.
For information required under this item with respect to executive officers of the Company see "Executive Officers of the Company" under Item 1.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
For information required under this item with respect to executive compensation see "Compensation of Executive Officers and Directors" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 17, 1994, which sections are hereby incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information required under this item with respect to beneficial ownership of the Company's voting securities by each director and all executive officers and directors as a group, and by any person known to beneficially own more than 5% of any class of voting security of the Company, see "Principal Stockholders and Management Ownership" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 17, 1994, which sections are hereby incorporated by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information required under this item with respect to certain relationships and related transactions, see "Principal Stockholders and Management Ownership -- Certain Relationships and Related Transactions" and "Compensation of Executive Officers and Directors -- Compensation of Directors" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on June 17, 1994, which sections are hereby incorporated by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The consolidated financial statements of the Company are set forth in the "INDEX TO FINANCIAL STATEMENTS" on page 34.
(2) Financial Statement Schedules
Financial Statement Schedules, except those indicated in the "INDEX TO FINANCIAL STATEMENTS" on page 34, have been omitted because the required information is included in the financial statements or financial review, or the amounts are not significant.
(3) Exhibits
Exhibits are as set forth in the "INDEX TO EXHIBITS" on page 66.
(b) Reports on Form 8-K
November 8, 1993 Filing of Fourth Amendment to credit Agreement, dated as of October 31, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders.
December 21, 1993 Filing of Fifth Amendment to Credit Agreement, dated as of December 10, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders.
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 this 22nd day of April, 1994.
CARTER HAWLEY HALE STORES, INC.
By: /s/ DAVID L. DWORKIN ------------------------------------- David L. Dworkin President and Chief Executive Officer
POWER OF ATTORNEY
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 indicated on April 22, 1994.
SIGNATURE TITLE --------- -----
Chairman of the Board /s/ SAMUEL ZELL and Director - - ------------------------------------- Samuel Zell
President, Chief Executive Officer and Director (Principal /s/ DAVID L. DWORKIN Executive Officer) - - -------------------------------------- David L. Dworkin
Executive Vice President, Chief Financial Officer /s/ JOHN C. HAECKEL (Principal Financial Officer) - - -------------------------------------- John C. Haeckel
Vice President, Accounting /s/ JOHN D. DAVIES (Principal Accounting Officer) - - -------------------------------------- John D. Davies
/s/ DR. LEOBARDO F. ESTRADA Director - - --------------------------------------- Dr. Leobardo F. Estrada
/s/ SIDNEY R. PETERSEN Director - - ---------------------------------------- Sidney R. Petersen
* Director - - ---------------------------------------- Dennis C. Stanfill
SIGNATURE TITLE --------- -----
/s/ TERRY SAVAGE Director - - ---------------------------------------- Terry Savage
/s/ DAVID M. SCHULTE Director - - ---------------------------------------- David M. Schulte
/s/ STANFORD SHKOLNIK Director - - ---------------------------------------- Stanford Shkolnik
* Director - - ---------------------------------------- Dr. Robert M. Solow
/s/ JAMES D. WOODS Director - - ---------------------------------------- James D. Woods
*The undersigned, by signing his name hereto, does sign and execute this Annual Report on Form 10-K pursuant to the Powers of Attorney executed by the above-named officers and directors and filed herewith.
By: /s/ MARC E. BERCOON --------------------------------- Marc E. Bercoon Attorney-in-Fact
CARTER HAWLEY HALE STORES, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Carter Hawley Hale Stores, Inc.
In our opinion, the consolidated financial statements listed in the index appearing on page 34 present fairly, in all material respects, the financial position of Carter Hawley Hale Stores, Inc. and its subsidiaries at January 29, 1994 and January 30, 1993, and the results of their operations and their cash flows for the fiscal year ended January 29, 1994 and the seventeen weeks ended January 30, 1993, 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.
As discussed in the Reorganization and Basis of Reporting section of the Summary of Significant Accounting Policies, on September 14, 1992, the United States Bankruptcy Court confirmed the Company's plan of reorganization. The plan of reorganization, which was effective October 8, 1992, resulted in the discharge of all claims against the Company which arose prior to February 11, 1991 and substantially altered the rights and interests of the existing equity security holders. The Company utilized fresh start reporting as of October 3, 1992 to account for the effects of the reorganization.
Price Waterhouse Los Angeles, California March 14, 1994
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Carter Hawley Hale Stores, Inc.
In our opinion, the consolidated financial statements listed in the index appearing on page 34 present fairly, in all material respects, the results of operations and cash flows of Carter Hawley Hale Stores, Inc. and its subsidiaries for the thirty-five weeks ended October 3, 1992 and the fiscal year ended February 1, 1992, 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.
As discussed in the Reorganization and Basis of Reporting section of the Summary of Significant Accounting Policies, on February 11, 1991, the Company filed a petition with the United States Bankruptcy Court for reorganization under Chapter 11 of the Bankruptcy Code. The plan of reorganization was effective October 8, 1992, at which time the Company emerged from bankruptcy. The Company utilized fresh start reporting as of October 3, 1992 to account for the effects of the reorganization.
As discussed in the Changes in Accounting Policies section of the Summary of Significant Accounting Policies, the Company changed its method of accounting for income taxes in the thirty-five week period ended October 3, 1992, and its method of accounting for other post-employment benefits in the fiscal year ended February 1, 1992.
Price Waterhouse Los Angeles, California March 12, 1993
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-58478 and 33-58480) and in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-51847) of our reports dated March 14, 1994 and March 12, 1993 appearing on pages 35 and 36, respectively, of this Form 10-K.
Price Waterhouse Los Angeles, California April 26, 1994
CARTER HAWLEY HALE STORES, INC.
CONSOLIDATED STATEMENT OF EARNINGS
See accompanying Summary of Significant Accounting Policies and Financial Review.
CARTER HAWLEY HALE STORES, INC.
CONSOLIDATED BALANCE SHEET
See accompanying Summary of Significant Accounting Policies and Financial Review.
CARTER HAWLEY HALE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
See accompanying Summary of Significant Accounting Policies and Financial Review.
CARTER HAWLEY HALE STORES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
See accompanying Summary of Significant Accounting Policies and Financial Review.
CARTER HAWLEY HALE STORES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REORGANIZATION
On February 11, 1991 (the "Petition Date"), the Company filed a petition (the "Filing") for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Central District of California (the "Bankruptcy Court"). The Company subsequently managed its affairs and operated its business under Chapter 11 as a debtor-in-possession while a plan of reorganization was formulated.
On July 28, 1992, the Company's plan of reorganization ("POR"), which was supported by the largest secured and unsecured creditors and the official committee of the equity security holders, was filed with the Bankruptcy Court. The POR was subsequently confirmed at the Bankruptcy Court hearing held on September 14, 1992 and became effective October 8, 1992 (the "Emergence Date").
The POR provided for the conversion of substantially all unsecured claims into 27.6 million shares of Common Stock, the conversion of all common stock outstanding immediately prior to the Emergence Date ("Old Common Stock") into 2.4 million shares of newly-issued common stock of the Company ("Common Stock") and a combined total of 2.5 million of convertible warrants or shares of preferred stock, and the conversion of accrued interest under certain secured debt agreements into secured long-term obligations in accordance with the related settlement agreements.
Pursuant to the POR, Zell/Chilmark Fund, L.P. ("Zell/Chilmark"), the Company's largest unsecured creditor, received 21.2 million shares of Common Stock in settlement of approximately $461.0 million of unsecured claims on the Emergence Date. In addition, pursuant to the terms of the Postpetition Store Modernization Facility Conversion Agreement (the "Conversion Agreement"), Zell/Chilmark and an institutional investor each acquired an additional 2.5 million shares of Common Stock at a price of $10.00 per share. As of the Effective Date, 32.4 million shares of Common Stock were issued pursuant to the POR and the Conversion Agreement, of which Zell/Chilmark owned 73.2 percent. As of January 29, 1994 Zell/Chilmark owned approximately 54.4% of the Company's outstanding Common Stock.
BASIS OF REPORTING
The financial statements as of October 3, 1992 (the "Effective Date") and for the 35 week period then ended reflect the Company's emergence from Chapter 11 and were prepared utilizing the principles of fresh-start reporting contained in American Institute of Certified Public Accountants' Statement of Position 90- 7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" (the "Reorganization Statement"). Operations during the period from October 3, 1992 through the Emergence Date had no significant impact on the emergence transactions and as a result have not been separately identified. The financial statements as of October 3, 1992 and for periods ending thereafter have been segregated from those for prior periods by a solid double line to reflect the significant change in reporting entity resulting from the application of fresh start reporting.
Certain amounts reported in prior years have been reclassified in the accompanying financial statements to conform to the current fiscal year basis of presentation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31.
CHANGES IN ACCOUNTING POLICIES
During 1993, the Company adopted Statement of Financial Accounting Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("SFAS No. 112"). This statement establishes standards of financial accounting and reporting for the estimated costs of benefits provided to former or inactive employees after employment, but before retirement, and provides for the costs of such benefits to be accounted for on an accrual basis rather than as expenditures are made. The Company's practice has been to accrue its obligation for such benefits of a material nature when circumstances indicate a liability has been incurred and the amount or range of amounts are reasonably estimable. As a result, the adoption of SFAS 112 had no impact on the Company's financial position or results of operations.
During 1992, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Prior to the adoption of SFAS No. 109, the Company accounted for income taxes under Statement of Financial Accounting Standards No. 96 ("SFAS No. 96"). Both SFAS No. 109 and SFAS No. 96 require the use of the liability method of accounting for income taxes and require the adjustment of previously recorded deferred tax liabilities and assets for the effects of changes in tax laws or rates through the date of the latest financial statements presented. SFAS No. 109 changed the criteria for recognition and measurement of deferred tax assets and allowed the Company to recognize certain benefits resulting from net operating loss carryforwards for which no benefit could be recognized under SFAS 96. The cumulative effect of the change on prior years was a gain of $18.8 million, which has been reflected in net earnings for the first quarter of 1992.
During 1991, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pension." Effective February 3, 1991, a $32.0 million long term liability for the postretirement benefits, a $2.0 million reduction of the deferred tax liability, and a $30.0 million net of tax charge were recorded to reflect the effects of this change in accounting.
SALES
Sales are net of returns, exclude sales tax, and comprise sales of merchandise, services, and leased departments. Leased department sales were $210.7 million in 1993, $88.5 million for the seventeen week period ended January 30, 1993, $139.3 million for the thirty-five week period ended October 3, 1992, and $224.4 million in 1991.
CUSTOMER ACCOUNTS RECEIVABLE
An account is generally written-off when the aggregate of payments made in the most recent six months is less than one full monthly scheduled payment, or when it is otherwise determined that the account is uncollectible.
INVENTORIES
Merchandise inventories are valued at the lower of cost or market, as determined by the retail method on the last-in, first-out ("LIFO") basis. For periods subsequent to the Effective Date, the Company utilized internally developed inflation indices in the computation of LIFO inventories. Prior to Effective Date, the Company utilized the inflation indices published by the Bureau of Labor Statistics.
PROPERTY AND EQUIPMENT
Property and equipment additions are recorded at cost and include major renewals and improvements of a permanent nature. Other renewals and improvements and maintenance and repairs are expensed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the property and equipment, or over the terms of the related leases, if shorter. Debt acquisition costs are amortized over the life of the related debt.
ADVERTISING AND PROMOTIONAL COSTS
Advertising and promotional costs are generally expensed as incurred except for certain costs which are deferred over the term of the promotion, generally three months or less.
INCOME TAXES
Income taxes are recorded in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" which requires, among other things, the recognition of a deferred tax liability for taxable temporary differences and a deferred tax asset for deductible temporary differences. A valuation allowance is recorded to reduce deferred tax assets when it is more likely than not that all, or some portion, will not be realized.
EARNINGS PER SHARE OF COMMON STOCK
Earnings per share are computed on the basis of the weighted average number of shares outstanding during the period, including dilutive stock options and all 35.0 million shares of Common Stock expected to be issued in accordance with the POR. As of January 29, 1994, 1.2 million shares remain to be issued in accordance with the POR. Per share data for periods prior to October 3, 1992 have been omitted as these amounts do not reflect the current capital structure.
FINANCIAL REVIEW
NON-RECURRING COSTS
A significant number of the Company's Southern California stores suffered damage as a result of the major earthquake which affected that area on January 17, 1994. While most of the area stores were reopened within two weeks, as of April 25, 1994, four stores remained closed for repairs. The Company maintains earthquake and business interruption insurance with standard deductible provisions that require the Company to incur an initial level of costs at each location subject to damage or interruption of business. In January 1994, the company established a reserve of $65.4 million to cover costs of building and fixture repairs, inventory and business interruption losses, and other costs related to the earthquake. In addition, a $50.4 million receivable was established for estimated insurance recoveries resulting in a $15.0 million non-recurring charge being recognized for earthquake related losses in excess of estimated insurance proceeds. As of year end, $17.1 million of the reserve had been utilized, largely to cover damaged inventories.
During the current year, the Company also recorded $30.0 million in non- recurring charges associated with one-time costs expected to be incurred in the implementation of the strategic plan to streamline the Company. The plan, which was implemented in 1993, is expected to result in annualized cost savings of approximately $40.0 million. These cost savings are attributable to the elimination of redundant and low value-added functions within the support and administrative areas of the Company. The charge is comprised of severance and other benefit costs to be incurred from staff reductions, related consulting fees, and the costs of implementing other efficiencies under the plan.
REORGANIZATION INCOME AND COSTS
In accordance with the Reorganization Statement, income and costs directly related to the reorganization have been segregated and are separately disclosed. The major components are as follows:
The adjustments to fair value reflect the effects of the revaluation of assets and liabilities in accordance with the Reorganization Statement. These adjustments which include the $283.4 million write-up of fixed assets and the net increase of $3.5 million in other balance sheet items result in the elimination of the remaining $619.5 million accumulated deficit in shareholders' equity. The $9.0 million adjustment in fiscal 1991 reflects the reduction in the carrying values of certain assets based on the anticipated effect of the POR on the amounts to be realized for such assets.
The provision for consolidation is comprised of the estimated costs for the comprehensive centralization of major management functions. The new management approach, implemented during 1992, consolidates all corporate, merchandising, marketing, operations, administration, and support functions into a single organization.
The provision for settlement of disputed claims represents Management's estimate of the net amount required to cover all outstanding disputed claims included in liabilities subject to settlement based on current facts and circumstances.
Unamortized debt issue costs on subordinated debentures, which totalled $9.7 million as of the Petition Date, were charged to reorganization costs in the fourth quarter of 1991 as a result of the claims related to the debt being allowed by the Bankruptcy Court.
GAIN ON DEBT DISCHARGE
The gain on debt discharge reflects the conversion of $600.0 million of liabilities subject to settlement into $276.0 million of shareholders' equity resulting in a $324.0 million gain. The gain is presented net of write-offs and costs associated with the repayment of borrowings on the Effective Date.
INTEREST EXPENSE, NET
The components of interest expense are as follows:
Interest payments, net of amounts capitalized, were $63.8 million in 1993, $34.0 million in the seventeen week period ended January 30, 1993, $32.8 million in the thirty-five week period ended October 3, 1992, and $46.6 million in 1991. As a result of the Filing, interest payments during bankruptcy were limited to amounts due under the Post-petition Credit Agreement, the Interim Receivables Facility (during its existence), the Post-petition Receivables Securitization Facility, and the interest element of capital lease payments made. During bankruptcy, interest continued to accrue on the Company's secured mortgage debt but no payments were made. Both the accrual of interest and amortization of debt issuance costs on the Company's subordinated debt ceased at the Filing. Unaccrued interest on the subordinated debt amounted to $29.2 million in the thirty-five weeks ended October 3, 1992, and $42.5 million in 1991. In accordance with the POR, the liability for such unaccrued interest was cancelled with no payment due. The remaining $9.7 million of unamortized debt issuance costs relating to the subordinated debt were written-off as a reorganization cost in the fourth quarter of 1991.
Commitment fees totalling $1.8 million in the thirty-five week period ended October 3, 1992 and $3.2 million in 1991 were included in selling, general and administrative expenses. Such fees are reported as a component of interest expense for periods subsequent to the Effective Date.
INCOME TAXES
No tax provision was recognized for the year ended January 29, 1994. As a result of the Company's limited ability to recognize a benefit for the current year loss, the federal tax benefit for the year was completely offset by a state provision.
Income taxes for 1992 were required to be separately computed for the pre- and post-reorganization periods. The $6.8 million tax benefit recognized for the thirty-five week period ended October 3, 1992 reflects the reversal of certain tax reserves on favorable resolution of income tax audits for tax years through July 1990.
The limited ability to utilize net operating loss carryforwards in certain periods is reflected in the following analyses of the effective income tax rate reconciliation and the composition of deferred income tax liability.
In the current year, a valuation allowance was established to offset all but $2.6 million of federal tax benefits related to the loss from continuing operations recorded in the current year. The change in the federal corporate rate from 34 percent to 35 percent, resulting from legislation passed during the current year, did not have a significant impact on the federal deferred tax liability. The principal items comprising the deferred tax liability are as follows:
The Company has estimated tax basis net operating loss carryforwards of $495.0 million for federal purposes which expire in the years 2004 through 2008. As of the Emergence Date, the Company experienced a change of ownership which restricts the Company's ability to utilize its net operating loss carryforwards in future years. The Company has federal business credit carryforwards of $3.6 million which expire in the years 2002 through 2005 and an alternative minimum tax credit carryforward of $1.0 million which carries over indefinitely.
The Company has California net operating loss carryforwards of $229.0 million which expire in the years 1996 through 2002. In the current year, the net operating loss carryforward period was legislately reduced to five years. This change is effective for the Company's net operating losses generated in the current year and future years. This change many further restrict the Company's ability to use its California net operating losses.
Income tax payments were $.2 million in 1993, $.2 million and $.1 million in the seventeen and thirty-five week periods comprising the fiscal year ended January 30, 1993 and $.1 million in 1991.
ACCOUNTS RECEIVABLE AND CREDIT OPERATIONS
Accounts receivable consist of the following:
Other receivables at January 30, 1994 include $50.4 million in estimated earthquake insurance recoveries.
Selected credit operations information is as follows:
The Company's proprietary credit card penetration has eroded 2.1% during the past three years, from 53.8% of gross sales in fiscal 1991 to 51.7% in the current year. In part, this reflects the weakness in the California economy which resulted in lower levels of consumer confidence and decreased total credit sales. In addition, it reflects the wider use of third party bank cards. Current year write-offs at 2.5% of credit sales improved from 3.0% for the fifty-two week period ended January 30, 1993 reflecting improved collections and a decrease in the level of personal bankruptcies experienced in the prior year.
INVENTORIES
The LIFO method of accounting resulted in a credit to cost of goods sold of $8.9 million in the current year compared to a credit of $1.9 million for the seventeen weeks ended January 30, 1993 and charges of $7.1 million for the thirty-five weeks ended October 3, 1992 and $5.2 million in 1991. If all inventories had been valued on the first-in, first-out ("FIFO") basis, they would have been lower by $10.8 million at January 29, 1994, lower by $1.9 million at January 30, 1993 and higher by $79.8 million at February 1, 1992.
In accordance with the principles of fresh start reporting, merchandise inventories at October 3, 1992 were restated at fair market value, resulting in elimination of the LIFO reserve at that date.
LEASES
Certain Company operations are conducted in leased properties, which include retail stores, distribution centers, and office facilities. Leases are generally for periods of up to thirty years, with renewal options for substantial periods. Leases are generally at fixed rental rates, except that certain leases provide for additional rental charges based on sales in excess of predetermined levels.
Rent expense for each period is as follows:
Future minimum lease payments are as follows:
PROPERTY AND EQUIPMENT, NET
Property and equipment was adjusted to fair market value at October 3, 1992. The revaluation resulted in a net increase in property and equipment of $283.4 million, including the elimination of all accumulated depreciation.
Property and equipment is as follows:
Capital expenditures were as follows:
Expenditures for new stores include acquisition costs of land, buildings and improvements, and related fixtures and equipment. Store and support facility modernization expenditures include renovating, expanding, and re-equipping existing stores and expenditures for improvements and fixtures for office buildings, distribution centers, and other facilities.
CREDIT FACILITY
On October 8, 1992, a three year facility (the "Credit Facility") provided by General Electric Capital Corporation ("GE Capital") replaced the existing debtor-in-possession working capital facility. The facility provides for up to $225.0 million in working capital borrowings secured on a first priority basis by substantially all of CHH's tangible and intangible personal property. Interest is computed at a rate equivalent to one and one-half percent above the GE Capital index rate. In addition, the facility includes a commitment fee of one-half percent on the unused portion of the credit line. The facility also requires the payment of administrative fees and line-of-credit fees equivalent to 2.375 percent of the face amount of letter-of-credit obligations. In addition, the facility includes restrictions on capital expenditures and dividends and includes covenants for material adverse changes, minimum aggregate net cash flow and earnings before interest, taxes, depreciation and amortization. As of January 29, 1994, there were $48.3 million in outstanding letters of credit and zero borrowings outstanding under the Credit Facility. As of January 30, 1993, there were $45.1 million in outstanding letters of credit and $52.3 million in advances under the Credit Facility.
LONG-TERM DEBT
Long-term debt comprises:
On October 8, 1992, a three year $575.0 million facility provided by GE Capital replaced the postpetition receivables securitization facility. The GE Capital facility provides for Blue-Hawk Funding Corporation, a limited purpose corporation not affiliated with the Company, to acquire interests in the Company's credit card receivables and pay for these interests through the issuance of commercial paper. Outstanding borrowings under the postpetition receivables securitization facility, which are secured by substantially all of the Company's customer receivables, accrue interest at the A-1/P-1 commercial paper rate plus 1.1%. At January 29, 1994, the weighted average interest rate for borrowings under the postpetition receivables securitization facility was 4.3%. Costs of $13.9 million related to origination of the receivables financing facility were capitalized and are being amortized to interest expense over the term of the facility.
The financial statements for the fifty-two weeks ended February 1, 1992 reflect a $16.9 million net-of-tax extraordinary loss on unamortized debt issue costs written-off as a result of the replacement of the interim receivables facility established at the time of Filing.
On December 31, 1991,the Company and Prudential concluded the Prudential Settlement Agreement with respect to the $344.0 million of notes (the "Existing Notes") due 1993 to 1997. The Prudential Settlement Agreement, which became effective on October 8, 1992, extended the maturity of the notes for five years to October 2002. In addition, previously accrued and unpaid interest and certain other charges totalling $53.4 million were capitalized into a 9 percent note (the "Accrued Interest Note"). Principal payments on the Accrued Interest Note will commence in November 1997, continuing in equal monthly installments through October 2002. Although the Existing Notes will continue to accrue interest at the blended contract rate of 10.67 percent during the first two years following the Emergence Date, the Company will only be required to pay interest at a lower rate of 7.5 percent (the "Pay Rate"). The difference between the Pay Rate and the blended contract rate amounts to $23.8 million and is being capitalized under the terms of the Accrued Interest Note with principal payments commencing in November 1997 and continuing in equal installments over the remaining life of the notes.
On July 28, 1992, the Company and BofA concluded the BofA Settlement Agreement with respect to the $89.7 million of term loans due in 1995. The BofA Settlement Agreement, which became effective on October 8, 1992, extends the maturity of the term loans for four years to June 1999. In accordance with the BofA Settlement Agreement, interest from October 8, 1992 through June 30, 1995, will be payable at LIBOR plus .625 percent and thereafter at LIBOR plus 1.25 percent. Previously accrued and unpaid interest on the term loans and other negotiated charges totalling $10.8 million were capitalized in a 9 percent note which was paid in 1993.
On December 21, 1993, the Company issued and sold $143.75 million of 6.25% Convertible Senior Subordinated Notes due December 31, 2000 (the "Notes"). Interest on the Notes will be paid semi-annually on December 31 and June 30 of each year, commencing June 30, 1994. The Notes are convertible at the option of the holder thereof at any time after 90 days following the date of original issuance thereof and prior to maturity, unless previously redeemed, into shares of Common Stock, at a conversion price of $12.19 per share, subject to adjustment in certain events.
The notes are redeemable at the option of the Company, in whole or in part, at any time on and after December 31, 1998, at a redemption price equal to 100% of the principal amount thereof, together with accrued and unpaid interest. The Notes do not provide for any sinking fund. Upon a Change in Control (as defined in the Registration Statement), holders of the Notes will have the right, subject to certain restrictions and conditions, to require the Company to purchase all or any part of the Notes at the principal amount thereof together with accrued and unpaid interest to the date of purchase.
Principal maturities of long-term debt payable over the next five years, exclusive of borrowings under the post-emergence receivables securitization facility due 1995 and the Notes due 2000, are $.6 million in 1994, $3.9 million in 1995, $5.4 million in 1996, $9.9 million in 1997, $21.6 million in 1998, with $476.5 million due thereafter.
Long-term debt of $517.9 million is secured by property with a net carrying value of $482.7 million.
The Company's debt agreements include restrictions on capital expenditures and covenants for minimum aggregate net cash flow and earnings before interest, taxes, depreciation and amortization.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS No. 107") requires the disclosure of fair value of financial instruments for which it is practical to estimate that value. The Company's various long term debt liabilities constitute the only financial instruments with a potential carrying value different from fair value. Based upon the following methods and assumptions, as of January 29, 1994, the carrying value of such financial instruments are estimated to approximate market value.
RECEIVABLES BASED FINANCING - Financings under this facility bear interest at floating rates which reflect short term market rate changes. As a result, it is assumed that the carrying value of the $332.2 million of financings outstanding at January 29, 1994 approximate fair value.
SECURED LONG-TERM DEBT - The $517.9 million of secured long-term debt outstanding comprises real estate secured borrowings with a carrying value based on the valuations provided in the POR, implemented effective October 8, 1992. Except for $89.7 million of borrowings which bear interest at LIBOR plus 0.625%, all other borrowings are at fixed rates from 8.25% to 10.67%. Since the debt is not publicly traded and there have been no real estate financings concluded subsequent to the 1992 reorganization, the Company has assumed that the carrying values established under the POR continue to reflect fair value.
CONVERTIBLE SENIOR SUBORDINATED NOTES - These notes, were issued in a private placement during December 1993, and are assumed to reflect fair value at January 29, 1994.
RETIREMENT PLANS
The Company has two qualified noncontributory pension plans covering substantially all employees. Employees who have completed one year of employment, are at least 21 years of age, and are not covered by a collectively bargained pension plan, are covered by the plans and become vested for benefit purposes after completing five years of employment with the Company. The Company also has unfunded nonqualified pension plans covering certain employees and directors. The Company contributes at least the actuarially determined minimum amount necessary to fund participants' benefits in accordance with the requirements of the Employee Retirement Income Security Act of 1974.
Effective January 29, 1994, changes were made to the significant actuarial assumptions used in development of the pension plans funded status as of that date and for computation of pension expense for future periods. The discount factor used to compute the present value of pension liabilities was reduced from 8.5 percent to 7.25 percent, reflecting the reduction in long-term rates experienced during 1993. Lower actual and expected rates of inflation also resulted in reductions to the long-term rate of return on assets from 9.5 percent to 9.25 percent and in the projected rate of compensation increases from 5.0 percent to 4.5 percent.
The above changes resulted in a $27.1 million increase to the pension liability of which $14.3 million was charged directly to equity as a separate component of the Total Accumulated Deficit.
The following table summarizes pension expense and funded status of the plans, as determined by the Company's actuary, together with an analysis of the significant actuarial assumptions used:
As of January 29, 1994, the $106.6 million unfunded projected benefit obligation consisted of $68.2 million relating to the qualified plans and $38.4 million relating to the nonqualified plans.
Certain retired employees also receive health care and life insurance benefits which are subsidized to varying degrees by the Company. The post- retirement medical benefits are available only to employees who had retired or were eligible to retire by August 1, 1991 and who had met all other plan eligibility requirements. A life insurance benefit of $1,000 per employee is provided by the Company to all eligible current and retired employees. Additional life insurance benefits are also provided to a select group of executives. The executive life benefits were amended effective January 1993, to reduce the amount of
coverage post-retirement, based on age. The amendment which applies to both current retirees and eligible plan participants resulted in a $1.9 million reduction to the January 30, 1993 accumulated benefit obligation. This gain is being amortized as a reduction in post-retirement benefit expense on a straight line basis over a ten year period representing the average service period to full eligibility for this benefit.
The following table summarizes the expense and the accumulated benefit obligation for these plans.
The postretirement medical and life insurance benefits are provided under nonqualified plans. The accumulated benefit obligation represents the present value of expected future payments discounted at a 7.25 percent rate. Medical inflation has been projected at a blended rate of twelve percent per annum for fiscal 1994, declining by 2001 to a long term rate of approximately six and one-half percent per annum. The effect of a one-percentage-point increase in the assumed medical cost trend rate would be to increase the net periodic medical plan expense by $.2 million and to increase the related accumulated benefit obligation by $2.5 million.
A 401(k) savings and investment plan is available to substantially all employees who have completed one year of service. For eligible participant contributions made during the nine month period ended December 1993, the Company will be providing a 25 percent matching contribution in the form of newly issued shares of Company common stock. No Company match was provided on participant contributions made during the period from the Petition Date through March 1993.
At January 29, 1994, the plan held .6 million shares of Common Stock representing 1.2 percent of common stock outstanding or still issuable under the POR and .6 million shares of preferred stock representing 60.3 percent of preferred shares outstanding or still issuable under the POR.
EMPLOYEE STOCK INCENTIVE PLANS
As of the Effective Date, the Company adopted a new long-term incentive compensation plan designed to attract and retain top-quality management for the reorganized Company. The plan, among other things, provides for the issuance of stock options at an exercise price that is generally not less than the market value of the common stock on the date of grant. During the fifty-two week period ended January 29, 1994, 3.2 million options were awarded and 163,664 options were exercised under the plan. As of January 29, 1994, 1.4 million options were outstanding and exercisable at exercise prices ranging from $10.22 to $11.00. The options, which vest in one-third increments over three years, are exercisable over a ten year period, generally beginning one year from the date of grant.
In accordance with the POR, all rights and benefits earned under the stock incentive plans in existence prior to the Effective Date were cancelled.
CONTINGENCIES
Notwithstanding the confirmation and effectiveness of the POR, the Bankruptcy Court continues to have jurisdiction to, among other things, resolve disputed prepetition claims against the Company and to resolve other matters that may arise in connection with or relate to the POR.
Pursuant to the POR, the Company is required to distribute .046 shares of Common Stock for each $1.00 of allowed general unsecured claims. The POR estimated the total amount of such claims to be approximately $600.0 million, against which the Company reserved 27.6 million shares of Common Stock. As of January 29, 1994, approximately $52.9 million of disputed claims remained outstanding. Management believes such claims will ultimately be allowed upon settlement or litigation for approximately $19.0 million, for which the Company has reserved approximately 1.0 million shares which are included in the Company's calculation of its outstanding Common Stock. Management believes that reserved shares of Common Stock will be sufficient to meet the Company's obligations to such claim holders. If all disputed claims were allowed in full, such claim holders would be entitled to a total of 2.4 million shares of Common Stock, compared to the 1.0 million shares reserved, resulting in a dilution to holders of outstanding Common Stock of approximately 3%. Management regularly evaluates the status of remaining disputed claims and claim settlement experience and accordingly adjusts its estimate of the number of shares to be reserved for issuance with respect to such claims.
The Company is engaged in an ongoing effort to resolve these remaining disputed claims. Because of the disputed nature of these claims and the delays associated with litigation generally, Management anticipates that the settlement of these claims is likely to occur over an extended period of time.
The Company is involved in various other legal proceedings incidental to the normal course of business. Management does not expect that any of such other proceedings will have a material adverse effect on the Company's financial position or results of operations.
PREFERRED STOCK AND WARRANTS
Pursuant to the POR, shares of Series A exchangeable preferred stock, par value $.01 ("Preferred Stock") or warrants to purchase shares of Common Stock ("Warrants") were issuable to existing holders of Old Common Stock at a rate of .084 for each share of Old Common Stock held. The Company does not intend to have the preferred stock listed for trading on any national securities exchange or other national automated quotation system. The Warrants have been registered and listed for trading on the New York and Pacific Stock Exchanges.
At the option of the holders of Preferred Stock, shares of Preferred Stock are exchangeable on a one-for-one basis to Warrants to purchase Common Stock. During 1993, approximately 160,000 shares of Preferred Stock were converted to warrants. The Company does not expect ever to pay a dividend with respect to the Preferred Stock. In the event of dissolution, liquidation, or winding-up, the holders of Preferred Stock are entitled to a liquidation preference of $0.25 per share from assets remaining after the full satisfaction of the prior rights of creditors. As of January 29, 1994, the authorized Preferred Stock of the Company consisted of twenty-five million shares, $.01 par value, of which .9 million shares were issued and outstanding.
Each Warrant entitles the holder any time prior to the close of business on October 8, 1999, to purchase a share of Common Stock at a purchase price equal to $17.00 per share, subject to adjustment from time to time. In the event the market price of the common stock equals or exceeds $25.50 per share for 30 consecutive trading days, the Board of Directors, after the passage of 30 months from October 8, 1992, may, upon 75 days notice, shorten the exercise period to end on a date earlier than October 8, 1999.
COMMON STOCK
Pursuant to the POR, effective October 8, 1992, all existing shares of Old Common Stock were converted into 2.4 million shares of Common Stock and a combined total of 2.5 million in warrants or shares of convertible preferred stock. Unsecured claims were converted into approximately 27.6 million shares of new Common Stock. In addition, in accordance with the POR Zell/Chilmark and an institutional investor each acquired an additional 2.5 million shares of new common stock at a price of $10.00 per share.
In addition, shortly after the Effective Date, 80,000 shares of Common Stock were issued as bonus compensation to certain professionals engaged in the Chapter 11 proceedings, and a total of approximately 134,000 shares of Common Stock were issued to employees. In December 1992, all eligible employees each received ten shares of Common Stock as a result of this stock issuance.
In July 1993, the Company raised net proceeds of $147.5 million through a public offering of 11.45 million shares of Common Stock.
The accompanying financial statements reflect the issuance of all shares of Common Stock, preferred stock, and warrants contemplated by the POR. As of January 29, 1994, up to 1.2 million shares of Common Stock, .1 million shares of Preferred Stock, and .1 million Warrants remain issuable under the POR to satisfy outstanding claims and conversion of unpresented shares of Old Common Stock. At January 29, 1994, the Company's authorized common stock consisted of 100 million shares, $.01 par value of which 5.9 million shares were reserved under the employee stock incentive plan, 1.5 million shares were reserved for purchase by and contribution to the Company's 401(k) Savings & Investment Plan and 2.5 million shares were reserved for purchase by warrant holders.
The Company's ability to pay dividends on its common stock is restricted pursuant to the terms of the post-reorganization credit facilities and the BofA Settlement Agreement. As a result, the Company does not expect to pay common stock dividends for the foreseeable future.
CARTER HAWLEY HALE STORES, INC.
SCHEDULE II -- ACCOUNTS RECEIVABLE FROM RELATED PARTIES
(1) In fiscal 1993, the company made a loan of $100,000 to Mr. Robert J. Lambert, Executive Vice President, Human Resources. The unsecured, interest free loan is being forgiven at a rate of $2,778 per month of active employment.
(2) The 1987 Stock Incentive Plan provided for the issuance of stock purchase rights to eligible participants. In connection with the exercise of such stock purchase rights, participants were issued shares of Old Common Stock in exchange for non-recourse notes. The notes were reflected as a reduction in shareholders' equity. Pursuant to the POR, the stock rights and non-recourse notes were cancelled on the Emergence Date.
(3) In 1990, the Company made a loan of $104,000 to Mr. John M. Gailys, Executive Vice President and Chief Financial Officer of the Company. The loan was repaid prior to Mr. Gailys' resignation from the Company in fiscal 1991.
CARTER HAWLEY HALE STORES, INC.
SCHEDULE V--PROPERTY AND EQUIPMENT
(1) Sales and other changes reflect the following items: - Effective October 3, 1992, the adjustment required to record property and equipment at fair value in accordance with the Reorganization Statement. - Fixed asset sales completed during the period. - Write-off of assets in connection with lease rejections completed during the year ended February 1, 1992. - Reclassification of costs from construction in progress for projects completed during the period. - Reclassification of costs relating to properties purchased during the period which previously were operated under capital leases.
CARTER HAWLEY HALE STORES, INC. SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT
CARTER HAWLEY HALE STORES, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
CARTER HAWLEY HALE STORES, INC.
SCHEDULE IX--SHORT-TERM BORROWINGS
CARTER HAWLEY HALE STORES, INC.
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
QUARTERLY INFORMATION (unaudited)
QUARTERLY INFORMATION (unaudited)
CARTER HAWLEY HALE STORES, INC.
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - - ------- -----------
3.1 Amended and Restated Certificate of Incorporation of the Company; incorporated by reference to Exhibit 4.2 to the Form S-8 filed February 17, 1993.
3.2 Bylaws of the Company; incorporated by reference to Exhibit 3.2 to the Form 10-K for the year ended January 30, 1993.
4.1 Form of Warrant Agreement; incorporated by reference to Exhibit 4.1 to the Form 10-K for the year ended January 30, 1993.
4.2 Form of Certificate of Designation, Preferences and Rights of Series A Exchangeable Preferred Stock of the Company; incorporated by reference to Exhibit 4.3 to the Form S-8 dated February 17, 1993.
4.3 Loan Agreement dated as of August 27, 1987, among The Prudential Insurance Company of America, Carter Hawley Hale Stores, Inc. and Thalhimer Brothers, Inc. with respect to $350,000,000; incorporated by reference to Exhibit 4.5 to the Form 10-K for the twenty-six weeks ended August 1, 1987.
4.4 Amendment to Loan Agreement and Notes dated as of June 30, 1988 among Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc., and The Prudential Insurance Company of America; incorporated by reference to Exhibit 4.4 to the Form 10-K for the year ended February 1, 1992.
4.5 Amendment to Loan Agreement, Notes and License Agreement dated as of August 3, 1990 among Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc., and The Prudential Insurance Company of America; incorporated by reference to Exhibit 4.5 to the Form 10-K for the year ended February 1, 1992.
4.6 Agreement and Release dated as of December 14, 1990 among Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc., and the Prudential Insurance Company of America; incorporated by reference to Exhibit 4.6 to the Form 10-K for the year ended February 1, 1992.
4.7 Settlement Agreement dated as of December 31, 1991, among Carter Hawley Hale Stores, Inc., The Prudential Insurance Company of America, Zell/Chilmark Fund, L.P., and Z/C Subsidiary Corporation; incorporated by reference to Exhibit 4.7 to the Form 10-K for the year ended January 30, 1993.
4.8 Loan Modification Implementation Agreement and Amendment to Loan Agreements, License Agreement and Other Loan Documentation by and between Carter Hawley Hale Stores, Inc. and The Prudential Insurance Company of America dated as of October 8, 1992; incorporated by reference to Exhibit 4.17 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.9 Amended and Restated Secured Promissory Note of Carter Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company of America in the amount of $7,395,000.00 dated as of October 8, 1992; incorporated by reference to Exhibit 4.18 to the Form 10-K/A No.1 for the year ended January 30, 1993.
EXHIBIT NO. DESCRIPTION - - ------- -----------
4.10 Amended and Restated Secured Promissory Note I of Carter Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company of America in the amount of $157,638,000.00 dated as of October 8, 1992; incorporated by reference to Exhibit 4.19 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.11 Amended and Restated Secured Promissory Note II of Carter Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company of America in the amount of $19,875,000.00 dated as of October 8, 1992; incorporated by reference to Exhibit 4.20 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.12 Amended and Restated Secured Promissory Note of Carter Hawley Hale Stores, Inc. in favor of the Prudential Insurance company of America in the amount of $159,092,000.00; incorporated by reference to Exhibit 4.21 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.13 Accrued Interest Note of Carter Hawley Hale Stores, Inc. in favor of The Prudential Insurance Company of America in the amount of $53,350,000.00 (subjected to increase) dated as of October 8, 1992; incorporated by reference to Exhibit 4.22 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.14 Term Loan Agreement dated as of June 28, 1988, among Carter Hawley Hale Stores, Inc., Thalhimer Brothers, Inc., the Banks Party thereto, and Bank of America, as agent, with respect to $135,000,000; incorporated by reference to Exhibit 4.8 to the Form 10-K for the year ended July 30, 1988.
4.15 Modification Agreement dated as of November 28, 1988 among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.8 to the Form 10-K for the year ended February 1, 1992.
4.16 First Amendment to Term Loan Agreement dated as of December 30, 1988 among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.9 to the Form 10-K for the year ended February 1, 1992.
4.17 Second Amendment to Term Loan Agreement and Waiver dated as of May 31, 1989 among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.10 to the Form 10-K for the year ended February 1, 1992.
4.18 Third Amendment to Term Loan Agreement dated as of July 26, 1989, among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.11 to the Form 10-K for the year ended February 1, 1992.
4.19 Fourth Amendment to Term Loan Agreement dated as of September 22, 1989 among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.12 to the Form 10-K for the year ended February 1, 1992.
EXHIBIT NO. DESCRIPTION - - ------- -----------
4.20 Agreement and Release dated as of December 12, 1990 by and among Bank of America National Trust and Savings Association as Bank and Agent, Barclays Bank PLC, Security Pacific National Bank, Carter Hawley Hale Stores, Inc., and Thalhimer Brothers, Inc.; incorporated by reference to Exhibit 4.13 to the Form 10-K for the year ended February 1, 1992.
4.21 Settlement Agreement dated as of July 28, 1991 between Carter Hawley Hale Stores, Inc. and Bank of America National Trust and Savings Association; incorporated by reference to Exhibit 4.15 to the Form 10-K for the year ended January 30, 1993.
4.22 Amended and Restated Term Loan Agreement by and among the Banks party thereto, Bank of America National Trust and Savings Association as agent for Banks and Carter Hawley Hale Stores, Inc., dated as of October 8, 1992; incorporated by reference to Exhibit 4.23 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.23 Master Capitalized Interest Note in favor of Bank of America National Trust and Savings Association as agent for certain banks in the amount of $10,750,830.46 dated as of October 8, 1992; incorporated by reference to Exhibit 4.24 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.24 Master Principal Note in favor of Bank of America National Trust and Savings Association as agent for certain banks in the amount of $89,662,700.00 dated as of October 8, 1992; incorporated by reference to Exhibit 4.25 to the Form 10-K/A No.1 for the year ended January 30, 1993.
4.25 Stockholder's Agreement between Carter Hawley Hale Stores, Inc. and First Plaza Group Trust, by its Trustee Mellon Bank, N.A., dated as of January 25, 1993; incorporated by reference to Exhibit 4.16 to the Form 10-K for the year ended January 30, 1993.
4.26 Waiver Agreement, dated as of May 13, 1993 by and between Carter Hawley Hale Stores, Inc. and First Plaza Group Trust, by its trustee Mellon Bank, N.A.; incorporated by reference to Exhibit 28.2 to Form S-3 filed May 14, 1993.
4.27 Waiver Agreement, dated as of December 8, 1993 by and between Carter Hawley Hale Stores, Inc. and First Plaza Group Trust, by its trustee Mellon Bank, N.A.; incorporated by reference to Exhibit 28.1 to Form S-3 filed December 8, 1993.
4.28 Receivables-Backed Credit Agreement among CHH Receivables, Inc., Blue Hawk Funding Corporation and General Electric Capital Corporation, as Agent; incorporated by reference to Exhibit 10.1 to the Form 10-K for the year ended January 30, 1993.
4.29 Assignment and Security Agreement among CHH Receivables, Inc., Blue Hawk Funding Corporation, Cash Collateral Bank and General Electric Corporation, as Agent, Letter of Credit Agent, Liquidity Agent and Collateral Agent; incorporated by reference to Exhibit 10.2 to the Form 10-K for the year ended January 30, 1993.
4.30 Receivables Purchase Agreement among Carter Hawley Hale Stores, Inc. and CHH Receivables, Inc.; incorporated by reference to Exhibit 10.3 to the Form 10-K for the year ended January 30, 1993.
4.31 Promissory Note made by CHH Receivables, Inc. in favor of Blue Hawk Funding Corporation; incorporated by reference to Exhibit 10.4 to the Form 10-K for the year ended January 30, 1993.
EXHIBIT NO. DESCRIPTION - - ------- -----------
4.32 Letter of Credit Reimbrusement Agreement among CHH Receivables, Inc., Blue Hawk Funding Corporation, and General Electric Capital Corporation, as Letter of Credit Agent; incorporated by reference to Exhibit 10.5 to the Form 10-K for the year ended January 30, 1993.
4.33 Subordinated Retailer Security Agreement made by Carter Hawley Hale Stores, Inc. in favor of CHH Receivables, Inc.; incorporated by reference to Exhibit 10.6 to the Form 10-K for the year ended January 30, 1993.
4.34 Credit Agreement, dated as of October 8, 1992, among Carter Hawley Hale Stores, Inc., Certain Commercial Lending Institutions, and General Electric Capital Corporation, as the Agent for the Lenders; incorporated by reference to Exhibit 10.9 to the Form 10-K for the year ended January 30, 1993.
4.35 Form of Revolving Credit Note; incorporated by reference to Exhibit 10.10 to the Form 10-K for the year ended January 30, 1993.
4.36 Pledge and Security Agreement made by Carter Hawley Hale Stores, Inc. in favor of General Electric Capital Corporation; incorporated by reference to Exhibit 10.11 to the Form 10-K for the year ended January 30, 1993.
4.37 Trademark Security Agreement made by Carter Hawley Hale Stores, Inc. in favor of General Electric Capital Corporation; incorporated by reference to Exhibit 10.12 to the Form 10-K for the year ended January 30, 1993.
4.38 Letter agreement dated as of April 29, 1993, by and between General Electric Capital Corporation, as agent and as a lender, and Carter Hawley Hale Stores, Inc.; incorporated by reference to Exhibit 4.1 to the Form 10-Q for the period ended May 1, 1993.
4.39 Second Amendment to Credit Agreement, dated as of May 14, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to Exhibit 4.2 to the Form 10-Q for the period ended May 1, 1993.
4.40 Amended and Restated Second Amendment to Credit Agreement, dated as of August 20, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to Exhibit 4.1 to the Form 10-Q for the period ended July 31, 1993.
4.41 Third Amendment to Credit Agreement, dated as of September 30, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to the Form 8-K dated October 25, 1993.
4.42 Fourth Amendment to Credit Agreement, dated as of October 31, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to the Form 8-K dated November 8, 1993.
4.43 Fifth Amendment to Credit Agreement, dated as of December 10, 1993, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to the Form 8-K dated December 21, 1993.
EXHIBIT NO. DESCRIPTION - - ------- -----------
4.44 Sixth Amendment to Credit Agreement, dated as of February 26, 1994, among Carter Hawley Hale Stores, Inc., various financial institutions and General Electric Capital Corporation, as agent for the lenders; incorporated by reference to the Form 8-K dated March 9, 1994.
4.45 Indenture dated as of December 21, 1993, between Carter Hawley Hale Stores, Inc. and Continental Bank, National Association, as Trustee, relating to Carter Hawley Hale Stores, Inc.'s 61/4% Convertible Senior Subordinated Notes due 2000, incorporated by reference to Exhibit 4.1 to Form S-3 filed January 7, 1994.
4.46 Form of Convertible Senior Subordinated Notes (included in Exhibit 4.1 to the Registration Statement on Form S-3 filed on January 7, 1994), incorporated by reference to Exhibit 4.2 to the Form S-3 filed January 7, 1994.
4.47 Registration Agreement, dated December 21, 1993, between Carter Hawley Hale Stores, Inc. and Salomon Brothers Inc., incorporated by reference to Exhibit 4.3 to Form S-3 filed January 7, 1994.
The Company has outstanding certain other long-term indebtedness. Such long-term indebtedness does not exceed 10% of the total assets of the Company and its subsidiaries; therefore, copies of instruments defining the rights of holders of such indebtedness are not included as exhibits. The Company agrees to furnish copies of such instruments to the Securities and Exchange Commission upon request.
COMPENSATION ARRANGEMENTS
10.1 Deferred Compensation Plan of Carter Hawley Hale Stores, Inc. dated as of June 3, 1976 and amended as of February 4, 1977; incorporated by reference to Exhibit 15 to the Form 10-K for the fiscal year ended January 29, 1977.
10.2 Amendment to the Deferred Compensation Plan of Carter Hawley Hale Stores, Inc. executed on February 6, 1980; incorporated by reference to Exhibit 20 to the Form 10-K for the fiscal year ended February 2, 1980.
10.3 Amendment to the Deferred Compensation Plan of Carter Hawley Hale Stores, Inc. executed on April 7, 1983; incorporated by reference to Exhibit 10.13 to the Form 10-K for fiscal year ended January 29, 1983.
10.4 Amendment 1990-I to the Deferred Compensation Plan of Carter Hawley Hale Stores, Inc. effective as of August 1, 1990, incorporated by reference to Exhibit 4.6 to Post-Effective Amendment No. 7 to the Registration Statement (No. 2-6810) of Carter Hawley Hale Stores, Inc. filed November 7, 1990.
10.5 Amendment to the Deferred Compensation Plan of Carter Hawley Hale Stores, Inc.; incorporated by reference to Exhibit 4.5 to Post-Effective Amendment No. 5 to the Registration Statement (No. 2-68102) of Carter Hawley Hale Stores, Inc. filed July 31, 1987.
10.6 Carter Hawley Hale Savings & Investment Plan, as amended and restated as of March 1, 1993; incorporated by reference to Exhibit 4.1 to the Registration Statement (No. 33-58478) of Carter Hawley Hale Stores, Inc. filed February 17, 1993.
10.7 Carter Hawley Hale Stores, Inc. 1992 Stock Incentive Plan, as amended; incorporated by reference to Exhibit 10.19 to the Form 10- K for the year ended January 30, 1993.
EXHIBIT NO. DESCRIPTION - - ------- -----------
10.8 Carter Hawley Hale Stores, Inc. Executive Retention Incentive Plan effective as of February 1, 1991; incorporated by reference to Exhibit 10.15 of the Form 10-K for the year ended February 1, 1992.
10.9 Carter Hawley Hale Store, Inc. Special Severance Pay Plan effective as of February 1, 1991; incorporated by reference to Exhibit 10.16 of the Form 10-K for the year ended February 1, 1992.
10.10 Carter Hawley Hale Stores, Inc. Retirement Plan for Non-employee Directors dated as of February 1, 1989; incorporated by reference to Exhibit 10.17 of the Form 10-K for the year ended February 1, 1992.
10.11 Carter Hawley Hale Stores, Inc. Directors Deferred Compensation Plan effective as of February 1, 1986; incorporated by reference to Exhibit 10.18 of the form 10-K for the year ended February 1, 1992.
10.12 Carter Hawley Hale Stores, Inc. Management Deferred Compensation Plan; incorporated by reference to Exhibit 10.19 to the Registration Statement (No. 33-16115) of Carter Hawley Hale Stores, Inc. filed July 28, 1987.
10.13 Carter Hawley Hale Stores, Inc. Deferred Compensation Plan for Executives; incorporated by reference to Exhibit 10.20 to the Registration Statement (No. 33-16115) of Carter Hawley Hale Stores, Inc. filed July 28, 1987.
10.14 Pension Plan for Employees of Carter Hawley Hale Stores, Inc.; incorporated by reference to Exhibit 10.14 to the Form 10-K/A No. 1 for the year ended January 30, 1993.
10.15 Carter Hawley Hale Stores, Inc. Supplemental Executive Retirement Plan; incorporated by reference to Exhibit 10.14 to the Form 10-K for the fiscal year ended January 28, 1984.
10.16 Amendment No. 4 to Supplemental Executive Retirement Plan of Carter Hawley Hale Stores, Inc. dated January 7, 1991; incorporated by reference to Exhibit 10.17 to Form 10-K/A No. 1 for the year ended January 30, 1993.
10.17 Form of employment agreement between Carter Hawley Hale Stores, Inc. and certain officers; incorporated by reference to Exhibit 10.17 to the Form 10-K for the year ended January 30, 1993.
10.18* Listing of officers covered as of January 29, 1994 by form of employment agreement referenced at Exhibit 10.17.
10.19* Employment agreement between Carter Hawley Hale Stores, Inc. and Mr. David L. Dworkin dated March 24, 1993.
10.20* Loan agreement between Carter Hawley Hale Stores, Inc. and Mr. Robert J. Lambert dated January 3, 1994.
10.21 Assumption and amendment to employment agreement between Carter Hawley Hale Stores, Inc. and Philip M. Hawley, dated August 14, 1992; incorporated by reference to Exhibit 10.30 to Form 10-K for the year ended January 30, 1993.
10.22 Agreement between Carter Hawley Hale Stores, Inc. and Philip M. Hawley, dated October 12, 1992; incorporated by reference to Exhibit 10.31 to Form 10-K for the year ended January 30, 1993.
EXHIBIT NO. DESCRIPTION - - ------- -----------
10.23 Agreement between Carter Hawley Hale Stores, Inc. and Philip M. Hawley, dated December 30, 1992; incorporated by reference to Exhibit 10.32 to the Form 10-K for the year ended January 30, 1993.
10.24 Form of indemnification agreement between Carter Hawley Hale Stores, Inc. and each of its directors; incorporated by reference to Annex XV to the Registration Statement (No. 33-16115) of Carter Hawley Hale Stores, Inc. filed July 28, 1987.
10.25 Form of indemnification agreement between Carter Hawley Hale Stores, Inc. and certain of its officers; incorporated by reference to Exhibit 10.31 to the Registration Statement (No. 33-16115) of Carter Hawley Hale Stores, Inc. filed July 28, 1987.
10.26 Employee Benefits Agreement dated as of July 24, 1987 between Carter Hawley Hale Stores, Inc. and The Neiman Marcus Group, Inc.; incorporated by reference to Exhibit 3 to the Form 8-K dated August 20, 1987.
10.27 Postpetition Store Modernization Facility Conversion Agreement dated as of August 18, 1992 between Carter Hawley Hale Stores, Inc. and Zell/Chilmark Fund, L.P.; incorporated by reference to Exhibit 10.7 to the Form 10-K for the year ended January 30, 1993.
10.28 Agreement by and among Carter Hawley Hale Stores, Inc., the Neiman Marcus Group, Inc. and General Cinema Corporation, dated July 7, 1992; incorporated by reference to Exhibit 10.8 to the Form 10-K for the year ended January 30, 1993.
11. Computation of Earnings per Share included on page 73.
22. Carter Hawley Hale Stores, Inc. Subsidiaries included on page 74.
24. Consent of Price Waterhouse included on page 37.
25.* Powers of Attorney.
* Exhibit filed with this Form 10-K.
Copies of any of the foregoing exhibits may be obtained by making a written request to the Secretary of the Company at the address shown on the cover. Copies will be furnished at a price of $.20 per page with a minimum charge of $10 per exhibit.
CARTER HAWLEY HALE STORES, INC. EXHIBIT 11
EXHIBIT 22
CARTER HAWLEY HALE STORES, INC.
SUBSIDIARIES AS OF JANUARY 29, 1994