Item 1. Business.
THE COMPANY
Peebles Inc. ("Peebles" or the "Company") is the successor to a group of related companies that has operated a retail department store business since 1891 under the name "Peebles." The Company currently operates a chain of 54 department stores located primarily in small and medium-sized communities in Delaware, Kentucky, Maryland, New Jersey, North Carolina, South Carolina, Tennessee and Virginia and, at January 29, 1994, had approximately 956 full-time employees and approximately 1,316 part-time employees. The Company, which attempts to position itself as the dominant fashion specialty retailer in a local area, seeks to provide middle-income customers with quality brand-name and private label merchandise, including women's, men's and children's apparel, accessories and shoes, cosmetics, gifts and home fashions. The Company's merchandising strategy appeals to value conscious customers and positions the Company between the discounters and traditional department stores. The Company believes that it is presently the dominant fashion specialty retailer, on the basis of sales, in 38 of the 54 markets in which it operates. The Company's stores are located primarily in "strip" shopping centers and enclosed local and regional malls.
On January 31, 1992, Peebles completed an exchange offer (the "Exchange Offer") pursuant to which Peebles exchanged shares of its common stock, par value $0.10 per share (the "Common Stock"), for all amounts of principal and interest payable pursuant to its 14-3/4% Senior Subordinated Notes Due 1999 (the "Notes"). The Notes were issued by Peebles in July, 1989, to refinance indebtedness incurred in connection with the acquisition, in January, 1989, of all of the outstanding common stock of Peebles' parent, Peebles Holdings, Inc., a Delaware corporation ("Peebles Holdings") by PBL Acquisition Corp., a Delaware corporation ("PBL"). As a result of the Exchange Offer, those persons previously owning Notes were issued approximately 95% of the outstanding shares of the Company's Common Stock in exchange for their Notes.
The Exchange Offer was part of a recapitalization plan (the "Recapitalization") pursuant to which (i) Peebles Holdings was merged with and into PBL on December 31, 1991, and PBL was merged with and into the Company on January 23, 1992, with the Company being the surviving corporation (the "Mergers"), and (ii) the Company and its lender, NatWest USA Credit Corp. (the "Bank"), entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement") on January 31, 1992 which amended certain provisions of the Company's existing credit facility to, among other things, extend its maturity until 1996, reduce the amount of the required principal payments, provide for a limited overadvance facility, revise the covenants to reflect the Recapitalization and increase the level of permissible capital expenditures.
MERCHANDISE AND MARKETING
The Company's stores offer a wide assortment of first-quality, popular and moderate priced fashions for the family and the home including women's, men's and children's apparel, accessories and shoes, cosmetics, gifts and home fashions. The Company's merchandise is classified into 15 divisions which include: linens and domestics, decorative home, accessories, intimate apparel, children and boys, misses sportswear, men's, shoes, young mens, ready-to-wear, junior sportswear, petite sportswear, women's sportswear, cosmetics, and better misses sportswear.
The Company's merchandising mix consists of two main components. The predominant component is well known, nationally advertised, "brand name" merchandise. This includes merchandise in the "popular" price ranges from vendors such as Levi Strauss, Alfred Dunner, Van Heusen, Keds, Buster Brown, Londontown, Fieldcrest, Hanes, Arrow, Bugle Boy, Haggar, Nike, Reebok, Jantzen, Byer of California and Koret, and, in the higher price ranges, merchandise from prestige vendors such as Estee Lauder, Elizabeth Arden, Monet, Esprit, Etienne Aigner, Napier and Liz Claiborne. The second component is domestic and imported private-label merchandise, which the Company believes meets customer demand for quality merchandise comparable to certain national brands, at prices lower than the national brands.
The Company's marketing strategy is to appeal to the fashion-conscious, middle-income customers in small-to-medium sized communities. To appeal to these customers, the Company attempts to position itself as the dominant fashion specialty retailer in a local area. Based on the Company's continuous monitoring of its sales volumes compared to the sales volumes of competitors of the same type, the Company believes that it is presently the dominant fashion specialty retailer in 38 of the 54 markets in which it operates. The Company endeavors to establish a visual merchandising image consistent with this strategy. In its remodelings and new store openings, the Company attempts to create a friendly and modern environment. The Company also offers a broad range of customer services, including alterations, gift-wrap, and gift certificates. The Company offers the customer various payment options in addition to cash including layaway, major credit cards, and the Company's own proprietary charge card.
The Company uses primarily newspaper advertisements, newspaper inserts, direct mail and charge statement inserts in its marketing and promotional programs. The Company's promotional strategy is to target specific groups of customers based on their historical purchases, including the over 550,000 Peebles charge card holders.
The Company strengthened in 1993 an everyday fair pricing program which is designed to keep the Company competitive on the initial pricing of the merchandise offered in our store. The Company is less promotional than the traditional department store which enables it to offer the customer consistently lower prices everyday.
The Company is a member and stockholder of Frederick Atkins, Inc., an international cooperative buying service, and as such, is entitled to make purchases through Frederick Worldwide Corp., a wholly owned subsidiary of Frederick Atkins, Inc. The membership provides the Company with, (i) buying opportunities on domestic and imported merchandise; (ii),information on current retailing trends and competition, and (iii), the ability to utilize Frederick Atkins' private label programs which are jointly developed with the other members. Furthermore, the Company's executives in merchandising, marketing, finance and operations participate in conferences and meetings arranged by Frederick Atkins, Inc., which serve as an important source of market data and industry contacts.
Most significant merchandising decisions, including pricing, sales promotion, inventory allocations and markdowns, affecting the Company and its stores are made centrally. However, the Company continually alters its strategy to appeal to customers in individual store locations. The merchandise area is composed of 22 buyers with appropriate support personnel who report to one of seven merchandise managers and one general merchandise manager. The merchants participate in an incentive plan based primarily on the gross margin dollars generated versus an established plan, pursuant to which they are eligible for an annual bonus.
PURCHASING AND DISTRIBUTION
The Company purchases its merchandise from approximately 1,200 suppliers and is not dependent on any single source of supply. Frederick Worldwide Corp. continuously offers Atkins' members merchandise purchasing opportunities, which the Company has taken advantage of particularly in connection with its imported private-label merchandise. During the fiscal years ended February 1, 1992, January 30, 1993, and January 29, 1994 Frederick Worldwide Corp. was the Company's largest supplier, accounting for retail purchases totaling approximately $26,450,000, $32,018,151 and $34,657,266, respectively, which represented approximately 13.6%, 17.4% and 17.0%, respectively, of total retail purchases by the Company during such years. The Company is not aware of any reason why the Frederick Worldwide Corp. would not continue to supply the Company. In the event such a situation arose, the Company believes that it could avoid significant disruptions in its purchasing process or significant changes to its merchandise mix through the use of other resources.
The Company maintains no long-term commitments with any supplier. The Company believes that there will continue to be an adequate supply of merchandise to satisfy its current anticipated requirements.
The Company distributes merchandise through its distribution center located in South Hill, Virginia which was expanded to approximately 117,000 square feet during the fiscal year ended January 29, 1994. Merchandise is shipped from vendors directly to the distribution center, where it is inspected, marked and shipped to individual stores on trucks owned by the Company. The Company believes that the distribution center enables it to monitor vendor shipments more effectively, to obtain greater discounts from vendors through volume purchase discounts, to reduce related transportation and marking costs and to improve inventory control and reduce inventory shrinkage.
STORE LOCATIONS
The Company's store location strategy is to locate stores in the dominant shopping areas in mid-sized and smaller markets. The Company targets communities with between 10,000 and 25,000 households, although, since 1972, the Company also has been entering larger markets and urban fringe areas with 25,000 to 40,000 households. The Company prefers to locate these stores in "strip" shopping centers and enclosed malls. Of the 54 stores currently in operation, 31 are located in strip shopping centers, 17 in enclosed malls, and 6 in downtown locations. See "Item 2.
Item 2. Properties.
All but one of the Company's stores are leased, and most of the leases contain renewal options. The stores range in size from approximately 8,000 square feet to 65,000 square feet, and average approximately 31,000 square feet. The following table indicates the locations and states of the Company's stores in operation as of January 29, 1994:
Leased Store Locations
Delaware Kentucky Rehoboth Beach Hopkinsville Seaford Madisonville Maryland New Jersey Bowie Rio Grande Chestertown North Carolina Easton Aberdeen Edgewood Charlotte Eldersburg Eden Elkton Jacksonville Lexington Park Monroe Prince Frederick Roxboro Salisbury Statesville Waldorf Virginia South Carolina Ashland Conway Blackstone Florence Christiansburg Myrtle Beach Colonial Heights Tennessee Covington Columbia Danville Cookeville Emporia Dyersburg Front Royal Hermitage Hayes Murfreesboro Hampton Hopewell Leesburg Lexington Manassas Onley Richmond Rocky Mount Smithfield South Hill Warrenton Waynesboro Williamsburg Woodbridge
Owned Store Location
Virginia Lawrenceville
Store leases provide for a base rent of between $1.00 and $6.00 per square foot per year. The leased stores have lease expiration dates ranging from 1994 (two stores) to 2033. Most leases also have formulas requiring the payment of a percentage of sales as additional rent when sales reach specified levels. For the fiscal years ended February 1, 1992, January 30, 1993 and January 29, 1994 the Company's aggregate rental payments were approximately $5,511,000, $5,574,000 and $5,968,000, respectively.
As part of its continuous evaluation of store locations and operations, the Company may close, expand or relocate existing stores as well as expand into new locations. The Company closed 7 stores during the last five fiscal years, however none were closed during the fiscal year ended January 29, 1994. These stores were closed because they were either only marginally profitable or unprofitable; were relocated; or were an exception to the current Company strategy. Based on prior practice, the Company believes that additional stores may be closed during the next five years for similar reasons.
The Company's corporate headquarters and distribution center facilities are located in South Hill, Virginia. The Company owns the property subject to deeds of trust and security interests granted in connection with the Credit Agreement. The location provides the Company with adequate undeveloped space to expand the corporate headquarters, distribution center or both to meet future growth requirements.
Item 3.
Item 3. Legal Proceedings.
The Company is from time to time involved in routine litigation. The Company believes that none of the litigation in which it is currently involved is material to its financial condition or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
NONE
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
MARKET INFORMATION
There is no existing market for the Common Stock, nor is the Common Stock listed on any exchange. All currently outstanding shares of common stock were issued pursuant to exemptions from registration under the Securities Act of 1933, as amended (the "Act"), and any resales of such shares of Common Stock can only be made pursuant to an effective registration statement or an exemption from the registration requirements of the Act.
HOLDERS
As of April 1, 1994, there were 88 holders of Common Stock.
DIVIDENDS
The Company does not currently pay any dividends on its Common Stock. The Credit Agreement prohibits the payment of dividends absent the consent of the Bank. Accordingly, the Company does not currently intend to declare any dividends to the holders of the Common Stock in the foreseeable future.
Item 6.
Item 6. Selected Financial Data.
The following selected historical financial data for Peebles for the five fiscal years ended January 29, 1994 are derived from the Company's audited financial statements. The Recapitalization was effective on January 31, 1992. The data should be read in conjunction with the financial statements, related notes and other financial information included herein.
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Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following management's discussion and analysis provides information with respect to the results of operations for the three fiscal years ended January 29, 1994.
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The following table presents for Peebles, for the periods indicated, statements of operations data as a percentage of net sales:
FISCAL YEAR ENDED JANUARY 29, 1994 COMPARED TO FISCAL YEAR ENDED JANUARY 30, 1993
For the fiscal year ended January 29, 1994, the Company's net sales totaled $151,772,000 which was approximately an 8% increase from prior year levels. The opening of five stores during fiscal 1993 and a complete year of operation of one store opened during fiscal 1992 had a positive effect on net sales. The comparable store sales increase in the current fiscal year was approximately 4%. This increase was caused by the improvement in the general economic conditions in the Company's markets. Comparable store sales in the fourth quarter of fiscal 1993 showed a 9% increase in comparison to the same period in the prior fiscal year. The first three quarters of fiscal 1993 showed a 2% comparable store sales increase over the comparable fiscal periods in the prior year.
Cost of sales for the fiscal year ended January 29, 1994 was $91,134,000, or 60.0% of net sales, compared with $84,033,000, or 59.6% of net sales, in the prior fiscal year. The increase in the cost of sales in dollars is due to higher sales, while the increase in percent is due to an increase in merchandise inventory along with an increase in the cost of inventory to the Company which resulted in a LIFO charge to cost of sales of $1,144,000 in the current fiscal year versus $349,000 for the prior year. Additionally, the initial markup on merchandise as part of the everyday fair pricing strategy was lower in comparison to the prior year.
Selling, general and administrative expenses, including depreciation and amortization, for the current fiscal year totaled $46,349,000, or 30.5% of net sales, compared to $43,274,000, or 30.7% of net sales for the prior fiscal year. These expense dollars increased due to higher sales and the additional cost associated with the new store openings. However, the decrease in percent is due to efficiencies gained because certain expenses increase at a rate slower than sales.
Interest expense was $4,248,000 and $4,981,000 for the fiscal years ended January 29, 1994 and January 30, 1993, respectively. The decrease is attributable to lower interest on the amounts outstanding under the Credit Agreement because of the lower prime interest rates and the lower balance under the Credit Agreement during the first half of fiscal 1993. The lower balance during the first half of fiscal 1993 was primarily the result of higher accounts payable and accrued expense balances when compared to the prior period. The principal balance outstanding under the Credit Agreement rose during the third and fourth quarters of the current fiscal year to meet the increased working capital requirements of the new stores and their related capital expenditures.
As a result of the changes in operating components discussed above, net income before taxes and extraordinary item was $10,040,000 for the fiscal year ended January 29, 1994 compared with $8,510,000 for the fiscal year ended January 30, 1993.
The income taxes for the fiscal year ended January 29, 1994 were $4,513,000 compared to $3,952,000 for the fiscal year ended January 30, 1993. The effective income tax rate for the current fiscal year is 45.0% compared to 46.4% for the previous fiscal year. This is higher than the statutory rate due to differences associated with the amortization of intangible assets recorded in an acquisition of the Company that are nondeductible for income tax purposes. The changes associated with the Ominbus Budget Reconciliation Act of 1993 did not have a material impact on income tax expense.
As a result of the changes discussed above, net income for the fiscal year ended January 29, 1994 was $5,527,000 as compared to net income of $4,558,000 for the fiscal year ended January 30, 1993.
FISCAL YEAR ENDED JANUARY 30, 1993 COMPARED TO FISCAL YEAR ENDED FEBRUARY 1, 1992
For the fiscal year ended January 30, 1993, the Company's net sales totaled $140,943,000 which was approximately a 1% increase from prior year levels. The opening of one store during fiscal 1992, a complete year of operation of three stores opened during fiscal 1991, and the closing of two stores at the end of fiscal year 1992 had a net positive effect on net sales. This increase was partially offset by competition in several of the Company's markets and the recession which has had an adverse effect on sales since the second half of fiscal year 1990. The comparable store sales decrease for the fiscal year was 2%. This decrease was caused by the effects of additional competition and the recession. The sales performance in comparable stores in the fourth quarter of fiscal 1992 was flat when compared to the previous year versus down 3% for the previous three quarters compared to the previous year.
Cost of sales for the fiscal year ended January 30, 1993 was $84,033,000, or 59.6% of net sales, compared with $85,706,000, or 61.2% of net sales, in the prior fiscal year. The decrease in the cost of sales in both dollars and percent is due to better inventory control during the year and slightly better sales performance in the fourth quarter of fiscal 1992.
Selling, general and administrative expenses, including depreciation and amortization, for the current fiscal year totaled $43,274,000, or 30.7% of net sales, compared to $43,611,000, or 31.1% of net sales for the prior fiscal year. These expenses decreased due to a decrease in compensation expense associated with the grants under the Equity Incentive Plan to $792,000 for the current fiscal year compared with $1,590,000 for the previous year. In connection with the institution of the 1993 Stock Option Plan, the Company's Equity Incentive Plan was terminated.
The Revaluation of Goodwill occurred in fiscal 1991 and was a result of the Recapitalization.
Interest expense was $4,981,000 and $19,277,000 for the fiscal years ended January 30, 1993 and February 1, 1992, respectively. The interest expense for the fiscal year ended February 1, 1992 includes accrued interest in the amount of $11,800,000 on the Notes which was not paid when due on July 15, 1991 and January 15, 1992. The accrued interest as well as the Notes themselves were exchanged for common stock in the Company as part of the Recapitalization. The decrease is also attributable to lower interest on the amounts outstanding under the Credit Agreement and because of lower prime interest rates. Finally, the principal balance outstanding under the Credit Agreement was lower during the current fiscal year due to the return to normal credit terms with the Company's vendors and factors, and improved performance.
As a result of the changes in operating components discussed above, net income before taxes and extraordinary item was $8,510,000 for the fiscal year ended January 30, 1993 compared with a net loss before taxes and extraordinary item of $34,730,000 for the fiscal year ended February 1, 1992.
The income taxes for the fiscal year ended January 30, 1993 were $3,952,000 compared to a (benefit) of $(1,275,000) for the fiscal year ended February 1, 1992. The effective income tax rate for the current fiscal year is 46.4%. This is higher than the statutory rate due to differences associated with the amortization of intangible assets recorded in an acquisition of the Company that are nondeductible for income tax purposes. If the Revaluation of Goodwill is excluded, the effective income tax rate for the previous fiscal year is a (benefit) of (15.2%).
The extraordinary item occurred in fiscal 1991 and was a result of the Exchange.
As a result of the changes discussed above, net income for the fiscal year ended January 30, 1993 was $4,558,000 as compared to net income of $108,000 for the fiscal year ended February 1, 1992.
LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended January 29, 1994, the cash flow provided by operating activities decreased to $5,765,000 from $21,328,000 for the fiscal year ended January 30, 1993. The net income of $5,527,000 was increased by noncash adjustments such as depreciation and amortization but decreased by the net negative change in operating assets and liabilities. The net negative change in operating assets and liabilities was caused primarily by increases in inventory and accounts receivable due to additional sales volume and new stores. The Company believes the cash flow generated from operating activities together with funds available under the Credit Agreement will be sufficient to fund the investing activities and the required payments under the Credit Agreement.
Continued business growth, both in terms of increased sales in existing stores and as a result of new store openings, will also require funding of additional working capital for which the Company must depend on internally generated funds and borrowings under the Credit Agreement as discussed below. The Company opened five new stores in the fiscal year ended January 29, 1994 and plans to open approximately 150,000 in new store square footage in each of fiscal years ending 1995, 1996 and 1997. The prototypical Peebles store is approximately 25,000 to 30,000 square feet. Due to the build-up of inventory for the Christmas, Easter and back-to-school seasons, the Company also has seasonal working capital requirements.
The Company's capital expenditures were $2,862,000, $6,137,000 and $7,372,000, in the fiscal years ended February 1, 1992, January 30, 1993 and January 29, 1994, respectively, reflecting primarily expenditures for leasehold improvements and fixtures for new leased stores and renovation of existing stores.
The locations for certain of the anticipated new stores have not been specifically identified, and the availability of suitable locations is not certain. As of April 1, 1994, however, the Company has signed four new leases which are scheduled for opening throughout the fiscal year ending January 28, 1995 and are located in the Company's current or contiguous states of operation. The total square footage of the four stores is approximately 102,000. The Company believes that under the Credit Agreement it has sufficient flexibility within the restrictions on capital expenditures to fund the capital expenditures necessary to open the new stores as well as additional planned projects.
In order to finance its operational and capital needs, including its debt service payments, the Company expects to use funds available to it under the revolving credit portion of the Credit Agreement (the "Revolving Facility") and internally generated funds. Under the Revolving Facility, the Company may borrow up to the lesser of (i) $76,000,000 less the aggregate amount outstanding under the term loan portion (the "Term Facility") and the aggregate amount of outstanding letter of credit obligations or (ii) a borrowing base which is a percentage of eligible accounts receivable and inventory. As of January 29, 1994, approximately $45,372,000 was available under the Revolving Facility, of which approximately $30,000,000 was drawn as of such date. The Revolving Facility has no specific paydown provisions. The borrowing base formula is adjusted to accommodate seasonal working capital requirements. The principal payments under the Term Facility are $750,000 per quarter due on April 30, July 31, October 31, and January 31. The Credit Agreement expires on February 1, 1996.
IMPACT OF INFLATION
Although inflation has slowed in recent years, Peebles continues to seek ways to address inflationary effects. Slower inflation coupled with Peebles aggressive position on everyday fair pricing has resulted in an increased unit volume, accounting for the sales increases reported in the audited financial statements for the three most recent fiscal years.
Peebles uses the retail inventory method applied on a LIFO basis in accounting for its inventories. Under this method, the cost of products sold reported in the financial statements approximates current costs and thus reduces the distortion in reported income or loss due to increasing costs.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Information with respect to this Item is contained in the financial statements and financial statement schedules of Peebles indicated in the Indices on Pages and S-1 of this Annual Report on Form 10-K.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information with respect to each of the directors and executive officers of Peebles as of April 1, 1994.
Name Age Positions Held During the Past Five Years
Michael F. Moorman 51 Chairman of the Board and a Director of Peebles since September, 1989; Chief Executive Officer of Peebles since May, 1989; Chief Financial Officer and Treasurer of Peebles from August, 1989 to June, 1992, Secretary of Peebles from August 1989 to June 1990; President of Peebles since June, 1988; Employed by Peebles since 1964.
Ronnie W. Palmore 45 Senior Vice President, Merchandising, of Peebles since September 1989; Senior Vice President, Stores, of Peebles from June 1988 to August 1989; Assistant Secretary of Peebles since 1988; Employed by Peebles since 1973.
Russell A. Lundy, Sr. 58 Senior Vice President, Stores,of Peebles since September, 1989; Vice President, Stores of Peebles from 1984 to August, 1989; Employed by Peebles since 1954.
E. Randolph Lail 38 Senior Vice President, Finance, of Peebles since June, 1993; Chief Financial Officer, and Treasurer of Peebles since June, 1992; Secretary of Peebles since June,1990; Vice President, Finance, of Peebles from June, 1990 to June, 1993; Controller of Peebles from January 1988 to June, 1990; Employed by Peebles since January, 1988.
Marvin H. Thomas, Jr. 38 Senior Vice President, Operations, of Peebles since June, 1993; Vice President, Operations, of Peebles from June, 1990 to June 1993; Vice President, Merchandise Manager, of Peebles from May, 1988 to June, 1990; Employed by Peebles since 1979.
Wellford L. Sanders, Jr. 48 Director of Peebles since February, 1992. Partner, law firm of McGuire, Woods, Battle & Boothe; Director of Club Car, Inc., Catherines Stores Corporation and General Medical Corporation.
William C. DeRusha 44 Director of Peebles since March 1992. Chairman of the Board and Chief Executive Officer of Heilig-Meyers Company; Director of Heilig-Meyers Company and Signet Banking Corporation.
Malcolm S. McDonald 55 Director of Peebles since April, 1992. President, Chief Operating Officer and Director of Signet Banking Corporation and President and Chief Executive Officer of Signet Bank/Virginia. Prior to April,1990, Vice chairman of SignetBank/Maryland and SignetBank/Virginia. Prior to July, 1988, Vice Chairman of Signet Banking Corporation and Chairman of Signet Bank, N.A.
At April 1, 1994, there remains one vacancy on the Board of Directors.
Executive officers of Peebles are elected annually and serve at the discretion of the Board of Directors. Each director who is not an employee of the Company is paid an annual retainer of $20,000, payable quarterly in arrears, and is reimbursed for expenses incurred in attending meetings of the Board of Directors.
AGREEMENTS TO INDEMNIFY.
Peebles has entered into agreements with each of the directors and officers of Peebles pursuant to which Peebles agrees to indemnify such director or officer from claims, liabilities, damages, expenses, losses, costs, penalties or amounts paid in settlement incurred by such director or officer and arising out of his capacity as a director, officer, employee and/or agent of the corporation of which he is a director or officer to the maximum extent provided by applicable law. In addition, such director or officer shall be entitled to an advance of expenses to the maximum extent authorized or permitted by law to meet the obligations indemnified against. Such agreements also obligate the Company to purchase and maintain insurance for the benefit and on behalf of its directors and officers insuring against all liabilities that may be incurred by such director or officer, in or arising out of his capacity as a director, officer, employee and/or agent of the Company.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following tables sets forth a summary of compensation paid by the Company to its five highest paid executive officers during the fiscal years ended February 1, 1992, January 30, 1993 and January 29, 1994.
As of the fiscal year ended January 29, 1994, there were no projected long-term incentive payouts because the Peebles Inc. Long-Term Incentive Plan terminated as of the three year period ended January 29, 1994.
PENSION PLAN Peebles maintains a non-contributory qualified defined benefit pension plan that covers all employees of Peebles who (i) complete 1,000 hours of service during a one-year period with Peebles and (ii) attain age 21 ("Participant"). Contributions to the plan are determined on an actuarial basis without allocation to individuals or groups.
Retirement benefits are based on a Participant's years of benefit service and the earnings during the five consecutive calendar years which produce the highest average. Earnings, as evidenced on the Participant's Internal Revenue Service Form W-2, are limited to $150,000 in any one year and years of benefit service are limited to 30. A Participant is fully vested after completing five years of benefit service.
Benefits are payable to vested Participants at normal retirement (age 65), early retirement (age 55) upon a vested Participant's permanent and total disability, or upon a vested Participant's termination of employment.
The monthly pension payable at normal retirement or upon permanent and total disability is determined as follows: The amount of monthly pension payable for the Participant's lifetime is the larger of (a) or (b):
(a) The Participant's benefit determined under the plan's formula as in effect before January 28, 1989; or
(b) The sum of:
(i) .65% of final average earnings multiplied by years of benefit service (not to exceed 30); plus
(ii) .65% of final average earnings in excess of covered compensation, multiplied by years of benefit service (not to exceed 30); or
(iii) $2.00 multiplied by the Participant's benefit service with such product in no event less than $20.00.
Covered compensation is the average amount of annual compensation with respect to which Social Security benefits will be provided and is determined pursuant to tables published by the Internal Revenue Service.
The monthly pension payable at early retirement and termination of employment is a normal retirement benefit reduced for early payment. The normal form of payment for a married participant is a qualified joint and survivor annuity. The normal form of payment for an unmarried participant is a single life annuity.
The plan provides that upon the death of any Participant who (i) meets the age and service requirements for early or normal retirement but who has not begun to receive benefits under the plan, (ii) retires under the disability provisions of the plan, or (iii) has a vested benefit but has not yet begun to receive benefits under the plan, the Participant's beneficiary shall be entitled to receive a death benefit.
The following table shows estimated annual retirement benefits payable to Participants under the pension plan upon normal retirement at age 65 under various assumptions as to final average annual earnings, date of retirement and years of continuous service without regard to the current earning limit of $150,000.
Final Years of Service Average Salary 15 20 25 30 35 $ 75,000........ $12,402 $16,536 $20,670 $24,804 $ 24,804 100,000........ 17,277 23,036 28,795 34,554 34,554 125,000........ 22,152 29,536 36,920 44,304 44,304 150,000........ 27,027 36,036 45,045 54,054 54,054 175,000........ 31,902 42,536 53,170 63,804 63,804 200,000........ 36,777 49,036 61,295 73,554 73,554 225,000........ 41,652 55,536 69,420 83,304 83,304 250,000........ 46,527 62,036 77,545 93,054 93,054 300,000........ 56,277 75,036 93,795 112,554 112,554 350,000........ 66,027 88,036 110,045 132,054 132,054 400,000........ 75,777 101,036 126,295 151,554 151,554 450,000........ 85,527 114,036 142,545 171,054 171,054
As of January 29, 1994, the credited years of service for Michael F. Moorman, Ronnie W. Palmore, Russell A. Lundy, Sr., Marvin H. Thomas, Jr., and E. Randolph Lail were 30, 21, 40, 15 and 6, respectively.
Peebles reserves the right at any time by action of its Board of Directors to terminate the plan, although it currently has no intention to do so. If the plan is terminated and appropriately funded at such time, Peebles will not be required to make any further contributions to the plan and each participant shall become 100% vested in his benefit under the plan. Each Participant's benefit will be paid to him after termination of the plan according to the terms of the plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 29, 1994, the Company had no formally established compensation committee. The Board of Directors established compensation for the Company's officers for such year. Michael F. Moorman, the sole officer or employee of the Company who is also a member of the Board of Directors, made recommendations to the Board of Directors concerning executive compensation but did not otherwise participate in or vote upon the executive compensation decisions made by the Board of Directors for such fiscal year.
Wellford L. Sanders, Jr., a member of the Board of Directors of the Company, is a partner in the law firm of McGuire, Woods, Battle & Boothe, which rendered legal services to the Company during fiscal 1993.
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
OWNERSHIP OF COMMON STOCK
The following table sets forth the ownership of Common Stock as of April 1, 1994 by holders having beneficial ownership of 5% or more of the outstanding Common Stock, by each director and executive officer of the Company and by all directors and executive officers of the Company as a group.
No. of Shares (a) % Ownership (a)
Kemper Financial Services Inc.(b)... 727,118 24.79 120 South LaSalle St. Chicago, Illinois 60603 Jackson National Life Insurance Company........................... 578,603 19.72 c/o PPM of America 227 West Monroe Chicago, Illinois 60606 PaineWebber Incorporated............ 375,299 12.79 1285 Avenue of the Americas New York, New York 10019 California Public Employees Retirement System................. 308,589 10.52 400 P. Street Sacramento, California 95812 Apollo Investment Fund, L.P. (c).... 192,868 6.57 c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, NY 10577 Lion Advisors, L.P. (c)(d).......... 192,868 6.57 Two Manhattanville Road Purchase, NY 10577 First Investors Corp.(b)............ 192,870 6.57 120 Wall Street New York, New York 10005 Michael F. Moorman.................. 23,706 * Ronnie W. Palmore................... 7,068 * Russell A. Lundy, Sr................ 4,712 * E. Randolph Lail.................... 3,036 * Marvin H. Thomas, Jr................ 3,141 * Wellford L. Sanders, Jr............. 0 0 William C. DeRusha.................. 0 0 Malcolm S. McDonald................. 0 0 All directors and executive officers of Peebles as a group(8 persons) .. 41,664 1.42
* Less than one percent.
(a) Does not include (i) 231,794 options to purchase shares of Common Stock, pursuant to the 1993 Stock Option Plan of which 84,227, 26,860, 18,679, 12,107 and 12,107 were held by Messrs. Moorman, Palmore, Lundy, Lail and Thomas and 153,980 were held by all executive officers as a group, respectively; and (ii) 6,486 shares issuable upon exercise of the outstanding Peebles Warrants described below. (b) Kemper Financial Services, Inc. and First Investors Corp. manage the funds in which the shares of Common Stock listed are held. (c) The managing general partner of Apollo Investment Fund, L.P.is Apollo Advisors, L.P. which may be deemed to be an affiliate of Lion Advisors, L.P. (d) Lion Advisors, L.P. holds the indicated shares for the benefit of an account under management over which Lion Advisors, L.P. holds exclusive investment, voting and dispositive power. Lion Advisors, L.P. and Apollo Advisors, L.P. may be deemed to be affiliates.
PREVIOUSLY OUTSTANDING WARRANTS
Upon completion of the Mergers on January 23, 1992, there were 6,486 warrants (the "Peebles Warrants") to purchase shares of Common Stock issued and outstanding. These Peebles Warrants are exercisable any time on or after July 15, 1994 (the "Determination Date") for one share of Common Stock at the exercise price of zero dollars ($0.00) per share. All Peebles Warrants issued and outstanding existing on July 15, 1999 will be deemed automatically exercised. In the event that certain defined conditions do not occur, the Company is required to repurchase the Peebles Warrants at the fair market value of the Common Stock at the Determination Date. Prior to the issuance of common stock, the Peebles Warrants will be accreted to fair market value and reflected as an adjustment to retained earnings.
Item 13.
Item 13. Certain Relationships and Related Transactions.
See "Item 10. Directors and Executive Officers of the Registrant" and "Item 11. Executive Compensation" for a description of certain arrangements with respect to present and former executive officers and directors of Peebles.
(This space intentionally left blank.)
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements.
Information with respect to this Item is contained in the financial statements indicated on the Indices on Page of this Annual Report on Form 10-K.
2. Financial statement schedules.
Information with respect to this Item is contained on Pages S-1 to S-4 of this Annual Report on Form 10-K.
3. Exhibits.
The exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K.
NONE
(c) Exhibits.
3.1+ Amended and Restated Articles of Incorporation of Peebles Inc. 3.2+ Amended and Restated Bylaws of Peebles Inc. 4.1** Form of Common Stock Certificate 4.2* Form of Warrant Agreement between PBL Acquisition Corp. and the Warrant Agent 4.3* Form of Warrant Certificate (included in the Warrant Agreement filed as Exhibit 4.2 hereto) 10.1+ Second Amended and Restated Credit Agreement dated January 31, 1992 by and between NatWest USA Credit Corp. and Peebles Inc. (the "Credit Agreement"). 10.2+ Form of Term Note 10.3+ Form of Credit Note 10.4+ Amended and Restated Continuing General Borrower Security Agreement made January 31, 1992 by and between Peebles Inc. and NatWest USA Credit Corp. 10.5+ Trademark Security Agreement made January 31, 1992 between Peebles Inc. and NatWest USA Credit Corp. 10.6* Deed of Trust made January 20, 1989 by and among Peebles Inc., the Trustee party thereto and NatWest USA Credit Corp. 10.7* Peebles Inc. Qualified Defined Benefit Pension Plan. 10.8* Standard Service Agreement, as amended, dated June 1, 1984 between Frederick Atkins, Incorporated and W.S. Peebles and Co. Inc. (the predecessor to Peebles Inc.) 10.9++ Waiver and Amendment No. 1 dated, January 4, 1993, to the Credit Agreement. 10.10++ 1993 Stock Option Plan and form of Incentive Stock Option Agreement. 10.11*** Form of Indemnification, Guarantee and Contribution Agreement dated as of March 13, 1991 among PBL Acquisition Corp., Peebles Holdings, Inc., Peebles Inc. and each of the directors and officers of Peebles Inc. 10.12++ Form of Agreement providing for cash payment upon certain changes of control of the Company. 10.13+ Peebles Inc. 1991 Stock Warrant Plan. 10.14 Waiver and Amendment No. 2 dated March 24, 1993 to the Credit Agreement 22 Subsidiaries of the Registrant. ___________________ * Incorporated by reference from the Registration Statement of PBL and Peebles on Form S-1 (Registration No. 33-27126), which was declared effective by the Commission on July 14, 1989.
** Incorporated by reference from the Registration Statement of PBL on Form S-1 (Registration No. 33-30895), which was declared effective by the Commission on September 14, 1989.
*** Incorporated by reference from the Form 10-K of PBL and the Company for the fiscal year ended February 2, 1991.
+ Incorporated by reference from the Form 10-K of the Company for the fiscal year ended February 1, 1992.
++ Incorporated by reference from the Form 10-K of the Company for the fiscal year ended January 30, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PEEBLES INC. (Registrant)
By /s/Michael F. Moorman Date: April 20, 1994 Michael F. Moorman, President and Chief Executive Officer (Principal Executive Officer)
By /s/E. Randolph Lail Date: April 20, 1994 E. Randolph Lail, Senior Vice President Finance, CFO, (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By /s/ Wellford L. Sanders, Jr. Date: April 20, 1994 Wellford L. Sanders, Jr., Director
By /s/ William C. DeRusha Date: April 20, 1994 William C. DeRusha, Director
By /s/ Malcolm S. McDonald Date: April 20, 1994 Malcolm S. McDonald, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Company has furnished to the Commission a copy of its proxy statement and form of proxy sent to its security holders in connection with the Company's April 20, 1994 special meeting of stockholders.
Audited Financial Statements PEEBLES INC. January 29, 1994
Report of Independent Auditors........................................ 1
Balance Sheet......................................................... 2
Statement of Operations............................................... 3
Statement of Changes in Stockholders' Equity.......................... 4
Statement of Cash Flows............................................... 5
Notes to Financial Statements.......................................... 6
Report of Ernst & Young, Independent Auditors
Board of Directors Peebles Inc.
We have audited the accompanying balance sheet of Peebles Inc. as of January 29, 1994 and January 30, 1993, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the three fiscal years in the period ended January 29, 1994. Our audits also included the financial statement schedules listed in the index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Peebles Inc. at January 29, 1994 and January 30, 1993, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Ernst & Young
March 23, 1994 Richmond, Virginia
See notes to financial statements.
See notes to financial statements.
See notes to financial statements.
See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS PEEBLES INC. January 29, 1994
(dollars in thousands, except per share amounts)
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION: Peebles Inc. ("Peebles" or the "Company") is the successor to a group of related companies that has operated a retail department store business since 1891 under the name "Peebles". The Company currently operates a chain of 54 department stores in small and medium-sized communities in eight Mid-Atlantic States.
On January 31, 1992, Peebles completed an exchange offer (the "Exchange") as part of a recapitalization plan (the "Recapitalization") pursuant to which Peebles (i) became the surviving corporation of a merger with its former parent corporation and a related holding company (the "Mergers"), and (ii) entered into a Second Amended and Restated Credit Agreement (the "Credit Agreement") with its lender.
The Exchange resulted in an extraordinary gain of $33,563 for the fiscal year ended February 1, 1992. The gain calculation considered the principal outstanding of $80,000 related to the 14-3/4% Senior Subordinated Notes Due 1999 (the "Notes"), the accrued interest of $18,454, the $57,954 appraised equity value, $3,666 in direct costs incurred and $3,271 of net deferred financing costs written off.
FISCAL YEAR: The Company's fiscal year ends on the Saturday nearest January 31. Fiscal years 1993, 1992 and 1991 ended on January 29, 1994, January 30, 1993, and February 1, 1992, respectively. Results of operations for each of these years consisted of fifty-two weeks. References to years relate to fiscal years rather than calendar years.
QUASI-REORGANIZATION: As a result of the Recapitalization, a quasi- reorganization was implemented as of February 1, 1992. Accordingly, an accumulated deficit of $10,477 was transferred to additional capital.
STATEMENT OF CASH FLOWS: Peebles considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at January 29, 1994 or January 30, 1993.
The $80,000 of principal related to the Notes, exchanged for approximately $57,811 in total equity in the Exchange, which resulted in an extraordinary gain of $33,563, has been excluded from the Statement of Cash Flows for 1991 as a non-cash transaction. In addition, the issuance of certain common stock and common stock warrants under the Equity Incentive Plan increased shareholders' equity by $475 and $1,048, for 1993 and 1992, respectively, and, accordingly, has been excluded from the Statement of Cash Flows as a non-cash transaction.
MERCHANDISE INVENTORIES: Merchandise inventories are accounted for by the retail inventory method applied on a LIFO basis. In connection with an acquisition of the Company in January, 1989, the recorded value of merchandise inventories was increased to fair value (the "Fair Value Adjustment"). The Fair Value Adjustment of $14,209 is included in merchandise inventories at the end of fiscal years 1993 and 1992. Exclusive of the Fair Value Adjustment, current costs exceed the amounts recorded in inventory by $3,020 and $1,876 at January 29, 1994 and January 30, 1993, respectively. During 1992, reduced inventory levels resulted in a LIFO decrement which reduced the Fair Value Adjustment by $321, increasing cost of sales.
PROPERTY AND EQUIPMENT: Property and equipment is stated on the basis of cost. Depreciation of property and equipment is provided primarily by the straight-line method over their estimated useful lives for financial reporting purposes and by accelerated methods for income tax purposes. The cost of leasehold improvements is amortized over the shorter of their economic lives or the terms of the leases by the straight-line method. Amortization of buildings under capital leases is computed by the straight- line method over the lease term and is included in depreciation and amortization expense.
STORE OPENING COSTS: In general, store opening costs are charged to selling, general and administrative expenses as incurred.
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE A-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
EXCESS OF COST OVER NET ASSETS ACQUIRED: The excess of cost over net assets acquired ("Goodwill") is being amortized on a straight-line basis over a twenty-five year period beginning February 2, 1992. Accumulated amortization at January 29, 1994 and January 30, 1993 was $3,371 and $1,685, respectively. In connection with the Recapitalization, management reduced the value of Goodwill by $26,315 to the estimated fair value at February 1, 1992.
DEFERRED FINANCING COSTS: Deferred financing costs are being amortized by the interest method over a period ending February 1, 1996. Amortization expense of $435, $445, and $876 for deferred financing costs are included in interest expense for 1993, 1992, and 1991 respectively. Accumulated amortization at January 29, 1994 and January 30, 1993 was $2,346 and $1,924, respectively.
BENEFICIAL LEASEHOLDS: Amortization is provided by the straight-line basis over the estimated composite useful lives of the related leases. Accumulated amortization at January 29, 1994 and January 30, 1993 was $1,739 and $1,393, respectively.
INCOME TAXES: Prepaid and deferred income taxes are provided for temporary differences between income and expense for financial reporting purposes and for income tax purposes.
EARNINGS PER SHARE: Earnings per share were based on the weighted-average number of shares and common stock equivalents outstanding.
NOTE B-ACCOUNTS RECEIVABLE
Accounts receivable are shown net of $950 and $1,100 representing the allowance for uncollectible accounts at January 29, 1994 and January 30, 1993, respectively. The provision for doubtful accounts was $546, $577, and $1,143 for 1993, 1992, and 1991, respectively. Finance charges on credit sales, included as a reduction of selling, general and administrative expenses, aggregated $4,576, $4,652, and $4,953 for 1993, 1992, and 1991, respectively.
As a service to its customers, the Company offers credit through the use of its own charge card, certain major credit cards and a layaway plan. The Peebles' customer is usually a local resident of the community, located in either Virginia, Maryland, North Carolina, South Carolina, Tennessee, Kentucky, Delaware or New Jersey, the states served by Peebles. The Company does not require collateral from its customers.
NOTE C-SUNDRY ASSETS
Sundry consisted of:
January 29, 1994 January 30, 1993 Investment in and advances to buying office $ 1,586 $ 1,509 Pension asset 1,176 1,324 Other 326 865 $ 3,088 $ 3,698
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE D-LONG-TERM DEBT
Long-term debt consisted of the following:
January 29, 1994 January 30, 1993 Senior Revolving Facility, prime plus 1-1/2% $ 30,000 $ 25,070 Senior Term Facility, prime plus 1-1/2% due in quarterly installments through February 1996 13,840 16,840 Other 300 513 44,140 42,423 Less current maturities 8,538 4,783 $ 35,602 $ 37,640
The Credit Agreement provides the Company with a Senior Revolving Facility ("Revolving Facility") and a Senior Term Facility ("Term Facility"). The maturity date for each facility is February 1, 1996. The Credit Agreement provides the Company with working capital and funds for capital expenditures. Restrictive covenant provisions of the Credit Agreement prohibit payment of cash dividends in any fiscal year. The Credit Agreement is secured by a first priority security interest in substantially all the personal property and certain real property of Peebles.
The amount available for borrowings under the Revolving Facility is determined by a defined asset base formula with maximum borrowings limited to $76,000 less amounts outstanding under the Term Facility. The Company pays a fee of 1/4% per annum on any unused portion of the Revolving Facility. The Revolving Facility has no specific paydown provisions. Based on the anticipated operations of the Company in the succeeding year, $24,600 and $23,500 were considered long-term obligations at January 29, 1994 and January 30, 1993, respectively, representing the minimum outstanding balance of the Revolving Facility for an uninterrupted period extending beyond one year from the balance sheet date. The Term Facility has scheduled principal payments of $750 per quarter.
Peebles has commitments for letters of credit with a bank which totaled $455 and $761 at January 29, 1994 and January 30, 1993, respectively. Approximately $46 expire during 1994, and the remainder expires August 1, 1998.
During 1993, 1992 and 1991, Peebles made cash interest payments of $3,548, $4,917, and $6,082, respectively.
Aggregate principal payments on long-term debt for the next five fiscal years are: 1994--$8,538, 1995--$35,602, 1996--$0, 1997--$0, 1998--$0.
NOTE E-LEASES
The Company leases substantially all of its store locations under capital and operating leases with initial terms ranging from 1 to 25 years and renewal options of 1 to 5 years expiring at various dates through 2033. The following is a summary of assets under capitalized leases:
January 29, 1994 January 30, 1993 Buildings under capital leases $ 3,018 $ 3,570 Less--accumulated amortization (1,618) (1,983) $ 1,400 $ 1,587
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE E-LEASES--Continued
Future minimum lease payments under capital leases and noncancellable operating leases at January 29, 1994 were as follows:
Total rental expense under operating leases was as follows:
1993 1992 1991 Minimum $ 5,479 $ 5,162 $ 5,078 Contingent 490 412 433 $ 5,969 $ 5,574 $ 5,511
Contingent rentals are based upon a percentage of annual sales in excess of specified amounts.
NOTE F-COMMON STOCK WARRANTS
Upon completion of the Mergers, warrants to purchase one share of Common Stock ("Warrant") were issued on January 23, 1992. These Warrants are exercisable any time on or after July 15, 1994 (the "Determination Date") for one share of Peebles common stock, $.10 par value (the "Common Stock") at the exercise price of zero dollars ($0.00) per share. All Warrants issued and outstanding existing on July 15, 1999 will be deemed automatically exercised. In the event that certain defined conditions do not occur, the Company is required to repurchase the Warrants at the fair market value of the Common Stock at the Determination Date. Prior to the issuance of common stock, the Warrants will be accreted to fair market value and reflected as an adjustment to retained earnings.
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE G-EQUITY INCENTIVE PLAN
The Recapitalization provided that the Company contribute 120,000 shares of Common Stock to an incentive plan (the "Equity Incentive Plan") established for management and other key employees. In addition, the Company irrevocably contributed 105,000 warrants to purchase one share of Common Stock per warrant (the "Management Warrants") to the Equity Incentive Plan.
As of January 30, 1993, 60,000 shares of Common Stock had been made available for allocation (the "Available Shares") and 42,000 Management Warrants had been made available for grant. Through January 30, 1993, 40,000 of the Available Shares and 21,000 of those Management Warrants (the "Allocated Management Warrants") had been allocated to certain members of management.
On February 8, 1993, the Board of Directors approved, subject to shareholder approval, i) a stock option plan (the "1993 Stock Option Plan") to replace the Equity Incentive Plan and ii) an initial grant of 231,794 options, expiring February 7, 2003, each to purchase one share of Common Stock at an exercise price of $23.75, based upon estimated fair value, (the "1993 Options") to participants in the Equity Incentive Plan (the "Equity Participants"). The 1993 Options vest in equal proportions over a three year period beginning February 7, 1994, except for 60,779 options which vest equally over a five year period. Under the 1993 Stock Option Plan, 450,000 shares of Common Stock are reserved for issuance as a long-term incentive to key employees. The Board of Directors has the authority and complete discretion to, among other things, determine the date of grant, the recipient employee, the exercise price and the expiration date of the options to purchase Common Stock issued under the 1993 Stock Option Plan.
On April 21, 1993, the shareholders of the Company approved the 1993 Stock Option Plan.
On June 9, 1993, the Equity Participants unanimously consented (the "Consent") to exchange the Allocated Management Warrants for the 1993 Options. Upon receipt of the Consent, the Equity Participants were allocated and issued the remaining 20,000 Available Shares under the Equity Incentive Plan. Accordingly, the Equity Incentive Plan was terminated.
For 1992 and 1991, the Company recorded $792 and $1,590, respectively of additional compensation expense in selling, general and administrative expenses related to the Equity Incentive Plan.
NOTE H - INCOME TAXES
The provisions for income taxes (benefits) on income (loss) before extraordinary items consisted of the following:
1993 1992 1991 Current: Federal $ 3,273 $ 2,844 $ (350) State 687 603 (50)
Deferred: Federal 455 422 (775) State 98 83 (100) $ 4,513 $ 3,952 $(1,275)
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE H - INCOME TAXES--Continued
Income taxes (benefits) differ from the amounts computed by applying the applicable federal statutory rates due to the following:
Significant components of deferred tax liabilities and assets are as follows:
January 29, 1994 January 30, 1993 Deferred tax liabilities: Inventory valuation $ 5,134 $ 5,253 Depreciation and amortization 4,169 4,029 Pensions 452 509 Other 190 -- 9,945 9,791 Deferred tax assets: Net operating loss carryover (1,200) (1,200) Compensation -- (305) Doubtful accounts (366) (424) Other (141) (178) (1,707) (2,107) Valuation allowance 1,200 1,200 (507) (907) Net deferred tax liabilities $ 9,438 $ 8,884
At January 29, 1994, Peebles has a net operating loss carryover of $3,000 for income tax purposes which expires in 2007. For financial reporting purposes, a valuation allowance of $1,200 has been recognized to offset the deferred tax asset related to this carryover due to certain limitations. If realized, the tax benefit for this carryover will be applied to increase additional capital.
Peebles made cash income tax payments of $4,175, $3,509 and $159 for 1993, 1992 and 1991, respectively.
The Internal Revenue Service has completed examinations of the Company's federal income tax returns for the fiscal years ended February 3, 1990 and January 28, 1989. The federal income tax returns for the fiscal years ended January 30, 1993, February 1, 1992, and February 2, 1991 are currently under examination, and adjustments are being contested. In the opinion of management, the outcome of such action is not expected to materially affect the financial position or results of operations of the Company.
NOTES TO FINANCIAL STATEMENTS--Continued PEEBLES INC.
NOTE I-PENSION PLAN
Peebles has a defined benefit pension plan covering substantially all employees. The benefits are based on years of service and the employee's compensation during the five consecutive calendar years which produce the highest average. Peebles makes annual contributions to the Plan equal to the contribution required to satisfy minimum funding standards under ERISA.
Net periodic pension cost included the following components:
The following table sets forth the Plan's funded status and amounts recognized in Peebles balance sheet:
In calculating the present value of projected benefit obligations for 1993 and 1992, weighted-average discount rates of 7.5% and 8% and weighted- average rates of compensation of 5.0% and 5.5%, respectively, were used. The expected long-term rate of return on plan assets was 9% for 1993, 1992, and 1991. NOTE J - RELATED PARTY TRANSACTIONS
Interest Expense for 1991 included $2,315 related to the Notes.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Peebles Inc.
Schedule I. Marketable Securities - Other Investments N/A Schedule II. Amounts Receivable from Related Parties and Underwriters, Promoters and Employees other than Related Parties N/A Schedule III. Condensed Financial Information of Registrant N/A Schedule IV. Indebtedness of and to Related Parties - Not Current N/A Schedule V. Property, Plant and Equipment N/A Schedule VI. Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment N/A Schedule VII. Guarantees of Securities of Other Issuers N/A Schedule VIII. Valuation and Qualifying Accounts S-2 Schedule IX. Short-term Borrowings N/A Schedule X. Supplementary Income Statement Information S-3 Schedule XI. Real Estate and Accumulated Depreciation N/A Schedule XII. Mortgage Loans on Real Estate N/A Schedule XIII. Other Investments N/A Schedule XIV. Supplemental Information Concerning Property- Casualty Insurance Operations N/A
(1) Uncollectible accounts written off, net of recoveries.
EXHIBIT INDEX
Exhibit No. Description
10.14 Waiver and Amendment No. 2 dated March 24, 1993 1993 to the Credit Agreement.
22 Subsidiaries of the Registrant.