Filed On 5/7/98 · SEC File 1-01394 · Accession Number 31575-98-10
This Filing's "Filed As Of" Date was Corrected by the SEC on 5/13/98.
As Of Filer Filing On/For/As Docs:Pgs
5/01/98 Edison Brothers Stores Inc 10-K® 1/31/98 7:89
Annual Report · Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K Annual Report on Form 10-K 15 84K
2: EX-4.2 Instrument Defining the Rights of Security Holders 4 17K
3: EX-10.3 Material Contract 6 25K
4: EX-10.8 Material Contract 16 80K
5: EX-13 Annual or Quarterly Report to Security Holders 45 216K
6: EX-21 Subsidiaries of the Registrant 2 8K
7: EX-27 Financial Data Schedule 1 9K
EX-13 · Annual or Quarterly Report to Security Holders
Edison Brothers Stores Inc. operates apparel and footwear stores
serving the young, young-minded and special-size markets with a
focused selection of quality private-label and name-brand
merchandise. With nearly 1,600 stores and 14,000 associates in
the United States, Canada, Puerto Rico and the Virgin Islands,
Edison is one of the largest specialty retailers in North
America.
1997 was a most difficult year for Edison. After filing for
bankruptcy Nov. 3, 1995, and spending 22 months under Chapter 11
protection, Edison emerged on Sept. 26, 1997. The company closed
140 stores in 1997, bringing the number of closed stores to more
than 1,000 since the bankruptcy filing. Sales continued to be
disappointing with store-for-store sales declining 2 percent. The
net loss for the year was $62.3 million.
Shoes
449 stores
Bakers *
Wild Pair
*Some stores operate under the LeedsR name.
Juniors
260 stores
5-7-9
Men's
880 stores
J. Riggings
JW
Coda
Oaktree
REPP Ltd.
Merchandise Mix
Shoes 31%
Juniors 14
Men's 55
· Download Table
Operating Results
1997 1996 1995
Net sales $949,900,000 $1,090,400,000 $1,389,400,000
Net loss (62,300,000) (143,200,000) (222,000,000)
Number of stores year-end 1,605 1,743 2,077
Number of employees 14,600 17,700 24,600
<fn2>
A discussion of results is included in Management's Discussion
and Analysis in the back of this book.
1997 represents the combined results for the 17 weeks ended Jan.
31, 1998, and the 35 weeks ended Oct. 4, 1997.
</fn2>
Dear Shareholders and Fellow Employees:
As our company enters its 76th year of serving customers, its
clear we've come to a crossroads. In this letter, I will describe
our chosen path and how we can measure our progress, financially
and otherwise.
We have a good foundation to build upon -- a salute to the
contributions of 50,000 associates who have worked for the
corporation since the first Chandlers shoe store opened in
Atlanta. Our chains have solid identities you can read about in
the following pages. We have mall locations among the best in the
industry. The company has a team of seasoned associates who can
contribute to the growth of this company. And, most important,
almost half a million customers are coming into our stores every
week -- I spend 15 to 20 hours a week meeting some of them in
locations across the country.
But we won't get anywhere without significant changes -- changes
in the way we do business and in the corporate culture. Right
now, our goal is progress, not perfection. We are starting to
make progress with a sense of urgency and deliberateness because
the past -- the recent past -- is grim. In combined 1997, Edison
lost $62.3 million, on a comparable-store sales decline of 2.0
percent, which accelerated to 2.5 percent in the fourth quarter.
Looking back, we see a company that put into place a service
superstructure designed to purchase or incubate and then fund
interesting retail concepts, each of which developed its own
specific support services. For a glorious few years, it worked.
But the complex lattice was too inflexible to respond to industry
changes such as shifting international sources of merchandise. It
was too flimsy to shore up crumbling chain performance. And it is
too costly.
To correct these problems, we've refocused Edison as a group of
retail chains similar enough to share support services. Yet each
has well-defined customer segments served by excellent
merchandising. To begin achieving this concept, we have three
objectives for 1998:
1. Improve the merchandise content in each chain. Our model for
future merchandising success in each business is three-pronged.
First, establish a sizable platform of fashion basics such as
khaki pants, T-shirts or branded sneakers. Currently a very small
part of our business, fashion basics should provide 15 percent to
25 percent of the volume. Second, layer on top a key-item
component -- possibly sweater vests, carpenter jeans or hooded
polar fleece jackets. Our goal is for key items to make up about
2 percent to 5 percent of our business. Third, provide more
interesting, imaginative merchandise to a broader range of
customers. This means better selection of colors and fabrics. We
cannot continue to pursue fringe ideas or cater to fringe
customers. Our stores are not yet destination stores, and we must
appeal to the large audience of mall traffic.
An important component we have put into place is the Edison
Merchandising Committee, chaired by Karl Michner, whose role is
to institutionalize the trend merchandising process. As further
help, we are deep in the process of reformulating the buyers'
roles, to ensure that these critical three dozen executives --
our path to the customer's soul -- have clear support for their
jobs and understand how best to achieve the sales, margin and
turnover objectives.
2. Build strong alliances with quality suppliers worldwide,
including key brands. Currently, Edison buys merchandise from
almost 600 sources in more than 75 countries. Our objective is to
have far fewer relationships and more domestic suppliers so that
we can focus on improved quality, shorter lead times and faster
reordering of quick-selling goods. We are working now to
determine the most appropriate avenues for our importing
activities, with the goal of improving our ability to count on a
timely flow of quality merchandise. Peter Hirschhorn and Alison
Talbot -- our only two senior executives based outside St. Louis
-- run our foreign offices.
Domestically, Edison needs to increase branded content by 10 to
20 percentage points. Our faster businesses -- especially 5-7-9,
Coda, JW and J. Riggings -- require quicker turnaround time for
fresh merchandise, and the brands are best at that. Our chains
will continue to develop deeper and more meaningful partnerships
with such companies as Levi's and Levi Dockers, Fubu, Steve
Madden Ltd., DKNY, Skechers, Mecca, Mia, Paris Blues, Mudd,
Enyce, Lugz and Pivot Rules.
3. Centralize, simplify and cut costs in half. Edison must
significantly sharpen the performance of its departments and cut
costs by about half. We are centralizing and simplifying our
support services. In stores, we have tapped Tim Brannon to
consolidate what were five separate store organizations into one.
Marketing -- previously confined to sales promotions -- has
similarly been consolidated under Kim Richmond. In our
administrative functions, we are fortunate to have attracted Jack
Burtelow as Chief Administrative Officer and Chief Financial
Officer. He has started to build a core financial team under the
leadership of Tom McCain; improve our information systems and
reports working with Larry Pyles; and speed our logistics
pipeline with the help of George Spreiser. Mark Brown leads our
efforts to secure great mall locations at attractive rents. Our
legal department is headed by Alan Sachs. Reporting to me are two
critical administrative functions: human resources under Lee
Johnson and planning and allocation under Denise Parker.
Further, to simplify the company and concentrate on fewer, bigger
items, we have closed or will exit several businesses including
Precis, Terrasystems, Shifty's and Oaktree.
As I write this in my 10th week of service, let me describe how I
see our company in a few years. I see a customer-driven,
merchandising intensive company. I see as close to a _virtual
company_ as possible, with strong merchants helping us compete
nimbly in a land of giants. I see a bias toward outsourcing, so
that we can be financially flexible. I see a fun place to work, a
cool place to shop, and fashion leadership in enough places with
enough frequency to keep us fun and cool. We will be a strong
factor in Internet marketing -- because 30 percent of our
customers use the Net more than five hours a week. We want some
of their time -- and money. Finally, I see a handsomely
profitable company experiencing solid comparable-store growth
consistently in the high single digits and earning an above-
average return on your investment. I say _finally_ because these
will be the natural results of our efforts; already, however,
what I have labeled final is top-of-mind in our offices and
stores every day.
The vision won't become a reality without the chain presidents --
Paul Eisen, Mike Fine, John Oehler, Steve Thomas and Carol
Williams. Through their partnership, leadership and friendship,
we will achieve our collective but very personal goal: creating
stores where our children and friends are eager to shop and that
competitors are eager to shop.
Sincerely,
/s/Lawrence E. Honig
Chairman and CEO
The lifeblood of Edison is its customers. How do we maintain
their loyalty?
Hear what they say,
watch what they do,
learn what they want,
and deliver fashion they make their own,
with service they can count on,
in stores they can make their favorites ...
5-7-9
Number of stores: 260
Number of field associates: 2,100
Walk into 5-7-9 to check out what's cool! The chain offers
midpriced trendy sportswear and dresses for girls 11 to 16 years
old. As size specialists, the chain is becoming a destination for
fashion looks. In 1997, it was successful in categories where it
had a strong position such as fashion denim. Similar stances are
being taken in basic items like tees and tanks, and going
forward, 5-7-9 plans to become the place to find the cool item it
wants to stand for in each category.
The 5-7-9 target customer looks to 5-7-9 for those fashion ideas.
She comes into the store with her friends while they're hanging
out at the mall. She values what her friends think but wants to
maintain her own identity and opinions. She wants to be cool.
_I love your store. ... It's always the first shop on my list,
and I only shop at malls that have a 5-7-9!_ -- Jackie, Ohio
Bakers
Number of stores: 291
Number of field associates: 3,200
Bakers offers moderately priced, updated casual sport and dress
footwear with work-to-weekend flexibility for adventuresome young
women. From Bakers_-label tailored shoes to No Parking athletic-
inspired styles, Bakers' target customer can find what she needs
to complete her shoe wardrobe. And, she'll find all these styles
and a selection of national brands in a new, sophisticated store
design that's just her speed with an open feel created by light
wood, matte metal fixtures and glass.
The Bakers target customer wants sensible fashion. She'll shop at
Bakers primarily during two phases of her life: as a high-school
and college student with a fast-paced lifestyle who likes
affordable hipness; and as a young woman with professional and
social fashion needs as she concentrates on her career, family or
both.
_I love your store! I love your shoes!_ -- Emily, Pennsylvania
Wild Pair
Number of stores: 155
Number of field associates: 1,390
Trend-setters check out Wild Pair for casual shoes. To attract
these fashion-forward customers, in 1997 Wild Pair introduced
three brands: Skechers, Robert Wayne and London Underground, each
supported by special marketing programs and in-store fixtures.
Customers can also find private-label merchandise with fresh
materials, new textures and exciting visual and sole treatments.
Attitude and a full-on approach to fashion make the Wild Pair
customer a more aggressive shopper. The chain's target customers,
women and men ages 17 to 25, could be single, independent club-
hoppers who always buy the latest trends or fashion leaders who
like brand names and are influenced by styles in music videos.
_Good service, GREAT shoes._ -- Kalilah, Florida
JW
Number of stores: 297
Number of field associates: 2,140
Image is everything for JW's target customer. JW attracts and
keeps him with the Results label, a chain exclusive. Going into
1998, a new palette of intense colors such as true red will
appeal to the customers' visual orientation. Treatments like
zipper tags, patches and logos pull together the denim pieces to
create the coordinated look the JW target customer prefers.
He wants his outfits to _hook up,_ where the pieces match each
other by fabric, color and detail treatment -- to the point of
coordinating his shoes with his casual outfit. He shops a lot,
likes music and always has plans for the weekend.
_The good music makes JW an enjoyable place to shop, and the
excellent threads don't hurt either._ -- Rory, Hawaii
Coda
Number of stores: 29
Number of field associates: 285
Coda's potential for growth is promising because through a
refocused merchandise mix it answers the urban-minded customer's
desire for top brands. Coda gives its customers labels like Fubu,
DKNY, Mecca, Enyce, Lugz, Kani and Pure Playaz.
Oaktree
Number of stores: 66
Number of field associates: 590
Fashion leaders have looked to Oaktree for contemporary,
European-inspired looks since the chain's debut in 1976. The
chain offers club and dress wear looks to customers who set the
trend rather than follow it. Oaktree is being phased out during
1998, and its stores are being converted to Coda.
J. Riggings
Number of stores: 312
Number of field associates: 2,580
J. Riggings meets its target customers' needs with updated,
traditional merchandise at a value price. The chain offers a
tightly edited selection of weekend casual, and sportswear and
jackets for dress and dressy casual. Quality standards have been
raised in all areas including construction, fabric weight and
stitching -- to the point that each item in each department must
earn J. Riggings' _Best Quality_ Stamp of Approval.
The fashion-forward young professional, on average 24 years old,
single, in his first job out of school and living in an
apartment, is J. Riggings' target customer. Working hard and
playing hard define his life. His active lifestyle means he's
athletic, social and fashion-aware. He's a shopper who
understands value and quality.
_I love the selection of sport, casual and businesswear._ --
Fernando, Minnesota
REPP
Number of stores: 176
Number of field associates: 1,000
REPP Ltd. operates on the philosophy that size shouldn't
compromise style for the big and tall man. REPP offers moderately
priced, traditional sportswear and dressy casual clothing with
the goal of becoming the top-of-mind resource for everything big
and tall men need to look and feel their best.
REPP meets its customers' lifestyle needs with resources such as
the _Big and Tall Man's Survival Guide,_ direct mail pieces and
personal phone calls. REPP features the REPP Classic label for
the mature customer who's concerned with comfort more than
fashion, Canyon Ridge_ for the weekend customer, REPP Ltd. label
for the business casual customer and Ferracci for the fashion
customer.
REPP's target customers are over 6 feet tall, have more than a
40-inch waist, or both. They are generally salaried, 30 or more
years old and most dress conservatively.
_I had no idea what I was doing. ... Your salesperson took charge
and fixed me up perfectly._ -- Tom, Florida
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in Millions)
On November 3, 1995, Edison Brothers Stores, Inc. (the Company)
and 65 of its subsidiaries filed petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. An Amended Joint
Plan of Reorganization (the Plan) was confirmed by the Bankruptcy
Court on September 9, 1997. The Company emerged from Chapter 11
on September 26, 1997. During the period from November 3, 1995,
through September 26, 1997, the Company conducted business as
debtor-in-possession. For financial reporting purposes, the
effective date of the Company's emergence from bankruptcy is
considered to be the close of business on October 4, 1997. For
further discussion of the reorganization and restructuring, see
Notes 3 and 4 to the consolidated financial statements.
BUSINESS
The Company owns and operates chains of specialty retailing
stores located in forty-seven states, the District of Columbia,
Puerto Rico, the Virgin Islands and Canada. The Company conducts
its principal operations through subsidiaries in two segments:
apparel and footwear. Stores within the apparel and footwear
segments, with the exception of the Repp Ltd. chain of
big-and-tall menswear stores, are almost exclusively mall-based
and generally range in size from 1,200 to 3,000 square feet.
Merchandise for all segments is acquired from many vendors and
the Company is not dependent on any one supplier. Three main
distribution centers serve as receiving points for merchandise
and coordinate the distribution of shipments to the stores via
common or contract carriers. In 1997, the Company closed its two
remaining mall-based entertainment centers and completed the
phase out of its Terrasystems concept. The Company announced in
January 1998 that the Shifty's chain will be phased out during
1998.
During 1997, the Company closed 200 apparel and footwear stores.
The Company has identified another group of approximately 44
stores that may be closed during 1998, and has recorded a charge
associated with these closings in the 1997 consolidated financial
statements.
At year-end 1997, the apparel segment operated 1,156 stores in
five chains. Four chains focus on menswear: JW Group (including
JW, Oaktree and Coda), J. Riggings, Repp Ltd. and Phoenix, the
Company's catalog operations. Each menswear chain targets a
specific age group of men, with a different product mix. The
womenswear chain, 5-7-9 Shops, primarily markets casual wear and
accessories to teens and preteens. The footwear segment operated
449 stores in two chains at January 31, 1998. The footwear
chains are Bakers/Leeds, which offers popular-priced women's
fashion shoes, and Wild Pair, which focuses on advanced shoe
fashion for young men and women.
The Company experiences peak selling periods, such as Easter
(early spring), back-to-school (July to August), and Christmas
(Thanksgiving to Christmas), with the Christmas selling season
accounting for a significant portion of the full year sales
(13.8% for Combined 1997).
RESULTS OF OPERATIONS
Net retail sales of $336.1 and $613.8 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997 (_Combined
1997_), respectively, were on a combined basis $140.5 or 12.9%
less than net retail sales for the 52 weeks ended February 1,
1997 (_1996_) due to the numerous store closings that occurred at
the end of 1996 and during 1997 as well as a 2% reduction in
same-store sales. During Combined 1997, the apparel segment
experienced a 2.8% decrease in same-store sales. The footwear
segment's same-store sales were flat for the year. Compared to
1996, the Company averaged approximately 127 or 7.0% fewer stores
in operation during Combined 1997. Net sales for 1996 decreased
by $299.0 or 21.5% from the 53 weeks ended February 3, 1996
(_1995_). Same-store sales declined 1.9% between 1996 and 1995.
Cost of goods sold, including occupancy and buying expenses, as a
percentage of sales were 73.0% for the 17 weeks ended January 31,
1998, 70.9% for the 35 weeks ended October 4, 1997, and 71.6% in
Combined 1997, compared with 72.6% and 74.0% in 1996 and 1995,
respectively. The improvement from 1996 to Combined 1997
primarily came from the reduction of occupancy expense due to the
closing of unprofitable stores and savings in occupancy
throughout 1997 due to rent renegotiations in 1996. The decrease
in cost of goods sold from 1995 to 1996 was due primarily to the
Company successfully renegotiating approximately 300 leases,
which reduced occupancy and buying costs as a percentage of sales
by 1.6%.
Store operating and administrative expenses were 24.5% and 28.4%
of sales for the 17 weeks ended January 31, 1998, and 35 weeks
ended October 4, 1997, respectively, and 27.0% of sales in
Combined 1997, compared to 25.3% in 1996 and 24.7% in 1995. The
increase in expense as a percentage of sales from 1996 to
Combined 1997 was attributable to the 12.9% decrease in sales
from 1996 to Combined 1997 and an increase in store payroll
expense. The increase in expense as a percentage of sales from
1995 to 1996 was attributable to the 21.5% decrease in sales
offset by a decrease in store operating expenses in 1996 as
underperforming stores were closed at the end of 1995 and
throughout 1996. Expenses as a percentage of sales in 1995 were
higher as a result of there being a partial year of results for
Dave & Buster's, which was spun-off in June 1995. Dave &
Buster's had significantly higher store expenses as a percentage
of sales compared to the Company's other operations.
Depreciation and amortization expense of $12.0 and $20.5 for the
17 weeks ended January 31, 1998, and 35 weeks ended October 4,
1997, respectively, was on a combined basis $8.7 million less
than 1996. Depreciation and amortization expense for Combined
1997 decreased due to store closing and the Combined 1997 and
1996 provisions made for asset impairments as required by SFAS
No. 121. This decrease was partially offset by depreciation on
the $41 in capital expenditures incurred in 1997 and amortization
of the reorganization value in excess identifiable assets and
favorable lease rights recorded in the Company's adoption of
Fresh Start Accounting. Depreciation and amortization expense
decreased $21.6 between 1995 and 1996 due to the closing of 419
stores in 1996.
Interest expense of $4.9 and $4.3 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997,
respectively, was on a combined basis $6.8 more than 1996, as
interest expense was not recognized on prepetition liabilities
prior to emergence. Interest expense would have been $9.1 higher
in 1995, if interest on prepetition obligations had been accrued.
Interest income earned on the Company's cash and investment
balances subsequent to the Chapter 11 filing of $5.9, $8.2 and
$0.9 for the 35 weeks ended October 4, 1997, and the fiscal years
1996 and 1995, respectively, was recorded as a credit to
restructuring and reorganization expenses in the consolidated
statements of operations.
Restructuring and reorganization expenses for the 35 weeks ended
October 4, 1997, totaled $44.7, including $5.4 for early lease
termination costs and write-offs of fixtures and equipment,
leasehold improvements and related intangible assets, $19.2 for
legal and consulting fees, $15.8 for severance and related
benefits, and $10.2 for various other bankruptcy and
reorganization related expenses, reduced by $5.9 of interest
income. Restructuring and reorganization expenses totaled $36.3
for 1996, including $13.7 for early lease termination costs and
write-offs of fixtures and equipment, leasehold improvements and
related intangible assets, $19.8 for legal and consulting fees,
and $11.0 for various other bankruptcy and reorganization related
expenses, reduced by $8.2 of interest income. Of the $248.1 in
restructuring and reorganization expense incurred since the
petition date, $126.3 were noncash charges. Total cash payments
of $19.1, $20.7 and $3.7 were made in 1997, 1996 and 1995,
respectively.
The Company recorded charges of $2.1 for the 17 weeks ended
January 31, 1998, $2.5 for the 35 weeks ended October 4, 1997,
and $74.0 for 1996, to recognize the impairment of certain
long-lived assets in accordance with SFAS 121. Furniture and
fixtures, goodwill and several corporate properties were written
down to their fair market value. See Note 7 to the consolidated
financial statements.
The efficient operation of the Company's business is dependent in
part on its computer software programs and operating systems
(collectively, _Programs and Systems_). These Programs and
Systems are used in several key areas of the Company's business,
including merchandise purchasing, inventory management, pricing,
sales, distribution and financial reporting, as well as in
various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential _Year
2000_ compliance problems. These actions are necessary to ensure
that the Programs and Systems will recognize and process the year
2000 and beyond. It is anticipated that modification or
replacement of most of the Company's Programs and Systems will be
necessary to make such Programs and Systems _Year 2000_
compliant. The Company is also communicating with suppliers,
financial institutions and others to coordinate year 2000
conversion.
Based on present information, the Company believes that it will
be able to achieve such _Year 2000_ compliance through a
combination of modification of some existing Programs and
Systems, and the replacement of other Programs and Systems with
new Programs and Systems that are already _Year 2000_ compliant.
However, no assurance can be given that these efforts will be
successful. The Company expects that the remediation expenses
and capitalized costs for the installation of new software
systems with achieving _Year 2000_ compliance will have a
material effect on its financial results in 1998 and 1999.
Remediation expenses for 1998 are estimated to be $9.5 and 1999
expenses are estimated to be $2.9. The Company estimates that
capitalized costs associated with the installation of new
software systems will be $8.0 in the aggregate for 1998 and 1999.
FINANCIAL CONDITION
Cash, cash equivalents and investments at year-end 1997 decreased
$145.9 from the prior year. This reduction was primarily due to
the cash payments made pursuant to the Plan. As part of the
Funding Escrow Agreement (see Note 12), the Company deposited
$17.6 in the escrow account and reclassified $10.4 of assets held
for sale to assets held for the escrow account. The balance of
the escrow account and the assets held for sale included in the
consolidated balance sheet as of January 31, 1998, was $21.5.
Merchandise inventories decreased by 20.3% between 1996 and 1997
due to the numerous store closings, tighter inventory controls in
JW and J. Riggings, and the liquidation of seasonal merchandise
in season by various chains.
The decrease in property and equipment, net is due to the
Company's transfer of title to the Corporate Headquarters
Building to the creditors, pursuant to the Plan, the recognition
of asset impairment losses in accordance with SFAS 121 and 202
fewer stores in operation. Intangible assets, net increased due
to impairments recorded in 1996, net of the impact of fresh start
adjustments. Additionally, the Company recorded $29.4 in
Reorganization Value in Excess of Identifiable Assets based on
Fresh Start Accounting upon emergence from bankruptcy. Capital
expenditures of $13.8 and $27.2 for the 17 weeks ended
January 31, 1998, and 35 weeks ended October 4, 1997,
respectively, were on a combined basis $19.1 greater than 1996.
This increase was principally related to information systems
development projects.
CAPITAL RESOURCES AND LIQUIDITY
Upon emergence from Chapter 11, the Company entered into a Loan
Agreement (_Credit Facility_) under which the Company may borrow
up to $200 to fund ongoing working capital needs. The Credit
Facility has a sublimit of $150 for the issuance of letters of
credit. The Credit Facility is secured by liens on inventory and
other assets, and contains restrictive covenants including
limitations, among other things, on store closings, additional
liens and indebtedness, restrictions on dividend payments and
minimum net worth requirement. As of January 31, 1998, the
Company had $43.1 available for borrowing under the Credit
Facility, excluding excess letters of credit related to the
Company's previous credit facility of $40.3.
During April 1998, the Company finalized an amendment to its
Credit Facility to reduce the $100 minimum net worth requirement
(as defined) to $70 during the period January 31, 1998, to
February 3, 2003, which improved the Company's financial
flexibility. The Company expects that its cash and investments
and the Credit Facility will continue to provide it with
sufficient liquidity to conduct its operations and pay for
merchandise shipments.
Overall, cash provided (used) from operating activities of $40.5
for the 17 weeks ended January 31, 1998, and $(37.7) for the 35
weeks ended October 4, 1997, respectively, decreased on a
combined basis by $82.7 from 1996. The decrease was principally
attributable to: (1) a tax refund of $37.6 in 1996,
(2) reorganization and bankruptcy emergence payments, and
(3) financing of inventory through short-term borrowings instead
of merchandise accounts payable.
Overall, cash from operating activities remained constant between
1995 and 1996, although the components varied from 1995 to 1996.
Merchandise inventories decreased during 1996, but not to the
same extent as in 1995, when the Company experienced inventory
flow disruptions after the Chapter 11 filing. Cash flow from
operations increased in 1996 because of the receipt of the income
tax refund. In 1995 the increase was primarily attributable to a
$71.0 decrease in inventory offset by the deterioration in 1995
net income.
Fiscal year 1998 capital expenditures are expected to decrease by
approximately 40% from Combined 1997 levels. As the Company
continues to focus on improving merchandise content in its
existing store base, fewer remodelings and conversions of
existing stores are expected in 1998 compared to 1997. Current
business plans anticipate as few as 38 new stores and conversions
for 1998 depending on market opportunities and successful lease
negotiations. Overall, cash and cash equivalents balances are
expected to be lower in 1998 as compared to 1997, since Combined
1997's activity included $78.5 from the liquidation of short-term
investments.
The Company operated at a net loss of $15.4 million during the 17
weeks ended January 31, 1998, which is typically the strongest
quarter of the year. During this period of time, store for store
sales declined from the prior year in each of the months. Due to
the Company's poor operating results, management has defined
certain aspects of its business strategy (Note 2). It is
expected that these actions will increase store traffic and store
for store sales and reduce expenses. However, the Company's
ability to improve its performance will depend upon a variety of
other factors, some of which are beyond its control, including
significantly improving store sales performance and operating
results, the apparel and footwear retailing environment, general
economic conditions, customer response to its new merchandising
strategies and continued cost reductions.
This Report contains _forward-looking statements_ within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The words _anticipate,_ _believe,_ _expect,_ _will,_
_could_ and similar expressions are intended to identify certain
forward-looking statements. Such statements reflect the
Company's current views with respect to future events and
financial performance and involve risks and uncertainties,
including, without limitation, the risks described above. Should
one or more of these risks or uncertainties occur, or should
underlying assumptions prove incorrect, actual results may vary
materially and adversely from those anticipated, believed or
otherwise indicated. Consequently, these cautionary statements
qualify all of the forward-looking statements made in this
Report.
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
Management is responsible for the integrity and objectivity of
the financial statements and other information included in this
annual report. The financial statements have been prepared in
conformity with generally accepted accounting principles.
Information that is not subject to objective determination has
been developed based upon management's best judgment.
The Company maintains accounting systems that management believes
are sufficient to provide reasonable assurance of reliable
financial statements and to maintain accountability for assets.
These systems are supported by careful selection and training of
qualified personnel. The extent of internal accounting controls
implemented must be related to the benefits derived, and the
balancing of the cost of controls to the benefits derived
requires management's estimates and judgments. Management
continually reviews, modifies and improves its systems of
accounting and controls in response to changes in business
conditions and operations, and in response to recommendations in
the reports prepared by the independent public accountants.
The Board of Directors has an Audit Committee, which is comprised
totally of members of the board who are not employees of the
Company. The committee meets with the independent auditors and
representatives of management to discuss auditing and financial
reporting matters. The independent auditors meet with the Audit
Committee, with and without management representatives present,
to discuss the scope and results of their examinations, the
quality of financial reporting, and the propriety of management's
conduct of the business.
Management is committed to conducting its business affairs in
accordance with the highest ethical standards and in conformity
with the law.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Edison Brothers Stores, Inc.:
We have audited the accompanying consolidated balance sheet of
Edison Brothers Stores, Inc. (a Delaware corporation) and
subsidiaries as of January 31, 1998, and the related consolidated
statements of operations, common stockholders' equity (deficit)
and cash flows for the 17 weeks ended January 31, 1998 (as
reorganized), and the 35 weeks ended October 4, 1997
(pre-confirmation). 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
As discussed in Notes 3 and 4 to consolidated financial
statements, the Company emerged from bankruptcy and adopted
fresh-start reporting as of October 4, 1997, in accordance with
American Institute of Certified Public Accountants Statement of
Position 90-7, _Financial Reporting by Entities in Reorganization
under the Bankruptcy Code._ The effects resulting from the
adoption of fresh-start reporting and the forgiveness of debt
have been reflected in the statement of operations for the 35
weeks ended October 4, 1997. Accordingly, all consolidated
financial statements prior to October 4, 1997, are not comparable
to the consolidated financial statements for periods after the
implementation of fresh-start reporting.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Edison Brothers Stores, Inc. and subsidiaries as of
January 31, 1998, and the results of their operations and their
cash flows for the 17 weeks ended January 31, 1998, and the 35
weeks ended October 4, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 2 to the consolidated financial statements, the Company
has continued to suffer recurring losses which raises substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
/s/Arthur Andersen LLP
St. Louis, Missouri,
April 24, 1998
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Stockholders and Board of Directors
Edison Brothers Stores, Inc.
We have audited the consolidated balance sheets of Edison
Brothers Stores, Inc. (the Company and its principal operating
subsidiaries in reorganization under Chapter 11 of the United
States Bankruptcy Code since November 3, 1995, see Note 1 to the
consolidated financial statements) as of February 1, 1997, and
February 3, 1996, and the related consolidated statements of
operations, common stockholders' equity (deficit), and cash flows
for each of the three years in the period ended February 1, 1997.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Edison Brothers Stores, Inc. at February 1,
1997, and February 3, 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the
period ended February 1, 1997, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been
prepared on a going concern basis which contemplates continuity
of the Company's operations and realization of its assets and
payment of its liabilities in the ordinary course of business.
As described more fully in Note 1, on November 3, 1995, Edison
Brothers Stores, Inc. filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code and is currently
operating its business as a debtor-in-possession under the
supervision of the Bankruptcy Court. The Chapter 11 filing was
the result of violation of certain debt covenants, recurring
operating losses, deterioration of vendor support, and cash flow
problems. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans to finance operating activities and further reorganize
operations are also described in Notes 2 and 3. The
appropriateness of using the going concern basis is dependent
upon, among other things, approval of a plan of reorganization by
the Bankruptcy Court, attainment by the Company of profitable
future operations, and its ability to generate sufficient cash
from operations and other financing sources to support its
business activities. As a result of the reorganization
proceedings, the Company may sell or otherwise dispose of assets
and liquidate or settle liabilities for amounts other than those
reflected in the financial statements referred to above.
Further, a plan of reorganization, as finally approved by the
Bankruptcy Court, could materially change the amounts currently
recorded. The accompanying consolidated financial statements do
not reflect further adjustments that might be necessary to the
carrying value of assets and the amounts and classification of
liabilities or stockholders' equity (deficit) as a consequence of
these bankruptcy proceedings.
As discussed in Note 1, in fiscal 1996, the Company charged its
method of accounting for the impairment of long-lived assets and
for long-lived assets to be disposed of.
/s/Ernst and Young LLP
St. Louis, Missouri,
March 14, 1997
· Download Table
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Millions, except per share data)
CAPTION
As Pre-Confirmation
Reorganiz
ed
Year Year
17 Weeks 35 Weeks Ended Ended
Ended Ended Februar Februar
January October y 1, y 3,
31, 1998 4, 1997 1997 1996
Net Retail Sales $ 336.1 $ 613.8 $1,090.4 $ 1,389.4
Costs and Expenses:
Cost of goods sold, 245.2 435.2 791.9 1,027.7
occupancy and buying
expenses
Store operating and 82.3 174.2 276.3 343.7
administrative expenses
Depreciation and 12.0 20.5 41.2 62.8
amortization
Interest expense, net 4.9 4.3 2.4 25.2
Restructuring and --- 44.7 36.3 167.1
reorganization expenses
Pension settlement gain --- (15.8) --- ---
Impairment of long-lived 2.1 2.5 74.0 ---
assets
Other operating expenses 3.9 6.0 8.1 14.0
Total 350.4 671.6 1,230.2 1,640.5
Loss before income taxes,
extraordinary item and the (14.3) (57.8) (139.8) (251.1)
effects of fresh start
adjustments
Income tax (benefit) 1.1 0.3 3.4 (29.1)
provision
Loss before extraordinary
item and the effects of (15.4) (58.1) (143.2) (222.0)
fresh start adjustments
Extraordinary item:
Gain on debt forgiveness --- 8.3 --- ---
Fresh start adjustments --- 2.9 --- ---
Net Loss $ (15.4) $ (46.9) $ (143.2) $(222.0)
Net Loss Per Common Share
Loss before extraordinary
item and fresh start $ $ $ $
adjustments (1.51) (2.62) (6.46) (10.06)
Extraordinary item --- .38 --- ---
Fresh start adjustments --- .13 --- ---
Net Loss per basic & $ $ $ $
diluted share (1.51) (2.11) (6.46) (10.06)
Basic & diluted average
shares outstanding 10.2 22.2 22.2 22.1
(millions)
<fn3>
See accompanying notes.
</fn3>
TABLE
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions, except per share data)
<CAPTION>
As Pre-
Reorganize Confirmatio
d n
January 31 February 1,
, 1997
1998
<S>
ASSETS
Current Assets: <C> <C>
Cash and cash equivalents $ 58.2 $ 125.6
Investments --- 78.5
Merchandise inventories 167.9 210.7
Other current assets 28.1 21.7
Total Current Assets 254.2 436.5
Property and Equipment 121.1 146.0
Reorganization Value in Excess of
Identifiable Assets, net of accumulated 28.4 ---
amortization of $1.0
Other Assets 39.3 62.4
Total Assets $ 443.0 $ 644.9
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Merchandise accounts payable $ 43.2 $ 50.7
Expense accounts payable 29.3 28.1
Other current liabilities 72.8 41.0
Total Current Liabilities 145.3 119.8
Liabilities Subject to Settlement under --- 508.3
Reorganization Proceedings
Long-Term Debt 127.7 ---
Postretirement and Other Employee Benefits 46.7 ---
Other Liabilities 1.6 18.9
Total Liabilities 321.3 647.0
Common Stockholders' Equity (Deficit):
Common stock 0.1 22.2
Capital in excess of par value 130.5 76.9
Common stock warrants 7.0 ---
Accumulated deficit (15.4) (101.6)
Foreign currency translation adjustment (0.5) 0.4
Total Common Stockholders' Equity 121.7 (2.1)
(Deficit)
Total Liabilities and Common $ 443.0 $ 644.9
Stockholders' Equity (Deficit)
<fn4>
See accompanying notes
Common stock has a par value of $.01 and $1 per share at
January 31, 1998, and February 1, 1997, respectively. At
January 31, 1998, 10,225,000 shares were outstanding (Note 13).
At February 1, 1997, 22,201,778 shares were outstanding and
5,352,454 were held in treasury.
</fn4>
</TABLE>
· Download Table
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
As Pre-Confirmation
Reorganiz
ed
Year Year
17 Weeks 35 Weeks Ended Ended
Ended Ended February Februar
January October 1, y 3,
31, 1998 4, 1997 1997 1996
Cash Flows from Operating
Activities:
Net loss $ (15.4) $ (46.9) $(143.2) $(222.0)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating
activities:
Extraordinary item and fresh
start adjustments --- (11.2) --- ---
Depreciation and 12.0 20.5 41.2 62.8
amortization
Restructuring and --- 3.3 11.7 111.3
reorganization expenses
Loss on disposal of property 1.5 3.1 --- ---
and equipment
Provision for deferred
income taxes, net of --- --- --- 4.5
valuation allowance and
acquisitions
Impairment of long-lived 2.1 2.5 74.0 ---
assets
Pension settlement gain --- (15.8) --- ---
Changes in assets and
liabilities, net of effects
from acquisitions and
dispositions:
Merchandise inventories 37.2 (0.1) 39.9 71.0
Other assets 0.6 3.0 49.9 (16.8)
Accounts payable, accrued
expenses and other 2.5 3.9 5.4 67.7
liabilities
Other --- --- 6.6 6.9
Total Operating 40.5 (37.7) 85.5 85.4
Activities
Cash Flows from Investing
Activities:
Capital expenditures (13.8) (27.2) (21.9) (37.2)
(Increase) decrease in --- 78.5 (78.5) ---
investments
Net proceeds from disposal --- 1.7 --- 17.1
of subsidiaries
Payment for companies and
assets purchased, net of --- --- --- (14.1)
cash acquired
Other --- 0.9 0.8 2.7
Total Investing (13.8) 53.9 (99.6) (31.5)
Activities
Cash Flows from Financing
Activities:
Payments on liabilities (5.8) (96.9) --- ---
subject to compromise
(Increase) decrease in 6.4 (17.6) --- ---
senior note interest escrow
Proceeds from prepetition --- --- --- 60.0
debt issuance
Net prepetition short-term --- --- --- 11.4
debt borrowings
Dividends on common stock --- --- --- (9.3)
Other 5.9 (2.3) 0.1 6.2
Total Financing 6.5 (116.8) 0.1 68.3
Activities
Effect of exchange rate --- --- --- (9.6)
changes on cash
Cash Provided (Used) 33.2 (100.6) (14.0) 112.6
Beginning cash and cash 25.0 125.6 139.6 27.0
equivalents
Ending Cash and Cash $ 58.2 $ 25.0 $ 125.6 $ 139.6
Equivalents
Cash Payments (Receipts)
for:
Interest $ 7.6 $ 0.9 $ 0.4 $23.9
Income taxes $ 0.1 $ 0.1 $ (37.9) $ (0.7)
<fn5>
See accompanying notes
</fn5>
· Download Table
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in Millions, except per share data)
Retaine
Capital Commo d Foreign
Commo in n earning currency
n Excess Stock s Translati
Stock of Warra (accumu on
Par nts lated Adjustmen
Value deficit t
)
Balance at
January 28, 1995 _ $ $ $ -- $ 303.8 $ (15.1)
Pre-Confirmation 22.0 76.5
Net loss --- --- --- (222.0) ---
Stock options
exercised and 0.1 0.2 --- --- ---
employee benefit
plans
Spin-off of --- --- --- (30.9) ---
subsidiary
Foreign currency
translation --- --- --- --- 15.1
adjustment
Dividends on common
stock - $.42 per --- --- --- (9.3) ---
share
Balance at February 22.1 76.7 --- 41.6 ---
3, 1996 _ Pre-
Confirmation
Net loss --- --- --- (143.2) ---
Employee benefit 0.1 0.2 --- --- ---
plans
Foreign currency
translation --- --- --- --- 0.4
adjustment
Balance at February
1, 1997 - Pre- 22.2 76.9 --- (101.6) 0.4
Confirmation
Net loss before
extraordinary item
and the effect of --- --- --- (58.1) ---
fresh start
adjustments
Restricted stock --- 0.1 --- --- ---
Fresh start
adjustments and (22.2 (77.0) --- 159.7 ---
extraordinary item )
New stock and warrant 0.1 130.5 7.0 --- ---
issuance
Foreign currency
translation --- --- --- --- (0.4)
adjustment
Balance at October 4,
1997 _ Emergence Date 0.1 130.5 7.0 --- ---
Net loss --- --- --- (15.4) ---
Foreign currency
translation --- --- --- --- (0.5)
adjustment
Balance at January
31, 1998 - As $ $ 130.5 $ 7.0 $ $ (0.5)
Reorganized 0.1 (15.4)
<fn6>
See accompanying notes
</fn6>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions, except shares and per share data)
Note 1: Description of Business and Summary of Significant
Accounting Policies
Business _ Edison Brothers Stores, Inc. (the _Company_) owns and
operates chains of specialty retailing stores located in forty-
seven states, the District of Columbia, Puerto Rico, the Virgin
Islands, and Canada. The Company conducts its principal
operations in two segments, apparel and footwear. On November 3,
1995 (the _Petition Date_), the Company and 65 of its
subsidiaries (the _Debtors_) filed petitions for relief under
Chapter 11 of the United States Bankruptcy Code (the _Bankruptcy
Code_) in the United States Bankruptcy Court (the _Court_) in
Wilmington, Delaware. The Debtors' Amended Joint Plan of
Reorganization (the _Plan_) was confirmed by the Court on
September 9, 1997. The Company emerged from Chapter 11 on
September 26, 1997 (for financial reporting purposes, the
effective _Emergence Date_ is October 4, 1997). During the
period from November 3, 1995, through September 26, 1997, the
Company operated as debtor-in-possession.
Fiscal Year _ The Company's fiscal year ends on the Saturday
closest to January 31. References to 1996 and 1995 are to the 52
weeks ended February 1, 1997, and 53 weeks ended February 3,
1996, respectively. References in 1997 to the new Reorganized
Company are for the period from October 5, 1997, through
January 31, 1998, and references to the Pre-Confirmation Company
are for the period from February 2, 1997, to October 4, 1997.
Fresh Start Accounting - The Company adopted Fresh Start
Accounting as prescribed in _Statement of Position 90-7 of the
American Institute of Certified Public Accountants,_ entitled
_Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7),_ which resulted in the creation of a
new reporting entity without any accumulated deficit and
restatement of the Company's assets and liabilities to their
estimated fair market values (Note 4). Because of the
applications of Fresh Start Accounting, the financial statements
for periods after reorganization are not comparable to the
financial statements for periods prior to reorganization. A
black line has been drawn on the accompanying consolidated
financial statements to distinguish between the Reorganized
Company and the Pre-Confirmation Company.
The accounting policies described below represent the accounting
policies for all periods presented.
Consolidation _ The financial statements include the accounts of
all subsidiaries; intercompany accounts and transactions have
been eliminated.
Income Taxes _ The liability method as described in Statement of
Financial Accounting Standards (_SFAS_) No. 109, _Accounting for
Income Taxes,_ is used to compute deferred income taxes resulting
from temporary differences in the recognition of income and
expense items for tax and financial reporting purposes.
Interest Expense _Interest expense for the 17 weeks ended
January 31, 1998, has been reduced by $.5 of interest income and
in 1995 (prior to the Petition Date) interest expense has been
reduced by $1.8 of interest income. Interest income incurred
during the period the Company operated as a debtor-in-possession
is $5.9 for the 35 weeks ended October 4, 1997, $8.2 and $0.9 for
1996 and 1995, respectively, is included in restructuring and
reorganization expenses.
Store Preopening and Closing Costs _ Store preopening costs are
expensed as incurred. Closing costs are accrued at the time the
decision is made to close a store.
Net Loss Per Common Share _ The Company adopted the provisions of
SFAS 128, _Earnings Per Share,_ under which earnings per share is
measured at two levels: basic earnings per share and diluted
earnings per share. The Company reported a loss for all years
presented and, therefore, shares issuable under stock option
plans are antidilutive.
Cash and Cash Equivalents _ Short-term investments with
maturities of three months or less at the time of purchase are
reported as cash equivalents.
Investments _ As of January 31, 1998, the Company had no
investments. Investments at February 1, 1997, consisted of U.S.
government debt securities which mature in less than one year,
and are classified as available-for-sale. The amortized cost,
which approximates fair value, of these securities is adjusted
for amortization of premiums and accretions of discounts to
maturity. Amortization, interest and dividends are included as a
reduction in interest expense or as a reduction in restructuring
and reorganization expense.
Merchandise Inventories _ Inventories are stated at the lower of
cost or market, primarily determined by the retail inventory
method.
Depreciation and Amortization - The Company utilizes the
straight-line method of depreciation and amortization. Property
and equipment is amortized over the lesser of the estimated
useful life of the asset or the life of the lease (Note 7). The
Company amortizes its Reorganization Value in Excess of
Identifiable Assets (Note 4) over 10 years and the Fair Value of
Lease Rights (Note 8) over the remaining life of the respective
leases.
Long-Lived Assets and Reorganization Value in Excess of
Identifiable Assets _ SFAS 121, _Accounting for Long-Lived Assets
and for Long-Lived Assets to be Disposed of,_ requires that
long-lived assets be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be
recoverable. The Company considers such factors as management's
plans for future operations, recent operating results and
projected cash flows in evaluating an impairment (Note 7).
Foreign Currency Translation - Assets and liabilities of the
Company's foreign affiliates are translated at current exchange
rates while revenues and expenses are translated at average rates
prevailing during the year. Translation adjustments are reported
as a component of common stockholders' equity.
Estimates _ The preparation of financial statements in conformity
with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and revenues and expenses
during the reporting period. Actual amounts could differ from
those estimates.
Reclassifications _ Certain prior-year items have been
reclassified to conform to the current-year presentation.
Effect of New Accounting Standards
In 1997, the FASB issued SFAS No. 130, _Reporting Comprehensive
Income,_ which requires that the amounts of certain items,
including gains and losses on certain securities, be reported in
the enterprise's financial statements, and SFAS No. 131,
_Disclosures about Segments of an Enterprise and Related
Information,_ which establishes annual and interim reporting and
disclosure standards for an enterprise's operating segments.
Adoption of these statements will not significantly impact the
Company's consolidated financial position, results of operations
or cash flows, and will be limited to the form and content of its
disclosures. Both statements are effective commencing in the
1998 fiscal year.
Note 2: Going Concern
The accompanying consolidated financial statements have been
prepared on a going concern basis, which assumes continuity of
operations and realization of assets and liquidation of
liabilities in the ordinary course of business.
As shown in the accompanying statement of operations, the Company
incurred a net loss of $15.4 million in the 17 weeks since it
emerged from bankruptcy. In order to improve the Company's
operating results, management has, over the last several months,
defined certain aspects of its new business strategy, including
an improved focus on merchandise selection and reorganization of
certain operational functions. The Company has consolidated the
key support functions of store management, merchandise planning
and allocation and marketing in order to better leverage critical
skills and reduce costs. Additionally, the Company has recently
reduced the staffing in its headquarters office by approximately
15%.
The Company's ability to improve its financial position will be
influenced by, among other things, store sales performance and
operating results, the overall apparel and footwear retailing
environment, general economic conditions and customer response to
its new merchandising strategies and continued cost reductions.
The Company's ability to continue operations as a going concern
is dependent upon its ability to generate sufficient cash flow
and earnings to meet its obligations on a timely basis, to comply
with the terms of its financing agreements (Note 12), and to
obtain additional financing or refinancing as may be required in
the future.
Note 3: Reorganization
On November 3, 1995, the Company filed a voluntary petition for
relief under Chapter 11 of the U.S. Bankruptcy Code and operated
its business as a debtor-in-possession under the supervision of
the Bankruptcy Court from November 3, 1995, to September 26,
1997. On September 9, 1997, the Bankruptcy Court entered an
order confirming the Company's Plan of Reorganization. The
Company emerged from Chapter 11 on September 26, 1997 (for
financial reporting purposes, the effective Emergence Date is
October 4, 1997).
The Plan provided for general unsecured creditors to receive:
(i) $99.0 ($96.9 distributed to creditors and $2.1 distributed to
the Limited Liability Companies established pursuant to the
Plan); (ii) 10 year, 11% unsecured notes in the principal amount
of $120 (with approximately the first three years of interest
pre-funded and no scheduled principal payments until maturity in
2007) (_Senior Notes_); (iii) 10,000,000 shares of new common
stock of the Company (_New Common Stock_); (iv) title to the
Company's headquarters building in downtown St. Louis (_Corporate
Headquarters Building_), which the Company continues to occupy
(Note 11); and (v) $51.2 from the Company's pension plan less any
taxes and other expenses attributable to the termination of the
pension plan (_Pension Plan Proceeds_). The Company also
terminated its pension plan as of May 31, 1997, and has
established a replacement plan effective January 1, 1998
(Note 10).
All of the Company's shares of common stock existing at the
Emergence Date were cancelled. The Plan provided for holders of
equity interests in the Company existing as of the Emergence Date
to receive eight-year warrants to purchase a total of
approximately nine percent of the New Common Stock at an exercise
price of $16.40 (Note 13).
· Download Table
Liabilities Subject to Settlement under Reorganization
Proceedings
The principal categories of claims classified as liabilities
subject to settlement under reorganization proceedings are
identified below.
Pre-Confirmation
35 Weeks Februar
Ended y 1,
October 1997
4, 1997
Long-term senior notes payable $ 150.0 $ 150.0
Notes payable _ banks 205.9 205.9
Cash set-off applied to debt (3.6) (3.6)
Capital lease obligations 8.4 12.4
Accrued interest payable 4.6 4.3
Deferred debt costs (4.3) (4.3)
Postretirement and other employee benefits --- 47.7
(Note 10)
Accounts payable 37.3 36.1
Lease termination claims 44.6 42.8
Taxes 3.8 6.0
Other 4.2 11.0
Distributions and debt forgiveness (450.9) ---
Total liabilities subject to settlement under $ --- $ 508.3
reorganization proceedings
Prior to the bankruptcy filing and certain agreements, the
Company's debt consisted of $150.0 of senior notes held by
various institutional lenders. The unsecured senior notes had
maturities from 7 to 15 years, with interest rates ranging from
7.09% to 8.04%. The Company also had outstanding borrowings
under a $125.0 revolving credit facility, as well as $80.9 of
short-term and demand notes under uncommitted bank lines with
varying interest rates and maturity dates. In addition, the
Company had $8.4 in capital lease obligations relating to its
Washington, Missouri distribution center.
During 1995, the Company entered into override agreements with
its existing lenders. The override agreements covered existing
1995 financial covenants and deferred principal repayments
otherwise due December 1, 1995. Furthermore, the Company's
primary existing letter of credit bank agreed to continue to
provide letters of credit through the override period. In
exchange for these concessions, the Company paid a one-time
forbearance fee of $3.6 and agreed to increase the interest rate
on the outstanding debt to 9.75%.
Contractual interest related to the above debt not paid or
accrued was $23.6 for the 35 weeks ended October 4, 1997, $35.0
and $9.1 for the years ended 1996 and 1995, respectively.
During 1997, postretirement benefit accruals of $42.2 and pension
accruals of $5.5 were reclassified from liabilities subject to
settlement under reorganization proceedings to other noncurrent
liabilities. Under the Plan, the Company has assumed these
liabilities, subject to the Company's ability to amend or
otherwise modify these plans (Note 10).
As part of the Chapter 11 reorganization process, the Company
attempted to notify all known or potential creditors of the
Filing for the purpose of identifying all prepetition claims
against the Company. Generally, creditors whose claims arose
prior to the Petition Date had until August 1, 1996, to file
claims or be barred from asserting claims in the future. Claims
arising from rejection of executory contracts by the Company on
or after July 1, 1996, and claims related to certain other items
were permitted to be filed by other dates set by the Bankruptcy
Court.
Pursuant to the an order of the Bankruptcy Court dated May 13,
1997, the assets and liabilities of the Debtors were deemed to be
substantively consolidated for purposes of the Plan. As a
result, among other things, for purposes of the Plan, all
duplicative claims against the Debtors were consolidated and all
guarantee and similar claims were eliminated. Substantive
consolidation, however, does not affect, among other things, the
separate legal and corporate structure of the individual Debtors.
· Download Table
Restructuring and Reorganization
The Company recorded restructuring and reorganization expenses in
accordance with SOP 90-7 prior to emergence from Chapter 11.
Restructuring and reorganization expenses are summarized below:
Pre-Confirmation
35 Weeks Year Year
Ended ended ended
October February February
4, 1997 1, 1997 3, 1996
Payroll and related expenses $ 15.8 $ 5.6 $ ---
Consulting fees 13.0 15.4 2.2
Legal fees 6.2 4.4 1.5
Estimated costs of store 5.4 13.7 101.6
closings
Relocation and other 4.2 1.1 ---
facility-related expenses
Loss on sale of subsidiaries 0.3 0.9 33.0
Interest income (5.9) (8.2) (0.9)
Accelerated goodwill --- --- 15.1
amortization
Other 5.7 3.4 14.6
Total restructuring and $ 44.7 $ 36.3 $ 167.1
reorganization expenses
Note 4: Fresh Start Accounting and Reporting
Pursuant to SOP 90-7, the Company adopted Fresh Start Accounting
which resulted in the creation of a new reporting entity. Also,
the Company's assets and liabilities were recorded at estimated
fair market value as of the Emergence Date.
As a result of the implementation of Fresh Start Accounting, the
financial statements of the Reorganized Company are not
comparable to the financial statements of the Pre-Confirmation
Company.
The new common stock issued on the Emergence Date has been
recorded at the value contained in the Plan of $137.6 million and
represented the Company's estimated enterprise value less the
fair value of its debt.
The difference between the value of the Company's stock and the
fair value of assets and liabilities as of the Emergence Date was
$29.4 and is reflected as Reorganization Value in Excess of
Identifiable Assets in the accompanying balance sheet.
· Download Table
The Reorganization and the adoption of Fresh Start Accounting
resulted in the following adjustments to the Company's condensed
consolidated balance sheet as of October 4, 1997:
October 4, 1997
Debt Fresh Other As
Pre- Forgivene Start Adjustmen Reorgan
Confirmati ss (a) Adjustmen ts (c) ized
on ts (b)
ASSETS
Total Current $ 368.6 $ $ (5.8) $ 63.3 $ 327.1
Assets (99.0)
Assets Held 10.8 --- --- (10.8) ---
for Sale
Escrowed --- --- (.4) 10.8 10.4
Assets
Property and
Equipment, net 140.8 (19.8) --- --- 121.0
Intangible --- --- --- 5.2 5.2
Assets, net
Reorganization
Value in
Excess of --- --- --- 29.4 29.4
Identifiable
Assets
Prepaid 58.6 --- 24.3 (63.3) 19.6
Pension
Expense
Other Assets 9.7 --- (3.3) --- 6.4
Total Assets $ 588.5 $ (118.8) $ 14.8 $ 34.6 $ 519.1
LIABILITIES
AND COMMON
STOCKHOLDERS'
EQUITY
(DEFICIT)
Total Current $ 133.9 $ $ 12.7 $ 50.6 $ 206.1
Liabilities 8.9
Liabilities
Subject to
Settlement
under 450.9 (400.3) --- (50.6) ---
Reorganization
Proceedings
Long-Term Debt 1.3 126.7 --- --- 128.0
Postretirement
and Other 48.0 --- (1.4) --- 46.6
Employee
Benefits
Other 14.5 --- 0.6 (14.3) .8
Liabilities
Common
Stockholders'
Equity
(Deficit):
Common Stock 22.2 .1 --- (22.2) 0.1
Capital in
excess of par 77.0 130.5 --- (77.0) 130.5
value
Common stock
warrants --- 7.0 --- --- 7.0
Accumulated (159.7) 8.3 2.9 148.5 ---
deficit
Foreign
currency
translation
adjustment and 0.4 --- --- (0.4) ---
other
Total
Liabilities
and Common
Stockholders' $ 588.5 $ (118.8) $ 14.8 $ 34.6 $ 519.1
Equity
(Deficit)
<fn7>
(a) Records the discharge of indebtedness pursuant to the Plan.
Liabilities Subject to Settlement under Reorganization
Proceedings of $450.9 were reduced by new equity of $137.6,
Senior Note and other long-term debt of $126.7, cash payments of
$96.9 and other settlements. The excess of indebtedness
eliminated over the fair value of securities issued in settlement
of those claims, $8.3, is reflected as an extraordinary item in
the 35 weeks ended October 4, 1997.
(b) Adjustments made to record assets and liabilities at
estimated fair market values. Significant adjustments include
the termination of the old pension plan (settlement gain less
excise taxes and income taxes) which resulted in a $2.9 credit
for the 35 weeks ended October 4, 1997.
(c) Adjustments to reflect the elimination of the remaining
deficit in stockholders' equity after the adjustments arising
from (a) and (b) above and to reflect the associated excess of
reorganization value over amounts allocable to identifiable
assets. Also reflects the termination of the Company's pension
plan pursuant to the Plan and capitalization of favorable lease
rights related to the transfer of the Corporate Headquarters
Building and store locations.
</fn7>
Note 5: Income Taxes
· Download Table
The provision (benefit) for income taxes consists of:
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
Current expense
(benefit):
Federal $ 0.7 $ --- $ 0.5 $ (35.6)
Foreign 0.2 --- 0.7 0.3
State and local 0.2 0.3 2.5 1.7
Deferred expense (4.8) 3.1 (13.5) (39.0)
(benefit)
Deferred tax 4.8 (3.1) 13.2 43.5
valuation allowance
Total provision $ 1.1 $ 0.3 $ 3.4 $ (29.1)
(benefit)
· Download Table
Significant components of the deferred tax liabilities and assets
in the consolidated balance sheets are as follows:
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
Accelerated depreciation $ 3.4 $ 4.9
Pension income 4.3 15.6
Other 1.4 2.6
Total deferred tax liabilities 9.1 23.1
Inventory capitalization 4.0 5.2
Rent expense accruals 0.3 6.3
Postretirement benefits 16.2 16.6
Restructuring reserves 1.8 17.9
Net operating loss carryforward 28.0 13.8
Other 17.2 20.0
Total deferred tax assets 67.5 79.8
Less: Deferred tax valuation allowance 58.4 56.7
Net deferred tax asset $ --- $ ---
During 1997 and 1996, the Company concluded that it likely would
not be able to realize its deferred tax assets. Accordingly,
allowances against the net deferred tax asset balance of $58.4
and $56.7, respectively, and are reflected in the consolidated
financial statements.
· Download Table
Reconciliation of federal statutory rates to effective income tax
rates:
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
Federal corporate (35.0%) (35.0%) (35.0%) (35.0%)
statutory rate
State and local
income taxes, net of 1.4 0.5 0.5 (0.4)
federal benefit
Goodwill amortization 2.4 --- 4.5 3.3
and write off
Increase in net
operating loss
carryforwards and 32.6 35.0 32.4 17.3
change in valuation
allowance
Other 6.3 --- --- 3.2
Actual tax expense 7.7% 0.5% 2.4% (11.6%)
(benefit)
Pretax earnings from foreign subsidiaries were $2.9 in 1997, $1.9
in 1996 and $0 in 1995.
As of January 31, 1998, the Company had a net operating loss
carryforward for federal income tax purposes of approximately
$71.4, which is available to offset future taxable income through
2013. The Company also had a capital loss carryforward for
federal income tax purposes of $11.9 which is available to offset
future capital gains through 2001. In addition, the Company had
an alternative minimum tax credit carryforward of approximately
$1.4, which is available to reduce future regular income taxes
over an indefinite period. Implementation of the Company's plan
of reorganization may significantly reduce the various
carryforward items.
The Company is currently undergoing an examination by the
Internal Revenue Service (_IRS_) of its income tax returns for
1992 through 1996. Also, the IRS has asserted deficiencies
against the income tax returns of the Company for the tax years
1986 through 1991, which the Company is contesting. The Company
believes that the ultimate resolution of these matters will not
have a material adverse impact on its financial condition.
TABLE
Note 6: Other Current Assets
Components of other current assets include:
<CAPTION>
As Pre-
Reorganize Confirmati
d on
January February
31, 1,
1998 1997
<S> <C> <C>
Prepaid expenses $ 13.7 $ 16.1
Senior note interest escrow (Note 12) 11.2 ---
Other 3.2 5.6
Other Current Assets $ 28.1 $ 21.7
</TABLE>
Note 7: Property and Equipment
· Download Table
Property and equipment are stated at cost as follows:
Estimat
ed As Pre-
Useful Reorganiz Confirmati
ed on
Life January February
31, 1998 1, 1997
Land --- $ 1.8 $ 4.9
Buildings 10-47 6.0 24.0
years
Leasehold improvements 1-15 67.6 170.3
years
Furniture and equipment 3-8 52.8 137.3
years
Property held under capital leases 10-50 2.3 9.6
years
Total cost 130.5 346.1
Accumulated depreciation and (9.4) (200.1)
amortization
Property and equipment $ 121.1 $ 146.0
Depreciation and amortization expense was $10.1 for the 17 weeks
ended January 31, 1998, $20.4 for the 35 weeks ended October 4,
1997, and $35.3 and $52.1 for fiscal years 1996 and 1995,
respectively.
During 1996, the Company implemented SFAS 121, _Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed of._
Provisions made for impairments of long-lived assets were as
follows:
· Download Table
CAPTION
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year
Ended Ended Ended
January October February
31, 1998 4, 1997 1, 1997
Assets held for sale (corporate $ --- $ --- $ 4.8
land and buildings)
Buildings --- --- 21.5
Furniture, equipment and 2.1 2.3 5.3
leasehold improvements
Intangibles --- 0.2 42.4
Impairment of long-lived assets $ 2.1 $ 2.5 $ 74.0
Note 8: Other Assets
· Download Table
Components of other assets include:
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
Assets held for senior note interest escrow $ 10.3 $ 10.9
Intangible assets, net of accumulated 4.3 ---
amortization of $1.0
Prepaid pension expense (Note 9) 16.3 41.3
Other 8.4 10.2
Other Assets $ 39.3 $ 62.4
Pursuant to the Plan, the Company transferred assets held for
sale into an escrow account. The escrow assets consist of
corporate properties, some of which are no longer used by the
Company. Proceeds from the sale of these escrowed assets will be
used to pay interest obligations on the Senior Notes (Note 12).
Intangible assets consists of favorable lease rights for the
Corporate Headquarters Building and store locations, and are
being amortized over the remaining life of the leases.
· Download Table
Note 9: Other Current Liabilities
Components of other current liabilities includes:
As Pre-
Reorganiz Confirmatio
ed n
January 31 February 1,
1998 1997
Assumed prepetition reclamation $ 3.0 $ --
Accrued payroll and vacations 10.2 10.7
Other taxes 28.2 5.7
Other 31.4 24.6
Other Current Liabilities $ 72.8 $ 41.0
Other taxes as of January 31, 1998, include $12.7 in excise taxes
and $7.0 of income taxes related to the termination of the Old
Pension Plan (Note 10).
Note 10: Postretirement and Other Employee Benefits
On May 31, 1997, the Company's qualified pension plan existing as
of that date (the _Old Plan_) was terminated and a new qualified
plan (the _New Plan_) was implemented effective January 1, 1998.
Participants receiving benefits under the Old Plan received
annuity contracts purchased on their behalf. All participants
who were not receiving benefits under the Old Plan were fully
vested upon termination of the Old Plan. Such participants had
the option to have the net present value of their vested benefits
transferred into the New Plan, or converted into an annuity
contract. The Company, as a result of purchasing annuities for
retirees, recorded a pension settlement gain of $15.8 net of
excise taxes which is included in the consolidated statement of
operations for the 35 weeks ended October 4, 1997.
The New Plan covers employees who have met certain age and
service eligibility requirements. Qualified employees receive an
age-based credit calculated as a percentage of prior year
earnings. Interest is credited to participant accounts at the
average yield on 10-year U.S. Treasury securities.
In determining the actuarial present value of projected future
benefits for the 17 and 35 weeks of 1997 and for fiscal years
1996 and 1995, the weighted-average discount rate was 7.25%, 7.5%
and 7.0%, respectively, and the rate of increase in future
compensation levels was assumed to be 5.65% for each such period.
For the 17 and 35 weeks of 1997 and fiscal years 1996, and 1995,
the assumed rate of return on assets was 7.5%, 9.5% and 9.5%,
respectively. Plan assets consist primarily of equity and fixed
income securities.
· Download Table
The plans' funded status was as follows:
(New (Old Plan)
Plan) Pre-
As Confirmati
Reorganiz on
ed
January February
31, 1998 1, 1997
Actuarial present value:
Vested benefit obligation $ 21.3 $ 45.8
Nonvested benefit obligation --- 3.4
Accumulated benefit obligation 21.3 49.2
Projected benefit obligation (PBO) 23.0 60.0
Plan assets at market value 38.9 137.9
Plan assets in excess of PBO 15.9 77.9
Unrecognized net asset existing at year-end 0.4 (36.6)
Prepaid pension expense $ 16.3 $ 41.3
· Download Table
Net pension (income) expense includes the following components:
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October 1996 1995
31, 1998 4, 1997
Service cost $ 0.6 $ 1.6 $ $
1.9 1.5
Interest cost 0.4 2.3 4.2 3.5
Actual return on assets (0.5) (10.5) (24.3) (30.7)
Net amortization and deferrals (0.2) 4.0 13.6 21.5
Net pension (income) expense $ 0.3 $ (2.6) $ $
(4.6) (4.2)
The Company provides supplemental pension benefits under non-
qualified plans which are not funded. The total liability for
these plans was $5.2 as of January 31, 1998, and $5.5 as of
February 1, 1997. Net pension expense for these plans was $.1
for the 17 weeks ended January 31, 1998, $.6 for the 35 weeks
ended October 4, 1997, and $1.1 and $1.0 for fiscal years 1996
and 1995, respectively. The non-qualified pension liability is
classified as liabilities subject to settlement under
reorganization proceedings as of February 1, 1997, and included
in postretirement and other employee benefits as of January 31,
1998.
The Company provides an employee savings plan that permits
employees to make contributions in accordance with Internal
Revenue Code Section 401(k). Employees who meet age and service
requirements are eligible to participate by contributing up to
15% of their pretax compensation or the dollar threshold
established by the Internal Revenue Service. For 1997, 1996 and
1995, the Company matched a portion of the employee's
contribution under a predetermined formula based on the Company's
return on equity. Beginning January 1, 1997, the Company
matches, with cash, 25 cents for every dollar a participant
saves, up to 6% of his or her annual pay. The Company's expense
related to the plan was $.2 for the 17 weeks ended January 31,
1998, $.4 for the 35 weeks ended October 4, 1997, $.4 for fiscal
1996, and $.2 for fiscal 1995.
The Company at its discretion provides a defined-dollar benefit
health and life plan to its retirees and their eligible spouses
and dependents. To qualify, generally an employee must retire at
age 55 or later with at least 15 years of credited service under
the pension plan. The health care portion of the plan is
contributory, with retiree contributions subject to an annual
adjustment. The life insurance portion of the plan is
noncontributory. The Company funds, as needed, plan costs in
excess of retiree contributions. The Company has reserved the
right to modify or terminate these benefits.
· Download Table
The Company's accrued benefit costs for postretirement benefits
are as
follows:
As Pre-
Reorganiz Confirmati
ed on
January February
31, 1,
1998 1997
Accumulated postretirement benefit
obligation:
Retirees $ 29.0 $ 35.7
Fully-eligible active plan participants 1.6 1.9
Other active plan participants 3.2 3.3
Unrecognized net gain 6.8 1.4
Prior service cost 1.2 ---
Accrued contributions (0.3) (0.1)
Accrued postretirement benefit cost $ 41.5 $ 42.2
The accrued benefit cost was classified as liabilities subject to
settlement under reorganization proceedings as of February 1,
1997.
· Download Table
Postretirement benefit expense consists of:
As Pre-Confirmation
Reorganiz
ed
17 Weeks 35 Weeks Year Year
Ended Ended Ended Ended
January October February February
31, 1998 4, 1997 1, 1997 3, 1996
Service cost $ 0.1 $ 0.1 $ 0.2 $ 0.2
Interest cost 0.8 2.2 3.1 3.2
Postretirement $ 0.9 $ 2.3 $ 3.3 $ 3.4
benefit expense
The weighted average health care cost trend rate used in
measuring the accumulated postretirement benefit obligation is
7.5% for 1998, declining gradually to 5% by the year 2003 and
remaining at that level thereafter. A 1% increase in the assumed
health care cost trend rate would increase the accumulated
postretirement benefit obligation by $1.3 as of January 31, 1998,
and the net periodic postretirement benefit cost the 35 weeks
ended October 4, 1997, and the 17 weeks ended January 31, 1998,
by $0.1. The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% and
7.50% as of January 31, 1998, and February 1, 1997, respectively.
Note 11: Leases
Most of the Company's store operations are conducted in leased
premises. Some of the leases include options for renewal or
extension on various terms. Additionally, as part of the Plan,
the Company entered into a three year lease with renewal options
for the Corporate Headquarters Building. Minimum rentals for
operating leases were $29.1 for the 17 weeks ended January 31,
1998, $59.1 for the 35 weeks ended October 4, 1997 and $101.2 and
$136.3 for fiscal years 1996 and 1995, respectively. Additional
percentage rentals based on retail sales were $.4 for the 17
weeks ended January 31, 1998, $1.0 for the 35 weeks ended
October 4, 1997, $2.0, and $3.5 for fiscal years 1996 and 1995,
respectively. Most leases also require the payment of common
area expenses and real estate taxes.
· Download Table
Future minimum lease payments at January 31, 1998, were as
follows:
1998 $
80.2
1999 71.8
2000 60.6
2001 46.8
2002 34.8
Thereafter 57.3
Total future minimum lease payments $351.
5
Note 12: Financing Arrangements
SENIOR NOTES
Pursuant to the Plan, the Company issued senior notes in the
aggregate principal amount of $120 due on September 26, 2007
(_Senior Notes_). The Senior Notes bear interest at a fixed rate
of 11% per annum from July 31, 1997, payable semi-annually on
January 31 and July 31 of each year, commencing January 31, 1998.
At January 31, 1998, the estimated fair value of the Senior
Notes was $112.8. To secure the payment of approximately the
first three years of interest on the Senior Notes, the Company,
entered into a Funding Escrow Agreement. Additionally, the
Company transferred assets held for sale into the escrow account
(Note 6 and Note 8).
The Senior Notes may be redeemed, at the option of the Company,
in increments of not less than $5 at the following Redemption
Prices (expressed as percentages of the principal amount):
Emergence Date through June 30, 1998 100% of par
July 1, 1998 through June 30, 1999104% of par
July 1, 1999 through June 30, 2000103% of par
July 1, 2000 through June 30, 2001102% of par
July 1, 2001 through June 30, 2002101% of par
July 1, 2002 through September 26, 2007 100% of par
In the event a change in control occurs (as defined in the Trust
Indenture and First Supplemental Trust Indenture (together, the
_Indenture_) pursuant to which the Senior Notes were issued),
each Senior Note holder may, at the option of the holder, require
the Company to repurchase all or any of such holder's Senior
Notes at a price equal to 101% of par plus accrued interest. In
the event the Company makes extraordinary asset sales (as defined
in the Indenture) and if the net proceeds thereof not otherwise
required to be paid to other lenders exceeds $5, 50% of such net
sale proceeds must be used to pay principal under the Senior
Notes.
The Indenture limits, without prior consent, the incurrence of
new indebtedness and liens, disposition of assets and the payment
of dividends. As of January 31, 1998, the Company was in
compliance with these covenants.
CREDIT FACILITY
At the Emergence Date, the Company entered into a loan agreement
with Congress Financial Corporation as agent (the _Agent_) and
the CIT Group/Business Credit, Inc. as co-agent for a $200
revolving credit facility secured by inventory and other related
assets, to fund ongoing working capital needs and to provide
letter of credit financing (the _Credit Facility_). The Credit
Facility has a sublimit of $150 for the issuance of letters of
credit. The Credit Facility is intended to provide the Company
with the cash and liquidity to conduct its operations and expires
on September 26, 2002.
At the Company's option, the Company may borrow under the Credit
Facility at the Prime Rate (as defined in the Credit Facility),
or at the Eurodollar Rate (as defined in the Credit Facility)
plus 2.25%. The borrowing rate as of January 31, 1998, was 8.5%.
The maximum borrowing, up to $200, is limited to 60% of the value
of eligible inventory (as defined in the Credit Facility) or 85%
of the Net Recovery Cost Percentage of the inventory (as defined
in the Credit Facility) multiplied by the cost of eligible
inventory, plus 95% of the aggregate amount of cash held by the
Agent as collateral, less any availability reserves established
by the Agent. During the period commencing August 1 through and
including December 15 of each year, the borrowing limit
calculation uses 70% of eligible inventory and 100% of the Net
Recovery Cost Percentage.
The Company is required to pay an unused line of credit fee of
.375% per annum.
The Credit Facility as amended, contains covenants including,
among other restrictions, a limitation on store closings,
limitations on the incurrence of additional liens and
indebtedness, limitations on sales of assets, required minimum
adjusted net worth, as defined, and a prohibition on paying
dividends.
As of January 31, 1998, there were no outstanding borrowings
under the Credit Facility. Outstanding letters of credit were
$98.8 and available borrowings were $43.1, excluding excess
letters of credits related to the Company's previous credit
facility of $40.3. The weighted average of outstanding
borrowings and average interest rate was $6.6 and 8.5%,
respectively, for the 17 weeks ended January 31, 1998. On
April 13, 1998, the Credit Facility was amended to reduce the
minimum net worth requirement from $100 million to $70 million
during the period January 31, 1998, to February 3, 2001.
Other
The Company has outstanding promissory notes of $6.7, bearing
interest at rates between 6.25% and 6.5%. Certain of these notes
contain a put option, exercisable on January 1, 2000 and on each
January 1 thereafter, whereby, at the option of the noteholders,
the Company would be required to redeem in full the then
outstanding principal.
Note 13: Common Stock
The Reorganized Company is authorized to issue 100,000,000 shares
of common stock. At January 31, 1998, 9,291,900 shares had been
issued. Approximately 933,100 additional shares will be issued
upon completion of distributions under the Plan.
A total of 225,000 shares of restricted New Common Stock were
issued as of the Emergence Date to certain executives of the
Company. Such stock vests over periods up to two years from such
date and compensation is recognized over the vesting period based
on the fair value of the New Common Stock as of the issuance
date. Some of the stock issued to certain executives was vested
as of January 31, 1998, in connection with the termination of
their employment.
All per share data for the Reorganized Company in the financial
statements has been computed using the 10,225,000 total shares
expected to be issued under the terms of the Plan.
Stock Option Plans
Pursuant to the Plan, the 1997 Stock Option Plan (the _1997 Stock
Option Plan_), the 1997 Directors Stock Option Plan (the
_Directors Stock Option Plan_) and certain Restricted Stock
Agreements were approved.
The 1997 Stock Option Plan makes available for the granting of
options to key employees an aggregate of 800,000 shares of New
Common Stock. As of January 31, 1998, options with respect to
753,500 shares were outstanding under the 1997 Stock Option Plan.
The exercise price of these options is between $5.58 and $6.125
per share.
The Directors Stock Option Plan makes available for the granting
of options to members of the Board of Directors who are not
employees of the Company an aggregate of 200,000 shares of New
Common Stock. As of January 31, 1998, options with respect to
17,500 shares had been issued under the Directors Stock Option
Plan. The exercise price under these options is $5.58.
Outstanding stock options on January 31, 1998, were 771,000
shares at $5.58 to $6.125 per option. The weighted average
remaining contractual life was 9.8 years at a weighted average
exercise price of $5.78, no options were exercisable on January
31, 1998. Under the Plan, all options of the Pre-Confirmation
Company existing at September 26, 1997, were canceled.
Outstanding stock options on June 29, 1995, were adjusted, as a
result of the Dave & Buster's, Inc. spin-off. The number of
shares subject to each option was increased by 33.1% and the
exercise price was reduced by 24.9%.
During 1995, 175,050 options with exercise prices ranging from
$25.38 to $37.25 were canceled and reissued at an exercise price
of $14.81.
· Download Table
Activity under these plans was as follows:
As Reorganized
17 Weeks Ended 35 Weeks Ended
January 31, 1998 October 4, 1997
Weighted
average Option
Number of price Number price
Options per of per share
share Options
Outstandin
g at
beginning --- $ --- 629,601 $ 4.31-
of period 27.98
Granted 826,500 5.77 --- ---
Exercised --- --- --- ---
Canceled (55,500) 5.58 (629,601 4.31-27.98
)
Outstandin
g at end 771,000 5.78 --- ---
of period
Shares
exercisabl
e at end --- --- --- ---
of period
· Download Table
Year Ended Year Ended
February 1, 1997 February 3, 1996
Option Option
Number price Number Price
of per share of Per share
Options Options
Outstanding
at
beginning 1,108,0 $4.31- 1,068,2 $16.13-
of period 96 27.98 31 37.25
Granted --- --- 902,080 4.31-27.98
Exercised --- --- --- ---
Canceled (478,49 11.13- (862,21 11.13-
5) 27.98 5) 37.25
Outstanding
at end of 629,601 4.31- 1,108,0 4.31-27.98
period 27.98 96
Shares
exercisable
at end of 195,391 --- 321,153 ---
period
The Company has elected to account for stock options using
Accounting Principles Board Opinion No. 25, _Accounting for Stock
Issued to Employees_ (_APB 25_). Under APB 25, because the
exercise price of the Company's stock options generally equals
the market price of the underlying stock at the date of grant, no
compensation expense is recognized.
The fair value of options granted was estimated using the
Black-Scholes option-pricing model with the following
assumptions: expected dividend yield of 0%, expected volatility
of 50%, risk-free interest rate of 6.2% and expected option life
of 10 years. Had compensation expense been determined using
SFAS 123, the Company's net loss for the 17 weeks ended
January 31, 1998, would have been $15.6 and basic and diluted
loss per share would have been $1.52. As a result of changing
assumptions and future option grants, these hypothetical
calculations are not expected to be representative of future
calculations.
Common Stock Warrants
Pursuant to the Warrant Agreement entered into in accordance with
the Plan, the Company has issued 1,008,791 warrants to purchase
shares of New Common Stock (the _Warrants_). Each Warrant
entitles the holder thereof to purchase one share of New Common
Stock at an exercise price of $16.40 per share, subject to
adjustments in certain circumstances. The Warrants expire on
September 26, 2005.
Holders of the Warrants have no voting rights, and are not
entitled to receive dividends or other distributions on the New
Common Stock. Also, holders of the Warrants will not be entitled
to share in any of the assets of the Company upon liquidation,
dissolution or winding up of the Company. If at any time the
daily market price of the New Common Stock, as calculated
pursuant to the terms of the Warrant Agreement, exceeds 200% of
the then current exercise price, the Company will have the right
upon written notice to repurchase the Warrants for a purchase
price of $1.00 per Warrant.
Note 14: Acquisitions and Dispositions
During 1995, the Company made acquisitions for an aggregate cash
consideration of $14.1. Assets of $19.9 and liabilities of $5.8
were recorded in connection with the acquisitions. The
acquisitions were accounted for by the purchase method, and
operating results of the acquired entities have been included in
the consolidated financial statements since their respective
acquisition dates.
Effective June 29, 1995, the Company distributed all of the
outstanding shares of common stock of Dave & Buster's, Inc. owned
by the Company to the Company's stockholders of record as of June
19, 1995. Prior to the distribution, Dave & Buster's had been a
majority-owned subsidiary engaged in the ownership and operation
of restaurant/entertainment complexes. No gain or loss was
recorded as a result of the distribution. The distribution was
recorded as a dividend and, accordingly, the Company reduced
retained earnings by the net book value distributed. Through the
distribution date, Dave & Buster's reported 1995 net income of
$1.0. As of June 29, 1995, it had total assets of $49.2 and a
net book value of $30.9.
In January 1996, the Company sold substantially all of the assets
of its mall entertainment division. At the date of the sale, the
mall entertainment division had total assets of $51.8 and a net
book value of $44.9. The Company recorded a loss of $24.7 in
1995 in connection with the sale. The Company disposed of the
remaining mall entertainment division in September 1997.
Provisions of $.1, $.9 and $8.3 were recorded for the 35 weeks
ended October 4, 1997, 1996 and 1995, respectively, related to
the remaining assets to be disposed. For the 35 weeks ended
October 4, 1997, fiscal years 1996 and 1995, the mall
entertainment division reported net losses of $.5, $.5, and $1.8,
respectively.
Note 15: Business Segments
The Company conducts its business in two segments: apparel and
footwear. Apparel's operations include J. Riggings, JW/Jeans
West Group, Repp, Ltd, and 5-7-9. Footwear's operations include
Bakers/Leeds and Wild Pair. Corporate includes the results of
some experimental concepts that are no longer in operation.
· Download Table
Net retail sales Operating loss
As As
Reorga Pre-Confirmation Reorga Pre-Confirmation
nized nized
17 35 17 35
Weeks Weeks Year Year Weeks Weeks Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Januar Octob Februar Februar Januar Octobe Februar Februar
y 31, er 4, y 1, y 3, y 31, r 4, y 1, y 3,
1998 1997 1997 1996 1998 1997 1997 1996
Apparel $ $421. $ 765.9 $ 952.3 $(4.0) $(4.8) $(44.4) $(129.5
237.0 8 )
Footwear 99.1 190.7 320.7 367.9 (1.8) (3.7) (15.5) (8.9)
336.1 612.5 1,086.6 1,320.2 (5.8) (18.5) (59.9) (138.4)
Corporat --- 1.3 3.8 69.2 (3.6) (35.0) (77.5) (87.5)
e and
other
Interest --- --- --- --- (4.9) (4.3) (2.4) (25.2)
expense,
net
$ $613. $1,090. $1,389. $(14.3 $(57.8 $(139.8 $(251.1
336.1 8 4 4 ) ) ) )
· Download Table
Depreciation and amortization Capital expenditures
As As
Reorga Pre-Confirmation Reorga Pre-Confirmation
nized nized
17 35 17 35
Weeks Weeks Year Year Weeks Weeks Year Year
Ended Ended Ended Ended Ended Ended Ended Ended
Januar Octobe Februa Februa Januar Octobe Februa Febru
y 31, r 4, ry 1, ry 3, y 31, r 4, ry 1, ary
1998 1997 1997 1996 1998 1997 1997 3,
1996
Apparel $ $ 13.6 $ 28.6 $ 36.9 $ $ 16.0 $ 15.7 $
6.3 9.1 11.2
Footwear 2.4 5.3 9.4 10.1 2.6 4.1 5.0 10.4
8.7 18.9 38.0 47.0 11.7 20.1 20.7 21.6
Corporate 3.3 1.6 3.2 15.8 2.1 7.1 1.2 15.6
and other
$ 12.0 $ 20.5 $ 41.2 $ 62.8 $ 13.8 $ 27.2 $ 21.9 $
37.2
· Download Table
Identifiable assets
As
Reorgan Pre-Confirmation
ized
January Februar Februar
31, y 1, y 3,
1998 1997 1996
Apparel $ 224.3 $ 267.1 $ 362.2
Footwear 101.6 100.9 131.2
325.9 368.0 493.4
Corporate 117.1 276.9 268.1
and other
$ 443.0 $ 644.9 $ 761.5
· Download Table
Note 16: Quarterly Information (Unaudited)
(Dollars in Millions, except per share data)
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
13 Weeks 13 Weeks 13 Weeks 13 Weeks
Pre- Pre- As Pre- As Pre-
Confirmation Confirmation Reorg Confirmation Reorga Confir
anize nized mation
d
4 9
Weeks Weeks
Ended Ended
Novem Octobe
ber r 4,
1,
1997 1996 1997 1996 1997 1997 1996 1997 1996
Net $224. $258. $236. $268. $ $ $ $ $
retail 0 1 6 8 62.7 153.2 255.2 273.4 308.3
sales
Cost of
goods
sold, 158.1 183.7 165.4 207.3 48.7 111.7 182.9 196.5 221.0
occupanc
y and
buying
expenses
Net (17.1 (17.7 0.2 (25.2 (6.8) (30.0) (11.5) (8.6) (88.8)
income ) ) )
(loss)
Per
common
shares:
Net (0.77 (0.80 0.01 (1.14 (0.67 (1.35) (0.52) (0.84) (4.00)
income ) ) ) )
(loss)
Dividend --- --- --- --- --- --- --- --- ---
s
Common
stock
market
price:
High 1.94 2.94 1.19 3.88 0.50 0.56 1.81 9.25 2.19
Low 0.45 1.31 0.25 1.63 0.13 0.38 1.06 0.13(a 1.06
)
<fn8>
(a) The market price of the new Common Stock was between $4.75
and $9.25 during the 4th quarter of 1997.
</fn8>
· Download Table
FIVE YEAR FINANCIAL SUMMARY (Unaudited)
(Dollars in Millions, except per share data)
As Pre-Confirmation
Reorga
nized
As of As of
and and for Year Year Year Year
for the Ended Ended Ended Ended
the 35 Februar Februar January January
17 Weeks y 1, y 3, 28, 29,
Weeks Ended 1997 1996 1995 1994
Ended October
Januar 4,
y 31, 1997
1998
Stores at the end of 1,605 1,634 1,745 2,077 2,761 2,866
the period
Net retail sales $336.1 $613.8 $1,090. $1,389. $1,476. $1,462.
4 4 4 9
Income (loss) before
extraordinary item (15.4) (58.1) (143.2) (222.0) 20.5 20.9
and effects of fresh
start adjustments
Total assets 443.0 519.1 644.9 761.5 893.8 873.1
Long-term debt 127.7 128.0 --- --- 173.5 159.2
Common stockholders' 121.7 137.6 (2.1) 140.4 387.2 407.9
equity (deficit)
Per basic common
share:
Income (loss) before
extraordinary item $(1.51 $ $ $ $ $
and effects of fresh ) (2.62) (6.46) (10.06) 0.93 0.95
start adjustments
Dividends on common --- --- --- 0.42 1.24 1.24
stock
<fn9>
Long-term debt has been reclassified to liabilities subject to
settlement under reorganization proceedings in 1996 and 1995
(Note 3 to the consolidated financial statements).
</fn9>
Board of Directors
Jeffrey A. Cole
Chairman and Chief Executive Officer,
Cole National Corporation
Jacob W. Doft
Managing Director,
Highline Capital Management, L.L.C.
H. Michael Hecht
President and Chief Executive Officer,
Dickson Trading (North America) Inc.
Lawrence E. Honig
Chairman and Chief Executive Officer,
Edison Brothers Stores Inc.
Randolph I. Thornton
Managing Director and Senior Credit Officer,
Citibank N.A.
Stephen E. Watson
President and Chief Executive Officer,
Gander Mountain, L.L.C.
Edison Senior Management
Lawrence E. Honig, Chairman and Chief Executive Officer
Karl W. Michner, Chairman, Edison Merchandising Committee
Carol Williams, President, 5-7-9
Michael Fine, President, Edison Footwear Group
Paul Eisen, President, JW/Coda/Oaktree Group
John Oehler, President, J. Riggings
Steve Thomas, President, REPP Ltd.
Peter Hirschhorn, Co-general Manager, Edison Brothers Stores
International
Alison Talbot, Co-general Manager, Edison Brothers Stores
International
John F. Burtelow, Executive Vice President, Chief
Administrative Officer and Chief Financial Officer
Timothy W. Brannon, Senior Vice President, Stores
Kimberly Richmond, Senior Vice President, Marketing
Lee Johnson, Senior Vice President, Human Resources
Mark H. Brown, Senior Vice President, Real Estate and
Construction
Alan A. Sachs, Senior Vice President, General Counsel and
Secretary
Lawrence Pyles, Vice President, Chief Information Officer
Thomas McCain, Vice President, Controller
Denise R. Parker, Vice President, Planning and Allocation
George M. Spreiser, Vice President, Logistics
Corporate Headquarters
Edison Brothers Stores Inc.
501 N. Broadway
St. Louis, MO 63102-2102
(314) 331-6000
Transfer Agent and Registrar
ChaseMellon Shareholder Services, L.L.C.
85 Challenger Rd.
Overpeck Center
Ridgefield Park, NJ 07660
For correspondence, use:
P.O. Box 3315
South Hackensack, NJ 07607-1900
Independent Auditors
Arthur Andersen, L.L.P.
St. Louis, MO
Annual Meeting
The Annual Meeting of Stockholders will take place Wednesday,
June 10, 1998, at 11 a.m. at Edison Brothers Stores Inc.
headquarters at the address listed above.
Common Stock
The common stock of Edison Brothers Stores Inc. is listed on the
Nasdaq National Market under the trading symbol _EDBR._
Information Requests
To obtain news releases, sales releases and SEC reports
(including Form 10-K), please call (314) 331-6000 or visit the
company Web site at www.edisonbrothers.com. Additional queries
may be directed to Shareholder Relations at the corporate
headquarters address listed above.
Edison Brothers' more than 14,000 associates salute our
shareholders, vendors and customers, and we look forward to
continuing the partnership that will build the company's future
success.
Dates Referenced Herein and Documents Incorporated By Reference
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