-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, WrUrvoL/GHKVO89TkGSYP5B7cCRQix3lDIieTtwM1fk1Wcx4UfFh2suXCAXUK1Do yzNJOWiCP6WtB23jLTrd1g== 0000918507-94-000005.txt : 19940825 0000918507-94-000005.hdr.sgml : 19940825 ACCESSION NUMBER: 0000918507-94-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19940129 FILED AS OF DATE: 19940429 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STRAWBRIDGE & CLOTHIER CENTRAL INDEX KEY: 0000094855 STANDARD INDUSTRIAL CLASSIFICATION: 5311 IRS NUMBER: 231131660 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-01308 FILM NUMBER: 94525156 BUSINESS ADDRESS: STREET 1: 801 MARKET ST CITY: PHILADELPHIA STATE: PA ZIP: 19107-3199 BUSINESS PHONE: 2156296779 MAIL ADDRESS: STREET 1: 801 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19107-3199 10-K 1 STRAWBRIDGE 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) { X } Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended January 29, 1994 or { } Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ____________ to ___________ Commission File Number 0-1308 STRAWBRIDGE & CLOTHIER (Exact name of registrant as specified in its charter) Pennsylvania 23-1131660 (State or other jurisdiction (I.R.S. Employer of Identification No.) incorporation or organization) 801 Market Street Philadelphia, Pennsylvania 19107-3199 (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (215) 629-6000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Series A Common Stock, par value $1 per share (Title of class) $5 Cumulative Preferred Stock, par value $100 per share (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ 1 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the Series A Common Stock and the Series B Common Stock, par value $1 per share, of the registrant held by nonaffiliates of the registrant as of April 7, 1994 was $215,517,862. The number of shares of Series A Common Stock, par value $1 per share, of the registrant outstanding at April 7, 1994 was 7,152,172. The number of shares of Series B Common Stock, par value $1 per share, of the registrant outstanding at April 7, 1994 was 3,234,231. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the 1993 Annual Report to shareholders are incorporated by reference in Part II. (2) Portions of the definitive 1994 annual meeting proxy statement filed with the Securities and Exchange Commission on April 21, 1994 pursuant to Regulation 14A are incorporporated by reference in Part III. 2 PART I Item 1. Business. Strawbridge & Clothier (the "Company") operates 13 department stores at its original location in Philadelphia and in the surrounding Delaware Valley area of Pennsylvania, New Jersey and Delaware. The Company also operates, under the Clover name, 25 discount stores in the same market area as well as in the Lehigh Valley and Lancaster areas of Pennsylvania. The Company is the successor to a business begun in 1868. All of the Company's department stores carry most of the classes of general merchandise usually offered by full-line department stores. Among the principal types of merchandise sold are men's, women's and children's apparel, including men's and boys' clothing, furnishings and footwear, women's coats, suits, dresses, furs, sportswear, intimate apparel, accessories, shoes and jewelry and infants' and children's clothing and accessories; smallwares, including cosmetics, stationery and candy; home furnishings, including domestics, draperies, lamps, housewares, furniture, rugs, television sets, audio equipment, china, glassware and silverware; and gifts. The department stores also provide various services such as interior decorating, beauty salons, restaurants, jewelry repair and fur storage. The Company has arrangements with several common carriers for the delivery by truck of merchandise to its department store customers throughout the Company's trading area. The Clover stores offer a complete range of general merchandise exclusive of major appliances and furniture. No home delivery or other services are provided except for cafeteria- style restaurant service in two stores, snack bars in all stores, pharmacies in eight stores and beauty salons in nine stores. The Company's merchandise is sold under a broad variety of brand names including the Company's own brand names, manufacturers' brand names, and several brand names owned by the Associated Merchandising Corporation, of which the Company is a member. Strawbridge & Clothier charge cards, VISA, MasterCard, American Express and Discover cards are accepted at both the department stores and Clover stores. In the fiscal year ended January 29, 1994, approximately 37% of sales were on a cash basis and 63% of sales were credit sales. The Company's stores have sales activity throughout the year. Approximately 30% of annual sales are made in the peak period of November and December. 1 As of January 29, 1994, the Company had 5,351 full time employees, 1,969 regular part time employees and 4,784 contingent employees who are scheduled as needed. There has not been any significant change in the kinds of services rendered, or in the markets or methods of distribution, since the beginning of the fiscal year ended January 29, 1994. The general merchandise business in the Company's principal market of downtown Philadelphia and the surrounding Delaware Valley area of southeastern Pennsylvania, southern New Jersey and northern Delaware is highly competitive. The Company competes on the basis of quality of merchandise, customer service, price and store location. The Company's department and discount stores are in active competition with national chain, regional chain and local retail stores within their market areas, including conventional and discount department stores, specialty stores and mail order companies. Many of the Company's competitors have considerably larger national sales and financial resources than the Company. Item 2. Properties. The Company's main department store is in downtown Philadelphia and its 12 suburban branch department stores are located in the surrounding Delaware Valley area of southeastern Pennsylvania (seven stores), southern New Jersey (three stores) and northern Delaware (two stores). The Philadelphia department store contains approximately 1,065,000 square feet of floor area. The suburban branch department stores generally contain from 150,000 to 255,000 square feet, with one store containing 108,000 square feet of floor area. All of the branch department stores are located in shopping centers or malls. The Company's 25 Clover discount stores are located in the same market area as its department stores (15 in southeastern Pennsylvania, six in southern New Jersey and one in northern Delaware), as well as in the Lehigh Valley (two stores) and Lancaster (one store) areas of Pennsylvania. The Clover stores contain from 70,000 to 157,000 square feet of floor area. The Company owns 15 of its stores, of which two are on leased land and six are subject to mortgages or similar liens. The Company leases the remainder of the stores from third parties with, in most cases, long-term renewal rights or an option to purchase. The Company also maintains warehouse and distribution facilities in Philadelphia and New Jersey. Item 3. Legal Proceedings. There are no material pending legal proceedings to which the Company or its subsidiaries is a party or of which any of their property is subject. The Company is a party to ordinary 2 routine legal proceedings incidental to the conduct of its business, none of which are material. Item 4. Submission of Matters to a Vote of Security Holders. This item is not applicable because there were no matters submitted to a vote of security holders during the fourth quarter of fiscal year 1993. Executive Officers of the Registrant. Office Held Name Age Office(1) Since (2) Francis R. 56 Chairman of the Board 1984 Strawbridge, III(3) Peter S. Strawbridge(3) 55 President 1979 Warren W. White 62 Executive Vice 1979 President Steven L. 50 Vice President, Strawbridge(3) Treasurer and 1982 Secretary Ronald B. Avellino 55 Vice President 1987 Louis F. Busico 59 Vice President 1979 Harry T. Hinkel 55 Vice President 1993 Robert A. Hoffner 51 Vice President 1984 Charles D. Hollander 63 Vice President 1988 Alexander B. Jervis 50 Vice President 1992 Alice T. Kanigowski 55 Vice President 1986 John J. Leahy 63 Vice President 1969 Robert G. Muskas 55 Vice President 1980 Thelma A. Newman 54 Vice President 1994 E. Spencer Quill 52 Vice President 1990 Thomas S. Rittenhouse 52 Vice President 1978 G. Leonard Shea 60 Vice President 1977 David W. Strawbridge(3) 54 Vice President 1978 William A. Timmons 58 Vice President 1979 3 __________ (1) Each executive officer has been employed by the Company as an executive officer for at least the past five years, except for E. Spencer Quill who was Director of Administration and Distribution prior to his election in 1990; Alexander B. Jervis who was Director of Assets Protection prior to his election in 1992; Harry T. Hinkel who was a Store Manager prior to his election in 1993; and Thelma A. Newman who was a Divisional Merchandise Manager prior to her election in 1994. (2) The executive officers of the Company are elected annually to hold office until the annual organization meeting of the Board of Directors and until their respective successors shall have been duly elected and qualified. (3) Peter S. Strawbridge and Steven L. Strawbridge are brothers and are first cousins of Francis R. Strawbridge, III and David W. Strawbridge, who also are brothers. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The information appearing in the section captioned "Market and Dividend Information" from the portions of the Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 6. Selected Financial Data. The information appearing in the section captioned "Ten-Year Financial Summary" from the portions of the Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information appearing in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" from the portions of the Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The information appearing in the sections captioned "Consolidated Statements of Operations," "Consolidated Balance Sheets," "Consolidated Statements of Cash Flows," "Consolidated 4 Statements of Common Shareholders' Equity," "Notes to Consolidated Financial Statements," "Statement of Management Responsibility" and "Report of Ernst & Young, Independent Auditors" from the portions of the Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K are incorporated herein by reference. The information appearing in the section captioned "Quarterly Results of Operations" from the portions of the Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K is incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. This item is not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. The information as to directors required by this item is incorporated herein by reference from the section captioned "Election of Directors" in the Company's definitive 1994 annual meeting proxy statement which has been filed pursuant to Regulation 14A. The required information as to executive officers is set forth in Part I hereof and incorporated herein by reference. Item 11. Executive Compensation. The information required by this item is incorporated herein by reference from the section captioned "Executive Compensation" in the Company's definitive 1994 annual meeting proxy statement which has been filed pursuant to Regulation 14A. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information called for by this item is incorporated herein by reference from the section captioned "Beneficial Ownership of Voting Securities" in the Company's definitive 1994 annual meeting proxy statement which has been filed pursuant to Regulation 14A. Item 13. Certain Relationships and Related Transactions. None. PART IV 5 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) All financial statements and schedules. A list of the financial statements and supporting schedules included in this Report appears on page F-1 hereof. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last fiscal quarter of the fiscal year covered by this Report. (c) Exhibits. (3) (i) Restated Articles of the Company filed on January 3, 1990 with the Department of State of the Commonwealth of Pennsylvania, as filed as Exhibit 3(a) to Form 10-K for the fiscal year ended February 3, 1990, are incorporated herein by reference. (ii) By-Laws, effective October 1, 1989, as filed as Exhibit 3(b) to Form 10-K for the fiscal year ended February 3, 1990, are incorporated herein by reference. (4.1) Note Purchase Agreement dated as of November 1, 1977 relating to 8 1/2% Secured Notes of S&C, Center Square, Inc. due August 1, 2003.* (4.2) Note Agreement dated November 22, 1985 relating to 11.50% Senior Notes of Strawbridge & Clothier due November 15, 2000.* (4.3) Indenture dated as of October 15, 1993 relating to 6 5/8% Notes of Strawbridge & Clothier due October 15, 2003.* (4.4) Note Agreement dated September 14, 1989 relating to Strawbridge & Clothier Senior Notes, 9.20% Series A due * Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the document listed is not filed with this Report. Registrant agrees to furnish a copy of such document to the Commission upon request. 6 September 30, 2004 and 9.00% Series B due September 30, 1999.* (4.5) Note Agreement dated October 13, 1992 relating to Strawbridge & Clothier 7.04% Senior Notes due October 15, 1997.* (10) Management Contracts or Compensatory Plans or Arrangements Required to be filed as Exhibits: (10.1) Deferred Compensation Plan for Key Executive Employees of Strawbridge & Clothier as amended and restated effective February 1, 1985, as filed as Exhibit (10) to Form 10-K for the fiscal year ended February 2, 1985, is incorporated herein by reference. (10.2) 1985 Stock Option Plan of Strawbridge & Clothier as amended effective February 22, 1989, as filed as Exhibit 10(b) to Form 10-K for the fiscal year ended January 28, 1989, is incorporated herein by reference. (10.3) 1991 Stock Option Plan of Strawbridge & Clothier, as filed as Exhibit 10(c) to Form 10-K for the fiscal year ended February 1, 1992, is incorporated herein by reference. (10.4.1) Form of Employment Agreement for executive officers of the Company as filed as Exhibit 10.4.1 to Form 10-K for the fiscal year ended January 30, 1993, is incorporated herein by reference. (10.4.2) Schedule of certain terms of Employment Agreements for the executive officers named in the Company's Summary Compensation Table for the fiscal year ended January 29, 1994. (11) Statement re: Computation of per share earnings. (13) Portions of the 1993 Annual Report to Shareholders, included as part of this Report. 7 (21) Subsidiaries of the Registrant, as filed as Exhibit 21 to Form 10-K for the fiscal year ended January 30, 1993, is incorporated herein by reference. (23) Consent of Ernst & Young, Independent Auditors. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STRAWBRIDGE & CLOTHIER (Registrant) By /s/Francis R. Strawbridge, III Francis R. Strawbridge, III Chairman of the Board Dated: April 27, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Margaret S. Clews 04/27/1994 Isaac H. Clothier, IV 04/27/1994 Margaret S. Clews Isaac H. Clothier, IV Director Director James M. Gassaway 04/27/1994 Richard H. Hall 04/27/1994 James M. Gassaway Richard H. Hall Director Director Thomas B. Harvey, Jr. 04/27/1994 Anne C. Longstreth 04/27/1994 Thomas B. Harvey, Jr. Anne C. Longstreth Director Director Paul E. Shipley 04/27/1994 David W. Strawbridge 04/27/1994 Paul E. Shipley David W. Strawbridge Director Director and Vice President Francis R. Strawbridge, III 04/27/1994 Francis R. Strawbridge, III Director and Chairman of the Board (co-principal executive officer) 1 Peter S. Strawbridge 04/27/1994 Steven L. Strawbridge 04/27/1994 Peter S. Strawbridge Steven L. Strawbridge Director and President Director, Vice President (co-principal executive officer) Treasurer and Secretary (principal financial officer) Thomas S. Rittenhouse 04/27/1994 Warren W. White 04/27/1994 Thomas S. Rittenhouse Warren W. White Vice President and Controller Director and Executive (principal accounting officer) Vice President 2 FORM 10-K -- ITEM 14(a)(1) and (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES STRAWBRIDGE & CLOTHIER AND SUBSIDIARIES The following consolidated financial statements of Strawbridge & Clothier and subsidiaries and the report of independent auditors thereon and a statement of management responsibility, included in the 1993 Annual Report to shareholders, are incorporated by reference in Item 8: Consolidated Statements of Operations--Fiscal years ended January 29, 1994, January 30, 1993 and February 1, 1992 Consolidated Balance Sheets--January 29, 1994 and January 30, 1993 Consolidated Statements of Cash Flows--Fiscal years ended January 29, 1994, January 30, 1993 and February 1, 1992 Consolidated Statements of Common Shareholders' Equity-- Fiscal years ended January 29, 1994, January 30, 1993 and February 1, 1992 Notes to Consolidated Financial Statements The following consolidated financial statement schedules of Strawbridge & Clothier and subsidiaries are included herein: Schedule V--Property, Plant and Equipment Schedule VI--Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment Schedule VIII--Valuation and Qualifying Accounts Schedule IX--Short-Term Borrowings Schedule X--Supplementary Income Statement Information All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 1 Strawbridge & Clothier and Subsidiaries Schedule V--Property, Plant, and Equipment (in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F Balance at Other Changes Balance at Classification Beginning Additions Add (Deduct)-- End of Period at Cost Retirements Describe (1) of Period Fiscal year ended January 29, 1994 Land $ 20,363 $ $ $ $ 20,363 Buildings 285,026 4,684 180 57 289,587 Fixtures and equipment 215,057 11,934 2,385 741 225,347 Transportation equipment 563 105 42 626 Leasehold improvements 44,432 4,941 339 41 49,075 Construction in progress 4,141 1,085 436 (839) 3,951 Totals $569,582 $22,749 $3,382 $ $588,949 Fiscal year ended January 30, 1993 Land $ 20,363 $ $ $ $ 20,363 Buildings 271,009 11,563 2,454 285,026 Fixtures and equipment 205,288 7,877 485 2,377 215,057 Transportation equipment 562 49 48 563 Leasehold improvements 43,520 779 36 169 44,432 Construction in progress 6,797 2,649 305 (5,000) 4,141 Totals $547,539 $22,917 $874 $ $569,582 Fiscal year ended February 1, 1992 Land $ 19,538 $ 825 $ $ $ 20,363 Buildings 259,964 9,099 112 2,058 271,009 Fixtures and equipment 197,776 9,806 5,536 3,242 205,288 Transportation equipment 544 41 23 562 Leasehold improvements 40,784 1,595 1,141 43,520 Construction in progress 13,633 3,852 218 (10,470) (2) 6,797 Totals $532,239 $25,218 $5,889 $( 4,029) $547,539 (1) Transfers between property accounts. (2) Includes reimbursement by lessor of $4,029 for new store construction. Note: The annual provisions for depreciation have been computed based upon the following ranges of useful lives: Buildings and leasehold improvements - 5 to 60 years Fixtures and equipment and transportation equipment - 4 to 16-2/3 years
3 Strawbridge & Clothier and Subsidiaries Schedule VI--Accumulated Depreciation, Depletion, and Amortization of Property, Plant, and Equipment (in thousands)
COL. A COL. B COL. C COL. D COL. E COL.F Other Additions Changes Balance at Charged to Add Balanceat Beginning Costs and (Deduct)-- End Description of Period Expenses Retirements Describe ofPeriod Fiscal year ended Janaury 29, 1994 Buildings $ 99,274 $ 9,834 $ 186 $ $108,922 Fixtures and equipment 146,296 16,512 2,124 160,684 Transportation equipment 409 75 28 456 Leasehold improvements 16,446 2,408 335 18,519 Totals $262,425 $28,829 $2,673 $ $288,581 4 Fiscal year ended January 30, 1993 Buildings $ 89,985 $ 9,289 $ $ $99,274 Fixtures and equipment 130,145 16,635 484 146,296 Transportation equipment 386 71 48 409 Leasehold improvements 14,147 2,327 28 16,446 Totals $234,663 $28,322 $560 $ $262,425 Fiscal year ended February 1, 1992 Buildings $ 81,294 $ 8,740 $ 49 $ $89,985 Fixtures and equipment 116,597 17,703 4,155 130,145 Transportation equipment 335 74 23 386 Leasehold improvements 11,954 2,193 14,147 Totals $210,180 $28,710 $4,227 $ $234,663 5
Strawbridge & Clothier and Subsidiaries Schedule VIII--Valuation and Qualifying Accounts (in thousands)
COL. A COL. B COL. C COL. D COL. E Additions Balance at Charged to Charged to Balance at Description Beginning Costs and Other Deductions- End of Period Expenses Accounts-- - of Period Describe Describe Fiscal year ended January 29, 1994 Reserves and allowances deducted From asset accounts: Allowance for doubtful accounts $5,000 $4,724 $ $4,724 (1) $5,000 Fiscal year ended January 30, 1993 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $5,000 $6,638 $ $6,638 (1) $5,000 6 Fiscal year ended February 1, 1992 Reserves and allowances deducted from asset accounts: Allowance for doubtful accounts $4,200 $7,332 $ $6,532 (1) $5,000 (1) Accounts written off during year, net of recoveries.
7 Strawbridge & Clothier and Subsidiaries Schedule IX--Short-Term Borrowings (in thousands)
COL. A COL. B COL. C COL. D COL. E COL. F Maximum Average Weighted Weighted Amount Amount Average Balance at Average Outstanding Outstanding Interest Rate Category of Aggregate End Interest During the During the During the Short-Term Borrowings of Period Rate Period Period (2) Period (3) Fiscal year ended January 29, 1994 Notes payable to banks (1) $43,500 3.59% $96,500 $50,578 3.72% Fiscal year ended January 30, 1993 Notes payable to banks (1) $27,500 3.71% $86,000 $53,665 4.51% Fiscal year ended February 1, 1992 Notes payable to banks (1) $32,000 5.05% $73,000 $42,402 6.12% 8 (1) Represents amounts outstanding under short-term bank credit lines which have no termination date, but are reviewed periodically for renewal. (2) The average amount outstanding during the period is the daily average of outstanding principal balances. (3) The weighted average interest rate during the period was computed by dividing the actual interest expense by average short-term debt outstanding.
9 Strawbridge & Clothier and Subsidiaries Schedule X--Supplementary Income Statement Information (in thousands) COL. A COL. B Item Charged to Costs and Expenses Fiscal Year 1993 1992 1991 Advertising costs $28,835 $25,886 $25,971 Amounts for maintenance and repairs, depreciation and amortization of intangible assets, taxes, other than payroll and income taxes, and royalties are not presented because the registrant does not incur such expenses or because such amounts are less than 1% of total sales and revenues. 10 Exhibit Index Exhibit No. Page No. (10.4.2) Schedule of certain terms of Employment Agreements for the executive officers named in the Company's Summary Compensation Table for the fiscal year ended January 29, 1994. (11) Statement re: Computation of per share earnings. (13) Portions of the 1993 Annual Report to Shareholders, included as part of this Report. (23) Consent of Ernst & Young, Independent Auditors. 11 EX-10.4.2 2 SCHEDULE OF CERTAIN TERMS OF EMPLOYMENT EXHIBIT 10.4.2 SCHEDULE OF CERTAIN TERMS OF EMPLOYMENT AGREEMENTS FOR THE EXECUTIVE OFFICERS NAMED IN THE COMPANY'S SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED JANUARY 29, 1994 Three-Year Term Executive Officer Salary Commencing Peter S. Strawbridge $310,000 January 31, 1993 Francis R. Strawbridge, III 300,000 January 31, Warren W. White 260,000 1993 Robert G. Muskas 180,000 January 31, 1993 Natalie B. Weintraub 177,000 January 31, 1993 January 31, 1993 EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS Strawbridge & Clothier and Subsidiaries Exhibit 11--Statement re: Computation of Per Share Earnings
Year ended January 29, January 30, February 1, 1994 1993 1992 (in thousands, except per share data) Primary Average shares outstanding 10,316 10,196 10,074 Net effect of dilutive stock options--based on the treasury stock method using average market price 8 20 25 Total 10,324 10,216 10,099 Earnings before cumulative effect of accounting changes $17,727 $18,020 $13,568 Less: preferred stock dividends 17 26 35 17,710 17,994 13,533 Cumulative effect of accounting changes (16,850) Total $17,710 $ 1,144 $13,533 Earnings per share: Before cumulative effect of accounting changes $1.71 $1.76 $1.34 Cumulative effect of accounting changes (1.65) Net earnings $1.71 $.11 $1.34 Fully diluted Average shares outstanding 10,316 10,196 10,074 Net effect of dilutive stock options--based on the treasury stock method using the year-end market price, if higher than average market price 9 23 25 Total 10,325 10,219 10,099 Earnings before cumulative effect of accounting changes $17,727 $18,020 $13,568 Less: preferred stock dividends 17 26 35 17,710 17,994 13,533 Cumulative effect of accounting changes (16,850) Total $17,710 $ 1,144 $13,533 Earnings per share: Before cumulative effect of accounting changes $1.71 $ 1.76 $1.34 Cumulative effect of accounting changes (1.65) Net earnings (1) $1.71 $.11 $1.34 (1) This calculation is submitted in accordance with the requirements of Regulation S-K although not required by APB Opinion No. 15 because it results in dilution of less than 3%.
2 EX-23 4 CONSENT OF ERNST & YOUNG Exhibit 23 Consent of Ernst & Young, Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Strawbridge & Clothier of our report dated March 23, 1994, included in the 1993 Annual Report to Shareholders of Strawbridge & Clothier. Our audits also included the financial statement schedules of Strawbridge & Clothier listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these schedules based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to the incorporation by reference in Registration Statement No. 2-99396 on Form S-8 dated August 22, 1985, Registration Statement No. 33-37675 on Form S-8 dated November 8, 1990, Registration Statement No. 33-40928 on Form S-8 dated May 29, 1991, and Registration Statement No. 33-55782 on Form S-3 dated December 15, 1992, and the related Prospectuses of Strawbridge & Clothier of our report dated March 23, 1994, with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedules included in the 1993 Annual Report (Form 10-K) of Strawbridge & Clothier. ERNST & YOUNG Philadelphia, Pennsylvania April 22, 1994 1 EX-13 5 EXHIBIT 13 STRAWBRIDGE & CLOTHIER PORTIONS OF THE 1993 ANNUAL REPORT TO SHAREHOLDERS CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except number of shares and per share data) - ------------------------------------------------------------------------------ Year Ended ---------------------------------------- JANUARY 29 January 30 February 1 1994 1993 1992 ---------- ---------- ---------- Net sales, including leased department sales ................. $984,615 $967,794 $967,786 Other income, net of other deductions ....................... 2,412 1,061 842 -------- -------- -------- 987,027 968,855 968,628 Deduct: Cost of sales, including occupancy and buying costs ............... 733,901 718,582 718,927 Selling and administrative expenses, net of finance charges ........................ 171,835 166,678 169,897 Depreciation ..................... 28,829 28,322 28,710 Interest ......................... 20,909 21,446 23,048 Provision for doubtful accounts .. 4,724 6,638 7,332 -------- -------- -------- 960,198 941,666 947,914 -------- -------- -------- Earnings before income taxes and cumulative effect of accounting changes .......................... 26,829 27,189 20,714 Income taxes ....................... 9,102 9,169 7,146 -------- -------- -------- Earnings before cumulative effect of accounting changes ............ 17,727 18,020 13,568 Cumulative effect of accounting changes: Income taxes ................... -0- 9,750 -0- Retiree health care, net of $13,600 income taxes ......... -0- (26,600) -0- -------- -------- -------- -0- (16,850) -0- -------- -------- -------- NET EARNINGS ....................... $ 17,727 $ 1,170 $ 13,568 ======== ======== ======== Earnings per share: Before cumulative effect of accounting changes ............. $1.71 $1.76 $1.34 Accounting changes ............... -0- (1.65) -0- -------- -------- -------- Net earnings ..................... $1.71 $ .11 $1.34 ======== ======== ======== Average shares outstanding ......... 10,324,048 10,215,742 10,099,214 See accompanying notes. 3 CONSOLIDATED BALANCE SHEETS (in thousands, except number of shares and per share data) - ------------------------------------------------------------------------------ Assets JANUARY 29 January 30 1994 1993 ---------- ---------- CURRENT ASSETS Cash and equivalents ............................. $ 2,860 $ 5,372 Accounts receivable .............................. 205,433 184,417 Allowance for doubtful accounts ................ (5,000) (5,000) -------- -------- 200,433 179,417 Merchandise inventories .......................... 143,132 144,961 Deferred income taxes ............................ 2,397 4,642 Prepaid expenses and other ....................... 7,379 8,072 -------- -------- TOTAL CURRENT ASSETS ............................. 356,201 342,464 PROPERTY, FIXTURES AND EQUIPMENT -- on the basis of cost Land ............................................. 20,363 20,363 Buildings and improvements ....................... 338,662 329,458 Store fixtures, furniture and equipment .......... 225,973 215,620 Allowance for depreciation (deduction) ........... (288,581) (262,424) -------- -------- 296,417 303,017 Construction in progress ......................... 3,951 4,141 -------- -------- 300,368 307,158 OTHER ASSETS ..................................... 6,483 4,317 -------- -------- $663,052 $653,939 ======== ======== 4 - ------------------------------------------------------------------------------ Liabilities, Preferred Stock and Common Shareholders' Equity JANUARY 29 January 30 1994 1993 ---------- ---------- CURRENT LIABILITIES Notes payable to banks ........................... $ 43,500 $ 27,500 Accounts payable ................................. 60,138 61,084 Accrued expenses ................................. 20,724 20,743 Federal, state and local taxes ................... 11,203 10,689 Long-term debt and capital lease obligations due within one year ............................ 11,055 9,934 -------- -------- TOTAL CURRENT LIABILITIES ........................ 146,620 129,950 LONG-TERM DEBT -- due after one year ............. 162,254 171,617 CAPITAL LEASE OBLIGATIONS -- due after one year .. 43,554 52,030 ACCRUED RETIREMENT COSTS ......................... 49,795 46,700 DEFERRED INCOME TAXES ............................ 3,355 5,135 OTHER LIABILITIES ................................ 4,976 5,194 PREFERRED STOCK .................................. 296 474 SERIES PREFERRED STOCK -- no par value: authorized -- 2,000,000 shares; none issued .... -0- -0- COMMON SHAREHOLDERS' EQUITY Series A Common Stock -- par value $1 a share: authorized -- 20,000,000 shares; issued and outstanding 1993 -- 7,151,254 shares, 1992 -- 6,761,104 shares ............................... 7,151 6,761 Series B Common Stock -- par value $1 a share, convertible: authorized -- 20,000,000 shares; issued and outstanding 1993 -- 3,235,149 shares, 1992 -- 3,196,369 shares ....................... 3,235 3,196 Capital in addition to par value of shares ....... 167,024 157,591 Retained earnings ................................ 74,792 75,291 -------- -------- TOTAL COMMON SHAREHOLDERS' EQUITY ................ 252,202 242,839 -------- -------- $663,052 $653,939 ======== ======== See accompanying notes. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) - ------------------------------------------------------------------------------ Year Ended ---------------------------------------- JANUARY 29 January 30 February 1 1994 1993 1992 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ....................... $ 17,727 $ 1,170 $ 13,568 Adjustments to reconcile net earnings to cash flows from operating activities: Provision for depreciation ..... 28,829 28,322 28,710 Provision for deferred income taxes ........................ 502 (1,309) (2,113) Cumulative effect of accounting changes ...................... -0- 16,850 -0- Changes in: Accounts receivable .......... (21,016) (11,443) (5,327) Merchandise inventories ...... 1,829 (11,690) 5,561 Accounts payable and accrued expenses ................... (965) 4,021 1,029 Federal, state and local taxes ...................... 514 2,713 (396) Other ........................ 4,240 (461) 2,906 -------- -------- -------- TOTAL .............................. 31,660 28,173 43,938 -------- -------- -------- NET CASH USED FOR INVESTING ACTIVITIES Acquisition of property, fixtures and equipment .................... (22,076) (22,588) (16,362) Changes in other assets ............ (879) 389 3,225 -------- -------- -------- TOTAL .............................. (22,955) (22,199) (13,137) -------- -------- -------- NET CASH USED FOR FINANCING ACTIVITIES Additional borrowings .............. 49,255 25,000 9,395 Payment of long-term debt and capital lease obligations ........ (66,718) (12,303) (19,348) Increase (decrease) in short-term notes payable .................... 16,000 (4,500) (13,500) Purchase of preferred stock and treasury stock ................... (205) (190) (174) Proceeds from issuance of common stock ............................ 1,431 1,658 1,871 Cash dividends ..................... (10,980) (13,080) (7,550) -------- -------- -------- TOTAL .............................. (11,217) (3,415) (29,306) -------- -------- -------- CHANGE IN CASH AND EQUIVALENTS ..... (2,512) 2,559 1,495 Cash and equivalents at beginning of year .......................... 5,372 2,813 1,318 -------- -------- -------- CASH AND EQUIVALENTS AT END OF YEAR .......................... $ 2,860 $ 5,372 $ 2,813 ======== ======== ======== See accompanying notes. 6 CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY (in thousands, except per share data) - ------------------------------------------------------------------------------ CAPITAL IN SERIES SERIES ADDITION TREASURY A B TO PAR STOCK COMMON COMMON VALUE OF RETAINED (DEDUC- STOCK STOCK SHARES EARNINGS TION) TOTAL ------ ------ -------- -------- ------- -------- Balance, February 2, 1991..$5,916 $3,241 $139,077 $ 95,919 $ -0- $244,153 Net earnings .............. 13,568 13,568 Cash dividends -- common (per share: $1.03 Series A; $.92 Series B) .......... (10,067) (10,067) Cash dividends -- preferred ................ (35) (35) Stock dividend (three percent) ................. 178 97 7,349 (7,624) -0- Exercise of stock options, employee stock purchases, and contribution to Retirement Savings Plan... 146 1 2,782 8 2,937 Conversions ............... 48 (48) -0- Treasury stock purchases... (8) (8) ------ ------ -------- -------- ----- -------- Balance, February 1, 1992.. 6,288 3,291 149,208 91,761 -0- 250,548 Net earnings .............. 1,170 1,170 Cash dividends -- common (per share: $1.07 Series A; $.96 Series B) .......... (10,502) (10,502) Cash dividends -- preferred ................ (26) (26) Stock dividend (three percent) ................. 193 94 6,825 (7,112) -0- Exercise of stock options and employee stock purchases ................ 91 1,558 1 1,650 Conversions ............... 189 (189) -0- Treasury stock purchases... (1) (1) ------ ------ -------- -------- ----- -------- Balance, January 30, 1993.. 6,761 3,196 157,591 75,291 -0- 242,839 Net earnings .............. 17,727 17,727 Cash dividends -- common (per share: $1.08 Series A; $.99 Series B)............ (10,963) (10,963) Cash dividends -- preferred ................ (17) (17) Stock dividend (three percent) ................. 203 96 6,947 (7,246) -0- Exercise of stock options, employee stock purchases, and contribution to Retirement Savings Plan... 127 3 2,486 18 2,634 Conversions ............... 60 (60) -0- Treasury stock purchases... (18) (18) ------ ------ -------- -------- ----- -------- Balance, January 29, 1994..$7,151 $3,235 $167,024 $ 74,792 $ -0- $252,202 ====== ====== ======== ======== ===== ======== See accompanying notes. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The Company operates 38 retail stores, including department and self-service stores, which sell general merchandise in Philadelphia and the surrounding Delaware Valley area of Southeastern Pennsylvania, Southern New Jersey and Northern Delaware. The Company grants credit to customers, substantially all of whom are residents of its trading area. 1. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions have been eliminated. Inventories: Merchandise inventories are priced at cost on the last-in, first-out method. Store Preopening Costs: Such costs are charged to expense in the year incurred. Property, Fixtures and Equipment: Property, fixtures and equipment are recorded at cost, which is depreciated by the straight-line method over the estimated useful lives of the assets. Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Per Share Data: Earnings per share amounts are based on the weighted average number of shares of common stock and common stock equivalents (employee stock options) outstanding during each fiscal year, after recognition of Preferred Stock dividends. Accounting Changes: During 1992, the Company changed its methods of accounting for LIFO inventories (Note 2), retiree health care benefits (Note 4) and income taxes (Note 7). 2. INVENTORIES If the first-in, first-out method of determining inventory cost had been used, inventories would have been $34,180,000 and $35,420,000 higher than reported at January 29, 1994 and January 30, 1993, respectively. During 1992, the Company changed its method of determining retail price indices used in the valuation of most of its LIFO inventories. Prior to 1992, the Company used the U.S. Department of Labor's Department Store Price Indexes to measure inflation in retail prices for all inventories. In 1992, the Company developed and used internal price indices to measure inflation in the retail prices of certain merchandise inventories. The Company believes internal indices more accurately measure inflation in the Company's retail prices for these inventories. This change reduced 1992 cost of sales by $3,948,000 compared to the prior method, resulting in an after-tax benefit of $2,606,000, or $.26 per share. The Company was not able to determine the cumulative effect of this change nor the impact on any individual year prior to 1992. 3. LONG-TERM DEBT AND SHORT-TERM BORROWINGS Long-term debt -- due after one year consists of the following (in thousands): JANUARY 29 January 30 1994 1993 ---------- ---------- 6.625% notes due October 15, 2003 ................ $ 49,580 $ -0- 8.75% notes due November 15, 1996 ................ -0- 50,000 Series A Senior Notes, maturing equally from 1994 to 2004 with interest at 9.2% ............. 27,273 30,000 Series B Senior Notes, due September 30, 1999 with interest at 9.0% .......................... 20,000 20,000 Mortgage notes payable, at rates ranging from 8.50% to 10%, due in installments of $2,922 annually, including principal and interest, maturing from 4 to 14 years .................... 16,310 21,162 Senior Note, due October 15, 1997 with interest at 7.04% .............................. 25,000 25,000 Notes payable to bank under revolving credit agreement with interest at 3.80% at January 29, 1994 and 3.71% at January 30, 1993 ......... 20,000 20,000 Senior Notes maturing equally from 1994 to 1997 with interest at 11.5% .................... 4,091 5,455 -------- -------- $162,254 $171,617 ======== ======== Among other things, certain loan agreements require that the Company maintain a ratio of current assets to current liabilities of not less than 1.5. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ Certain agreements restrict transactions reducing shareholders' equity and the amount available for such transactions at January 29, 1994 is $42,315,000. Fixed assets with a net book value of $32,890,000 are mortgaged by certain agreements. The carrying amounts of the Company's borrowings under its short-term bank credit lines approximate their fair values. The fair value of the Company's long-term debt (including the current portion thereof) is approximately $170,000,000 at January 29, 1994 while the carrying amount is $167,723,000. Fair values were estimated using discounted cash flow analyses, based on the Company's incremental borrowing rates for similar types of borrowing arrangements. The excess of fair values over recorded amounts results because contractual borrowing rates exceed current rates on certain loans. Under the revolving credit agreement, the Company may borrow up to $20,000,000 through October 31, 1995 with various interest rate options. The Company pays a commitment fee equal to 1/4% per annum on the unused portion of the total commitment. The Company has unused short-term bank credit lines which are subject to annual confirmation and which aggregated $8,000,000 at January 29, 1994. There are no compensating balance arrangements in connection with debt or credit lines. Maturities of long-term debt for the next five fiscal years are as follows: 1994 -- $5,469,000; 1995 -- $25,733,000; 1996 -- $5,744,000; 1997 -- $30,592,000; 1998 -- $4,032,000. Interest paid, net of amounts capitalized, was: 1993 -- $21,050,000; 1992 -- $21,242,000; 1991 -- $23,156,000. During 1991, the Company purchased land and a building for $4,600,000, the cost of which was financed by the seller. 4. RETIREMENT BENEFITS Defined Benefit Plans: The Company provides pension benefits for substantially all regular employees under noncontributory defined benefit pension plans. Benefits are determined based on average compensation or years of service. The Company's funding policy is to contribute amounts consistent with the minimum funding standards of the Employee Retirement Income Security Act of 1974. Plan assets consist primarily of common equity funds, stocks and fixed income securities. Net pension cost included the following components (in thousands): 1993 1992 1991 -------- -------- -------- Service cost -- benefits earned during the period .................. $ 2,488 $ 2,263 $ 1,874 Interest cost on projected benefit obligation ......................... 6,562 6,137 5,685 Actual (return) on plan assets ....... (10,164) (7,887) (15,663) Net amortization and deferral ........ 3,601 1,595 10,475 -------- -------- -------- Net pension cost ..................... $ 2,487 $ 2,108 $ 2,371 ======== ======== ======== The expected long-term rate of return on plan assets used in determining net pension cost was 9 percent. The following table sets forth the funded status and amounts recognized in the Company's consolidated balance sheets for the Strawbridge & Clothier Employees Retirement Benefit Plan (in thousands): 1993 1992 ------- -------- Actuarial present value of benefit obligations: Vested ......................................... $65,593 $ 58,212 ======= ======== Accumulated .................................... $67,004 $ 59,464 ======= ======== Projected ...................................... $80,084 $ 72,106 Plan assets at fair value......................... 82,989 77,300 ------- -------- Plan assets in excess of projected benefit obligation ..................................... 2,905 5,194 Items not yet recognized: Net gain ....................................... (9,165) (10,793) Net obligation at transition ................... 394 450 Prior service cost ............................. 2,940 3,254 ------- -------- Accrued pension cost included in consolidated balance sheets ................................. $(2,926) $ (1,895) ======= ======== The following assumptions were used in determining the actuarial present value of the projected benefit obligation: 1993 1992 ------- -------- Weighted average discount rate ................... 7.50% 8.25% Rate of increase in compensation levels .......... 5.5% 6% 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ The Company also sponsors an unfunded, nonqualified Deferred Compensation Plan, which provides retirement benefits for certain key executive officers. The accrued liability for this plan is included in accrued retirement costs in the accompanying balance sheets. At December 31, 1993, the accumulated benefit obligation for this plan was $8,569,000, and the projected benefit obligation was $8,942,000. 401(k) Plan: The Company has a 401(k) Retirement Savings Plan, under which employees may defer a portion of their compensation. Contingent upon there having been an increase in the Company's net earnings, as defined under the Plan, for the fiscal year ending within the Plan year, employee contributions not in excess of 4% of a participant's compensation will be matched by the Company at the rate of $.50 for each $1.00 contributed. Matching expense was $479,000, $732,000 and $420,000 for 1993, 1992 and 1991, respectively. All Company matching contributions are invested in a separate fund comprised of the Company's Series A Common Stock, 250,000 shares of which have been reserved for use under the 401(k) Plan. Retiree Health Care Plan: The Company provides certain health care benefits for eligible retired employees. The retiree health care plan is noncontributory for retirees who were full-time regular employees of the Company and retired prior to January 1, 1993. For eligible employees retiring on or after January 1, 1993, with fifteen years of service, the plan is contributory with retiree contributions based on years of service. Cost-sharing features include deductibles and co-payment provisions. For certain participants, the Plan limits the amount of future cost increases that will be paid by the Company. Employees hired on or after January 1, 1993 are not eligible for retiree health care benefits. The Plan is funded on a pay-as-you-go basis. Effective February 2, 1992, the Company adopted the provisions of FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This new statement requires that the expected cost of retiree health care benefits be charged to expense during the years that the employees render service. The Company's past practice was to recognize these costs on a cash basis. As part of adopting the new standard, as of February 2, 1992, the Company recorded a one-time, noncash charge against earnings of $40,200,000 before taxes and $26,600,000 after taxes, or $2.60 per share. This cumulative catch-up adjustment as of February 2, 1992 represents the discounted present value of expected future retiree health care benefits attributed to employees' service rendered prior to that date. Also, the new standard resulted in additional annual expense for 1992 of $1,300,000 before taxes and $860,000 after taxes, or $0.08 per share. Prior-year financial statements have not been restated to apply the new standard. Postretirement benefit expense for 1991, recorded on the cash basis, was $1,700,000. The following table presents the status of the Plan and the amounts recognized in the Company's consolidated balance sheets (in thousands): 1993 1992 ------- -------- Actuarial present value of accumulated postretirement benefit obligation: Retirees ..................................... $25,013 $32,580 Active plan participants ..................... 6,905 8,920 ------- ------- 31,918 41,500 Unrecognized net actuarial gain................... 11,203 -0- ------- ======= Accrued postretirement benefit cost included in consolidated balance sheets ................. $43,121 $41,500 ======= ======= Postretirement benefit expense included the following components (in thousands): 1993 1992 ------- ------- Service cost ................................. $ 603 $ 580 Interest cost ................................ 3,437 3,310 ------- ------- $ 4,040 $ 3,890 ======= ======= The following assumptions were used in determining the accumulated postretirement benefit obligation: 1993 1992 ------- ------- Discount rate ................................. 7.5% 8.5% Health care cost trend rate: Initial rate 13.0% 13.4% Ultimate rate ................................ 6.0% 7.0% Period to ultimate rate ...................... 7 YEARS 9 years The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ rates by one percentage point would increase the accumulated postretirement benefit obligation as of January 29, 1994 by $2,777,000 and the aggregate of the service and interest cost components of postretirement benefit expense for 1993 by $326,000. 5. PREFERRED STOCK The Preferred Stock ($100 par value) provides for $5 cumulative dividends and redemption at $105 per share (1993 -- $311,000; 1992 -- $498,000). Sinking fund provisions require that on April 1 of each year, the Company shall redeem shares of at least $179,900 in par value. Par value of shares redeemed and retired was as follows: 1993 -- $180,300; 1992 -- $180,200; 1991 -- $186,200. Outstanding shares at fiscal year ends were: 1993 -- 2,961; 1992 -- 4,742; 1991 -- 6,549. 6. COMMON STOCK Series A and Series B shares are entitled to one and ten votes per share, respectively. Series B shares are convertible on a share-for-share basis into Series A shares. Series A shares are freely transferable while Series B shares are only transferable to certain permitted transferees. Series A Common Stock is entitled to cash dividends at least 10% higher than any cash dividend declared on Series B Common Stock. The Company offers Series A Common Stock to employees for purchase through payroll deductions under its 1991 Employee Stock Purchase Plan. The purchase price is 85% of the closing market price on the offering date or the purchase date, whichever is lower. During fiscal 1993, 1992 and 1991, respectively, 74,499, 91,183 and 105,686 shares were issued under the Plan at average prices of $19.23, $18.19 and $17.38. As of January 29, 1994, 478,598 shares of Series A Common Stock were available for use under the Plan. The Company also has stock option plans which provide for granting to key employees qualified and nonqualified options to purchase common stock of the Company. Generally, options are granted for a term of ten years and become exercisable immediately. During fiscal 1993, 1992 and 1991, respectively, 3,154 shares, 95 shares and 1,542 shares were issued upon exercise of options at average prices of $22.46, $23.53 and $23.53. Options to purchase 469,581 shares of Series A Common Stock and 146,020 shares of Series B Common Stock at an average exercise price of $25.15 were outstanding at January 29, 1994, of which 456,850 and 146,020 options, respectively, were exercisable. As of January 29, 1994, 69,210 shares of Series A Common Stock remain available for grant of options. Effective in fiscal 1993, the Company established a dividend reinvestment and stock purchase plan, whereby shareholders may invest cash dividends and optional cash payments in Series A Common Stock. The Company has registered 2,060,000 shares for issuance under the plan, of which 2,050,513 remain available for issuance at January 29, 1994. 7. INCOME TAXES Effective February 2, 1992, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109, "Accounting for Income Taxes." As permitted under the new rules, prior years' financial statements were not restated. The cumulative effect of adopting Statement 109 as of February 2, 1992 was to increase 1992 net earnings by $9,750,000, or $.95 per share. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax liabilities and assets are as follows (in thousands): 1993 1992 ------- ------- Deferred tax liabilities: Depreciation ................................ $22,334 $23,295 Other -- net ................................ 3,747 741 ------- ------- 26,081 24,036 Deferred tax assets: Retiree health care obligation .............. 15,096 14,042 Accruals and reserves ....................... 10,027 9,501 ------- ------- 25,123 23,543 ------- ------- Net deferred tax liabilities .................... $ 958 $ 493 ======= ======= 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) - ------------------------------------------------------------------------------ The components of income tax expense attributable to earnings before cumulative effect of accounting changes are as follows (in thousands): Deferred Liability Method Method 1993 1992 1991 --------- ------ -------- Current: Federal ....................... $8,299 $10,172 $ 7,837 State ......................... 301 306 1,422 ------ ------- ------- 8,600 10,478 9,259 Deferred: Federal ....................... 146 (1,163) (1,641) State ......................... 356 (146) (472) ------ ------- ------- 502 (1,309) (2,113) ------ ------- ------- $9,102 $ 9,169 $ 7,146 ====== ======= ======= The components of the deferred income tax benefit for fiscal 1991 are as follows (in thousands): 1991 ------- Depreciation .................................. $ (413) Other, principally nondeductible expenses ..... (1,700) ------- $(2,113) ======= A reconciliation of the effective income tax rate with the statutory federal income tax rate is as follows: Deferred Liability Method Method 1993 1992 1991 --------- ------ -------- Federal tax rate ................. 35.0% 34.0% 34.0% State taxes, net of federal benefit......................... 1.6 0.4 3.0 Jobs tax credit .................. (1.9) (1.2) (2.9) Other ............................ (0.8) 0.5 0.4 ---- ---- ---- 33.9% 33.7% 34.5% ==== ==== ==== Income taxes paid were as follows: 1993 -- $8,587,000; 1992 -- $8,465,000; 1991 -- $9,978,000. 8. COMMITMENTS Leases: Capital lease assets, which are included in property, fixtures and equipment, are as follows (in thousands): JANUARY 29 January 30 1994 1993 ---------- ---------- Land ........................................ $ 2,696 $ 2,926 Buildings ................................... 75,027 78,823 Store fixtures and equipment ................ 3,887 5,288 -------- -------- 81,610 87,037 Allowance for amortization (deduction) ............................... (36,550) (36,844) -------- -------- $ 45,060 $ 50,193 ======== ======== Amortization of capital lease assets is included in depreciation expense. Future minimum rental commitments as of January 29, 1994, for all noncancelable leases are as follows (in thousands): Capital Operating Fiscal Year Leases* Leases* - ----------- -------- --------- 1994 ...................... $ 9,618 $ 5,090 1995 ...................... 6,471 4,407 1996 ...................... 6,502 3,620 1997 ...................... 6,523 3,199 1998 ...................... 6,556 3,146 Thereafter ................ 44,872 20,655 -------- ------- Total minimum rental commitments ............. 80,542 $40,117 ======= Estimated executory costs.. (1,296) Imputed interest .......... (30,106) -------- Present value of net minimum lease payments .. $ 49,140 ======== *These amounts have not been reduced by future noncancelable sublease rentals of $6,956. All real estate leases include renewal options for periods ranging from 5 to 100 years. Most of these leases include options to purchase at specified times. In most instances, the Company pays real estate taxes, insurance and maintenance costs. There are no guarantees, related obligations or restrictions in connection with the lease agreements. Total net rental expense amounted to (in thousands): 1993 1992 1991 ------ ------ ------- Minimum rentals ...................... $5,861 $6,802 $ 5,949 Contingent rentals, based on sales ... 1,288 1,276 1,284 Sublease rentals ..................... (831) (659) (913) ------ ------ ------- $6,318 $7,419 $ 6,320 ====== ====== ======= Other: Estimated cost to complete construction in progress at January 29, 1994 is approximately $3,300,000. 12 STATEMENT OF MANAGEMENT RESPONSIBILITY - ------------------------------------------------------------------------------ Strawbridge & Clothier management is responsible for the financial statements and information presented in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include certain amounts based on management's best estimates and judgements. The Company maintains a system of internal accounting controls, which provides for appropriate division of responsibility and the application of written policies and procedures. The system is designed to provide reasonable assurance, at suitable costs, that assets are safeguarded and that transactions are executed in accordance with appropriate authorization and are recorded and reported properly. An important element of the internal control environment is an ongoing internal audit program. The financial statements have been audited by Ernst & Young, independent auditors, whose report appears below. Their audit includes an evaluation of the internal control structure and selected tests of transactions and records. Their audit is intended to provide a reasonable level of assurance that the financial statements are free of material misstatement. The Audit Committee of the Board of Directors is responsible for recommending the independent auditors to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors and the internal auditors to consider the scope and results of their audits and to discuss other significant matters regarding internal accounting controls and financial reporting. The independent auditors and the internal auditors have unrestricted access to the Audit Committee. REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS - ------------------------------------------------------------------------------ To the Shareholders of Strawbridge & Clothier We have audited the accompanying consolidated balance sheets of Strawbridge & Clothier as of January 29, 1994 and January 30, 1993, and the related consolidated statements of operations, common shareholders' equity, and cash flows for each of the three fiscal years in the period ended January 29, 1994. 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 audits provide 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 Strawbridge & Clothier at January 29, 1994 and January 30, 1993, and the consolidated results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 1994, in conformity with generally accepted accounting principles. As discussed in Notes 2, 4, and 7 to the financial statements, in 1992 the Company changed its method of determining retail price indices used in the valuation of LIFO inventories, and changed its methods of accounting for postretirement benefits other than pensions and for income taxes. Philadelphia, Pennsylvania March 23, 1994 ERNST & YOUNG 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ OPERATIONS Sales for fiscal 1993 were $984,615,000, an increase of 1.7% over sales of $967,794,000 in fiscal 1992, which were virtually even with sales in fiscal 1991. The 1993 sales result reflects a strong Christmas selling season, offset by poor weather conditions in the Company's trading area during much of the first quarter of fiscal 1993 and January 1994. Sales for all three years were affected by an economic slowdown in the northeast section of the country. Early fiscal 1994 sales results have also been adversely impacted by severe weather conditions, but there are indications that consumer buying patterns in the Company's trading area could improve as fiscal 1994 progresses. Earnings for fiscal year 1993 were $17,727,000, a decrease of 1.6% from 1992 earnings of $18,020,000 before accounting changes. Earnings for 1991 were $13,568,000. The slight decline in fiscal 1993 can be attributed to increased markdowns taken to stimulate sales, a reduced LIFO benefit and increased advertising expenses. These items were partially offset by decreases in bad debt write-offs and interest expense. The improvement in 1992 earnings before accounting changes reflected higher finance charge income, lower interest expense and a change in the Company's method of accounting for LIFO inventories, which is discussed below. In 1992, the Company early-adopted two significant new accounting rules, in both cases following the cumulative effect approach. The Company changed to the accrual method of accounting for retiree health care benefits, as required by FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," which resulted in a one-time, noncash charge against earnings upon adoption of $26,600,000, after taxes, or $2.60 per share and an additional expense in 1992 of $860,000 after taxes, or $.08 per share. The Company also adopted the liability method of accounting for income taxes which resulted in an increase to net earnings of $9,750,000, or $.95 per share. (See Notes 4 and 7 to the accompanying financial statements regarding these changes.) Cost of sales, including occupancy and buying costs, was 74.5% of sales in 1993, compared to 74.2% in 1992 and 74.3% in 1991. Cost of sales for 1993 and 1992 was negatively impacted by increased markdowns taken to stimulate sales and respond to competitive pressures in a difficult economic climate. This negative impact was partially offset in 1993 by a reduction in occupancy and buying costs. The impact of the LIFO method of accounting for inventories (benefits of $1,239,000 and $2,380,000 in 1993 and 1992 and a charge of $3,325,000 in 1991) is reflected in cost of sales. In 1992, the Company changed to the use of internal price indices for purposes of determining certain LIFO inventories. The Company believes the internal indices more accurately measure inflation in its inventories than the government indices previously used. This change reduced 1992 cost of sales by $3,948,000 compared to the prior method. (See Note 2 to the accompanying financial statements regarding this change.) Selling and administrative expenses, net of finance charges, were 17.5% of sales in 1993, compared to 17.2% of sales in 1992 and 17.6% of sales in 1991. The 1993 increase reflects a planned increase in advertising expenses to stimulate sales and tight control of other operating expenses. Both 1993 and 1992 reflect increased finance charge income in relation to 1991, which resulted from reduced minimum payment requirements on the Company's flexible charge accounts. Depreciation expense as a percentage of sales was comparable for all three years, at 2.9% of sales in 1993 and 1992 and 3.0% of sales in 1991. Interest expense was 2.1% of sales in 1993 compared with 2.2% in 1992 and 2.4% in 1991. Interest expense has declined due to a combination of refinancing high-rate long-term debt and lower interest rates on short-term borrowings. Short-term borrowing rates are expected to increase in 1994. The 1993 provision for doubtful accounts decreased $1,914,000 compared to 1992, which had decreased from 1991 by $694,000. This result reflects decreased write-offs of accounts receivable as a result of improved aging due in part to a change in payment policy. The increase in the effective tax rate to 33.9% in 1993 from 33.7% in 1992 resulted from the increase in the statutory federal income tax rate from 34.0% to 35.0%, partially offset by increased jobs tax credits. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) - ------------------------------------------------------------------------------ FINANCIAL CONDITION AND LIQUIDITY Cash provided by operating activities for 1993 was $31.7 million compared to $28.2 million in 1992 and $43.9 million in 1991. The slight increase in 1993 was a result of careful control of inventory levels, partially offset by reduced collections of accounts receivable as a result of lower, more competitive, minimum payment requirements on the Company's charge accounts. Cash provided by operating activities in 1992 decreased from 1991 due to increased inventory purchases and reduced accounts receivable collections. The Company's capital expenditures were $22.1 million, $22.6 million and $16.4 million in fiscal 1993, 1992 and 1991, respectively. Capital expenditures for 1993 included the renovation of the women's apparel area of the Philadelphia store, the total renovation of the Marlton and Blackwood Clover stores and other smaller renovation projects. Cash used for financing activities was $11.2 million, $3.4 million and $29.3 million in fiscal 1993, 1992 and 1991, respectively. In October 1993, the Company completed a public offering of $50,000,000 of 6.625% Notes due 2003. The net proceeds of $49,255,000 were used, together with other short-term borrowings, to redeem $50,000,000 of the Company's 8.75% Notes due 1996 at a price equal to their principal amount plus interest accrued to the redemption date. This refinancing will result in annual interest expense savings in excess of $1.0 million. The Company has $30.0 million in confirmed bank credit lines. At January 29, 1994, $22.0 million of these confirmed lines were in use, in addition to $21.5 million of unconfirmed lines. Long-term debt and capital lease obligations were 44.9% of capitalization at the end of fiscal 1993, compared to 47.9% at the end of the prior fiscal year. Anticipated capital expenditures for 1994 of $26.2 million include the renovation of the Mercerville and Cheltenham Clover stores and the renovation of the fourth floor of the Philadelphia department store. An additional $24.6 million is planned for capital expenditures in 1995, which includes the opening of one Clover store and the renovation of three Clover stores. The funding for these capital expenditures is expected to be generated from operations and additional long-term financing. The Company continually investigates potential sites for new stores, and capital expenditure plans may change as opportunities for new stores develop. The Company believes its relations with banks and other credit sources are good and that it has considerable flexibility in deciding how to fund future capital expenditures and maturities of long-term debt. - ------------------------------------------------------------------------------ ANNUAL MEETING The Annual Meeting of shareholders will be held on Wednesday, May 25, 1994, at 11:00 AM in the auditorium on the eighth floor of the Company's Main Store at 801 Market Street, Philadelphia, PA. All shareholders are cordially invited to attend. Corporate Headquarters 801 Market Street Philadelphia, PA 19107-3199 Phone (215) 629-6000 Independent Auditors Ernst & Young General Counsel Morgan, Lewis & Bockius TRANSFER AGENTS Shareholder inquiries for the Common Stock and the Preferred Stock should be directed to: Mellon Bank, N.A. P.O. Box 444 Pittsburgh, PA 15230 Phone 1-800-526-0801 15 TEN-YEAR FINANCIAL SUMMARY (amounts in thousands, except per share data)
1993 1992 1991 1990 1989(1) 1988 1987 1986 1985 1984(1) - ---------------------------------------------------------------------------------------------------------------------- OPERATING RESULTS Net Sales ......... $984,615 $967,794 $967,786 $981,668 $950,306 $904,196 $814,313 $739,117 $686,929 $630,497 - ---------------------------------------------------------------------------------------------------------------------- Cost of Sales ..... 733,901 718,582 718,927 730,048 687,713 660,412 592,309 536,932 494,936 452,954 - ---------------------------------------------------------------------------------------------------------------------- Interest Expense .. 20,909 21,446 23,048 25,481 25,386 22,112 17,694 17,066 18,258 15,114 - ---------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes and Cumulative Effect of Accounting Changes .......... 26,829 27,189 20,714 28,606 51,726 45,026 48,739 41,734 46,755 49,286 - ---------------------------------------------------------------------------------------------------------------------- Income Taxes ...... 9,102 9,169 7,146 11,385 20,567 17,756 21,725 21,042 22,669 24,611 - ---------------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of Accounting Changes .......... 17,727 18,020 13,568 17,221 31,159 27,270 27,014 20,692 24,086 24,675 - ---------------------------------------------------------------------------------------------------------------------- Net Earnings ...... 17,727 1,170(3) 13,568 17,221 31,159 27,270 27,014 20,692 24,086 24,675 OTHER OPERATING DATA Depreciation ...... $ 28,829 $ 28,322 $ 28,710 $ 27,910 $ 24,565 $ 21,904 $ 18,812 $ 16,911 $ 14,815 $ 13,396 - ---------------------------------------------------------------------------------------------------------------------- Rent .............. 6,318 7,419 6,320 4,475 4,088 4,229 3,704 3,183 2,596 2,254 - ---------------------------------------------------------------------------------------------------------------------- Taxes Other Than Income Taxes ..... 25,050 25,164 25,627 25,020 23,777 21,965 20,581 18,896 17,691 16,818 - ---------------------------------------------------------------------------------------------------------------------- Cash Dividends: Preferred Stock .. 17 26 35 43 53 62 69 70 72 77 - ---------------------------------------------------------------------------------------------------------------------- Common Stock ..... 10,963 10,502 10,067 9,540 8,837 8,178 6,365 5,631 4,662 4,106 - ---------------------------------------------------------------------------------------------------------------------- Stock Dividends on Common Stock 3% 3% 3% 7% 7% 7% 7% 7% 7% 7% PER SHARE OF COMMON STOCK(2) Earnings Before Cumulative Effect of Accounting Changes .......... $ 1.71 $ 1.76 $ 1.34 $ 1.72 $ 3.13 $ 2.77 $ 2.76 $ 2.12 $ 2.52 $ 2.17 - ---------------------------------------------------------------------------------------------------------------------- Net Earnings ...... 1.71 .11(3) 1.34 1.72 3.13 2.77 2.76 2.12 2.52 2.17 - ---------------------------------------------------------------------------------------------------------------------- Cash Dividends on Series A Common Stock ............ 1.08 1.07 1.03 .99 .92 .84 .68 .33 -- -- - ---------------------------------------------------------------------------------------------------------------------- Cash Dividends on Series B Common Stock ............ .99 .96 .92 .90 .85 .79 .60 .29 -- -- - ---------------------------------------------------------------------------------------------------------------------- Cash Dividends on Common Stock ..... -- -- -- -- -- -- -- .27 .49 .36 - ---------------------------------------------------------------------------------------------------------------------- Book Value ........ 24.28 23.68 24.66 24.40 23.69 21.43 19.50 17.39 15.79 13.75 FINANCIAL DATA Working Capital ... $209,581 $212,514 $184,641 $171,504 $188,411 $178,906 $186,028 $165,418 $148,973 $126,201 - ---------------------------------------------------------------------------------------------------------------------- Property, Fixtures & Equipment -- Net .............. 300,368 307,158 312,876 322,059 301,228 279,337 233,508 197,801 188,468 184,922 - ---------------------------------------------------------------------------------------------------------------------- Total Assets ...... 663,052 653,939 631,987 645,603 618,546 593,278 518,289 472,639 454,811 430,633 - ---------------------------------------------------------------------------------------------------------------------- Long-Term Debt .... 162,254 171,617 156,237 158,880 167,188 154,267 128,685 115,271 105,790 101,032 - ---------------------------------------------------------------------------------------------------------------------- Capital Lease Obligations ...... 43,554 52,030 55,481 59,370 59,179 63,773 63,351 58,780 61,565 65,551 - ---------------------------------------------------------------------------------------------------------------------- Redeemable Preferred Stock .. 296 474 655 814 1,022 1,199 1,384 1,384 1,431 1,444 - ---------------------------------------------------------------------------------------------------------------------- Common Shareholders' Equity ........... 252,202 242,839 250,548 244,153 234,777 210,761 190,050 167,922 151,504 130,982 - ---------------------------------------------------------------------------------------------------------------------- Number of Common Shares Outstanding ...... 10,386 9,957 9,579 9,157 8,478 7,860 7,281 6,744 6,259 3,873 - ---------------------------------------------------------------------------------------------------------------------- Square Feet of Store Space 5,744 5,744 5,744 5,674 5,591 5,487 5,088 5,088 5,007 4,922
(1) 53-week fiscal year (2) Weighted average shares outstanding were: 1993 -- 10,324; 1992 -- 10,216; 1991 -- 10,099; 1990 -- 9,988; 1989 -- 9,965; 1988 -- 9,835; 1987 -- 9,780; 1986 -- 9,744; 1985 -- 9,569; 1984 -- 11,387. Net earnings give effect to dividend requirements of the preferred stock. (3) Includes cumulative effect adjustments relating to accounting changes for income taxes ($9,750 benefit; $.95 per share) and retiree health care benefits ($26,600 charge; $2.60 per share) and reduced cost of sales of $3,948 as a result of a change in LIFO accounting method, resulting in an after-tax benefit of $2,606 or $.26 per share. 16 17 QUARTERLY RESULTS OF OPERATIONS (in thousands, except per share data) - -------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH 1993 1992 1993 1992 1993 1992 1993 1992 ---- ---- ---- ---- ---- ---- ---- ---- Net sales ........ $197,151 $205,608 $225,018 $214,425 $223,639 $215,737 $338,807 $332,024 Gross profit ..... 44,414 50,430 51,384 49,207 56,698 53,892 98,218 95,683 Earnings (loss) before cumulative effect of accounting changes ......... (4,255) (1,144) (1,425) (1,792) 69 (1,332) 23,338 22,288 Net earnings (loss)(1)(2) .... (4,255) (17,994) (1,425) (1,792) 69 (1,332) 23,338 22,288 Earnings (loss) per common share: Before cumulative effect of acounting changes ......... (.41) (.11) (.14) (.17) .01 (.13) 2.25 2.17 Net earnings (loss)(1)(2) .... (.41) (1.76) (.14) (.17) .01 (.13) 2.25 2.17
(1) First quarter 1992 results reflect the cumulative effect of a change in accounting for retiree medical benefits of ($26,600) or ($2.60) per share and the $9,750 or $.95 per share cumulative effect of a change in accounting for income taxes. (2) Provision for the LIFO method of accounting for inventories and cost of sales had the effect of increasing earnings per common share by $.20 and $.28 for the 1993 and 1992 fourth quarters, respectively. MARKET AND DIVIDEND INFORMATION - ------------------------------------------------------------------------------ The Company's Series A Common Stock is traded on the over-the-counter market. There is no trading market for Series B Common Stock but it is readily convertible at any time into Series A Common Stock on a share-for-share basis. The number of shareholders of record as of January 3, 1994 was 5,668 for Series A and 253 for Series B. The following table indicates quarterly cash dividends per common share and the range of high and low price quotations for the Series A Common Stock by quarter during the last two fiscal years, as obtained through NASDAQ. FIRST SECOND THIRD FOURTH 1993 1992 1993 1992 1993 1992 1993 1992 ---- ---- ---- ---- ---- ---- ---- ---- Cash dividends per common share: Series A .. $ .27 $ .26 $ .27 $ .27 $ .27 $ .27 $ .27 $ .27 Series B .. .24 .24 .25 .24 .25 .24 .25 .24 Common stock price range: High ..... 25.50 26.75 24.75 25.75 21.75 22.50 23.50 25.50 Low ...... 23.25 22.50 21.00 20.00 19.25 18.75 20.75 21.50 18 -----END PRIVACY-ENHANCED MESSAGE-----