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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
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 333-10843
SRI RECEIVABLES PURCHASE CO., INC.
(Exact name of registrant as specified in its charter)
DELAWARE 51-349276
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10201 MAIN STREET, HOUSTON, TEXAS 77025
(Address of principal executive offices) (Zip Code)
(713) 667-5601
Registrant's telephone number, including area code
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
--- ---
The number of shares of common stock outstanding as of November 30, 1997 was
1,000 shares which were held by Specialty Retailers, Inc., a wholly owned
subsidiary of Stage Stores, Inc.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A)
AND (B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
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SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly-owned subsidiary of Stage Stores, Inc.)
CONDENSED BALANCE SHEET
(in thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
November 1, 1997 February 1, 1997
---------------- ----------------
ASSETS
<S> <C> <C>
Retained Certificates in Trust ................ $ 77,262 $ 90,102
Restricted cash ............................... 8,171 5,632
Debt issue costs .............................. 2,034 2,440
Trust organization costs ...................... 4,432 5,011
-------- --------
$ 91,899 $103,185
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other accrued liabilities $ 4,126 $ 2,052
State franchise taxes payable ................. 16 610
Payable to SRI ................................ 17,046 35,041
Long-term debt ................................ 30,000 30,000
-------- --------
Total liabilities ....................... 51,188 67,703
Common stock, par value $0.01, 1 share
authorized, issued and outstanding ........ -- --
Additional paid-in capital .................... 32,970 29,726
Retained earnings ............................. 7,741 5,756
-------- --------
Stockholder's equity .................... 40,711 35,482
-------- --------
Commitments and contingencies ................. -- --
-------- --------
$ 91,899 $103,185
======== ========
</TABLE>
1
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SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly-owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ----------------------------------
November 1, 1997 November 2, 1996 November 1, 1997 November 2, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Gain associated with Retained Certificates ..... $ 38 $1,899 $3,228 $4,547
Interest income on balances with SRI ........... 1,274 953 3,555 2,043
Interest income ................................ 54 48 170 97
Interest expense ............................... 935 935 2,805 1,603
Amortization of debt issue costs ............... 160 141 476 233
General and administrative expenses ............ 170 221 511 714
------ ------ ------ ------
Operating income ............................... 101 1,603 3,161 4,137
Income tax expense ............................. 38 578 1,176 1,538
------ ------ ------ ------
Net income ..................................... $ 63 $1,025 $1,985 $2,599
====== ====== ====== ======
</TABLE>
2
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SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly-owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
November 1, 1997 November 2, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................. $ 1,985 $ 2,599
--------- ---------
Adjustments to reconcile net income to net
cash used in operating activities:
Amortization of trust organization and debt issue costs ................... 1,055 993
Change in working capital ................................................. (16,653) (12,272)
--------- ---------
Total adjustments ......................................................... (15,598) (11,279)
--------- ---------
Net cash used in operating activities ....................................... (13,613) (8,680)
--------- ---------
Cash flows from investing activities:
Increase in restricted cash ............................................... (2,539) (1,895)
Purchases of accounts receivable from SRI ................................. (322,988) (222,324)
Transfer of accounts receivable to the Trust .............................. 339,210 235,011
--------- ---------
Net cash provided by investing activities ............................... 13,683 10,792
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt .................................. -- 30,000
Additions to debt issue costs ............................................. (70) (2,635)
Dividends paid to Palais .................................................. -- (29,477)
--------- ---------
Net cash used in investing activities ................................... (70) (2,112)
--------- ---------
Net change in cash and cash equivalents ................................. -- --
Cash and cash equivalents:
Beginning of period ....................................................... -- --
--------- ---------
End of period ............................................................. $ -- $ --
========= =========
Supplemental disclosure of cash flow information:
Interest paid ............................................................. $ 1,875 $ --
========= =========
Supplemental schedule of noncash investing and financing activities:
Contribution of ineligible accounts receivable ............................ $ 3,244 $ 3,554
========= =========
Contribution of trust organization costs .................................. $ -- $ 87
========= =========
</TABLE>
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SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly-owned subsidiary of Stage Stores, Inc.)
CONDENSED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
----------------------
Additional
Shares Paid-In Retained
Outstanding Amount Capital Earnings Total
----------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, February 1, 1997 .................... 1 $ -- $29,726 $ 5,756 $35,482
Net income ................................... -- -- -- 1,985 1,985
Contribution of ineligible accounts receivable -- -- 3,244 -- 3,244
------- -------- ------- ------- -------
Balance, November 1, 1997 .................... 1 $ -- $32,970 $ 7,741 $40,711
======= ======== ======= ======= =======
</TABLE>
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SRI RECEIVABLES PURCHASE CO., INC.
(An indirect, wholly owned subsidiary of Stage Stores, Inc.)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited condensed financial statements of SRI
Receivables Purchase Co., Inc. ("SRPC") have been prepared in accordance with
Rule 10-01 of Regulation S-X and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Those adjustments, which include only normal recurring
adjustments, that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods, have been made. The results
of operations for such interim periods are not necessarily indicative of
results of operations for a full year. SRPC is a direct wholly owned subsidiary
of Specialty Retailers, Inc. ("SRI"), who in turn is a direct, wholly owned
subsidiary of Stage Stores, Inc. ("Stage Stores"). The fiscal years discussed
herein end on the Saturday nearest to January 31 in the following calendar
year. For example, references to "1997" mean the fiscal year ended January 31,
1998.
2. Pursuant to the accounts receivable securitization program (the
"Accounts Receivable Program"), SRI transfers all of the accounts receivable
generated by the holders of SRI's private label credit card accounts to SRPC.
SRPC, in turn, transfers the accounts receivable to a securitization vehicle, a
special purpose trust (the "Trust"), in exchange for cash or an increase in a
retained interest in the Trust which is represented by three certificates of
beneficial ownership (the "Retained Certificates"). SRPC is operated in a
fashion intended to ensure that its assets and liabilities are distinct from
those of Stage Stores and its other affiliates as SRPC's creditors have a claim
on its assets prior to those assets becoming available to any creditor of Stage
Stores.
3. On June 26, 1997, Stage Stores acquired C. R. Anthony Company ("CR
Anthony") which operated 246 stores throughout the central and midwestern
United States under the names "Anthonys" and "Anthonys Limited." The form of
consideration was a stock exchange with Stage issuing approximately 3,607,000
shares of common stock in exchange for all of the outstanding shares of CR
Anthony common stock. Prior to the acquisition, CR Anthony sold all of its
private label credit card accounts to a third party. Stage Stores has
terminated this arrangement and SRI has purchased approximately $35.0 million
of outstanding receivables from the third party. These receivables were
incorporated into the Accounts Receivable Program during the third quarter of
1997.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Certain items discussed or incorporated by reference herein contain
forward-looking statements that involve risks and uncertainties including, but
not limited to, the seasonality of demand for apparel which can be affected by
weather patterns, levels of competition, competitors' marketing strategies,
changes in fashion trends and availability of product, the failure of Stage
Stores to achieve the expected results of merchandising and marketing plans or
store opening or closing plans. The occurrence of any of the above could have a
material adverse impact on the amount or quality of accounts receivable
transferred to SRPC, which in turn could affect the operating results of SRPC.
Additionally, changes in economic conditions (including interest rates and
payment patterns of the holders of Stage Stores private label credit card
accounts) could negatively impact SRPC's results of operations. Certain
information herein contains estimates which represent management's best
judgment as of the date hereof based on information currently available;
however, SRPC does not intend to update this information to reflect
developments or information obtained after the date hereof and disclaims any
legal obligation to the contrary.
GENERAL
Overview of SRPC and Stage Stores. SRPC is an indirect, wholly owned,
limited-purpose subsidiary of Stage Stores and was formed in 1993 pursuant to
the Accounts Receivable Program. Stage Stores, through SRI, operates retail
stores under the trade names "Bealls", "Palais Royal", "Stage", "Anthonys", and
"Anthonys Limited." SRI offers to its customers a proprietary credit card which
can be used to purchase merchandise and services only at SRI locations. SRPC is
dependent upon SRI for the generation of accounts receivable as SRI is its only
source of accounts receivable. SRPC purchases substantially all of the accounts
receivable generated by the use of the SRI credit cards on a daily basis and
transfers those accounts receivable to the Trust.
Stage Stores' retail concept is to offer moderately priced, nationally
recognized, name brand fashion apparel, accessories and footwear for women, men
and children. At November 1, 1997, Stage Stores operated 602 stores in 24
states located throughout the central and midwestern United States.
On June 26, 1997, Stage Stores, Inc. acquired CR Anthony by merging CR
Anthony with and into SRI. CR Anthony operated 246 brand name family apparel
stores in small markets as of the purchase date under the names "Anthonys" and
"Anthonys Limited." The Company has converted 130 of the "Anthonys" and
"Anthonys Limited" stores to the Company's format under its "Stage" and
"Bealls" trade names to date. The Company intends to convert the majority of
the remaining CR Anthony stores to the Company's format and trade names during
the first half of 1998.
Accounts Receivable Program. The Accounts Receivable Program provides
SRPC with a source of funds from the sale of accounts receivable to the Trust.
In connection with the implementation of the Accounts Receivable program,
Palais transferred or sold all of its accounts receivable to SRPC. SRPC, in
turn, transferred all of the accounts receivable to the Trust for $140.0
million in cash and a certificate representing an undivided interest in the
Trust. The Trust obtained the $140.0 million through the issuance of term
certificates to third-party investors. The Trust has also issued a $25.0
million term certificate and a $75.0 million revolving certificate, each
representing undivided interest in the Trust. The holders of the revolving
certificates agreed to purchase interests in the Trust equal to the amount of
accounts receivable in the Trust above the level required (aggregating $204.1
million at November 1, 1997) to support the term certificates (and, during the
fourth quarter, a seasonal minimum retained interest of SRPC) up to a maximum
of $75.0 million. If receivable balances in the Trust fall below the level
required to support the term certificates, the seasonal retained interest and
revolving certificates, certain principal collections may be retained in the
Trust until such time as the accounts receivable balances exceed the amount of
accounts receivable required to support the Trust Certificates and any required
transferor's interest. As of November 1, 1997, the outstanding balance under
the revolving certificate was $40.0 million. The Trust may issue additional
series of certificates from time to time on various terms. Terms of any future
series will be determined at the time of issuance.
On an ongoing daily basis, SRI sells to SRPC substantially all of the
accounts receivable generated from purchases by the holders of the SRI
proprietary credit card. SRPC in turn transfers, on a daily basis, the accounts
receivable purchased and transferred from SRI to the Trust in exchange for cash
or a certificate representing an
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undivided interest in the Trust. The Accounts Receivable Program provides SRPC
with a source of funds from the sale of accounts receivable to the Trust.
The cash flows generated from the accounts receivable in the Trust are
dedicated to (i) the purchase of new accounts receivable generated by SRI, (ii)
payment of a return on the certificates, and (iii) the payment of a servicing
fee to SRI. Any remaining cash flows are remitted to SRPC. The term
certificates entitle the holders to receive a return based upon LIBOR plus a
specified margin paid on a quarterly basis. Principal payments commence in
December 1999 but can be accelerated upon the occurrence of certain events. The
revolving certificate entitles the holder to receive a return based upon a
floating LIBOR rate, plus a specified margin, or prime rate, at the option of
SRPC paid on a monthly basis. The Trust is currently protected against
increases above 12% under an agreement entered into with a bank. The Trust is
exposed to loss in the event of non-performance by the bank. However, the Trust
does not anticipate non-performance by the bank. At November 1, 1997, the
average rate of return on the term certificates was 6.5%. The purchase
commitment for the revolving certificate is five years, subject to renewal at
the option of the parties. The revolving certificate holders are entitled to
repayment in the event the accounts receivable decrease below that required to
support such certificates. The terms of the Accounts Receivable Program
contain restrictive covenants which, if violated, could have a material adverse
impact on SRPC. SRPC is currently in compliance with these terms.
The most significant component of SRPC's statement of income is the
gain associated with the Retained Certificates. This gain consists primarily
of actual and projected (a) service charge and late fee income less (b) (i)
payments of returns to the holders of the Investor Certificates, (ii) payments
in excess of the face value of accounts receivable purchased from SRI
attributable to the accounts receivable portfolio, (iii) payments of servicing
fees to SRI and (iv) bad debt expense associated with defaulted accounts
receivable not sold to Palais pursuant to the Amendment.
The financial information, discussion and analysis that follow should
be read in conjunction with Amendment No. 2 to Registration Statement No.
333-10843 of SRPC on Form S-4 dated March 12, 1997.
RESULTS OF OPERATIONS
The gain associated with the Retained Certificates for the third
quarter of 1997 decreased 98.0% to $38,000 from $1.9 million in the same period
in 1996 due to an increase in premium payments to SRI for the purchase of
accounts receivable in excess of face value paritally offset by an increase in
the amount of service charge income. SRPC paid a $8.0 million premium on
accounts receivable purchased during the third quarter of 1997 and $5.5
million for the same period in 1996. Bad debt expense decreased 86.6% to
$140,000 from $1.0 million due primarily to the sale of $6.3 million in
defaulted accounts receivable during the third quarter of 1997 to SRI as
compared to $4.7 million for the second quarter of 1996.
The gain associated with the Retained Certificates for the nine months
ended November 1, 1997 decreased 29.0% to $3.2 million from $4.5 million in the
same period in 1996 due to an increase in premium payments to SRI for the
purchase of accounts receivable in excess of face value partially offset by an
increase in the amount of service charge income. SRPC paid a $18.4 million
premium on accounts receivable purchased during the first nine months of 1997
and $14.8 million for the same period in 1996. Bad debt expense decreased
47.1% to $3.1 million from $5.9 million due primarily to the sale of $16.6
million in defaulted accounts receivable during the nine months ended November
1, 1997 to SRI as compared to $12.4 million for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
SRPC issued $30.0 million in aggregate principal amount of the 12.5%
Trust Certificate-Backed Notes (the "Notes") on May 30, 1996. Substantially all
of the net proceeds from the issuance of the Notes were transferred to SRI to
fund the acquisition of Uhlmans, Inc. The Notes are secured by the Collateral
Certificates, including SRPC's retained interest in accounts receivable.
Interest on the Notes is payable semi-annually on June 15 and December 15 of
each year from amounts received by SRPC from such retained interest. The
expected maturity date of the Notes is December 15, 2000. The issuance of the
Notes does not impact the ability of the Trust to issue additional certificates
under the Accounts Receivable Program to third-party investors.
Prior to the acquisition of CR Anthony, CR Anthony sold all its
private label credit card accounts receivable to a third party. Stage Stores
has terminated this arrangement and SRI has purchased all outstanding
receivables from the third party. These receivables were incorporated into the
Accounts Receivable Program during
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the third quarter of 1997. As a result, SRPC purchased these receivables from
SRI through additional borrowings under the revolving certificate as well as an
increase in the intercompany note payable to SRI.
The Retained Certificates in Trust decreased 14.3% to $77.3 million at
November 1, 1997 from $90.1 million at February 1, 1997 due primarily to the
seasonal liquidation of accounts receivable balances generated during the
Christmas season as well as an increase in the amounts outstanding under the
revolving certificate. Intercompany interest is charged at LIBOR plus 1.0%
(6.7% at November 1, 1997). The payable balance to SRI was $17.0 million and
$35.0 million at November 1, 1997 and February 1, 1997, respectively. The
decrease in the payable balance results from the seasonal liquidation of the
accounts receivable balances generated during the Christmas season.
SRPC's primary sources of funds are the issuance of term certificates
by the Trust to third-party investors, advances under the revolving certificate
and principal and excess finance charge collections on accounts receivable
previously sold or transferred to the Trust. SRPC's primary uses of funds
include the purchase of accounts receivable from SRI as well as the payment of
interest on the Notes and the purchase of accounts receivable from SRI.
Management anticipates that interest payments on the Notes will be
approximately $3.8 million during 1997. Management believes that cash flows
generated under the Accounts Receivable Program (which include borrowings under
the revolving certificate) will be sufficient to permit the Company to meet its
cash requirements.
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PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
Omitted pursuant to General Instruction H(2)(b).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Omitted pursuant to General Instruction H(2)(b).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted pursuant to General Instruction H(2)(b).
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements 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.
SRI RECEIVABLES PURCHASE CO., INC.
December 12, 1997 /s/ Carl E. Tooker
- ----------------- -------------------------------------------
(Date) Carl E. Tooker
President, Chairman and
Chief Executive Officer
December 12, 1997 /s/ James A. Marcum
- ----------------- -------------------------------------------
(Date) James A. Marcum
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SRI RECEIVABLES PURCHASE CO., INC. FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 87,467
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 91,899
<CURRENT-LIABILITIES> 21,188
<BONDS> 30,000
0
0
<COMMON> 0
<OTHER-SE> 40,711
<TOTAL-LIABILITY-AND-EQUITY> 91,899
<SALES> 0
<TOTAL-REVENUES> 6,953
<CGS> 0
<TOTAL-COSTS> 987
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,805
<INCOME-PRETAX> 3,161
<INCOME-TAX> 1,176
<INCOME-CONTINUING> 1,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,985
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
