<PAGE> 1
================================================================================
THIS DOCUMENT IS A COPY OF THE FORM 10-Q AT NOVEMBER 1, 1997 FILED ON
DECEMBER 17, 1997 PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
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 33-68258
STAGE STORES, INC.; SPECIALTY RETAILERS, INC.; SPECIALTY RETAILERS, INC. (NV)
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 76-0407711; 74-0821900; 91-1826900
(State or other jurisdiction of (I.R.S. Employer Identifications No.)
incorporation or organization)
10201 MAIN STREET, HOUSTON, TEXAS 77025
(Address of principal executive offices) (Zip Code)
</TABLE>
(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 of Stage Stores, Inc. outstanding as of
November 30, 1997 was 26,480,703 shares of Common Stock and 1,250,584 shares of
Class B Common Stock. The number of shares of common stock of Specialty
Retailers, Inc. outstanding as of November 30, 1997 was 5,000 shares. The number
of shares of common stock of Specialty Retailers, Inc. (NV) as of November 30,
1997 was 1,000 shares.
================================================================================
<PAGE> 2
STAGE STORES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(in thousands, except par value)
<TABLE>
<CAPTION>
November 1, 1997 February 1, 1997
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 15,274 $ 18,286
Undivided interest in accounts receivable trust ...... 64,431 80,672
Merchandise inventories, net ......................... 330,477 187,717
Prepaid expenses ..................................... 24,659 15,690
Other current assets ................................. 47,411 32,797
--------- ---------
Total current assets ........................... 482,252 335,162
Property, equipment and leasehold improvements, net .. 154,707 111,189
Goodwill, net ........................................ 88,391 47,173
Other assets ......................................... 55,209 15,759
--------- ---------
$ 780,559 $ 509,283
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable ..................................... $ 105,893 $ 54,336
Accrued interest ..................................... 12,538 12,908
Accrued expenses and other current liabilities ....... 59,354 32,699
--------- ---------
Total current liabilities ...................... 177,785 99,943
Long-term debt ....................................... 398,207 298,453
Other long-term liabilities .......................... 19,320 18,621
--------- ---------
Total liabilities .............................. 595,312 417,017
--------- ---------
Preferred stock, par value $1.00, non-voting,
3 shares authorized, no shares
issued or outstanding .............................. -- --
Common stock, par value $0.01, 75,000 shares
authorized, 26,449 and 22,033 shares
issued and outstanding, respectively ............... 265 220
Class B common stock, par value $0.01, non-voting,
3,000 shares authorized, 1,251 shares
issued and outstanding, respectively ............... 13 13
Additional paid-in capital ........................... 263,264 169,811
Accumulated deficit .................................. (78,295) (77,778)
--------- ---------
Stockholders' equity .............................. 185,247 92,266
--------- ---------
Commitments and contingencies ........................ -- --
--------- ---------
$ 780,559 $ 509,283
========= =========
</TABLE>
1
<PAGE> 3
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(in thousands, except earnings per share)
(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>
Net sales ................................ $ 274,269 $ 182,562 $ 703,918 $ 528,489
Cost of sales and related buying,
occupancy and distribution expenses .... 187,447 126,354 481,269 363,577
----------- ----------- ----------- -----------
Gross profit ............................. 86,822 56,208 222,649 164,912
Selling, general and
administrative expenses ................ 69,089 43,071 163,752 121,504
Store opening and closure costs .......... 1,944 795 2,848 1,096
----------- ----------- ----------- -----------
Operating income ......................... 15,789 12,342 56,049 42,312
Interest expense, net .................... 9,767 12,795 28,158 36,849
----------- ----------- ----------- -----------
Income (loss) before income tax and
extraordinary item .................... 6,022 (453) 27,891 5,463
Income tax expense (benefit) ............. 2,349 (188) 10,818 2,208
----------- ----------- ----------- -----------
Income (loss) before extraordinary item .. 3,673 (265) 17,013 3,255
Extraordinary item -- early retirement
of debt ............................... (150) (15,806) (17,530) (15,806)
----------- ----------- ----------- -----------
Net income (loss) ........................ $ 3,523 $ (16,071) $ (517) $ (12,551)
=========== =========== =========== ===========
Earnings (loss) per common share data:
Earnings (loss) per common share before
extraordinary item ................... $ 0.13 $ (0.02) $ 0.66 $ 0.24
Extraordinary item -- early retirement
of debt .............................. -- (1.12) (0.68) (1.19)
----------- ----------- ----------- -----------
Earnings (loss) per common share ........ $ 0.13 $ (1.14) $ (0.02) $ (0.95)
=========== =========== =========== ===========
Weighted average common shares
outstanding .......................... 28,113 14,091 25,782 13,231
=========== =========== =========== ===========
</TABLE>
2
<PAGE> 4
STAGE STORES, INC.
CONSOLIDATED 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 loss........................................................ $ (517) $ (12,551)
--------- ---------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................. 13,091 10,029
Deferred income taxes ......................................... 2,086 (2,141)
Accretion of discount ......................................... 1,085 10,971
Amortization of debt issue costs .............................. 1,644 1,639
Loss on early extinguishment of debt .......................... 17,530 15,806
Changes in operating assets and liabilities:
Decrease in undivided interest in accounts receivable trust.. 16,241 11,281
Increase in merchandise inventories ......................... (92,779) (55,401)
Increase in other assets .................................... (19,421) (1,530)
Increase in accounts payable and accrued liabilities ........ 47,041 16,223
--------- ---------
Total adjustments ......................................... (13,482) 6,877
--------- ---------
Net cash used in operating activities ....................... (13,999) (5,674)
--------- ---------
Cash flows from investing activities:
Acquisitions, net of cash acquired .............................. (4,946) (28,151)
Additions to property, equipment and leasehold improvements ..... (41,744) (22,899)
--------- ---------
Net cash used in investing activities ....................... (46,690) (51,050)
--------- ---------
Cash flows from financing activities:
Proceeds from working capital facility .......................... 46,400 --
Proceeds from issuance of long-term debt ........................ 299,720 30,000
Proceeds from issuance of common stock .......................... 21,125 166,202
Payments on long-term debt ...................................... (297,161) (140,526)
Redemption of common stock ...................................... -- (32)
Additions to debt issue costs ................................... (12,407) (2,750)
--------- ---------
Net cash provided by financing activities ................... 57,677 52,894
--------- ---------
Net decrease in cash and cash equivalents ....................... (3,012) (3,830)
Cash and cash equivalents:
Beginning of period ........................................... 18,286 20,273
--------- ---------
End of period ................................................. $ 15,274 $ 16,443
========= =========
Supplemental disclosure of cash flow information:
Interest paid ................................................... $ 26,217 $ 26,150
========= =========
Income taxes paid ............................................... $ 3,746 $ 5,917
========= =========
</TABLE>
On June 26, 1997, the Company acquired C. R. Anthony Company. The Company
purchased Uhlmans, Inc. on June 3, 1996. In conjunction with these acquisitions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------
NOVEMBER 1, 1997 NOVEMBER 2, 1996
---------------- ----------------
<S> <C> <C>
Fair value allocated to assets acquired ........................... $ 120,665 $ 35,250
Cash paid for assets acquired, including acquisition expenses...... (4,946) (28,151)
Value of Common Stock exchanged ................................... (72,284) --
--------- --------
Liabilities assumed ............................................... $ 43,435 $ 7,099
========= ========
</TABLE>
3
<PAGE> 5
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Common Stock
--------------------------------------------------
Class B
----------------------- Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
----------- --------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997 .......... 22,033 $ 220 1,251 $ 13 $ 169,811 $ (77,778) $ 92,266
Net income ......................... -- -- -- -- -- (517) (517)
Vested compensatory stock options .. -- -- -- -- 88 -- 88
Exercise of stock options .......... 159 2 -- -- 388 -- 390
Issuance of stock in connection with
CR Anthony Acquisition .......... 3,607 36 -- -- 72,248 -- 72,284
Issuance of stock in connection with
Secondary Offering .............. 650 7 -- -- 20,729 -- 20,736
--------- --------- ------ --------- --------- --------- ---------
Balance, November 1, 1997 .......... 26,449 $ 265 1,251 $ 13 $ 263,264 $ (78,295) $ 185,247
========= ========= ====== ========= ========= ========= =========
</TABLE>
4
<PAGE> 6
STAGE STORES, INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated condensed financial
statements of Stage Stores, Inc. ("Stage Stores"), 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 the results of operations for a full year. The unaudited consolidated
condensed financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended February
1, 1997 filed with Stage Stores, Inc.'s Annual Report on Form 10-K. Certain
reclassifications have been made to prior year amounts to conform with the
current year presentation. 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.
Stage Stores conducts its business primarily through it's wholly owned
subsidiary Specialty Retailers, Inc. ("SRI"), which operated 602 family apparel
stores predominately located in the central United States as of November 1,
1997. Stage Stores has no operations of its own. Stage Stores and SRI are
collectively referred to herein as the "Company".
2. Pursuant to the accounts receivable securitization program (the
"Accounts Receivable Program"), an indirect wholly owned subsidiary of the
Company, SRI Receivables Purchase Co., Inc. ("SRPC") purchases the accounts
receivable generated by the Company's private label credit card program. Such
accounts receivable are transferred to a master trust (the "Trust") which has
issued certain certificates to third parties representing undivided interests
in the Trust. SRPC owns an undivided interest in the accounts receivable not
supporting the certificates issued to third parties by the Trust (the "Retained
Interest"). SRPC is a separate corporate entity from the Company and SRPC's
creditors have a claim on its assets prior to those assets becoming available
to any creditor of the Company.
3. On September 16, 1997, the Company completed an offering of
approximately 7.1 million shares of common stock at a price of $34 7/8 per
share. 6.4 million shares of this offering were secondary shares representing
the shares owned by two venture capital firms. The remaining 650,000 shares
were issued as primary shares, a result of an over-allotment provision. The
shares sold by the company resulted in net proceeds to the Company of
approximately $20.7 million, which were used to reduce borrowings outstanding
under the Company's New Credit Agreement.
4. During the second quarter of 1997, the Company completed an
offering of $300.0 million of long-term indebtedness consisting of $200.0
million in aggregate principal amount of 8 1/2% Senior Notes due 2005 and
$100.0 million in aggregate principal amount of 9% Senior Subordinated Notes
due 2007 (collectively, the "Note Offering"). The gross proceeds from the
issuance of these notes (approximately $299.7 million) were used to: (i) retire
the Company's existing 10% Senior Notes due 2000 and 11% Senior Subordinated
Notes due 2003; (ii) to pay related fees and expenses; and (iii) to pay costs
associated with the acquisition of C.R. Anthony Company ("CR Anthony").
Concurrently with this transaction, the Company entered into a new credit
facility with a group of lenders (the "New Credit Agreement"). The New Credit
Agreement provides for a $100.0 million working capital and letter of credit
facility and a $100.0 million expansion revolving credit facility. The New
Credit Agreement replaced the Company's existing $75.0 million credit facility.
In connection with the above transactions, the Company recorded an
extraordinary charge of $17.4 million, net of applicable income taxes of $11.1
million, related to the tender premiums and write off of unamortized debt issue
costs associated with the retired debt.
5. On June 26, 1997, the Company acquired CR Anthony which operated
246 family apparel stores in small markets throughout the central and
midwestern United States under the names "Anthony's" and "Anthony's Limited".
The Company issued 3,607,044 shares in exchange for the outstanding common
stock of CR Anthony. The purchase price for CR Anthony (including the common
stock issued by the Company) was approximately $77.2 million,
5
<PAGE> 7
including acquisition costs and net of cash acquired. CR Anthony had net sales
of $288.4 million and net income of $4.8 million of the year ended February 1,
1997.
The following unaudited pro forma information gives effect to the
acquisition of CR Anthony and the refinancing of the Company's debt as
discussed in Note 4 above as if each transaction had occurred at the beginning
of the periods presented (in thousands, except per common share data):
<TABLE>
<CAPTION>
Nine months
ended
November 1,
1997 Fiscal 1996
------------ -----------
(unaudited)
<S> <C> <C>
Net sales ............................................... $ 812,418 $1,081,000
============ ==========
Income before extraordinary items ....................... $ 15,769 $ 31,308
============ ==========
Earnings per common share before extraordinary items .... $ 0.55 $ 1.15
============ ==========
</TABLE>
The above amounts are based on certain estimates and assumptions which
the Company believes are reasonable. The pro forma results do not purport to be
indicative of the results which would have occurred if the acquisition or
refinancing had actually taken place at the beginning of the periods presented,
nor are they necessarily indicative of the results of any future periods.
The acquisition of CR Anthony was accounted for under the purchase
method of accounting. Accordingly, the total acquisition cost was allocated to
the assets acquired and liabilities assumed at their estimated fair values
based upon information currently available to the Company. The excess of the
purchase price over the estimated fair value of such assets and liabilities was
recognized as goodwill and is being amortized on a straight-line basis over
forty years. This preliminary purchase price allocation will be adjusted, if
necessary, based on additional information as it becomes available.
6. During October 1996, the Company completed an initial public
offering (the "Offering") of its common stock. The Company sold 10,750,000
shares at an initial offering price of $16.50 per share. The net proceeds from
the Offering to the Company were approximately $165.7 million after deducting
underwriting discounts and expenses related to the transaction. The net
proceeds were used primarily to retire the 12 3/4% Senior Discount Debentures
due 2000 (the "Senior Discount Debentures"). The remaining proceeds of
approximately $26.5 million were used for general corporate purposes.
Immediately prior to the Offering, the Board of Directors approved a .94727 for
1 reverse stock split, the effect of which is reflected in the accompanying
financial statements for all periods presented.
6
<PAGE> 8
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 to achieve
the expected results of merchandising and marketing plans or store opening or
closing plans. The occurence of any of the above could have a material adverse
impact on the Company's operating results. Certain information herein contains
estimates which represent management's best judgement as to the date hereof
based on information currently available; however, the Company 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. The Company operates the store of choice for well known
national brand name family apparel in over 400 small towns and communities
predominately across the central United States. The Company has recognized the
high level of brand awareness and demand for fashionable, quality apparel by
consumers in small markets and has identified these markets as a profitable and
underserved niche. The Company has developed a unique franchise focused on
these small markets, differentiating itself from the competition by offering a
broad range of brand name merchandise with a high level of customer service in
convenient locations.
Acquisition of CR Anthony Company. On June 26, 1997, the Company
acquired CR Anthony which operated 246 family apparel stores in small markets
throughout the central and midwestern United States under the names "Anthony's"
and "Anthony's 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.
CR Anthony's operating strategy was to offer brand name and private
label apparel and footwear for the entire family at competitive prices. The
stores acquired are located in 16 states, with the highest concentrations in
Texas, Oklahoma, Kansas and New Mexico. Approximately 87% of CR Anthony stores
are located in small markets and communities with populations generally below
30,000 and its stores' format average approximately 12,000 square feet.
The Company believes that the acquisition of CR Anthony is consistent
with its growth strategy to expand as a retailer of moderately priced national
brand name apparel into small and underserved markets through both organic
store development and strategic acquisitions. The acquisition provided an
opportunity for the Company to accelerate its expansion program in existing
markets and extend its presence in new markets. The Company believes that the
acquisition is attractive because: (i) there is a relatively small number of
markets in which the two companies directly overlap; (ii) a majority of the
acquired stores are in markets which fit the Company's demographic profile;
(iii) a majority of the acquired stores are comparable in size to the Company's
stores in similar markets; and (iv) the acquired stores are located in states
which are the same or are contiguous to stores in which the Company currently
operates.
The addition of the CR Anthony stores not only expands the geographic
reach of the Company, but it is expected that there will be meaningful
synergies between the Company and CR Anthony including: (i) central overhead
cost savings; (ii) CR Anthony revenue enhancement opportunities; and (iii) CR
Anthony gross margin improvement opportunities.
The financial information, discussion and analysis that follow should
be read in conjunction with the Company's Consolidated Financial Statements
included in the Company's 1996 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Sales for the third quarter of 1997 increased 50.2% to $274.3 million
from $182.6 million in the comparable period of 1996. The increase in third
quarter sales was primarily due to approximately $5.5 million of sales from
stores opened during 1997 and 1996 which are not included in comparable store
sales, $81.3 million of sales from the recently acquired CR Anthony stores, as
well as a 2.8% increase in third quarter comparable store sales. Sales for the
first nine months of 1997 increased 33.2% to $703.9 million from $528.5 million
in the comparable period of 1996. The increase in sales for the nine month
period was primarily due to $39.7 million of sales from stores opened during
1997 and 1996 which are not included in comparable store sales, $113.8 million
of sales from the acquired CR Anthony stores, as well as a 4.4% increase in
comparable store sales. The increase in comparable store sales was primarily
attributable to the
7
<PAGE> 9
strong performance of the Company's small market stores partially offset by a
slight decline in sales at the Company's metropolitan stores.
Gross profit increased 54.5% to $86.8 million for the third quarter of
1997, from $56.2 million in the comparable period of 1996. Gross profit margin
for the third quarter of 1997 increased to 31.7% from 30.8% for the comparable
period in 1996. Gross profit margin for the third quarter of 1997 was favorably
impacted by an increase in markup on merchandise sold due to a favorable mix of
merchandise and lower markdowns in the Company's existing stores as a result of
well controlled inventories during the quarter. Gross profit for the first nine
months of 1997 increased 35.0% to $222.6 million from $164.9 million in the
comparable period of 1996. Gross profit margin for the first nine months of
1997 increased to 31.6% from 31.2% for the comparable period in 1996 due to the
factors discussed above as well as additional leverage of the fixed cost
component of gross margin.
Selling, general and administrative expenses for the third quarter of
1997 increased 60.3% million to $69.1 million from $43.1 million in the
comparable period of 1996. Selling, general and administrative expenses as a
percentage of sales for the third quarter of 1997 increased to 25.2% from 23.6%
in the comparable period of 1996 due primarily to approximately $2.7 million of
duplicative administrative costs associated with the CR Anthony acquisition.
credit card receivable charge-offs with respect to the Company's proprietary
credit card program, the results of which are included in SG&A, as a percentage
of credit card sales for the third quarter of 1997 decreased as compared to the
third quarter of 1996 as a result of an increased focus on accelerating the
collection rate in the portfolio in order to control bad debts. This decrease in
charge offs was offset by a reduction in the service charge and late fee income
associated with the program during the third quarter of 1997. As a result of the
accelerated collection rate in the portfolio, these factors were partially
offset by improvements in store variable expenses as a rate of sales. Selling,
general and administrative expenses for the first nine months of 1997 increased
34.8% to $163.8 million from $121.5 million in the comparable period of 1996.
Selling, general and administrative expenses as a percentage of sales for the
first nine months of 1997 increased to 23.3% from 23.0% in the comparable period
of 1996 due to approximately $3.7 million of duplicative administrative costs
associated with the CR Anthony acquisition as well as a slight reduction in
service charge and late fee income associated with the Company's private label
credit card program discussed above. These factors were partially offset by
improvements in store variable expenses as a rate of sales. Advertising expenses
as a percentage of sales was 4.8% and 4.6% for the third quarters of 1997 and
1996, respectively, and 4.0% and 4.1% for the first nine months of 1997 and
1996, respectively.
Store opening and closure costs for the third quarter of 1997
increased to $1.9 million from $0.8 million for the same period of 1996 due to
an increase in the number of stores opened during the first nine months of 1997
(including the converted CR Anthony locations) as compared to the same period
in 1996.
Operating income for the third quarter of 1997 increased 28.5% to
$15.8 million from $12.3 million for the third quarter of 1997. Operating
income as a percent of sales for the third quarter of 1997 was 5.8% as compared
to 6.8% for the third quarter of 1996, due primarily to the $2.7 million of
duplicative administrative costs associated with the CR Anthony acquisition, as
well as the increased store opening and closure costs discussed above.
Operating income for the first nine months of 1997 increased 32.4% to $56.0
million from $42.3 million in the comparable period of 1996. Operating income
as a percent of sales was 8.0% for the first nine months of 1997 and 1996.
Net interest expense for the third quarter of 1997 decreased 23.4% to
$9.8 million from $12.8 million for the comparable period in 1996. Net interest
expense for the first nine months of 1997 decreased 23.4% to $28.2 million from
$36.8 million for the comparable period in 1996. Interest expense for both the
three and nine months ended November 1, 1997 decreased from the comparable
periods in the prior year due to the retirement of the Senior Discount
Debentures in connection with the Company's IPO and the refinancing of the
Company's debt during the second quarter of 1997. This decrease was partially
offset by increased interest expense associated with issuance of the SRPC Notes
in May 1996.
As a result of the foregoing, the Company's income before
extraordinary items for the third quarter of 1997 increased to $3.7 million as
compared to a loss of $0.3 million for the comparable period in 1996. The
Company's
8
<PAGE> 10
income before extraordinary items for the first nine months of 1997 increased
by 415.2% to $17.0 million from $3.3 million for the comparable period in 1996.
In connection with the refinancing of the Company's existing 10%
Senior Notes and 11% Senior Subordinated Notes which occurred in June of 1996,
the Company recorded an extraordinary charge of $17.4 million, net of
applicable income taxes of $11.1 million, related to the tender premiums and
write off of unamortized debt issue costs associated with the retired debt.
Additionally, during the third quarter, the Company retired approximately
$600,000 of the outstanding amount of the Bealls Holding Subordinated Notes and
the Bealls Holding Junior Subordinated Debentures, which resulted in an
extraordinary charge of $150,200, net of applicable income taxes of $96,000,
related to the tender premiums and write off of unamortized debt issue costs
associated with the retired debt.
SEASONALITY AND INFLATION
The Company's business is seasonal and its quarterly sales and profits
are traditionally lower during the first three quarters (February through
October) and higher during the fourth quarter (November through January). In
addition, working capital requirements fluctuate throughout the year,
increasing substantially in October and November due to requirements for
significantly higher inventory levels in anticipation of the holiday season.
The following table shows certain unaudited financial information for
the Company by quarter (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------------------------- ------------------------------------------------------
Q1 Q2 Q3 Q1 Q2 Q3 Q4
------------- ------------- ------------ ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $ 191,512 $ 238,137 $ 274,269 $ 163,177 $ 182,750 $ 182,562 $ 248,061
Gross profit............. 61,925 73,902 86,822 52,081 56,623 56,208 79,075
Operating income......... 20,524 19,736 15,789 16,045 13,925 12,342 26,258
Quarters' operating
income as a percent
of total............... -- -- -- 24% 20% 18% 38%
Income (loss) before
extraordinary items.... $ 7,094 $ 6,246 $ 3,673 $ 2,652 $ 868 $ (265) $ 10,767
Net income (loss) ....... $ 7,094 $ (11,134) $ 3,523 $ 2,652 $ 868 $ (16,071) $ 10,492
</TABLE>
The Company does not believe that inflation had a material effect on
its results of operations during the past two years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
LIQUIDITY AND CAPITAL RESOURCES
On June 17, 1997, the Company completed the Note Offering, which
consisted of $200.0 million in Senior Notes and $100.0 million in Senior
Subordinated Notes. The gross proceeds from the Note Offering of approximately
$299.7 million were used (i) to retire approximately $248.2 million of the
Company's existing higher coupon Senior Notes and Senior Subordinated Notes and
to pay related fees and expenses and (ii) to pay transaction and other costs
associated with the acquisition of CR Anthony. Concurrently with the Note
Offering, the Company entered into the New Credit Agreement consisting of a
$100.0 million working capital facility and a $100.0 million expansion
revolving credit facility.
On June 26, 1997, in connection with the acquisition of CR Anthony,
the Company issued 3,607,044 shares of Common Stock to stockholders of CR
Anthony and assumed approximately $25.9 million in debt. The acquisition was
9
<PAGE> 11
structured as a merger with CR Anthony merging into SRI whereby the separate
corporate existence of CR Anthony ceased.
On September 16, 1997, the Company completed an offering of
approximately 7.1 million shares of common stock at $34 7/8 per share. 6.4
million shares of this offering were secondary shares representing the shares
owned by two venture capital firms. The remaining 650,000 shares were issued as
primary shares, a result of an over-allotment provision. The net proceeds to
the Company, after deducting underwriting discounts and expenses related to the
transaction, were approximately $20.7 million, which were used to reduce
borrowings outstanding under the Company's New Credit Agreement.
Total working capital increased $69.3 million to $304.5 million at
November 1, 1997 from $235.2 million at February 1, 1997, due primarily to the
acquisition of CR Anthony. The most significant changes in working capital
were: (i) an increase in inventories and accounts payable due to the
acquisition of CR Anthony as well as the seasonal build of inventories in
anticipation of the Christmas selling season; and (ii) a decrease in accounts
receivable as a result of the liquidation of accounts receivable generated
during the Christmas season. Prepaid expenses and other current assets
increased primarily due to the acquisition of CR Anthony and prepaid expenses
associated with new store openings and the conversion of the CR Anthony stores,
partially offset by the collection of a federal tax refund during the first
quarter of 1997. Accrued expenses and other current liabilities increased
primarily due to the acquisition of CR Anthony.
The Company's primary capital requirements are for working capital,
debt service and capital expenditures. Based upon the current capital
structure, management anticipates interest payments for 1997 and 1998 to be
approximately $35.0 million. Capital expenditures are generally for new store
openings, remodeling of existing stores and facilities and customary store
maintenance. Capital expenditures for the first nine months of 1997 were $41.7
million as compared to $22.9 million for the comparable period of 1996 as a
result of an increase in the number of new stores opened. Management expects
capital expenditures (including any capital expenditures resulting from the
acquisition of CR Anthony) to be approximately $62.0 million during each of
1997 and 1998, consisting primarily of new store openings, conversion of the CR
Anthony stores to the Company's format, and remodeling and maintenance of
existing stores. In addition, the Company expects to incur approximately $18.0
million in one-time costs in connection with the acquisition of CR Anthony
which consist primarily of costs associated with the termination of contracts,
lease terminations, severance payments to CR Anthony employees and transaction
fees. Required aggregate principal payments on debt of the Company are expected
to total $2.6 million for each of 1997 and 1998.
The Company's current short-term liquidity needs, including a portion
of the one-time costs associated with the acquisition of CR Anthony, are
provided by (i) existing cash balances, (ii) operating cash flows, (iii) the
Accounts Receivable Program and (iv) the New Credit Agreement. The Company
expects to fund its long-term liquidity needs from its operating cash flows,
the issuance of debt and/or equity securities, the securitization of its
accounts receivable and bank borrowings.
The Company securitizes all of its trade accounts receivables through
SRPC. The Company transfers, on a daily basis, all of the accounts receivable
generated from purchases by the holders of the Company's proprietary credit
card to SRPC. SRPC is operated in a manner intended to ensure that its assets
and liabilities are distinct from those of the Company and its other affiliates
as SRPC's creditors have a claim on its assets prior to such assets becoming
available to any creditor of the Company. SRPC, in turn, transfers on a daily
basis, the accounts receivable purchased from the Company to the Trust in
exchange for cash or an increase in the certificates of beneficial ownership in
the Trust (the "Retained Certificates"). The remaining interest in the Trust
which is not represented by the Retained Certificates is held by third-party
investors. The Retained Certificates are effectively subordinated to the
interests of such third-party investors, and are pledged to secure the SRPC
Notes which were issued to finance the Uhlmans acquisition. The SRPC Notes are
secured by, and paid solely from, the Retained Certificates issued to SRPC by
the Trust.
10
<PAGE> 12
Since its inception, the Trust has issued $165.0 million of term
certificates and a revolving certificate (collectively, the "Trust
Certificates") to third parties representing undivided interests in the Trust.
The Trust originally issued a $40.0 million revolving certificate under which
the holder of the revolving certificate agreed to purchase interests in the
Trust equal to the amount of accounts receivable in the Trust above the level
required to support the term certificates up to a maximum of $40.0 million. As
of November 1, 1997, the outstanding balance under the revolving certificate was
$40.0 million. On December 3, 1997, the Trust, through SRPC, replaced the
original revolving certificate with a new $75.0 million revolving certificate.
Other than the borrowing limit, the terms of the new revolving certificate are
essentially the same as those of the certificate it replaced.
If the amount of accounts receivable in the Trust falls below the
level required to support the Trust 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. SRPC receives
distributions from the Trust of cash in excess of amounts required to satisfy
the Trust's obligations to third-party investors on the Trust Certificates.
Cash so received by SRPC may be used to purchase additional accounts receivable
from, or make distributions to, the Company after SRPC has satisfied its
obligations on the SRPC Notes. 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.
Prior to the Company's acquisition of CR Anthony, CR Anthony sold all
of its private label credit card accounts receivable to a Retail Credit
Services Agreement which was to expire on August 1, 1998. The Company
terminated this agreement in exchange for the payment of a termination fee paid
to Citicorp. Additionally, the Company repurchased all of the outstanding
accounts receivable on the termination date (September 10, 1997) at their face
value which approximated $35.1 million. The Company has incorporated these
accounts receivable into the Accounts Receivable Program.
Management believes that funds provided by operations, together with
funds available under the New Credit Agreement and the Accounts Receivable
Program will be adequate to meet the Company's anticipated requirements for
working capital, interest payments, planned capital expenditures and principal
payments on debt, including those requirements associated with the acquisition
of CR Anthony. Estimates as to working capital needs and other expenditures may
be materially affected if the foregoing sources are not available or do not
otherwise provide sufficient funds to meet the Company's obligations.
11
<PAGE> 13
STAGE STORES, INC.
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
27 Financial Data Schedule
12
<PAGE> 14
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.
STAGE STORES, INC.
December 15, 1997 /s/ Carl E. Tooker
- ----------------- ---------------------------------
(Date) Carl E. Tooker
Chairman, President and
Chief Executive Officer
December 15, 1997 /s/ James A. Marcum
- ----------------- ---------------------------------
(Date) James A. Marcum
Executive Vice President,
Chief Financial Officer
SPECIALTY RETAILERS, INC.
December 15, 1997 /s/ Carl E. Tooker
- ----------------- ---------------------------------
(Date) Carl E. Tooker
Chairman, President and
Chief Executive Officer
December 15, 1997 /s/ James A. Marcum
- ----------------- ---------------------------------
(Date) James A. Marcum
Executive Vice President,
Chief Financial Officer
SPECIALTY RETAILERS, INC. (NV)
December 15, 1997 /s/ Carl E. Tooker
- ----------------- ---------------------------------
(Date) Carl E. Tooker
Chairman, President and
Chief Executive Officer
December 15, 1997 /s/ James A. Marcum
- ----------------- ---------------------------------
(Date) James A. Marcum
Executive Vice President,
Chief Financial Officer
13
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STAGE STORES, INC. FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000006885
<NAME> STAGE STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> NOV-01-1997
<CASH> 15,274
<SECURITIES> 0
<RECEIVABLES> 64,431
<ALLOWANCES> 0
<INVENTORY> 330,477
<CURRENT-ASSETS> 482,252
<PP&E> 154,707
<DEPRECIATION> 11,220
<TOTAL-ASSETS> 780,559
<CURRENT-LIABILITIES> 177,785
<BONDS> 398,207
0
0
<COMMON> 278
<OTHER-SE> 184,970
<TOTAL-LIABILITY-AND-EQUITY> 780,559
<SALES> 703,918
<TOTAL-REVENUES> 703,918
<CGS> 481,269
<TOTAL-COSTS> 163,752
<OTHER-EXPENSES> 2,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,158
<INCOME-PRETAX> 27,891
<INCOME-TAX> 10,878
<INCOME-CONTINUING> 17,013
<DISCONTINUED> 0
<EXTRAORDINARY> (17,530)
<CHANGES> 0
<NET-INCOME> (517)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
