<PAGE> 1
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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 August 2, 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.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0407711
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 August 21, 1997 was
27,028,347 shares of Common Stock and 1,250,584 shares of Class B Common Stock.
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<PAGE> 2
STAGE STORES, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS
<TABLE>
<CAPTION>
AUGUST 2, FEBRUARY 1,
1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $ 18,929 $ 18,286
Undivided interest in accounts receivable trust............. 51,822 80,672
Merchandise inventories, net................................ 258,488 187,717
Prepaid expenses............................................ 18,551 15,690
Other current assets........................................ 39,842 32,797
-------- --------
Total current assets.............................. 387,632 335,162
Property, equipment and leasehold improvements, net......... 138,383 111,189
Goodwill, net............................................... 87,033 47,173
Other assets................................................ 49,629 15,759
-------- --------
$662,677 $509,283
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 66,638 $ 54,336
Accrued interest............................................ 4,347 12,908
Accrued expenses and other current liabilities.............. 55,032 32,699
-------- --------
Total current liabilities......................... 126,017 99,943
Long-term debt.............................................. 356,877 298,453
Other long-term liabilities................................. 19,048 18,621
-------- --------
Total liabilities................................. 501,942 417,017
-------- --------
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,
25,741 and 22,033 shares issued and outstanding,
respectively.............................................. 257 220
Class B common stock, par value $0.01, non-voting 3,000
shares authorized, 1,251 issued and outstanding........... 13 13
Additional paid-in capital.................................. 242,283 169,811
Accumulated deficit......................................... (81,818) (77,778)
-------- --------
Stockholders' equity...................................... 160,735 92,266
-------- --------
Commitments and contingencies............................... -- --
-------- --------
$662,677 $509,283
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
AUGUST 2, AUGUST 3, AUGUST 2, AUGUST 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales.......................................... $238,137 $182,750 $429,649 $345,927
Cost of sales and related buying, occupancy and
distribution expenses............................ 164,235 126,127 293,822 237,223
-------- -------- -------- --------
Gross profit....................................... 73,902 56,623 135,827 108,704
Selling, general and administrative expenses....... 53,405 42,468 94,663 78,433
Store opening and closure costs.................... 761 230 904 301
-------- -------- -------- --------
Operating income................................... 19,736 13,925 40,260 29,970
Interest, net...................................... 9,449 12,466 18,391 24,054
-------- -------- -------- --------
Income before income tax and extraordinary item.... 10,287 1,459 21,869 5,916
Income tax expense................................. 4,041 591 8,529 2,396
-------- -------- -------- --------
Income before extraordinary item................... 6,246 868 13,340 3,520
Extraordinary item -- early retirement of debt..... (17,380) -- (17,380) --
-------- -------- -------- --------
Net income (loss).................................. $(11,134) $ 868 $ (4,040) $ 3,520
======== ======== ======== ========
Earnings (loss) per common share data:
- ----------------------------------------
Earnings per common share before extraordinary
item.......................................... $ 0.25 $ 0.07 $ 0.54 $ 0.27
Extraordinary item -- early retirement of debt... (0.68) -- (0.70) --
-------- -------- -------- --------
Earnings (loss) per common share................. $ (0.44) $ 0.07 $ (0.16) $ 0.27
======== ======== ======== ========
Weighted average common shares outstanding....... 25,478 13,015 24,688 12,957
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
STAGE STORES, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (4,040) $ 3,520
-------- --------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 8,003 6,844
Deferred income taxes..................................... 364 (833)
Accretion of discount..................................... 579 7,663
Amortization of debt issue costs.......................... 1,016 1,031
Loss on early extinguishment of debt...................... 17,380 --
Changes in working capital................................ 7,327 (12,118)
-------- --------
Total adjustments................................. 34,669 2,587
-------- --------
Net cash provided by operating activities............ 30,629 6,107
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired........................ (4,996) (27,276)
Additions to property, equipment and leasehold
improvements........................................... (20,797) (15,183)
-------- --------
Net cash used in investing activities................ (25,793) (42,459)
-------- --------
Cash flows from financing activities:
Proceeds from common stock................................ 224 292
Proceeds from long-term debt.............................. 299,720 30,000
Proceeds from Revolving Credit Agreement, net............. 5,000 7,500
Payments on long-term debt................................ (296,805) (125)
Redemption of common stock................................ -- (16)
Additions to debt issue costs............................. (12,332) (2,632)
-------- --------
Net cash provided by (used in) financing
activities.......................................... (4,193) 35,019
-------- --------
Net increase (decrease) in cash and cash equivalents........ 643 (1,333)
-------- --------
Cash and cash equivalents:
Beginning of period....................................... 18,286 20,273
-------- --------
End of period............................................. $ 18,929 $ 18,940
======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................. $ 25,594 $ 14,885
Income taxes paid......................................... $ 3,175 $ 8,617
======== ========
</TABLE>
The Company purchased Uhlmans, Inc. on June 3, 1996. On June 26, 1997, the
Company acquired C.R. Anthony Company. In conjunction with these acquisitions,
liabilities were assumed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
AUGUST 2, AUGUST 3,
1997 1996
--------- ---------
<S> <C> <C>
Fair value allocated to assets acquired..................... $120,665 $ 34,295
Cash paid for assets acquired, including acquisition
expenses.................................................. (4,996) (27,276)
Value of Common Stock exchanged............................. (72,284) --
-------- --------
Liabilities assumed......................................... $ 43,385 $ 7,019
======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<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 loss............................. -- -- -- -- -- (4,040) (4,040)
Option activity...................... 101 1 -- -- 224 -- 225
Issuance of stock in connection with
CR Anthony Acquisition............. 3,607 36 -- -- 72,248 -- 72,284
------- ---- ----- --- -------- -------- --------
Balance, August 2, 1997.............. 25,741 $257 1,251 $13 $242,283 $(81,818) $160,735
======= ==== ===== === ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
5
<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 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 ending January 31, 1998.
Stage Stores conducts its business exclusively through it's wholly
owned subsidiary Specialty Retailers, Inc. ("SRI"), which operated 578 family
apparel stores in the central United States as of August 2, 1997. Stage Stores
has no operations of its own and its primary asset is the common stock of SRI.
Stage Stores and SRI are collectively referred to herein as the "Company".
2. Pursuant to the accounts receivable securitization program
implemented in 1993 (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. 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.
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 and; (ii) 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 C.R. Anthony Company ("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".
6
<PAGE> 7
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 value of the
common stock issued by the Company) was approximately $77.3 million, 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>
Six
months
ended
August 2, Fiscal
1997 1996
---------- ----------
(unaudited)
<S> <C> <C>
Net sales...................................................... $ 538,149 $1,081,000
========== ==========
Income before extraordinary items.............................. $ 13,584 $ 31,308
========== ==========
Earnings per common share before extraordinary items........... $ 0.49 $ 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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Overview. The Company operates the store of choice for well-known
national brand name family apparel in over 400 small towns and communities
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 intends to convert the "Anthonys" and
"Anthonys Limited" stores to the Company's format under its "Stage" and
"Bealls" trade names during the remainder of 1997 and 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 18 states, with the highest concentrations in
Texas, Oklahoma, Kansas and New Mexico. Approximately 85% 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 underserved, small markets through both organic store
development and strategic acquisitions. The acquisition provides 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 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 second quarter of 1997 increased 30.3% to $238.1 million
from $182.8 million in the comparable period of 1996. The increase in second
quarter sales was primarily due to $13.4 million of sales from stores opened
during 1997 and 1996, $32.4 million of sales for the month of July from the
acquired CR Anthony stores, as well as a 5.7% increase in comparable store
sales. Sales for the first six months of 1997 increased 24.2% to $429.6 million
from $345.9 million in the comparable period of 1996. The increase in sales for
the six month period was primarily due to $32.8 million of sales for stores
opened during 1997 and 1996, $32.4 million of sales for the month of July from
the acquired CR Anthony stores, as well as a 5.3% increase in comparable store
sales. The increase in comparable store sales was attributable primarily to the
strong performance of the Company's small market stores partially offset by
slight decline in sales at the Company's metropolitan stores.
8
<PAGE> 9
Gross profit for the second quarter of 1997 increased 30.6% to $73.9
million from $56.6 million in the comparable period of 1996. Gross profit
margin for the second quarter of 1997 and 1996 was 31.0%. Gross profit margin
for the second quarter of 1997 was impacted by lower gross profit margins
experienced by the acquired CR Anthony locations during July offset by an
increase in markup on merchandise sold in the Company's existing stores due to
an improved mix of merchandise as well as additional leverage of the fixed cost
component of gross margin. Gross profit for the first six months of 1997
increased 24.9% to $135.8 million from $108.7 million in the comparable period
of 1996. Gross profit margin for the first six months of 1997 increased to
31.6% from 31.4% for the comparable period in 1996 due to the increase in
markup on merchandise sold mentioned above coupled with additional leverage of
the fixed cost component of gross margin partially offset by lower gross profit
margins experienced by the acquired CR Anthony locations in July.
Selling, general and administrative expenses for the second quarter of
1997 increased 25.6% to $53.4 million from $42.5 million in the comparable
period of 1996. Selling, general and administrative expenses as a percentage of
sales for the second quarter of 1997 decreased to 22.4% from 23.2% in the
comparable period of 1996 due to the effective leveraging of the Company's
central overhead function as well as an improvement in store variable expenses.
Included in selling, general and administrative expenses for the second quarter
of 1997 is approximately $1.0 million of integration and duplicative
administrative costs at the CR Anthony general office. Selling, general and
administrative expenses for the first six months of 1997 increased 20.8% to
$94.7 million from $78.4 million in the comparable period of 1996. Selling,
general and administrative expenses as a percentage of sales for the first six
months of 1997 decreased to 22.0% from 22.6% in the comparable period of 1996
due to the above factors. Advertising expenses as a percentage of sales remained
unchanged at approximately 3.6% for the first six months of 1997 and 1996.
The Company has historically used United Parcel Service ("UPS") to
ship the majority of merchandise from its distribution center to the Company's
stores on a daily basis. As a result of the UPS strike during the second
quarter of 1997 and was resolved during the third quarter of 1997, the Company
used alternative delivery services for approximately 20 days. These services
met the Company's distribution needs with minor disruption to its operations but
resulted in slightly higher operating costs to the Company than it would have
experienced with UPS. Following the conclusion of the UPS strike, UPS resumed
service for the Company under the terms of its existing contract. The Company
is in the process of rationalizing its distribution arrangements given the
current environment which may result in terms which are more or less attractive
than the Company's existing agreement with UPS.
Operating income for the second quarter of 1997 increased 41.7% to
$19.7 million from $13.9 million for the second quarter of 1997. Operating
income as a percent of sales for the second quarter of 1997 was 8.3% as
compared to 7.6% for the second quarter of 1996 due to the factors described
above. Operating income for the first six months of 1997 increased 34.3% to
$40.3 million from $30.0 million in the comparable period of 1996. Operating
income as a percentage of sales for the first six months of 1997 was 9.4% as
compared to 8.7% in the comparable period of 1996.
Net interest expense for the second quarter of 1997 decreased 24.8% to
$9.4 million from $12.5 million for the comparable period in 1996. Net interest
expense for the first six months of 1997 decreased 23.6% to $18.4 million from
$24.1 million for the comparable period in 1996. Net interest expense for both
the three and six months ended August 2, 1997 decreased from the comparable
periods in the prior year due to the retirement of the Senior Discount
Debentures in connection with the IPO. This decrease was partially offset by
increased interest expense associated with issuance of the SRPC Notes in May
1996. The refinancing of the Company's debt during the second quarter of 1997
did not materially impact interest expense for the second quarter of 1997.
As a result of the foregoing, the Company's income before
extraordinary items for the second quarter of 1997 increased by 619.6% to $6.2
million from $0.9 million for the comparable period in 1996. Income before
extraordinary item for the first six months of 1997 increased by 279.0% to
$13.3 million from $3.5 million for the comparable period in 1996.
9
<PAGE> 10
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.
SEASONALITY AND INFLATION
The Company's business is seasonal and its quarterly sales and profits
traditionally are 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 in anticipation of the holiday season due
to requirements for significantly higher inventory levels.
The following table show certain unaudited financial information for
the Company by quarter (in thousands):
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------------------------------------
Q1 Q2 Q1 Q2 Q3 Q4
---------- ---------- ---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales ............... $ 191,512 $ 238,137 $ 163,177 $ 182,750 $ 182,562 $ 248,061
Gross profit ............ 61,925 73,902 52,081 56,623 56,208 79,075
Operating income ........ 20,524 19,736 16,045 13,925 12,342 26,258
Quarters' operating
income as a percent of
annual income ......... -- -- 24% 20% 18% 38%
Income (loss) before
extraordinary item .... $ 7,094 $ 6,246 $ 2,652 $ 868 $ (265) $ 10,767
Net income (loss) ....... $ 7,094 $ (11,134) $ 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 Refinancing which
consisted of the Credit Agreement, the Note Offering and related retirement of
approximately $248.2 million of the Company's existing indebtedness. The Note
Offering 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 long-term indebtedness 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 Credit Agreement consisting of the $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 approximately 3,607,044 shares of Common Stock to
stockholders of CR Anthony and assumed approximately $25.9 million in debt. The
acquisition was structured as a merger with CR Anthony merging with and into SRI
and SRI surviving with all its rights, privileges, powers and franchises
unaffected by the merger. The separate corporate existence of CR Anthony
ceased.
10
<PAGE> 11
Total working capital increased $26.4 million to $261.6 million at
August 2, 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, accrued expenses and other current
liabilities and accounts payable due to the acquisition of CR Anthony and the
seasonal build of inventories; and (ii) a decrease in accounts receivable as a
result of the seasonal decrease of accounts receivable which were generated
during the Christmas season. In addition, prepaid expenses and other current
assets increased due primarily to the acquisition of CR Anthony partially offset
by the collection of a federal tax refund during the first quarter of 1997.
The Company's primary capital requirements are for working capital,
debt service and capital expenditures. Based upon the Company's 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 six months of 1997 were $20.8
million as compared to $15.2 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 Stage format, and remodeling and maintenance of existing
stores. The Company also incurred approximately $18.0 million in one-time costs
in connection with the acquisition of CR Anthony which consisted of, among other
things, 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
expected to be provided by: (i) existing cash balances; (ii) operating cash
flows; (iii) the Accounts Receivable Program; and (iv) the 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. SRPC holds a retained interest in the Trust which is represented by the
three certificates of beneficial ownership in the Trust (the "Retained
Certificates"). 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 Retained Certificates. The remaining
interest in the Trust is held by third-party investors which are represented by
the Trust Certificates (as defined below). 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.
Since its inception, the Trust has issued $165.0 million of term
certificates and a $40.0 million revolving certificate (collectively, the
"Trust Certificates") to third parties representing undivided interests in the
Trust. 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 (aggregating $200.1 million at
August 2, 1997), up to a maximum of $40.0 million. As of August 2, 1997, the
outstanding balance under the revolving certificate was $16.6 million. The
Retained Certificates are effectively subordinated to the interests of
third-party investors, and are pledged to secure the SRPC Notes. 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
11
<PAGE> 12
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 acquisition of CR Anthony, CR Anthony sold all
of its private label credit card accounts receivable to a Retail Credit
Services Agreement which expires on August 1, 1998. The Company and
Citicorp has agreed to terminate this agreement in exchange for the payment of
a termination fee to be paid to Citicorp. Additionally, the Company will
repurchase any outstanding accounts receivable on the termination date
(September 11, 1997) at their face value which approximated $36.0 million as of
August 13, 1997. The Company intends to incorporate the accounts receivable
into the Accounts Receivable Program.
Management believes that funds provided by operations, together with
funds available from the Credit Agreement, the Seasonal 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. 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.
12
<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.
The Company held its Annual Meeting on May 15, 1997. Each of Harold
Compton, Robert Huth, and Richard Jolosky were elected as Directors of the
Company. Each of Carl E. Tooker, Joshua Bekenstein, Adam Kirsch, and Peter
Mulvihill continued as Directors of the Company after the Annual Meeting. Mark
Shulman continued as Director after the Annual Meeting but resigned as of May
21, 1997.
At the Annual Meeting, Price Waterhouse LLP was elected as the Company's
independent accountants. The number of votes cast for, against and withheld with
respect to Price Waterhouse LLP was 19,503,690, 0 and 2,950, respectively.
ITEM 5. OTHER INFORMATION
None.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
2.1 First Amendment to Agreement and Plan of Merger,
dated as of May 20, 1997, between Stage Stores, Inc.
and C. R. Anthony Company. (Incorporated by
reference to Exhibit 2.2 of Registration No.
333-27809 on Form S-4).
3.1 Restated Articles Certificate of Incorporation of
Specialty Retailers, Inc. (Incorporated by Reference
to Exhibit 3.3 of Registration No. 333-32695 on Form
S-4).
3.2 Amended and Restated Bylaws of Specialty Retailers,
Inc. (Incorporated by Reference to Exhibit 3.4 of
Registration No. 333-32695 on Form S-4).
3.3 Certificate of Incorporation of Specialty Retailers,
Inc. (NV). (Incorporated by Reference to Exhibit 3.5
of Registration No. 333-32695 on Form S-4).
3.4 Bylaws of Specialty Retailers, Inc. (NV).
(Incorporated by Reference to Exhibit 3.6 of
Registration No. 333-32695 on Form S-4).
4.1 Credit Agreement dated as of June 17, 1997 by and
among Specialty Retailers, Inc., Stage Stores, Inc.,
the banks named therein, and Credit Suisse First
Boston. (Incorporated by Reference to Exhibit 4.1 of
Registration No. 333-32695 on Form S-4).
4.2 Indenture dated as of June 17, 1997 relating to the
$200,000,000 aggregated principal amount of 8 1/2%
Senior Notes due 2005 among Specialty Retailer, Inc.,
Stage Stores, Inc. and State Street Bank and Trust
Company, and First Supplemental Indenture dated as of
July 2, 1997. (Incorporated by Reference to Exhibit
4.2 of Registration No. 333-32695 on Form S-4).
4.3 Indenture dated as of June 17, 1997 relating to the
$100,000,000 aggregated principal amount of 9% Senior
Subordinated Notes due 2007 among Specialty
Retailers, Inc., Stage Stores, Inc. and State Street
Bank and Trust Company, and First Supplemental
Indenture dated as of July 2, 1997. (Incorporated by
Reference to Exhibit 4.3 of Registration No.
333-32695 on Form S-4).
10.1 Registration Rights Agreement dated as of June 11,
1997 among Specialty Retailers, Inc., Credit Suisse
First Boston, Bear, Stearns & Co. Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation
(Incorporated by Reference to Exhibit 10.8 of
Registration No. 333-32695 on Form S-4).
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K and an amended Current
Report on Form 8-K/A-1 dated June 26, 1997 related to the acquisition
of CR Anthony Company. The Company also filed a Current Report on
Form 8-K dated May 21, 1997 to announce the resignation of Mark
Shulman.
14
<PAGE> 15
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.
August 26, 1996 /s/ Carl E. Tooker
- --------------- -----------------------------------
(Date) Carl E. Tooker
President and
Chief Executive Officer
August 26, 1996 /s/ James A. Marcum
- --------------- -----------------------------------
(Date) James A. Marcum
Executive Vice President and
Chief Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE STAGE STORES, INC. CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> AUG-02-1997
<CASH> 18,929
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 258,488
<CURRENT-ASSETS> 387,632
<PP&E> 138,383
<DEPRECIATION> 0
<TOTAL-ASSETS> 662,677
<CURRENT-LIABILITIES> 126,017
<BONDS> 356,877
0
0
<COMMON> 270
<OTHER-SE> 160,465
<TOTAL-LIABILITY-AND-EQUITY> 662,677
<SALES> 191,512
<TOTAL-REVENUES> 429,649
<CGS> 293,822
<TOTAL-COSTS> 95,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,391
<INCOME-PRETAX> 21,869
<INCOME-TAX> 8,529
<INCOME-CONTINUING> 13,340
<DISCONTINUED> 0
<EXTRAORDINARY> (17,380)
<CHANGES> 0
<NET-INCOME> (4,040)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
