THE PURPOSE OF THIS AMMENDMENT IS TO INCLUDE THE FINANCIAL DATA SCHEDULE.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q AMMENDMENT NUMBER 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 29, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13184
STUARTS DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2817110
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
16 Forge Parkway, Franklin, Massachusetts 02038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 508-520-4540
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
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No
The number of shares outstanding of the issuer's common stock,
as of June 15, 1995 was 21,507,175 Shares (excluding 901,899
shares held as treasury shares).
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STUARTS DEPARTMENT STORES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
Current Assets Apr. 29, 1995 Jan. 28, 1995
Cash and cash equivalents $ 792,703 $ 64,731
Merchandise inventory 11,155,760 12,376,497
Merchandise available for sale 3,282,000
Other 728,545 1,288,541
Total current assets 12,677,008 17,011,769
Equipment and Leasehold Improvements -
At Cost
Store fixtures 8,527,427 8,527,424
Store leasehold improvements 2,610,396 2,582,584
Office and warehouse equipment 3,187,304 3,183,232
14,325,127 14,293,240
Less allowance for depreciation
and amortization 9,705,617 9,313,761
4,619,510 4,979,479
Leaseholds (Less accumulated
amortization of $6,043,767
and $5,995,285, respectively) 961,722 1,010,209
Reorganization Value in Excess of Amounts
Allocable to Identifiable Assets
(Less accumulated amortization of
$174,950 and $157,415, respectively) 526,050 543,585
Deferred Financing Costs (Less accumulated
amortization of $215,679 and $167,197,
respectively) 279,185 321,062
Other Assets 546,076 511,692
Total Assets $ 19,609,551 $ 24,377,796
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade 6,352,268 3,868,470
Accrued expenses:
Rent 933,402 693,644
Compensation and fringe benefits 268,154 251,951
Short term debt (note 4) 3,939,981
Other 5,651,883 5,026,372
Total current liabilities 17,145,688 9,840,437
Long Term Debt (note 4) 6,394,185
Other Liabilities 305,162 318,567
Stockholders' Equity
Common stock - authorized 25,000,000 shares
of $.01 par value; issued and outstanding
22,409,074 shares 224,091 224,091
Additional paid-in capital 29,725,274 29,725,274
Retained (deficit) (25,982,829) (20,316,923)
3,966,536 9,632,442
Less treasury stock at cost
(901,899 shares) (1,807,835) (1,807,835)
Total stockholders' equity 2,158,701 7,824,607
Total Liabilities and Stockholders' Equity $ 19,609,551 $ 24,377,796
========== ==========
The accompanying notes are an integral part of these statements.
2
STUARTS DEPARTMENT STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED APRIL 29, 1995 AND APRIL 30, 1994
13 Weeks 13 Weeks
Ended Ended
Apr. 29, 1995 Apr. 30,1994
Total store sales $ 11,817,603 $23,761,653
Less leased department sales 687,157 1,691,335
Net store sales 11,130,446 22,070,318
Leased department and other income 198,217 358,892
11,328,663 22,429,210
Costs and expenses
Cost of sales, buying and
distribution 8,358,919 15,487,366
Restructuring and asset impairment
charges 1,912,676
Selling and administrative 6,005,793 7,346,200
Depreciation and amortization 462,644 502,706
Total costs and expenses 16,740,032 23,336,272
(Loss) before interest (5,411,369) (907,062)
Interest expense 254,537 110,426)
Net (loss) $ (5,665,906) $(1,017,488)
========== ==========
Net (loss) per share of
common stock $(.26) $(.05)
Weighted average number of common
shares outstanding 21,507,175 21,507,175
The accompanying notes are an integral part of these statements.
3
STUARTS DEPARTMENT STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED APRIL 29, 1995
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
Balance at January 28,
1995 $224,091 $29,725,274 $(20,316,923) $(1,807,835)
Net (loss) (5,665,906)
Balance at April 29,
1995 $224,091 $29,725,274 $(25,982,829) $(1,807,835)
======== =========== ============= ============
The accompanying notes are an integral part of these statements.
4
STUARTS DEPARTMENT STORES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED APRIL 29, 1995 AND APRIL 30, 1994
13 Weeks 13 Weeks
Ended Ended
Apr. 29, 1995 Apr. 30, 1994
Increase (decrease) in cash and cash
equivalents
Cash flows from operating activities:
Net (loss) $ (5,665,906) $(1,017,488)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 499,755 539,266
Inventory available for sale 3,282,000
(Increase) in inventory 1,220,737 (3,720,295)
(Increase) in other current assets 559,996 (429,560)
Increase in accounts payable
and accrued expenses 3,365,270 2,973,501
(Decrease) in other liabilities (13,404) (22,691)
Net cash provided (used) in operating
activities 3,248,448 (1,677,267)
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (31,887) (436,705)
Decrease in leaseholds and other
assets (34,552) 46,880
Net cash used in investing activities (66,272) (402,153)
Proceeds from issuance of long-term debt 1,909,157
Reduction of short-term debt (2,454,204)
Net cash used in provided by
financing activities (2,454,204) 1,909,157
Net increase (decrease) in cash
and cash equivalents 727,972 (170,263)
Cash and cash equivalents at beginning
of period 64,731 344,075
Cash and cash equivalents at April 29,
1995 and April 30, 1993, respectively $ 792,703 $ 173,812
========= =========
Supplemental Disclosures of Cash Flows
Information:
Cash paid during the quarter for:
Interest 255,415 72,999
Income taxes 24,200 14,678
The accompanying notes are an integral part of these statements.
5
STUARTS DEPARTMENT STORES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
April 29, 1995
NOTE 1 - REORGANIZATION
On May 16, 1995, Stuarts Department Stores, Inc. filed a
voluntary petition for reorganization under Chapter 11 ("Chapter
11"), Title 11 of the United States Code (the "Federal
Bankruptcy Code") in the United States Bankruptcy Court (the
"Court") for the District of Massachusetts, Western Division.
The Company is currently operating its business as a
debtor-in-possession, subject to the approval of the Court for
certain of its proposed actions. In addition, an official
committee of unsecured creditors of the Company approved by the
United States Trustee has the right to, among other things,
consult with the Company in connection with the administration
of its Chapter 11 case and participate in the formulation of any
plan of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and certain contractual obligations may
not be enforced against the Company. Under the Federal
Bankruptcy Code, the rights of pre-petition creditors and
stockholders may be altered substantially. In addition, the
Company may reject executory contracts and lease obligations,
and parties affected by these rejections may file claims with
the Court in accordance with the reorganization process.
NOTE 2 - GENERAL
The accompanying unaudited condensed consolidated financial
statements include the accounts of Stuarts and its subsidiary.
Unless the context otherwise requires, all references herein to
"Stuarts" or the "Company" shall be to Stuarts Department
Stores, Inc. and its subsidiary.
In the opinion of the Company, the consolidated condensed
financial statements (unaudited) contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly the consolidated financial position of the
Company as of April 29, 1995 and January 28, 1995, the
consolidated results of operations for the 13 week periods ended
April 29, 1995 and April 30, 1994 and the consolidated
statements of cash flows for the 13 week periods ended April 29,
1995 and April 30, 1994.
Because of the seasonal nature of the Company's business, the
results of operations for the 13 week period ended April 29,
1995 are not necessarily indicative of the results for an annual
period.
6
NOTE 3 - DEBTOR-IN-POSSESSION FINANCING
In connection with the Chapter 11 filing, the Company has
entered into debtor-in-possession financing arrangements with
its lender, Foothill Capital Corporation ("Foothill") and is
currently operating its business as a debtor-in-possession,
subject to Bankruptcy Court approval for certain of its actions.
The financing arrangements with Foothill provide for a $6
million credit facility which is collateralized by substantially
all of the Company's assets. Borrowings under the facility are
subject to availability under a borrowing base formula and
compliance with covenants and business plans. Foothill has also
agreed to permit the Company to use cash collateral from its
pre-petition financing arrangements during the reorganization
proceeding. Both the debtor-in-possession financing arrangement
and the cash collateral arrangement will require the approval of
the Bankruptcy Court.
NOTE 4 - RESTRUCTURING
In accordance with FASB EIFT 94-3 (liability recognition for
certain costs incurred in a restructuring), approximately
$1,913,000 of expenses incurred for the closing of stores
located in Malden, Haverhill, Taunton, Fall River and
Springfield, Massachusetts and East Providence, Rhode Island
were charged to the first quarter of fiscal 1996.
NOTE 5 - SUBSEQUENT EVENT
On April 30, 1995, the Company's Board of Directors approved the
closing of four additional stores located in Athol, Chelsea and
Fitchburg, Massachusetts and Goffstown, New Hampshire. In
accordance with FASB EIFT 94-3 (liability recognition for
certain costs incurred in a restructuring), approximately
$2,875,000 in expense will be charged to the second quarter of
fiscal 1996 to cover the closing of these stores.
NOTE 6 - INCOME TAXES
The Company operated at a loss for both financial reporting and
income tax reporting purposes in the 13 week periods ended April
29, 1995 and April 30, 1994. No tax benefit was recorded for
federal and state income taxes for the first quarters of 1995 or
1994.
NOTE 7 - NET (LOSS) PER SHARE
Net (loss) per common share has been calculated on the weighted
average number of shares outstanding for the respective fiscal
periods.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
CHAPTER 11 FILING
On May 16, 1995, the Company filed for reorganization under
Chapter 11 with the Bankruptcy Court. The Company's voluntary
filing was precipitated by financial and liquidity difficulties,
which caused the Company to fail to make timely payments to its
vendors and other suppliers as well as to certain of its
landlords under store leases. The Company's inability to pay
these obligations as they became due caused many of its vendors
to curtail inventory shipments to the Company, which further
impacted adversely the Company's performance. Prior to the
Chapter 11 filing, the Company unsuccessfully attempted to
locate a buyer for the retail chain.
In connection with the Chapter 11 filing, Stuarts has entered
into debtor-in-possession financing arrangements with its
lender, Foothill, and is currently operating its business as a
debtor-in-possession, subject to Bankruptcy Court approval for
certain of its actions. The financing arrangements with
Foothill provide for a $6 million credit facility, which is
collateralized by substantially all of the Company's assets.
Borrowings under the facility are subject to availability under
a borrowing base formula and to compliance with covenants and
business plans. Interest is payable at the prime rate plus 4%,
with a minimum rate of 9.75%. The facility terminates six
months from the date approved by the Bankruptcy Court unless
sooner terminated due to failure to achieve projected results.
The Company has failed to achieve financial projections
established in connection with its debtor-in-possession
financing arrangements with Foothill. If such failures
continue, Foothill would be entitled to terminate the financing
arrangements under certain circumstances. In addition, the
Company intends to review its financial results, financial
condition and prospects with Foothill commencing around June 19,
1995 in order to determine whether to keep the financing
arrangements in place. Accordingly, there can be no assurance
that the financing arrangements will remain in effect. In the
event that such financing arrangements are terminated, the
Company may be forced to seek a liquidation of its assets. Such
a liquidation might also take place upon the occurrence of
adverse changes and other circumstances. The Company paid
Foothill a $60,000 closing fee in connection with this facility.
Foothill also has agreed to permit the Company to use cash
collateral from its pre-petition financing arrangements during
the reorganization proceeding. Both the debtor-in-possession
financing arrangement and the cash collateral arrangement will
require the approval of the Bankruptcy Court.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Pursuant to Section 362 of the Bankruptcy Code, all rights to
payment and legal actions which arose against the Company prior
to its recent Chapter 11 filing are stayed. In addition, under
the provisions of Section 365 of the Bankruptcy Code and subject
to Bankruptcy Court approval, a debtor-in-
possession, such as the Company, may elect to assume or reject
certain of its unexpired leases and executory contracts. As the
Chapter 11 case progresses, Stuarts will continue to analyze
which of its executory contracts and unexpired leases it intends
to assume or reject.
Stuarts plans to continue its retail operations and to formulate
a plan of reorganization as soon as practicable. As part of its
strategy to restructure the Company to emerge from Chapter 11,
management of the Company is seeking to reduce operating
expenses and to stabilize and improve operations and is engaged
in an extensive analysis and review of its organization,
operations and business plan. In this regard, the Company has
closed seven stores since the close of fiscal 1995. Two of the
stores closed were "Stuarts too" stores and the balance were
discount department stores. The Company also closed two
department stores during the last quarter of fiscal 1995 and, in
early May 1995, the Company announced plans to close another
four of its stores. The four stores closed during the second
quarter of fiscal 1996 are located in Athol, Chelsea, Fitchburg,
Massachusetts and Goffstown, New Hampshire. On May 15, 1995,
the Company received approximately $2.5 million from a
liquidator in respect of the inventory to be sold at these four
stores. These funds were applied to reduce the Company's
secured indebtedness. The Company also has retained an
independent consultant to assist it in consolidating its
operations. In addition, the Company is in the process of
relocating to a smaller home office and warehouse facility
within the industrial park where its home office presently is
located and has undertaken a number of other cost-cutting
measures, including, among other things, extensive staff
reductions, rent reductions and other expense reductions. The
Company intends to continue to review its expense structure for
further reduction.
There can be no assurance that the Company will be able to
propose a reorganization plan or that such a plan, if proposed,
will be accepted by the requisite vote of creditors and equity
security holders and confirmed by the Bankruptcy Court. Since
the commencement of the bankruptcy proceeding on May 16, 1995,
the Company has experienced poor sales and operating results.
Consequently, the Company has failed to achieve financial
projections established in connection with its debtor-in-
possession financing arrangements with Foothill. If such
failures continue, Foothill would be entitled to terminate the
financing arrangements under certain circumstances. In
addition, the Company intends to review its financial results,
financial condition and prospects with Foothill commencing
around June 19, 1995 in order to determine whether to keep the
financing arrangements in place. Accordingly, there can be no
assurance that the financing arrangements will remain in effect.
In the event that such financing arrangements are terminated,
the Company may be forced to seek liquidation of its assets.
Such a liquidation might also take place upon the occurrence of
adverse changes and other circumstances.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's Common Stock was delisted from trading on the
Nasdaq Stock Market effective June 8, 1995 after a hearing held
in response to a request by the Company for a temporary
exception to the applicable listing requirements.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 29, 1995 VERSUS 13 WEEKS ENDED APRIL
30, 1994.
Total store sales and Net store sales for the 13 week period
ended April 29, 1995 each decreased by 50.0% over the 13 week
period ended April 30, 1994. After extracting the sales of the
ten closed stores subsequent to May 1994, the total and net
store sales of the existing 12 stores each decreased by 29.0%.
The ten closed stores were East Providence and Johnston, Rhode
Island, Biddeford, Maine, Barre, Vermont, Nashua, New Hampshire,
and Fall River, Taunton, Springfield, Malden and Haverhill,
Massachusetts. The Company has experienced cash flow problems.
As a result, store inventories are lower than normal. This,
combined with strong competitive activity from full line
discount stores, has severely impaired sales.
Stuarts operates 12 general purpose discount department stores,
selling a varying mix of items within 85 departments and,
therefore, individual products and departments (other than
apparel) do not account for a significant portion of the
Company's revenues from these stores. Stuarts also operates one
family apparel and home fashion store. During the first quarter
of fiscal 1996, the Company's apparel departments accounted for
approximately 41% of the Company's total sales, while
non-apparel departments in the aggregate accounted for
approximately 59% of the Company's total sales. In contrast,
during the first quarter of fiscal 1995, the Company's apparel
departments accounted for approximately 46% of the Company's
total sales, while non-apparel departments in the aggregate
accounted for approximately 54% of the company's total sales.
The decrease in sales attributable to the Company's apparel
departments during the first quarter of fiscal 1996, as compared
with the first quarter of fiscal 1995, is attributable to
reduced merchandise inventory offerings in the Company's apparel
departments which resulted from the Company's cash flow
difficulties. Apparel departments generally produce higher
gross profits than non-apparel departments.
The Cost of sales, buying and distribution expense was 75.1% of
Net store sales for the 13 week period ended April 29, 1995,
compared with 70.2% for the 13 week period ended April 30, 1994.
This percentage increase resulted principally from higher
promotional markdowns in response to increased promotional
activity by the Company's competitors as well as promotional
markdowns taken by the Company in an effort to increase the
Company's sales and cash flow during a period of financial and
cash flow difficulties.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
During the 13 weeks ended April 29, 1995, the Company incurred
restructuring and asset impairment charges of $1,913,000. In
accordance with FASB EIFT 94-3 (liability recognition for
certain costs incurred in a restructuring), a restructuring and
asset impairment reserve was established in fiscal 1995. During
the 13 weeks ended April 29, 1995, expenses relating to this
reserve were incurred in connection with the closing of stores
located in Malden, Haverhill, Taunton, Fall River and
Springfield, Massachusetts and East Providence, Rhode Island.
The Company has begun the closing of stores located in Athol,
Chelsea and Fitchburg, Massachusetts and Goffstown, New
Hampshire. It is anticipated that the Company will incur
expenses of approximately $2,875,000 pursuant to FASB EIFT 94-3
during the second quarter of fiscal 1996 in connection with the
closing of these stores.
Selling and administrative expenses as a percentage of net sales
for the 13 week period ended April 29, 1995 increased to 54.0%
from 33.3% for the 13 week period ended April 30, 1994. This
percentage increase is principally from reserves that were
established in connection with store closings.
Depreciation and amortization for the 13 week period ended April
29, 1995 decreased by approximately $40,000 from the 13 week
period ended April 30, 1994. This decrease resulted from the
write off of assets in connection with store closings.
Interest expense for the 13 week period ended April 29, 1995 was
$255,000 compared to $110,000 for the 13 week period ended April
30, 1994. This increase is attributable to interest on larger
amounts outstanding under the Company's credit facility during
the first quarter of fiscal 1996.
The Company experienced a net loss for the 13 week period ended
April 29, 1995 of $5,666,000 compared with a net loss of
$1,017,000 for the 13 week period ended April 30, 1994. Factors
contributing to the loss incurred during the first quarter of
fiscal 1996 include, among other things, a reduction in net
sales in existing stores of 29%, reserves for closed stores in
the amount of $1,913,000 and increased interest expense of
$144,000.
LIQUIDITY AND CAPITAL RESOURCES
During the 13 week period ended April 29, 1995, the net cash
provided from operating activities was approximately $3,248,000.
Factors contributing to this amount include a reduction in
inventory of $4,503,000 combined with an increase in trade
payables and accrued expenses of $3,365,000 offset in part by
the net loss of $5,666,000.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
During the 13 week period ended April 29, 1995, the net cash
used in investing activities amounted to approximately $66,000,
which resulted from the purchase of fixtures and leasehold
improvements.
During the 13 week period ended April 29, 1995, the net cash
used by financing activities amounted to approximately
$2,454,000. This cash was used to reduce the amount due under
the Company's revolving line of credit agreement with Foothill.
The Company's working capital at April 29, 1995 decreased by
$11,640,000 from January 28, 1995. This decrease in working
capital is primarily due to a reduction in the inventory
combined with an increase in trade payables and short term debt.
In connection with the Chapter 11 filing, Stuarts has entered
into debtor-in-possession financing arrangements with Foothill
and is currently operating its business as a
debtor-in-possession, subject to Bankruptcy Court approval for
certain of its actions. The financing arrangements with
Foothill provide for a $6 million credit facility, which is
collateralized by substantially all of the Company's assets.
Borrowings under the facility are subject to availability under
a borrowing base formula and to compliance with covenants and
business plans. Foothill also has agreed to permit the Company
to use cash collateral from its pre-petition financing
arrangements during the reorganization proceeding. Both the
debtor-in-possession financing arrangement and the cash
collateral arrangement will require the approval of the
Bankruptcy Court. The Company has failed to achieve financial
projections established in connection with the Company's
debtor-in-possession financing arrangement with Foothill. As a
result, Foothill would be entitled to terminate the financing
arrangements under certain circumstances. In addition, the
Company intends to review its financial results, financial
condition and prospects with Foothill commencing about June 19,
1995 in order to determine whether to keep the financing
arrangements in place. Accordingly, there can be no assurance
that the financial arrangements will remain in effect. In the
event that such financing arrangements are terminated, the
Company may be forced to seek a liquidation of its assets. Such
a liquidation might also take place upon the occurrence of
adverse changes and other circumstances. As of June 14, 1995,
the Company had approximately $2,917,674 of financing available
under the debtor-in-possession financing arrangement, subject to
availability under a borrowing base formula and to compliance
with covenants and conditions.
In Chapter 11 cases, substantially all of the liabilities of a
debtor, such as the Company, as of the date of the filing of the
petition for reorganization are subject to settlement under a
plan of reorganization to be voted upon by the debtor's impaired
creditors and stockholders and confirmed by the Bankruptcy
Court. Management is committed to
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
reorganizing as quickly as practicable, but it is not unusual
for a bankruptcy proceeding to continue for a period of years
before a plan of reorganization is completed and approved. The
Company has an exclusive period until September 13, 1995 to file
such a plan with the Bankruptcy Court. If a plan of
reorganization is not filed with the Bankruptcy Court by such
date, or such date is not extended, other parties in interest
may submit proposed plans. If a reorganization plan is filed by
the Company by September 13, 1995, the Company has until
November 13, 1995 to solicit acceptances with respect to any
other plan during such period. No plan of reorganization has
yet been filed with the Bankruptcy Court.
There are certain risks to a Company operating as a
debtor-in-possession. Such risks may include (i) potential
deterioration of the business of the Company during the
bankruptcy proceedings, (ii) a reduced ability to attract and
retain employees, (iii) additional expenses associated with the
bankruptcy reorganization process and (iv) liquidation of the
Company's assets under Chapter 7 of the Bankruptcy Code or under
a liquidation plan under Chapter 11. Because the bankruptcy
proceedings are in an early stage, the Company is not yet able
to estimate the total financial effect of the bankruptcy on its
financial condition.
Because of uncertainties regarding the outcome of the bankruptcy
proceedings (including, without limitation, the potential
dilutive effect of any bankruptcy reorganization plan which may
result) the ultimate impact on the Company's results of
operations and financial position cannot be determined
presently. Likewise, the Company is unable to predict the
value, if any, to be realized by the holders of its equity
securities in the bankruptcy proceeding whether or not a
successful reorganization is achieved. The Chapter 11 filing,
uncertainty regarding the eventual outcome of the reorganization
case and the effect of other unknown adverse factors could
affect the Company's ability to continue in existence as a going
concern.
There can be no assurance that the Company will be able to
propose a reorganization plan or that such a plan, if proposed,
would be accepted by the requisite vote of creditors and equity
security holders and confirmed by the Bankruptcy Court. The
Company has failed to achieve financial projections established
in connection with the Company's debtor-in-
possession financing arrangement with Foothill. As a result,
Foothill would be entitled to terminate the financing
arrangements under certain circumstances. The Company and
Foothill will review, commencing on or about June 19, 1995,
these financing arrangements and the Company's results of
operations, financial condition and business prospects and
determine whether the financing arrangements should remain in
effect. Accordingly, there can be no assurance that the
financing arrangements will remain in effect. In the event that
such financing arrangements are terminated, the Company may be
forced to seek a liquidation of its assets. Such a liquidation
might also take place upon the occurrence of adverse changes and
other circumstances.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Current payments due on almost all pre-petition liabilities are
deferred except as may be required by Bankruptcy Court order.
The Company has not paid dividends since its inception. Since
the Company is currently in Chapter 11, no dividends can be paid
without the approval of the Bankruptcy Court.
The Company believes that its current cash on hand and funds
available pursuant to the debtor-in-possession financing will be
adequate to cover its working capital expenditure needs until
early July 1995 provided that the Company continues to receive
the support of its debtor-in-possession lender, Foothill. The
Company's liquidity and financial resources are subject to the
continued availability of financing from Foothill, as to which
there can be no assurance. Moreover, until a plan of
reorganization
is approved by the creditors and confirmed by the Bankruptcy
Court, the liquidity and adequacy of the Company's capital
resources beyond early July 1995 cannot be determined. No plan
of reorganization has yet been filed with the Bankruptcy Court.
Impact of Inflation
Stuarts has generally been able to pass on inflationary cost
increases through higher merchandise selling prices. Therefore,
inflation has not had a material negative impact on operating
results.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 16, 1995, the Company filed voluntary petitions for
relief under Chapter 11 of the Bankruptcy Code with the
Bankruptcy Court. Pursuant to Section 362 of the Bankruptcy
Code, during a Chapter 11 case, creditors and other parties in
interest may not, without Bankruptcy Court approval: (i)
commence or continue a judicial, administrative or other
proceeding against a debtor which was or could have been
commenced prior to commencement of the Chapter 11 case, or to
recover a claim that arose prior to commencement of the case;
(ii) enforce any pre-petition judgments against the debtor;
(iii) take any action to obtain possession of property of the
debtor or to exercise control over property of the debtor or the
debtor's estate; (iv) create, perfect or enforce any lien
against the property of the debtor; (v) collect, assess or
recover claims against the debtor that arose before the
commencement of the case; or (vi) set off any debt owing to the
debtor that arose prior to the commencement of the case against
a claim of such creditor or party-in-interest against the debtor
that arose before the commencement of the case.
The Company is a party to certain other legal actions arising in
the ordinary course of its business. Based upon the information
presently available to the Company, management is of the opinion
that the ultimate outcome of these actions will not materially
adversely affect the Company's operations or its financial
position. The continuance of such actions by the parties in
interest is subject to Bankruptcy Court approval as provided
above.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) As a result of the filing of a voluntary petition for
reorganization under Chapter 11, Title 11 of the United States
Code with the United States Bankruptcy Court for the District of
Massachusetts (Western Division), there occurred an event of
default under the Company's pre-
petition financing arrangements with Foothill. As of May 16,
1995, the outstanding principal amount of the Company's
indebtedness under the pre-
petition financing arrangements was $2,027,951 and accrued and
unpaid interest thereon was $20,513.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 27. Financial Data Schedule
(b) Reports on Form 8-K.
During the 13 weeks ended April 29, 1995, the
following reports were filed on Form 8-K:
On February 14, 1995, the Company filed a current report on
Form 8-K dated February 14, 1995 with the Securities and
Exchange Commission which stated that it expected to report a
significant loss for fiscal 1995.
15
On February 17, 1995, the Company filed a current report on
Form 8-K dated February 16, 1995 with the Securities and
Exchange Commission which stated that the Company planned to
close six department stores and three "Stuarts too" stores
during March 1995. The Company also estimated its fiscal year
end loss to exceed $10.5 million.
On March 15, 1995, the Company filed a current report on
Form 8-K dated March 15, 1995 with the Securities and Exchange
Commission which stated that the Company's sales results for
February 1995 decreased 26% from the comparable 1994 period.
The Company stated that it planned to increase its focus on
selling the Company and had entered into arrangements with
Garcel, Inc. for the sale of inventory at its stores located in
Haverhill, Malden, Taunton, Massachusetts, Nashua, New Hampshire
and Johnston, Rhode Island.
16
SIGNATURE
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.
STUARTS DEPARTMENT STORES, INC.
(Registrant)
Date: July 18, 1995 By: /s/ David S. Ferguson
David S. Ferguson
President
(Principal Executive Officer)
Date: July 18, 1995 By: /s/ Antone F. Moreira
Antone F. Moreira
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
17
SIGNATURE
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.
STUARTS DEPARTMENT STORES, INC.
(Registrant)
Date: July 18, 1995 By:
David S. Ferguson
President
(Principal Executive Officer)
Date: July 18, 1995 By:
Antone F. Moreira
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
17
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