<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 29, 1995 Commission File Number 0-15542
--------------------------------
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
3650 131ST AVENUE S.E., BELLEVUE, WASHINGTON 98006
(Address of Principal Executive Offices)
(206) 644-5700
(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
As of September 5, 1995 there were 17,869,217 shares of the Registrant's Common
Stock, par value $.01 per share, outstanding.
Page 1
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<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
FORM 10-Q
JULY 29, 1995
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
- Consolidated Balance Sheets - July 29, 1995 and 3
January 28, 1995
- Consolidated Statements of Operations and 4
Accumulated Deficit for the quarters ended
July 29, 1995 and July 30, 1994
- Consolidated Statements of Operations and 5
Accumulated Deficit for the six months ended
July 29, 1995 and July 30, 1994
- Consolidated Statements of Cash Flows for the 6
six months ended July 29, 1995 and July 30, 1994
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Part II. OTHER INFORMATION
Item 1 - Legal Proceedings 14
Item 3 - Defaults Upon Senior Securities 14
Item 6 - Exhibits and Reports on Form 8-K 14
2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 29, JANUARY 28,
1995 1995
-------------- --------------
<S> <C> <C>
Current Assets:
Cash $1,866 $7,972
Receivables, net 7,547 3,050
Inventories 36,290 29,145
Prepaid expenses and other 3,346 5,917
Restricted cash 1,317 532
-------------- --------------
Total current assets 50,366 46,616
Property and equipment 45,739 51,924
Leasehold interests 4,805 5,058
Excess of cost over net assets acquired 13,459 13,639
Deferred financing costs 3,074 3,436
Restricted cash 868 256
Other assets 682 486
-------------- --------------
Total assets $118,993 $121,415
-------------- --------------
-------------- --------------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under working capital facility $20,571 $15,838
Accounts payable 10,749 1,754
Accrued payroll and related costs 3,100 2,913
Accrued taxes 1,571 455
Accrued interest 400 336
Accrued store closure costs 0 2,951
Other accrued expenses 5,804 5,198
-------------- --------------
Total current liabilities not subject to settlement
under reorganization proceedings 42,195 29,445
-------------- --------------
Liabilities subject to settlement under
reorganization proceedings 105,606 108,333
-------------- --------------
Stockholders' Deficit:
Common stock, $.01 par value; 40,000,000 shares 179 179
authorized, 17,896,217 and 17,887,775 shares
issued and outstanding, respectively
Additional paid in capital 62,863 62,843
Accumulated deficit (91,850) (79,385)
-------------- --------------
Total stockholders' deficit (28,808) (16,363)
-------------- --------------
Total liabilities and stockholders' deficit $118,993 $121,415
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
JULY 29, JULY 30,
1995 1994
------------ ------------
<S> <C> <C>
Revenues $47,711 $54,994
Cost of merchandise sold 30,779 34,532
------------ ------------
Gross profit 16,932 20,462
------------ ------------
Operating and administrative expenses 16,829 20,869
Depreciation and amortization 2,267 2,923
Store closure costs 0 7,200
------------ ------------
Operating costs 19,096 30,992
------------ ------------
Loss before other income (expense) and
reorganization expenses and income tax benefit (2,164) (10,530)
Other income (expense):
Interest expense (contractual interest of
$3.4 million in 1995) (1,214) (2,724)
Other 124 0
------------ ------------
Loss before reorganization expenses
and income tax benefit (3,254) (13,254)
Reorganization expenses 640 0
------------ ------------
Loss before income tax benefit (3,894) (13,254)
Income tax benefit 0 (400)
------------ ------------
Net loss (3,894) (12,854)
Accumulated deficit, beginning of period (87,956) (19,094)
------------ ------------
Accumulated deficit, end of period ($91,850) ($31,948)
------------ ------------
------------ ------------
Net loss per common share ($0.22) ($0.72)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------
JULY 29, JULY 30,
1995 1994
------------- --------------
<S> <C> <C>
Revenues $84,393 $103,496
Cost of merchandise sold 55,496 66,244
------------- --------------
Gross profit 28,897 37,252
------------- --------------
Operating and administrative expenses 33,198 40,171
Depreciation and amortization 4,761 5,708
Store closure costs 0 7,200
------------- --------------
Operating costs 37,959 53,079
------------- --------------
Loss before other income (expense) (9,062) (15,827)
and reorganization expenses and income
tax benefit
Other income (expense):
Interest expense (contractual interest of
$6.7 million in 1995) (2,313) (5,414)
Other 150 0
------------- --------------
Loss before reorganization expenses
and income tax benefit (11,225) (21,241)
Reorganization expenses 1,240 0
------------- --------------
Loss before income tax benefit (12,465) (21,241)
Income tax benefit 0 400
------------- --------------
Net loss (12,465) (20,841)
Accumulated deficit, beginning of period (79,385) (11,107)
------------- --------------
Accumulated deficit, end of period ($91,850) ($31,948)
------------- --------------
------------- --------------
Net loss per common share ($0.70) ($1.32)
------------- --------------
------------- --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JULY 29, JULY 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($12,465) ($20,841)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 4,761 5,708
Store closure costs (549) 7,103
Reorganization expenses 1,240 0
Increase in accounts receivable (4,398) (3,452)
Increase in inventories (7,557) (6,715)
(Increase) decrease in prepaid expenses and other 1,019 (1,765)
Increase in accounts payable 9,087 10,942
Increase in accrued interest 90 57
Increase in accrued expenses 375 1,426
Other 481 (630)
------------- -------------
Cash used by operating activities
before reorganization items (7,916) (8,167)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related
to the Chapter 11 proceedings (1,270) 0
------------- -------------
Cash used by operating activities (9,186) (8,167)
------------- -------------
Cash flows from investing activities:
Capital expenditures (656) (2,128)
Other (297) 60
------------- -------------
Cash used in investing activities (953) (2,068)
------------- -------------
Cash flows from financing activities:
Pre-petition borrowings under working capital facility 0 46,630
Pre-petition payments of borrowings under working capital facility 0 (35,797)
Post-petition borrowings under working capital facility 108,999 0
Post-petition payments under working capital facility (104,266) 0
Payments on obligations under capital leases (670) (746)
Other (30) (109)
------------- -------------
Cash provided by financing activities 4,033 9,978
------------- -------------
Net decrease in cash (6,106) (257)
Cash, beginning of period 7,972 3,111
------------- -------------
Cash, end of period $1,866 $2,854
------------- -------------
------------- -------------
Supplemental cash flow information:
Cash interest paid $2,223 $5,356
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 29, 1995
NOTE 1 - PETITION FOR RELIEF UNDER CHAPTER 11
On January 6, 1995 (the "Petition Date"), Lamonts Apparel, Inc. (the "Company")
filed a voluntary petition for relief (the "Filing") under chapter 11 ("Chapter
11") of title 11 of the United States Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the Western District of Washington at Seattle (the
"Bankruptcy Court"), seeking to reorganize under Chapter 11. In Chapter 11, the
Company will continue to manage its affairs and operate its business as a
debtor-in-possession while it develops a reorganization plan that will
restructure the Company and allow its emergence from Chapter 11. As a debtor-
in-possession in Chapter 11, the Company may not engage in transactions outside
of the ordinary course of business without approval, after notice and hearing,
of the Bankruptcy Court.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are stayed while the Company continues its business
operations as a debtor-in-possession. These liabilities are included in the
balance sheet as "liabilities subject to settlement under reorganization
proceedings."
As a result of the Filing, the Company is currently in default under the
indentures (the "Indentures") governing the Company's 10-1/4% Subordinated Notes
due November 1999 (the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes
which were due February 1995 (the "13-1/2% Notes"). As a result, all unpaid
principal of, and accrued pre-petition interest on, such debt became immediately
due and payable. The payment of such debt and accrued but unpaid interest
thereon is prohibited during the pendency of the Company's Chapter 11 case, and
these liabilities have been included in the balance sheet as "liabilities
subject to settlement under reorganization proceedings."
In accordance with the Bankruptcy Code, the Company can seek court approval for
the rejection of pre-petition executory contracts, including real property
leases. Any such rejection may give rise to a prepetition claim for breach of
contract. In connection with the Company's Chapter 11 proceedings, nine real
property leases and certain executory contracts have been rejected with
Bankruptcy Court approval.
In connection with the Company's Chapter 11 case, the United States Trustee has
appointed committees for the Company's (i) bondholders, (ii) other general
unsecured creditors and (iii) equityholders.
As a result of the reorganization proceedings, the Company may sell or otherwise
realize assets and liquidate or settle liabilities for amounts other than those
reflected in the financial statements. Further, a plan of reorganization could
materially change the amounts currently recorded in the financial statements,
including amounts recorded for the excess of cost over net assets acquired. The
financial statements do not give effect to any adjustments to the carrying value
of assets, or amounts and classification of liabilities that might be necessary
as a consequence of these matters.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. On
March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the accompanying financial statements include the
results of operations of the Company for the six months ended July 29, 1995, the
second quarter of the fiscal year which will end on February 3, 1996, and for
the comparable prior year periods, and should be read in conjunction with the
audited, annual financial statements for the year ended October 29, 1994,
included in the Company's Annual Report on Form 10-K.
The financial statements have been prepared on a going concern basis of
accounting and do not reflect any adjustments that might result should the
Company be unable to continue as a going concern. Although the Company's
recurring losses from operations have raised substantial doubt about its ability
to continue as a going concern, the Chapter 11 filing has afforded the Company
the opportunity to improve its operating performance and restructure its balance
sheet. The appropriateness of using the going concern basis is dependent upon,
among other things, (i) the ability to comply with its debtor-in-possession
financing agreement, (ii) confirmation of a plan of reorganization under the
Bankruptcy Code, (iii) the ability to achieve profitable operations after such
confirmation and (iv) the ability to generate sufficient cash from operations to
meet its obligations.
7
<PAGE>
The financial statements presented herein reflect all adjustments that are, in
the opinion of management, necessary to present fairly the operating results for
the quarterly periods reported. Except as discussed in Note 5, all such
adjustments are normal and recurring in nature. The results of operations for
the quarterly periods are not necessarily indicative of results for the entire
year.
NOTE 3 - LOAN AND SECURITY AGREEMENT
On February 17, 1995, the Company received approval from the Bankruptcy Court
for a Loan and Security Agreement (the "DIP Facility") with Foothill Capital
Corporation ("Foothill"). The DIP Facility provides for a borrowing capacity of
up to $32.0 million in revolving loans and letters of credit, subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property. Letters of credit issuable under the
facility are limited to $15.0 million.
The DIP Facility provides that interest upon advances made pursuant thereto will
accrue at the rate of 3% per annum in excess of the Reference Rate (as defined
therein), payable monthly in arrears. The DIP Facility also provides that in the
event of a default in the payment of any amount due thereunder, the interest
rate on such defaulted amount shall be 4.5% per annum in excess of the Reference
Rate, payable on demand.
The obligations of the Company under the DIP Facility are collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposes limitations on the Company with respect to, among other things, (i) the
creation or incurrence of liens, (ii) consolidations, mergers and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
must maintain a minimum Net Worth (as defined in the DIP Facility to exclude,
among other items, reorganization expenses, certain liabilities incurred prior
to the Filing, write-offs of goodwill, store closure reserves and non-cash
interest) of $10.0 million. The Company is currently in compliance in all
material respects with the terms contained in the DIP Facility.
The DIP Facility expires on the earlier of (i) May 17, 1996, with provisions for
three quarterly renewals, or (ii) the effective date of the Company's plan of
reorganization in the Chapter 11 case.
The Company paid Foothill $80,000 upon the closing of the DIP Facility. Future
fees payable under the DIP Facility consist primarily of (i) remaining closing
fees totalling $240,000 to be paid during the year ending January 31, 1996, plus
certain other expenses, (ii) monthly payments equal to 1/2% of the average
unused borrowing capacity and (iii) quarterly payments equal to 1/4% of the
borrowing capacity for each quarterly renewal period.
NOTE 4 - LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDINGS
Liabilities subject to settlement under reorganization proceedings include the
following (dollars in thousands):
<TABLE>
<CAPTION>
July 29, January 28,
1995 1995
------------- -------------
<S> <C> <C>
Accounts payable and accrued liabilities $23,728 $23,714
Capital lease obligations 12,833 15,560
10-1/4% Notes (including pre-petition accrued interest) 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 631 645
------------- -------------
$105,606 $108,333
============= =============
</TABLE>
As a result of the Filing, payment of principal and interest under the
Indentures has been stayed while the Company continues with its business
operations as a debtor-in-possession. The Company discontinued accruing
interest on these obligations as of the date of the Filing. Contractual
interest on these obligations (which was not included in interest expense
reported for the six months ended July 29, 1995) amounted to $4.3 million.
NOTE 5 - REORGANIZATION EXPENSES
Reorganization expenses represent costs directly related to the Company's
Chapter 11 case and consist primarily of professional fees and severance costs.
8
<PAGE>
NOTE 6 - LOSS PER COMMON SHARE
Net loss per common share has been computed by dividing net loss by the weighted
average number of common shares outstanding during the period. The Company's
common stock equivalents, represented by stock options, warrants and Series A
Preferred Stock (outstanding from December 1, 1993 to March 13, 1994) were not
considered in the calculation as they either have an exercise price greater than
the applicable market price, or the effect of assuming their exercise or
conversion is anti-dilutive. The weighted average number of common shares
outstanding for the quarter and six months ended July 29, 1995 were 17,890,559
and 17,889,167, respectively.
The weighted average number of common shares and equivalents outstanding for the
quarter and six months ended July 30, 1994 were 17,874,656 and 15,761,327,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit originally brought as a class action in
state court in Anchorage, Alaska on September 18, 1992. Plaintiffs alleged that
store "area managers" in the State of Alaska are not exempt from overtime pay
requirements under the Alaska Wage and Hour Act (the "AWHA") and thus have
worked hours for which they have not been compensated. The complaint seeks back
wages, liquidated damages, attorneys fees and costs. The class has not yet been
certified and the case had been removed to Federal District Court in Anchorage.
In November 1993, plaintiffs amended the complaint and abandoned all but the
AWHA overtime pay claims and added a new claim on behalf of themselves and
allegedly similarly situated employees under Section 216(b) of the Fair Labor
Standards Act (the "FLSA"). However, on March 25, 1994, the plaintiffs
dismissed their new FLSA claim. In consideration of that dismissal, the parties
agreed to remand the remaining original AWHA claim back to state court and the
remand was ordered by the court on May 27, 1994. On August 8, 1994, Plaintiffs
moved for partial summary judgment declaring that they were not paid on a salary
basis required for exemption from AWHA overtime requirements and on September
30, 1994 the Company cross-moved for partial summary judgment declaring that
certain of its employment policies did not violate the salary requirement for
exemption from AWHA. On December 15, 1994 the court denied Plaintiffs' motion
holding that they had failed to show that they were not paid a salary and that
factual issues remained. The court contemporaneously denied the Company's
motion holding that there were genuine issues of material fact. As a result of
the Filing, further action is automatically stayed while the Company continues
its business operations as a debtor-in-possession.
The Company is also involved in various other matters of litigation arising
in the ordinary course of business. In the opinion of management, the
ultimate outcome of all such matters should not have a material adverse
effect on current operations, but, if decided adversely to the Company, could
have a material effect upon the Company's anticipated plan of reorganization.
(See also Part II, Item 1.)
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Lamonts Apparel, Inc. (the "Company") retails brand-name apparel and accessories
for the entire family through its 43 full-line apparel stores. Lamonts
currently operates in malls and regional shopping centers located in the states
of Alaska, Idaho, Montana, Oregon, Utah and Washington.
On January 6, 1995 (the "Petition Date"), the Company filed a voluntary petition
for relief (the "Filing") under chapter 11 ("Chapter 11") of title 11 of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the Western District of Washington at Seattle (the "Bankruptcy Court"),
seeking to reorganize under Chapter 11. In Chapter 11, the Company will
continue to manage its affairs and operate its business as a debtor-in-
possession while it develops a reorganization plan that will restructure the
Company and allow its emergence from Chapter 11. As a debtor-in-possession in
Chapter 11, the Company may not engage in transactions outside of the ordinary
course of business without approval, after notice and hearing, of the Bankruptcy
Court.
As of the Petition Date, payment of pre-petition liabilities to unsecured
creditors, including trade creditors and noteholders, and pending litigation
against the Company are stayed while the Company continues its business
operations as a debtor-in-possession. In a Chapter 11 reorganization plan, the
rights of the creditors may be significantly altered. Creditors may receive
substantially less than the full face amount of claims. No estimate of the
amount of adjustments, if any, from recorded amounts, to amounts to be realized
by creditors, is available at this time.
As a result of the Filing, the Company is currently in default under the
indentures governing the Company's 10-1/4% Subordinated Notes due November 1999
(the "10-1/4% Notes") and 13-1/2% Senior Subordinated Notes due February 1995
(the "13-1/2% Notes"). As a result, all unpaid principal of, and accrued
prepetition interest on, such debt became immediately due and payable. The
payment of such debt and accrued but unpaid interest thereon is prohibited
during the pendency of the Company's Chapter 11 case.
Since July 30, 1994, the Company has closed 15 stores, six of which, with the
approval of the Bankruptcy Court, were closed during the six months ended July
29, 1995. Of the 15 stores closed, one was closed due to the expiration of its
lease and 14 were closed due to poor performance. Management is continually
evaluating store locations and operations to determine whether to close,
downsize or relocate stores that do not meet performance objectives. In March
1995, the Company opened a new store in Issaquah, Washington.
On October 18, 1994, the holders of all outstanding 10-1/4% Notes (i) granted
the Company the option, subject to certain conditions, to exchange the 10-1/4%
Notes held by them for shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), representing approximately 70% of the Common Stock
outstanding immediately following the exchange and $50.0 million aggregate
liquidation preference of a new series of preferred stock of the Company and
(ii) released the collateral securing the 10-1/4% Notes and generally subordi-
nated the Company's obligations under the 10-1/4% Notes so that they are junior
to trade payables and certain other liabilities, subject to certain exceptions.
On March 27, 1995, the Company received an extension from the holders of the 10-
1/4% Notes to extend, indefinitely, the time in which the Company may exercise
its option to require the holders to exchange their 10-1/4% Notes, provided,
however, that a majority of the holders of the 10-1/4% Notes may terminate such
extension upon 60 days notice to the Company.
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 in order to
enhance comparability of the Company's results of operations with other apparel
retailers. Accordingly, the following discussion encompasses the results of
operations of the Company for the six months ended July 29, 1995, the second
quarter of the fiscal year which will end on February 3, 1996, and for the
comparable prior year periods, and should be read in conjunction with the
audited, annual financial statements for the year ended October 29, 1994,
included in the Company's Annual Report on Form 10-K.
10
<PAGE>
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("2nd Quarter 1995") and the six month
period ("YTD 1995") ended July 29, 1995 in comparison with the quarter
("Quarterly 1994") and six month period ("Six months - 1994") ended July 30,
1994.
REVENUES. Revenues of $47.7 million for 2nd Quarter 1995 decreased 13.3% on a
total store basis from $55.0 million for Quarterly 1994, primarily due to the
closure of 15 stores after July 30, 1994. Comparable store revenues decreased
2.1% for 2nd Quarter 1995 as compared to Quarterly 1994. Revenues of $84.4
million for YTD 1995 decreased 18.5% on a total store basis from $103.5 million
for Six months - 1994. Comparable store revenue decreased 8.2% for YTD 1995 as
compared to Six months - 1994. Management believes that revenues have been and
may continue to be affected, in part, by (i) a weak retail environment for
apparel and (ii) implementation of its new merchandising strategy.
GROSS PROFIT. Gross profit, as a percentage of revenues (excluding the effect of
non-cash charges of $0.3 million during Quarterly 1994), decreased to 35.5% for
the 2nd Quarter 1995 as compared to 37.8% for Quarterly 1994. Gross profit, as
a percentage of revenues (excluding the effect of non-cash charges of $0.5
million during Six months 1994), decreased to 34.2% for YTD 1995, as compared to
36.5% for the Six months 1994. The decrease in gross profit on a quarterly and
year to date basis results from implementing policies to establish more
competitive pricing strategies resulting in lower markups.
The Company's new management has developed and commenced the implementation of
new merchandising strategies, which are intended to (i) improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base, (ii) reduce or eliminate low-margin items and departments and add
higher margin goods and (iii) reduce inventory levels and increase inventory
turns.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses of
$16.8 million for 2nd Quarter 1995 were $4.1 million lower than the $20.9
million incurred for Quarterly 1994, due to the closure of 15 stores subsequent
to July 30, 1994. Operating and administrative expenses of $33.2 million for
YTD 1995 decreased $7.0 million as compared to $40.2 million recorded for Six
months 1994. Comparable store operating and administrative expenses, but
including expenses associated with the company's new store in Issaquah,
Washington, were reduced by $0.6 million for YTD 1995 as compared to Six months
1994. The comparable cost reductions were realized in 2nd Quarter 1995.
Reductions in administrative expenses were partially offset by higher costs for
store operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.3
million for 2nd quarter 1995 decreased $0.6 million as compared to the $2.9
million recorded for Quarterly 1994. Depreciation and amortization of $4.8
million for YTD 1995 decreased $0.9 million as compared to the $5.7 million
recorded for the Six months - 1994. Increased depreciation and amortization
associated with newly acquired assets partially offset the reductions associated
with assets retired as a result of store closures and assets becoming fully
depreciated or amortized.
INTEREST EXPENSE. Interest expense of $1.2 million for 2nd quarter 1995
decreased $1.5 million from $2.7 million for Quarterly 1994. Interest expense
of $2.3 million for YTD 1995 decreased $3.1 million from $5.4 million recorded
for Six months 1994. The reductions for the quarterly and year to date expenses
are primarily due to the termination of interest accruals on the 10-1/4% Notes
and on the 13-1/2% Notes as of the date of the Filing (see Note 4 of the Notes
to the Consolidated Financial Statements contained elsewhere in this document).
REORGANIZATION EXPENSES. Reorganization expenses of $0.6 million for 2nd
quarter 1995 and $1.2 million for YTD 1995 represent costs directly related to
the Company's Chapter 11 case and consist primarily of professional fees and
severance costs.
11
<PAGE>
NET LOSS The Company reported a net loss of $3.9 million for 2nd Quarter 1995
as compared to a net loss of $12.9 million for Quarterly 1994. Excluding the
store closure costs of $7.2 million recorded in Quarterly 1994, the loss for 2nd
Quarter 1995 decreased $1.8 million from Quarterly 1994 primarily due to (i)
$6.3 million decrease in operating and interest expenses offset by (ii) $3.5
million decrease in gross profit dollars, (iii)$0.6 million in reorganization
expenses and (iv) $0.4 million in tax benefits realized in 1994. The YTD 1995
loss of $12.5 million decreased $8.3 million from the loss of $20.8 million
reported for Six months 1994. Excluding the $7.2 million charge for store
closures recorded for Six months 1994, the reduction resulted from (i) $11.1
million in lower operating and interest costs offset by (ii) $8.3 million
reduction in gross profit dollars and (iii)$1.2 million in reorganization
expenses and (iv) $0.4 million in prior year tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $7.9 million of cash for operating activities before
reorganization items for the YTD 1995, a decrease of $0.3 million as compared to
$8.2 million used for the Six months 1994. Increases in funds used to purchase
inventory and fund receivables were offset by reductions in prepayments of
expenses and loss for the period.
The Company used $1.0 million of cash in investing activities for YTD 1995 as
compared to $2.1 million for the Six months - 1994. The decrease of $1.1
million primarily resulted from reduced capital expenditures.
The $5.9 million decrease in cash used by financing activities is primarily due
to lower borrowings (net) under the Company's working capital facilities during
YTD 1995 as compared to Six months 1994.
WORKING CAPITAL
As of July 29, 1995, the Company had $1.9 million of cash and an additional $1.3
million of current restricted cash, representing the funding of payroll and
taxes in connection with the Filing. The Company's current assets exceeded
current liabilities not subject to settlement under reorganization proceedings
by $8.2 million and $17.2 million at July 29, 1995 and January 28, 1995,
respectively.
CAPITAL RESOURCES
On February 17, 1995, the Company replaced its interim working capital facility
with a Loan and Security Agreement (the "DIP Facility") with Foothill Capital
Corporation. The DIP Facility, as approved by the Bankruptcy Court, provides
for a borrowing capacity of up to $32.0 million in revolving loans and letters
of credit, subject to borrowing base limitations based upon, among other things,
the value of inventory and certain real property. Letters of credit issuable
under the facility are limited to $15.0 million.
The DIP Facility provides that interest upon advances made pursuant thereto will
accrue at the rate of 3% per annum in excess of the Reference Rate (as defined
in the DIP Facility), payable monthly in arrears. The DIP Facility also provides
that in the event of a default in the payment of any amount due thereunder, the
interest rate on such defaulted amount shall be 4.5% per annum in excess of the
Reference Rate, payable on demand.
The obligations of the Company under the DIP Facility are collateralized by,
among other things, inventory and certain real property. The DIP Facility
imposes limitations on the Company with respect to, among other things, (i) the
creation or incurrence of liens, (ii) consolidations, mergers, and sales of
assets, (iii) the incurrence of guarantees or other contingent obligations, (iv)
capital expenditures in excess of specified levels, (v) the creation or
incurrence of any indebtedness for borrowed money or the payment of principal of
or interest on any prepetition indebtedness, (vi) the prepayment of certain
indebtedness and (vii) transactions with affiliates. Additionally, the Company
must maintain a minimum Net Worth (as defined in the DIP Facility to exclude,
among other items, reorganization expenses, certain liabilities incurred prior
to the Filing, write-off of goodwill, store closure reserves and non-cash
interest) of $10.0 million. The Company is currently in compliance in all
material respects with the terms contained in the DIP Facility.
The DIP Facility expires on the earlier of (i) May 17, 1996, with provisions for
three quarterly renewals, or (ii) the effective date of the Company's plan of
Reorganization in the Chapter 11 case.
Under the terms of the DIP Facility, the Company's borrowing base is limited to
a specified percentage of eligible inventory and real property (as defined
therein). At September 5, 1995, the Company had $20.1 million of borrowings and
no letters of credit outstanding under the DIP Facility, with additional
borrowing capacity of $7.7 million.
12
<PAGE>
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the DIP Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is dependent upon its ability to obtain trade credit,
which is generally extended by its vendors and a small number of factoring
institutions that continually monitor the Company's credit lines. If the
Company is able to continue to obtain the trade credit terms it is currently
receiving and with expected adjustments to the DIP Facility, the Company
believes that borrowings under the DIP Facility and cash generated from
operations will provide the cash necessary to fund the Company's cash
requirements.
OTHER
The Company has never declared or paid cash dividends on its Common Stock or any
other equity security, and does not anticipate paying cash dividends on the
Common Stock, or any other equity security, in the foreseeable future. Any
future determination as to the payment of dividends will depend upon certain
debt instrument limitations, future earnings, results of operations, capital
requirements, the financial condition of the Company, the terms and conditions
specified in the plan of reorganization and such other factors as the Company's
Board of Directors may consider. The ability of the Company to pay dividends is
directly and indirectly restricted under the terms of the DIP facility. Such
restrictions prohibit the payment of dividends for the foreseeable future. In
addition, the Bankruptcy Code prohibits the Company's payment of cash dividends.
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in the
quarter ending the Saturday closest to January 31) generally its strongest
period.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Except as set forth below, no material change has occurred in the litigation
described in "Item 3 - Legal Proceedings" on page 7 of the Company's Annual
Report on Form 10-K for the year ended October 29, 1994, which is incorporated
herein by reference.
In addition to matters mentioned elsewhere in this Quarterly Report, in
connection with the Filing, a number of proofs of claim have been filed in the
Bankruptcy Court against the Company by creditors and alleged creditors of the
Company. Among such claims are the following:
(a) A $27 million claim filed by a former landlord of one of the Company's
stores located in Ogden, Utah. This claim is allegedly based upon
closing of the store and rejection of the store lease pursuant to the
Bankruptcy Code. The Company disputes most, if not all, of the claim
and is in the process of preparing a suitable objection to the claim and
will otherwise defend against the claim to the extent necessary.
(b) A claim in the amount of $3.9 million filed by the plaintiffs in the
lawsuit described in Note 7 - Commitments and Contingencies, above. The
Company disputes the claim and is in the process of preparing a suitable
objection to the claim and will otherwise defend against the claim to
the extent necessary.
(c) A claim by the Pension Benefit Guaranty Corporation ("PBGC") in the amount
of $2.8 million based upon PBGC's assumption that one of the Company's
qualified employee retirement plans will be terminated. The Company has no
current intention or expectation of terminating such retirement plan, and
the Company believes that even if the plan was terminated unfunded plan
benefit liabilities would be minimal. The Company disputes the claim and
is in the process of preparing a suitable objection to the claim and will
otherwise defend against the claim to the extent necessary.
(d) A $2.3 million claim filed by a former landlord of one of the Company's
stores located in Lloyd Center in Portland, Oregon. This claim is allegedly
based upon rejection of the store lease pursuant to the Bankruptcy Code.
The Company disputes the claim and is presently pursuing a lawsuit against
this landlord for damages for wrongfully refusing to consent to the
Company's attempted assignment of this store to other users. Prevailing
in such lawsuit should preclude the claim for lease rejection damages,
but the Company will prepare and pursue a suitable objection to the claim
if necessary.
(e) A $1.7 million claim filed by a former landlord of one of the Company's
stores located in Tacoma, Washington. This claim is allegedly based upon
closing of the store and rejection of the store lease pursuant to the
Bankruptcy Code. The Company disputes the claim, believes that reletting
of the store will substantially reduce the claim and is in the process of
preparing a suitable objection to the claim and will otherwise defend
against the claim to the extent necessary and appropriate.
(f) Claims filed by two former officers of the Company in the total amount of
$1.5 million. These claims are allegedly based upon claims that employment
contracts between the Company and these former officers were breached by
the Company. The Company disputes the claims and the Official Unsecured
Creditors' Committee is in the process of preparing suitable objections,
with the Company's support, to the claims and will otherwise defend
against the claims to the extent necessary.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As a result of the Filing, the Company is currently in default under the
indentures governing the 10-1/4% Notes ($67.6 million in principal and
prepetition accrued interest as of July 29, 1995) and 13-1/2% Notes ($0.8
million in principal and prepetition accrued interest as of July 29, 1995) (see
Note 4 of the Notes to the Consolidated Financial Statements contained elsewhere
in this document).
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description of Exhibit
----------- ----------------------
11.1 - Computation of per share loss.
27.1 - Financial Data Schedule.
14
<PAGE>
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.
Registrant: Lamonts Apparel, Inc.,
Date: September 8, 1995 By: /s/ Loren Rothschild
----------------------------------------
Loren Rothschild
Vice Chairman of the Board
and Chief Financial Officer
15
<PAGE>
EXHIBIT 11.1
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
COMPUTATION OF PER SHARE LOSS
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
July 29, 1995 July 30, 1994
----------------------------- ----------------------------
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
LOSS
Net loss ($3,894,000) ($3,894,000) ($12,854,000) ($12,854,000)
=========== =========== ============ ============
NUMBER OF SHARES
Weighted average shares:
Outstanding 17,890,559 17,890,559 17,874,656 17,874,656
Incremental shares for
outstanding stock options 362,037 394,421
Incremental shares for
outstanding warrants (2,064,601)
----------- ----------- ------------ ------------
17,890,559 18,252,596 17,874,656 16,204,476
=========== =========== ============ ============
Net loss per share ($0.22) ($0.21) ($0.72) ($0.79)
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------------------------------
July 29, 1995 July 30, 1994
--------------------------- ----------------------------
Fully Fully
Primary Diluted Primary Diluted
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
LOSS
Net loss ($12,465,000) ($12,465,000) ($20,841,000) ($20,841,000)
============ =========== ============ ============
NUMBER OF SHARES
Weighted average shares:
Outstanding 17,889,167 17,889,167 15,761,327 15,761,327
Incremental shares for
conversion of preferred stock 2,110,405
Incremental shares for
outstanding stock options 362,767 398,549
Incremental shares for
outstanding warrants 116,282
----------- ----------- ------------ ------------
17,889,167 18,251,934 15,761,327 18,386,563
============ =========== ============ ============
Net loss per share ($0.70) ($0.68) ($1.32) ($1.13)
============ =========== ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-29-1995
<CASH> 1,866
<SECURITIES> 0
<RECEIVABLES> 7,547
<ALLOWANCES> 0
<INVENTORY> 36,290
<CURRENT-ASSETS> 50,366
<PP&E> 45,739
<DEPRECIATION> 0
<TOTAL-ASSETS> 118,993
<CURRENT-LIABILITIES> 42,195<F1>
<BONDS> 0
<COMMON> 179
0
0
<OTHER-SE> (28,987)
<TOTAL-LIABILITY-AND-EQUITY> 118,993
<SALES> 84,393
<TOTAL-REVENUES> 84,393
<CGS> 55,496
<TOTAL-COSTS> 55,496
<OTHER-EXPENSES> 39,199<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,313
<INCOME-PRETAX> (12,465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,465)
<EPS-PRIMARY> (0.70)
<EPS-DILUTED> 0
<FN>
<F1>Excludes liabilities subject to settlement under reorganization proceedings.
<F2>Includes Operating and Administrative expenses of $33,198, depreciation and
amortization of $4,761 and Reorganization expenses of $1,240.
</FN>
</TABLE>
