<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 October 28, 1995 Commission File Number 0-15542
--------------------------------
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
</TABLE>
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 December 6, 1995 there were 17,899,549 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
OCTOBER 28, 1995
INDEX
-----
Page
----
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1 Consolidated Financial Statements
<S> <C>
- Consolidated Balance Sheets - October 28, 1995 and
January 28, 1995 3
- Consolidated Statements of Operations and Accumulated
Deficit for the three months ended October 28, 1995
and October 29, 1994 4
- Consolidated Statements of Operations and Accumulated
Deficit for the nine months ended October 28, 1995 and
October 29, 1994 5
- Consolidated Statements of Cash Flows for the nine
months ended October 28, 1995 and October 29, 1994 6
- Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
</TABLE>
Part II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Legal Proceedings 14
Item 3 - Defaults Upon Senior Securities 14
Item 6 - Exhibits and Reports on Form 8-K 14
</TABLE>
2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
October 28, January 28,
1995 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash $2,390 $7,972
Receivables, net 3,610 3,050
Inventories 42,682 29,145
Prepaid expenses and other 2,965 5,917
Restricted cash 1,223 532
----------- -----------
Total current assets 52,870 46,616
Property and equipment 44,402 51,924
Leasehold interests 4,687 5,058
Excess of cost over net assets acquired 13,368 13,639
Deferred financing costs 2,893 3,436
Restricted cash 1,276 256
Other assets 889 486
----------- -----------
Total assets $120,385 $121,415
----------- -----------
----------- -----------
Liabilities not subject to settlement
under reorganization proceedings:
Current Liabilities:
Borrowings under working capital
facility $25,867 $15,838
Accounts payable 12,240 1,754
Accrued payroll and related costs 3,228 2,913
Accrued taxes 1,271 455
Accrued interest 452 336
Accrued store closure costs 0 2,951
Other accrued expenses 5,972 5,198
----------- -----------
Total current liabilities not
subject to settlement under
reorganization proceedings 49,030 29,445
----------- -----------
Liabilities subject to settlement under
reorganization proceedings 105,076 108,333
----------- -----------
Stockholders' Deficit:
Common stock, $.01 per value;
40,000,000 shares authorized, 179 179
17,899,549 and 17,887,775 shares
issued and outstanding, respectively
Additional paid in capital 62,893 62,843
Accumulated deficit (96,793) (79,385)
----------- -----------
Total stockholders' deficit (33,721) (16,363)
----------- -----------
Total liabilities and stockholders'
deficit $120,385 $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
--------------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Revenues $49,802 $56,688
Cost of merchandise sold 32,162 48,498
----------- -----------
Gross profit 17,640 8,190
----------- -----------
Operating and administrative expenses 18,172 25,237
Depreciation and amortization 2,300 2,981
----------- -----------
Operating costs 20,472 28,218
----------- -----------
Loss before other income (expense) and
reorganization expenses (2,832) (20,028)
Other income (expense):
Interest Expense
Cash (contractual interest of $3.6
million in 1995) (1,416) (1,390)
Non-cash 0 (2,030)
Other 33 0
----------- -----------
Loss before reorganization expenses (4,215) (23,448)
Reorganization expenses (728) 0
----------- -----------
Net loss (4,943) (23,448)
Accumulated deficit, beginning of period (91,850) (31,948)
----------- -----------
Accumulated deficit, end of period ($96,793) ($55,396)
----------- -----------
----------- -----------
Net loss per common share ($0.28) ($1.31)
----------- -----------
----------- -----------
</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>
NINE MONTHS ENDED
--------------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Revenues $134,196 $160,184
Cost of merchandise sold 87,658 114,742
----------- -----------
Gross profit 46,538 45,442
----------- -----------
Operating and administrative expenses 51,371 65,408
Depreciation and amortization 7,061 8,689
Store closure costs 0 7,200
----------- -----------
Operating costs 58,432 81,297
----------- -----------
Loss before other income (expense)
and reorganization expenses and
income tax benefit (11,894) (35,855)
Other income (expense):
Interest expense
Cash (contractual interest of $10.2
million in 1995) (3,729) (5,344)
Non-cash 0 (3,490)
Other 183 0
----------- -----------
Loss before reorganization expenses
and income tax benefit (15,440) (44,689)
Reorganization expenses (1,968) 0
----------- -----------
Loss before income tax benefit (17,408) (44,689)
Income tax benefit 0 400
----------- -----------
Net loss (17,408) (44,289)
Accumulated deficit, beginning of period (79,385) (11,107)
----------- -----------
Accumulated deficit, end of period ($96,793) ($55,396)
----------- -----------
----------- -----------
Net loss per common share ($0.97) ($2.69)
----------- -----------
----------- -----------
</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>
NINE MONTHS ENDED
--------------------------------
October 28, October 29,
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($17,408) ($44,289)
Adjustments to reconcile net loss to
net cash used by operating activities
before reorganization items:
Depreciation and amortization 7,061 8,689
Non-cash interest, including interest
paid-in-kind and amortization of debt
discount 0 3,490
Reorganization expenses 1,968 0
Increase in accounts receivable (461) (98)
Increase in inventories (13,949) (9,194)
Decrease (increase) in prepaid
expenses and other 1,668 (2,303)
Increase in long-term restricted cash (1,020) 0
Increase in accounts payable 10,487 10,932
Increase (decrease) in accrued interest 142 (1,341)
Increase in accrued expenses 1,022 3,394
Net realizable value adjustment to
inventory 0 10,000
Other (480) 6,261
----------- -----------
Cash used by operating activities
before reorganization items (10,970) (14,459)
Operating cash flows used by
reorganization items:
Payments for professional fees and other
expenses related to the Chapter 11
proceedings (2,059) 0
----------- -----------
Cash used by operating activities (13,029) (14,459)
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,088) (2,904)
Other (502) 82
----------- -----------
Cash used in investing activities (1,590) (2,822)
----------- -----------
Cash flows from financing activities:
Pre-petition borrowings under working
capital facility 0 175,990
Pre-petition payments of borrowings
under working capital facility 0 (157,775)
Post-petition borrowings under working
capital facility 171,204 0
Post-petition payments under working
capital facility (161,175) 0
Payments on obligations under capital
leases (946) (1,125)
Other (46) (226)
----------- -----------
Cash provided by financing activities 9,037 16,864
----------- -----------
Net decrease in cash (5,582) (417)
Cash, beginning of period 7,972 3,111
----------- -----------
Cash, end of period $2,390 $2,694
----------- -----------
----------- -----------
Supplemental cash flow information:
Cash interest paid $3,587 $10,174
----------- -----------
----------- -----------
</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
OCTOBER 28, 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 nine months ended October 28, 1995,
the third 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 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 periods reported. Except as discussed in Note 5, all such adjustments in
the current period 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 ("borrowing
capacity"), 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 million. Effective October 17,
1995, the agreement was amended to increase the percentage of inventory value
allowed in the Borrowing Base calculation. This increase in borrowing
capacity was in effect for the period October 17, 1995 through December 2,
1995. Effective November 28, 1995, Foothill increased the Company's borrowing
capacity from $32 million to $34 million to accommodate seasonal
requirements. The additional $2 million in borrowing capacity will expire
December 15, 1995.
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 Reductions in 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. Fees
payable under the DIP Facility consist primarily of (i) remaining closing fees
totalling $240,000 of which $160,000 has been paid as of October 28, 1995, 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>
October 28, January 28,
1995 1995
----------- -----------
<S> <C> <C>
Accounts payable and accrued liabilities $23,490 $23,714
Capital lease obligations 12,557 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 615 645
-------- --------
$105,076 $108,333
-------- --------
-------- --------
</TABLE>
The reductions in capital lease obligations consist of payments to landlords
for store locations in the ongoing business operations of the Company. These
leases have been accounted for as capital lease obligations for financial
statement purposes in accordance with FASB 13.
As a result of the Filing, payment of principal and interest under the Notes 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 has not been included in interest expense reported for the
nine months ended October 28, 1995) amounted to $6.5 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 nine months ended October 28, 1995 were
17,896,363 and 17,891,566, respectively.
The weighted average number of common shares and equivalents outstanding for the
quarter and nine months ended October 29, 1994 were 17,875,072 and 16,465,909,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
As previously reported, the Company was a defendant in a lawsuit originally
brought as a class action in state court in Anchorage, Alaska on September 18,
1992. Plaintiffs alleged that certain employees in the State of Alaska were not
exempt from overtime pay requirements under the Alaska Wage and Hour Act (the
"AWHA") and thus have worked hours for which they had not been compensated. The
complaint sought back wages, liquidated damages, attorneys fees and costs. On
October 27, 1995, following a hearing before the Bankrupcty Court, an order was
entered granting the Company's objection to and precluding the Class Action
claim. The balance of the claim, consisting of only two individuals, is not
material.
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 the financial position of the Company, but, if decided adversely to
the Company, could have a material effect upon the Company's anticipated plan
of reorganization, operating results during the period, and financial position.
(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 October 29, 1994, the Company has closed 13 stores, six of which, with the
approval of the Bankruptcy Court, were closed during the nine months ended
October 28, 1995. Of the 13 stores closed, all 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
subordinated 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 nine months ended October 28, 1995, the third
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 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) increase inventory turns.
10
<PAGE>
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("3rd Quarter 1995") and the nine month
period ("YTD 1995") ended October 28, 1995 in comparison with the quarter ("3rd
Quarter 1994") and nine month period ("YTD 1994") ended October 29, 1994.
REVENUES. Revenues of $49.8 million for 3rd Quarter 1995 decreased 12.2% on
a total store basis from $56.7 million for 3rd Quarter 1994, primarily due to
the closure of 13 stores after October 29, 1994. Comparable store revenue
generated at stores opened at least one year remained relatively flat (-0.9%)
for 3rd Quarter 1995 as compared to 3rd Quarter 1994. Revenues of $134.2
million for YTD 1995 decreased 16.2% on a total store basis from $160.2
million in YTD 1994. Comparable store revenue decreased 5.6% for YTD 1995
as compared to YTD 1994.
GROSS PROFIT. Gross profit, as a percentage of revenues increased to 35.6%
during the current period as compared to 35.4% during 3rd Quarter 1994
(excluding the effect of non-cash and non-recurring charges of $11.9 million
during 3rd Quarter 1994). Gross profit, as a percentage of revenues
decreased to 34.6% for YTD 1995, as compared to 36.1% for YTD 1994 (excluding
the effect of non-cash and non-recurring charges of $12.4 million during YTD
1994). The decrease in gross profit on a year to date basis results from (i)
implementing policies to establish more competitive pricing strategies and
(ii) the sale of remaining aged and slow moving merchandise in the quarter
ended April 29, 1995.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
of $18.2 million for 3rd Quarter 1995 were $7 million lower than the $25.2
million incurred in 3rd Quarter 1994. The decrease of $7 million relates to
(i) a reduction in operating costs attributable to 13 stores operating in the
prior period and closed subsequent to October 1994, (accounting for
approximately 50% of the decrease), (ii) lower payroll costs due to a reduction
in employees combined with a non-recurring expense in 3rd Quarter 1994 related
to a change in management (20%), (iii) lower professional and stock option
expense (20%) and (iv) favorable benefits and insurance expense as compared to
3rd Quarter 1994 (10%). Operating and administrative expenses of $51.4 million
for YTD 1995 decreased $14 million as compared to $65.4 million in YTD 1994. As
noted above, the primary factors in this expense reduction are attributed to (i)
the store closures after October 1994 (69%), (ii) the reduction in payroll costs
(13%) and (iii) reduction in professional expenses (18%).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.3
million for 3rd Quarter 1995 decreased $0.7 million as compared to the $3
million recorded for 3rd Quarter 1994. Depreciation and amortization of $7.1
million for YTD 1995 decreased $1.6 million as compared to $8.7 million YTD in
1994. The decreases primarily relate to assets retired as a result of store
closures and assets becoming fully depreciated or amortized.
INTEREST EXPENSE. Interest expense of $1.4 million for 3rd Quarter 1995
decreased $2 million from $3.4 million for 3rd Quarter 1994. Interest expense
of $3.7 million for YTD 1995 decreased $5.1 million from $8.8 million recorded
for YTD 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 in Part I).
REORGANIZATION EXPENSES. Reorganization expenses of $0.7 million for 3rd
Quarter 1995 and $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.
NET LOSS The Company reported a net loss of $4.9 million for 3rd Quarter
1995 as compared to a net loss of $23.4 million for 3rd Quarter 1994.
Excluding the effect of non-recurring charges of $11.9 million noted above in
3rd Quarter 1994, the loss for 3rd Quarter 1995 decreased $6.6 million from the
prior period. This reduction in loss is due to (i) $9.7 million decrease in
operating and interest expenses offset by (ii) $2.4 million decrease in gross
profit and (iii) $0.7 million in reorganization expenses. The YTD 1995 loss
of $17.4 million decreased $26.9 million from the loss of $44.3 million
reported for YTD 1994. Excluding the prior year $7.2 million charge for
store closures and the effect of non-recurring charges of $12.4 million in
gross profit noted above, the loss decreased $7.3 million in the comparable
periods. The loss reduction resulted from (i) $21 million in lower operating
and interest costs offset by (ii) $11.3 million reduction in gross profit
(iii) $2 million in reorganization expenses and (iv) $0.4 million in prior
year tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $11.0 million of cash for operating activities before
reorganization items for the YTD 1995, a decrease of $3.5 million as compared
to $14.5 million used to YTD 1994. Increases in funds used to purchase
inventory and fund receivables were offset by reductions in accruals and
other expenses and loss for the period.
11
<PAGE>
The Company used $1.6 million of cash in investing activities for YTD 1995 as
compared to $2.8 million for the YTD 1994. The decrease of $1.2 million
primarily resulted from reduced capital expenditures.
The $7.8 million decrease in cash used by financing activities is due to
lower net borrowings under the Company's working capital facilities during
YTD 1995 as compared to YTD 1994.
WORKING CAPITAL
As of October 28, 1995, the Company had $2.4 million of cash and an
additional $1.2 million of current restricted cash, representing the funding of
payroll and certain taxes in connection with the Filing. The Company's current
assets exceeded current liabilities not subject to settlement under
reorganization proceedings by $3.8 million and $17.2 million at October 28,
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. Effective October 17, 1995,
the agreement was amended to increase the percentage of inventory value allowed
in the Borrowing Base calculation. This increase in borrowing capacity was in
effect for the period October 17, 1995, through December 2, 1995. Effective
November 28, 1995, Foothill increased the Company's borrowing capacity from $32
million to $34 million to accommodate seasonal requirements. The additional $2
million in borrowing capacity will expire December 15, 1995.
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, Reduction in 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.
At December 6, 1995, the Company had $25 million of borrowings outstanding
under the DIP Facility with additional borrowing capacity thereunder of $9
million.
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
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.
12
<PAGE>
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 Notes and 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.
The parties are in the process of documenting a settlement in the
amount of $.8 million, which amount may be reduced in the event the
landlord is able to mitigate its damages.
(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.
On October 27, 1995, following a hearing before the Bankrupcty Court,
an order was entered granting the Company's objection to and
precluding the Class Action claim. The balance of the claim,
consisting of only two individuals, is not material.
(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 disputed the claim. PBGC has withdrawn its claim without
prejudice to is right to refile at a future date if the PBGC
determines that it is appropriate to do so.
(d) A $2.3 million claim filed by a former landlord of the Company's store
located in Lloyd Center in Portland, Oregon. This claim was based upon
rejection of the store lease pursuant to the Bankruptcy Code. The
Company disputed the claim and pursued a lawsuit against this landlord
for damages for wrongfully refusing to consent to the Company's
attempted assignment of this store to other users. In November 1995,
the Company prevailed in a lawsuit following a jury trial in the State
Court in Oregon. When the judgement becomes final, the Company will
request that the Bankruptcy Court disallow the claim.
(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 October 28, 1995) and 13-1/2% Notes ($0.8
million in principal and prepetition accrued interest as of October 28, 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
------------ ----------------------
10.1 - Amendment Number Two to Loan and Security Agreement
dated October 17, 1995 between Foothill Capital
Corporation and Lamonts Apparel, Inc.
10.2 - Amendment Number Three to Loan and Security
Agreement dated November 28, 1995 between Foothill
Capital Corporation and Lamonts Apparel, Inc.
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: December 11, 1995 By: /s/ Debbie Brownfield
-------------------------------
Debbie Brownfield
Senior Vice President - Finance and
Chief Financial Officer
15
<PAGE>
EXHIBIT 10.1
AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT
---------------------------
This Amendment Number Two To Loan and Security Agreement ("Amendment") is
entered into as of October 17, 1995, between FOOTHILL CAPITAL CORPORATION
("Foothill") and LAMONTS APPAREL, INC., Debtor-In-Possession ("Borrower").
FACT ONE: Foothill and Borrower entered into that certain Loan and
--------
Security Agreement as of February 17, 1995, as amended on March 6, 1995 (the
"Agreement").
FACT TWO: Borrower and Foothill desire further to amend the Agreement as
--------
provided herein.
NOW, THEREFORE, Foothill and Borrower hereby amend the Agreement as
follows:
1. Section 2.1(a) of the Agreement is hereby amended in its entirety to
read as follows:
"(a) Subject to the terms and conditions of this Agreement, Foothill
agrees to make revolving advances to Borrower in an amount not to
exceed the Borrowing Base. For purposes of this Agreement, "Borrowing
Base" shall mean (i) the following for the period commencing on the
date hereof and ending on December 2, 1995: an amount equal to the
lower of: (x) 70% of Borrower's cost of Eligible Inventory, net of
customary reserves, and (y) 35% of the retail value of Eligible
Inventory, net of customary reserves, and (ii) the following for all
other periods: an amount equal to the lower of: (x) 60% of Borrower's
cost of Eligible Inventory, net of customary reserves, and (y) 30% of
the retail value of Eligible Inventory, net of customary reserves. As
of the Closing Date, the reserves shall be an amount equal to 5% of
Borrower's cost of Eligible Inventory."
2. Concurrently with the execution and delivery of this Amendment,
Borrower shall pay to Foothill the sum of $50,000 as an amendment fee, which fee
shall be fully paid and nonrefundable as of such date.
3. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern. In all other respects, the Agreement
shall remain in full force and effect.
<PAGE>
4. All initially capitalized terms used in this Amendment shall have the
meanings given to them in the Agreement unless specifically defined herein.
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment as
of the date first set forth above.
FOOTHILL CAPITAL CORPORATION
By /s/ Michael Parker
-------------------------------
Title Assistant Vice President
--------------------------
LAMONTS APPAREL, INC.,
DEBTOR-IN-POSSESSION
By /s/ Loren Rothschild
-------------------------------
Title Vice Chairman
-------------------------
<PAGE>
EXHIBIT 10.2
AMENDMENT NUMBER THREE TO
LOAN AND SECURITY AGREEMENT
---------------------------
This AMENDMENT NUMBER THREE TO LOAN AND SECURITY AGREEMENT ("Amendment") is
entered into as of November 28, 1995 (the "Effective Date"), between FOOTHILL
CAPITAL CORPORATION ("Foothill") and LAMONTS APPAREL, INC., Debtor-In-Possession
("Borrower").
FACT ONE: Foothill and Borrower entered into that certain Loan and
--------
Security Agreement as of February 17, 1995, as amended on March 6, 1995 and on
October 17, 1995 (the "Agreement").
FACT TWO: Borrower and Foothill desire further to amend the Agreement as
--------
provided herein.
NOW, THEREFORE, Foothill and Borrower hereby amend the Agreement as
follows:
1. The definitions in the Agreement of the terms "Maximum Amount" and
"Maximum Foothill Amount" are hereby amended in their entirety to read as
follows:
"MAXIMUM AMOUNT" means Thirty-Two Million Dollars ($32,000,000);
PROVIDED, HOWEVER, that during the period from the Effective Date through
December 15, 1995 the Maximum Amount shall mean Thirty-Four Million Dollars
($34,000,000).
"MAXIMUM FOOTHILL AMOUNT" means that portion of the Maximum Amount for
which Foothill shall be responsible, exclusive of any participations with
Participants, which amount is Eighteen Million Dollars ($18,000,000);
PROVIDED, HOWEVER, that during the period from the Effective Date through
December 15, 1995 the Maximum Foothill Amount shall mean Twenty Million
Dollars ($20,000,000).
2. Section 2.1(c) of the Agreement is hereby amended in its entirety to
read as follows:
"(c) Foothill shall have no obligation to make advances hereunder or
issue L/Cs or L/C Guarantees to the extent they would cause the outstanding
Obligations to exceed the lesser of: (i) the Maximum Amount, or (ii) the
Maximum Foothill Amount plus the Syndicated Amount. As of the date hereof
the Syndicated Amount is Fourteen Million Dollars ($14,000,000)."
<PAGE>
3. At such time as the amount of Obligations owed to Foothill first
exceed Thirty-Two Million Dollars ($32,000,000), Borrower shall pay to Foothill
a fully earned, nonrefundable fee for this Amendment in the sum of Twenty
Thousand Dollars ($20,000).
4. In the event of a conflict between the terms and provisions of this
Amendment and the terms and provisions of the Agreement, the terms and
provisions of this Amendment shall govern. In all other respects, the Agreement
shall remain in full force and effect.
5. All initially capitalized terms used in this Amendment shall have the
meanings given to them in the Agreement unless specifically defined herein.
IN WITNESS WHEREOF, Borrower and Foothill have executed this Amendment as
of the date first set forth above.
FOOTHILL CAPITAL CORPORATION
By /s/ Kevin M. Coyle
-------------------------
Title Vice President
-------------------
LAMONTS APPAREL, INC.,
DEBTOR-IN-POSSESSION
By /s/ Loren Rothschild
-------------------------
Title Vice Chairman
-------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-28-1995
<CASH> 2,390
<SECURITIES> 0
<RECEIVABLES> 3,610
<ALLOWANCES> 0
<INVENTORY> 42,682
<CURRENT-ASSETS> 52,870
<PP&E> 44,402
<DEPRECIATION> 0
<TOTAL-ASSETS> 120,385
<CURRENT-LIABILITIES> 49,030<F1>
<BONDS> 0
<COMMON> 179
0
0
<OTHER-SE> (33,900)
<TOTAL-LIABILITY-AND-EQUITY> 120,385
<SALES> 134,196
<TOTAL-REVENUES> 134,196
<CGS> 87,658
<TOTAL-COSTS> 87,658
<OTHER-EXPENSES> 60,400<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,729
<INCOME-PRETAX> (17,408)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,408)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,408)
<EPS-PRIMARY> (0.97)
<EPS-DILUTED> 0
<FN>
<F1>EXCLUDES LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION
PROCEEDINGS.
<F2>INCLUDES OPERATING AND ADMINISTRATIVE EXPENSES OF $51,371, DEPRECIATION
AND AMORTIZATION OF $7,061 AND REORGANIZATION EXPENSES OF $1,968.
</FN>
</TABLE>
