<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 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)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(206) 814-5700
(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 11, 1996, there were 17,900,053 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
Exhibit Index on Page 15
Page 1
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1996
--------- ------------
<S> <C> <C>
Current Assets:
Cash $ 2,541 $ 1,581
Receivables - net 3,828 2,458
Inventories 44,372 30,401
Prepaid expenses and other 1,788 2,076
Restricted cash 820 1,058
-------- --------
Total current assets 53,349 37,574
Property and equipment - net of accumulated depreciation and amortization
$24,543 and $23,041 as of August 3, and February 3, respectively 33,253 42,083
Leasehold interests 3,712 4,570
Excess of cost over net assets acquired - net 11,771 13,278
Deferred financing costs - net 2,351 2,713
Restricted cash 1,311 1,278
Other assets 979 865
-------- --------
Total assets $106,726 $102,361
-------- --------
-------- --------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $ 28,130 $ 20,334
Accounts payable 16,016 8,417
Accrued payroll and related costs 2,471 2,396
Accrued taxes 1,619 821
Accrued interest 332 207
Accrued store closure costs -- 3,254
Other accrued expenses 7,268 4,393
-------- --------
Total current liabilities 55,836 39,822
Obligations under capital leases 2,808 --
Other 541 250
-------- --------
Total liabilities not subject to settlement under
reorganization proceedings 59,185 40,072
-------- --------
Liabilities subject to settlement under
reorganization proceedings 103,733 104,845
-------- --------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares authorized,
17,900,053 and 17,899,549 shares issued and outstanding
as of August 3, and February 3, respectively 179 179
Additional paid-in capital 62,949 62,921
Minimum pension liability adjustment (250) (250)
Accumulated deficit (119,070) (105,406)
-------- --------
Total stockholders' equity (deficit) (56,192) (42,556)
-------- --------
Total liabilities and stockholders' equity (deficit) $106,726 $102,361
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
--------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
Revenues $ 49,657 $ 47,711
Cost of merchandise sold 31,607 30,779
--------- ---------
Gross profit 18,050 16,932
--------- ---------
Operating and administrative expenses 17,201 16,829
Depreciation and amortization 2,000 2,267
--------- ---------
Operating costs 19,201 19,096
--------- ---------
Loss from operations before other income (expense) and
reorganization expenses (1,151) (2,164)
Other income (expense):
Interest expense (contractual interest of $3.4 million
in 1996 and 1995) (1,257) (1,214)
Other 2 124
--------- ---------
Loss from operations before reorganization expenses (2,406) (3,254)
Reorganization expenses 985 640
--------- ---------
Net loss (3,391) (3,894)
Accumulated deficit, beginning of period (115,679) (89,102)
--------- ---------
Accumulated deficit, end of period ($119,070) ($92,996)
--------- ---------
--------- ---------
Net loss per common share ($0.19) ($0.22)
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements.
3
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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
---------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
<S> <C> <C>
Revenues $ 87,579 $ 84,393
Cost of merchandise sold 55,954 55,496
--------- ---------
Gross profit 31,625 28,897
--------- ---------
Operating and administrative expenses 32,977 33,198
Depreciation and amortization 4,037 4,761
Impairment of long-lived assets 4,170 ---
--------- ---------
Operating costs 41,184 37,959
--------- ---------
Loss from operations before other income (expense) and
reorganization expenses (9,559) (9,062)
Other income (expense):
Interest expense (contractual interest of $6.8 million
and $6.7 million in 1996 and 1995, respectively) (2,455) (2,313)
Other 5 150
--------- ---------
Loss from operations before reorganization expenses (12,009) (11,225)
Reorganization expenses 1,655 1,240
--------- ---------
Net loss (13,664) (12,465)
Accumulated deficit, beginning of period (105,406) (80,531)
--------- ---------
Accumulated deficit, end of period ($119,070) ($92,996)
--------- ---------
--------- ---------
Net loss per common share ($0.76) ($0.70)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
AUGUST 3, JULY 29,
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($13,664) ($12,465)
Adjustments to reconcile net loss to net cash used in
operating activities before reorganization items:
Depreciation and amortization 4,037 4,761
Impairment of long-lived assets 4,170 --
Reorganization expenses 1,655 1,240
Increase in accounts receivable (1,371) (4,398)
Increase in inventories (14,812) (7,557)
Decrease (increase) in prepaid expenses and other (33) 1,019
Increase in accounts payable 7,599 9,087
Increase in accrued interest 124 90
Increase in accrued expenses 3,403 375
Other (275) (68)
-------- ---------
Net cash used in operating activities before reorganization items (9,167) (7,916)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (1,360) (1,270)
-------- ---------
Net cash used in operating activities (10,527) (9,186)
-------- ---------
Cash flows from investing activities:
Capital expenditures (335) (656)
Proceeds from sale of land and building 4,459 --
Other 45 (297)
-------- ---------
Net cash provided by (used in) investing activities 4,169 (953)
-------- ---------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 128,372 108,999
Post-petition payments under working capital facility (120,576) (104,266)
Principal payments on obligations under capital leases (445) (670)
Other (33) (30)
-------- ---------
Net cash provided by financing activities 7,318 4,033
-------- ---------
Net increase (decrease) in cash 960 (6,106)
Cash, beginning of period 1,581 7,972
-------- ---------
Cash, end of period $2,541 $1,866
-------- ---------
-------- ---------
Supplemental disclosures of cash flow information:
Cash paid for interest $2,489 $2,223
-------- ---------
-------- ---------
Supplemental disclosure of noncash investing and financing activities:
Capital lease relating to sale-leaseback of Alderwood store $2,835 --
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 3, 1996
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 (the "Court") for the Western
District of Washington at Seattle. In Chapter 11, the Company has continued
to manage its affairs and operate its business as a debtor-in-possession.
The Company and representatives of the committees that represent Lamonts'
unsecured trade creditors, bondholders and equityholders (the "Committees")
have reached an understanding regarding the material economic terms of a
proposed consensual Plan of Reorganization designed to enable the Company to
emerge from Chapter 11 (the "Plan"). On August 23, 1996, the Plan was filed
with the Court, along with the proposed disclosure statement relating to the
Plan. The Plan and proposed disclosure statement are each subject to
amendment, which amendments may be material. A hearing to consider approval
of the proposed disclosure statement has been scheduled by the Court for
October 24, 1996. At such time as a disclosure statement has been approved
by the Court, the Plan and such disclosure statement will be transmitted to
all impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Plan. Following the period of
solicitation of ballots, a hearing would be held by the Court to consider
confirmation of the Plan. A confirmation hearing has been tentatively
scheduled for January 6, 1997. The Plan provides that the Company's current
equity holders will be substantially diluted. The confirmation and
effectiveness of the Plan, the implementation of the Company's proposed
business plan and the Company's proposed equity distribution are each subject to
numerous uncertainties set forth in detail in the Plan and proposed
disclosure statement. Accordingly, the value of the Company's common stock
remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors
may be significantly altered. Pre-Filing creditors may receive substantially
less than the full face amount of claims. Certain pre-Filing creditors have
filed claims with the Court substantially in excess of amounts reflected in
the Company's financial statements. The Company continues to analyze and
reconcile the claims filed by pre-Filing creditors with the Company's
financial records, but believes it has made appropriate provision for all
claims filed. However, no estimate of the amount of adjustments, if any,
from recorded amounts, to amounts to be realized by pre-Filing creditors, is
available at this time. These liabilities are included in the balance sheet
as "liabilities subject to settlement under reorganization proceedings."
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 generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a debtor-in-possession, it may not
engage in transactions outside the ordinary course of business without first
complying with the notice and hearing provisions of the Bankruptcy Code and
obtaining Court approval.
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 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."
6
<PAGE>
Pre-petition liabilities subject to settlement under reorganization
proceedings include the following (dollars in thousands):
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1996
-------- --------
<S> <C> <C>
Accounts payable and accrued liabilities $ 23,167 $ 23,511
Capital lease obligations 11,600 12,321
10-1/4% Notes (including pre-petition accrued interest) related party 67,576 67,576
13-1/2% Notes (including pre-petition accrued interest) 838 838
Notes payable 552 599
-------- --------
$103,733 $104,845
-------- --------
-------- --------
</TABLE>
The reductions in capital lease obligations since February 3, 1996, consist
of payments to landlords for store locations in the ordinary course of
business operations of the Company.
In accordance with the Bankruptcy Code, the Company can seek Court approval
for the rejection of executory contracts, including real property leases.
Any such rejection may give rise to a prepetition unsecured claim for breach
of contract. In connection with the Company's Chapter 11 case, a review is
being undertaken of all the Company's obligations under its executory
contracts. As of August 3, 1996, the Company has rejected 10 real property
leases and certain executory contracts and assumed 5 leases (with certain
conditions and limitations). The Plan provides for the assumption or
rejection of other executory contracts and leases which have not been
previously assumed or rejected.
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 accompanying financial statements do not include any
adjustments that might result from the outcome of these matters or
adjustments that might result should the Company be unable to continue as a
going concern. Generally if a debtor-in-possession is unable to emerge from
Chapter 11, such debtor-in-possession could be required to liquidate its
assets.
Costs associated with the reorganization of the Company are charged to
expense as incurred. Under the requirements of the Chapter 11 Filing, the
Company is required to pay certain expenses of the Committees. The amounts
charged to reorganization expense by the Company have consisted and will
continue to consist primarily of write-off of property and equipment,
professional fees, lease related costs and severance costs.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries, of
which all are inactive. All significant intercompany transactions and
account balances have been eliminated in consolidation. The financial
statements included herein should be read in conjunction with the audited,
annual financial statements for the fiscal year ended February 3, 1996,
included in the Company's Annual Report on Form 10-K. The year-end condensed
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The accompanying consolidated financial statements of the Company have been
prepared on a going concern basis of accounting, and, for the periods
subsequent to the Filing, in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, FINANCIAL REPORTING
BY ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE. Recurring losses
from operations and the matters discussed herein related to the Filing raise
substantial doubt about the Company's ability to continue on a going concern.
The ability of the Company to continue as a going concern 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.
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 1, all such
adjustments are
7
<PAGE>
normal and recurring in nature. The results of operations for the quarterly
periods are not necessarily indicative of results for the entire year.
IMPAIRMENT OF LONG-LIVED ASSETS
In the first quarter of Fiscal 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement
No. 121"). Statement No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. If impairment has occurred, an impairment loss must be
recognized.
Statement No. 121 requires that assets be grouped and evaluated at the
lowest level for which there are identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company has
identified this lowest level to be principally individual stores. The
Company considers historical performance and future estimated results in its
evaluation of potential impairment and then compares the carrying amount of
the asset to the estimated future cash flows expected to result from the use
of the asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company measures the amount of the
impairment by comparing the carrying amount of the asset to its fair value.
The estimation of fair value is measured by discounting expected future cash
flows at a rate commensurate with the Company's borrowing rate.
During the first quarter of Fiscal 1996, the Company recognized a non-cash
impairment loss of $4.2 million. Of the total impairment loss, $2.3 million
represents impairment of property and equipment, $1.3 million relates to excess
of cost over net assets acquired and $0.6 million pertains to leasehold
interests. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly from
such estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
quarter ended July 29, 1995 in order to conform with the financial statements
for the quarter ended August 3, 1996.
NOTE 3 - LOAN AND SECURITY AGREEMENTS
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "Old DIP Facility") with Foothill Capital
Corporation ("Foothill"). The Old DIP Facility provided for a borrowing
capacity of up to $32.0 million in revolving loans, including up to $15.0
million of letters of credit, subject to borrowing base limitations based
upon, among other things, the value of inventory and certain real property.
The Old DIP Facility provided that interest would accrue at the rate of 3%
per annum in excess of the Reference Rate (as defined therein), payable
monthly in arrears. The Old DIP Facility also provided that in the event of a
default in the payment of any amount due thereunder, the interest rate on
such defaulted amount would be 4.5% per annum in excess of the Reference
Rate, payable on demand. At June 4, 1996, the date the Company ended its
financing agreement with Foothill, the Reference Rate was 8.25%.
The Company paid Foothill $80,000 upon the closing of the Old DIP Facility in
February 1995 and the additional closing fees totaling $240,000, all of which
had been paid as of March 31, 1996. Fees payable under the Old DIP Facility
consisted primarily of monthly payments equal to 1/2% of the average unused
borrowing capacity and quarterly payments equal to 1/4% of the borrowing
capacity for each quarterly renewal period.
The obligations of the Company under the Old DIP Facility were collateralized
by, among other things, inventory and certain real property. The Old DIP
Facility imposed 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 was required to maintain a minimum net worth of
$10.0 million (as defined in the Old DIP Facility to exclude, among other
items, reorganization expenses, certain liabilities incurred prior to the
Filing, reduction in goodwill, charges for store closure and non-cash
interest).
The Old DIP Facility had been extended from its initial maturity date of May
17, 1996 to the earlier of August 17, 1996 (with provisions for two
additional quarterly renewals) or the effective date of the Company's plan of
reorganization. However, on June 4, 1996, the Company entered into loan and
security agreements with the First National Bank of Boston ("FNBB") replacing
the Company's debtor-in-possession financing agreement with Foothill, after a
hearing by the Court and the entering of an order approving such financing.
Although Foothill had taken no action to declare the Company in default as of
the date on which the Foothill financing was terminated, the Company was in
violation of the net worth covenant in the Old DIP Facility.
Pursuant to the new loan and security agreement with FNBB (the "FNBB
Facility"), the Company is able to borrow up to $32 million in revolving
loans (including $3 million of letters of credit), subject to borrowing base
limitations based upon, among other things, the value of inventory and
certain real property, during the pendency of the Company's Chapter 11
8
<PAGE>
proceeding or until June 30, 1997. Subject to FNBB's approval of a plan of
reorganization and other specified conditions, the FNBB Facility will
continue for a two year period following the effective date of a plan of
reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at
the rate of 1.5% per annum in excess of the Base Rate (as defined therein),
payable monthly in arrears. For Eurodollar loans, the interest rate will be
the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided
therein). The FNBB Facility also provides that in the event of a default in
the payment of any amount due thereunder, the interest rate on such default
shall be the greater of (i) 3.0% per annum in excess of the Base Rate and
(ii) the applicable rate on the loan, payable on demand. The interest rates
for both Base Rate loans and Eurodollar loans are subject to adjustment after
the Plan is approved and other conditions described in the FNBB Facility have
occurred based on financial ratios of the Company specified in the FNBB
Facility. At August 3, 1996, the Base Rate was 8.25% and the Eurodollar Base
Rates ranged from 5.44% to 5.56%.
The Company has paid FNBB $171,200 in fees for the FNBB Facility as of August
3, 1996. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of a plan
of reorganization and the satisfaction of certain conditions described in the
FNBB Facility in the amount of $560,000 which shall be payable as follows:
(a) if the conditions are satisfied prior to December 31, 1996, $336,000
shall be payable on the date the conditions are satisfied and $224,000 shall
be payable on December 31, 1996 (or, if earlier, the time of termination of
the commitments), or (b) if the conditions are satisfied on or after
December, 1996, $336,000 shall be payable on the date the conditions are
satisfied and $224,000 shall be payable on December 31, 1997 (or, if earlier,
the time of termination of the commitments).
Borrowings under the FNBB Facility, together with cash flow from operations,
may be used by the Company to finance general working capital requirements,
including purchases of inventory and other expenditures permitted under the
FNBB Facility. The FNBB Facility is secured by inventory and substantially
all other assets and is an allowed administrative expense claim with super
priority over other administrative expenses in the Chapter 11 case. The FNBB
Facility imposes limitations on the Company with respect to, among other
things, (i) consolidations, mergers, and sales of assets, (ii) capital
expenditures in excess of specified levels and (iii) the prepayment of
certain indebtedness. Additionally, the Company must comply with certain
operating and financial covenants (as described therein). Although the
Company failed to comply with certain covenants related to inventory levels,
the Company requested and received a waiver relating to such breaches for the
months ending July 6, 1996 and August 3, 1996.
NOTE 4 - 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
common stock equivalents, represented by stock options and warrants 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 would be anti-dilutive. The weighted average number of shares
outstanding for the quarter and six months ended August 3, 1996 were
17,899,970 and 17,899,759, respectively.
The weighted average number of shares outstanding for the quarter and six
months ended July 29, 1995 were 17,890,559 and 17,889,167, respectively.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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 and operating results during the period in which the
litigation is resolved. (See also Part II, Item 1.)
NOTE 6 - RESTATEMENT OF FINANCIAL STATEMENTS
The financial statements for the six months ended August 3, 1996 have been
restated resulting in an increase in the net loss to $13.7 million from
$9.5 million as previously reported and increasing the accumulated deficit to
$119.1 million from $114.9 million as previously reported.
The amended Quarterly Report reflects an increase in operating costs of $4.2
million for the six months ended August 3, 1996. As a result of these changes
earnings (loss) per share increased from a previously reported loss of ($0.53)
to a loss of ($0.76) per share.
The $4.2 million increase in operating costs for the six months ended August
3, 1996, the $3.8 million reduction in total assets and the $0.4 million
increase in other accrued expenses represents the expense recognition of the
impairment of long-lived assets due to the adoption of Statement No. 121
during the six months eneded August 3, 1996.
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 42 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"), 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 (the "Court") for the Western
District of Washington at Seattle. In Chapter 11, the Company has continued
to manage its affairs and operate its business as a debtor-in-possession.
The Company and representatives of the committees that represent Lamonts'
unsecured trade creditors, bondholders and equityholders (the "Committees")
have reached an understanding regarding the material economic terms of a
proposed consensual Plan of Reorganization designed to enable the Company to
emerge from Chapter 11 (the "Plan"). On August 23, 1996, the Plan was filed
with the Court, along with the proposed disclosure statement relating to the
Plan. The Plan and proposed disclosure statement are each subject to
amendment, which amendments may be material. A hearing to consider approval
of the proposed disclosure statement has been scheduled by the Court for
October 24, 1996. At such time as a disclosure statement has been approved
by the Court, the Plan and such disclosure statement will be transmitted to
all impaired creditors and equity security holders along with ballots for the
purpose of soliciting acceptances of the Plan. Following the period of
solicitation of ballots, a hearing would be held by the Court to consider
confirmation of the Plan. A confirmation hearing has been tentatively
scheduled for January 6, 1997. The Plan provides that the Company's current
equity holders will be substantially diluted. The confirmation and
effectiveness of the Plan, the implementation of the Company's proposed
business plan and the Company's proposed equity distribution are each subject
to numerous uncertainties set forth in detail in the Plan and proposed
disclosure statement. Accordingly, the value of the Company's common stock
remains highly speculative.
In a Chapter 11 reorganization plan, the rights of the pre-Filing creditors
may be significantly altered. Pre-Filing creditors may receive substantially
less than the full face amount of claims. Certain pre-Filing creditors have
filed claims with the Court substantially in excess of amounts reflected in
the Company's financial statements. The Company continues to analyze and
reconcile the claims filed by pre-Filing creditors with the Company's
financial records, but believes it has made appropriate provision for all
claims filed. However, no estimate of the amount of adjustments, if any,
from recorded amounts, to amounts to be realized by pre-Filing creditors, is
available at this time. These liabilities are included in the balance sheet
as "liabilities subject to settlement under reorganization proceedings."
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 generally stayed while the Company continues its
business operations as a debtor-in-possession. Although the Company is
authorized to operate its business as a debtor-in-possession, it may not
engage in transactions outside the ordinary course of business without first
complying with the notice and hearing provisions of the Bankruptcy Code and
obtaining Court approval.
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 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.
Since February 3, 1996, the Company has closed one store, with the approval
of the Court. The store was 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.
Management believes that Lamonts has made substantial progress in the period
since the Filing. The Company has closed unprofitable stores, eliminated
unprofitable merchandise lines, added a home decor line, replaced its shoe
licensee and reduced operating expenses. In addition, management implemented
new merchandising strategies designed to: (i) improve the quality of
merchandise offered while maintaining price points geared to the Company's
customer base, (ii) reduce cash operating expenses, and (iii) increase
inventory turns to improve the Company's performance. The Company also has
initiated a policy to mark-down and clear out any unsold merchandise within
its respective season. As a result, the age and quality of inventory has
been improved significantly.
10
<PAGE>
On June 4, 1996, the Company entered into a new loan and security agreement
(the "FNBB Facility") with the First National Bank of Boston ("FNBB") replacing
the Company's existing loan agreement (the "Old DIP Facility") with Foothill
Capital Corporation ("Foothill"), after a hearing by the Court and the entering
of an order approving such financing. See "Liquidity and Capital Resources"
herein.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to
the results of operations for the quarter ("2nd Quarter 1996") and six month
period ("YTD 1996") ended August 3, 1996 compared to the quarter ("2nd
Quarter 1995") and six month period ("YTD 1995") ended July 29, 1995.
REVENUES. Revenues of $49.7 million for the 2nd Quarter 1996 increased 4.1%
on a total store basis from $47.7 million for the 2nd Quarter 1995.
Comparable store revenues (i.e., stores open for at least a year) increased
5.7% for the 2nd Quarter 1996 as compared to 2nd Quarter 1995. Revenues of
$87.6 million for YTD 1996 increased 3.8% on a total store basis from $84.4
million for YTD 1995. Comparable store revenues increased 5.6% for YTD 1996
as compared to YTD 1995. Management believes that revenues have increased due
to increased levels of inventory and overall improvement in the quality of
the merchandise offered in the stores compared to the prior year periods. In
addition, the Company's new merchandising strategy has resulted in quicker
turnover of certain categories of merchandise, and the strength of the home
decor department has resulted in increased sales.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased to 36.4%
during the 2nd Quarter 1996 compared to 35.5% during the 2nd Quarter 1995.
Gross profit, as a percentage of revenues, increased to 36.1% for YTD 1996
compared to 34.2% for YTD 1995. The increase in gross profit resulted
primarily from (i) policies implemented to establish more competitive pricing
strategies and (ii) management's purchasing strategies, which have decreased
the cost of merchandise sold.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
of $17.2 million for the 2nd Quarter 1996 increased 2.2% from $16.8 million
for the 2nd Quarter 1995. The increase of $0.4 million primarily relates to
(i) an increase in advertising expense of $0.9 million and (ii) an increase
in rent of $0.3 million, offset by a reduction in payroll costs of $0.6
million due to a reduction in employees and operating costs attributable to
closed stores operating expense in the 2nd Quarter 1995, accounting for
approximately $0.3 million.
Operating and administrative expenses of $33.0 million for YTD 1996 decreased
0.7% from $33.2 million for YTD 1995. The decrease of $0.2 million primarily
relates to (i) a reduction in operating costs attributable to closed stores
operating in the YTD 1995, accounting for approximately $0.8 million and (ii)
lower payroll costs of $1.2 million due to a reduction in employees, offset
by an increase in advertising expense of $1.5 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.0
million for the 2nd Quarter 1996 decreased $0.3 million as compared to $2.3
million for the 2nd Quarter 1995. Depreciation and amortization expense of
$4.0 million for YTD 1996 decreased $0.8 million as compared to $4.8 million
for YTD 1995. The decrease primarily relates to assets retired as a result
of store closures and assets becoming fully depreciated or amortized.
IMPAIRMENT OF LONG-LIVED ASSETS. A noncash charge of $4.2 million for the
impairment of long-lived asests was recognized during YTD 1996 due to the
adoption of Statement NO. 121. See "Item 1 - Consolidated Financial
Statements - Note 2". The charge consist of a noncash write-off of the
excess of cost over net assests acquired, leasehold interests and leasehold
improvements determined to be impaired under the application
of Statement No. 121.
INTEREST EXPENSE. Interest expense of $1.3 million for the 2nd Quarter 1996
increased $0.1 million from $1.2 million for the 2nd Quarter 1995. Interest
expense of $2.5 million for YTD 1996 increased $0.2 million from $2.3 million
for YTD 1995. The increase primarily relates to increased borrowing levels
under the Company's working capital facility, offset by lower interest rates.
REORGANIZATION EXPENSES. Reorganization expenses of $1.0 million for the 2nd
Quarter 1996 increased $0.4 million from $0.6 million for the 2nd Quarter
1995. The YTD 1996 expense of $1.7 million increased $0.5 million from $1.2
million for the YTD 1995. The reorganization expenses represent costs
directly related to the Company's Chapter 11 case and consist primarily of
professional fees and severance costs. The increase from the prior periods
consists of higher professional fees related to the preparation and filing of
the Plan and related proposed disclosure statement and the FNBB Facility.
NET LOSS. The Company reported a net loss of $3.4 million for the 2nd
Quarter 1996 as compared to a net loss of $3.9 million for the 2nd Quarter
1995. The loss for the 2nd Quarter 1996 decreased $0.5 million from the
prior period primarily due to (i) $1.1 million increase in gross profit and
(ii) $0.3 million decrease in depreciation and amortization expense, offset
by (iii) an increase of $0.4 million in operating expenses and (iv) an
increase of $0.4 million in reorganization expenses.
The YTD 1996 loss of $13.7 million increased $1.2 million from the loss of
$12.5 million for the YTD 1995. The increase for YTD 1996 resulted from i)
$4.2 million increase in impairment of long-lived assets expense, ii)
$0.4 million increase in reorganization expenses and iii) $0.3 million
increase in net other income (expense), offset by $2.7 million increase in
gross profit, $0.2 million decrease in operating and administrative expenses
and $0.8 million decrease in depreciation and amortization expense.
11
<PAGE>
expenses, (iii) $0.8 million decrease in depreciation and amortization
expense, offset by $0.4 million increase in reorganization expenses and $0.3
million increase in net other income (expense).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $9.2 million of cash for operating activities before
reorganization items for YTD 1996, an increase of $1.2 million as compared to
$7.9 million used for YTD 1995. Increases in funds were used primarily to
pay down trade payables and to increase inventory levels.
The Company received $4.2 million of cash in investing activities for YTD
1996 as compared to using $1.0 million for YTD 1995. The difference of $5.2
million results primarily from net sale proceeds of $4.5 million received
from the sale-leaseback of the Company's Alderwood store during YTD 1996.
The $3.3 million increase in cash provided by financing activities is
primarily due to increased borrowings under the Company's working capital
facilities during YTD 1996 as compared to YTD 1995, which cash was primarily
used to increase inventory levels.
As of August 3, 1996, the Company had $2.5 million of cash and an additional
$0.8 million of current restricted cash, representing the prefunding of
payroll and taxes in connection with the Filing.
CAPITAL RESOURCES
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement with Foothill. The Old DIP Facility provided for a
borrowing capacity of up to $32.0 million in revolving loans, including up to
$15.0 million of letters of credit ("borrowing capacity"), subject to
borrowing base limitations based upon, among other things, the value of
inventory and certain real property. The Old DIP Facility had been extended
from its initial maturity date of May 17, 1996 to the earlier of August 17,
1996 (with provisions for two additional quarterly renewals) or the effective
date of the Company's plan of reorganization. However, on June 4, 1996, the
Company entered into the FNBB Facility with FNBB replacing the Old DIP
Facility, after a hearing by the Court and the entering of an order approving
such financing. Although Foothill had taken no action to declare the Company
in default as of the date on which the Foothill financing was terminated, the
Company was in violation of the net worth covenant in Old DIP Facility.
Pursuant to the FNBB Facility, the Company is able to borrow up to $32
million in revolving loans (including $3 million of letters of credit),
subject to borrowing base limitations based upon, among other things, the
value of inventory and certain real property, during the pendency of the
Company's Chapter 11 proceeding or until June 30, 1997. Subject to FNBB's
approval of a plan of reorganization and other specified conditions, the FNBB
Facility will continue for a two year period following the effective date of
a plan of reorganization.
The FNBB Facility provides that for Base Rate loans interest will accrue at
the rate of 1.5% per annum in excess of the Base Rate (as defined therein),
payable monthly in arrears. For Eurodollar loans, the interest rate will be
the Eurodollar Rate (as defined therein) plus 2.75% (adjusted as provided
therein). The FNBB Facility also provides that in the event of a default in
the payment of any amount due thereunder, the interest rate on such default
shall be the greater of (i) 3.0% per annum in excess of the Base Rate and
(ii) the applicable rate on the loan, payable on demand. The interest rates
for both Base Rate loans and Eurodollar loans are subject to adjustment after
the plan of reorganization is approved and other conditions described in the
FNBB Facility have occurred based on financial ratios of the Company
specified in the FNBB Facility. At August 3, 1996, the Base Rate was 8.25%
and the Eurodollar Rates ranged from 5.44% to 5.56%.
The Company has paid FNBB $171,200 in fees for the FNBB Facility as of August
3, 1996. Fees payable under the FNBB Facility consist primarily of monthly
payments equal to 0.5% (adjusted as provided therein) of the average unused
borrowing capacity and monthly payments equal to 0.125% of the borrowing
capacity. There will be an additional fee after the effective date of a plan
of reorganization and the satisfaction of certain conditions described in the
FNBB Facility in the amount of $560,000 which shall be payable as follows:
(a) if the conditions are satisfied prior to December 31, 1996, $336,000
shall be payable on the date the conditions are satisfied and $224,000 shall
be payable on December 31, 1996 (or, if earlier, the time of termination of
the commitments), or (b) if the conditions are satisfied on or after
December, 1996, $336,000 shall be payable on the date the conditions are
satisfied and $224,000 shall be payable on December 31, 1997 (or, if earlier,
the time of termination of the commitments).
12
<PAGE>
Borrowings under the FNBB Facility, together with cash flow from operations,
may be used by the Company to finance general working capital requirements,
including purchases of inventory and expenditures permitted under the FNBB
Facility. The FNBB Facility is secured by inventory and substantially all
other assets and is an allowed administrative expense claim with super
priority over other administrative expenses in the Chapter 11 case. The FNBB
Facility imposes limitations on the Company with respect to, among other
things, (i) consolidations, mergers, and sales of assets, (ii) capital
expenditures in excess of specified levels and (iii) the prepayment of
certain indebtedness. Additionally, the Company must comply with certain
operating and financial covenants (as described therein). Although the
Company failed to comply with certain covenants related to inventory levels,
the Company requested and received a waiver relating to such breaches for the
months ending July 6, 1996 and August 3, 1996.
As of September 11, 1996, the Company had $26.7 million of borrowings
outstanding under the FNBB Facility with additional borrowing capacity
thereunder of $4.2 million.
The Company's primary cash requirement is the procurement of inventory which
is currently funded through (i) borrowings under the FNBB Facility (ii) trade
credit and (iii) cash generated from operations. Like other apparel
retailers, the Company is highly 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 obtain its expected trade credit terms, the Company
believes that borrowings under the FNBB Facility and cash generated from
operations will provide the cash necessary to fund the Company's immediate
cash requirements.
On August 23, 1996, the Company filed the Plan and related proposed
disclosure statement with the Court. The adequacy of the Company's long-term
capital resources and liquidity will depend on whether and when the Plan is
confirmed and upon the terms thereof, which are subject to material amendment.
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 and the financial condition of the Company. The ability
of the Company to pay dividends is restricted under the terms of the FNBB
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 (during the pendency of the Company's Chapter 11
case).
SEASONALITY
The Company's revenues are seasonal, with the Christmas season (included in
the Quarter ending the Saturday closest to January 31) being its strongest
period.
13
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 2,541
<SECURITIES> 0
<RECEIVABLES> 3,828
<ALLOWANCES> 0
<INVENTORY> 44,372
<CURRENT-ASSETS> 53,349
<PP&E> 33,253
<DEPRECIATION> 0
<TOTAL-ASSETS> 106,726
<CURRENT-LIABILITIES> 55,836<F1>
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 56,371
<TOTAL-LIABILITY-AND-EQUITY> 106,726
<SALES> 87,579
<TOTAL-REVENUES> 87,579
<CGS> 55,954
<TOTAL-COSTS> 55,954
<OTHER-EXPENSES> 42,839<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,455
<INCOME-PRETAX> (13,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,664)
<EPS-PRIMARY> (0.76)
<EPS-DILUTED> 0
<FN>
<F1>EXCLUDES LIABILITIES SUBJECT TO SETTLEMENT UNDER REORGANIZATION PROCEEDING
<F2>INCLUDES: OPERATING AND ADMINISTRATIVE EXPENSES OF $32,977, DEPRECIATION AND
AMORTIZATION OF $4,037, IMPAIRMENT OF LONG-LIVED ASSETS OF $4,170, AND
REORGANIZATION EXPENSES OF $1,655.
</FN>
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