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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 4, 1996 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 S.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(206) 814-5700
(Registrant's Telephone Number, including Area Code)
3650 131st Avenue N.E., Bellevue, WA 98006
(Former name, former address and former fiscal year, if changed since last
report)
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 June 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 14
Page 1
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 3,
1996 1996
--------- -----------
<S> <C> <C>
Current Assets:
Cash $2,083 $1,581
Receivables - net 2,256 2,458
Inventories 34,973 30,401
Prepaid expenses and other 1,751 2,076
Restricted cash 902 1,058
--------- -----------
Total current assets 41,965 37,574
Property and equipment - net of accumulated depreciation
and amortization $23,066 and $23,041, respectively 35,086 42,083
Leasehold interests 3,830 4,570
Excess of cost over net assets acquired - net 11,862 13,278
Deferred financing costs - net 2,532 2,713
Restricted cash 1,278 1,278
Other assets 892 865
--------- -----------
Total assets $ 97,445 $102,361
--------- -----------
--------- -----------
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under DIP Facility $19,984 $20,334
Accounts payable 12,637 8,417
Accrued payroll and related costs 1,841 2,396
Accrued taxes 1,067 821
Accrued interest 221 207
Accrued store closure costs -- 3,254
Other accrued expenses 6,683 4,393
--------- -----------
Total current liabilities 42,433 39,822
Obligations under capital leases 2,808 --
Other 472 250
--------- -----------
Total liabilities not subject to settlement under
reorganization proceedings 45,713 40,072
--------- -----------
Liabilities subject to settlement under
reorganization proceedings 104,547 104,845
--------- -----------
Stockholders' Equity (Deficit):
Common stock, $0.01 par value, 40,000,000 shares
authorized, 17,899,549 shares issued and
outstanding 179 179
Additional paid-in capital 62,935 62,921
Minimum pension liability adjustment (250) (250)
Accumulated deficit (115,679) (105,406)
--------- -----------
Total stockholders' equity (deficit) (52,815) (42,556)
--------- -----------
Total liabilities and stockholders' equity
(deficit) $ 97,445 $102,361
--------- -----------
--------- -----------
</TABLE>
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>
QUARTER ENDED
--------------------
MAY 4, APRIL 29,
1996 1995
--------- ---------
<S> <C> <C>
Revenues $37,922 $36,682
Cost of merchandise sold 24,348 24,717
--------- ---------
Gross profit 13,574 11,965
--------- ---------
Operating and administrative expenses 15,775 16,369
Depreciation and amortization 2,037 2,494
Impairment of long-lived assets 4,170 -
--------- --------
Operating costs 21,982 18,863
--------- --------
Loss from operations before other income
(expense) and reorganization expenses (8,408) (6,898)
Other income (expense):
Interest expense (contractual interest of
$3.4 million and $3.3 million in 1996 and
1995, respectively) (1,198) (1,099)
Other 3 26
--------- ---------
Loss from operations before reorganization
expenses (9,603) (7,971)
Reorganization expenses 670 600
--------- ---------
Net loss (10,273) (8,571)
Accumulated deficit, beginning of period (105,406) (80,531)
--------- ---------
Accumulated deficit, end of period ($115,679) ($89,102)
--------- ---------
--------- ---------
Net loss per common share ($0.57) ($0.48)
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------
MAY 4, APRIL 29,
1996 1995
---------- ---------
<S> <C> <C>
Cash flows from operating activities
Net loss ($10,273) ($8,571)
Adjustments to reconcile net loss to net cash used in operating
activities before reorganization items:
Depreciation and amortization 2,037 2,494
Impairment of long-lived assets 4,170 -
Reorganization expenses 670 600
Increase in inventories (5,414) (5,483)
Decrease in prepaid expenses and other 95 1,385
Increase in accounts payable 4,220 8,458
Increase in accrued interest 14 10
Increase in accrued expenses 1,806 1,603
Other 48 (1,262)
-------- --------
Net cash used in operating activities before reorganization items (2,627) (766)
Operating cash flows used by reorganization items:
Payments for professional fees and other expenses related to the
Chapter 11 proceedings (596) (476)
-------- --------
Net cash used in operating activities (3,223) (1,242)
-------- --------
Cash flows from investing activities:
Capital expenditures (170) (385)
Proceeds from sale of land and building 4,459 --
Other 24 23
-------- ---------
Net cash provided by (used in) investing activities 4,313 (362)
-------- ---------
Cash flows from financing activities:
Post-petition borrowings under working capital facility 45,637 48,444
Post-petition payments under working capital facility (45,987) (52,217)
Principal payments on obligations under capital leases (221) (392)
Other (17) (15)
-------- --------
Net cash used in financing activities (588) (4,180)
-------- --------
Net increase (decrease) in cash 502 (5,784)
Cash, beginning of period 1,581 7,972
-------- --------
Cash, end of period $2,083 $2,188
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Cash paid for interest $1,184 $1,089
-------- --------
-------- --------
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
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LAMONTS APPAREL, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 4, 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
consensual Plan of Reorganization designed to enable the Company to emerge
from Chapter 11 (the "Plan"). The Company and the Committees are discussing
the timing for the filing with the Court of the Plan and the Disclosure
Statement related thereto. In addition, the Company has received certain
non-binding proposals regarding potential new equity and/or debt investments
in the Company, which proposals are subject to customary conditions,
including, in certain cases, consummation of a plan of reorganization. The
Company and the representatives of the Committees are engaged in negotiations
regarding such proposals. After a consensual plan of reorganization is
completed, it will be sent, with a Disclosure Statement approved by the
Court, after notice and hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of a plan of reorganization by creditors and equity
security holders, the Court, at a noticed hearing, will consider whether to
confirm a plan or reorganization.
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 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. 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. Certain 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 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
creditors, is available at this time. 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 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."
Pre-petition liabilities subject to settlement under reorganization proceedings
include the following (dollars in thousands):
<TABLE>
<CAPTION>
MAY 4, FEBRUARY 3,
1996 1996
-------- ----------
<S> <C> <C>
Accounts payable and accrued liabilities $23,424 $23,511
Capital lease obligations 12,126 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) related party 838 838
Notes payable 583 599
-------- ----------
$104,547 $104,845
-------- ---------
-------- ---------
</TABLE>
The reductions in capital lease obligations consist of payments to landlords for
store locations in the ongoing 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 May 4, 1996, the Company has rejected ten real property
leases and certain executory contracts and assumed five leases (with certain
conditions and limitations).
6
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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
asssets.
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
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 quarter ended May 4, 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 April 29, 1995 in order to conform with the financial statements
for the quarter ended May 4, 1996.
NOTE 3 - LOAN AND SECURITY AGREEMENT
On February 17, 1995, the Company received approval from the Court for a Loan
and Security Agreement (the "DIP Facility") with Foothill Capital Corporation
("Foothill"). The 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 DIP Facility provided
that interest 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 provided that in the event of a default in the payment of any
amount due thereunder, the
7
<PAGE>
interest rate on such defaulted amount would be 4.5% per annum in excess of
the Reference Rate, payable on demand. At May 4, 1996, the reference rate
was 8.25%.
The Company paid Foothill $80,000 upon the closing of the 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 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 DIP Facility were collateralized by,
among other things, inventory and certain real property. The 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 DIP Facility to exclude, among other items,
reorganization expenses, certain liabilities incurred prior to the Company's
filing, reduction in goodwill, charges for store closure and non-cash
interest).
The 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 a loan
and security agreement 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 Foothill
financing agreement.
Pursuant to the new loan and security agreement (the "FNBB Facility") with
FNBB, 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
until June 30, 1997 and, subject to FNBB's approval of a plan of
reorganization and other specified conditions, for a two year period
following the effective date of a plan of reorganization.
The FNBB Facility provides that 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 base rate loans. 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 Company paid
FNBB $97,500 upon the closing of the Facility on June 4, 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 ae 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 certain 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).
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 quarters ended May 4, 1996 and April 29, 1995 were 17,899,549 and
17,887,775, 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 Quarter ended May 4, 1996 have been restated
resulting in an increase in the net loss to $10.3 million from $6.1 million
as previously reported, and increasing the accumulated deficit to $115.7
million from $111.5 million as previously reported.
The amended Quarterly Report reflects an increase in operating costs of $4.2
million. As a result of these changes, loss per share increased from a
previously reported loss of ($0.34) to a loss of ($0.57) per share.
The $4.2 million increase in operating costs, 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 Statment No. 121 during the quarter.
8
<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 material economic terms of a
consensual Plan of Reorganization designed to enable the Company to emerge
from Chapter 11 (the "Plan"). The Company and the Committees are discussing
the timing for the filing with the Court of the Plan and the Disclosure
Statement related thereto. In addition, the Company has received certain
non-binding proposals regarding potential new equity and/or debt investments
in the Company, which proposals are subject to customary conditions,
including, in certain cases, consummation of a plan of reorganization. The
Company and the representatives of the Committees are engaged in negotiations
regarding such proposals. After a consensual plan or reorganization is
completed, it will be sent, with a Disclosure Statement approved by the
Court, after notice and hearing, to members of all classes of impaired
creditors and equity security holders for acceptance or rejection. Following
acceptance or rejection of a plan of reorganization by creditors and equity
security holders, the Court, at a noticed hearing, will consider whether to
confirm a plan or reorganization.
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 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. 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. Certain 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 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
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 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) reduce inventory levels and
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.
On June 4, 1996, the Company entered into FNBB Facility with 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 Foothill financing agreement.
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 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 until June 30, 1997 and, subject to
FNBB's approval of a plan of reorganization and other specified conditions,
for a two year period following the effective date of a plan of
reorganization.
9
<PAGE>
The FNBB Facility provides that 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 base rate loans. 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 Company paid
FNBB $97,500 upon the closing of the Facility on June 1, 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).
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the Quarter ended May 4, 1996 ("1st Quarter 1996")
compared to the Quarter ended April 29, 1995 ("1st Quarter 1995").
REVENUES. Revenues of $37.9 million for the 1st Quarter 1996 increased 3.4%
on a total store basis from $36.7 million for the 1st Quarter 1995.
Comparable store revenues increased 4.8% for the 1st Quarter 1996 as compared
to the same period for the prior year. 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 1st
Quarter 1995. In addition, the Company's new merchandising strategy has
resulted in quicker turnover 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 35.8%
during the 1st Quarter 1996 as compared to 32.6% during the 1st Quarter 1995.
The increase in gross profit results 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
$15.8 million for the 1st Quarter 1996 decreased 4% from $16.4 million for the
1st Quarter 1995. The decrease of $0.6 million primarily relates to (i) a
reduction in operating costs attributable to closed stores operating in the 1st
Quarter 1995, accounting for approximately $0.4 million and (ii) lower payroll
costs of $0.7 million due to a reduction in employees, offset by an increase in
advertising expense of $0.6 million.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense of $2.0
million for the 1st Quarter 1996 decreased $0.5 million as compared to $2.5
million for the 1st Quarter 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 assets was recognized during 1st Quarter 1996 due to
the adoption of Statement No. 121. See "Item 1 - Consolidated Financial
Statements - Note 2". The charge consists of a noncash write-off of the
excess of cost over net assets acquired, leasehold interests and leasehold
improvements determined to be impaired under the application of Statement No.
121.
INTEREST EXPENSE. Interest expense of $1.2 million for the 1st
Quarter 1996 increased $0.1 million from $1.1 million for the 1st Quarter
1995. The increase is primarily due to increased borrowing levels under the
Company's working capital facility.
REORGANIZATION EXPENSES. Reorganization expenses of $0.7 million for the 1st
Quarter 1996 and $0.6 million for the 1st Quarter 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 $10.3 million for the 1st
Quarter 1996 as compared to a net loss of $8.6 million for the 1st Quarter
1995. The loss for the 1st Quarter 1996 increased $1.7 million from the
prior period primarily due to $4.2 million increase in impairment of
long-lived assets expense offset by (i) $1.6 million increase in gross
profit, (ii) $0.6 million decrease in operating and administrative expenses,
and (iii) $0.5 million decrease in depreciation and amortization expense.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $2.6 million of cash for operating activities before
reorganization items for the 1st Quarter 1996, an increase of $1.8 million as
compared to $0.8 million used in the 1st Quarter 1995. Increases in funds were
used primarily to pay down trade payables.
The Company received $4.3 million of cash in investing activities for the 1st
Quarter 1996 as compared to using $0.4 million for the 1st Quarter 1995. The
difference of $4.7 million results primarily from net sale proceeds of $4.5
million received in the sale-leaseback of the Company's Alderwood store during
the 1st Quarter 1996.
The $3.6 million decrease in cash used in financing activities is primarily due
to lower net payments under the Company's working capital facilities during the
1st Quarter 1996 as compared to the 1st Quarter 1995.
As of May 4, 1996, the Company had $2.1 million of cash and an additional $0.9
million of current restricted cash, representing the funding 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 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 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 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 Foothill financing agreement.
Pursuant to the FNBB Facility with FNBB, 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 until June 30, 1997 and, subject to FNBB's
approval of a plan of reorganization and other specified conditions, for a
two year period following the effective date of a plan of reorganization.
The FNBB Facility provides that 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 base rate loans. 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 Company paid
FNBB $97,500 upon the closing of the Facility on June 4, 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
11
<PAGE>
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).
As of June 11, 1996, the Company had $22.6 million of borrowings outstanding
under the FNBB Facility with additional borrowing capacity thereunder of $6.6
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 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 cash
requirements.
OTHER
The Company has never declared or paid cash dividends on its Common Stock or any
other equity security, and does not anticipate paying cash dividends on the
Common Stock, or any other equity security, in the foreseeable future. Any
future determination as to the payment of dividends will depend upon certain
debt instrument limitations, future earnings, results of operations, capital
requirements 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.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> MAY-04-1996
<CASH> 2,083
<SECURITIES> 0
<RECEIVABLES> 2,256
<ALLOWANCES> 0
<INVENTORY> 34,973
<CURRENT-ASSETS> 41,965
<PP&E> 35,086
<DEPRECIATION> 0
<TOTAL-ASSETS> 97,445
<CURRENT-LIABILITIES> 42,433<F1>
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> (52,994)
<TOTAL-LIABILITY-AND-EQUITY> 97,445
<SALES> 37,922
<TOTAL-REVENUES> 37,922
<CGS> 24,348
<TOTAL-COSTS> 24,348
<OTHER-EXPENSES> 22,652<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,198
<INCOME-PRETAX> (10,273)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,273)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> 0
<FN>
<F1>Excludes Liabilities subject to settlement under reorganization proceeding.
<F2>Includes: Operating and Administrative expenses of $15,775, depreciation and
amortization of $2,037, reorganization expenses of $670, and impairment of
long-lived assets of $4,170.
</FN>
</TABLE>
