<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934: For the fiscal year ended January 31, 1998
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, WA 98034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(425) 814-5700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
(TITLE OF CLASS)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Class A Common Stock, par value $0.01 per share
Class A Warrants to purchase Class A Common Stock
Class B Warrants to purchase Class A Common Stock
Class C Warrants to purchase Class A Common Stock
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the Registrant's voting stock held by
nonaffiliates of the Registrant as of April 15 ,1998, was approximately
$7,944,039 (based on the average bid and ask price of such stock on such date).
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a Court.
Yes X No
--- ---
As of April 15, 1998, there were 9,000,000 shares of the Registrant's Class A
Common Stock, par value $0.01 per share, outstanding and 10 shares of
Registrant's Class B Common Stock, par value $0.01 per share, outstanding.
- -------------------------------------------------------------------------------
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1
<PAGE>
EXPLANATORY NOTE
The principal purpose of this amendment is to amend pro forma loss per share
data and to revise the New Accounting Standards contained in Note 2 and Note
3, respectively, to the Consolidated Financial Statements under the caption
"Item 8. Financial Statements and Supplementary Data" on the Lamonts
Apparel, Inc. Form 10-K for the fiscal year ended January 31, 1998. Such Item
8 has been amended and restated in its entirety herein.
2
<PAGE>
Item 8. Financial Statements and Supplementary data.
LAMONT APPARAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... 4
Consolidated Balance Sheets--January 31, 1998 and February 1, 1997......................................... 5
Consolidated Statements of Operations for the 52 weeks ended January 31, 1998, 52 weeks ended February 1,
1997 and 53 weeks ended February 3, 1996................................................................. 6
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the 52 weeks ended January 31,
1998, 52 weeks ended February 1, 1997 and 53 weeks ended February 3, 1996................................ 7
Consolidated Statements of Cash Flows for the 52 weeks ended January 31, 1998, 52 weeks ended February 1,
1997 and 53 weeks ended February 3, 1996................................................................. 8
Notes to Consolidated Financial Statements................................................................. 9
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lamonts Apparel, Inc.
We have audited the accompanying consolidated balance sheets of Lamonts
Apparel, Inc. (the "Company") as of January 31, 1998 and February 1, 1997 and
the related consolidated statements of operations, changes in stockholders'
equity (deficit) and cash flows for the 52 weeks ended January 31, 1998 and
February 1, 1997 and the 53 weeks ended February 3, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company as of January 31, 1998 and February 1, 1997 and the consolidated
results of operations and cash flows for the 52 weeks ended January 31, 1998 and
February 1, 1997 and the 53 weeks ended February 3, 1996, in conformity with
generally accepted accounting principles.
On January 31, 1998, the Company emerged from bankruptcy. As discussed in
Note 2 to the consolidated financial statements, the Company adopted
"Fresh-Start Reporting" principles in accordance with the American Institute of
Certified Public Accountant's Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization under the Bankruptcy Code." As a result of the
reorganization and the adoption of Fresh-Start Reporting, the Company's January
31, 1998 consolidated balance sheet is not comparable to the Company's February
1, 1997 consolidated balance sheet since it presents the consolidated financial
position of the reorganized entity.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Seattle, Washington
April 10, 1998
4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash........................................................................ $ 1,301 $ 2,066
Receivables................................................................. 1,703 1,595
Inventories................................................................. 38,617 37,559
Prepaid expenses and other.................................................. 1,500 1,528
Restricted cash and deposits................................................ 1,543 714
----------- -----------
Total current assets.................................................... 44,664 43,462
Property and equipment........................................................ 42,494 30,653
Leasehold interests........................................................... 8,281 3,477
Excess of cost over net assets acquired....................................... -- 11,591
Deferred financing costs...................................................... -- 1,989
Restricted cash and deposits.................................................. 1,130 1,142
Other assets.................................................................. 899 958
----------- -----------
Total assets............................................................ $ 97,468 $ 93,272
----------- -----------
----------- -----------
Liabilities not subject to settlement under reorganization proceedings:
Current Liabilities:
Borrowings under the Revolver............................................. $ 18,967 $ --
Borrowings under DIP Facility............................................. -- 23,141
Accounts payable.......................................................... 15,186 13,578
Accrued payroll and related costs......................................... 3,106 2,285
Accrued taxes............................................................. 865 812
Accrued interest.......................................................... 1,007 616
Accrued store closure costs............................................... -- 1,050
Accrued reorganization expenses........................................... 2,497 1,165
Other accrued expenses.................................................... 6,804 4,160
Current maturities of long-term debt...................................... 403 --
Current maturities of obligations under capital leases.................... 1,454 12
----------- -----------
Total current liabilities............................................... 50,289 46,819
Long-term debt, net of current maturities................................... 10,536 --
Obligations under capital leases, net of current maturities................. 13,835 2,846
Other....................................................................... 2,852 302
----------- -----------
Total liabilities not subject to settlement under reorganization
proceedings........................................................... 77,512 49,967
Liabilities subject to settlement under reorganization proceedings:
Related party............................................................... -- 67,600
Other....................................................................... -- 35,258
----------- -----------
Total liabilities subject to settlement under reorganization............ -- 102,858
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares
issued and outstanding.................................................. -- --
Common stock, $.01 par value; 40,000,000 shares and 40,000,000 shares
authorized; 9,000,000 and 17,900,053 shares issued and outstanding,
respectively............................................................ 90 179
Additional paid-in-capital................................................ 19,866 62,972
Accumulated deficit....................................................... -- (122,704)
----------- -----------
Total stockholders' equity (deficit).................................... 19,956 (59,553)
----------- -----------
Total liabilities and stockholders' equity (deficit).................. $ 97,468 $ 93,272
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenues................................................................... $ 201,623 $ 203,602 $ 199,548
Cost of merchandise sold................................................... 131,700 130,480 131,677
----------- ----------- -----------
Gross profit......................................................... 69,923 73,122 67,871
----------- ----------- -----------
Operating and administrative expenses...................................... 67,844 67,173 71,372
Depreciation and amortization.............................................. 7,141 7,999 9,232
Impairment of long-lived assets............................................ -- 4,170 --
----------- ----------- -----------
Operating costs...................................................... 74,985 79,342 80,604
----------- ----------- -----------
Loss from operations before other income (expense), reorganization
expenses, fresh-start revaluation, and extraordinary item................ (5,062) (6,220) (12,733)
Other income (expense):
Interest expense:
Cash (contractual interest of $13.1 million, $13.7 million and $13.8
million, respectively)............................................... (5,900) (5,053) (5,098)
Other income (expense)................................................... 8 12 196
----------- ----------- -----------
Loss from operations before reorganization expenses, fresh-start
revaluation, and extraordinary item...................................... (10,954) (11,261) (17,635)
Reorganization expenses.................................................... (5,995) (6,037) (7,240)
Fresh-start revaluation.................................................... 70,495 -- --
----------- ----------- -----------
Income (loss) before extraordinary item.................................... 53,546 (17,298) (24,875)
Extraordinary item--gain on debt discharge................................. 69,158 -- --
----------- ----------- -----------
Net income (loss).......................................................... $ 122,704 $ (17,298) $ (24,875)
----------- ----------- -----------
----------- ----------- -----------
Basic and Diluted Earnings (Loss) per Common Share
Income (loss) from operations before extraordinary item.................. $ 3.00 $ (0.97) $ (1.39)
Extraordinary Item--gain on debt discharge............................... $ 3.86 $ 0.00 $ 0.00
Net income (loss)........................................................ $ 6.86 $ (0.97) $ (1.39)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
ADDITIONAL PENSION
NUMBER OF COMMON PAID-IN LIABILITY ACCUMULATED
SHARES STOCK CAPITAL ADJUSTMENT DEFICIT TOTAL
----------- ----------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 28, 1995............. 17,900 $ 179 $ 62,843 $ -- $ (80,531) $ (17,509)
Net loss for the 53 weeks ended
February 3, 1996.................. -- -- -- -- (24,875) (24,875)
Compensation expense related to
stock option plan................. -- -- 78 -- -- 78
Minimum pension liability
adjustment........................ -- -- -- (250) -- (250)
----------- ----- ----------- ----- ------------ -----------
Balance, February 3, 1996............. 17,900 179 62,921 (250) (105,406) (42,556)
Net loss for the 52 weeks ended
February 1, 1997.................. -- -- -- -- (17,298) (17,298)
Compensation expense related to
stock option plan................. -- -- 51 -- -- 51
Minimum pension liability
adjustment........................ -- -- -- 250 -- 250
----------- ----- ----------- ----- ------------ -----------
Balance, February 1, 1997............. 17,900 179 62,972 -- (122,704) (59,553)
Net income for the 52 weeks ended
January 31, 1998.................. -- -- -- -- 122,704 122,704
Minimum pension liability
adjustment........................ -- -- -- (438) -- (438)
Compensation expense related to
stock option plan................. -- -- 38 -- -- 38
Cancellation of the former equity
and elimination of accumulated
deficit under the Plan............ (17,900) (179) (63,010) 438 -- (62,751)
Issuance of new equity under the
Plan.............................. 9,000 90 19,866 -- -- 19,956
----------- ----- ----------- ----- ------------ -----------
Balance, January 31, 1998............. 9,000 $ 90 $ 19,866 $ -- $ -- $ 19,956
----------- ----- ----------- ----- ------------ -----------
----------- ----- ----------- ----- ------------ -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 53 WEEKS ENDED
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $ 122,704 $ (17,298) $ (24,875)
Adjustments to reconcile net income (loss) to net cash used by
operating activities before reorganization items:
Depreciation and amortization................................ 7,141 7,999 9,232
Impairment of long-lived assets.............................. -- 4,170 --
Gain on sale of fixed asset.................................. (177) -- --
Non-cash interest, including interest paid-in-kind and
amortization of debt discount.............................. 321 -- --
Stock option expense......................................... 38 51 78
Net change in current assets and liabilities................. 3,900 (2,621) 4,895
Net realizable value adjustment to inventory................. -- -- 500
Decrease (increase) in long term restricted cash and
deposits................................................... 11 137 (1,022)
Other........................................................ (1,103) (562) (1,425)
Reorganization expenses...................................... 5,995 6,037 7,240
Fresh-start revaluation...................................... (70,495) -- --
Gain on debt discharge....................................... (69,158) -- --
--------------- --------------- ---------------
Net cash used by operating activities before reorganization
expenses................................................. (823) (2,087) (5,377)
--------------- --------------- ---------------
Operating cash flows used by reorganization expenses:
Payment for professional fees or other expenses related to
the Chapter 11 proceedings................................. (4,539) (3,241) (2,475)
--------------- --------------- ---------------
Net cash used by operating activities...................... (5,362) (5,328) (7,852)
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures........................................... (1,507) (699) (1,343)
Proceeds from sale of assets................................... 39 4,459 --
Other.......................................................... 257 90 (448)
--------------- --------------- ---------------
Net cash provided (used) by investing activities........... (1,211) 3,850 (1,791)
--------------- --------------- ---------------
Cash flows from financing activities:
Net post-petition (payments) borrowings under Revolver......... (4,174) 2,807 4,496
Proceeds from Term Loan........................................ 10,000 -- --
Assumption of liabilities subject to compromise................ 939 -- --
Principal payments on obligations under capital leases......... (900) (778) (1,183)
Other.......................................................... (57) (66) (61)
--------------- --------------- ---------------
Net cash provided by financing activities.................. 5,808 1,963 3,252
--------------- --------------- ---------------
Net increase (decrease) in cash.................................. (765) 485 (6,391)
Cash, beginning of period........................................ 2,066 1,581 7,972
--------------- --------------- ---------------
Cash, end of period.............................................. $ 1,301 $ 2,066 $ 1,581
--------------- --------------- ---------------
--------------- --------------- ---------------
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in accounts receivable..................... $ (154) $ 818 $ 692
(Increase) decrease in inventory (excluding adjustment for net
realizable value)............................................ 118 (7,158) (2,692)
(Increase) decrease in prepaid expenses and other.............. (64) 548 2,018
Increase (decrease) in accounts payable........................ 1,607 5,161 6,663
Increase (decrease) in accrued payroll and related costs....... 821 (111) (517)
Increase (decrease) in accrued taxes........................... 53 (9) 288
Increase (decrease) in accrued interest........................ 547 409 (103)
Increase (decrease) in accrued store closure costs............. (1,050) (2,204) 303
Increase (decrease) in other accrued expenses.................. 2,022 (75) (1,757)
--------------- --------------- ---------------
$ 3,900 $ (2,621) $ 4,895
--------------- --------------- ---------------
--------------- --------------- ---------------
Supplemental Cash Flow Information:
Cash interest payments made.................................... $ 4,824 $ 4,783 $ 5,201
Non-cash transactions:
Capital lease relating to sale--leaseback of Alderwood
store...................................................... -- 2,835 --
Capital leases relating to equipment......................... 759
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1--REORGANIZATION AND EMERGENCE FROM CHAPTER 11
Lamonts Apparel, Inc. (the "Company" or "Lamonts") is a Northwest-based
regional retailer with 38 stores in five states. The Company offers an
assortment of moderately priced fashion apparel, and home and fashion
accessories at competitive prices for the entire family.
On January 6, 1995 ("Petition Date"), the Company filed a voluntary petition
for relief under Chapter 11 ("Chapter 11") of title 11 of the United States Code
(the "Bankruptcy Code") in the United States Bankruptcy Court (the "Bankruptcy
Court") for the Western District of Washington at Seattle. The Company's
Modified and Restated Plan of Reorganization (the "Plan") was confirmed by the
Bankruptcy Court on December 18, 1997 and became effective on January 31, 1998
("Plan Effective Date").
The overall purpose of the Plan was to (i) alter the debt and capital
structure of Lamonts to permit it to emerge from Chapter 11 and (ii) settle,
compromise or otherwise dispose of certain claims on terms that Lamonts
considered to be reasonable.
The Plan resulted in an approximate $90 million net reduction in the total
indebtedness and liabilities subject to reorganization of the Company. The Plan
provided generally for, among other things, payment in full by the Company of
administrative expenses, certain other priority claims and secured claims, other
than the claim of BankBoston, N.A. ("BankBoston"), the agent and lender under
the Company's bank credit facility (the "BankBoston Facility"), (which was left
unimpaired), cancellation of certain indebtedness in exchange for new equity
securities of the Company, the discharge of certain other pre-petition claims,
the cancellation and/or rejection of existing equity securities of the Company
in exchange for new equity securities of the Company, the assumption or
rejection of executory contracts and unexpired leases and the designation of a
new board of directors. In addition, the Plan provided that the Company assume
all of the obligations under the BankBoston Facility, including any unpaid
accrued interest, fees, costs and charges.
Pursuant to the Plan:
(a) an aggregate of 8,800,000 shares of Class A Common Stock, par value
$0.01 per share, of the Company ("Common Stock"), 2,203,320 Class A Warrants
to purchase Common Stock ("Class A Warrants") and 700,237 Class B Warrants
to purchase Common Stock ("Class B Warrants") have been or will be issued to
the holders of pre-petition claims against Lamonts;
(b) an aggregate of 200,000 shares of Common Stock and 100,000 Class B
Warrants were issued to the former holders of Lamonts common stock (the "Old
Common Stock"); and
(c) 228,639 Class C Warrants to purchase Common Stock ("Class C
Warrants") and 10 shares of Class B Common Stock, par value $.01 per share,
of the Company ("Class B Common Stock"), were issued to Specialty Investment
I LLC (the "Surety").
All such securities were or will be issued in exchange for various
pre-petition claims and interests allowed by the Bankruptcy Court, except those
issued to the Surety which were issued as required under the BankBoston Facility
in consideration of the guaranty made by the Surety of a $10 million term loan
made to the Company prior to the Plan Effective Date and in partial exchange for
its administrative claim. All shares of Old Common Stock were canceled pursuant
to the Plan. As a result, holders of Old Common Stock lost substantially all of
their investment in the Company.
9
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 1--REORGANIZATION AND EMERGENCE FROM CHAPTER 11 (CONTINUED)
In addition, pursuant to the Plan, the Company granted options ("Stock
Options") for the purchase of Common Stock as follows:
(i) Stock Options exercisable for the purchase of 1,000,000 shares of
Common Stock with an exercise price of $1.00 per share ("Base Options");
(ii) to prevent dilution resulting from the issuance of the Class A
Warrants, Stock Options exercisable for the purchase of an additional
244,813 shares of Common Stock with an exercise price of $0.01 per share,
exercisable only on or after the date on which the Class A Warrants become
exercisable ("Protective A Options"); and
(iii) to prevent dilution resulting from the issuance of the Class B
Warrants, Stock Options exercisable for the purchase of an additional 88,915
shares of Common Stock with an exercise price of $0.01 per share,
exercisable only on or after the date on which the Class B Warrants become
exercisable ("Protective B Options" and, together with the Protective A
Options, the "Protective Options").
The number of Protective A Options and Protective B Options that may be
exercised is limited under certain circumstances. (See Note 12.)
In addition, to prevent dilution resulting from the issuance of the Class C
Warrants to the Surety, the holders of Stock Options issued on the Plan
Effective Date were issued Class C Warrants exercisable for the purchase of an
aggregate of 381,060 shares of Common Stock (355,656 shares with an exercise
price of $1.25 per share and for an aggregate of 25,404 shares with an exercise
price of $.01 per share). (See Note 12.)
As compensation to Gordian Group, L.P. ("Gordian") for investment banking
services rendered to the Company during the Company's Chapter 11 case, Gordian
will be issued, on the 120th day following the Plan Effective Date, warrants
(the "Gordian Warrants") exercisable for a number of shares of Common Stock
having a value equal to $200,000. See Note 12 for a description of the terms of
the Gordian Warrants.
In connection with the Plan, the Company entered into a Grant of
Registration Rights in favor of certain holders of the Warrants and the Common
Stock, pursuant to which, subject to certain exceptions, the Company agreed to
file and cause to remain effective a Registration Statement under the Securities
Act of 1933, as amended, covering certain of the securities distributed under
the Plan. See Note 13 for a description of such registration rights. Also in
connection with the Plan, Alan R. Schlesinger and Loren R. Rothschild entered
into new employment agreements with the Company which amended and restated the
terms of their existing employment agreements.
The Plan was filed with the Bankruptcy Court on October 31, 1997. The
Disclosure Statement relating thereto, which was filed with the Bankruptcy Court
on October 31, 1997 and amended on November 21, 1997, was approved by the
Bankruptcy Court on November 24, 1997. The Plan was confirmed by the Bankruptcy
Court on December 18, 1997 and became effective on January 31, 1998.
With the exception of payments contemplated by the Plan to be made
subsequent to the Plan Effective Date, all payments and distributions required
under the Plan to be made in respect of pre-
10
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 1--REORGANIZATION AND EMERGENCE FROM CHAPTER 11 (CONTINUED)
petition liabilities have been made or otherwise provided for, and, other than
as contemplated by the Plan, no further recourse to the Company may be had by
any person with respect of such pre-petition claims.
The following sets forth the nature and amount of pre-petition liabilities
subject to settlement under reorganization proceedings:
<TABLE>
<CAPTION>
PRE-FRESH-START
JANUARY 31, FEBRUARY 1,
1998 1997
--------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued liabilities........................ $ 22,664 $ 23,121
Capital Lease obligations....................................... 10,313 11,216
10 1/4% Notes (including pre-petition accrued interest)......... 67,600 67,600
13 1/2% Notes (including pre-petition accrued interest)......... 838 838
Notes Payable................................................... 31 83
--------------- -----------
$ 101,446 $ 102,858
--------------- -----------
--------------- -----------
</TABLE>
Costs associated with the reorganization of the Company were expensed as
incurred. Such costs include certain expenses of the committees that represented
Lamonts' unsecured trade creditors, bondholders and equity holders (the
"Committees"). The amounts charged to reorganization expense by the Company are
as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Write-off of property and equipment, net of obligations under
capital leases................................................. $ 2,362
Professional fees................................................ $ 2,344 $ 2,128 2,479
Lease related costs.............................................. 196 1,036 925
Payroll related costs............................................ 1,924 411 411
Store closure costs, administrative and other.................... 1,531 2,462 1,063
--------- --------- ---------
$ 5,995 $ 6,037 $ 7,240
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING
Pursuant to the guidance provided by the American Institute of Certified
Public Accountants in Statement 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") (also referred to as
"Fresh-Start Reporting"), the Company adopted Fresh-Start Reporting for
financial reporting purposes as of January 31, 1998. Under Fresh-Start
Reporting, the reorganization value of the Company was allocated to the
reorganized Company's net assets on the basis of the purchase method of
accounting. This method required the adjustment of the Company's assets and
liabilities to reflect their estimated fair value at the Plan Effective Date.
In accordance with SOP 90-7, the Company's reorganization value was
determined as of the Plan Effective Date. The reorganization value was derived
by an independent public accounting firm using various valuation methods,
including discounted cash flow analyses (utilizing the Company's projections),
11
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING (CONTINUED)
analyses of the market values of other publicly traded companies whose
businesses are reasonably comparable, and analyses of the present value of the
Company's equity. The reorganization value was determined to be the fair value
of the Company before considering liabilities and approximated the amount a
willing buyer would have paid for the assets of the Company immediately after
restructuring.
The primary methodology used to determine the reorganization value was a
weighted average of the historical market guideline method, projected guideline
method, and the income approach using the discounted cash flow method. Under the
income approach, the terminal value was determined using the discounted cash
flow projected for the period from February 1, 1998 through February 3, 2002,
using a discount rate of 14.1% and a long-term growth rate of 3.5%, with a
capitalization rate at 10.6%.
The adjustments to reflect the consummation of the Plan and adoption of
Fresh-Start Reporting, including the adjustment to restate assets and
liabilities at their respective estimated fair values, the gain on debt
discharge for liabilities subject to settlement under reorganization proceedings
of $69.2 million, and the elimination of $122.7 million of the prior accumulated
deficit, are reflected in the accompanying consolidated financial statements at
January 31, 1998.
Additionally, a black line is shown to separate the January 31, 1998
consolidated balance sheet from the prior year since it is not prepared on a
comparable basis. The effect of the reorganization on the Company's consolidated
balance sheet as of January 31, 1998 is as follows:
<TABLE>
<CAPTION>
PRE-FRESH-START FRESH-START
BALANCE SHEET BALANCE SHEET
JANUARY 31, DEBT FRESH-START JANUARY 31,
1998 DISCHARGE REPORTING 1998
--------------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Current Assets:
Cash............................................ $ 1,301 $ 1,301
Receivables..................................... 1,703 1,703
Inventories..................................... 37,441 $ 1,176(a) 8,617
Prepaid expenses and other...................... 1,500 1,500
Restricted cash and deposits.................... 1,543 1,543
--------------- --------- ----------- -------------
Total current assets........................ 43,488 -- 1,176 44,664
Property and equipment............................ 27,255 15,239(b) 42,494
Leasehold interests............................... 3,049 5,232(b) 8,281
Excess of cost over net assets acquired........... 11,266 (11,266)(c) --
Deferred financing costs.......................... 1,266 $ (1,266)(d) --
Restricted cash and deposits...................... 1,130 1,130
Other assets...................................... 899 899
--------------- --------- ----------- -------------
Total assets................................ $ 88,353 $ (1,266) $ 10,381 $97,468
--------------- --------- ----------- -------------
--------------- --------- ----------- -------------
</TABLE>
12
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING (CONTINUED)
<TABLE>
<CAPTION>
PRE-FRESH-START FRESH-START
BALANCE SHEET BALANCE SHEET
JANUARY 31, DEBT FRESH-START JANUARY 31,
1998 DISCHARGE REPORTING 1998
--------------- --------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Liabilities not subject to settlement under
reorganization proceedings:
Current Liabilities:
Borrowings under the Revolver................. $ 18,967 $18,967
Accounts payable.............................. 15,186 15,186
Accrued payroll and related costs............. 3,106 3,106
Accrued taxes................................. 865 865
Accrued interest.............................. 1,163 $ (156)(e) 1,007
Accrued reorganization expenses............... 2,497 2,497
Other accrued expenses........................ 6,442 $ 362(f) 6,804
Current maturities of long-term debt.......... 403 403
Current maturities of obligations under
capital leases.............................. 177 1,277(e) 1,454
--------------- --------- ----------- -------------
Total current liabilities................... 48,806 362 1,121 50,289
Long-term debt, net of current maturities....... 10,536 10,536
Obligations under capital leases, net of current
maturities.................................... 3,444 10,391(e) 13,835
Other........................................... 1,023 835(f) 994(g) 2,852
--------------- --------- ----------- -------------
Total liabilities not subject to settlement
under reorganization proceedings.......... 63,809 1,197 12,506 77,512
--------------- --------- ----------- -------------
Liabilities subject to settlement under
reorganization proceedings:
Related party................................... 67,600 (67,600)(f) --
Other........................................... 33,846 (23,533)(f) (10,313)(e) --
--------------- --------- ----------- -------------
Total liabilities subject to settlement
under reorganization proceedings.......... 101,446 (91,133) (10,313) --
--------------- --------- ----------- -------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.01 par value, 10,000,000
shares authorized, no shares issued or
outstanding................................... -- --
Common stock, $.01 par value; 40,000,000 shares
authorized, 9,000,000 shares issued and
outstanding................................... 179 88(h) (177)(h) 90
Additional paid-in-capital...................... 63,010 19,424(h) (62,568)(h) 19,866
Minimum pension liability adjustment............ (438) 438(g) --
Accumulated deficit............................. (139,653) 69,158(i) 70,495(j) --
--------------- --------- ----------- -------------
Total stockholders' equity (deficit).......... (76,902) 88,670 8,188 19,956
--------------- --------- ----------- -------------
Total liabilities and stockholders' equity
(deficit)................................. $ 88,353 $ (1,266) $ 10,381 $97,468
--------------- --------- ----------- -------------
--------------- --------- ----------- -------------
</TABLE>
13
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING (CONTINUED)
- ------------------------
(a) To adjust inventories to fair value.
(b) To allocate fair value to identifiable net assets in accordance with
purchase method accounting as follows: property and equipment, $15.2
million; and leasehold interests, $5.2 million.
(c) To write off the balance of excess of cost over net assets acquired.
(d) To write off the balance of deferred financing costs related to debt
discharged.
(e) To reclassify certain liabilities subject to settlement under reorganization
proceedings, where the obligation was assumed.
(f) To record the discharge of liabilities subject to settlement under
reorganization proceedings, and reclassify pre-petition priority claims and
cure amounts.
(g) To restate liabilities, including pension liabilities at fair value.
(h) To record cancellation of historical Stockholders' equity (deficit) and
record reorganization value of $20.0 million, $0.1 million of which is
classified as Class A Common Stock, $.01 par value. The remaining $19.9
million is classified as additional paid-in-capital.
(i) To record the extraordinary item--gain on debt discharge.
(j) To recognize the value of the reorganized Company.
14
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING (CONTINUED)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
The following unaudited pro forma consolidated statement of operations
reflects the financial results of the Company during Fiscal 1997 as if the Plan
had been consummated on February 2, 1997. The pro forma information does not
purport to be indicative of the results of operations that would actually have
been reported had such transactions actually been consummated on such date or of
the results of operations that may be reported by the Company in the future.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
52 WEEKS ENDED 52 WEEKS ENDED
JANUARY 31, JANUARY 31,
1998 ADJUSTMENTS 1998
-------------- ----------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Total revenue................................................ $ 201,623 $ 201,623
(1)(3)
Total cost of merchandise sold, operating expenses, and (4)(5)
depreciation and amortization and other income (expense)... 212,577 $ 470(6)(7) 212,107
-------------- --------------
Loss from operations before reorganization expenses,
fresh-start revaluation and extraordinary item............. (10,954) (10,484)
-------------- --------------
Reorganization expenses...................................... (5,995) 5,995(2) --
Fresh-start revaluation...................................... 70,495 (70,495)(8) --
-------------- --------------
Income (loss) before extraordinary item...................... 53,546 (10,484)
Extraordinary item........................................... 69,158 (69,158)(8) --
-------------- ----------- --------------
Net income (loss)............................................ $ 122,704 $(133,188) $ (10,484)
-------------- ----------- --------------
-------------- ----------- --------------
Basic and diluted loss per share............................. $ (1.16)
--------------
--------------
Weighted average number of shares............................ 9,000,000(9)
</TABLE>
- ------------------------
The unaudited pro forma statement of operations has been adjusted to reflect
the following:
(1) An increase in depreciation and amortization expense of approximately
$1.0 million due to the change in the fair value of identifiable assets,
property and equipment and leasehold interests.
(2) The elimination of approximately $6.0 million in reorganization costs.
(3) The elimination of approximately $0.4 million for amortization of excess
of cost over net assets acquired.
(4) The elimination of approximately $0.7 million for amortization of
deferred financing fees associated with outstanding warrants to purchase
Old Common Stock which were canceled on the Plan Effective Date.
(5) The amortization of approximately $0.5 million in facility fees in
respect of the working capital facility.
(6) The reduction in rent expense of approximately $0.2 million for several
stores where the landlord has agreed to concessions upon assumption of
the lease.
(7) An increase in interest expense of $0.1 million associated with debt
arising from deferred priority tax claims and deferred cure payments.
(8) The elimination of Fresh-Start Reporting adjustments totaling
approximately $70.5 million and extraordinary item--gain on debt
discharge of $69.2 million.
15
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 2--BASIS OF PRESENTATION AND FRESH-START REPORTING (CONTINUED)
(9) Pursuant to the Plan, the Company issued 9,000,000 shares of Common
Stock and granted warrants and options to purchase Common Stock. Such
warrants and options have not been included in the calculation of net
loss per common share because the effect of assuming their exercise would
be anti-dilutive.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FRESH-START REPORTING
The Company adopted SOP 90-7, or Fresh-Start Reporting, for financial
reporting purposes as of January 31, 1998. Under Fresh-Start Reporting, the
Company's assets and liabilities were adjusted to reflect their fair values at
the Plan Effective Date. (See Note 2.)
CONSOLIDATION
The consolidated financial statements present the consolidated financial
position and results of operations of the Company and its subsidiaries. All
subsidiaries of the Company are inactive. All significant intercompany
transactions and account balances have been eliminated in consolidation.
CHANGE IN FISCAL YEAR
On March 9, 1995, the Company elected to change its fiscal year end from the
Saturday closest to October 31 to the Saturday closest to January 31 to enhance
the comparability of the Company's results of operations with other apparel
retailers.
CASH EQUIVALENTS
The Company considers all short term investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost (using the retail last-in,
first-out ("LIFO") method) or net realizable value.
As part of Fresh-Start Reporting (See Note 2), the LIFO reserve was written
off and the base year inventory was restated to the January 31, 1998 value.
The carrying value of the Company's inventories as of February 1, 1997 and
February 3, 1996 exceeded the weighted average cost of inventories by $1.8
million and $2.1 million, respectively.
RESTRICTED CASH AND DEPOSITS
Current restricted cash and deposits include amounts deposited in restricted
operating accounts for the purpose of ensuring payment of employee payroll,
utilities, and certain taxes, including retail sales taxes. Noncurrent
restricted cash and deposits include $1.0 million as of January 31, 1998 and
$1.0 million as of February 1, 1997 held as a deposit by the Company's buying
service for the annual usage of international letters of credit.
16
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
The Company's adoption of Fresh-Start Reporting as of January 31, 1998,
required property and equipment to be adjusted to fair value. In prior periods,
property and equipment was recorded at cost less accumulated depreciation. The
adoption of Fresh-Start Reporting did not result in any material change in the
remaining useful lives of the Company's property and equipment.
Depreciation is determined using the remaining useful lives based on the
following original useful lives: buildings and improvements, 10-40 years;
furniture, fixtures and equipment, 3-10 years; and leasehold improvements and
property under capital leases, life of lease or useful life if shorter.
Depreciation is computed using primarily the straight-line method for financial
reporting purposes and accelerated depreciation methods for income tax purposes.
Upon sale or retirement of property and equipment, the related cost (or
restated value) and accumulated depreciation are removed from the accounts of
the Company and any gain or loss is reflected in the consolidated financial
statements in the period the sale or retirement occurred. Maintenance and repair
costs are expensed as incurred. Expenditures for renewals and improvements are
generally capitalized.
Software development costs incurred in connection with significant upgrades
of management information systems are capitalized. Amortization of capitalized
software development costs begins when the related software is placed in service
using the straight-line method over estimated useful lives of three to five
years.
LEASEHOLD INTERESTS
The excess of the fair rental value of leased facilities under operating
leases over the respective contractual rents was recorded as an asset at its
discounted net present value and is being amortized on a straight-line basis
over the respective remaining lease terms.
During Fiscal 1996, the Company wrote off approximately $0.6 million of
leasehold interests due to the adoption of SFAS No. 121 (defined below).
The accumulated amortization of leasehold interests approximated $1.7
million and $1.4 million at February 1, 1997 and February 3, 1996, respectively.
The adoption of Fresh-Start Reporting did not result in any significant change
in the remaining useful lives of the Company's leasehold interests. (See Note
2.)
IMPAIRMENT OF LONG-LIVED ASSETS
During the 52 weeks ended February 1, 1997 ("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"
("SFAS No. 121"). SFAS 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.
With the adoption of SFAS No. 121, assets are 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.
17
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company has identified this lowest level as 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 Fiscal 1996, the Company recognized a non-cash impairment loss of
$4.2 million. Of the total impairment loss, $2.3 million represented impairment
of property and equipment, $1.3 million related to excess of cost over net
assets acquired and $0.6 million pertained to leasehold interests. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary significantly from such estimates.
EXCESS OF COST OVER NET ASSETS ACQUIRED
At January 31, 1998, the excess of cost over net assets acquired, net of
accumulated amortization of $11.3 million was written off under Fresh-Start
Reporting. Prior to the Plan Effective Date, the excess of cost over the fair
value of net assets acquired was being amortized on a straight-line basis over
40 years. The accumulated amortization approximated $1.4 million and $1.2
million at February 1, 1997 and February 3, 1996, respectively.
During Fiscal 1996, the Company wrote off approximately $1.3 million of the
excess of cost over net assets acquired due to the adoption of SFAS No. 121.
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of the Company's debt were
amortized using the effective interest method over the term of the related
indebtedness. In connection with an amendment to the Company's 10 1/4% Senior
Subordinated Notes due 1999 (the "10 1/4% Notes") in June 1994, the Company
issued Warrants (the "1994 Warrants") initially to purchase up to an aggregate
of approximately 2.0 million shares of Old Common Stock to the holders of the
10 1/4% Notes. The issuance of the 1994 Warrants resulted in an increase of $2.2
million in deferred financing costs and additional paid-in capital.
At January 31, 1998, deferred financing costs, net of accumulated
amortization of $1.3 million related to the 10 1/4% Notes and 1994 Warrants was
written off and included in the gain on debt discharge. The accumulated
amortization of deferred financing costs approximated $2.8 million and $2.1
million at February 1, 1997 and February 3, 1996, respectively.
Financing costs incurred by the Company in connection with the BankBoston
Facility are amortized using the effective interest method over the term of the
related indebtedness. These costs are included in prepaid expenses and other
(current) and other assets (noncurrent).
ADVERTISING COSTS
The Company expenses the production costs of advertising as the associated
advertisement is run. Advertising expense approximated $13.2 million, $13.0
million and $12.6 million during the 52 weeks
18
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ended January 31, 1998 ("Fiscal 1997"), Fiscal 1996, and the 53 weeks ended
February 3, 1996 ("Fiscal 1995"), respectively.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and
requires restatement of earlier periods presented. Management has determined
that the requirements of SFAS No. 130 do not impact the Company's financial
position and results of operations.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131 establishes
annual and interim reporting standards for a Company's business segments and
related disclosures about its products, services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997, and requires the restatement of comparative information for earlier
periods. Management has determined that the requirements of SFAS No. 131 do not
impact the Company's financial position and results of operation.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" ("SFAS No. 132"). SFAS 132
significantly changes current financial statement disclosure requirements from
those that were required under Statement of Financial Accounting Standards No.
87, "Employers' Accounting for Pensions," Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 132 is effective for
fiscal years beginning after December 15, 1997, with earlier application
encouraged. Management has determined that the requirements of SFAS No. 132 have
no material impact on the Company's financial position and results of
operations.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform with the current year presentation.
19
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 4--EARNINGS (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" beginning with its fourth quarter of Fiscal 1997. All prior
period earnings per common share data have been restated to conform to the
provisions of this statement. Basic earnings per common share is computed using
the weighted average number of shares outstanding. Diluted earnings per common
share is computed using the weighted average number of shares outstanding
adjusted for the incremental shares attributed to outstanding options to
purchase common stock. Options to purchase 1.6 million shares of Common Stock in
Fiscal 1997 were not included in the computation of diluted earnings per common
share because the option price was greater than the average market price of the
Common Stock. (See Note 12.) Options to purchase 0.3 million shares and 0.4
million shares of common stock, with an exercise price of $0.01 per share, were
not included in Fiscal 1996 and Fiscal 1995, respectively, as they were
antidilutive.
Net loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding. The weighted average number of
shares outstanding for both basic and diluted calculations was 17,875,602,
17,899,906, and 17,893,675 for Fiscal 1997, Fiscal 1996, and Fiscal 1995,
respectively.
<TABLE>
<CAPTION>
EARNINGS (LOSS) PER COMMON SHARE FISCAL 1997 FISCAL 1996 FISCAL 1995
- ------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Basic and diluted earnings (loss) per common share
Income (loss) from operations before extraordinary item......... $ 3.00 $ (0.97) $ (1.39)
Extraordinary item--gain on debt discharge...................... $ 3.86 -- --
Net income (loss)............................................... $ 6.86 $ (0.97) $ (1.39)
<CAPTION>
SHARES USED IN COMPUTING EARNINGS (LOSS) PER COMMON SHARE FISCAL 1997 FISCAL 1996 FISCAL 1995
- ------------------------------------------------------------------ ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Basic and Diluted................................................. 17,876 17,900 17,894
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Buildings and equipment under capital leases.................................. $ 20,314 $ 17,605
Buildings and improvements.................................................... 1,989 2,193
Leasehold improvements........................................................ 11,241 15,012
Furniture, fixtures, and equipment............................................ 7,625 16,699
Deferred software costs....................................................... 1,325 6,650
----------- -----------
42,494 58,159
Less accumulated depreciation and amortization................................ (0) (27,506)
----------- -----------
$ 42,494 $ 30,653
----------- -----------
----------- -----------
</TABLE>
The adoption of Fresh-Start Reporting did not result in any significant
change in the remaining useful lives of the Company's property and equipment.
(See Note 2.)
20
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 5--PROPERTY AND EQUIPMENT (CONTINUED)
During Fiscal 1996, the Company wrote off approximately $2.3 million of
property and equipment due to the adoption of SFAS No. 121.
Accumulated amortization for buildings and equipment under capital leases
approximated $5.8 million and $4.6 million at February 1, 1997 and February 3,
1996, respectively.
In December 1996, the Company closed a total of four stores located in
Spokane, Washington, Twin Falls Idaho; Missoula, Montana and Hillsboro, Oregon.
The net book value of furniture, fixtures and equipment associated with these
four stores totaled $0.4 million as of February 1, 1997, and was included in the
store closure reserve. (See Note 8.)
On February 8, 1996, the Company entered into a sale-leaseback transaction
for the land and building at the Company's Alderwood store in Seattle,
Washington. The proceeds of approximately $5.0 million were used to repay
borrowings under the Company's bank credit facility. The Company concurrently
entered into a 20-year lease agreement with the purchaser.
NOTE 6--LEASES
All of the Company's stores are currently operated in facilities leased by
the Company, except one which is operated in a building owned by the Company,
subject to a ground lease, which expires in 2015. The Company also leases some
of its equipment and its office facility. Generally, store leases provide for
minimum rentals (which include payment of taxes and insurance in some cases) and
contingent rentals (which are based upon a percentage of sales in excess of a
stipulated minimum). The majority of lease agreements cover periods from 20 to
30 years, including three to six renewal options of five years each. Capital
lease obligations were revalued under Fresh-Start Reporting. (Note 2.)
Operating lease rental expense is summarized as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals............................................................ $ 6,307 $ 7,095 $ 7,300
Contingent rentals......................................................... 616 660 496
Sublease rentals........................................................... (999) (959) (803)
--------- --------- ---------
$ 5,924 $ 6,796 $ 6,993
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company incurred capital lease contingent rental expense of
approximately $0.1 million and received sublease rentals of approximately $0.4
million during each of Fiscal 1997, Fiscal 1996 and Fiscal 1995. Capital lease
interest expense was $2.0 million, $2.1 million, and $2.0 million during Fiscal
1997, Fiscal 1996, and Fiscal 1995, respectively.
21
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 6--LEASES (CONTINUED)
Future minimum rental payments under capital and operating leases assumed in
accordance with the Plan are summarized as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
For the fiscal years ending:
1999............................................................................ $ 2,943 $ 6,596
2000............................................................................ 2,958 5,890
2001............................................................................ 2,850 5,101
2002............................................................................ 2,792 4,743
2003............................................................................ 1,984 4,132
Thereafter.................................................................... 11,891 21,475
--------- -----------
Total minimum rental payments............................................... 25,418 $ 47,937
-----------
-----------
Less amounts representing interest................................................ 10,128
---------
Present value of obligations...................................................... $ 15,290
---------
---------
</TABLE>
In addition, the Company guarantees an operating lease of a third party that
operates the Company's distribution center in Kent, Washington. The current
lease expires in February 2001 with one renewal option for a term of three
years. Minimum monthly lease payments guaranteed by the Company pursuant to such
lease approximate $21,000 per month.
NOTE 7--DEBT
REVOLVER AND TERM LOAN
The Company entered into the Amended and Restated Debtor-in-Possession and
Exit Financing Loan Agreement, dated as of September 26, 1997 (the "Loan
Agreement"), between the Company and BankBoston, pursuant to which BankBoston
provides Lamonts with (i) a revolving line of credit (the "Revolver") with a
maximum borrowing capacity of $32 million; and (ii) a term loan in the amount of
$10 million (the "Term Loan"). The Term Loan is guaranteed by the Surety.
Pursuant to, and on the terms and conditions set forth in the Loan Agreement,
BankBoston is obligated to make loans and advances to Lamonts on a revolving
basis, and to issue letters of credit to or for the account of Lamonts (with a
sublimit for letters of credit of $3 million) in an aggregate outstanding amount
(net of repayments) not to exceed the lesser of $32 million and a borrowing base
approximately equal to 65% (subject to adjustment and reserves as specified in
the Loan Agreement) of the book value of the Company's first quality finished
goods inventory held for sale. The Term Loan was fully disbursed during the
Chapter 11 case and no further amounts may be borrowed thereunder.
The Revolver will mature on January 31, 2000, subject to earlier maturity
(including, as a result of acceleration, mandatory prepayment or otherwise) of
the Term Loan. The Term Loan will mature on December 26, 1999, subject to
earlier maturity (including, as a result of acceleration, mandatory prepayment
or otherwise) of the Revolver. Lamonts will have the option to extend the
maturity date of the Term Loan for two additional one-year periods (subject to
earlier maturity upon maturity of the Revolver), on the terms and conditions set
forth in the Loan Agreement and upon payment of a fee equal to
22
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 7--DEBT (CONTINUED)
approximately 5% of the outstanding amount of the Term Loan on the relevant
extension date. There are no extension options in respect of the Revolver.
Lamonts is required to make principal payments on the Term Loan of $25,000
per month commencing on October 31, 1998. A substantial portion of the principal
amount of the Term Loan is scheduled to be outstanding on the maturity date of
the Term Loan.
Lamonts' borrowings under both the Revolver and the Term Loan bear interest
at a floating rate of 1.50% above the annual interest rate announced from time
to time by BankBoston as its "base rate" (the "Base Rate") or, at Lamonts'
option, at 2.75% above the rate (fully adjusted for applicable reserve
requirements) based on the rate offered dollar deposits in the interbank
eurodollar market (the "Eurodollar Rate"). The rates are subject to adjustment
on June 1, 1998, and annually thereafter, based upon Lamonts' financial results
in accordance with the criteria set forth in the Loan Agreement. The default
rate of interest under the Revolver is 3% above the Base Rate. The default rate
of interest under the Term Loan prior to maturity is 7% above the non-default
rate otherwise applicable, and after maturity is 7% above the non-default rate
applicable to loans measured by the Base Rate. For Fiscal 1997 and Fiscal 1996,
the weighted average interest rate for Base Rate loans was 10.0% and 9.75%,
respectively, and the weighted average interest rate for Eurodollar Rate loans
was 8.45% and 8.25%, respectively.
A facility fee in respect of the Revolver in the amount of $336,000 was paid
on the Plan Effective Date and an additional fee in the amount of $224,000 is
payable on December 31, 1998. A letter of credit fee of 1.75% per annum will be
charged quarterly in arrears based on the average daily maximum aggregate amount
available to be drawn by beneficiaries under all outstanding letters of credit.
A commitment fee in the amount of 0.5% per annum will be payable monthly in
arrears based on the average daily unused amount of the maximum Revolver
facility. Both the letter of credit fee and the commitment fee are subject to
adjustment on June 1, 1998, and annually thereafter, based upon Lamonts'
financial results in accordance with the criteria set forth in the Loan
Agreement. In addition to a closing fee in the amount of $500,000 that Lamonts
paid at the closing of the Term Loan on September 26, 1997, an additional
closing fee in respect of the Term Loan, calculated at the rate of 5% per annum
applied to the average daily principal balance of the Term Loan outstanding
after September 26, 1998, is payable at the times and in the manner set forth in
the Loan Agreement. If the options to extend the maturity date of the Term Loan
are exercised, extension fees calculated at the rate of 5% per annum applied to
the average daily principal balance of the Term Loan outstanding during the
applicable extension period will be payable at the times and in the manner set
forth in the Loan Agreement.
Advances by BankBoston under the BankBoston Facility are secured by all real
and personal property, rights, and assets of Lamonts, including, without
limitation, real estate leasehold interests, but excluding any proceeds of
bankruptcy causes of action under sections 544 through 550 of the Bankruptcy
Code and proceeds from a special account established for unpaid professional
fees.
The BankBoston Facility required that, as of the Plan Effective Date, in
partial exchange for the BankBoston administrative claim against the Company's
Chapter 11 estate, and in consideration for the guaranty of the Term Loan, the
Surety received (i) 228,639 Class C Warrants exercisable for the purchase of an
aggregate of 3,429,585 shares of Common Stock, and (ii) 10 shares of Class B
Common Stock, representing all of the authorized and outstanding Class B Common
Stock. (See Note 12.)
23
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 7--DEBT (CONTINUED)
The Loan Agreement contains, among other things, certain covenants
restricting (a) the incurrence of indebtedness, other than (i) indebtedness
under the BankBoston Facility, (ii) current liabilities not incurred through the
borrowing of money, (iii) indebtedness in respect of taxes or other governmental
charges not yet due and payable or being contested in good faith by appropriate
proceeding, (iv) scheduled indebtedness not contemplated as being discharged by
the Plan, (v) certain purchase money indebtedness limited to 50% of permitted
capital expenditures, and (vi) unsecured indebtedness in respect of the limited
recourse arrangements under a contractual arrangement relating to the Company's
charge card between the Company and Alliance Data Systems, limited to 50% of the
amount of cardholders' bad debts; (b) the creation of liens, other than (i)
liens securing the obligations under the BankBoston Facility, (ii) scheduled
liens not contemplated as being discharged by the Plan, (iii) liens securing
taxes or other governmental charges not yet due, (iv) deposits or pledges made
in connection with social security obligations, (v) mechanics and similar liens
less than 120 days old in respect of obligations not yet due, (vi) immaterial
easements and similar encumbrances, (vii) statutory or common law landlord's
liens, and (viii) purchase money security interests to the extent the
indebtedness is permitted under the Loan Agreement; (c) the payment of
dividends, other than (i) dividends payable solely in shares of Common Stock,
(ii) distributions by a wholly-owned subsidiary of the Company to the Company
and, (iii) dividends and/or distributions contemplated by the Plan; (d) mergers,
consolidations or dispositions of assets, other than (i) sales of inventory in
the ordinary course, (ii) dispositions of leasehold improvements in connection
with permitted store closures, and (iii) dispositions of obsolete fixtures and
equipment not to exceed $100,000 in any 12 month period; (e) guarantees with
respect to indebtedness of other persons, other than the guarantee of lease
payments in respect of the Company's distribution center in Kent, Washington;
and (f) capital expenditures, other than capital expenditures of $2,500,000,
$6,500,000, $5,500,000 and $1,000,000 during Fiscal 1997, Fiscal 1998, Fiscal
1999 and the period from February 6, 2000 to February 27, 2000, respectively. In
addition to the foregoing, the Company is required to maintain certain inventory
levels within a range of minimum and maximum book values and a debt service
coverage ratio, in each case measured on a quarterly basis as set forth in the
Loan Agreement. The Company is currently in compliance with all such covenants.
Any necessary waivers of or amendments to such covenants require, with
certain exceptions specified in the BankBoston Facility, the concurrence of both
BankBoston and the Surety. The Loan Agreement contains customary Events of
Default for credit facilities of its type. The Surety has the right, under
specified circumstances after a default, to direct BankBoston to declare
Lamonts' obligations under the BankBoston Facility immediately due and payable
and to cause the exercise of certain of BankBoston's rights and remedies under
the Loan Agreement.
As of January 31, 1998, the Company had $19.0 million of borrowings
outstanding under the Revolver (with additional borrowing capacity thereunder of
$4.3 million) and $10.0 million outstanding under the Term Loan.
To hedge the interest rate exposure from variable rate loans under the
BankBoston Facility, on March 24, 1998, the Company entered into a forward
interest rate swap letter agreement ("Swap Agreement") with BankBoston. The Swap
Agreement is for a fixed rate of 5.73% plus the margin from time to time
applicable to the Eurodollar Loans on a notional amount of $20 million for a
period of two years beginning March 25, 1998. BankBoston has the right to
terminate the Swap Agreement on March 23, 1999 upon five days prior notice.
24
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 7--DEBT (CONTINUED)
CERTAIN DEFERRED PRIORITY TAX OBLIGATIONS
Deferred priority tax obligations consist of $0.7 million (of which
approximately $0.3 million is included in current maturities of long-term debt)
in tax claims which were entitled to priority under the Bankruptcy Code. The
holders of these certain deferred priority tax claims will receive deferred cash
payments in principal amounts equal in the aggregate to the amount of such
claims over a period not exceeding six years from the date of assessment of the
tax on which the claim is based. The deferred cash payments are payable in
quarterly installments beginning April 30, 1998 through October 31, 2000,
together with interest at the prevailing statutory rates.
DEFERRED CURE PAYMENTS
Certain landlords agreed to accept approximately $0.2 million (of which
approximately $0.1 million is included in current maturities of long-term debt)
of deferred cure payments of lease arrearages required under the Plan subsequent
to the Plan Effective Date. The deferred cash payments, including principal plus
simple interest at the rate of 8% per annum, will be paid in equal principal
amounts beginning January 31, 1998 through October 31, 2000.
Maturities of long-term debt obligations are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
--------------------
<S> <C>
For fiscal years ending:
1999........................................................ $ 403
2000........................................................ 10,253
2001........................................................ 283
-------
$ 10,939
-------
-------
</TABLE>
LETTERS OF CREDIT
At January 31, 1998, the Company had no outstanding trade or stand-by
letters of credit.
NOTE 8--STORE CLOSURE COSTS
In January 1996, the Company received permission from the Bankruptcy Court
to close an underperforming store and the Company conducted a
going-out-of-business sale at this store through March 1996. The Company owned
the building subject to a ground lease and attempted to market the building. The
Company was unable to sell the building and, as a result, ownership of the
building reverted to the owner of the underlying land. The write-off of the net
book value of the building and leasehold improvements was included in the $3.0
million charge to reorganization expense recorded in Fiscal 1995 in connection
with the closure of this store. In October 1996, the Company received approval
by the Court to close four additional underperforming stores. The Company
conducted going-out-of-business sales at those stores through December 1996.
During Fiscal 1996, $3.1 million was charged to reorganization
25
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 8--STORE CLOSURE COSTS (CONTINUED)
expense in connection with the closure of these stores. There were no store
closure costs in Fiscal 1997. Store closure costs for Fiscal 1996 and Fiscal
1995 are as follows:
<TABLE>
<CAPTION>
STORE CLOSURE COSTS
--------------------
FISCAL FISCAL
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Write-off of property and equipment, net of obligations under capital
leases................................................................... $ -- $ 2,362
Adjustments to inventory carrying values................................... 1,866 450
Lease termination costs.................................................... 1,036 --
Other...................................................................... 186 238
--------- ---------
$ 3,088 $ 3,050
--------- ---------
--------- ---------
Amounts charged to reserve................................................. $ 5,292 $ 3,247
--------- ---------
--------- ---------
</TABLE>
Revenues associated with the closed stores totaled $13.9 million and $16.1
million in Fiscal 1996 and Fiscal 1995, respectively. Operating income (losses)
incurred from these stores, excluding the allocation of corporate expenses,
interest and reorganization expenses, were $1.4 million and $(0.9) million in
Fiscal 1996 and Fiscal 1995, respectively.
NOTE 9--INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, deferred tax assets and liabilities are recognized on
temporary differences between the financial statement and tax bases of assets
and liabilities using applicable enacted tax rates.
The Company has recorded a valuation allowance against net deferred tax
assets as the Company could not conclude that it was more likely than not that
the tax benefits from temporary differences and net operating loss carryforwards
would be realized. In subsequent periods, the Company may reduce the valuation
allowance, provided that the possibility of utilization of the deferred tax
assets is more likely than not. As defined by SFAS No. 109, any such reduction
in the valuation allowance in the near future will result in a corresponding
addition to paid-in-capital.
26
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 9--INCOME TAXES (CONTINUED)
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryovers..................................... $ 13,909 $ 34,366
Accrued payroll and related costs................................. 1,190 954
Leasehold interests............................................... 889 2,667
Store closure expenses............................................ 4,731 5,209
Other............................................................. 2,043 2,418
Valuation allowance............................................... (20,716) (44,448)
----------- -----------
Total deferred income tax assets.................................... 2,046 1,166
----------- -----------
Deferred income tax liabilities:
Inventory......................................................... (576) (228)
Property and equipment............................................ (1,470) (938)
----------- -----------
Total deferred income tax liabilities............................... (2,046) (1,166)
----------- -----------
Net deferred income taxes........................................... $ 0 $ 0
----------- -----------
----------- -----------
</TABLE>
As of January 31, 1998, the Company had $40.9 million and $32.4 million of
regular tax and alternative minimum tax Net Operating Losses ("NOL"),
respectively, which will expire in years 2005 through 2013, and may be limited
under section 382, as discussed below.
The Company underwent an ownership change in reorganization under Chapter 11
which was approved by the Bankruptcy Court on December 18, 1997. Section 382 of
the Internal Revenue Code limits the use of NOLs when an ownership change
occurs. The annual limitation under section 382 with respect to such ownership
change could significantly limit the Company's ability to use it NOLs to offset
future taxable income. Section 382(l)(5) provides a more favorable treatment as
to the future utilization of NOLs for a corporation that is in a Title 11 case
when the ownership change occurs.
Under section 382(l)(5), if the Company experiences another ownership change
within two years of the first ownership change date, the Company will lose its
NOL carryforwards thereafter. For section 382 purposes, the Company would
experience an ownership change if one or more 5% shareholders increase their
interests in the aggregate by more than 50% of the total of the Company's Common
Stock.
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments", the following
assumptions were used by management of the Company in estimating its fair value
disclosures for the Company's financial instruments:
CASH AND RESTRICTED CASH
The carrying amount for cash approximates fair value because of the short
maturity of amounts therein.
27
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 10--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
REVOLVER AND TERM LOAN
The fair value is estimated based on current rates offered for similar debt.
NOTE 11--COMMITMENTS, CONTINGENCIES AND OTHER
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 operating results during the period in which
the litigation is resolved.
In March 1995, the Company brought an action against one of its landlords,
Hickel Investment Company ("Hickel"), to recover overpayments of common area
maintenance and other charges made to Hickel. On February 20, 1998, the United
States District Court for the District of Alaska entered a final judgment
against Hickel for an amount in excess of $1.8 million. Hickel has since
appealed the judgment and posted a bond in the amount of $2.1 million to obtain
a stay pending appeal. There can be no assurance that the Company will be
successful on such appeal. As a result, no amounts related to this judgment have
been recorded in the consolidated financial statements.
CREDIT CARD PLAN AGREEMENT
The Company's proprietary charge card, administered and owned by Alliance
Data Systems ("ADS") (which purchased the charge accounts from National City
Bank of Columbus), provides for the option of paying in full within 30 days of
the billed date with no finance charge or with revolving credit terms. Terms of
the short-term revolving charge accounts require customers to make minimum
monthly payments in accordance with prescribed schedules. Through a contractual
arrangement, as amended (the "Alliance Agreement"), ADS owns the receivables
generated from purchases made by customers using the Lamonts charge card.
The Alliance Agreement provides that the Company will be charged a discount
fee of 1.95% of Net Sales, as that term is defined in the Alliance Agreement.
Additionally, the Alliance Agreement provides for a supplemental discount fee
equal to one-tenth of one percent (0.1%) of Net Sales for each one million
dollar increment that Net Sales for a subject year are less than $48.0 million
(the "Minimum Level") up to a maximum fee of 3% of the Net Sales for the subject
year. ADS waived the supplemental discount fee for Fiscal 1997. In the event of
store closures, the Alliance Agreement provides that the Minimum Level may be
decreased. Additionally, as of March 1, 1996, the Company is no longer
responsible for any net bad debt expense. The Alliance Agreement may be
terminated by either party after June 22, 1999 upon 180 days prior written
notice. The Company paid National City Bank of Columbus and ADS $0.1 million for
bad debt expense and $0.9 million in fees during Fiscal 1996. In Fiscal 1997,
discount fees totaled approximately $0.9 million.
YEAR 2000
The Company has established a compliance program to modify or replace
existing information technology systems so that such systems will not generate
invalid or incorrect results in connection with processing year dates for the
year 2000 and later years. The Company believes that it will achieve Year 2000
compliance by the middle of the 52 weeks ending January 29, 2000 ("Fiscal 1999")
and does not
28
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 11--COMMITMENTS, CONTINGENCIES AND OTHER (CONTINUED)
currently anticipate any material disruption in its operations as a result of
any failure by the Company to achieve compliance. The Company spent
approximately $324,000 in Fiscal 1997 and estimates it will spend approximately
$500,000 during the 52 weeks ending January 30, 1999 ("Fiscal 1998") and
$150,000 in Fiscal 1999 to make its computer systems Year 2000 compliant.
Additionally, suppliers of the Company and other third parties exchange
information with the Company or rely on the Company's merchandising systems for
certain sales and stock information. The Company currently does not have any
information concerning the compliance status of its suppliers or such other
third parties. However, because third-party failures could have a material
adverse impact on the Company's ability to conduct business, confirmations are
being requested from the Company's major suppliers to certify that plans are
being developed to address the Year 2000 issues.
NOTE 12--STOCKHOLDERS' EQUITY
As provided under the Plan, the authorized capital stock of the Company is
50,000,000 shares and consists of 39,999,990 shares of Common Stock, 10 shares
of Class B Common Stock, and 10,000,000 shares of preferred stock, par value
$.01 per share (the "Preferred Stock").
All equity interests existing immediately prior to consummation of the Plan
were canceled and/or rejected pursuant to the Plan, and the accumulated deficit
relating to such equity interests was eliminated under Fresh-Start Reporting.
COMMON STOCK
Each share of Common Stock entitles the holder thereof to one vote on all
matters on which holders are permitted to vote. No stockholder has any
preemptive right or other similar right to purchase or subscribe for any
additional securities issued by the Company, and no stockholder has any right to
convert Common Stock into other securities. No shares of Common Stock are
subject to redemption or to any sinking fund provisions. All of the outstanding
shares of Common Stock are fully paid and nonassessable.
Subject to the rights of holders of Preferred Stock, if any, the holders of
shares of Common Stock are entitled to dividends when, as and if declared by the
Board of Directors from funds legally available therefor and, upon liquidation,
to a pro rata share in any distribution to stockholders. The Company does not
anticipate declaring or paying any dividends on the Common Stock in the
foreseeable future.
CLASS B COMMON STOCK
Except as set forth in the following paragraphs, the holders of Class B
Common Stock shall enjoy the same rights, privileges and preferences and be
subject to the same restrictions as the holders of the Common Stock.
Upon the affirmative vote of not less than three-fourths of the then
outstanding shares of the Class B Common Stock, (a) during the continuance of
any event described in Section 11(b) of the Loan Agreement (each, an "Event of
Default"), including, without limitation, nonpayment of principal and/or
interest, covenant defaults, breach of representations and warranties and
certain events of bankruptcy, in each case subject to applicable notice and cure
periods, and/or (b) upon acceleration of any of the loans under the Loan
Agreement and until such acceleration is rescinded or all amounts due under such
accelerated loan
29
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
are paid in full, the Company shall (i) file a voluntary petition under Chapter
11 of the Bankruptcy Code and (ii) oppose any motion to dismiss the resulting
bankruptcy case. Such right of the holders of the Class B Common Stock will
terminate upon satisfaction in full of all of the Company's obligations in
respect of the Term Loan, whereupon each share of Class B Common Stock will
automatically convert into one share of Common Stock. Such right of the holders
of the Class B Common Stock shall be coextensive with the right of the Board of
Directors at any time to cause such a filing to occur, and such right shall not
restrict the ability of the Board of Directors to otherwise cause the Company to
file a voluntary petition under the Bankruptcy Code or to oppose any motion to
dismiss any bankruptcy case. Subject to certain exceptions set forth in the
Company's Second Restated Certificate of Incorporation, shares of Class B Common
Stock are non-transferable.
As required under the BankBoston Facility, in consideration of the Surety's
guaranty of the Term Loan, on the Plan Effective Date the Surety was issued 10
shares of Class B Common Stock representing all of the authorized and
outstanding Class B Common Stock.
PREFERRED STOCK
The Second Restated Certificate of Incorporation of the Company provides for
the issuance of 10,000,000 shares of Preferred Stock. The Preferred Stock may be
issued in one or more classes or series, and the Board of Directors is
authorized to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof. Because the Board of
Directors has the power to establish the preferences and rights attributable to
the Preferred Stock, it may afford the holders of any Preferred Stock
preferences, powers and rights (including voting rights) senior to the rights of
the holders of Common Stock. No shares of Preferred Stock are currently
outstanding.
WARRANTS
Pursuant to the Plan, all outstanding warrants to purchase Old Common Stock
were rejected as of the Plan Effective Date.
CLASS A WARRANTS AND CLASS B WARRANTS
Class A Warrants to purchase an aggregate of 2,203,320 shares of Common
Stock and Class B Warrants to purchase an aggregate of 800,237 shares of Common
Stock have been or will be issued by the Company in accordance with the Plan
pursuant to a Warrant Agreement (the "Class A/B Warrant Agreement") entered into
between the Company and Norwest Bank Minnesota, N.A., as Warrant Agent. The
Class A Warrants are exercisable, in whole or in part, on the first date on
which the Aggregate Equity Trading Value (as defined below) equals or exceeds
$20 million and, if not previously exercised, expire on January 31, 2008. The
Class B Warrants are exercisable, in whole or in part, on the first date on
which the Aggregate Equity Trading Value equals or exceeds $25 million and, if
not previously exercised, expire on January 31, 2008. The exercise price for the
Class A Warrants and the Class B Warrants is $.01 per share. The number and type
of securities issuable upon exercise of the Class A Warrants and the Class B
Warrants and the exercise price payable upon exercise thereof are subject to
customary antidilution protection as described in the Class A/B Warrant
Agreement.
30
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
"Aggregate Equity Trading Value" means, as of any date, the product of (a)
either (i) if the Common Stock is listed on any national securities exchange or
quoted on a national quotation system, the average of the daily closing prices
of the Common Stock for the five (5) trading days immediately preceding such
date, or (ii) if the Common Stock is not so listed or quoted, the fair market
value per share of the Common Stock determined in good faith by the Company's
Board of Directors as of a date within 30 days of such date, multiplied by (b)
the total number of issued and outstanding shares of Common Stock as of such
date (assuming for purposes of determining such number of shares the exercise in
full of all in-the-money options outstanding on such date to purchase shares of
Common Stock and, and for purposes of determining whether the Class B Warrants
are exercisable, the exercise of all Class B Warrants which are exercisable as
of such date).
CLASS C WARRANTS
254,043 Class C Warrants to purchase an aggregate of 3,810,645 shares of
Common Stock were issued by the Company in accordance with the Plan pursuant to
several Warrant Agreements (collectively, the "Class C Warrant Agreements")
entered into between the Company and the initial holders of the Class C
Warrants, and were distributed as follows: (i) 228,639 Class C Warrants to
purchase an aggregate of 3,429,585 shares of Common Stock were distributed to
the Surety as required under the BankBoston Facility and in consideration of the
Surety's guaranty of the Term Loan and in partial exchange for the Surety's
administrative claim against the Company's Chapter 11 estate; and (ii) 25,404
Class C Warrants to purchase an aggregate of 381,060 shares of Common Stock were
distributed to the holders of Stock Options issued on the Plan Effective Date.
The Class C Warrants are exercisable, in whole or in part, as follows: (a) at
any time until January 31, 2002, the Class C Warrants are exercisable for an
aggregate of 3,556,602 shares of Common Stock at an exercise price of $1.25 per
share; and (b) at any time after the first date on which the Aggregate Equity
Trading Value equals or exceeds $25 million and until January 31, 2008, the
Class C Warrants are exercisable for an aggregate of 254,043 additional shares
of Common Stock at an exercise price of $.01 per share; provided that the
portion of each Class C Warrant otherwise exercisable after the first date on
which the Aggregate Equity Trading Value equals or exceeds $25 million shall not
be exercisable by any holder thereof unless such holder has exercised in full
such holder's portion of such Class C Warrant that is currently exercisable. The
number and type of securities issuable upon exercise of the Class C Warrants are
subject to customary antidilution protection as described in the Class C Warrant
Agreements.
GORDIAN WARRANTS
As part of the compensation to Gordian for investment banking services
rendered to the Company during the Company's Chapter 11 case, Gordian will be
issued, on the 120th calendar day following the Plan Effective Date, the Gordian
Warrants to purchase an aggregate number of shares of Common Stock equal to
200,000 divided by the Normalized Share Price (as defined below). The Gordian
Warrants are immediately exercisable upon issuance thereof and, if not
previously exercised, expire five (5) years from their issuance date. The
exercise price for the Gordian Warrants is the Normalized Share Price per share.
The "Normalized Share Price" is equal to the average of the "Closing Prices" of
the Common Stock for the 45 trading days commencing on the 45th calendar day
next following the Plan Effective Date. For purposes of determining the
Normalized Share Price, the Closing Price means (i) the closing sales price per
share on the national securities exchange on which the Common Stock is
principally traded, or (ii) if
31
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
the shares are then traded in an over-the-counter market, the average of the
closing bid and asked prices on such market, or (iii) if the shares are not then
traded on a national securities exchange or in an over-the-counter market, then
such value as the Board of Directors of the Company shall in good faith
reasonably determine. If Gordian disagrees with such determination, then an
investment banking firm shall be mutually agreed upon, engaged and compensated
by the Company for a definitive determination of the Normalized Share Price.
STOCK OPTIONS
The Stock Options granted pursuant to the Plan are exercisable for the
purchase of 1,333,728 shares of Common Stock and consist of: (i) Base Options
exercisable for the purchase of 1,000,000 shares of Common Stock with an
exercise price of $1.00 per share; (ii) to prevent dilution resulting from the
issuance of the Class A Warrants, Protective A Options exercisable for the
purchase of an additional 244,813 shares of Common Stock with an exercise price
of $0.01 per share, exercisable only on or after the date on which the Class A
Warrants become exercisable; and (iii) to prevent dilution resulting from the
issuance of the Class B Warrants, Protective B Options exercisable for the
purchase of an additional 88,915 shares of Common Stock with an exercise price
of $0.01 per share, exercisable only on or after the date on which the Class B
Warrants become exercisable. In addition, to prevent dilution resulting from the
issuance of the Class C Warrants to the Surety, holders of such Stock Options
were issued, on a pro rata basis and with the same vesting schedule as each
holder's respective Stock Options, Class C Warrants exercisable for the purchase
of an aggregate of 381,060 shares of Common Stock (355,656 shares with an
exercise price of $1.25 per share and 25,404 shares with an exercise price of
$.01 per share).
The number of Protective Options that may be exercised by any holder shall
bear the same proportion (based on the total number of Protective Options
granted to such holder) to the number of Base Options that have been exercised
by such holder (based on the total number of Base Options granted to such
holder).
The Stock Options and the Class C Warrants are subject to adjustment to
prevent dilution upon the occurrence of certain specified events, excluding
exercise of the Stock Options, the Class A Warrants, the Class B Warrants, the
Class C Warrants, or the Gordian Warrants. The Stock Options granted on January
31, 1998 have a term of 10 years and vest as follows: 50% on the date of grant;
and 25% on each anniversary of the date of grant. The Stock Options are governed
by the Lamonts Apparel, Inc. 1998 Stock Option Plan (the "Stock Option Plan"),
and the Class C Warrants issued in conjunction therewith are governed by a
warrant agreement in substantially the form of the Class C Warrant Agreement
between the Company and the Surety.
Under the terms of the Stock Option Plan, the Company has available, in
addition to the shares of Common Stock reserved for issuance upon exercise of
the Stock Options granted on the Plan Effective Date, an additional 375,000
shares (subject to adjustment to prevent dilution upon certain events, excluding
any exercise of Class A Warrants, Class B Warrants, Class C Warrants, or Stock
Options) of Common Stock for possible grants of additional stock options from
time to time after the Plan Effective Date if, and to the extent, a committee
appointed by the Board of Directors ("Compensation Committee"), may determine
that such additional grants would be in the best interest of the Company. On
February 26, 1998, the Compensation Committee reserved 335,500 of the 375,000
shares of Common Stock available for issuance upon exercise of Stock Options
granted by the Compensation Committee on such
32
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
date to certain executive officers of the Company, the disinterested members of
the Board, and certain other senior and middle level managers of the Company.
Such Stock Options have a per share exercise price of $1.00, a term of 10 years
and vest as follows: 25% on the date of grant; and 25% on each annual
anniversary of the date of grant.
The following summarizes the Stock Options granted under the Stock Option
Plan during Fiscal 1997:
<TABLE>
<S> <C>
Granted.................................................. 1,333,728
Exercised................................................ 0
---------
Balance, January 31, 1998................................ 1,333,728
---------
---------
</TABLE>
The Company has elected to follow Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") in accounting for its
employee stock options. Under APB No. 25, because the exercise price of the
Company's employee options is greater than the market price of the underlying
stock on the date of grant, no compensation expense is recognized in the
consolidated financial statements.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This information is required to be
determined as if the Company has accounted for its employee stock options
granted subsequent to January 31, 1995, under the fair value method of that
statement.
The fair value of the options was estimated at the date of grant using the
Black-Scholes options pricing model with the following weighted average
assumptions for Fiscal 1997: risk free interest rate of 5.7%; a stock price
volatility factor of 45%; and expected option life of 10 years following
vesting; and no dividend during the expected term.
For purposes of pro forma disclosures required by SFAS No. 123, the
Company's income and earnings per share ("EPS") would have reflected
compensation cost determined based on the estimated fair value of the options at
the date of grant. There are no pro forma adjustments for Fiscal 1996 and Fiscal
1995 because no options were granted during these periods. The Company's pro
forma information is as follows:
Pro Forma Income and EPS from Operations Before Extraordinary Item:
<TABLE>
<CAPTION>
FISCAL 1997
-------------------
(DOLLARS IN
THOUSANDS
EXCEPT SHARE DATA)
<S> <C>
Income from operations before extraordinary item:
As reported.................................................. $ 53,546
Pro forma net income......................................... $ 52,952
Basic and Diluted EPS from operations before extraordinary
item:
As reported.................................................. $ 3.00
Pro forma net income per share............................... $ 2.96
</TABLE>
33
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
1992 STOCK OPTION PLAN
Pursuant to the Plan, the Company's previous Nonstatutory Stock Option Plan
(the "1992 Stock Option Plan") and all employee stock options outstanding under
the 1992 Stock Option Plan were rejected on the Plan Effective Date. The
following table summarizes the 1992 Stock Option Plan activity prior to the
Effective Date:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS
-----------
<S> <C>
Balance, January 28, 1995.............................................. 374,740
Granted.............................................................. 0
Exercised............................................................ (11,774)
Canceled............................................................. (43,902)
-----------
Balance, February 3, 1996.............................................. 319,064
Granted.............................................................. 0
Exercised............................................................ (504)
Canceled............................................................. (43,109)
-----------
Balance, February 1, 1997.............................................. 275,451
Rejection of options................................................. (275,451)
-----------
Balance, January 31, 1998.............................................. 0
-----------
-----------
</TABLE>
NOTE 13 - RELATED PARTY TRANSACTIONS
In connection with a recapitalization of the Company in October 1992 (the
"Recapitalization"), pursuant to which, among other things, the Company issued
an aggregate of $75 million in principal amount of its Old 10 1/4% Notes,
certain of the Company's post-Recapitalization stockholders, representing an
aggregate of approximately 8,717,000 shares or 98% of the Old Common Stock
outstanding immediately following the Recapitalization, entered into that
certain Voting Agreement dated as of October 30, 1992 (the "Voting Agreement").
The Voting Agreement provided, among other things, that (i) Apollo Retail
Partners ("ARP"), a holder of greater than 5% of the Old Common Stock, could
designate six persons to the Board of Directors, and (ii) a majority of certain
former holders of the Company's 13 1/2% Senior Subordinated Notes which were due
February 1995 (the "Old 13 1/2% Notes"), which notes were exchanged for Old
Common Stock pursuant to the Recapitalization, could designate two persons to
the Board of Directors. Lamonts' obligations under the Voting Agreement were
rejected as of the Plan Effective Date.
In connection with the Recapitalization, the parties to the agreement
effecting the Recapitalization (and/or their permitted assignees) entered into
an equity registration rights agreement and a debt registration rights
agreement. Under certain circumstances, the holders of at least 10% of the
aggregate principal amount of the then outstanding Securities (as defined
therein) covered by such agreements could exercise up to two demand
registrations with respect to such Securities. The Company was required to pay
all expenses (other than underwriting discounts and commissions) in connection
with all such registrations. The agreements also provided for certain piggyback
registration rights. The Old Common Stock held by ARP and Morgens Waterfall
Vintiadis & Company, Inc. ("Morgens"), a holder of greater than 5% of the
34
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED)
Old Common Stock, was covered by the equity registration rights agreement
pursuant to its terms. These agreements were rejected as of the Plan Effective
Date.
As a holder of Old Common Stock, ARP received 76,951 shares of Common Stock
and 38,475 Class B Warrants under the Plan based on the amount of shares of Old
Common Stock beneficially owned by ARP. All of the Old Common Stock beneficially
owned by ARP was canceled on the Plan Effective Date.
As holders of Old Common Stock, certain affiliates of Morgens received
16,568 shares of Common Stock and 8,285 Class B Warrants under the Plan based on
the amount of Old Common Stock beneficially owned by Morgens as reflected in the
Schedule 13D filed by Morgens on February 13, 1998. All of the Old 13 1/2% Notes
and the Old Common Stock beneficially owned by Morgens were canceled on the Plan
Effective Date.
As a holder of Old Common Stock and of Old 10 1/4% Notes, Executive Life
Insurance Company of New York ("ELICNY"), a holder of greater than 5% of the Old
Common Stock, received 347,074 shares of Common Stock, 209,426 Class A Warrants
and 71,577 Class B Warrants pursuant to the first two distributions under the
Plan. ELICNY may receive additional shares of Common Stock, Class A Warrants and
Class B Warrants following the resolution of pending claims filed against the
Company during its Chapter 11 case. All of the Old 10 1/4% Notes and the Old
Common Stock beneficially owned by ELICNY were canceled on the Plan Effective
Date.
As a holder of Old Common Stock and of Old 10 1/4% Notes, certain investment
companies and accounts indirectly controlled by FMR Corp. (collectively
"Fidelity") received 2,925,142 shares of Common Stock, 1,810,380 Class A
Warrants and 581,184 Class B Warrants pursuant to the first two distributions
under the Plan. Fidelity may receive additional shares of Common Stock, Class A
Warrants and Class B Warrants following resolution of pending claims filed
against the Company during its Chapter 11 case. All of the Old 10 1/4% Notes and
the Old Common Stock beneficially owned by Fidelity were canceled on the Plan
Effective Date.
As required by the BankBoston Facility and in partial exchange for its
administrative claim, pursuant to the Plan, the Surety received (i) 228,639
Class C Warrants exercisable for the purchase of an aggregate of 3,429,585
shares of Common Stock and (ii) 10 shares of Class B Common Stock representing
all of the authorized and outstanding Class B Common Stock.
In connection with the Plan, the Company entered into a Grant of
Registration Rights in favor of Fidelity and the Surety, pursuant to which, and
subject to certain exceptions, the Company has agreed to file and cause to
remain effective a Registration Statement under the Securities Act of 1933, as
amended, covering certain of the securities distributed under the Plan until no
such securities are outstanding. The Company is required to pay all expenses
(other than underwriting discounts and commissions) in connection with all such
registrations. In addition, the agreement provides for certain "piggyback"
registration rights.
NOTE 14 - BENEFIT PLANS
PENSION PLAN
On January 1, 1986, the Company established the Lamonts Apparel, Inc.
Employees Retirement Trust (the "Pension Plan"). The Pension Plan is a
noncontributory defined benefit pension plan for employees of
35
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 14 - BENEFIT PLANS (CONTINUED)
the Company who are not eligible for pension benefits from another pension plan
pursuant to collective bargaining agreements. Participant benefits are based on
years of service and compensation during later years of employment. It is the
Company's policy to make contributions to the Pension Plan in amounts which
comply with the minimum regulatory funding requirements. On February 26, 1998,
the Board approved an amendment to the Pension Plan which provides that,
effective April 1, 1998, benefits under the Pension Plan will cease to accrue
and prohibits the entry of any new participants. Participants that are not yet
vested will continue to accrue vesting service after April 1, 1998.
The following table sets forth the Company's funded plan status and amounts
recognized in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
JANUARY 31, FEBRUARY 1, FEBRUARY 3,
1998 1997 1996
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT
PERCENTS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit obligations, Including
vested benefits of $7,215, $5,345 and $5,462 at January 31, 1998,
February 1, 1997, and February 3, 1996, respectively $ 7,428 $ 5,598 $ 5,651
----------- ----------- -----------
----------- ----------- -----------
Projected benefit obligation............................................... $ 8,422 $ 6,513 $ 6,639
Pension Plan assets at value, primarily money market funds and guaranteed
investment contracts 6,528 6,045 5,143
----------- ----------- -----------
Projected benefit obligation in excess of Pension Plan assets.............. 1,894 468 1,496
Unrecognized net loss from past experience different from that assumed..... -- (347) (1,238)
----------- ----------- -----------
Accrued pension cost....................................................... 1,894 121 258
Charge to equity to recognize minimum liability............................ -- -- 250
----------- ----------- -----------
Total accrued pension cost................................................. $ 1,894 $ 121 $ 508
----------- ----------- -----------
----------- ----------- -----------
Discount rate.............................................................. 7.00% 7.75% 7.25%
Rate of increase in future compensation levels............................. 3.5% 3.5% 3.5%
Expected long term rate of return on assets................................ 9.0% 9.0% 9.0%
</TABLE>
Amounts charged to expense under the Pension Plan were as follows:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1997 1996 1995
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost, benefits earned during the period.................. $ 336 $ 404 $ 414
Interest cost on projected benefit obligation.................... 527 461 483
Actual return on assets.......................................... (777) (635) (883)
Other, including deferred recognition of asset gain.............. 255 213 559
--------- --------- ---------
Net pension cost................................................. $ 341 $ 443 $ 573
--------- --------- ---------
--------- --------- ---------
</TABLE>
36
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998
NOTE 14 - BENEFIT PLANS (CONTINUED)
During Fiscal 1995, a claim was filed against the Company by the Pension
Benefit Guaranty Corporation ("PBGC") in the amount of $2.8 million based upon
PBGC's assumption that one of the Company's qualified employee retirement plans
would be terminated. The Company believes that even if the plan were terminated,
unfunded plan benefit liabilities would not be material. The Company disputed
the claim. PBGC withdrew its claim without prejudice.
LAMONTS 401(k) PLAN
The Lamonts Apparel, Inc. Tax Relief Investments Protection Plan, as amended
and restated effective January 1, 1994 (the "401(k) Plan") provides participants
the opportunity to elect to defer an amount from 1% to 15% of their
compensation, in increments of 1%. Under the 401(k) Plan, the Company matches
contributions equal to 50% of each participant's deferred pay contributions
(such contribution not to exceed one percent of the participant's compensation).
Effective April 1, 1998, the Company increased its matching contribution to 50%
of the first 4% of each participant's deferred pay contributions. The Company
contributed $0.12 million, $0.14 million, and $0.15 million during Fiscal 1997,
Fiscal 1996, and Fiscal 1995, respectively.
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LAMONTS APPAREL, INC.
By: /s/ Debbie A. Brownfield
---------------------------------
Debbie A. Brownfield
Executive Vice President and Chief Financial Officer
Date: May 18, 1998
38
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alan R. Schlesinger Chairman of the Board, Chief
- --------------------------- Executive Officer, President and
Alan R. Schlesinger Director (Principal Executive Officer) May 18, 1998
/s/ Loren R. Rothschild Vice Chairman of the Board, Chief
- --------------------------- Administrative Officer and Director May 18, 1998
Loren R. Rothschild
/s/ Debbie A. Brownfield Executive Vice President and Chief
- --------------------------- Financial Officer (Principal
Debbie A. Brownfield Financial and Accounting Officer) May 18, 1998
/s/ Stanford Springel
- --------------------------- Director May 18, 1998
Stanford Springel
- --------------------------- Director
John J. Wiesner
/s/ Paul M. Buxbaum
- --------------------------- Director May 18, 1998
Paul M. Buxbaum
</TABLE>
39
