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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIESEXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(425) 814-5700
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the Registrant has filed
all documents and reports required to be filed by Sections 12,13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by the court.
Yes /X/ No / /
As of August 31, 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.
Exhibit Index on Page 15
Page 1 of 17 pages
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LAMONTS APPAREL, INC.
FORM 10-Q
AUGUST 1, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1 Consolidated Financial Statements
> Consolidated Balance Sheets - August 1, 1998 and January 31, 1998 3
> Consolidated Statements of Operations and Accumulated Deficit
for the quarters ended August 1, 1998 and August 2, 1997 4
> Consolidated Statements of Operations and Accumulated Deficit
for the six months ended August 1, 1998 and August 2, 1997 5
> Consolidated Statements of Cash Flows for the six months ended
August 1, 1998 and August 2, 1997 6
> Notes to Consolidated Financial Statements 8
Item 2 > Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
Item 1 > Legal Proceedings 15
Item 6 > Exhibits and Reports on Form 8-K 15
</TABLE>
2
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LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 1, 1998 JANUARY 31, 1998
-------------- ----------------
<S> <C> <C>
Current Assets:
Cash $ 1,897 $ 1,301
Receivables 3,031 1,703
Inventories 47,429 38,617
Prepaid expenses and other 1,088 1,500
Restricted cash and deposits 14 1,543
-------- -------
Total current assets 53,459 44,664
Property and equipment - net of accumulated depreciation and
amortization of $2,828 and $0, respectively 40,432 42,494
Leasehold interests 6,948 7,705
Restricted cash and deposits 1,130 1,130
Other assets 768 899
-------- -------
Total assets $102,737 $96,892
-------- -------
-------- -------
Current Liabilities:
Borrowings under the Revolver $ 28,027 $18,967
Accounts payable 20,280 15,186
Accrued payroll and related costs 2,438 3,106
Accrued taxes 1,720 865
Accrued interest 428 1,007
Accrued reorganization expenses 471 2,497
Other accrued expenses 4,909 6,228
Current maturities of long-term debt 578 403
Current maturities of obligations under capital leases 1,482 1,454
-------- -------
Total current liabilities 60,333 49,713
Long-term debt, net of current maturities 10,179 10,536
Obligations under capital leases, net of current maturities 13,149 13,835
Other 1,750 2,852
-------- -------
Total liabilities 85,411 76,936
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.01 par value; 40,000,000 shares authorized;
Class A: 9,000,000 shares issued and outstanding 16,926 16,926
Class B: 10 shares issued and outstanding 1 1
Warrants - contributed capital 3,029 3,029
Accumulated deficit (2,630) -
-------- -------
Total stockholders' equity 17,326 19,956
-------- -------
Total liabilities and stockholders' equity $102,737 $96,892
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
Revenues $ 50,591 $ 49,483
Cost of merchandise sold 32,006 31,471
---------- ----------
Gross profit 18,585 18,012
---------- ----------
Operating and administrative expenses 15,824 16,347
Depreciation and amortization 1,903 1,889
---------- ----------
Operating costs 17,727 18,236
---------- ----------
Income (loss) from operations before other income (expense),
and reorganization expenses 858 (224)
Other income (expense):
Interest expense (709) (1,228)
Other income (expense) 2 1
---------- ----------
Income (loss) from operations before reorganization expenses 151 (1,451)
Reorganization expenses - (595)
---------- ----------
Net income (loss) 151 (2,046)
Accumulated deficit, beginning of period (2,781) (127,483)
---------- ----------
Accumulated deficit, end of period ($2,630) ($129,529)
---------- ----------
---------- ----------
Income (Loss) per Common Share:
Basic $ 0.02 ($ 0.11)
Diluted $ 0.01 ($ 0.11)
Weighted Average Shares Used in Computing Income (Loss) per Common Share:
Basic 9,000,010 17,900,053
Diluted 12,297,797 17,900,053
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
Revenues $ 90,062 $ 87,131
Cost of merchandise sold 57,348 56,038
--------- ----------
Gross profit 32,714 31,093
--------- ----------
Operating and administrative expenses 29,432 30,727
Depreciation and amortization 3,774 3,761
--------- ----------
Operating costs 33,206 34,488
--------- ----------
Loss from operations before other income (expense),
and reorganization expenses (492) (3,395)
Other income (expense):
Interest expense (2,145) (2,440)
Other income (expense) 7 4
--------- ----------
Loss from operations before reorganization expenses (2,630) (5,831)
Reorganization expenses - (994)
--------- ----------
Net loss (2,630) (6,825)
Accumulated deficit, beginning of period - (122,704)
--------- ----------
Accumulated deficit, end of period ($2,630) ($129,529)
--------- ----------
--------- ----------
Basic and Diluted Loss per Common Share ($ 0.29) ($ 0.38)
Weighted Average Shares Used in Computing Loss per Common Share:
Basic 9,000,010 17,900,053
Diluted 9,000,010 17,900,053
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
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LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,630) $(6,825)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 3,774 3,761
Curtailment gain (1,001) -
Reorganization expenses - 994
Non-cash interest, including amortization of debt discount 433 56
Stock option expense - 24
Net change in current assets and liabilities $(7,281) (2,681)
Other (78) (34)
------- -------
Net cash used by operating activities (6,783) (4,705)
------- -------
Cash flows from investing activities:
Capital expenditures (618) (474)
Proceeds from sale of assets - 4
Other (75) 257
------- -------
Net cash used by investing activities (693) (213)
------- -------
Cash flows from financing activities:
Net borrowings under Revolver 9,060 -
Net borrowings under DIP Facility - 5,407
Payments on long-term debt (182) -
Principal payments on obligations under capital leases (806) (436)
Other - (28)
------- -------
Net cash provided by financing activities 8,072 4,943
------- -------
Net increase in cash 596 25
Cash, beginning of period 1,301 2,066
------- -------
Cash, end of period $ 1,897 $ 2,091
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in:
Receivables $(1,328) $(1,749)
Inventories (8,812) (8,879)
Prepaid expenses and other (26) (194)
Restricted cash and deposits 1,529 (174)
Increase (decrease) in:
Accounts payable 5,094 7,966
Accrued payroll and related costs (668) 152
Accrued taxes 855 780
Accrued interest (579) 194
Accrued reorganization expenses (2,026) (1,566)
Accrued store closure costs - (90)
Other accrued expenses (1,320) 879
------- -------
$(7,281) $(2,681)
------- -------
------- -------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments made $ 2,268 $ 2,196
Capital lease obligations incurred 148 -
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
AUGUST 1, 1998
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position, results of operations, and cash flows 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. The consolidated financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, certain information and footnote disclosures normally included in
the consolidated financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. The consolidated financial statements included herein, and
related notes, should be read in conjunction with the audited, annual
consolidated financial statements, and notes thereto, for the 52 weeks ended
January 31, 1998 ("Fiscal 1997"), included in the Company's Annual Report on
Form 10-K, as amended.
Certain prior period amounts have been reclassified to conform with the current
year presentation.
NOTE 2 - REORGANIZATION, EMERGENCE FROM CHAPTER 11 AND FRESH-START REPORTING
On January 6, 1995, the Company filed a voluntary petition for relief under
Chapter 11 ("Chapter 11") of title 11 of the United States Code in the United
States 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 the Company emerged
from bankruptcy on January 31, 1998 ("Plan Effective Date").
Pursuant to the guidance provided by the American Institute of Certified Public
Accountants in Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" (also referred to as "Fresh-Start
Reporting"), the Company adopted Fresh-Start Reporting for financial reporting
purposes as of January 31, 1998. Therefore, the consolidated results of
operations for the quarter and six month period ended August 1, 1998 are not
comparable to the consolidated results of operations for the quarter and six
month period ended August 2, 1997. Accordingly, a vertical black line is shown
to separate post-emergence operations from those ended prior to January 31, 1998
in the consolidated results of operations.
NOTE 3 - PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following unaudited pro forma summary information reflects the financial
results of the Company for the quarter and six month period ended August 2, 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>
Pro forma Summary Information
August 2, 1997 (unaudited)
---------------------------------------------
(dollars in thousands, except per share data)
Quarter Six Months
Ended Ended
------- ----------
<S> <C> <C>
Total Revenue $49,483 $87,131
Net Loss (1,334) (5,597)
Basic and diluted loss per common share ($0.15) ($0.62)
</TABLE>
8
<PAGE>
The adjustments reflected in the unaudited pro forma summary information above
include:
i) An adjustment to depreciation and amortization expense due to the change
in the fair value of identifiable assets, property and equipment and
leasehold interests.
ii) The elimination of historical reorganization costs.
iii) The elimination of the historical amortization of excess of cost over net
assets acquired.
iv) The elimination of historical amortization of deferred financing fees
associated with outstanding warrants to purchase common stock which were
canceled on the Plan Effective Date.
v) The elimination of historical interest expense, recording of interest
expense related to facility fees on the working capital facility, and an
incremental increase in interest expense associated with debt arising
from deferred priority tax claims and deferred cure payments.
vi) The elimination of historical rent expense for several stores where the
landlord has agreed to concessions upon assumption of the lease.
vii) The adjustment to the loss per common share based on the new common stock
issued under the Plan.
NOTE 4 - INCOME (LOSS) PER COMMON SHARE
The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" beginning with its fourth quarter ended January 31, 1998.
All prior period loss per common share data have been restated to conform to the
provisions of this statement.
For the quarter ended August 1, 1998, options and warrants to purchase common
stock were included in the computation of diluted income per common share if the
exercise price was lower than the applicable market price. For the six months
ended August 1, 1998, and the quarter and six months ended August 2, 1997,
options and warrants to purchase common stock were not included in the
computation of diluted loss per common share since the effect of assuming their
exercise would be anti-dilutive.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various matters of litigation arising in the ordinary
course of business. In the opinion of management, the ultimate outcome of all
such matters should not have a material adverse effect on the financial position
of the Company, but, if decided adversely to the Company, could have a material
effect upon the Company's 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. The United States District Court
for the District of Alaska has entered a judgment against Hickel for an amount
in excess of $1.9 million. Hickel has since appealed the judgment and posted a
bond 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.
9
<PAGE>
NOTE 6 - PENSION PLAN
On February 26, 1998, the Board approved an amendment to the Lamonts Apparel,
Inc. Employees Retirement Trust which provided that, effective April 1, 1998,
benefits to participants would cease to accrue. In addition, the entry of new
participants would be prohibited. Participants that are not yet vested will
continue to accrue vesting service after April 1, 1998. In accordance with
Statement of Financial Accounting Standards No. 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits," the projected benefit obligation decreased, and a
curtailment gain of $1.0 million was recognized during the first quarter ended
May 2, 1998. This curtailment gain is included in operating and administrative
expenses in the consolidated statements of operations and accumulated deficit.
NOTE 7 - STOCKHOLDERS' EQUITY
On June 1, 1998, as compensation to Gordian Group, L.P. for investment banking
services rendered to the Company during the Company's Chapter 11 case, the
Company issued warrants exercisable for the purchase of 161,937 shares of Class
A Common Stock ("Common Stock") with an exercise price of $1.24 per share.
On May 26, 1998 and August 24, 1998, the Compensation Committee of the Board of
Directors granted options to purchase 35,000 shares and 15,500 shares of Common
Stock, respectively, to certain executive officers of the Company and certain
other senior and middle level managers pursuant to the Lamonts Apparel, Inc.
1998 Stock Option Plan. Such 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.
10
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this report containing the words "believes," "anticipates,"
"expects," and words of similar import, and any other statements which may be
construed as a prediction of future performance or events, constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors that may cause the actual results,
performance, or achievements of the Company, or industry results, to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, (i) national and local general economic and market conditions,
(ii) demographic changes, (iii) liability and other claims asserted against the
Company, (iv) competition, (v) the loss of a significant number of customers or
suppliers, (vi) fluctuations in operating results, (vii) changes in business
strategy or development plans, (viii) business disruptions, (ix) the ability to
attract and retain qualified personnel, (x) ownership of Common Stock, (xi)
volatility of stock price, and (xii) the additional risk factors identified in
the Company's Registration Statement on Form S-1 (No. 333-44311) initially filed
with the SEC on January 15, 1998, and those described from time to time in the
Company's other filings with the SEC, press releases and other communications.
The Company disclaims any obligations to update any such factors or to announce
publicly the result of any revisions to any of the forward-looking statements
contained or incorporated by reference herein to reflect future events or
developments.
RESULTS OF OPERATIONS
FRESH-START REVALUATION
Because Fresh-Start Reporting was adopted as of January 31, 1998, the
consolidated results of operations for the quarter and six month period ended
August 1, 1998 are not comparable to the consolidated results of operations for
the quarter and six month period ended August 2, 1997. Accordingly, a vertical
black line is shown to separate post-emergence operations from those ended prior
to January 31, 1998 in the consolidated results of operations.
The following discussion and analysis provides information with respect to the
results of operations for the quarter ("2nd Quarter 1998") and six month period
("YTD 1998") ended August 1, 1998 compared to the quarter ("2nd Quarter 1997)
and six month period ("YTD 1997") ended August 2, 1997.
REVENUES. Comparable store revenues (i.e., stores open since the beginning of
each of the periods presented) of $50.6 million for the 2nd Quarter 1998
increased $1.1 million or 2.2% from $49.5 million for the 2nd Quarter 1997.
Comparable store revenues of $90.1 million for YTD 1998 increased $3.0 million
or 3.4% as compared to $87.1 million for YTD 1997. Comparable store revenues
were equal to total store revenues for all periods presented. Management
believes that revenues have increased due to higher average inventory levels and
continued improvement in the quality of the merchandise offered in the stores
compared to the prior period. There can be no assurance that a continuation of
such factors will increase revenues in future periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased 0.3%, from
36.4% for the 2nd Quarter 1997, to 36.7% for the 2nd Quarter 1998, due mainly to
better inventory management and controls. Gross profit, as a percentage of
revenues, increased 0.6%, from 35.7% for YTD 1997, to 36.3% for YTD 1998. Gross
profit in the first quarter of 1997 was negatively impacted by markdowns
associated with severe winter storms.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $15.8 million or 31.3% of sales for the 2nd Quarter 1998, compared to $16.3
million or 33.0% of sales for the 2nd Quarter 1997. Operating and
administrative expenses were $29.4 million or 32.7% of sales for YTD 1998,
compared to $30.7 million or 35.3% of sales for YTD 1997. Excluding the
curtailment gain of $1.0 million recognized in the first quarter of fiscal 1998
(see Note 6 to the consolidated financial statements), operating and
administrative expenses for YTD 1998 were 33.8% of sales. Expense savings
initiatives, including lower occupancy expense at the Company's leased
distribution center and lower store payroll expense, partially offset by an
11
<PAGE>
increase in Year 2000 costs, accounted for the remainder of the reduction in
operating and administrative expenses for YTD 1998 as compared to YTD 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $1.9
million for the 2nd Quarter 1998 and the 2nd Quarter 1997. Depreciation and
amortization expense was $3.8 million for YTD 1998 and YTD 1997.
INTEREST EXPENSE. Interest expense was $0.7 million in 2nd Quarter 1998
compared to $1.2 million for 2nd Quarter 1997. Interest expense was $2.1
million for YTD 1998 compared to $2.4 million for YTD 1997. Interest expense is
primarily related to outstanding borrowings under the Company's BankBoston
Facility, referred to below. The decrease in both 2nd Quarter 1998 and YTD
1998, is the result of an adjustment, totaling approximately $0.8 million, for a
change in estimate recorded in the 2nd Quarter 1998, offset by higher average
outstanding balances on the BankBoston Facility.
REORGANIZATION EXPENSES. Reorganization expenses of $0.6 million and $1.0
million for 2nd Quarter 1997 and YTD 1997, respectively, represent costs
directly related to the Company's Chapter 11 case and consist primarily of
professional fees. No such costs were incurred in the 2nd Quarter 1998 or YTD
1998.
NET LOSS. As a result of the foregoing, the Company recorded net income of $0.2
million for the 2nd Quarter 1998, compared to a net loss of $2.0 million for the
2nd Quarter 1997. The YTD 1998 net loss of $2.6 million decreased $4.2 million
from the net loss of $6.8 million for YTD 1997. The $4.2 million decrease is
primarily due to (i) the increase in gross profit of $1.6 million, (ii) the
decrease in operating and administrative expenses of $1.3 million, which
includes the curtailment gain of $1.0 million, and (iii) the reduction in
reorganization expenses of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
The Company used $6.8 million of cash for operating activities for YTD 1998.
Cash for operating activities was used to fund losses in YTD 1998, the seasonal
inventory build-up required to meet the Company's sales objectives, the
receivables increases that accompanied higher seasonal sales, and the payment of
accrued reorganization expenses as required under the Plan. These uses of cash
were partially offset by a seasonal increase in accounts payable.
Cash used for operating activities increased by $2.1 million as compared to YTD
1997. The increase is primarily due to the timing of accounts payable,
reduction of accrued expenses related to the payment of bonuses, reorganization
and other expenses, and offset by a decrease in restricted cash and deposits and
a decrease in the net loss, after giving effect to the curtailment gain.
The Company used $0.7 million of cash in investing activities for YTD 1998, an
increase of $0.5 million as compared to $0.2 million used in YTD 1997. The
increase is partially attributable to an increase of $0.1 million in capital
expenditures. In addition, the Company received approximately $0.2 million from
the sale of land during YTD 1997.
For YTD 1998, the Company received $8.1 million of cash from financing
activities as compared to $4.9 million for YTD 1997, due primarily to higher net
borrowings under the Revolver.
The Company believes that borrowings under the BankBoston Facility, referred to
below, trade credit, and cash generated from operations will provide the cash
necessary to fund the Company's cash requirements for the foreseeable future.
12
<PAGE>
CAPITAL RESOURCES
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, N.A. ("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" and, together with the Revolver, the
"BankBoston Facility"). See Note 7 to the consolidated financial statements for
the 52 weeks ended January 31, 1998, included in the Company's Annual Report on
Form 10-K, as amended, for a description of the BankBoston Facility.
The Company expensed fees of approximately $0.5 million and $0.3 million for the
BankBoston Facility during YTD 1998 and YTD 1997, respectively.
As of September 2, 1998, the Company had $25.1 million of borrowings outstanding
under the Revolver (with additional borrowing capacity thereunder of $6.3
million) and $10.0 million outstanding under the Term Loan.
SEASONALITY
The Company's sales are seasonal, with the fourth quarter the strongest quarter
as a result of the Christmas Season.
YEAR 2000
"Fiscal 1998" refers to the 52 weeks ending January 30, 1999, and "Fiscal 1999"
refers to the 52 weeks ending January 29, 2000.
The Company has established a compliance program to modify or replace existing
information technology systems to prevent the generation of invalid or
incorrect results in connection with processing year dates for the year 2000 and
later. The Company believes that it will achieve Year 2000 compliance by the
middle of the Fiscal 1999 and does not currently anticipate any material
disruption in its operations as a result of Year 2000 issues. If the Company is
unable to complete its Year 2000 compliance program, the Company, in addition to
the impairment of various tertiary stand-alone systems, would lose its ability
to efficiently process merchandise through its leased distribution center, which
might have a material adverse effect on its operations.
As of August 1, 1998, the Company estimates that 80% of its information
technology ("IT") systems have been tested and are currently operating as Year
2000 compliant systems. The Company estimates that an additional 10% of its IT
systems have been reviewed and modified, but not yet tested. . A summary of the
expected completion dates for work currently in process to make all IT operating
systems and application systems software Year 2000 compliant is as follows:
Third Quarter of Fiscal 1998: Mainframe computer operating systems and
application systems software.
Fourth Quarter of Fiscal 1998: Mid-range computer operating systems and
application systems software.
First Quarter of Fiscal 1999: Local area network, servers and desktop
personal computers.
Second Quarter of Fiscal 1999: 1. Replacement of in-store registers,
computers, and operating systems, with
new state-of-the art NCR hardware and
software.
2. Full test of all systems at a disaster
recovery site which will emulate the
changeover to the Year 2000.
13
<PAGE>
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 complete information
concerning the compliance status of its suppliers or 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 Year 2000 issues.
Beginning in the fourth quarter of Fiscal 1998, the Company will be developing
contingency plans for all IT and non-IT systems, as well as developing
contingencies for dealing with those suppliers and other third parties who have
not responded to Year 2000 readiness questionnaires, or who are at risk of
non-compliance.
For YTD 1998 and YTD 1997, the Company spent $246,000 and $35,000,
respectively, to make its computer systems Year 2000 compliant. The total cost
of the project to date as of August 1, 1998, was $570,000, and the Company
estimates it will spend an additional $250,000 in Fiscal 1998, and $150,000 in
Fiscal 1999.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
No material change has occurred in the litigation described in "Item 3 - Legal
Proceedings" on page 7 of the Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998, for which such item is incorporated herein
by reference.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
3.1 Second Restated Certificate of Incorporation of the Registrant.(4)
3.2 Amended and Restated By-laws of the Registrant.(4)
4.1 Specimen Class A Common Stock certificate.(4)
4.2 Specimen Class B Common Stock certificate.(4)
4.3 Warrant Agreement dated January 31, 1998 between the Registrant and
Norwest Bank Minnesota, N.A., as Warrant Agent.(2)
4.4 Warrant Agreement dated January 31, 1998 between the Registrant and
Specialty Investment I LLC.(2)
4.5 Warrant Agreement dated January 31, 1998 between the Registrant and
Gordian Group, L.P.(3)
4.6 Form of Warrant Agreement dated January 31, 1998 between Registrant
and each of Alan R. Schlesinger, Loren R. Rothschild, Debbie A.
Brownfield, E.H. Bulen and Gary Grossblatt.(2)
11.1 Statement re: Computation of Per Share Earnings (Loss)*
27.1 Financial Data Schedule*
99.1 Modified and Restated Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code.(1)
99.2 Supplemented and Restated Disclosure Statement (As Amended) re
Debtor's Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code. (1)
</TABLE>
- --------------------
* filed herewith
(1) Incorporated by reference from Quarterly Report on Form 10-Q of
the Registrant as filed with Commission on December 16, 1997.
(2) Incorporated by reference from the Company's Registration
15
<PAGE>
Statement on Form 8-A (File No. 000-15542) filed with the
Commission on February 2, 1998.
(3) Incorporated by reference from the Company's Registration
Statement on Form S-8 (File No. 333-45455) filed with the
Commission on February 2, 1998.
(4) Incorporated by reference from the Company's Registration
Statement on Form S-1 (File No. 333-44311) initially filed with
the Commission on January 15, 1998.
(b) Reports filed on Form 8-K:
1. Form 8-K, dated July 9, 1998. Item 4 - Changes in Registrant's
Certifying Accountant, related to announcing that Pricewaterhouse
Coopers LLP was dismissed as the Company's independent accountants.
2. Form 8-K, dated July 29, 1998. Item 4 - Changes in Registrant's
Certifying Accountant, related to announcing the engagement of
Deloitte & Touche LLP as the principal accountants to audit the
Company's consolidated financial statements.
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: LAMONTS APPAREL, INC.
Date: September 11, 1998 By: /s/ Debbie A. Brownfield
-----------------------------------
Debbie A. Brownfield
Executive Vice President,
Chief Financial Officer, Treasurer,
and Secretary
17
<PAGE>
LAMONTS APPAREL, INC.
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (LOSS)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
August 1, 1998 August 1, 1998
------------------------------------------ ----------------------------------------
Basic Diluted Basic Diluted
---------------- ---------------- ---------------- ----------------
Dollars EPS Dollars EPS Dollars EPS Dollars EPS
--------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income (Loss) $ 151 $0.02 $ 151 $0.01 $(2,630) $(0.29) $(2,630) $(0.29)
-------- ------ -------- ------ -------- ------ -------- ------
-------- ------ -------- ------ -------- ------ -------- ------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE NUMBER
of Shares Outstanding Basic Diluted Basic Diluted
- ------------------------ ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Class A Common Stock 9,000,000 9,000,000 9,000,000 9,000,000
Class B Common Stock 10 10 10 10
Class A Warrants 0 2,173,942 0 0
Class B Warrants 0 789,567 0 0
Protective A Options 0 241,549 0 0
Protective B Options 0 87,729 0 0
--------- ---------- -------- ---------
Subtotal 9,000,010 12,292,797 9,000,010 9,000,010
--------- ---------- --------- ---------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE SIX MONTHS ENDED AUGUST 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT
.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 1,897
<SECURITIES> 0
<RECEIVABLES> 3,031
<ALLOWANCES> 0
<INVENTORY> 47,429
<CURRENT-ASSETS> 53,459
<PP&E> 40,432<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 102,737
<CURRENT-LIABILITIES> 60,333
<BONDS> 0
0
0
<COMMON> 16,927
<OTHER-SE> 3,029
<TOTAL-LIABILITY-AND-EQUITY> 102,737
<SALES> 90,062
<TOTAL-REVENUES> 90,062
<CGS> 57,348
<TOTAL-COSTS> 33,206<F2>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,145
<INCOME-PRETAX> (2,630)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,630)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
<FN>
<F1>AMOUNT IS NET OF ACCUMULATED DEPRECIATION OF $2,828
<F2>INCLUDES OPERATING AND ADMINISTRATIVE EXPENSES OF $29,432 AND DEPRECIATION AND
AMORTIZATION OF $3,774
</FN>
</TABLE>
