<PAGE>
================================================================================
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 thirteen weeks ended May 1, 1999
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 0-15542
LAMONTS APPAREL, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware #75-2076160
(State of Incorporation) (I.R.S. Employer Identification Number)
12413 Willows Road N.E., Kirkland, Washington 98034
(Address of Principal Executive Offices)
(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 May 28, 1999, there were 9,000,000 shares of 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 16
Page 1 of 17 pages
<PAGE>
LAMONTS APPAREL, INC.
FORM 10-Q
MAY 1, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Caution Regarding Forward-Looking Statements 3
Part I. Financial Information
Item 1 Consolidated Financial Statements
- Consolidated Balance Sheets - May 1, 1999 and January 30, 1999 4
- Consolidated Statements of Operations and Accumulated Deficit for the thirteen weeks
ended May 1, 1999 and May 2, 1998 5
- Consolidated Statements of Cash Flows for the thirteen weeks ended May 1, 1999 and
May 2, 1998 6
- Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3 - Quantitative and Qualitative Disclosure About Market Risk 14
Part II. Other Information
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities and Use of Proceeds 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters and Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
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, (xii) delays on the part of the Company or suppliers
or other third parties in achieving year 2000 compliance, and (xiii) 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 (as
amended from time to time), 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.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MAY 1, 1999 JANUARY 30, 1999
--------------- -----------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash $ 2,151 $ 1,594
Receivables 2,062 2,124
Inventories 47,275 42,411
Prepaid expenses and other 1,396 1,433
--------------- ------------------
Total current assets 52,884 47,562
Property and equipment - net of accumulated depreciation and
amortization of $7,172 and $5,590, respectively 28,531 28,896
Leasehold interests 6,731 7,134
Excess reorganization value 8,715 8,832
Deposits 1,078 1,078
Other assets 433 393
-------------- -----------------
Total assets $ 98,372 $ 93,895
-------------- -----------------
-------------- -----------------
Current Liabilities:
Borrowings under the Revolver $ 30,370 $ 25,396
Accounts payable 20,322 17,231
Accrued payroll and related costs 2,612 2,615
Accrued taxes 1,428 967
Accrued interest 553 419
Other accrued expenses 6,355 5,722
Current maturities of long-term debt 10,153 10,228
Current maturities of obligations under capital leases 1,645 1,646
-------------- -----------------
Total current liabilities 73,438 64,224
Long-term debt, net of current maturities 183 265
Obligations under capital leases, net of current maturities 11,833 12,225
Other 2,556 2,579
-------------- -----------------
Total liabilities 88,010 79,293
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 (8,701) (4,461)
Accumulated other comprehensive loss (893) (893)
-------------- -----------------
Total stockholders' equity 10,362 14,602
-------------- -----------------
Total liabilities and stockholders' equity $ 98,372 $ 93,895
-------------- -----------------
-------------- -----------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------
MAY 1, 1999 MAY 2, 1998
------------------- ------------------
(RESTATED)
<S> <C> <C>
Revenues $ 41,234 $ 39,471
Cost of merchandise sold 27,093 27,573
------------------- ------------------
Gross profit 14,141 11,898
------------------- ------------------
Operating and administrative expenses 14,710 13,608
Depreciation and amortization 2,190 1,871
------------------- ------------------
Operating costs 16,900 15,479
------------------- ------------------
Loss from operations (2,759) (3,581)
Other income (expense):
Interest expense (1,485) (1,436)
Other income 4 5
------------------- ------------------
Net loss (4,240) (5,012)
Accumulated deficit, beginning of period (4,461) -
------------------- ------------------
Accumulated deficit, end of period (8,701) (5,012)
------------------- ------------------
------------------- ------------------
Basic and Diluted Loss per Common Share ($ 0.47) ($ 0.56)
------------------- ------------------
------------------- ------------------
Weighted Average Shares Used in Computing Loss
per Common Share:
Basic and Diluted 9,000,010 9,000,010
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------
MAY 1, 1999 MAY 2, 1998
------------------ -------------------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 4,240) ($ 5,012)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 2,190 1,871
Curtailment gain from pension plan - (1,001)
Non-cash interest, including amortization of debt-related costs 290 235
Net change in current assets and liabilities (814) (1,484)
Other (55) (97)
------------------ -------------------
Net cash used by operating activities (2,629) (5,488)
------------------ -------------------
Cash flows from investing activities:
Capital expenditures (1,217) (359)
Other (21) (75)
------------------ -------------------
Net cash used by investing activities (1,238) (434)
------------------ -------------------
Cash flows from financing activities:
Net borrowings under Revolver 4,974 7,005
Payments on long-term debt (157) (100)
Payments on obligations under capital leases (393) (335)
------------------ -------------------
Net cash provided by financing activities 4,424 6,570
------------------ -------------------
Net increase in cash 557 648
Cash, beginning of period 1,594 1,301
------------------ -------------------
Cash, end of period $ 2,151 $ 1,949
------------------ -------------------
------------------ -------------------
</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>
THIRTEEN WEEKS ENDED
------------------------------------------
MAY 1, 1999 MAY 2, 1998
------------------ -------------------
(RESTATED)
<S> <C> <C>
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in:
Receivables $ 62 ($ 175)
Inventories (4,864) (3,947)
Prepaid expenses and other (328) 1,160
Increase (decrease) in:
Accounts payable 3,091 4,107
Accrued payroll and related costs (3) (1,210)
Accrued taxes 461 454
Accrued interest 134 120
Other accrued expenses 633 (1,993)
------------------ -------------------
($ 814) ($ 1,484)
------------------ -------------------
------------------ -------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash interest payments made $ 1,075 $ 1,082
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
7
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MAY 1, 1999
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 30, 1999
("Fiscal 1998"), included in the Company's Annual Report on Form 10-K.
On May 1,1999, the Company had a working capital deficit of approximately $20.6
million. Approximately $9.8 million of the working capital deficit is a result
of recording as a current liability the balance due on December 26, 1999 on the
Company's Term Loan, referred to in the Capital Resources section below. Subject
to an extension of the Revolver, referred to in the Capital Resources below, for
a sufficient period, the Company has the option to extend the maturity date of
the Term Loan for two additional one-year periods and plans to do so. If the
Term Loan is extended, the Company will record the balance due on the Term Loan
as long-term debt. Based on discussions to date with BankBoston, the Company
anticipates that the Revolver will be extended.
In addition, the Company intends to continue implementing a plan, formulated by
senior management, designed to increase gross margins and reduce operating
expenses through a variety of department level merchandising strategies and cost
containment initiatives. If this plan is successful it would further reduce the
working capital deficit remaining after the reclassification of the Term Loan to
long-term debt as discussed above.
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 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 (which was not the Company's independent
accountants) using various valuation methods, including discounted cash flow
analyses (utilizing the Company's projections), 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.
8
<PAGE>
NOTE 3 - CHANGE IN ACCOUNTING PRINCIPLE
In February 1999, the Company changed its method of accounting for inventories
from the Last-In-First-Out (LIFO) method to the First-In-First-Out (FIFO)
method. Management believes that the FIFO method provides a better measurement
of operating results as the Company has experienced stable prices and expects
the trend to continue for the foreseeable future. Under the current
non-inflationary environment, the use of the FIFO method will more accurately
reflect the Company's financial position.
The change in method of accounting for inventories has been applied
retroactively to the prior year consolidated financial statements and
comparative amounts for prior periods have been restated. The effect of the
restatement was to increase net loss and accumulated deficit by $2.2 million or
$0.25 per share for the thirteen weeks ended May 2, 1998. The effect of this
change on the Company's consolidated results of operations for the fiscal years
ended January 30, 1999 and January 31, 1998 was not material.
NOTE 4 - INCOME (LOSS) PER COMMON SHARE
For the thirteen weeks ended May 1, 1999 and May 2, 1998, all outstanding
options and warrants to purchase common stock were excluded from 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 appeal. No amounts related to this judgment have been
recorded in the consolidated financial statements.
The Company utilizes an outside service bureau, Affiliated Computer Services,
Inc. ("ACS"), for its mainframe computer processing pursuant to a contract that
continues through February 2000. Fees payable to ACS under the contract are
based on CPU utilization and other miscellaneous charges. The minimum monthly
fee payable to ACS under the contract is $50,000. In addition, ACS licenses
certain system and application software programs to the Company.
The Company is self-insured for health care claims for eligible covered
enrollees. Consulting actuaries assist the Company in determining its
undiscounted liability for self-insured claims. The Company is liable for claims
up to $200,000 per covered enrollee annually. The maximum lifetime benefit per
covered enrollee is $1.0 million. Self-insurance claims costs are accrued based
upon the aggregate of the liability for reported claims and an estimated
liability for claims incurred but not reported.
In October 1998, the Company entered into a purchase agreement with NCR
Corporation ("NCR"), in which NCR will furnish certain equipment and related
services in connection with the replacement of in-store registers and computer
and operating systems ("POS Project"). The minimum purchase commitment under the
agreement is approximately $2.1 million. The agreement also contains a
cancellation charge of 20 percent of the list price of the canceled product
(approximately $0.6 million). The equipment has been financed through a leasing
company as an operating lease over five years. Lease obligations to the leasing
company begin when the Company receives the equipment. As of May 1, 1999, the
Company had received equipment with related lease obligations of approximately
$1.1 million.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In connection with this item, reference is made to the information appearing
under "Caution Regarding Forward-Looking Statements" at the beginning of this
report.
The following information should be read in conjunction with the Consolidated
Financial Statements of the Company and Notes thereto included elsewhere in this
report.
RESULTS OF OPERATIONS
The following discussion and analysis provides information with respect to the
results of operations for the thirteen weeks ended May 1, 1999 ("1st Quarter
1999"), compared to the thirteen weeks ended May 2, 1998 ("1st Quarter 1998").
REVENUES. Comparable store revenues (i.e., stores open since the beginning of
each of the periods presented) of $41.2 million for the 1st Quarter 1999
increased $1.7 million or 4.5% from $39.5 million for the 1st Quarter 1998.
Management believes that revenues increased due primarily to higher average
inventory levels and strong sales in the Alaska market. There can be no
assurance that revenues will increase in future periods.
GROSS PROFIT. Gross profit, as a percentage of revenues, increased from 30.1%
for the 1st Quarter 1998, to 34.3% for the 1st Quarter 1999. The 1st Quarter
1998 gross profit was restated and reduced by $2.2 million as a result of
converting from LIFO to FIFO accounting for inventories (see Note 3 to the
consolidated financial statements). Gross profit for the 1st Quarter 1998, as a
percentage of revenues before the conversion to FIFO, was 35.8%. The 34.3% gross
profit percentage for the 1st Quarter 1999 reflects seasonal markdowns, which
were taken at a higher rate than in the 1st Quarter 1998.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $14.7 million or 35.7% of sales for the 1st Quarter 1999, compared to $13.6
million or 34.5% of sales for the 1st Quarter 1998. Excluding the curtailment
gain of $1.0 million recognized in the first quarter of Fiscal 1998, operating
and administrative expenses for 1st Quarter 1998 were 37.0% of sales. Increased
sales with expenses remaining relatively constant, accounted for the decrease as
a percentage of sales, after adjustment for the curtailment gain.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $2.2
million for the 1st Quarter 1999 compared to $1.9 million for the 1st Quarter
1998, primarily due to higher asset values.
INTEREST EXPENSE. Interest expense was $1.5 million for the 1st Quarter 1999
compared to $1.4 million for the 1st Quarter 1998. The increase in interest
expense is primarily related to higher average borrowings under the Company's
BankBoston Facility, referred to in the Capital Resources section below,
partially offset by lower interest rates.
NET LOSS. As a result of the factors listed above, the Company recorded a net
loss of $4.2 million for the 1st Quarter 1999, compared to a net loss of $5.0
million for the 1st Quarter 1998.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
In the 1st Quarter 1999, $2.6 million of cash was used by operating activities
as compared to $5.5 million of cash used by operating activities in the 1st
Quarter 1998. In the prior year, cash for operating activities was used for the
payment of accrued reorganization expenses as required under the Plan. The
Company's primary cash requirement currently is the procurement of inventory,
which is currently funded through borrowings under the BankBoston Facility,
referred to in the Capital Resources section below, trade credit and cash
generated from operations.
In the 1st Quarter 1999, $1.2 million of cash was used by investing activities
as compared to $0.4 million in the 1st Quarter 1998. The increase of $0.8
million used by investing activities is due primarily to higher capital
expenditures related to the replacement of the POS platform, which includes the
replacement of in-store registers, and related computers and operating systems.
During the 1st Quarter 1999, $4.4 million of cash was provided by financing
activities as compared to $6.6 million in the 1st Quarter 1998, the result of
lower net borrowings under the Revolver, referred to in the Capital Resources
section below.
On May 1,1999, the Company had a working capital deficit of approximately $20.6
million. Approximately $9.8 million of the working capital deficit is a result
of recording as a current liability the balance due on December 26, 1999 on the
Company's Term Loan, referred to in the Capital Resources section below. Subject
to an extension of the Revolver, for a sufficient period, the Company has the
option to extend the maturity date of the Term Loan for two additional one-year
periods and plans to do so. If the Term Loan is extended, the Company will
record the balance due on the Term Loan as long-term debt. Based on discussions
to date with BankBoston, the Company anticipates that the Revolver will be
extended.
In addition, the Company intends to continue implementing a plan, formulated by
senior management, designed to increase gross margins and reduce operating
expenses through a variety of department level merchandising strategies and cost
containment initiatives. If this plan is successful it would further reduce the
working capital deficit remaining after the reclassification of the Term Loan to
long-term debt as discussed above.
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 30, 1999, included in the Company's Annual Report on
Form 10-K, for a description of the BankBoston Facility.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, approximately one-third of the Company's sales, and substantially
all of its contribution to net income have been realized in the fourth fiscal
quarter (which includes the November/December holiday season).
11
<PAGE>
YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000, which could cause a system failure or
miscalculations, leading to disruptions in operations.
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
("Year 2000"). The Company believes that it will complete its Year 2000
modifications by the end of the third quarter of the 52 weeks ending January 29,
2000 ("Fiscal 1999") and, based on its current understanding of its systems,
does not currently anticipate any material disruption in operations as a result
of Year 2000 issues. However, if modifications or replacements are not properly
made, or are not completed timely, the reasonably likely worst case scenario is
that various nonessential stand-alone systems would be impaired and the Company
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 May 1, 1999, the Company estimates that 93% of its mainframe and client
server information technology ("IT") systems have been tested and are currently
operating as Year 2000 compliant systems. The Company estimates that an
additional 6% of its IT systems have been reviewed and modified, but not yet
tested, with the remaining 1% not reviewed, modified or tested. As of June 9,
1999, 100% of the Company's IT systems have been reviewed or modified, with only
2.7% yet to be tested. Additionally, the Company is in the process of replacing
its POS platform, which includes the replacement of in-store registers, and
related computers and operating systems ("POS Project"). As of May 1, 1999, the
Company estimates that 80% of the POS Project has been completed. Full testing
of the POS Project was completed in April 1999, and the installation of new
registers began in April 1999. Completion of the rollout is scheduled for the
third quarter of Fiscal 1999. 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:
Second Quarter of Fiscal 1999: 1. Leased distribution center.
Third Quarter of Fiscal 1999: 1. Full test of all systems at a disaster
recovery site which will emulate
the changeover to the Year 2000.
2. Replacement of in-store
registers, computers, and
operating systems with new
hardware and software.
3. Mid-range computer operating
systems and application systems software.
The Company spent $86,000 for 1st Quarter 1999 compared to $123,000 for 1st
Quarter 1998 to make its computer systems Year 2000 compliant. The total cost of
the project to date, as of May 1, 1999 was $830,000, and the Company estimates
it will spend approximately $135,000 in the remainder of Fiscal 1999 to complete
the project. The total expected cost approximates the total budgeted project
cost of $1,000,000, excluding costs related to the POS Project.
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
inventory information. The Company currently does not have complete information
concerning the compliance status of its suppliers or other third parties.
Although the Company is not dependent on any single supplier, Year 2000
noncompliance by suppliers or third parties could impact the company's sales and
disrupt the flow of merchandise to the stores and/or impair the Company's
ability to process credit card transactions. Because third-party failures could
have a material adverse impact on the Company's ability to conduct business, the
Company is currently in the process of requesting confirmations from major
suppliers to certify that plans are being developed to address Year 2000 issues.
Currently, the Company is 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 noncompliance.
12
<PAGE>
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, cooperation of vendors and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in the area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
The Company presently believes that Year 2000 issues will not pose significant
operational problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not effected
timely with respect to Year 2000 problems that are identified, there can be no
assurance that Year 2000 issues will not materially adversely impact the
Company's results of operations or adversely affect the Company's relationships
with customers, vendors, or others. Additionally, there can be no assurance that
the Year 2000 issues of other entities will not have a material adverse impact
on the Company's systems or results of operations.
13
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the normal
course of business, primarily as a result of borrowings, which generally bear
interest at variable rates. The table below presents the principal (or notional)
amounts, at book value, and related weighted average interest rates by year of
maturity. All items described in the table are non-trading and are stated in
U.S. dollars.
<TABLE>
<CAPTION>
Principal / Notional Amount Maturing in:
- -----------------------------------------------------------------------------------------------------
Total Fair Value
Fiscal Fiscal Fiscal Fiscal Fiscal May 1, May 1,
1999 2000 2001 2002 2003 Thereafter 1999 1999
- ---------------------------- ----------- ----------- ----------- ----------- ----------- ------------- -------- -----------
(dollars in thousands, except percents)
<S> <C>
INTEREST RATE RISK:
LIABILITIES:
Borrowings under the
Revolver $30,370 - - - - - $30,370 $30,370
Variable average
interest rate 8.07% -% -% -% -% -% 8.07%
Short-term debt 9,825 - - - - - 9,825 9,825
Variable average
interest rate 7.75% -% -% -% -% -% 7.75%
Long-term debt - fixed 192 $211 - - - - 403 403
Average interest
rate 8.0% 8.0% -% -% -% -% 8.0%
Long-term debt 54 54 - - - - 108 96
Variable average
interest rate 7.0% 7.0% -% -% -% -% 7.0%
Obligations under
capital leases 1,448 1,775 $1,738 $1,227 $918 $6,372 13,478 13,478
Variable average
interest rate 10.42% 10.42% 10.42% 10.42% 10.42% 10.42% 10.42%
</TABLE>
DERIVATIVES MATCHED AGAINST LIABILITIES:
<TABLE>
<S> <C>
Swaps - fixed rate (1) - $20,000 - - - - $20,000 $0.2
Average pay rate 5.73% 5.73% -% -% -% -% 5.73%
Average receive
rate 5.0% 5.0% -% -% -% -% 5.0%
</TABLE>
(1) Interest rate swaps on which the Company is the fixed rate payor.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1- LEGAL PROCEEDINGS
Reference is made to Note 5 of the Consolidated Financial Statements included
elsewhere in this report.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
15
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<S> <C>
18.1 Letter re change in accounting principle*
27.1 Financial Data Schedule*
---------------
* filed herewith
</TABLE>
(b) Reports filed on Form 8-K:
None
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: June 14, 1999 By: /s/ Debbie A. Brownfield
-----------------------------
Debbie A. Brownfield
Executive Vice President,
Chief Financial Officer, Treasurer,
and Secretary
17
<PAGE>
Exhibit 18.1
June 8, 1999
Lamonts Apparel, Inc.
Kirkland, Washington
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly Report
on Form 10-Q to the Securities and Exchange Commission for the quarter ended May
1, 1999, of the facts relating to a change in accounting principle for
inventories from the Last-In-First-Out (LIFO) retail method to the
First-In-First-Out (FIFO) retail method. We believe, on the basis of the facts
so set forth and other information furnished to us by appropriate officials of
Lamonts Apparel, Inc. and its consolidated subsidiaries (collectively, the
Company), that the accounting change described in your Form 10-Q is an
alternative accounting principle that is preferable under the circumstances.
We have not audited any consolidated financial statements of the Company as of
any date or for any period subsequent to January 30, 1999. Therefore, we are
unable to express, and we do not express, an opinion on the facts set forth in
the above-mentioned Form 10-Q, on the related information furnished to us by
officials of the Company, or on the financial position, results of operations,
or cash flows of the Company as of any date or for any period subsequent to
January 30, 1999.
Yours truly,
/s/ Deloitte & Touche LLP
- ----------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THIRTEEN WEEKS ENDED MAY 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000785962
<NAME> LAMONTS APPAREL, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 2,151
<SECURITIES> 0
<RECEIVABLES> 2,062
<ALLOWANCES> 0
<INVENTORY> 47,275
<CURRENT-ASSETS> 52,884
<PP&E> 28,531<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 98,372
<CURRENT-LIABILITIES> 73,438
<BONDS> 0
0
0
<COMMON> 16,927
<OTHER-SE> 2,136<F2>
<TOTAL-LIABILITY-AND-EQUITY> 98,372
<SALES> 41,234
<TOTAL-REVENUES> 41,234
<CGS> 27,093
<TOTAL-COSTS> 16,900<F3>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,485
<INCOME-PRETAX> (4,240)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,240)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,240)
<EPS-BASIC> (0.47)
<EPS-DILUTED> (0.47)
<FN>
<F1>AMOUNT IS NET OF ACCUMULATED DEPRECIATION OF $7,172.
<F2>INCLUDES WARRANTS-CONTRIBUTED CAPITAL OF $3,029, AND ACCUMULATED OTHER
COMPREHENSIVE LOSS OF ($893).
<F3>INCLUDES OPERATING EXPENSES AND ADMINISTRATIVE EXPENSES OF $14,710 AND
DEPRECIATION AND AMORTIZATION OF $2,190.
</FN>
</TABLE>
