<PAGE>
Relates to Form S-1
Registration No. 333-44311
Filed under Rule 424 (b)(3) and (c)
SUPPLEMENT TO
PROSPECTUS
OF
LAMONTS APPAREL, INC.
The following information supplements the Prospectus, dated August 18,
1999, of Lamonts Apparel, Inc. (the "Company") related to 8,746,286 shares of
the Company's Class A Common Stock (the "Common Stock"); 1,810,380 Class A
Warrants, each to purchase 1 share of Common Stock; 581,181 Class B Warrants,
each to purchase 1 share of Common Stock; and 228,639 Class C Warrants, each to
purchase an aggregate of 15 shares of Common Stock, as supplemented by the
Prospectus Supplements dated September 20, 1999 and October 27, 1999.
Capitalized terms used in this Supplement and not defined herein have the
meaning set forth in the Prospectus, dated August 18, 1999. This Supplement
should be read in conjunction with the Prospectus.
THE DATE OF THIS SUPPLEMENT IS FEBRUARY 23, 2000
The following information was included in the Company's quarterly
report on Form 10-Q for the thirteen and thirty-nine weeks ended October 30,
1999, as filed with the Securities and Exchange Commission on January 12, 2000.
S-1
<PAGE>
INTRODUCTORY STATEMENT
This report is Lamonts' third quarterly report on Form 10-Q. The report was not
timely filed because of ongoing efforts by Lamonts to resolve liquidity issues.
On January 4, 2000, Lamonts filed a voluntary petition for reorganization under
Chapter 11 of the Bankruptcy Code and on January 6, 2000, the Bankruptcy Court
issued its Interim Borrowing Order that authorized debtor-in-possession
financing with terms and conditions intended to resolve Lamonts' liquidity
issues. See Part II, Item 5. THIS REPORT IS QUALIFIED IN ITS ENTIRETY BY PART
II, ITEM 5, OF THE REPORT.
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. These forward-looking statements involve risks,
uncertainties, and other factors that may cause our actual results, performance,
achievements, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements. These factors include, among others:
- national and local general economic and market conditions;
- demographic changes;
- liability and other claims asserted against Lamonts;
- competition;
- the loss of a significant number of our customers or suppliers;
- fluctuations in our operating results;
- changes in our business strategy or development plans;
- disruptions in our business;
- our ability to attract and retain qualified personnel;
- ownership of our common stock;
- volatility of our stock price;
- delays on the part of us, or suppliers or other third parties in
achieving year 2000 compliance; and
- the Company's ability to conclude its voluntary reorganization
proceedings described in Part I, Note I in this report.
Additional risk factors are identified in Lamonts' Registration Statement on
Form S-1 (No. 333-44311) initially filed with the SEC on January 15, 1998 (as
amended by Post Effective Amendment No. 1, filed on August 10, 1999, Post
Effective Amendment No. 2, filed on September 15, 1999, Post Effective Amendment
No. 3, filed on October 29, 1999, and as further amended from time to time), and
those described from time to time in Lamonts' other filings with the SEC, press
releases and other communications. We disclaim any obligations to update any of
these factors or to announce publicly the result of any revisions to any of the
forward-looking statements contained or incorporated by reference in this report
to reflect future events or developments.
S-2
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 30, 1999 JANUARY 30, 1999 OCTOBER 31, 1998
------------------- ------------------- ------------------
<S> <C> <C> <C>
(unaudited) (unaudited)
(restated)
Current Assets:
Cash $ 1,986 $ 1,594 $ 2,354
Receivables 2,126 2,124 1,554
Inventories 59,071 42,411 57,855
Prepaid expenses and other 1,369 1,433 1,578
------------------- ------------------- ------------------
Total current assets 64,552 47,562 63,341
Property and equipment - net of accumulated depreciation and
amortization of $9,730, $5,590 and $4,223, respectively 29,898 28,896 29,397
Leasehold interests 5,978 7,134 7,484
Excess reorganization value 8,483 8,832 8,948
Deposits 1,085 1,078 1,078
Other assets 751 393 682
------------------- ------------------- ------------------
Total assets $ 110,747 $ 93,895 $ 110,930
=================== =================== ==================
Current Liabilities:
Borrowings under the Revolver $ 32,235 $ 25,396 $ 31,439
Accounts payable 33,197 17,231 29,217
Accrued payroll and related costs 2,558 2,615 2,769
Accrued taxes 1,730 967 1,344
Accrued interest 575 419 374
Other accrued expenses 6,642 5,722 5,710
Current maturities of long-term debt 655 10,228 628
Current maturities of obligations under capital leases 1,755 1,646 1,482
------------------- ------------------- ------------------
Total current liabilities 79,347 64,224 72,963
Long-term debt, net of current maturities 9,967 265 10,022
Obligations under capital leases, net of current maturities 12,638 12,225 12,767
Other 2,445 2,579 1,729
------------------- ------------------- ------------------
Total liabilities 104,397 79,293 97,481
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 16,926
Class B: 10 shares issued and outstanding 1 1 1
Warrants - contributed capital 3,029 3,029 3,029
Accumulated deficit (12,713) (4,461) (6,507)
Accumulated other comprehensive loss (893) (893) -
------------------- ------------------- ------------------
Total stockholders' equity 6,350 14,602 13,449
------------------- ------------------- ------------------
Total liabilities and stockholders' equity $ 110,747 $ 93,895 $ 110,930
=================== =================== ==================
</TABLE>
See notes to the consolidated financial statements.
S-3
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------- ------------------
(RESTATED)
<S> <C> <C>
Revenues $ 51,188 $ 50,862
Cost of merchandise sold 33,356 32,089
------------------- ------------------
Gross profit 17,832 18,773
------------------- ------------------
Operating and administrative expenses 16,353 15,730
Depreciation and amortization 2,529 2,234
------------------- ------------------
Operating costs 18,882 17,964
------------------- ------------------
(Loss) income from operations (1,050) 809
Other income (expense):
Interest expense (1,481) (1,513)
Other income - 6
------------------- ------------------
Net Loss (2,531) (698)
Accumulated deficit, beginning of period (10,182) (5,809)
------------------- ------------------
Accumulated deficit, end of period $(12,713) $ (6,507)
=================== ==================
Basic and Diluted Loss per Common Share $ (0.28) $ (0.08)
=================== ==================
Weighted Average Shares Used in Computing Loss per Common Share:
Basic and Diluted 9,000,010 9,000,010
</TABLE>
See notes to the consolidated financial statements.
S-4
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND ACCUMULATED DEFICIT
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------- ------------------
(RESTATED)
<S> <C> <C>
Revenues $ 143,310 $ 140,924
Cost of merchandise sold 92,612 92,616
------------------- ------------------
Gross profit 50,698 48,308
------------------- ------------------
Operating and administrative expenses 47,545 45,162
Depreciation and amortization 6,933 6,008
------------------- ------------------
Operating costs 54,478 51,170
------------------- ------------------
Loss from operations (3,780) (2,862)
Other income (expense):
Interest expense (4,476) (3,658)
Other income 4 13
------------------- ------------------
Net loss (8,252) (6,507)
Accumulated deficit, beginning of period (4,461) -
------------------- ------------------
Accumulated deficit, end of period $ (12,713) $ (6,507)
=================== ==================
Basic and Diluted Loss per Common Share $ ( 0.92) $ ( 0.72)
=================== ==================
Weighted Average Shares Used in Computing Loss per Common Share:
Basic and Diluted 9,000,010 9,000,010
</TABLE>
See notes to the consolidated financial statements.
S-5
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------ -------------------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,252) $ (6,507)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 6,933 6,008
Curtailment gain from pension plan - (1,001)
Non-cash interest, including amortization of debt-related costs 789 590
Net change in current assets and liabilities (64) (7,193)
Other (725) (546)
------------------ -------------------
Net cash used by operating activities (1,319) (8,649)
------------------ -------------------
Cash flows from investing activities:
Capital expenditures (4,065) (1,217)
Other (10) (75)
------------------ -------------------
Net cash used by investing activities (4,075) (1,292)
------------------ -------------------
Cash flows from financing activities:
Net borrowings under Revolver 6,839 12,472
Proceeds from long-term debt 600 -
Payments on long-term debt (471) (289)
Principal payments on obligations under capital leases (1,182) (1,189)
------------------ -------------------
Net cash provided by financing activities 5,786 10,994
------------------ -------------------
Net increase in cash 392 1,053
Cash, beginning of period 1,594 1,301
------------------ -------------------
Cash, end of period $ 1,986 $ 2,354
================== ===================
</TABLE>
See notes to the consolidated financial statements.
S-6
<PAGE>
LAMONTS APPAREL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------------------
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------ -------------------
(RESTATED)
<S> <C> <C>
Reconciliation of net change in current assets and liabilities:
(Increase) decrease in:
Receivables $ (2) $ 150
Inventories (16,660) (19,238)
Prepaid expenses and other (1,003) 1,370
Increase (decrease) in:
Accounts payable 15,966 14,031
Accrued payroll and related costs (57) (337)
Accrued taxes 763 479
Accrued interest 156 (633)
Other accrued expenses 773 (3,015)
------------------ -------------------
$ (64) $ (7,193)
================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH ACTIVITIES:
Cash paid during the period for interest $ 3,873 $ 4,124
Assets acquired under capital lease obligations 1,918 148
Assets acquired under installment purchases 147 -
</TABLE>
See notes to the consolidated financial statements.
S-7
<PAGE>
LAMONTS APPAREL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 30, 1999
NOTE 1 - SUBSEQUENT EVENTS
On January 4, 2000, Lamonts filed a voluntary petition (the "Petition") for
relief under Chapter 11 ("Chapter 11") of Title 11 of the United States Code
(the "Bankruptcy Code"). The filing was made in the United States Bankruptcy
Court for the Western District of Washington at Seattle, Case No. 00-00045TTG
(the "Proceeding"). On January 6, 2000, the Bankruptcy Court, on motion of
Lamonts as debtor and debtor-in-possession, entered an interim order in the
Proceeding authorizing post-petition secured, superpriority financing pursuant
to Sections 364(c)(1), 364(c)(2) and 364(c)(3) of the Bankruptcy Code. This
financing is described below. No trustee, receiver, fiscal agent or similar
officer has been appointed. The financing approved by the Bankruptcy Court on
January 6, 2000, is governed by a Debtor-in-Possession Credit Agreement dated as
of January 5, 2000, among Lamonts, Fleet Retail Finance, Inc., formerly named
BankBoston Retail Finance, Inc. ("FRF"), as Tranche A lender, Back Bay Capital
Funding, LLC ("Back Bay") as Tranche B lender, FRF, as administrative and
collateral agent, and BankBoston, N.A., as issuing bank, under which (1) FRF and
the other revolver lenders provide Lamonts with a revolving line of credit with
a maximum borrowing capacity of $40,000,000 and (2) Back Bay provides Lamonts
with a term loan in the amount of $5,000,000 (together, the "New Credit
Agreement"). The New Credit Agreement replaces the Amended and Restated
Debtor-in-Possession and Exit Financing Loan Agreement, dated September 26,
1997, between Lamonts and BankBoston, N.A., as agent (the "1997 Credit
Agreement") which was terminated upon the closing of the New Credit Agreement.
The revolving line of credit and the term loan under the New Credit Agreement
are scheduled to mature on the earlier of (i) July 31, 2001 or (ii) the
effective date of Lamonts' Chapter 11 plan of reorganization in the Proceeding.
However, the maturity of the revolving line of credit and the term loan under
the New Credit Agreement are subject to acceleration if a final order from the
Bankruptcy Court approving financing under the New Credit Agreement is not
issued in the Proceeding by February 10, 2000.
As of January 6, 2000, following the Bankruptcy Court's issuance of an interim
order approving the funding of the New Credit Agreement, Lamonts had $19.9
million of borrowings outstanding under the revolving line of credit and $5.0
million of borrowings outstanding under the term loan. As of January 11, 2000,
Lamonts had $17.8 million of borrowings outstanding under the revolving line of
credit and $5.0 million of borrowings outstanding under the term loan. A hearing
on the final order to approve financing under the New Credit Agreement has been
set by the Bankruptcy Court for January 31, 2000.
NOTE 2 - BASIS OF PRESENTATION
The consolidated financial statements present the consolidated financial
position, results of operations, and cash flows of Lamonts and its subsidiaries.
All subsidiaries of Lamonts 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") and in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, certain information and footnote disclosures normally included in
the annual 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 Lamonts' Annual Report on Form
10-K.
S-8
<PAGE>
Lamonts Apparel, Inc. and BankBoston, N.A., as agent for certain financial
institutions, entered into a Seventh Amendment, dated October 13, 1999, to the
1997 Credit Agreement. Subsequent to the execution of this amendment, Lamonts
extended the remaining balance outstanding on the term loan of $9.7 million, and
reclassified $9.4 million of the term loan to long-term debt as of October 30,
1999. See further discussion below in Note 5 to Consolidated Financial
Statements.
The 1997 Credit Agreement has since been terminated and replaced by the New
Credit Agreement. See Note 1 to the Consolidated Financial Statements above.
NOTE 3 - REORGANIZATION, EMERGENCE FROM CHAPTER 11 AND FRESH-START REPORTING
On January 6, 1995, Lamonts filed a voluntary petition for relief under Chapter
11 in the United States Bankruptcy Court for the Western District of Washington
at Seattle. The Lamonts' Modified and Restated Plan of Reorganization was
confirmed by the Bankruptcy Court on December 18, 1997 and Lamonts emerged from
bankruptcy on January 31, 1998 (the "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"), Lamonts adopted Fresh-Start Reporting for financial reporting
purposes as of the Plan Effective Date.
In accordance with SOP 90-7, Lamonts' reorganization value was determined as of
the Plan Effective Date. The reorganization value was derived by an independent
public accounting firm (which was not Lamonts' independent accountants) using
various valuation methods, including discounted cash flow analyses (utilizing
Lamonts' projections), analyses of the market values of other publicly traded
companies whose businesses are reasonably comparable, and analyses of the
present value of Lamonts' equity. The reorganization value was determined to be
the fair value of Lamonts before considering liabilities and approximated the
amount a willing buyer would have paid for the assets of Lamonts immediately
after restructuring.
On January 4, 2000, Lamonts again filed a voluntary petition for relief under
Chapter 11. See Note 1 to the Consolidated Financial Statements above.
NOTE 4 - CHANGE IN ACCOUNTING PRINCIPLE
In February 1999, Lamonts 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 since Lamonts has experienced stable prices and expects the
current price environment to continue for the foreseeable future. In the current
non-inflationary environment, the use of the FIFO method most accurately
reflects Lamonts' 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 result of the
restatement was to increase net loss and accumulated deficit by approximately
$3.2 million or $0.36 per share for the thirty-nine weeks ended October 31,
1998. The effect of this change on Lamonts' consolidated results of operations
for the fiscal years ended January 30, 1999 and January 31, 1998 was not
material.
S-9
<PAGE>
NOTE 5 - DEBT
Lamonts and BankBoston, N.A., as agent for certain financial institutions,
entered into a Seventh Amendment, dated October 13, 1999, to the 1997 Credit
Agreement. Among other things, the Seventh Amendment provided for:
- renewal of the revolving credit facility through January 31,
2002;
- extension of the term loan through January 31, 2001 with an
option to further extend the term loan to January 31, 2002 if
specified requirements are met;
- an increase in the maximum amount that may be borrowed under
the revolving credit facility to $38.0 million in the months
of October and November to accommodate seasonal inventory
requirements; and
- changes in the borrowing base formula to allow borrowings up
to 70 percent of eligible inventory from January 15th through
June 30th and up to 65 percent of eligible inventory from July
1st through January 14th.
The 1997 Credit Agreement has since been terminated and replaced by the New
Credit Agreement. See Note 1 to the Consolidated Financial Statements above.
NOTE 6 - LOSS PER COMMON SHARE
For the thirteen and thirty-nine weeks ended October 30, 1999 and October 31,
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 7 - COMMITMENTS AND CONTINGENCIES
Lamonts 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 Lamonts, but, if decided adversely to Lamonts, could have a material effect
upon Lamonts' operating results during the period in which the litigation is
resolved.
In March 1995, Lamonts 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. A hearing for the appeal has been set for
February 11, 2000. There can be no assurance that Lamonts will be successful on
appeal. No amounts related to this judgment have been recorded in the
consolidated financial statements.
In October 1999, Frederick Atkins, Inc., ("Atkins"), a buying cooperative of
which Lamonts is a member, filed a lawsuit against Lamonts contending that
Lamonts in the United States District Court for the Southern District of New
York, alleging breach of contract and an account stated. In the lawsuit which is
captioned, FREDERICK ATKINS INC., V. LAMONTS APPAREL, Inc., 99 Civ. 10740 (KBW),
Atkins alleges that Lamonts is indebted to Atkins in the amount of $2,255,000
for merchandise shipped, merchandise ordered but not yet shipped and for fees
and charges pursuant to a services agreement between the parties. Lamonts
disputes the amounts in issue and believes it has valid defenses to the action.
The amounts sought by Atkins do not account for Lamonts' deposit held by Atkins
in an amount exceeding $1 million, and certain other substantial obligations
Atkins has to Lamonts. This litigation is currently stayed as a result of
Lamonts' January 4, 2000 voluntary petition under Chapter 11.
S-10
<PAGE>
Lamonts is self-insured for health care claims for eligible covered enrollees.
Consulting actuaries assist Lamonts in determining its undiscounted liability
for self-insured claims. Lamonts 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 claim 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, Lamonts entered into a purchase agreement with NCR Corporation
("NCR"), in which NCR furnished certain equipment and related services in
connection with the replacement of in-store registers, computers and operating
systems ("POS Project"). The equipment has been financed through a leasing
company as an operating lease over five years. Lease obligations to the leasing
company began when Lamonts received the equipment. As of October 30, 1999,
Lamonts had received all of the equipment with related remaining lease
obligations of approximately $2.2 million.
Lamonts utilizes a licensee, Shoe Corporation of America ("Shoe Corporation"),
for its family shoe department. The rental fees paid to Lamonts by Shoe
Corporation (approximately $1.4 million for the 52 weeks ended January 30, 1999)
range from 10% to 12% of annual net sales generated by Shoe Corporation. The
license agreement with Shoe Corporation expires in January 2001 with one
three-year extension option. On June 14, 1999, Shoe Corporation filed for
protection under the provisions of Chapter 11 of the United States Bankruptcy
Code. Lamonts could suffer a loss of income and customer traffic if Shoe
Corporation is unable to continue to act as its licensee or supply Lamonts with
its desired level of shoe inventory. Further, Shoe Corporation could reject its
license agreement with Lamonts, forcing Lamonts to find another licensee. There
is a risk that Lamonts may not be able to enter into another license arrangement
on terms advantageous to it. Lamonts' 1997 Credit Agreement with BankBoston had
constrained and the New Credit Agreement continues to constrain Lamonts' ability
to purchase shoe inventory itself. Therefore, if Lamonts cannot find a
substitute shoe licensee, it would not be able to sell shoes unless Lamonts
renegotiated the terms of its credit agreement to purchase and resell shoe
inventory.
S-11
<PAGE>
LAMONTS APPARELS, INC.
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 Lamonts and Notes thereto included elsewhere in this
report.
RESULTS OF OPERATIONS
The following discussion and analysis provides information for the results of
operations for the thirteen weeks ("3rd Quarter 1999") and thirty-nine weeks
("YTD 1999") ended October 30,1999, compared to the thirteen weeks ("3rd Quarter
1998") and thirty-nine weeks ("YTD 1998") ended October 31, 1998.
REVENUES. Comparable store revenues (i.e., stores open since the beginning of
each of the periods presented) of $51.2 million for 3rd Quarter 1999 increased
$0.3 million or 0.6% from $50.9 million for 3rd Quarter 1998. Comparable store
revenues of $143.3 million for YTD 1999 increased $2.4 million or 1.7% as
compared to $140.9 million for YTD 1998. Revenues increased due primarily to
higher average inventory levels and strong YTD 1999 sales in the Alaska, Idaho,
Oregon, and Utah markets, partially offset by a decrease in sales in the
Seattle/Tacoma market.
GROSS PROFIT. Gross profit, as a percentage of revenues, decreased from 36.9%
for 3rd Quarter 1998, to 34.8% for 3rd Quarter 1999. Gross profit, as a
percentage of revenues, increased from 34.3% for YTD 1998 to 35.4% for YTD 1999.
The YTD 1998 gross profit was restated and reduced by $3.2 million as a result
of converting from LIFO to FIFO accounting for inventories (see Note 4 to the
Consolidated Financial Statements). Gross profit for YTD 1998, as a percentage
of revenues before the conversion to FIFO, was 36.5%. The decrease in the YTD
1999 and 3rd Quarter 1999 gross profit percentages reflects markdowns, which
were taken at a higher rate than in the same period in the prior fiscal year.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative expenses
were $16.4 million or 31.9% of sales for 3rd Quarter 1999, compared to $15.7
million or 30.9% of sales for 3rd Quarter 1998. Operating and administrative
expenses were $47.6 million or 33.2% of sales for YTD 1999, compared to $45.2
million or 32.0% of sales for YTD 1998. Excluding the curtailment gain of $1.0
million recognized in the first quarter 1998, operating and administrative
expenses for YTD 1999 increased approximately $1.4 million. The increase was due
primarily to increases in self-insured benefit costs, payroll-related costs,
advertising, mainframe costs, and nonrecurring legal expenses related to
amendments to the Form S-1. These expense increases were partially offset by
reductions in net operating expenses at Lamonts' leased distribution center.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense was $2.5
million for 3rd Quarter 1999 compared to $2.2 million for 3rd Quarter 1998.
Depreciation and amortization expense was $6.9 million for YTD 1999 compared to
$6.0 million for YTD 1998. The increases were primarily due to higher asset
values, accelerated depreciation on leasehold improvements of remodeled stores,
and accelerated depreciation on the old POS registers and related equipment.
INTEREST EXPENSE. Interest expense was $1.5 million for 3rd Quarter 1999 and 3rd
Quarter 1998. Interest expense was $4.5 million for YTD 1999 compared to $3.7
million for YTD 1998. Interest expense is primarily related to borrowings under
Lamonts' credit facility with BankBoston, referred to in the Capital Resources
section below. The increase in YTD 1999 interest expense was primarily the
result of an adjustment, totaling approximately $0.8 million, for a change in
estimate recorded in 2nd Quarter 1998.
NET LOSS. As a result of the factors listed above, Lamonts recorded a net loss
of $2.5 million for 3rd Quarter 1999, compared to a net loss of $0.7 million for
3rd Quarter 1998. Lamonts recorded a net loss of $8.3 million for YTD 1999,
compared to a net loss of $6.5 million for YTD 1998.
S-12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
For YTD 1999, Lamonts used $1.3 million of cash for operating activities as
compared to $8.6 million of cash used by operating activities for YTD 1998. The
decrease in cash used for operating expenses is attributed mainly to a slower
increase in inventory purchases compared to the same period a year ago,
partially offset by an increase in accounts payable. Additionally, in the prior
year, cash for operating activities was used for the payment of accrued
reorganization expenses as required by Lamont's Plan of Reorganization.
Lamonts' primary cash requirement currently is the procurement of inventory,
which had been funded during YTD 1999 through borrowings under the 1997 Credit
Agreement (as defined in "Capital Resources" below) and is currently funded
through borrowings under the New Credit Agreement (as defined and further
described in Item 5 of Part II below), trade credit, and cash generated from
operations. Like other apparel retailers, Lamonts is highly dependent upon its
ability to obtain trade credit, which is generally extended by its vendors and,
when applicable, their factoring institutions.
For YTD 1999, Lamonts used $4.1 million of cash for investing activities as
compared to $1.3 million for YTD 1998. The increase of $2.8 million used by
investing activities is due primarily to higher capital expenditures related to
the replacement of the point-of-sale ("POS") platform, which includes in-store
registers, and related computers and operating systems. In addition, an
extensive remodel was completed in August 1999 on the store located in the
Factoria Mall in Bellevue, Washington.
For YTD 1999, financing activities contributed $5.8 million of cash as compared
to $11.0 million for YTD 1998, the result primarily of lower net borrowings
under Lamonts' line of credit described in the Capital Resources section below.
Management continually evaluates store locations and operations to determine
whether to close, downsize, or relocate stores that do not meet performance
objectives. Management has no immediate plans to close any of the 38 Lamonts
stores.
CAPITAL RESOURCES
Lamonts and BankBoston, N.A., as agent for certain financial institutions,
entered into a Seventh Amendment, dated October 13, 1999, to the Amended and
Restated Debtor-in-Possession and Exit Financing Loan Agreement, dated September
26, 1997 (the "1997 Credit Agreement"). Among other things, the Seventh
Amendment provided for:
- renewal of the revolving credit facility through January 31,
2002;
- extension of the term loan through January 31, 2001 with an
option to further extend the term loan to January 31, 2002 if
specified requirements are met;
- an increase in the maximum amount that may be borrowed under
the revolving credit facility to $38.0 million in the months
of October and November to accommodate seasonal inventory
requirements; and
- changes in the borrowing base formula to allow borrowings up
to 70 percent of eligible inventory from January 15th through
June 30th and up to 65 percent of eligible inventory from July
1st through January 14th.
The 1997 Credit Agreement has since been terminated and replaced by the New
Credit Agreement (as defined and further described in Item 5 of Part II below).
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<PAGE>
SEASONALITY
Lamonts' business is subject to substantial seasonal variations in demand.
Historically, approximately one-third of Lamonts' 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.
YEAR 2000
Some of Lamonts' 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.
Lamonts had 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.
Lamonts has not and does not currently anticipate any material disruption in
operations as a result of year 2000 issues. However, if modifications or
replacements were not properly made or completed timely, the reasonably likely
worst case scenario is that various nonessential stand-alone systems would be
impaired and Lamonts 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 October 30, 1999, Lamonts estimated that 99% of its mainframe and client
server information technology systems had been tested and were currently
operating as year 2000 compliant systems. Additionally, Lamonts had completed
the process of implementing the POS Project.
Lamonts spent $278,000 for YTD 1999 compared to $352,000 for YTD 1998 to make
its computer systems year 2000 compliant. The total cost of the project, as of
October 30, 1999 was $1,022,000 and Lamonts estimated as of that date that it
would spend approximately $30,000 in the remainder of Fiscal 1999 to complete
the project. The total original budgeted project cost is $1,000,000, excluding
costs related to the POS Project (See "Liquidity and Capital Resources" above).
Suppliers of Lamonts and other third parties exchange information with Lamonts
or rely on Lamonts' merchandising systems for certain sales and inventory
information. Lamonts currently does not have complete information concerning the
compliance status of its suppliers or other third parties. Although Lamonts 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 Lamonts' ability to process credit card
transactions. Because third-party failures could have a material adverse impact
on Lamonts' ability to conduct business, Lamonts had requested confirmations
from major suppliers to certify that plans have been developed to address year
2000 issues.
Prior to December 31, 1999, Lamonts developed contingency plans for all
information technology and other systems, as well as contingencies for dealing
with those suppliers and other third parties who had not responded to year 2000
readiness questionnaires, or who were at risk of noncompliance.
Lamonts presently believes that year 2000 issues will not pose significant
operational problems for Lamonts. However, if all year 2000 issues were not
properly identified, or assessment, remediation and testing were not effected
properly with respect to year 2000 problems that were identified, it is possible
that year 2000 issues will materially adversely impact Lamonts' results of
operations or adversely affect Lamonts' relationships with customers, vendors,
or others. Additionally, it is possible that the year 2000 issues of other
entities will have a material adverse impact on Lamonts' systems or results of
operations.
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<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Lamonts is affected by 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 October October
1999 2000 2001 2002 2003 Thereafter 30, 1999 30, 1999
- -------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE RISK:
LIABILITIES:
Borrowings under the
Revolver $32,235 - - - - - $32,235 $32,235
Variable average
interest rate 8.57% -% -% -% -% -% 8.57%
Long-term debt 149 $ 9,834 $26 $28 $30 $483 $10,550 $10,550
Variable average
interest rate 8.30% 8.30% 8.30% 8.30% 8.30% 8.30% 8.30%
Long-term debt 18 54 - - - - 72 62
Fixed average
interest rate 8.00% 8.00% -% -% -% -% 8.00%
Obligations under
capital leases 614 1,764 1,712 1,318 927 8,058 14,393 14,393
Variable average
interest rate 10.41% 10.41% 10.41% 10.41% 10.41% 10.41% 10.41%
DERIVATIVES MATCHED AGAINST LIABILITIES:
Swaps - fixed rate (1) - $20,000 - - - - $20,000 $ 0.2
Average pay rate 5.73% 5.73% -% -% -% -% 5.73%
Average receive
rate 5.22% 5.22% -% -% -% -% 5.22%
</TABLE>
(1) Interest rate swaps on which Lamonts is the fixed rate payor.
S-15
<PAGE>
OTHER INFORMATION
LEGAL PROCEEDINGS
In October 1999, Frederick Atkins, Inc., ("Atkins"), a buying cooperative of
which Lamonts is a member, filed a lawsuit against Lamonts contending that
Lamonts in the United States District Court for the Southern District of New
York, alleging breach of contract and an account stated. In the lawsuit which is
captioned, FREDERICK ATKINS INC., V. LAMONTS APPAREL, Inc., 99 Civ. 10740 (KBW),
Atkins alleges that Lamonts is indebted to Atkins in the amount of $2,255,000
for merchandise shipped, merchandise ordered but not yet shipped and for fees
and charges pursuant to a services agreement between the parties. Lamonts
disputes the amounts in issue and believes it has valid defenses to the action.
The amounts sought by Atkins do not account for Lamonts' deposit held by Atkins
in an amount exceeding $1 million, and certain other substantial obligations
Atkins has to Lamonts. This litigation is currently stayed as a result of
Lamonts' January 4, 2000 voluntary petition under Chapter 11.
CHANGES IN SECURITIES AND USE OF PROCEEDS
None
DEFAULTS UPON SENIOR SECURITIES
A default occurred under the 1997 Credit Agreement in connection with Lamonts'
filing of the Petition. However, the 1997 Credit Agreement has been terminated
and replaced by the New Credit Agreement and Lamonts has no further obligations
under the 1997 Credit Agreement.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
OTHER INFORMATION
On January 4, 2000, Lamonts filed a voluntary petition (the "Petition") for
relief under Chapter 11 ("Chapter 11") of Title 11 of the United States Code
(the "Bankruptcy Code"). The filing was made in the United States Bankruptcy
Court for the Western District of Washington at Seattle, Case No. 00-00045TTG
(the "Proceeding"). On January 6, 2000, the Bankruptcy Court, on motion of
Lamonts as debtor and debtor-in-possession, entered an interim order in the
Proceeding authorizing post-petition secured, superpriority financing pursuant
to Sections 364(c)(1), 364(c)(2) and 364(c)(3) of the Bankruptcy Code. This
financing is described below. No trustee, receiver, fiscal agent or similar
officer has been appointed. The press release issued by the Company on January
4, 2000 describing the Petition is attached as an exhibit to this report and
incorporated herein by reference.
The financing approved by the Bankruptcy Court on January 6, 2000, is governed
by a Debtor-in-Possession Credit Agreement dated as of January 5, 2000, among
Lamonts, Fleet Retail Finance, Inc., formerly named BankBoston Retail Finance,
Inc. ("FRF"), as Tranche A lender, Back Bay Capital Funding, LLC ("Back Bay") as
Tranche B lender, FRF, as administrative and collateral agent, and BankBoston,
N.A., as issuing bank, under which (1) FRF and the other revolver lenders
provide Lamonts with a revolving line of credit with a maximum borrowing
capacity of $40,000,000 and (2) Back Bay provides Lamonts with a term loan in
the amount of $5,000,000 (the "New Credit Agreement"). The New Credit Agreement
replaces the Amended and Restated Debtor-in-Possession and Exit Financing Loan
Agreement, dated September 26, 1997, between Lamonts and BankBoston, N.A., as
agent (the "1997 Credit Agreement") which was terminated upon the closing of the
New Credit Agreement.
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<PAGE>
The revolving line of credit and the term loan under the New Credit Agreement
are scheduled to mature on the earlier of (i) July 31, 2001 or (ii) the
effective date of Lamonts' Chapter 11 plan of reorganization in the Proceeding.
However, the maturity of the revolving line of credit and the term loan under
the New Credit Agreement are subject to acceleration if a final order from the
Bankruptcy Court approving financing under the New Credit Agreement is not
issued in the Proceeding by February 10, 2000.
As of January 6, 2000, following the Bankruptcy Court's issuance of an interim
order approving the funding of the New Credit Agreement, Lamonts had $19.9
million of borrowings outstanding under the revolving line of credit and $5.0
million of borrowings outstanding under the term loan. As of January 11, 2000,
Lamonts had $17.8 million of borrowings outstanding under the revolving line of
credit and $5.0 million of borrowings outstanding under the term loan. A hearing
on the final order to approve financing under the New Credit Agreement has been
set by the Bankruptcy Court for January 31, 2000.
S-17
