FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1997
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 1-10590
VENTURE STORES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-0914490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 East Terra Lane, O'Fallon, Missouri 63366-0110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314)281-5500
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of October 25, 1997:
Common stock, $1 par value - 18,303,224
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Venture Stores, Inc.
Condensed Statement of Earnings
(Unaudited)
(thousands, except per share data)
13 WEEKS ENDED 39 WEEKS ENDED
October 25, October 26, October 25, October 26,
1997 1996 1997 1996
Net Sales $ 286,273 $ 330,233 $ 929,196 $1,010,896
Costs and expenses:
Cost of merchandise sold 227,403 246,506 748,349 753,060
Selling, general,
administrative and
other expenses 74,125 93,352 304,238 258,777
Net interest expense 10,875 7,262 28,320 19,873
Earnings (loss) before income
taxes and extraordinary item (26,130) (16,887) (151,711) (20,814)
Income tax provision (benefit) 312 (7,684) (6,770) (9,538)
Net earnings (loss) before
extraordinary item (26,442) (9,203) (144,941) (11,276)
Extraordinary item (net of tax) 0 0 (2,402) 0
NET EARNINGS (LOSS) $ (26,442) $ (9,203) $ (147,343) $ (11,276)
Dividends on preferred stock 625 625 1,875 1,875
NET EARNINGS (LOSS) AVAILABLE
TO COMMON SHAREHOLDERS $ (27,067) $ (9,828) $ (149,218) $ (13,151)
Earnings (loss) per common share:
Before extraordinary item $ (1.48) $ (0.54) $ (8.03) $ (0.73)
Extraordinary item
(net of tax) 0.00 0.00 (0.13) 0.00
EARNINGS (LOSS) PER
COMMON SHARE $ (1.48) $ (0.54) $ (8.16) $ (0.73)
DIVIDENDS DECLARED PER
COMMON SHARE $ - $ - $ - $ -
AVERAGE COMMON SHARES
OUTSTANDING 18,295 18,257 18,281 17,947
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Balance Sheet
(thousands)
(Unaudited) (Unaudited)
October 25, October 26, January 25,
1997 1996 1997
ASSETS
Current assets:
Cash and cash equivalents $ 10,947 $ 11,656 $ 10,178
Accounts receivable, net 15,608 16,058 14,013
Merchandise inventories 322,431 407,202 274,393
Income taxes receivable 993 13,371 12,187
Other current assets 7,936 11,584 7,167
Total current assets 357,915 459,871 317,938
Property and equipment, at cost 434,988 537,401 532,888
Accumulated depreciation (158,714) (169,137) (168,977)
Property and equipment, net 276,274 368,264 363,911
Deferred income taxes 10,157 - -
Other assets 11,049 6,575 5,811
TOTAL ASSETS $ 655,395 $ 834,710 $ 687,660
LIABILITIES AND SHAREHOLDERS'
INVESTMENT
Current liabilities:
Short-term debt $ 176,136 $ 164,530 $ 105,979
Current maturities of
long-term debt 4,077 4,276 4,371
Deferred income taxes 10,157 3,571 4,962
Accounts payable 113,672 147,643 124,118
Accrued expenses 43,630 48,653 60,320
Total current liabilities 347,672 368,673 299,750
Long-term debt 252,201 180,187 179,059
Other liabilities 3,684 3,745 3,838
Deferred gain on sale/leaseback 17,991 19,429 19,070
Deferred income taxes - 32,854 4,012
Shareholders' investment 33,847 229,822 181,931
TOTAL LIABILITIES AND SHAREHOLDERS'
INVESTMENT $ 655,395 $ 834,710 $ 687,660
See accompanying Notes to Condensed Financial Statements.
Venture Stores, Inc.
Condensed Statement of Cash Flows
(Unaudited)
(dollars in thousands, except per share)
39 WEEKS ENDED
October 25, October 26,
1997 1996
OPERATING ACTIVITIES:
Net earnings (loss) $(147,343) $ (11,276)
Items not requiring the outlay of cash:
Depreciation and amortization 24,808 23,992
Deferred income tax and ITC (8,974) 16,421
Extraordinary item 3,893 0
Loss on sale or disposal of assets 38,243 337
Other 706 1,054
Working capital and other (63,321) (126,260)
Total operating activities (151,988) (95,732)
INVESTING ACTIVITIES:
Additions of property and equipment (4,114) (11,020)
Proceeds from sale of assets 38,807 3,017
Other 354 556
Total investing activities 35,047 (7,447)
FINANCING ACTIVITIES:
Repayments of long-term debt (9,243) (2,971)
Proceeds from sale/leaseback 70,500 15,000
Short-term borrowings 70,157 49,530
Dividends (1,875) (1,875)
Debt prepayment penalty (1,688) 0
Financing costs (10,141) (2,314)
Total financing activities 117,710 57,370
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 769 (45,809)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,178 57,465
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,947 $ 11,656
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the period:
Interest $ 25,998 $ 18,780
Income taxes $ (10,553) $ (26,252)
During the first quarter of 1996, the company made a non-cash contribution
of its common stock to the Venture Profit Sharing Plan, which represented
the entire 1995 company contribution. This contribution consisted of
199,985 shares of common stock with an average market price of $4.80 per
share. During the second quarter of 1996, the company granted 704,200
shares of restricted stock with a market price of $7.75 per share on the
date of grant. $706 and $1,054 charged to expense in the first 39 weeks of
1997 and 1996, respectively, related to restricted stock. During the third
quarter of 1997, a capital lease obligation of $36,420 was incurred in
connection with the sale/leaseback of leasehold interests.
See accompanying Notes to Condensed Financial Statements.
VENTURE STORES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INTERIM PRESENTATION
The accompanying unaudited condensed financial statements
should be read in conjunction with the audited financial
statements for the fiscal year ended January 25, 1997, and
the accompanying notes thereto included in the company's
1996 Annual Report to Shareowners. In the opinion of
management, this information is fairly presented and all
adjustments, of a normal, recurring nature, which are
necessary for a fair statement of the results for the
interim periods have been included; however, certain items
are included in these statements based on estimates for the
entire year. The interim operating results exclude the
Christmas season and therefore may not be indicative of the
operating results that may be expected for the full fiscal
year. Certain prior year items have been reclassified to
conform to the current year presentation.
2. Net earnings (loss) per common share are computed by
dividing net earnings (loss), after deducting preferred
dividend requirements, by the weighted average number of
common shares outstanding. Common stock equivalents had no
material dilutive effect on net earnings (loss) per common
share during the periods presented.
3. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share." This statement simplifies
the standards for computing earnings per share previously
found in Accounting Principles Board Opinion No. 15 and
establishes new standards for computing and presenting
earnings per share. The company will adopt the new Statement
when required in the fourth quarter of 1997 and does not
expect the adoption to have a material impact on the
company's earnings (loss) per share.
4. In March 1997, the company established a stock option plan
(the "1997 Stock Option Plan") that authorizes the granting
of options to purchase common stock to certain associates of
the company. A maximum of 350,000 shares of common stock
may be issued under the 1997 Stock Option Plan. Options
granted under the plan will be granted at the market price
on the date of grant, have a maximum term of 10 years, may
be exercised only after stated intervals of time, and are
conditioned upon continued active employment with the
company, except for periods following retirement, disability
or death. The company has granted 358,000 options and
cancelled 70,000 options under this plan in 1997.
5. On April 8, 1997, the company terminated its credit facility
with BankAmerica Business Credit and entered into an
agreement with BT Commercial Corporation for a secured
revolving credit facility (the "Revolving Credit Facility")
consisting of revolving credit loans and letters of credit
of up to $250 million in the aggregate, with a sublimit of
$125 million for letters of credit. The Revolving Credit
Facility is in effect until April 8, 2000, and is secured by
the inventory, equipment, and substantially all other assets
of the company, excluding leased or mortgaged real estate
and certain personal property under leases. The Revolving
Credit Facility requires the company to meet certain
quarterly financial covenants, including minimum net worth,
interest coverage and accounts payable to inventory ratios.
During the second quarter of 1997, the Revolving Credit
Facility was amended to increase the advance rate to 65
percent from 60 percent through December 31, 1997, and
modify, among other things, the minimum net worth as of July
26, 1997 and October 25, 1997. During the third quarter of
1997, the Revolving Credit Facility was amended to modify
the minimum net worth and interest coverage ratio. Under
the terms of the Revolving Credit Facility, the company is
prohibited from paying dividends on its common stock. As of
October 25, 1997, the company was in compliance with these
covenants, as amended.
Interest on borrowings under the Revolving Credit Facility
is payable based on multiple rate options. Additionally,
the company is required to pay certain unused line fees and
letter of credit fees.
In connection with the termination of its previous credit
facility, the company recorded an extraordinary pre-tax
charge of $3.9 million ($2.4 million after tax, or $0.13 per
share) in the first quarter of 1997. The charge is
primarily for the write-off of unamortized deferred
financing costs and the prepayment penalties.
6. On July 11, 1997 (the "Closing Date"), Venture Stores, Inc.
sold 20 stores to Kmart Corporation ("Kmart") for a
negotiated price of $38 million cash, before closing
adjustments. Kmart also assumed, as of the Closing Date,
certain specified liabilities of the company, including
obligations under the leases relating to 17 of the stores.
The assets purchased by Kmart include three stores that were
owned by the company and the transfer of leases for 17
stores that were held under leases. In addition, the sale
included substantially all personal property, other than
inventory, located in the stores. The stores sold include
five in the Dallas-Ft. Worth area, ten in Houston, two in
Indianapolis, and one each in Des Moines, Iowa, Waterloo,
Iowa, and Tulsa, Oklahoma. Kmart assumed occupancy of the
stores by September 15, 1997.
In connection with the sale, the company recorded a
nonrecurring pre-tax charge of $63.9 million in the second
quarter of 1997 for costs associated with selling and
closing the stores and liquidating the inventory.
7. In 1997, the company recorded a valuation allowance of $52.1
million to reduce deferred tax assets to the amount expected
to be realizable due to the continuing net operating losses.
8. During the third quarter of 1997, the company entered into
an agreement with Kimco Realty Corporation ("Kimco") for a
total value of approximately $130 million, involving the
sale of company real estate assets and leasehold interests.
The transaction provided cash proceeds of approximately $70
million, before closing adjustments, to finance the
continuation of the company's repositioning as a family
value retailer. It also included the assumption by Kimco of
approximately $60 million of existing mortgage debt on
certain properties.
This transaction involved the sale of 49 fee and leasehold
properties. The company simultaneously leased the assets
back under a long-term lease. The lease, pursuant to which
the company will retain possession of the properties, is for
an initial term of 25 years.
The transaction was accounted for as a financing in
accordance with SFAS No. 98, "Accounting for Leases," and
the related obligation is included in long-term debt and
current maturities of long-term debt. The obligation is
being amortized over the lease term. Also, since this
transaction was recorded as a financing, the related
property remains on the company's books and is being
depreciated over the lesser of the estimated useful life or
the lease term. In addition, the sale of the leasehold
interests, which were previously accounted for as operating
leases, were capitalized in accordance with SFAS No. 98.
The capital lease obligation is included in long-term debt
and current maturities of long-term debt, and the capital
lease asset is included in property and equipment. The
minimum annual rent which the company is obligated to pay
during the lease term is approximately $21.8 million. In
addition, the company is obligated to pay real estate taxes,
insurance premiums, maintenance expenses and other costs
associated with certain of the properties.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
Third quarter 1997 sales were $286.3 million, down 13.3% from
$330.2 million during the same period in 1996. For the 39 weeks
ended October 25, 1997, sales were $929.2 million, a decrease of
8.1% from $1,010.9 million in the 39 weeks ended October 26,
1996. Total sales for the quarter and year-to-date period
reflect a significantly lower number of locations beginning in
mid-August as a result of the sale of 20 stores to Kmart
Corporation. Sales for the year-to-date period were also
negatively impacted by disruptions in the flow of merchandise
from certain of the company's vendors and cooler than normal
temperatures in the first quarter which negatively affected the
sales of softline and seasonal merchandise. Total sales for the
year-to-date period were positively impacted by an aggressive
promotional strategy in June and strong sales in July at the 20
stores that were sold to Kmart Corporation which held inventory
liquidation sales.
Loss before income taxes was $26.1 million in the third quarter
of 1997, compared to $16.9 million in the third quarter of 1996.
Tax benefits of $11.7 million for the third quarter of 1997 were
offset by an equal amount of valuation reserve. Net loss
applicable to common shareholders was $27.1 million, or $1.48 per
share, for the third quarter of 1997, including a loss of $0.64
per share due to unrealizable deferred tax benefits. This
compares to a net loss applicable to common shareholders of $9.8
million, or $0.54 per share, in the third quarter of 1996.
Net loss applicable to common shareholders, before nonrecurring
and extraordinary items, was $82.9 million, or $4.53 per share,
for the first 39 weeks of 1997, including a loss of $1.51 per
share due to the recording of a valuation reserve against
deferred tax benefits. This compares to a net loss applicable to
common shareholders of $13.2 million, or $0.73 per share, for the
same period in 1996.
During the first quarter of 1997, the company recorded an
extraordinary pre-tax charge of $3.9 million ($2.4 million net of
tax) or $0.13 per share, primarily for the write-off of
unamortized deferred financing costs and prepayment penalties
related to the termination of the company's previous credit
agreement.
Second quarter of 1997 included a nonrecurring charge of $63.9
million, or $3.50 per share, for costs associated with selling
and closing the 20 stores sold to Kmart and liquidating the
inventory. The loss on this transaction included a loss of $1.34
per share because the company had to record a valuation reserve
against unrealizable deferred income tax benefits. Of the total
nonrecurring charge, $10.1 million (including a $4.0 million
nonrecurring LIFO charge) is included in gross margin and $53.8
million is included in selling, general, administrative and other
("SG&A") expenses.
Including the nonrecurring and extraordinary items, net loss
applicable to common shareholders was $149.2 million, or $8.16
per share, for the first 39 weeks of 1997.
The first 39 weeks of 1996 included a pre-tax gain from a real
estate transaction of $2.1 million, or $0.07 per share.
The components of the net earnings (loss) as a percent of sales
were as follows:
13 Weeks Ended 39 Weeks Ended
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold
(before LIFO charge) 79.3 74.5 79.9 74.4
LIFO charge 0.1 0.1 0.6 0.1
Gross margin 20.6 25.4 19.5 25.5
Selling, general, admin.
and other expenses 25.9 28.3 32.7 25.6
Operating income (loss) (5.3) (2.9) (13.2) (0.1)
Net interest expense 3.8 2.2 3.1 2.0
Earnings (loss) before
income taxes and
extraordinary item (9.1) (5.1) (16.3) (2.1)
Income tax provision
(benefit) 0.1 (2.3) (0.7) (1.0)
Net earnings (loss) before
extraordinary item (9.2) (2.8) (15.6) (1.1)
Extraordinary item
(net of tax) 0.0 0.0 (0.3)% 0.0
Net earnings (loss) (9.2)% (2.8)% (15.9)% (1.1)%
As previously discussed, gross margin for the year-to-date period
of 1997 includes a non-recurring charge of $10.1 million.
Excluding the nonrecurring charge, gross margin as a percent of
sales was 20.6% and 20.5% for the third quarter and 39 weeks of
1997, respectively, compared to 25.4% and 25.5% for the third
quarter and 39 weeks of 1996, respectively. Gross margin as a
percent of sales decreased during the third quarter and first 39
weeks of 1997 over the same periods from the prior year primarily
due to higher promotional markdowns in the current year and a
decrease in the sales of higher margin softline items as a
percentage of total sales. This change in the sales mix resulted
principally from the disruption in the flow of merchandise from
certain of the company's vendors and cooler than normal
temperatures in the first quarter.
The third quarters of 1997 and 1996 both included a LIFO charge
of $0.5 million. For the first 39 weeks of 1997, the LIFO charge
was $5.5 million, compared with $0.5 million for the same period
in 1996. As previously discussed, the year-to-date period of
1997 included a $4.0 million nonrecurring LIFO charge related to
the reduction in inventory as a result of the sale of 20 stores
to Kmart.
Excluding the nonrecurring charge discussed above, SG&A expenses
were $74.1 million and $250.4 million in the third quarter and
first 39 weeks of 1997, respectively, compared to $93.4 million
and $258.8 million in the third quarter and first 39 weeks of
1996, respectively. As a percent of sales, excluding the
nonrecurring charge, SG&A expenses were 25.9% and 28.3% in the
third quarter of 1997 and 1996, respectively, and 27.0% and 25.6%
in the first 39 weeks of 1997 and 1996, respectively. SG&A
expenses decreased in the third quarter of 1997 compared to the
third quarter of 1996 primarily due to a decrease in store
expenses, such as payroll, advertising, rent, and utilities, as a
result of the reduced number of stores from the sale of 20 stores
to Kmart. These third quarter decreases were partially offset in
the year-to-date period of 1997 compared with the year-to-date
period of 1996 by an increase in advertising expense through the
second quarter of 1997 and the reduction of certain insurance
accruals no longer required, the reduction of certain previously
provided benefit accruals, and the reduction of recorded reserves
on a closed store all in 1996.
Net interest expense increased during the third quarter and first
39 weeks of 1997 compared to the same periods in 1996 due to the
increase in short-term borrowings and an increase in long-term
debt resulting from the sale/leaseback transaction in the third
quarter of 1997.
The income tax provision (benefit) in the current year was
impacted by the establishment of a valuation allowance of $52.1
million to reduce deferred tax assets to the amount expected to
be realizable due to the continuing net operating losses.
FINANCIAL CONDITION
On April 8, 1997, the company terminated its credit facility with
BankAmerica Business Credit and entered into an agreement with BT
Commercial Corporation for a secured revolving credit facility
(the "Revolving Credit Facility") consisting of revolving credit
loans and letters of credit of up to $250 million in the
aggregate, with a sublimit of $125 million for letters of credit.
The Revolving Credit Facility is in effect until April 8, 2000,
and is secured by the inventory, equipment, and substantially all
other assets of the company, excluding leased or mortgaged real
estate and certain personal property under leases. The Revolving
Credit Facility requires the company to meet certain quarterly
financial covenants, including minimum net worth, interest
coverage and accounts payable to inventory ratios. During the
second quarter of 1997, the Revolving Credit Facility was amended
to increase the advance rate to 65 percent from 60 percent
through December 31, 1997, and modify, among other things, the
minimum net worth as of July 26, 1997 and October 25, 1997.
During the third quarter of 1997, the Revolving Credit Facility
was amended to modify the minimum net worth and interest coverage
ratio. A copy of this amendment is filed as Exhibit 10 hereto.
Under the terms of the Revolving Credit Facility, the company is
prohibited from paying dividends on its common stock. As of
October 25, 1997, the company was in compliance with these
covenants, as amended.
Interest on borrowings under the Revolving Credit Facility is
payable based on multiple rate options. Additionally, the
company is required to pay certain unused line fees and letter of
credit fees.
The company's debt-to-capitalization ratio (including the present
value of operating leases) was 92.1% at October 25, 1997 compared
to 68.3% at the end of the third quarter of 1996 and 72.7% at
year-end 1996.
During the second quarter of 1997, the company sold 20 stores to
Kmart for a negotiated price of $38 million cash, before closing
adjustments. During the third quarter of 1997, the company
entered into an agreement with Kimco Realty Corporation ("Kimco")
for a total value of approximately $130 million, involving the
sale of company real estate assets and leasehold interests. The
transaction provided cash proceeds of approximately $70 million,
before closing adjustments, to finance the continuation of the
company's repositioning as a family value retailer. It also
included the assumption by Kimco of approximately $60 million of
existing mortgage debt on certain properties. See Notes 6 and 8
to the Condensed Financial Statements for further discussion of
these transactions.
The increase in long-term debt is due primarily to a $70.5
million financing obligation and a $36.4 million capital lease
obligation from the sale/leaseback recorded as a financing.
These increases were partially offset by the prepayment of
approximately $5.8 million of mortgage notes from the proceeds of
the sale of 20 stores to Kmart, a $22.3 million reduction in the
financing obligation from previous sale/leaseback transactions as
a result of Kmart assuming certain of these obligations, and
regularly-scheduled maturities of long-term debt and capital
leases.
During the second quarter of 1997, (i) Standard & Poor's lowered
the ratings of the medium term notes and 6.75% revenue bonds due
March 1, 2009 from B- to CCC and lowered the ratings of the
company's preferred stock from CCC+ to CCC-, and (ii) Moody's
Investor Services lowered the ratings of the medium term notes
from B3 to Caa2 and lowered the ratings on the company's
preferred stock from caa to ca. Debt ratings by various rating
agencies reflect the agencies' opinions of the ability of the
issuers to repay debt obligations punctually. Lower ratings
generally result in higher future borrowing costs.
The increase in short-term debt from year end 1996 reflects the
seasonal build-up of inventory in anticipation of the holiday
selling season and the company's greater reliance on short-term
debt to fund working capital as a result of reduced sales and the
net losses.
Non-current deferred income taxes were a liability of $32.9
million at October 26, 1996 and an asset of $10.2 million at
October 25, 1997. The change in non-current deferred income
taxes resulted primarily from the creation of net operating loss
carryforwards during 1996 and the first three quarters of 1997
and the conclusion of an IRS examination that resulted in
significant capital recovery adjustments. In 1997, the company
recorded a valuation allowance of $52.1 million to reduce
deferred tax assets to the amount expected to be realized due to
the net operating losses. Net deferred tax assets were zero at
the end of third quarter 1997. The decrease in income taxes
receivable from third quarter and year-end 1996 resulted from an
IRS refund received in the first quarter of 1997.
The decrease in accrued expenses in the third quarter of 1997
from year-end 1996 is primarily due to the reduction in real
estate tax accruals as a result of the sale of 20 stores to Kmart
and the sale/leaseback of 49 properties in 1997, and a decrease
in reserves related to store closings.
The decrease in merchandise inventories between third quarter
1996 and third quarter 1997 is principally the result of the sale
of 20 stores to Kmart, as well as a store-for-store reduction in
inventory levels of approximately 9%.
The decrease in other current assets from the third quarter of
1996 to the third quarter of 1997 resulted primarily from a
decrease in prepaid advertising expense. The increase in other
assets is primarily due to an increase in deferred financing
costs related to the new Revolving Credit Facility and the third
quarter of 1997 sale/leaseback. These increases were partially
offset by the write-off of unamortized deferred financing costs
related to the previous credit agreement.
The decrease in property and equipment from third quarter and
year-end 1996 to third quarter 1997 is due primarily to the
write-off of the net book value of assets sold to Kmart in the
second quarter of 1997, net of capital lease assets recorded as
part of the third quarter 1997 sale/leaseback.
The capital expenditure budget totals approximately $18.0 million
for 1997 and is expected to be used primarily for new store
fixtures, remodeling existing stores and for the ordinary repair
and replacement of store and distribution center assets. The
company does not anticipate opening any new stores in 1997.
In the first three quarters of 1997, the company's sales and
gross margin were significantly below plan, primarily as a result
of the disruptions in merchandise flow. The company believes
that working capital and capital expenditure requirements for the
balance of 1997 will be funded through a combination of cash flow
from operations, and borrowings under the Revolving Credit
Facility.
The company utilizes software and related technologies that will
be affected by the date change in the year 2000. The company is
currently assessing the impact of this issue on its operations.
Although final cost estimates have yet to be completed, the
company expects to incur costs of between $5 million and $8
million over the next few years to address this issue. The
company expects to complete its system study by the end of 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share." This statement simplifies the standards
for computing earnings per share previously found in Accounting
Principles Board Opinion No. 15 and establishes new standards for
computing and presenting earnings per share. The company will
adopt the new Statement when required in the fourth quarter of
1997 and does not expect the adoption to have a material impact
on the company's earnings (loss) per share.
FORWARD LOOKING STATEMENTS
Certain matters discussed above, such as the company's
expectations with respect to the funding of future capital
expenditures and working capital requirements for the remainder
of 1997, constitute "forward looking" statements and as such are
based on assumptions and estimates. Actual results may differ
materially from those in the forward looking statements. Factors
that could cause actual results to differ materially from the
forward looking statements include, but are not limited to: (i)
economic and weather conditions in the regions in which the
company's stores are located and their effect on the buying
patterns of the company's customers, (ii) consumer spending and
debt levels, (iii) the level of support provided by the company's
numerous providers of goods and services and the institutions
which finance those providers, (iv) inventory imbalances caused
by fluctuations in consumer demand, (v)competition, including
specifically price competition, (vi) cost and availability of
capital, and (vii) the success of the company's repositioning
strategy.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Third Amendment, dated October 24, 1997, to Credit
Agreement, dated as of April 8, 1997, between the
company and BT Commercial Corporation, as Agent
11 Computation of Earnings per Common Share
27 Financial Data Schedule
(b) Reports on Form 8-K
A report dated August 6, 1997, filed under item 5, reporting
the sale and simultaneous leaseback of 49 company fee and
leasehold properties.
SIGNATURES
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.
VENTURE STORES, INC.
(Registrant)
Date: December 8, 1997 By:\s\Russell E. Solt
Russell E. Solt
Executive Vice President -
Administration and
Chief Financial Officer
Exhibit Index
Exhibit No. Description
10 Third Amendment, dated October 24, 1997,
to Credit Agreement, dated as of April 8,
1997, between the company and BT Commercial
Corporation, as Agent
11 Computation of Earnings per Common Share
27 Financial Data Schedule
EXHIBIT 10
THIRD AMENDMENT
TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Amendment") is
dated as of October 24, 1997, by and among VENTURE STORES, INC.,
a Delaware corporation (the "Borrower"); BT COMMERCIAL
CORPORATION, a Delaware corporation (in its individual capacity,
hereinafter referred to as "BTCC"), acting in its capacity as
agent (in such capacity as agent, hereinafter referred to as the
"Agent") under the "Credit Agreement" (as hereinafter defined);
and BTCC and the other "Lenders" (as defined in the Credit
Agreement) signatories hereto. Capitalized terms used herein but
not otherwise defined herein shall have the respective meanings
assigned to such terms in the Credit Agreement, after giving
effect to this Amendment.
WITNESSETH:
WHEREAS, the Borrower, the Agent and the Lenders have
entered into that certain Credit Agreement dated as of April 8,
1997, and amended as of June 27, 1997 and July 9, 1997 (as
amended, restated, supplemented and otherwise modified and in
effect from time to time the "Credit Agreement"), pursuant to
which the Lenders have agreed to make certain loans and other
financial accommodations to or for the account of the Borrower;
WHEREAS, the Agent, the Lenders and the Borrower have agreed
to further amend the Credit Agreement, on the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the respective parties hereto hereby
agree as follows:
1. Amendment to Credit Agreement. Effective as of the
date hereof, upon satisfaction of the conditions precedent set
forth in Section 3 below, and in reliance upon the
representations and warranties of the Borrower set forth herein,
in the Credit Agreement and in each of the other Credit
Documents, the Credit Agreement is hereby amended as follows:
1.1 The following defined term is hereby added to
Section 1.1 of the Credit Agreement in the appropriate
alphabetical order:
"Kimco Sale-Leaseback Documents" means, collectively, (i)
that certain Contract of Sale and that certain Unitary Net Lease,
each executed and delivered by the Borrower and KRCV Corp. on
August 6, 1997, and (ii) all other agreements, documents and
instruments executed and delivered by the Borrower and/or KRCV
Corp. on or about such date pursuant thereto, in each case
without giving effect to any amendments, restatements or
modifications thereof or supplements thereto, except for any of
the foregoing previously consented to in writing by the Agent.
1.2 Section 8.1 of the Credit Agreement is hereby
deleted in its entirety and the following language is hereby
substituted therefor:
8.1 Interest Expense Ratio.
From and after January 31, 1998, the Borrower shall
have a ratio of EBITDA to Interest Expense as of the
respective dates, for the respective periods and in the
respective amounts, in each case as shall be established
pursuant to Section 8.3A hereof.
1.3 Section 8.1A of the Credit Agreement is hereby
deleted in its entirety and the following language is hereby
substituted therefor:
8.1A Minimum Shareowner's Investment.
The Borrower shall maintain a shareowner's investment
(exclusive of gains or losses attributable to sales or other
dispositions of fixed assets occurring after the Closing
Date and other gains or losses attributable to the KMart
Sale) of not less than (i) $120,900,000, as of July 26,
1997, (ii) $95,000,000, as of October 25, 1997, (iii)
$90,000,000, as of January 31, 1998 and (iv) thereafter, as
of the respective dates and in the respective amounts as
shall be established pursuant to Section 8.3A hereof.
1.4 The Credit Agreement is hereby amended by
inserting the following language therein immediately following
Section 8.3 thereof:
8.3A Establishment of Continuing Financial Covenants;
Additional Financial Information.
(a) The Borrower and the Lenders intend that the
financial covenants set forth in Sections 8.1, 8.1A, 8.2 and
8.3 remain in effect until the Expiration Date, but have not
provided required levels for such covenants beyond January
31, 1998, because the Borrower has not yet finalized its
financial projections and expectations beyond such date.
Therefore, the Borrower hereby agrees that on or before
March 15, 1998, the Borrower will provide the Agent and the
Lenders with financial forecasts and projections sufficient
to enable the Agent and the Majority Lenders to establish
appropriate levels for such financial covenants for the
remaining term of this Credit Agreement, which the Agent and
the Majority Lenders will establish in their reasonable
discretion.
(b) The Borrower hereby agrees to deliver to the Agent
no later than March 15, 1998, Financial Statements of the
Consolidated Entity as of January 31, 1998, sufficient to
establish the Borrower's compliance with Section 8.1A as of
such date (which information the Agent shall promptly
thereafter deliver to each of the Lenders).
1.5 Section 8.4 of the Credit Agreement is hereby
amended by (i) redesignating "clause (h)" thereof as "clause (I)"
and (ii) inserting the following language therein immediately
following clause (g) thereof:
(h) Indebtedness under the Kimco Sale Leaseback
Documents; and
2. Waiver. Effective as of the date hereof, upon
satisfaction of the conditions precedent set forth in Section 3
below, and in reliance upon the representations and warranties of
the Borrower set forth herein, Agent and each of the Lenders
hereby waive the Event of Default existing under Section 8.4 of
the Credit Agreement solely as a result of the Borrower's
incurring Indebtedness under the Kimco Sale Leaseback Documents.
3. Conditions Precedent. This Amendment shall become
effective as of the date hereof, upon satisfaction of all of the
following conditions:
(a) receipt by the Agent of a copy of this Amendment,
executed by the Borrower and the Majority Lenders; and
(b) receipt by the Agent in immediately available
funds for the ratable benefit of the Lenders of an amount
equal to $150,000.
4. Representations, Warranties and Covenants.
4.1 The Borrower hereby represents and warrants to the
Agent and each of the Lenders that, after giving effect to this
Amendment:
(a) All representations and warranties contained in
the Credit Agreement and the other Credit Documents are true
and correct in all material respects on and as of the date
of this Amendment, in each case as if then made, other than
representations and warranties that expressly relate solely
to an earlier date (in which case such representations and
warranties remain true and accurate on and as of such
earlier date);
(b) No Default or Event of Default has occurred which
has not been waived pursuant to the terms of the Credit
Agreement;
(c) this Amendment and the Credit Agreement constitute
legal, valid and binding obligations of the Borrower and are
enforceable against the Borrower in accordance with their
respective terms; and
(d) the execution and delivery by the Borrower of this
Amendment does not require the consent or approval of any
Person, except such consents and approvals as have been
obtained.
5. Reference to and Effect on the Credit Agreement and the
Other Credit Documents.
5.1 Upon the effectiveness of this Amendment, each
reference in the Credit Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each
reference in each of the other Credit Documents to the "Credit
Agreement" shall in each case mean and be a reference to the
Credit Agreement as amended hereby.
5.2 Except as expressly set forth herein, (i) the
execution and delivery of this Amendment shall in no way affect
any of the respective rights, powers or remedies of the Agent or
any of the Lenders with respect to any Event of Default nor
constitute a waiver of any provision of the Credit Agreement or
any of the other Credit Documents and (ii) all of the respective
terms and conditions of the Credit Agreement, the other Credit
Documents and all other documents, instruments, amendments and
agreements executed and/or delivered by the Borrower pursuant
thereto or in connection therewith shall remain in full force and
effect and are hereby ratified and confirmed in all respects.
The execution and delivery of this Amendment by the Agent or any
Lender shall in no way obligate the Agent or such Lender, at any
time hereafter, to consent to any other amendment or modification
of any term or provision of the Credit Agreement or any of the
other Credit Documents, whether of a similar or different nature.
6. Governing Law. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS AND DECISIONS OF THE STATE
OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
7. Headings. Section headings in this Amendment are
included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
8. Counterparts. This Amendment may be executed in any
number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together
constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and
duly authorized officers as of the date first set forth above.
VENTURE STORES, INC., a
Delaware corporation
By: /s/ Russell E. Solt
Name: Russell E. Solt
Title: Executive Vice President
BT COMMERCIAL CORPORATION, in its
individual capacity as a Lender and in
its capacity as Agent
By: /s/ Wayne D. Hillock
Name: Wayne D. Hillock
Title: Senior Vice President
BNY FINANCIAL CORPORATION
By:
Name:
Title:
THE CIT GROUP/BUSINESS CREDIT
CORPORATION
By:
Name:
Title:
CONGRESS FINANCIAL CORP.
By: /s/ Daniel H. Laven
Name: Daniel H. Laven
Title: Assistant Vice President
FINOVA CAPITAL CORPORATION
By: /s/ Greg Carasik
Name: Greg Carasik
Title: Senior Account Executive
FLEET CAPITAL CORPORATION
By: /s/ Robert J. Lund
Name: Robert J. Lund
Title: Vice President
FREEMONT FINANCIAL CORPORATION
By: /s/ Cheri Rittman
Name: Cheri Rittman
Title: Vice President
BANK BOSTON RETAIL FINANCE,
formally known as
GBFC, INC.
By: /s/ Elizabeth A. Ratto
Name: Elizabeth A. Ratto
Title: Vice President
HELLER FINANCIAL, INC.
By: /s/ Linda G. Peddle
Name: Linda G. Peddle
Title: Vice President,
Senior Account Executive
LASALLE NATIONAL BANK
By: /s/ Christopher G. Clifford
Name: Christopher G. Clifford
Title: Senior Vice President
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/ Mark Hanak
Name: Mark Hanak
Title: Account Officer
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Lawrence J. Placek
Name: Lawrence J. Placek
Title: Vice President
Venture Stores, Inc.
Computation of Earnings Per Share
(thousands, except per share data) EXHIBIT 11
13 WEEKS ENDED 39 WEEKS ENDED
Oct. 25, Oct. 26, Oct. 25, Oct. 26,
1997 1996 1997 1996
Net earnings (loss) before
extraordinary item $ (26,442) $ (9,203) $(144,941) $ (11,276)
Extraordinary item
(net of tax) - - (2,402) -
Net earnings (loss) $ (26,442) $ (9,203) $(147,343) $ (11,276)
Less preferred dividend (625) (625) (1,875) (1,875)
Net earnings (loss) avail.
to common shareholders $ (27,067) $ (9,828) $(149,218) $ (13,151)
Average outstanding shares 18,295 18,257 18,281 17,947
Earnings (loss) per common
share:
Before extraordinary item $ (1.48) $ (0.54) $ (8.03) $ (0.73)
Extraordinary item
(net of tax) - - (0.13) -
Earnings (loss) per
common share $ (1.48) $ (0.54) $ (8.16) $ (0.73)
PRIMARY:
Net earnings (loss) before
extraordinary item $ (26,442) $ (9,203) $(144,941) $ (11,276)
Extraordinary item
(net of tax) - - (2,402) -
Net earnings (loss) $ (26,442) $ (9,203) $(147,343) $ (11,276)
Less preferred dividend (625) (625) (1,875) (1,875)
Net earnings (loss) avail.
to common shareholders $ (27,067) $ (9,828) $(149,218) $ (13,151)
Average outstanding shares 18,295 18,257 18,281 17,947
Net effect of dilutive
stock options - based on
the treasury method - 28 - 55
Average shares for primary
earnings per share 18,295 18,285 18,281 18,002
Primary earnings (loss) per
common share:
Before extraordinary item $ (1.48) $ (0.54) $ (8.03) $ (0.73)
Extraordinary item
(net of tax) - - (0.13) -
Earnings (loss) per
common share $ (1.48) $ (0.54) $ (8.16) $ (0.73)
FULLY DILUTED:
Net earnings (loss) before
extraordinary item $ (26,442) $ (9,203) $(144,941) $ (11,276)
Extraordinary item
(net of tax) - - $ (2,402) $ -
Net earnings (loss) $ (26,442) $ (9,203) $(147,343) $ (11,276)
Less preferred dividend (625) (625) (1,875) (1,875)
Net earnings (loss) avail.
to common shareholders $ (27,067) $ (9,828) $(149,218) $ (13,151)
Average outstanding shares 18,295 18,257 18,281 17,947
Net effect of dilutive
stock options - based on
the treasury method - 28 - 55
Average shares for
fully diluted
earnings per share 18,295 18,285 18,281 18,002
Fully diluted earnings
(loss) per common share:
Before extraordinary item $ (1.48) $ (0.54) $ (8.03) $ (0.73)
Extraordinary item
(net of tax) - - (0.13) -
Earnings (loss) per
common share $ (1.48) $ (0.54) $ (8.16) $ (0.73)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Balance Sheet as of October 25, 1997 and the Condensed Statement of
Earnings for the 39 weeks ended October 25, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000864968
<NAME> VENTURE STORES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-25-1997
<CASH> 10,947
<SECURITIES> 0
<RECEIVABLES> 15,608
<ALLOWANCES> 0
<INVENTORY> 322,431
<CURRENT-ASSETS> 357,915
<PP&E> 434,988
<DEPRECIATION> 158,714
<TOTAL-ASSETS> 655,395
<CURRENT-LIABILITIES> 347,672
<BONDS> 252,201
0
77
<COMMON> 18,303
<OTHER-SE> 15,467
<TOTAL-LIABILITY-AND-EQUITY> 655,395
<SALES> 929,196
<TOTAL-REVENUES> 929,196
<CGS> 748,349
<TOTAL-COSTS> 304,238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,320
<INCOME-PRETAX> (151,711)
<INCOME-TAX> (6,770)
<INCOME-CONTINUING> (144,941)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,402)
<CHANGES> 0
<NET-INCOME> (147,343)
<EPS-PRIMARY> (8.16)
<EPS-DILUTED> (8.16)
</TABLE>
