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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 29, 2000
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 No. 001-14035
Stage Stores, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0407711
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
10201 MAIN STREET, HOUSTON, 77025
TEXAS (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (800)
579-2302
Securities registered pursuant to Section 12(b) of the
Act: NONE
Securities registered pursuant
to Section 12(g) of the Act:
Name of each exchange on which
Title of each class registered
Common Stock ($0.01 par value) New York Stock Exchange
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 No X
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held
by non-affiliates as of May 30, 2000 was $3,768,436.
At May 30, 2000, there were 26,850,223 shares of Common
Stock and 1,250,584 shares of Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
References to a particular year are to the Company's fiscal
year which is the 52 or 53 week period ending on the Saturday
closest to January 31 of the following calendar year (e.g., a
reference to "1999" is a reference to the fiscal year ended
January 29, 2000).
ITEM 1. BUSINESS
Recent Developments
As a result of the Company's poor financial performance,
lack of adequate trade support to fund its inventory working
capital requirements, lack of sufficient financial flexibility
and liquidity, and violations under certain covenants under its
various debt agreements, the Company filed for protection under
Chapter 11 of Title 11 of the United States Bankruptcy Code
("Chapter 11") on June 1, 2000 in the United States Bankruptcy
Court for the Southern District of Texas ( the "Court"). The
Company has negotiated a $450.0 million debtor-in-possession
financing agreement (the "DIP Financing") with a lender to
finance the Company's working capital requirements during Chapter
11 reorganization proceedings. On June 2, 2000, the Court
approved among other things, the proposed DIP Financing subject
to certain conditions. Under the Court's Interim Order, the Court
limited the amount available under the DIP Financing to $385.0
million pending a Final Order. Proceeds under the DIP Financing
will be used to retire the Company's existing Accounts
Receivable Program and Senior Revolving Credit Facility (defined
herein) and for general working capital purposes.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
General
Stage Stores, Inc. (the "Company" or "Stage Stores")
operates family apparel stores offering moderately priced,
nationally recognized brand name apparel, accessories, cosmetics
and footwear in approximately 500 small towns and communities
throughout the United States. Stage Stores was formed in 1988
when the management of Palais Royal, together with several
venture capital firms, acquired the family-owned Bealls and
Palais Royal chains which were originally founded in the 1920's.
The Company has developed a franchise focused on small markets
offering a broad range of brand name merchandise with a high
level of customer service in convenient locations.
As a result of its small market focus, Stage Stores
generally faces less competition for brand name apparel because
consumers in small markets generally are able to shop for branded
merchandise only in regional malls. In those small markets where
the Company does compete for brand name apparel sales, such
competition generally comes from local retailers, small regional
chains and, to a lesser extent, national department stores. The
Company believes it has a competitive advantage over local
retailers and smaller regional chains due to its: (i) economies
of scale, (ii) historically good vendor relationships and (iii)
proprietary credit card program. The Company believes it has a
competitive advantage in small markets over national department
stores due to its experience with smaller markets. In addition,
due to minimal merchandise overlap, Stage Stores generally does
not directly compete for branded apparel sales with national
discounters such as Wal-Mart.
At January 29, 2000, the Company, through its wholly-owned
subsidiary Specialty Retailers, Inc. ("SRI"), operated 648 stores
(averaging approximately 16,000 selling square feet) in thirty-
three states throughout the United States. Although the Company's
stores may be operated under its "Stage", "Bealls" and "Palais
Royal" trade names depending on the geographical market, the
Company operates the vast majority of the stores under one
concept and strategy. Approximately 70% of these stores are
located in small markets and communities with populations at or
below 30,000. The remainder of the Company's stores operate in
metropolitan areas, such as Houston, Texas.
The Company's merchandising strategy focuses on the
traditionally higher margin categories of women's, men's and
children's branded apparel, accessories, cosmetics and footwear.
Merchandise mix may vary from store to store to accommodate
differing demographic factors. The Company currently purchases
merchandise from a vendor base of approximately six hundred and
fifty vendors. Over 85% of 1999 sales consisted of branded
merchandise, including nationally recognized brands such as Levi
Strauss, Liz Claiborne, Chaps/Ralph Lauren, Calvin Klein, Sag
Harbor, Hanes, Nike, Reebok and Haggar Apparel. Levi accounted
for approximately 6.4% of the Company's 1999 retail purchases.
No other vendor accounted for more than 5%. In addition, the
Company, through its membership in Associated Merchandising
Corporation ("AMC"), a cooperative buying service, purchases
imported merchandise for its private label program. The
membership provides the Company with synergistic purchasing
opportunities allowing it to augment its branded merchandise
assortments. Private label merchandise purchased through AMC
accounted for approximately 5% of the Company's total retail
purchases for 1999.
The Company offers a carefully chosen but broad selection of
moderately-priced, branded merchandise which is divided into
distinct departments as follows (percentages represent each
department's contribution to Company sales):
Department 1999 1998
Men's/Young Men 19% 20%
Misses Sportswear 15 15
Shoes 12 11
Juniors 10 10
Children 8 9
Accessories & Gifts 8 8
Special Sizes 6 6
Cosmetics 5 5
Intimate 4 4
Dresses & Suits 3 3
Boys 3 3
Activewear 3 2
Junior Dresses 2 2
Coats 2 2
100% 100%
Employees
During 1999, the Company employed an average of 15,686 full
and part-time employees at all of its locations, of which 1,948
were salaried and 13,738 were hourly. The Company's central
office (which includes corporate, credit and distribution center
offices) employed an average of 607 salaried and 1,036 hourly
employees during 1999. In its stores during 1999, the Company
employed an average of 1,341 salaried and 12,702 hourly
employees. Such averages will vary during the year as the
Company traditionally hires additional employees and increases
the hours of part-time employees during peak seasonal selling
periods. There are no collective bargaining agreements in effect
with respect to any of the Company's employees. The Company
believes that relationships with its employees are good.
ITEM 2. PROPERTIES
The Company's corporate headquarters is located in a 130,000
square foot building in Houston, Texas. The Company leases the
building and most of the land at its Houston facility. The
Company owns a 450,000 square foot distribution center and a
credit department facility, both located in Jacksonville, Texas.
The Jacksonville distribution center and credit department
facility collateralizes the Company's Credit Facility (as defined
herein). See Note 6 to the Consolidated Financial Statements.
At January 29, 2000, the Company operated 648 stores located in
thirty-three states as follows:
Number
of
State Stores
Alabama 4
Arizona 4
Arkansas 28
Colorado 7
Florida 2
Georgia 1
Illinois 15
Indiana 16
Iowa 13
Kansas 25
Louisiana 50
Maryland 1
Michigan 7
Minnesota 11
Mississippi 17
Missouri 22
Montana 6
Nebraska 4
Nevada 3
New Mexico 25
New York 2
Ohio 25
Oklahoma 66
Oregon 8
Pennsylvania 2
South Carolina 1
South Dakota 6
Texas 263
Virginia 1
Washington 4
West Virgina 1
Wisconsin 3
Wyoming 5
Total 648
Full line stores range in size from approximately 4,100 to
68,000 selling square feet, with the average being approximately
16,000 selling square feet. The Company's stores are primarily
located in strip shopping centers. All store locations are
leased except for three Bealls stores and one Stage store,
aggregating 138,000 selling square feet, which are owned. The
majority of leases provide for a base rent plus contingent
rentals, generally based upon a percentage of net sales.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are
involved in various litigation matters arising in the ordinary
course of their business.
On March 30, 1999, a class action lawsuit was filed against
the Company and certain of its officers, directors and
stockholders in the United States District Court for the Southern
District of Texas by John C. Weld, Jr., a stockholder who
purchased 125 shares of the Company's common stock on August 3,
1998, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (the "Weld Suit"). The Company believed that the
allegations of the Weld Suit are without merit, and on July 23,
1999, the Company filed a motion to dismiss. United States
District Judge Kenneth Hoyt entered an order on December 8, 1999
dismissing the Weld Suit. The order has been appealed by Mr.
Weld.
On March 28, 2000, the Company filed a lawsuit against Carl
Tooker, the Company's former Chairman, Chief Executive Officer
and President in the District Court of Harris County, Texas. The
lawsuit is an action for damages arising from transactions
Mr. Tooker engaged in or directed while serving as President,
Chief Executive Officer and Chairman of the Board of Directors of
the Company which transactions benefited him personally or were
otherwise contrary to his duties as an officer and director. (See
Form 8-K dated March 9, 2000). The suit also seeks recovery of
debt owed by Mr. Tooker to the Company pursuant to loans and
promissory notes Mr. Tooker caused the Company to make to him
while serving in those capacities, and for conversion of stock
collateral pledged to the Company to secure his indebtedness.
The Company also seeks a mandatory injunction requiring
Mr. Tooker to deposit into the registry of the Court all
remaining stock collateral in his possession, and for a
declaratory judgment that Mr. Tooker was properly terminated "for
cause" under the terms of his employment agreement. The Company
seeks to recover not less than an aggregate of $2,755,672,
accrued interest, punitive damages, costs and reasonable
attorneys' fees.
On or about April 27, 2000 Mr. Tooker filed an Answer and
Counterclaim against the Company and a Third Part Petition
against the Company's Interim President, Chief Executive Officer
and Chairman of the Board, John J. Wiesner, Martin Stringer,
counsel to the Special Committee, and the law firm of McKinney &
Stringer, P.C. The answer generally denies all allegations made
by the Company. Mr. Tooker seeks damages from the Company of
approximately $3.9 million, plus attorney's fees, interest, and
costs for breach of his employment contract, and a like amount,
including punitive damages, from the third-party defendants for
alleged tortious interference with his employment contract. Mr.
Tooker also seeks to impose a constructive trust on the $300,000
in the Company's possession for certain contractual benefits he
claims to be due under his employment agreement. The remaining
claims seek damages against the Company and in part against the
third-party defendants, totaling $18 million, plus punitive
damages, fees, interest and costs, on theories of defamation,
civil conspiracy, breach of fiduciary duty and breach of duty of
good faith and fair dealing. The case is in its initial
development, prior to any discovery. The Company and the third-
party defendants dispute his allegations and intend to vigorously
defend all of Mr. Tooker's claims.
In March 2000, eleven former employees of SRI d/b/a Palais
Royal, filed two separate suits in the United States District
Court for the Southern District of Texas against the Company, SRI
and Mary Elizabeth Pena, arising out of alleged conduct occurring
over an unspecified time while the plaintiffs were working at one
or more Palais Royal stores in the Houston, Texas area. The
plaintiffs allege that on separate occasions they were falsely
accused of stealing merchandise and other company property and
giving discounts for purchases against company policy. The suits
accuse the defendants of defamation, false imprisonment,
intentional infliction of mental distress, assault and violation
of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
The claims seek unspecified damages for mental anguish, lost
earnings, exemplary damages, treble damages, interest, attorneys'
fees and costs. The Company denies the allegations and intends
to vigorously defend the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-
HOLDERS
No matters were submitted to a vote of security holders
during the quarter ended January 29, 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's authorized common equity securities consist of
par value $0.01 per share common stock ("Common Stock") and par
value $0.01 per share Class B common stock ("Class B Common
Stock"). Prior to April 16, 1998, the Common Stock was quoted on
the NASDAQ National Market System under the symbol "STGE".
Beginning April 16, 1998, the Company's Common Stock started
trading on the New York Stock Exchange under the symbol "SGE".
As of May 30, 2000, there was one holder of Class B Common Stock
and 299 holders of record of Common Stock. The following table
sets forth, for the periods indicated, the high, low and closing
prices for the Common Stock as reported by the New York Stock
Exchange:
Common Stock Prices
High Low Close
Quarter ended May 2, 1998 $53.00 $35.75 $51.13
Quarter ended August 1, 1998 53.75 25.00 25.44
Quarter ended October 31, 1998 26.13 8.75 13.25
Quarter ended January 30, 1999 15.00 6.75 8.00
Quarter ended May 1, 1999 9.25 5.00 6.44
Quarter ended July 31, 1999 8.13 5.06 6.44
Quarter ended October 30, 1999 9.75 4.81 4.81
Quarter ended January 29, 2000 5.00 1.38 1.38
The Company has not declared or paid any cash dividends on
its Common Stock since its initial public offering and does not
expect to pay cash dividends for the foreseeable future. The
Company anticipates that, for the foreseeable future, earnings
will be reinvested in the business and used to service
indebtedness. The Company's existing indebtedness limits its
ability to pay dividends. The declaration and payment of
dividends by the Company are subject to the discretion of the
Board. Any future determination to pay dividends will depend on
the Company's results of operations, financial condition, capital
requirements, contractual restrictions under its current
indebtedness and other factors deemed relevant by the Board.
On June 6, 2000, the New York Stock Exchange informed the
Company that the trading of the Company's stock will be suspended
immediately. Following the suspension, application will be made
by the New York Stock Exchange to the Securities and Exchange
Commission to delist the Company's stock.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial
data for the periods indicated. The selected consolidated
financial data were derived from, and should be read in
conjunction with, the Company's Consolidated Financial
Statements. All dollar amounts are stated in thousands, except
for per share data.
Fiscal Year
1999 1998
Statement of operations data:
Net sales $1,121,567 1,173,547
Cost of sales and related
buying, occupancy and
distribution expenses 897,117 839,238
Gross profit 224,450 (2) 334,309
Selling, general and
Administrative expenses 387,816 (3) 271,477
Store opening and closure
program costs 44,986 (4) 10,192
Operating income (loss) (208,352) 52,640
Interest, net 48,634 46,471
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle (256,986) 6,169
Income tax expense 20,217 (5) 2,455
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (277,203) 3,714
Extraordinary item, net of
tax, early retirement of debt (749) --
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities (3,938) --
Net income (loss) $(281,890) 3,714
Basic earnings per common
share before extraordinary item
and cumulative effect of change
in accounting principle $(9.89) $0.13
Basic earnings (loss) per
common share $(10.06) $0.13
Basic weighted average common
shares outstanding 28,028 27,885
Diluted earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $(9.89) $0.13
Diluted earnings (loss)
per common share $(10.06) $0.13
Diluted weighted average
common shares outstanding 28,028 28,428
Margin and other data:
Gross profit margin 20.0% 28.5%
Selling, general and
administrative expense rate 34.6% 23.1%
Operating income (loss) margin (18.6%) 4.5%
Store data:
Comparable store sales growth (7.0%) (3.0%)
Store Openings 10 86
Store Closings 41 14
Number of stores open at
end of period 648 679
Total selling area square
footage (thousands) 10,290 10,548
Balance sheet data (at end of period):
Working capital $(258,281) $368,138
Total assets 554,687 857,680
Long-term debt -- 487,968
Stockholders' equity (deficit) (74,967) 204,392
Fiscal Year
1997 1996
Statement of operations data:
Net sales $1,073,316 $776,550
Cost of sales and related
buying, occupancy and
distribution expenses 730,179 532,563
Gross profit 343,137 243,987
Selling, general and
Administrative expenses 240,011 172,579
Store opening and closure
program costs 8,686 2,838
Operating income (loss) 94,440 68,570
Interest, net 38,277 45,954
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle 56,163 22,616
Income tax expense 21,623 8,594
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle 34,540 14,022
Extraordinary item, net of tax,
early retirement of debt (18,295) (16,081)
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities -- --
Net income (loss) $16,245 $(2,059)
Basic earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $1.34 $0.91
Basic earnings (loss) per
common share $0.63 $(0.13)
Basic weighted average common
shares outstanding 25,808 15,394
Diluted earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $1.30 $0.88
Diluted earnings (loss) per
common share $0.61 $(0.13)
Diluted weighted average common
shares outstanding 26,483 15,927
Margin and other data:
Gross profit margin 32.0% 31.4%
Selling, general and
administrative expense rate 22.4% 22.2%
Operating income (loss) margin 8.8% 8.8%
Store data:
Comparable store sales growth 4.1% 3.3%
Store Openings 301 (6) 69
Store Closings 9 10
Number of stores open at
end of period 607 315
Total selling area square
footage (thousands) 9,557 5,670
Balance sheet data (at end of period):
Working capital $318,064 $235,219
Total assets 759,396 509,283
Long-term debt 395,248 298,453
Stockholders' equity (deficit) 205,078 92,266
Fiscal Year
1995 (1)
Statement of operations data:
Net sales $682,624
Cost of sales and related buying,
occupancy and distribution expenses 468,347
Gross profit 214,277
Selling, general and
Administrative expenses 149,102
Store opening and closure
program costs 3,689
Operating income (loss) 61,486
Interest, net 43,989
Income (loss) before income tax,
extraordinary item and cumulative
effect of change in accounting
principle 17,497
Income tax expense 6,767
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle 10,730
Extraordinary item, net of tax,
early retirement of debt --
Cumulative effect of change in
accounting principle, net of tax,
reporting costs of start-up
activities --
Net income (loss) $10,730
Basic earnings per common share
before extraordinary item and
cumulative effect of change in
accounting principle $0.88
Basic earnings (loss) per
common share $0.88
Basic weighted average
common shares outstanding 12,255
Diluted earnings per common
share before extraordinary item
and cumulative effect of change
in accounting principle $0.86
Diluted earnings (loss)
per common share $0.86
Diluted weighted average
common shares outstanding 12,483
Margin and other data:
Gross profit margin 31.4%
Selling, general and
administrative expense rate 21.8%
Operating income (loss) margin 9.0%
Store data:
Comparable store sales growth 0.8%
Store Openings 68
Store Closings 0
Number of stores open at
end of period 256
Total selling area square
footage (thousands) 4,886
Balance sheet data (at end of period):
Working capital $170,108
Total assets 408,254
Long-term debt 380,039
Stockholders' equity (deficit) (72,314)
________________________
(1) 1995 includes 53 weeks. Comparable store sales growth for
1995 has been determined based on a comparable 52 week
period.
(2) Includes $69.3 million of unusual charges related to store
closings, lower of cost or market reserves for seasonal inventory
and LIFO inventory reserves. See Item 7 "Significant Events"
below.
(3) Includes $115.9 million of unusual charges related to the
write down of long-lived assets, including goodwill, and certain
other charges. See Item 7 "Significant Events" below.
(4) Includes $44.2 million of costs associated with the
Company's 1999 and 2000 store closure programs. See Item 7
"Significant Events" below.
(5) Includes a $89.5 million valuation allowance provided for
certain deferred tax assets. See Item 7 "Significant Events"
below.
(6) Includes 104 stores acquired from C. R. Anthony Company in
1997 which were not converted to the Company's format and
trade names until 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995.
Certain items discussed or incorporated by reference herein
contain forward-looking statements that involve risks and
uncertainties including, but not limited to, the ability to
obtain financing on terms reasonably satisfactory to the Company,
the ability of the Company to obtain normal trade terms from its
vendors, the ability of the Company to comply with the various
covenant requirements contained in the Company's debt agreements
and the demand for apparel. The demand for apparel can be
affected by weather patterns, levels of competition, competitors'
marketing strategies, changes in fashion trends, availability of
product on normal payment terms and the failure to achieve the
expected results of the Company's merchandising and marketing
plans as well as its store opening and closing plans. The
occurrence of any of the above have had and can continue to have
a material and adverse impact on the Company's operating results.
See "Risk Factors" below. Certain information herein contains
estimates which represent management's best judgment as of the
date hereof based on information currently available; however,
the Company does not intend to update this information to reflect
developments or information obtained after the date hereof and
disclaims any legal obligation to the contrary.
General
Overview. The Company operates family apparel stores
offering moderately-priced, nationally recognized brand name
apparel, accessories, cosmetics and footwear in approximately 500
small towns and communities throughout the United States. The
Company has recognized the high level of brand awareness and
demand for fashionable, quality apparel by consumers in small
markets and has identified these markets as a profitable and
underserved niche. The Company has developed a franchise focused
on small markets offering a broad range of brand name merchandise
with a high level of customer service in convenient locations.
At January 29, 2000, the Company, through its wholly-owned
subsidiary Specialty Retailers, Inc., operated 648 stores
(averaging approximately 16,000 selling square feet) in thirty-
three states throughout the United States. Although the
Company's stores may be operated primarily under its "Stage",
"Bealls" and "Palais Royal" trade names depending on the
geographical market, the Company operates the vast majority of
the stores under one concept and strategy. Approximately 70% of
these stores are located in small markets and communities with
populations at or below 30,000. The remainder of the Company's
stores operate in metropolitan areas, such as suburban Houston,
Texas.
Significant Events. As a result of the Company's poor
financial performance, lack of adequate trade support to fund its
inventory working capital requirements, lack of sufficient
financial flexibility and liquidity, and violations under certain
covenants under its various debt agreements, the Company filed
for protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code ("Chapter 11") on June 1, 2000 in the United
States Bankruptcy Court for the Southern District of Texas ( the
"Court"). The Company has negotiated a $450.0 million debtor-in-
possession financing agreement (the "DIP Financing") with a
lender to finance the Company's working capital requirements
during Chapter 11 reorganization proceedings. On June 2, 2000,
the Court approved among other things, the proposed DIP Financing
subject to certain conditions. Under the Court's Interim Order,
the Court limited the amount available under the DIP Financing to
$385.0 million pending a Final Order. Proceeds under the DIP
Financing will be used to retire the Company's existing
Accounts Receivable Program and Senior Revolving Credit Facility
(defined herein) and for general working capital purposes.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
As a result of the Company's poor financial performance for
1999, the Company performed a cash flow analysis as required
under Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of" and Accounting Principles Board
Opinion No. 17. This analysis resulted in the Company recording
an impairment loss of $41.7 million in 1999, consisting of $26.0
million in incremental depreciation and amortization related to
property, equipment and leasehold improvements associated with
underperforming stores and $15.7 million related to goodwill. The
impairment loss is included in selling, general and
administrative expense in the accompanying statement of
operations. As a result of the impact of the Company's Bankruptcy
Filing on June 1, 2000 on estimated future cash flows, the
Company reevaluated the recoverability of its remaining goodwill.
Based upon this re-evaluation, the Company wrote-off the
remaining balance of goodwill amounting to $67.9 million and
other intangible assets amounting to $1.0 million during 1999.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity
of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to
this event, including the Company's highly leveraged financial
structure and recurring losses from operations as reflected in
the consolidated financial statements, such realization of assets
and liquidation of liabilities is subject to uncertainty.
Further, a plan of reorganization could materially change the
amounts reported in the consolidated financial statements, which
do not give effect to any adjustments to the carrying value of
assets or amounts of liabilities that might be necessary as a
consequence of a plan of reorganization. Additionally, there will
likely be additional store closures as part of the reorganization
process which would result in additional adjustments. The ability
of the Company to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to comply with debtor-
in-possession agreements and the ability to generate sufficient
cash from operations and financing sources to meet obligations.
Additionally, the accompanying consolidated financial statements
do not include any adjustments that would be required if the
Company were in liquidation.
Substantially all of the Company's liabilities are subject
to settlement under reorganization proceedings. The Company's
debt to banks and bondholders is in default of the terms of the
applicable loan agreements, notes and debentures. For financial
reporting purposes, those liabilities and obligations have been
classified as current liabilities. The ultimate adequacy of
security for any secured debt obligations and settlement of all
liabilities and obligations cannot be determined until a plan of
reorganization is confirmed.
On March 9, 2000, the Company announced that it had completed a
new $35.0 million senior revolving credit facility. The new
facility increased the current borrowing capacity of the Company
to $235.0 million when combined with its existing $200.0 million
revolving credit facility. Both facilities will expire on June
14, 2002. The new $35.0 million facility is secured by a
perfected first priority security interest on the inventory of
the Company. Additionally, the Company granted the lenders under
the existing $200.0 million revolving credit facility a secondary
lien on $50.0 million of inventory as well as a first lien on
store furniture and fixtures and certain other assets. The $50.0
million secondary lien will be reduced by any amounts outstanding
under the new $35.0 million senior revolving credit facility.
Therefore, the maximum lien on the Company's inventory is $50.0
million under the combined facilities. Under the terms of the
new credit facility, the Company will issue warrants to the
lenders to purchase 7.5% of the Company's outstanding common
stock. The exercise price under the warrants will be determined
based upon the average closing price of the Company's stock for
the 30 days following the date of commitment. The warrants will
expire on March 6, 2003. The Company repaid amounts outstanding
under the Senior Revolving Credit Facility with proceeds from its
DIP Financing. See "Liquidity and Capital Resources" below as
well as Note 6 to the Consolidated Financial Statements.
On February 22, 2000, the Company announced the departure of
Carl Tooker who was Chairman, Chief Executive Officer and
President of the Company. The Company stated that Mr. Tooker's
departure was the result of an inquiry conducted by a special
committee consisting of all of the non-management members of the
Board of Directors, which reviewed transactions between the
Company and Mr. Tooker. The effect of the transactions has been
included in the Company's results for prior periods and are not
material to the financial condition or operations of the Company;
however, these transactions had not been properly reported to the
Company's Board of Directors. With Mr. Tooker's departure, the
Board will oversee operations and coordinate the search for a new
Chief Executive Officer. The Board has appointed Director John
J. (Jack) Wiesner Chairman, Interim Chief Executive Officer and
President. The other members of the Board have agreed to assist
Mr. Wiesner as necessary. The Company is actively conducting a
search for a new Chief Executive Officer. In addition, certain
other members of senior management have resigned from the
Company. The duties of these members of senior management have
been reassigned to existing members of management.
On February 3, 2000, the Company announced that its bank lending
group had amended certain provisions contained within its $200.0
million Credit Facility Agreement. The amendment, which was
effective as of that date, waived the Company's compliance with
the financial covenants contained in the credit agreement for the
fourth quarter of 1999. In addition, the amendment revised the
financial covenants for the first three quarters of 2000 as well
as the requirements under the clean down provision.
During the fourth quarter of 1999, the Company recorded
certain significant pretax charges aggregating $205.7 million.
Of the total, $62.0 million was charged to cost of sales, $115.9
million was charged to selling, general and administrative
("SG&A") expenses while the balance of $27.8 million was charged
to store opening and closure program costs. With respect to the
charge to cost of sales, $54.0 million related to a lower of cost
or market reserve for excess fall clearance inventory and
inventory to be liquidated in connection with the store closure
program announced on February 3, 2000 (see below) while $8.0
million was a LIFO charge resulting from an overall decrease in
the level of inventory at year end. The charge to SG&A expenses
for the fourth quarter is comprised of a $110.6 million write
down of long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121 and Accounting Principles
Board Opinion No. 17 (of this amount, $84.6 million relates to
goodwill and other intangibles and the remaining amount relates
to other long-lived assets), a $2.8 million provision against
certain miscellaneous receivables, $0.6 million associated with
severance for the Company's work force reduction program and $1.9
million associated with certain costs related to the refinancing
of the Company's accounts receivable program completed in
November 1999. The store opening and closure costs of $27.8
million for the fourth quarter reflect the costs associated with
additional store closures announced on February 3, 2000. In
addition, income tax expense includes an $89.5 million valuation
allowance recorded during the fourth quarter related to certain
deferred tax assets (see Note 11 - Income Taxes to the
Consolidated Financial Statements).
On November 9, 1999, the Company completed a refinancing of the
existing term and revolving certificates outstanding under its
Accounts Receivable Program (see Note 4 to the Company's
Consolidated Financial Statements). In connection with the
refinancing, the Company's special purpose off-balance sheet
trust (the "Trust") replaced the previously existing term and
revolving certificates with new term and revolving certificates
(the "New Certificates"). The New Certificates provided the
Company with a maximum availability of $329.9 million, subject to
the amount of receivables held in the Trust. Based upon the
amount of receivables in the Trust at the time of closing, the
Company received approximately $292.4 million of proceeds. Of
this amount, approximately $259.3 million was used to retire the
outstanding balances under the previously existing Trust
certificates, which were scheduled to begin amortizing in
December of 1999. The remainder of the proceeds were used to
redeem the previously existing $30.0 million aggregate principle
amount of SRI Receivables Purchase Co., Inc. ("SRPC") 12.5% Trust
certificate-backed notes and to pay for other costs associated
with the refinancing. In connection with the refinancing, the
Company recorded an after-tax extraordinary charge of
approximately $0.7 million in the fourth quarter of 1999 related
to the early retirement of debt. The Company also recorded an
additional $1.9 million of pretax costs in selling, general and
administrative ("SG&A") expenses associated with the refinancing
during the fourth quarter of 1999. The Company redeemed the New
Certificates with proceeds from its DIP Financing.
During the second quarter of 1999, the Company announced a store
closure program under which the Company closed approximately 35
under performing stores during the last three quarters of the
year. In connection with the store closure program, the Company
recorded a total of $23.7 million of pretax costs during the
second and third quarters of 1999, of which $7.3 million is
included in cost of sales while the remaining $16.4 million is
included in store opening and closure program costs. Of the
total $23.7 million of costs, approximately $2.5 million
represented severance and lease termination costs, approximately
$2.5 million represented operating costs for the stores in the
closure program during the second and third quarters of 1999,
approximately $7.3 million represented a lower of cost or market
reserve related to the inventory to be liquidated in the stores
in the closure program while the balance related primarily to the
write-off of fixed assets and intangibles associated with the
stores in the closure program.
The financial information, discussion and analysis that follow
should be read in conjunction with the Company's Consolidated
Financial Statements included elsewhere herein.
Results of Operations
The following sets forth the results of operations as a
percentage of sales for the periods indicated:
Fiscal Year
1999 1998 1997
Net sales 100.0% 100.0% 100.0%
Cost of sales and related
buying, occupancy and
distribution expenses 80.0 71.5 68.0
Gross profit margin 20.0 28.5 32.0
Selling, general and
administrative expenses 34.6 23.1 22.4
Store opening and closure
program costs 4.0 0.9 0.8
Operating income (loss)
margin (18.6) 4.5 8.8
Net interest expense 4.3 4.0 3.6
Income (loss) before
income tax, extraordinary
item and cumulative
effect of change in
accounting principle (22.9)% 0.5% 5.2%
1999 Compared to 1998
Sales for the year ended January 29, 2000 decreased 4.4% to
$1,121.6 million from $1,173.5 million for the year ended January
30, 1999. The decrease in sales for 1999 reflects, among other
things, the net reduction of 31 stores during the year and a 7.0%
decline in comparable store sales. Management believes the
majority of the decline in comparable store sales was
attributable to (i) the impact on the first quarter of the
aggressive management of the Company's inventory levels
throughout the 1998 fall selling season, (ii) the impact on the
second and third quarters of the Company's more conservative
promotional cadence throughout the two periods and (iii) the
impact on the fourth quarter of the softness in the Company's
sales during the Christmas selling period.
The Company's aggressive inventory management activities
that were put into place during the 1998 fall selling season
negatively impacted the Company's merchandise mix and, to a
lesser extent, the Company's customer base. As a result, the
Company began the first quarter with significantly lower levels
of inventory on a comparable store basis as compared to the prior
year's first quarter levels, particularly with respect to
clearance merchandise. The lower levels of clearance inventory,
as well as the continued aggressive pricing on this clearance
merchandise throughout February, was a significant contributor to
the decline in comparable store sales for the first quarter. In
addition, sales for the Easter selling period were softer than
expected as a result of lower than planned inventory levels
during the period.
Sales results for the second and third quarters were
negatively impacted by a reduction in the number of promotional
events and a lower level of price discounting as compared to the
same periods in the prior year. While the Company anticipated
that this strategy would negatively impact sales, the more
conservative promotional cadence was designed to improve
merchandise margins by increasing the sell-through of regular
priced goods. In addition, comparable store sales for the third
quarter were negatively impacted by a reduction in the level of
clearance activities during the early part of the quarter as
compared to last year. Due to inventory management initiatives
that the Company put into place during the early part of 1999,
the level of seasonal clearance merchandise on hand at the
beginning of the third quarter of 1999 was significantly below
last year's level and, therefore, sales for the third quarter of
1999 were negatively impacted as compared to the third quarter of
1998.
Finally, management believes that the weakness in sales over
the Christmas holiday period reflects an increased level of
competitive promotional activity during the period as well as
inventory management issues during the fourth quarter of 1999.
As a result, the Company ended the year with an abnormally high
portion of its inventory in fall clearance product which has
required significant markdowns to sell during the first quarter
of 2000. As a result, the Company recorded a lower of cost or
market reserve for this seasonal inventry during the fourth
quarter (see Item 7 "Significant Events" above and further
discussion below).
Gross profit decreased 32.8% to $224.5 million for 1999 from
$334.3 million for 1998. Gross profit, as a percent of sales,
decreased to 20.0% for the current year from 28.5% for the prior
year. The lower gross profit percentage for 1999 reflects, among
other things, (i) the impact of the increased level of
promotional activity utilized during the fourth quarter of 1999,
(ii) the negative sales leverage associated with the Company's
fixed buying, occupancy and distribution expenses which are
included in cost of goods sold, (iii) lower vendor discounts on
new store inventory purchases and reduced levels of store grand
opening sales, which typically carry a higher level of gross
margin, as a result of the reduction in the number of new stores
opened during 1999 as compared to 1998, (iv) the recording of
lower of cost or market reserves during the second and fourth
quarters aggregating $61.3 million, (v) an $8.0 million LIFO
charge relating to an overall decrease in inventories which
resulted in the liquidation of certain high cost historical
inventory layers and (vi) higher than anticipated net shrinkage
expense. The lower of cost or market reserves recorded during
these two periods relate to inventory to be liquidated in
conjunction with store closures and the excess Christmas
clearance inventory as discussed above. The decline in the gross
profit percentage was partially offset by higher merchandise
margins during the second and third quarters of the current year
resulting from a reduction in the level of clearance sales and a
more conservative promotional cadence followed during these
periods.
SG&A expenses for 1999 increased 42.8% to $387.8 million
from $271.5 million in the comparable period of 1998 and, as a
percent of sales, increased to 34.6% from 23.1% in the comparable
period last year. SG&A expenses for 1999 reflect, among other
things, a $110.6 million write down of long-lived assets in
accordance with Statement of Financial Accounting Standards No.
121 and Accounting Principles Board Opinion No. 17 consisting of
increased depreciation and amortization of $26.0 million related
to property, equipment and leasehold improvements associated with
underperforming stores and associated goodwill and other
intangibles of $84.6 million, a $2.8 million provision against
certain miscellaneous receivables, $0.6 million of severance for
workforce reduction programs and $1.9 million associated with
certain costs related to the refinancing of the Company's
Accounts Receivable Program which was completed in November 1999.
SG&A expenses for the current year benefited from an increase in
the fair value of the Company's retained interest in its accounts
receivable trust, the result of which is included in SG&A
expenses, reduced payroll and payroll related costs and the
Company's continuing efforts in controlling SG&A expenses. The
reduction in payroll related costs was primarily associated with
reduced vacation expense resulting from a change in the Company's
employee benefit program during the first quarter of this year.
The current year SG&A expenses also benefited from a reduction in
operating costs associated with the stores included in the store
closure program which was implemented during the second quarter
of 1999.
Store opening and closure program costs for 1999 of $45.0
million reflect $0.8 million of costs associated with 10 new
stores opened during 1999, as well as costs associated with the
Company's store closure programs.
As a result of the factors discussed above, the Company had
an operating loss of $208.4 million for 1999 as compared to
operating income of $52.6 million for the comparable period in
1998.
Net interest expense for 1999 increased 4.5% to $48.6
million from $46.5 million for the comparable period in 1998 due
to a higher level of average borrowings outstanding and an
increase in overall borrowing rates.
Income tax expense for 1999 of $20.3 million includes an
$89.5 million valuation allowance provided for certain deferred
tax assets.
As a result of the foregoing, the Company's net loss, before
extraordinary item and the cumulative effect of change in
accounting principle, for the year ended January 29, 2000 was
$277.2 million as compared to net income of $3.7 million for the
year ended January 30, 1999.
In connection with the adoption of SOP 98-5, the Company
recorded the cumulative effect of change in accounting principle,
net of tax, of $3.9 million during the first quarter of 1999. The
charge reflects the write-off of the unamortized organizational
costs associated with the Company's accounts receivable trust and
credit card bank. During the fourth quarter of 1999, the Company
recorded an extraordinary item, net of tax, of $0.7 million in
connection with the early retirement in November 1999 of the
$30.0 million aggregate principal amount of SRPC 12.5% Trust
certificate-backed notes.
1998 Compared to 1997
Sales for the year ended January 30, 1999 increased 9.3% to
$1,173.5 million from $1,073.3 million for the year ended January
31, 1998. The increase in sales was primarily due to an
approximately $132.8 million increase in sales from stores opened
or acquired during 1998 and 1997 which are not included in
comparable store sales, partly offset by a 3.0% decline in
comparable store sales. Management believes the majority of the
decline in comparable store sales was attributable to (i) the
extreme hot weather and drought conditions during the second
quarter of 1998 in a substantial portion of the Company's market
area, (ii) the unseasonably warm weather which existed throughout
the majority of the 1998 Christmas selling period, (iii) the
implementation of a "value pricing" program on selected private
label merchandise and (iv) the aggressive but prudent management
of the Company's inventory levels throughout the fall selling
season.
The extreme weather conditions which impacted the majority
of the Company's markets during late June and July 1998 resulted
in reduced customer traffic and changed customers' spending
patterns during this period. As a result, comparable store sales
for the second quarter decreased 5.0%. Unseasonably warm weather
conditions in most markets in the third and fourth quarters of
1998 negatively impacted the sales of the traditional cold
weather categories of merchandise. In response, the Company
accelerated its promotional activities during this period by
increasing the level of permanent and promotional markdowns on
its seasonal merchandise. This strategy lowered the average
retail unit price of merchandise sold during the fall selling
season which negatively impacted net sales. As a result of these
factors and those discussed below, comparable store sales for the
fall selling season decreased 4.3%.
In order to mitigate any potential economic impact that the
record summer heat and drought conditions had on the small market
communities in which the Company operates, the Company
implemented a value pricing strategy on a small portion of its
private label merchandise. Under the value pricing strategy, the
Company reduced the price point on certain key private label
basic items for the fall season. The program was designed to
generate sufficient additional unit sales to offset the reduction
in the average unit selling price. Due to the increased
promotional activities discussed above during the fourth quarter,
the program did not accomplish its goals. For 1999, based upon
the results of this program, the Company eliminated the value
pricing strategy from its merchandise mix.
Finally, the Company aggressively managed its inventory
levels throughout the fall selling season due to the softness in
overall sales. Actions taken to control inventory levels
included a significant reduction in the aggregate amount of
merchandise receipts for the fall selling season as well as the
acceleration of the Company's promotional activities discussed
above. The significant reduction in the receipt flow for the
fall selling season negatively impacted the freshness and content
of certain of the Company's merchandise offerings thereby further
depressing sales levels. However, as a result of its aggressive
promotional activities and prudent management of its inventory
levels, retail inventory per square foot on a comparable store
basis at year-end 1998 was approximately 8% lower than the
corresponding 1997 level. Management believes it has identified
the content issues within its merchandise offerings created
during 1998 and has put plans in place to address these issues in
1999.
Gross profit decreased 2.6% to $334.3 million in 1998 from
$343.1 million in 1997. Gross profit as a percent of sales
decreased to 28.5% in 1998 from 32.0% in 1997. Contributing to
the decline in gross profit were the higher levels of markdowns
designed to stimulate traffic during the adverse weather
conditions in the second quarter and the aggressive discounting
and promotional activity during the second half of the year
designed to drive unit sales and liquidate seasonal merchandise.
In addition, the lower gross profit percentage reflects the
impact of fixed buying, occupancy, and distribution expense
components included in cost of goods sold in relation to lower
sales levels as well as higher shrinkage expense.
Selling, general and administrative expenses increased 13.1%
to $271.5 million in 1998 from $240.0 million in 1997. Selling,
general and administrative expenses as a percent of sales for
1998 increased to 23.1% from 22.4% in 1997. Factors contributing
to the increase in selling, general and administrative expenses
as a percent of sales were the negative leverage resulting from
the reduced sales level and the increased promotional expense
associated with the aggressive management of the Company's
inventory level discussed above. Advertising expenses as a
percentage of sales were 4.3% in 1998 as compared to 3.7% in
1997. Offsetting these increases were approximately $5.6 million
of certain duplicative and one-time costs associated with the CR
Anthony acquisition which were incurred in 1997 as well as the
positive impact of the Company's newly formed credit card bank
which has allowed the Company to charge its customers a service
charge and late fee rate structure consistent with other national
apparel retailers.
Store opening and closure costs for 1998 increased to $10.2
million from $8.7 million for the same period in 1997 due to an
increase in the number of stores opened during 1998 as compared
to 1997.
Operating income for 1998 decreased to $52.6 million from $94.4
million in 1997 due to the factors discussed above. Operating
income as a percent of sales for 1998 was 4.5% as compared to
8.8% in 1997.
Net interest expense for 1998 increased 21.4% to $46.5
million from $38.3 million in 1997 due to higher levels of
borrowings under the Credit Facilities resulting from the
Company's expansion program.
The Company's net income before extraordinary items for 1998
decreased to $3.7 million as compared to $34.5 million in 1997
due to the impact of the factors discussed above.
Seasonality and Inflation
The Company's business is seasonal and sales traditionally
are lower during the first nine months of the year (February
through October) and higher during the last three months of the
year (November through January). Working capital requirements
fluctuate during the year and generally reach their highest
levels during the third and fourth quarters.
Fiscal Year 1999
Q1 Q2 Q3 Q4
Net sales $262,591 $269,848 $264,327 $324,801
Gross profit 70,359 74,021 77,203 2,867
Operating inc. (loss) 8,391 (8,332) 12,560 (220,971)
Quarters' operating
income as a pecent
of annual N/A N/A N/A N/A
Income (loss) before
extraordinary item
and cummulative
effect of a change in
accounting principle (2,269) (15,091) 224 (260,067)
Net income (loss) (4,671) (15,091) 224 (262,352)
Fiscal Year 1998
Q1 Q2 Q3 Q4
Net sales $272,788 $271,805 $271,605 $357,349
Gross profit 87,225 82,239 75,252 89,593
Operating inc. (loss) 25,278 12,678 7,226 7,458
Quarters'operating
income as a percent
of annual 48% 24% 14% 14%
Income (loss) before
extraordinary item and
cummulative effect of
change in accounting
principle 9,035 765 (3,152) (2,934)
Net income (loss) 9,035 765 (3,152) (2,934)
The Company does not believe that inflation had a material
effect on its results of operations during the past two years.
However, there can be no assurance that the Company's business
will not be affected by inflation in the future.
Liquidity and Capital Resources
As a result of the Company's poor financial performance,
lack of adequate trade support to fund its inventory working
capital requirements, lack of sufficient financial flexibility
and liquidity, and violations under certain covenants under its
various debt agreements, the Company filed for protection under
Chapter 11 of Title 11 of the United States Bankruptcy Code
("Chapter 11") on June 1, 2000 in the United States Bankruptcy
Court for the Southern District of Texas ( the "Court"). The
Company has negotiated a $450.0 million debtor-in-possession
financing agreement (the "DIP Financing") with a lender to
finance the Company's working capital requirements during Chapter
11 reorganization proceedings. On June 2, 2000, the Court
approved among other things, the proposed DIP Financing subject
to certain conditions. Under the Court's Interim Order, the Court
limited the amount available under the DIP Financing to $385.0
million pending a Final Order. Proceeds under the DIP Financing
will be used to retire the Company's existing Accounts
Receivable Program and Senior Revolving Credit Facility and for
general working capital purposes.
If the Company receives a Final Order approving the DIP
Financing as proposed, management believes there should be
sufficient liquidity to fund the Company's working capital
requirements during the reorganization proceedings; however there
can be no assurances the entire $450.0 million DIP Financing will
be approved by the Court.
Under Chapter 11, the Company will operate its business as
debtor-in-possession, subject to the approval of the Bankruptcy
Court for certain proposed actions. Additionally, one or more
creditor committees will be formed and would have the right to
review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
Total working capital decreased $626.4 million to a deficit
of $258.3 million at January 29, 2000 from $368.1 million at
January 30, 1999. The most significant changes in working
capital were: (i) a decrease of $80.2 million in inventories
associated with the net reduction of 31 stores during 1999 as
well as certain significant charges and reserves recorded during
the fourth quarter of 1999 aggregating $62.0 million, as
discussed in "Results of Operations" above, and (ii) a reduction
of $28.2 million in undivided interest in accounts receivable
trust due to a higher level of borrowings outstanding under the
Company's Accounts Receivable Program, of which $30.0 million of
the increase represents borrowings related to the retirement of
the SRPC notes in November 1999, and (iii) the reclassification
of long-term debt of $492.4 million to current as a result of
certain covenant violations under the respective debt agreements.
The Company's primary capital requirements are for working
capital, debt service and capital expenditures. Cash interest
payments were $45.5 million in 1999. Capital expenditures are
generally for new store openings, remodeling of existing stores
and facilities, customary store maintenance and operating system
enhancements and upgrades. Capital expenditures were $22.0
million during 1999 as compared to $88.7 million in 1998.
Capital expenditures during 1999 were primarily related to 10 new
store openings, remodeling of existing stores and the
implementation of a new merchandising system. Management
estimates that capital expenditures will be approximately $15.0
million for 2000. As discussed above, all of the Company debt
has been classified as current in the accompanying financial
statements.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which requires
that all derivative financial instruments be recorded in the
financial statements. SFAS No. 133 is effective for the Company
in the first quarter of 2001, and the Company is in the process
of ascertaining the impact this new standard will have on its
financial statements. In March 2000, the FASB issued
interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation which provides guidance for certain
issues arising from the application of APB Opinion No. 25; the
Company is currently evaluating the impact of application of this
interpretation on its financial statements.
Risk Factors
Current Bankruptcy Proceeding: As a result of the Company's
poor financial performance, lack of adequate trade support to
fund its inventory working capital requirements, lack of
sufficient financial flexibility and liquidity, and violations
under certain covenants under its various debt agreements, the
Company filed for protection under Chapter 11 of Title 11 of the
United States Bankruptcy Code on June 1, 2000 in the United
States Bankruptcy Court for the Southern District of Texas. Under
Chapter 11, the Company will operate its business as debtor-in-
possession, subject to the approval of the Bankruptcy Court for
certain proposed actions. Additionally, one or more creditor
committees will be formed and would have the right to review and
object to any non-ordinary course of business transactions and
participate in the formulation of any plan or plans of
reorganization. There can be no assurances that the Company will
be successful in reorganizing under Chapter 11 which could result
in liquidation.
Leverage and Restrictive Covenants: Due to the level of the
Company's indebtedness under the DIP Financing, any material or
adverse development affecting the business of the Company could
significantly limit its ability to withstand competitive
pressures or adverse economic conditions, to take advantage of
expansion opportunities or other significant business
opportunities that may arise, to meet its obligations as they
become due or to comply with the various covenant requirements
contained in the Company's DIP Financing. In addition, the
Company's DIP Financing imposes operating and financial
restrictions on the Company and certain of its subsidiaries.
Such restrictions limit the Company's ability to incur additional
indebtedness, to make dividend payments and to make capital
expenditures in excess of authorized amounts.
Availability of Merchandise Product on Normal Trade Terms:
The Company is highly dependent on obtaining merchandise product
on normal trade terms. Due to the Company's recent financial
performance, some of the Company's key vendors have become more
restrictive in granting trade credit through either reducing the
Company's credit lines or shortening payment terms. In addition,
the majority of the Company's factors have required letters of
credit to partially secure the credit lines that these factors
have provided to the Company. The tightening of credit from the
vendor or factor community has had a material adverse impact on
the Company's business and financial condition.
Economic and Market Conditions: A substantial portion of the
Company's operations are located in the central United States.
In addition, many of the Company's stores are situated in small
towns and rural environments that are substantially dependent
upon the local economy. The retail apparel business is dependent
upon the level of consumer spending, which may be adversely
affected by an economic downturn or a decline in consumer
confidence. An economic downturn, particularly in the central
United States and any state (such as Texas) from which the
Company derives a significant portion of its net sales, could
have a material and adverse effect on the Company's business and
financial condition.
The Company's success depends, in part, upon its ability to
anticipate and respond to changing consumer preferences and
fashion trends in a timely manner. Although the Company attempts
to stay abreast of emerging lifestyle and consumer preferences
affecting its merchandise, any sustained failure by the Company
to identify and respond to such trends could have a material and
adverse effect on the Company's business and financial condition.
The Company's business is seasonal and its quarterly sales
and profits traditionally have been lower during the first three
fiscal quarters of the year (February through October) and higher
during the fourth fiscal quarter (November through January). In
addition, working capital requirements fluctuate throughout the
year, increasing substantially in October and November in
anticipation of the holiday season due to requirements for
significantly higher inventory levels. Any substantial decrease
in sales for the last three months of the year could have a
material and adverse effect on the Company's business and
financial condition.
The Company's business depends, in part, on normal weather
patterns across its markets. Any unusual weather patterns in the
Company's markets can have a material and adverse impact on the
Company's business and financial condition.
Competition: The retail apparel business is highly
competitive. Although competition varies widely from market to
market, the Company faces substantial competition, particularly
in its Houston area markets, from national, regional and local
department and specialty stores. Some of the Company's
competitors are considerably larger than the Company and have
substantially greater financial and other resources. Although
the Company currently offers branded merchandise not available at
certain other retailers (including large national discounters) in
its small market stores, there can be no assurance that existing
or new competitors will not carry similar branded merchandise in
the future, which could have a material and adverse effect on the
Company's business and financial condition.
Dependence on Key Personnel: The success of the Company
depends to a large extent on its management team. Certain members
of senior management, including the former Chief Executive
Officer, the Chief Financial Officer, the Chief Merchandising
Officer and the Chief Information Officer have departed from the
Company. Although the responsibilities of these individuals have
been reassigned to other members of management, their departure
could have a material adverse effect on the Company's business
and financial condition.
Consumer Credit Risks - Private Label Credit Card Portfolio:
Sales under the Company's private label credit card program
represent a significant portion of the Company's business. In
recent years, some retailers have experienced substantial
increases in the rate of charge-offs in their credit card
portfolios. Any significant deterioration in the quality of the
Company's accounts receivable portfolio or any adverse changes in
laws regulating the granting or servicing of credit (including
late fees and the finance charge applied to outstanding balances)
could have a material and adverse effect on the Company's
business and financial condition.
Interest Rate Risk: Borrowings under the Company's DIP
Financing bear a floating rate of interest. If market rates of
interest increase, the Company's financial results could be
materially and adversely affected. See "Liquidity and Capital
Resources."
Centralized Operations: The Company's buying, credit,
distribution and other corporate operations are highly
centralized in three main locations. The Company's operations
could be materially affected if a catastrophic event (such as,
but not limited to, fire, hurricanes or floods) impacts use of
these facilities. There can be no assurances that the Company
would be successful in obtaining alternative servicing facilities
in a timely manner if such a catastrophic event should occur.
Year 2000 Compliance: The Company is currently not aware of
any Year 2000 problems with its information systems or peripheral
systems and hardware. However, the success to date of the
Company's Year 2000 efforts cannot guarantee that a Year 2000
problem affecting its systems or those of its major third party
vendors will not become apparent in the future. In the event
that the Company or any of its major third party vendors does
encounter any Year 2000 problems, the Company's business or
operations could be adversely affected.
The aggregate cost that was paid to third parties who
assisted in the Company's Year 2000 efforts was approximately
$2.5 million. These costs were expensed as incurred. These
amounts did not include any costs associated with the
implementation of contingency plans or the costs associated with
the replacement of information systems, hardware or equipment,
substantially all of which was capitalized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See: "Risk Factors", above.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included
on page 31 for information required under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and all positions
held by the directors and executive officers of Stage Stores as
of June 1, 2000:
Name Age Position
John Wiesner 62 Chairman, Interim Chief Executive Officer
and President
Ernest Cruse 49 Senior Vice President Director of Stores
Barry Gold 57 Executive Vice President Administration
and Assistant to CEO
Ron Lucas 52 Executive Vice President, Human Resources
Charles Sledge 34 Senior Vice President Finance, Treasurer
and Corporate Secretary
Jack Bush 65 Director
Harold Compton 52 Director
Robert Huth 54 Director
Richard Jolosky 65 Director
Carl Tooker 52 Director
Mr. Wiesner, who had been a Director since July 1997, was
appointed Chairman, Interim Chief Executive Officer and President
in February 2000 upon the departure of Carl Tooker, the Company's
former Chairman, Chief Executive Officer and President. Prior to
joining the Company, Mr. Wiesner held varying positions at CR
Anthony, including Chairman of the Board, Chief Executive Officer
from 1987 to 1997. Mr. Wiesner is also a Director of Lamonts,
Elder-Beerman, Inc. and Loewen Group, Inc. and an advisory
director of Fiesta Foods, Inc.
Mr. Cruse has been with the Company since 1966 and is
currently Senior Vice President, Director of Stores. Prior to
assuming this position, Mr. Cruse was Senior Vice President of
Planning and Allocation from February 1999 to February 2000,
Senior Vice President, Territorial Manager of Stores from
February 1997 to February 1999, Vice President, Regional Manager
of Stores from September 1995 to February 1997, and Vice
President, District Manager of Stores from February 1984 to
September 1995.
Mr. Gold joined the Company in March 2000 as Executive Vice
President, Administration and Assistant to the Chief Executive
Officer. Prior to joining the Company, Mr. Gold was Executive
Vice President of Operations, Logistics and Loss Prevention since
March 1998 for Jumbo Sports. Jumbo Sports filed a voluntary
Chapter 11 Petition under the Federal bankruptcy laws on January
1, 1999. Mr. Gold previously served as Executive Vice President
of Stores and Operations for L. Luria and Son, a specialty
retailer, from 1996 to 1998. L. Luria and Son filed for
protection under Chapter 11 of the Bankruptcy Code on August 13,
1997. Prior to that he served as Chief Financial Officer of The
Flax Art and Design Company, Inc. and Vice Chairman/Chief
Operating Officer of Fisher Big Wheel.
Mr. Lucas joined the Company in July 1995 as Senior Vice
President, Human Resources and was promoted to Executive Vice
President, Human Resources in March 1998. Between 1987 and 1995,
Mr. Lucas served as Vice President, Human Resources at two
different divisions of Limited, Inc., the Limited Stores Division
and Lane Bryant. Previously, he spent seventeen years at the
Venture Stores Division of May Co. where from 1985 to 1987 he was
Vice President, Organization Development.
Mr. Sledge joined the Company in April 1996 as Vice
President, Controller and was promoted to Senior Vice President
Finance and Treasurer in April 1999. Prior to joining the
Company, Mr. Sledge was a Senior Audit Manager with
PricewaterhouseCoopers, LLP, where he was employed since 1989.
Mr. Bush has been a Director since December 1997. Mr. Bush
is also President of Raintree Partners, Inc., a management
consulting firm where he has served since 1995. He served as
Chairman, Director and Chief Executive Officer of Jumbo Sports
from December 1997 to March 1999. Jumbo Sports filed a voluntary
Chapter 11 Petition under the Federal bankruptcy laws on
January 1, 1999. He also serves as a Director of TeleQuip
Company and Chairman of the Strategic Board of Directors of the
College of Business and Public Administration at the University
of Missouri. From August 1991 to August 1995, Mr. Bush was
President, a Director and a consultant to Michaels Stores, Inc.
From April 1996 to April 1999, he served as Chief Concept Officer
of Aaron Bros. Holding Company. Mr. Bush is also Chairman of an
internet company, IdeaForest.com.
Mr. Compton has been a Director since March 1997. Mr.
Compton is currently Chief Executive Officer of CompUSA, Inc.
From September 1994 to March 2000, Mr. Compton was President of
CompUSA Stores and from August 1994 to February 2000, he served
as Executive Vice President of CompUSA, Inc. Mr. Compton served
as President and Chief Operating Officer of Central Electric Inc.
from December 1993 to August 1994 and as Executive Vice President-
Operations & Human Resources of HomeBase, Inc. from 1989 to 1993.
Mr. Compton is also a Director of Linens `N Things, Inc.
Mr. Huth has been a Director since March 1997. Mr. Huth is
currently Director, Chief Executive Officer and President of
David's Bridal where he has served since May 1999. Previously,
he served as Director, President and Chief Operating Officer of
David's Bridal from 1995 to May 1999. Prior to joining David's
Bridal, Mr. Huth served as Director, Executive Vice President and
Chief Financial Officer of Melville Corporation from 1987 to
1995.
Mr. Jolosky has been a Director since March 1997. From
January 1996 until his retirement in October 1999, Mr. Jolosky
was President and Vice Chairman of Payless ShoeSource, Inc. Mr.
Jolosky served as President and Chief Executive Officer of
Silverman Jewelry Company from 1995 to 1996 and as Chief
Executive Officer of the Richard Allen Company from 1992 to 1995.
Although Mr. Tooker was terminated as President and Chief
Executive Officer and ceased serving as Chairman of the Board of
Directors on February 21, 2000, he continues to serve as a
Director until the expiration of his term at the Company's annual
shareholders meeting which is unscheduled as of June 1, 2000.
DIRECTOR AND OFFICER AND TEN PERCENT STOCKHOLDER SECURITIES
REPORTS
Federal securities laws require the Company's directors and
officers, and persons who own more than ten percent of the
Company's Common Stock, to file with the Securities and Exchange
Commission, the New York Stock Exchange and the Secretary of the
Company initial reports of ownership and reports of changes in
ownership of the Common Stock of the Company.
To the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written
representations that no other reports are required, during 1999,
all of the Company's officers, directors and greater-than-ten-
percent beneficial owners made all required filings except the
following: the Form 4 for the March 1999 period for Ron Lucas and
the former executives of the Company, Carl Tooker, James Marcum,
Stephen Lovell, Jim Bodemuller and Gregg Kennedy, were not filed
on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Directors who are full-time employees or affiliates of the
Company, including John Wiesner subsequent to his appointment on
February 21, 2000 as Chairman, Interim Chief Executive Officer
and President, receive no additional compensation for serving on
the Board of Directors. Directors who are not full-time employees
or affiliates of the Company, namely Messrs. Bush, Compton, Huth,
Jolosky and Wiesner (prior to February 21, 2000), receive
quarterly cash compensation of $5,000 for services rendered as
Director and $1,000 for each committee meeting the Director
attends. In addition, such Directors are eligible for annual
option grants which vest over a four year period. During 1999,
such directors did not receive any option grants. Mr. Wiesner
also received monthly compensation under a preexisting severance
agreement he had with C. R. Anthony Co., which the Company
acquired in 1997.
Summary Compensation Table
The following summarizes, for the fiscal years indicated,
the principal components of compensation for the Company's Chief
Executive Officer (the "CEO") and the four highest compensated
executive officers (collectively, the "named executive officers")
as of January 29, 2000. Sections omitted are not applicable.
Annual Compensation
Other
Annual
Fiscal Salary Bonus Compensation
Name and Principal Position Year ($) ($)(1) ($)
Carl Tooker, (4) 1999 795,000 -- 510,950 (5)
Former Chairman, Chief 1998 758,333 -- 137,658 (6)
Executive Officer and President 1997 683,438 645,000 119,341 (7)
James Marcum, (20) 1999 437,500 -- 36,812 (8)
Former Director, Vice Chairman 1998 420,833 -- 62,539 (9)
and Chief Financial Officer 1997 377,563 322,000 110,945 (10)
Stephen Lovell, (11) 1999 437,500 -- 34,201 (12)
Former Vice Chairman and 1998 420,833 -- 62,404 (13)
Chief Field Operations Officer 1997 363,044 322,000 527,017 (14)
Gregg Kennedy, (21) 1999 325,000 -- 15,169 (15)
Former Executive VP and 1998 99,375 15,000 20,921 (16)
Chief Merchandising Officer 1997 -- -- --
Jim Bodemuller, (21) 1999 308,333 -- 32,025 (17)
Former Executive VP and 1998 292,624 -- 16,485 (18)
Chief Information Officer 1997 188,493 187,000 23,679 (19)
Long-term
Compensation
Awards
Securities
Restricted Underlying All Other
Fiscal Stock Options/ Comp.
Name and Principal Position Year ($)(2) SARs (#) ($)(3)
Carl Tooker, (4) 1999 212,500 45,000 4,448
Former Chairman, Chief 1998 744,750 35,000 9,282
Executive Officer and President 1997 3,225,000 50,000 9,282
James Marcum, (20) 1999 93,750 20,000 1,934
Former Director, Vice Chairman 1998 372,375 42,000 2,127
and Chief Financial Officer 1997 806,250 15,000 1,483
Stephen Lovell, (11) 1999 93,750 20,000 1,934
Former Vice Chairman and 1998 372,375 42,000 3,232
Chief Field Operations Officer 1997 806,250 15,000 2,332
Gregg Kennedy, (21) 1999 93,750 40,000 2,819
Former Executive VP and 1998 -- 12,000 1,140
Chief Merchandising Officer 1997 -- -- --
Jim Bodemuller, (21) 1999 62,500 12,500 4,448
Former Executive VP and 1998 211,013 25,000 6,781
Chief Information Officer 1997 161,250 35,000 1,832
_______________________________
(1) Amounts reflect bonuses earned during the fiscal year covered
(and paid during the subsequent fiscal year).
(2) Represents the restricted stock awards to the named
executives multiplied by the market price of the underlying
common stock as of the grant date. These shares are subject
to various vesting requirements.
(3) Amounts reflect premiums paid for life insurance coverage.
(4) Mr. Tooker's employment with the Company was terminated on
February 21, 2000.
(5) Amount shown reflects the value realized upon the exercise of
options for common stock of $460,899 during 1999. Value
realized is based upon the fair market value of the stock at
the exercise date minus the exercise price. Amount shown
also reflects the value realized upon the issuance of common
stock pursuant to vested restricted stock awards of $34,313
during 1999. Value realized is based upon the fair market
value of the stock at the date of vesting. Amount shown also
reflects automobile allowance of $12,000 and health insurance
benefits of $3,739 paid to Mr. Tooker during 1999.
(6) Amount shown reflects imputed interest on executive loans of
$78,263, a distribution related to options vested of $38,000,
housing allowance of $5,000, automobile allowance of $12,000
and health insurance benefits of $4,395 paid to Mr. Tooker
during 1998.
(7) Amounts shown reflects imputed interest on executive loans of
$45,685, a distribution related to options vested of $38,000,
housing and automobile allowances of $32,000 and health
insurance benefits of $3,656 paid to Mr. Tooker during 1997.
(8) Amount shown reflects the value realized upon the issuance of
common stock pursuant to vested restricted stock awards of
$17,156 during 1999. Value realized is based upon the fair
market value of the stock at the date of vesting. Amount
shown also reflects housing allowance of $2,011, automobile
allowance of $12,000 and health insurance benefits of $5,645
paid to Mr. Marcum during 1999.
(9) Amount shown reflects imputed interest on executive
loans of $24,977, housing allowance of $18,777, automobile
allowance of $12,000 and health insurance benefits of $6,785
paid to Mr. Marcum during 1998.
(10) Amount shown reflects moving expenses of $74,490,
imputed interest on executive loans of $20,485, housing and
automobile allowances of $12,000 and health insurance
benefits of $3,970 paid to Mr. Marcum during 1997.
(11) Mr. Lovell ceased serving as Chief Field Operations
Officer on February 22, 2000 and left the Company on March
31, 2000.
(12) Amount shown reflects the value realized upon the
issuance of common stock pursuant to vested restricted stock
awards of $17,156 during 1999. Value realized is based upon
the fair market value of the stock at the date of vesting.
Amount shown also reflects automobile allowance of $12,000
and health insurance benefits of $5,045 paid to Mr. Lovell
during 1999.
(13) Amount shown reflects imputed interest on executive
loans of $42,880, automobile allowance of $12,000 and health
insurance benefits of $7,524 paid to Mr. Lovell during 1998.
(14) Amount shown reflects the value realized by Mr. Lovell
upon the exercise of options for common stock of $485,941
during 1997. Value realized is based upon the fair market
value of the stock at the exercise date minus the exercise
price. Amount shown also reflects imputed interest on
executive loans of $25,015, housing and automobile allowances
of $12,000, and health insurance benefits of $4,061 paid to
Mr. Lovell during 1997.
(15) Amount shown reflects moving expenses of $240,
automobile allowance of $12,000 and health insurance benefits
of $2,929 paid to Mr. Kennedy during 1999.
(16) Amount shown reflects moving expenses of $20,921 paid to Mr.
Kennedy during 1998.
(17) Amount shown reflects the value realized upon the
issuance of common stock pursuant to vested restricted stock
awards of $9,722 during 1999. Value realized is based upon
the fair market value of the stock at the date of vesting.
Amount shown also reflects moving expense of $7,118,
automobile allowance of $12,000 and health insurance benefits
of $3,185 paid to Mr. Bodemuller during 1999.
(18) Amount shown reflects automobile allowance of $12,000 and
health insurance benefits of $4,485 paid to Mr.
Bodemuller during 1998.
(19) Amount reflects moving expenses of $20,270, housing and
automobile allowances of $2,000 and health insurance benefits of
$1,409 paid to Mr. Bodemuller during 1997.
(20) Mr. Marcum resigned from the Company effective May 1, 2000.
(21) Messers. Bodemuller and Kennedy resigned from the Company
effective May 26, 2000.
Option/SAR Grants During 1999
The following discloses options granted during 1999 to the
named executive officers:
Individual Grants
Number of % of Total
Securities Options/
Underlying SARs
Options/ Granted to
SAR's Employees
Granted in Fiscal Exercise or Expiration
Name (#)(1) Year (%) Base Price ($) Date
Carl Tooker 45,000 9.04 7.25 3/31/09
James Marcum 20,000 4.02 7.25 3/31/09
Stephen Lovell 20,000 4.02 7.25 3/31/09
Gregg Kennedy 40,000 8.04 7.56 2/12/09
Jim Bodemuller 12,500 2.51 7.25 3/31/09
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
for Option Term
5% 10%
Annual Annual
Growth Growth
Name Rate ($) Rate ($)
Carl Tooker 205,177 519,958
James Marcum 91,190 231,093
Stephen Lovell 91,190 231,093
Gregg Kennedy 190,241 482,107
Jim Bodemuller 56,994 144,433
___________________
(1) All of such options were granted under the 1996 Incentive
Plan. The options granted under the Stock Option Plan are subject
to vesting.
Aggregated Option/SAR Exercises During 1999 and 1999 Year-End
Option/SAR Values
The following summarizes exercises of stock options (granted
in prior years) by the named executive officers during 1999, as
well as the number and value of all unexercised options held by
the named executive officers at the end of 1999:
Shares
Acquired on Value
Name Exercise (#) Realized ($)(1)
Carl Tooker 75,782 460,899
James Marcum -- --
Stephen Lovell -- --
Gregg Kennedy -- --
Jim Bodemuller -- --
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs at
at FY-End (#) FY-End ($)(2)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable
Carl Tooker 133,211/238,341 --/--
James Marcum 117,463/106,364 --/--
Stephen Lovell 70,096/115,836 --/--
Gregg Kennedy 3,000/49,000 --/--
Jim Bodemuller 23,750/48,750 --/--
___________
(1) Value realized is based upon the fair market value of the
stock at the exercise date minus the exercise price.
(2) Value is based upon the closing price of the Common Stock
on January 28, 2000 of $1.38 minus the exercise price.
Employment Agreements
At year-end, the named executive officers had employment
agreements with the Company which provided for their initial base
salaries as well as annual incentive bonuses as agreed to with
the Compensation Committee. The employment agreements also
provide for annual performance reviews, salary increases at the
discretion of the Compensation Committee and participation in all
other bonus and benefit plans available to executive officers of
the Company. The employment agreements in effect for the named
executive officers for the fiscal year ended January 29, 2000 may
vary slightly from officer to officer. The details are contained
in copies of the various agreements referenced as exhibits
attached to the Form 10-K.
Generally, the employment agreements provide that if the
Company terminates an officer other than for good cause (as
defined in the respective employment agreements), the officer
would be entitled to two times his base salary. In addition, the
officer would be entitled to his targeted bonus amounts, any
accrued or unpaid bonus, salary and deferred compensation, any
expense allowances and any earned but unpaid benefits under the
Company's benefit plans (the "Additional Payments"). In addition,
any unvested stock options and restricted stock awards would
continue to vest during this two year period. (In the case of
Mr. Tooker, his employment agreement provided for three times
base salary and the Additional Payments described above if
terminated without cause. Since both Mr. Tooker and Mr. Lovell
were terminated for cause on February 21, 2000 and March 31, 2000
respectively, they are not entitled to payments under their
respective employment agreements nor do their vesting rights
extend past the date of termination). In the event the Company
elects not to permit the automatic renewal of an officer's
employment contract at the end of a term (one year), or in the
event an officer is terminated or resigns for good reason (as
defined in the respective employment agreements) following a
change of control, the employment agreements provide that the
respective individual would be entitled to three times his base
salary plus the Additional Payments described above. In the
event of a change of control of the Company in which the Company
does not survive, all unvested options for the purchase of Common
Stock and restricted stock held by the aforementioned individuals
would vest immediately and the respective individual would also
be entitled to certain other payments as specified in the
employment agreements. The employment agreements also contain
certain non-compete and confidentiality provisions. Each of the
employment agreements renews annually in accordance with its
terms. As a result of his dismissal from the Company for cause,
the Company is not obligated to make any payments to Mr. Tooker
under his employment agreement. Additionally, as a result of
their resignation from the Company after year-end, the employment
agreements for Messrs. Marcum, Bodemuller and Kennedy terminated.
Company Retirement Plans
Retirement Plan
The Stage Stores, Inc. Retirement Plan (the "Plan") is a
qualified defined benefit plan. Benefits under the Plan are
administered through a trust arrangement providing benefits in
the form of monthly payments or a single lump sum payment. The
Plan covers substantially all employees who have completed one
year of service with 1,000 hours of service as of June 30, 1998.
Effective June 30, 1998, the Plan was frozen. There were no
future benefit accruals after that date. Any service after that
date will continue toward vesting and eligibility for normal and
early retirement.
The Plan is administered by the retirement plan committee (the
"Retirement Committee"), and the Company appoints its three to
five members. All determinations of the Retirement Committee are
made in accordance with the provisions of the Plan in a uniform
and nondiscriminatory manner.
Generally, a participant is eligible for a benefit on his/her
normal retirement date, which is the later of age 65 or the fifth
anniversary of the date of hire. A participant may elect an early
retirement benefit if he/she is at least 55 years old, has
ten (10) Years of Service (as defined below) and retires from
active employment with the Company. Early retirement benefits are
reduced according to a formula established in the Plan based upon
each full month that the participant's age is less than 65 on the
date the payments commence. If a participant who is vested
terminates employment, he/she is entitled to a deferred benefit
payable at his/her normal retirement date or an earlier date, if
requested, but not before age 55.
The amount of a participant's retirement benefit is based on
each Year of Credited Service (as defined below) and on his/her
earnings for that year. The individual yearly benefits are then
totaled to determine the annual benefit at age 65. The annual
amount of the participant's normal retirement benefit is derived,
subject to certain limitations, by adding (i) 1% of earnings up
to $30,600 plus 1-1/2% of the excess of such earnings over
$30,600 for each Year of Credited Service earned on or after July
1, 1989 through December 31, 1991, (ii) 1% of earnings up to
$31,800 plus 1-1/2% of the excess of such earnings over $31,800
for each Year of Credited Service earned after December 31, 1991
and (iii) 1% of earnings up to $42,500 plus 1-1/2% of the excess
of such earnings over $42,500 for each Year of Credited Service
earned after December 31, 1994 through June 30, 1998. The normal
retirement benefit formula produces an annual benefit which is
paid to the participant in equal monthly installments. The
standard form of payment for a single participant is a monthly
benefit payable for the participant's life only. The standard
form of payment for a married participant is a 50% joint and
survivor benefit, which provides a reduced monthly benefit to the
participant during his/her lifetime, and 50% of that benefit to
the participant's spouse for his/her lifetime in the event of the
participant's death. Other forms of the payment are also provided
including lump sum payouts, but they require participant
election. In addition, the Retirement Committee may elect to pay
the benefit equivalent of a benefit payable at normal retirement
date in the form of a lump sum payment, if the lump sum payment
does not exceed $5,000.
Any participant who is credited with 1,000 or more hours of
service in a calendar year receives a "Year of Service", while
any participant who is credited with 1,284 or more hours of
service in a calendar year receives a "Year of Credited Service".
Years of Service determine a participant's eligibility for
benefits under the Plan, and the percentage vested in those
benefits. After five Years of Service, a participant is 100%
vested.
The Plan is funded entirely by Company contributions that are
held by a trustee for the exclusive benefit of the participants.
The Company voluntarily agreed to contribute the amounts
necessary to provide the assets required to meet the future
benefits payable to Plan participants. Under the Retirement Plan,
contributions are not specifically allocated to individual
participants.
The Benefit Equalization Plan
The Specialty Retailers, Inc. Benefit Equalization Plan (the
"Equalization Plan") is a non-qualified defined benefit plan
which is intended to replace the benefits that cannot be provided
under the terms of the Retirement Plan on account of certain
limitations imposed under the Internal Revenue Code (for example,
the Retirement Plan cannot consider compensation for a
participant which is in excess of $160,000 when determining the
participant's benefit). Effective June 30, 1998, the
Equalization Plan was frozen. There were no future benefit
accruals after that date. Any service after that date will
continue toward vesting and eligibility for normal and early
retirement. The Equalization Plan is unfunded. However, upon a
change of control as defined in the Equalization Plan, the
Company is required to deposit into a rabbi trust sufficient
funds to cover all obligations then accrued under the
Equalization Plan. The Equalization Plan was terminated May 31,
2000.
Supplemental Employee Retirement Plan
In 1996, the Company adopted the Specialty Retailers, Inc.
Supplemental Executive Retirement Plan (the "SERP"). The SERP
provides for supplemental retirement benefits for certain key
executives of the Company upon retirement at or after age 65 with
at least fifteen (15) years of credited service with the Company.
The SERP provides for annual retirement compensation of 50% of
the retiree's average annual base salary for the three years
preceding retirement, less amounts received under the Company's
defined benefit retirement plans. Participants in the SERP may
elect to receive reduced early retirement benefits at or after
age 55 with at least fifteen (15) years of credited service.
Upon a change in control as defined in the SERP, the Company is
required to deposit into a rabbi trust, sufficient funds to cover
all obligations then accrued under the SERP. If a participant's
employment is terminated after a change in control by the Company
without cause or by the participant for good reason, the
participant will be fully vested in the benefit that would have
been payable at age 55. This amount will be paid to the
participant in a lump sum upon termination of employment.
The SERP was terminated by the Board of Directors on March 7,
2000. At the time of termination, there were no participants
eligible for benefits under this plan.
Company Deferred Compensation Plan
The Specialty Retailers, Inc. Deferred Compensation Plan (the
"Deferred Compensation Plan") provides executive officers and
other key employees of the Company with the opportunity to
participate in an unfunded, deferred compensation program that is
not qualified under the Code. Generally, the Code and the
Employee Retirement Income Security Act of 1974, as amended,
restrict contributions to a 401(k) plan by highly compensated
employees. The Deferred Compensation Plan is intended to allow
participants to defer income at the same rates as those employees
not restricted by such regulations. Under the Deferred
Compensation Plan, participants may defer up to 15% of their
salary and bonus (not otherwise covered by the Company's 401(k)
plan) and earn a rate of return based on select indices chosen by
each participant. The Company may, but is not obligated to,
establish a grantor trust for the purposes of holding assets to
provide benefits to the participants. The Company will match 50%
of the first 6% of each participant's contributions to the
Deferred Compensation Plan not otherwise covered by the Company's
401(k) plan. Company contributions vest over five years of
service.
The Deferred Compensation Plan was terminated by the Board of
Directors on March 7, 2000. The Company paid the participants
their appropriate account balances during April 2000.
Compensation Committee Report
The Compensation Committee of the Board of Directors is
responsible for administering and making recommendations to the
Board of Directors the amount of compensation of senior
executives of the Company. During 1999, the Compensation
Committee consisted of Messrs. Compton and Jolosky.
The Company's executive compensation programs are designed to
align the interests of senior management with those of the
Company's stockholders. There are three key components of
executive compensation: base salary, pay for performance (bonus
plan), and long-term performance incentive. It is the intent of
these programs to attract, motivate and retain senior executives.
It is the philosophy of the Compensation Committee to allocate a
significant portion of cash compensation to variable performance-
based compensation in order to reward executives for high
achievement.
Base Salary
The salaries for senior executives are based upon a combination
of factors including past individual performance, competitive
salary levels, and an individual's potential for making
significant contributions to future Company performance.
Bonus Plan
Each of the named executive officers and certain other key
personnel of the Company participate in an executive/management
bonus plan (the "Bonus Plan") The Bonus Plan provides for annual
bonus awards based upon individual performance and actual
operating results compared to planned operating results. Bonus
payments are subject to modification at the discretion of the
Compensation Committee. Due to the Company's poor 1999
performance, no bonuses were paid to the named executive officers
for such year. In addition, during 1999, the Compensation
Committee recommended and the Board of Directors approved a
special bonus plan designed to retain certain key executives. No
bonuses were paid to the named executive officers under this
bonus plan.
Stock Options and Restricted Stock
Stock options and restricted stock are an important component
of senior executive compensation. The 1993 Stock Option Plan and
the 1996 Equity Incentive Plan were designed to motivate senior
executives and other key employees to contribute to the long-term
growth of stockholder value. Generally, options granted under
such plans have been, and are expected to be, granted with a
price equal to the market price of the Common Stock on the date
of the grant and vest over four years. This approach is designed
to encourage the creation of long-term stockholder value since
the full benefit of such options cannot be realized unless the
stock price exceeds the exercise price. Restricted stock is
generally issued with long-term vesting schedules. This approach
provides a retention incentive for the recipient as well as the
creation of long-term stockholder value. Pursuant to the 1996
Equity Incentive Plan, the Compensation Committee recommended,
and the Board of Directors approved, an award of restricted stock
to the named executive officers during 1999 as follows: Mr.
Tooker - 34,000 shares; Mr. Marcum - 15,000 shares; Mr. Lovell -
15,000 shares; Mr. Kennedy - 15,000 shares; and Mr. Bodemuller -
10,000 shares. These awards vest 25% per year on each of the
first through fourth anniversaries of the grant date. The
vesting rights applicable to grants made to Mr. Tooker and Mr.
Lovell are limited by virtue of their termination.
Chief Executive Officer
The compensation policies described above applied as well to
the compensation of Mr. Tooker. The Compensation Committee was
directly responsible for making recommendations to the Board of
Directors for approval of Mr. Tooker's salary level and all awards
and grants to Mr. Tooker under incentive components of the
compensation program. The overall compensation package of Mr.
Tooker was designed to recognize the fact that he bore primary
responsibility for increasing the value of stockholders'
investments. Accordingly, a substantial portion of Mr. Tooker's
compensation was incentive-based, providing greater compensation
as direct and indirect financial measures of stockholder value
increase. Mr. Tooker's compensation was thus structured and
administered to motivate and reward the successful exercise of
these qualities.
Mr. Tooker's base compensation for 1999 was directly related to
the Company's overall performance for 1998, as measured by
financial and other criteria such as: (i) the financial
performance of the Company, (ii) the performance of the senior
management team and (iii) other related qualitative factors. Due
to the Company's poor 1999 performance, no bonus was paid to Mr.
Tooker for such year. As previously discussed, Mr. Tooker left
employment with the Company on February 22, 2000.
Conclusion
Through the programs described above, a significant portion of
the Company's executive compensation is linked directly to
corporate performance and stock price appreciation. The
Compensation Committee believes that existing compensation
policies and programs are competitive and effectively align
executive compensation with the Company's goal of maximizing the
return to stockholders.
The Compensation Committee has determined that it is unlikely
that the Company would pay amounts during 2000 that would result
in the loss of a federal income tax deduction under Section
162(m) of the Code, and accordingly, had not recommended that any
special actions be taken or that any plans or programs be revised
at this time in light of such provision.
Harold Compton and Richard Jolosky, Compensation Committee
PERFORMANCE GRAPH
The following graph compares the value of $100.00 invested on
October 25, 1996 (the date of the initial public offering ("IPO")
of the Company) through January 28, 2000 (the last day of public
trading in fiscal 1999 at the closing price on the New York Stock
Exchange ("NYSE")) in the Common Stock, the S&P 500 and the S&P
500 Retail. The return of the indices is calculated assuming
reinvestment of dividends during the period presented. The
Company has not paid any dividends since its IPO. The stock
price performance shown on the graph below is not necessarily
indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG STAGE STORES, INC.,
S&P 500 AND S&P 500 RETAIL
-- Line Graph Showing Comparison of Cummulative Total Return --
-- Among Stage Stores, Inc., S&P 500 and S&P 500 Retail --
Date Stage Stores, Inc. S&P 500 Retail S&P 500
10/25/96 $100.00 $100.00 $100.00
1/31/97 $105.30 $94.86 $112.16
1/30/98 $235.04 $139.19 $139.86
1/29/99 $48.48 $221.45 $182.62
1/28/00 $8.33 $237.77 $194.05
Prior to April 16, 1998, the Company's Common Stock was
quoted on the NASDAQ National Market System under the symbol
"STGE". Beginning April 16, 1998, the Company's Common Stock
started trading on the NYSE under the symbol "SGE".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table below sets forth certain information regarding
ownership of Common Stock as of either May 30, 2000 or based on
the latest filings made under Section 13 (d) and 13 (g) of the
Securities Exchange Act of 1934 and assuming exercise of options
exercisable within sixty days of May 30, 2000 by (i) each person
or entity who owns of record or beneficially 5% or more of the
Common Stock, (ii) each director and named executive officer and
(iii) all directors and named executive officers as a group. Each
such stockholder is assumed to have sole voting and investment
power as to the shares shown. Known exceptions are noted. As of
May 30, 2000, 1,250,584 shares of Class B Common Stock were
outstanding, all of which is owned by Court Square Capital
Limited, a subsidiary of Citigroup Inc.
Number of Percentage
Shares of Shares of
Name Common Stock Common Stock
5% Stockholders
Brookside Capital Partners 3,980,472 14.2%
Fund, L.P.
Two Copley Place
Boston, MA 02116
AXA Financial, Inc. 2,646,900 9.4%
1290 Avenue of the Americas
New York, NY 10104
Citigroup Inc. (1) 2,549,548 9.1%
153 East 53rd Street
New York, NY 10043
Lord, Abbett & Co. 2,451,689 8.7%
90 Hudson Street
Jersey City, NJ 07302
Thomson Horstman & Bryant, 2,250,400 8.0%
Inc.
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
The Bear Stearns Companies 2,228,800 7.9%
Inc.
245 Park Avenue
New York, NY 10167
Wellington Management 2,062,800 7.3%
Company, LLP.
75 State Street
Boston, MA 02109
Directors and Executive Officers
John Wiesner 6,750 *
Ernest Cruse 12,954 *
Barry Gold 0 *
Ron Lucas 60,054 *
Charles Sledge 16,200 *
Jack E. Bush 8,750 *
Harold Compton 5,000 *
Robert Huth 9,000 *
Richard Jolosky 5,000 *
All executive officers and
directors as a group (9 persons) 126,208 .45%
_____________________________________
* Less than 1%.
(1) Citigroup Inc. beneficially owns shares (including Class B
Common Stock) through its subsidiaries Citicorp Venture Capital,
Court Square Capital Limited and other subsidiaries. Citicorp
Venture Capital owns 600,296 shares of Common Stock, Court Square
owns 370,068 shares of Common Stock and 1,250,584 shares of non-
voting Class B Common Stock and other subsidiaries of Citigroup
Inc. own 328,600 shares of Common Stock. Each share of non-
voting Class B Common Stock is convertible, subject to certain
restrictions, into shares of Common Stock.
(2) Messrs. Tooker, Marcum, Lovell, Kennedy and Bodemuller are
no longer officers of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
The Company had loans outstanding at January 29, 2000 to
certain executive officers of the Company in the aggregate
principal amount of $2,974,686.
As of January 29, 2000, Mr. Tooker had six loans from the
Company outstanding. Mr. Tooker owed the Company $1,109,692 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Tooker to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $140,000 (5.70%), $203,200 (5.70%), $175,000 (5.88% up to
7/15/99; 12.0% thereafter), $125,000 (5.74% up to 9/15/99; 12.0%
thereafter), $200,000 (8.50%) and $200,000 (9.0%). On February
20, 2000, the Special Committee of the Board determined that a
loan in the principal amount of $300,000 was part of the "Ranch
Transaction" as described below in "Other Transactions" and
should be reflected on the books of the Company as a loan
repayment when Mr. Tooker caused the Company to purchase this
property and pay him an amount he claimed as his equity in such
property. The Company is seeking from Mr. Tooker the full amount
of its loss in connection with this transaction, including the
amount credited to payment of this loan and has filed suit to
recover such amounts.
As of January 29, 2000, Mr. Marcum had five loans from the
Company outstanding. Mr. Marcum owed the Company $498,125 in
principal and accrued interest on these loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Marcum to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $115,000 (5.70%), $75,000 (5.70%), $165,000 (5.88% up to
7/15/99; 12.0% thereafter), $12,500 (8.50%) and $100,000 (9.0%).
A News Release regarding Mr. Marcum's resignation was issued by
the Company May 24, 2000. As of June 1, 2000, Mr. Marcum's loans
with the Company had been repaid in full.
As of January 29, 2000, Mr. Lovell had six loans from the
Company outstanding. Mr. Lovell owed the Company $565,544 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness outstanding owed by
Mr. Lovell to the Company at any time during the 1999 fiscal
year. The principal balances and rates of interest on the loans
are $150,000 (6.30%), $125,000 (5.87%), $142,679 (5.93%), $25,000
(8.50%), $20,000 (9.0%) and $71,815 (9.0%). On may 31, 2000, the
Company and Mr. Lovell entered into a settlement agreement which
resolved all outstanding loans and other issues between the Company
and Mr. Lovell.
As of January 29, 2000, Mr. Lucas had three loans from the
Company outstanding. Mr. Lucas owed the Company $683,043 in
principal and accrued interest on the loans, which was the
largest aggregate amount of indebtedness owed by Mr. Lucas to the
Company at any time during the 1999 fiscal year. The principal
balances and rates of interest on the loans are $377,195 (5.98%
up to 4/29/99; 12.0% thereafter), $145,000 (8.5%) and $107,298
(9.0%). Arrangements have been made with Mr. Lucas to repay the
remaining balances outstanding under his loans.
Consulting Services
Beginning in March 2000, Mr. Bush began providing certain
consulting services to the Company. Under his consulting
agreement with the Company, Mr. Bush receives a specified daily
consulting rate plus reimbursement of any expenses he incurs
while performing such consulting services.
Other Transactions
Mr. Tooker's departure as President and Chief Executive
Officer follows an inquiry conducted by a Special Committee
consisting of all of the non-management members of the Board of
Directors, which reviewed certain transactions between the
Company and Mr. Tooker. The effects of the transactions reviewed
have been reflected in the Company's results for prior periods,
and the Committee believes they are not material to the financial
condition or operations of the Company. However, these
transactions had not been properly reported to the Company's
Board of Directors.
Specifically, the Special Committee determined that the
Company purchased Mr. Tooker's personal residence in 1997 at a
price specified by him, and assumed all liability for the
property, including upkeep and existing debt payments, until it
was sold in 1999 (the "Ranch Transaction"). The Company
sustained a loss of $806,556 as a result of this transaction.
Although the payment of these funds has been reflected in the
Company's books and records, this transaction was not previously
disclosed in prior filings with the SEC, nor was it approved by
the Board of Directors.
In another transaction, it was determined that in May, 1997
the Company entered into a severance agreement and a separate
consulting contract in connection with the separation of an
employee who shortly thereafter became Mr. Tooker's spouse. The
Company recorded in its books and records payments to or for the
benefit of his spouse beginning in May, 1997, and ending in
August 1998, totaling $608,317.48, without the knowledge or
approval of the Board of Directors. Additionally, these
transactions were not previously disclosed in prior filings with
the SEC. The Special Committee also determined that while
employed by the Company in 1996 and 1997, this employee entered
into transactions with a company with whom her sister was
believed to be affiliated, in which the Company paid a total of
$313,260 for purchases of clothing inventory. The Special
Committee did not find any overcharges with respect to the
inventory purchases.
Demand has been made upon Mr. Tooker to reimburse the Company
for the unauthorized payments regarding his personal residence
and the severance paid to his spouse. In addition, the Company
has demanded repayment by Mr. Tooker of outstanding loans he
obtained from the Company, with interest thereon, totaling
approximately $1.1 million. Some of these loans are secured by
collateral which includes securities of the Company.
The Special Committee further determined that during the years
1997 through 1999, the Company maintained a contractual
relationship with Stage Planning and Design, Inc. ("SPAD"),
believed to be a wholly-owned subsidiary of U.S. Builders, Inc.,
to manage the construction of store openings and remodeling.
Under the terms of this agreement, the Company was required to
and did reimburse or pay direct all of SPAD's costs, including
all payroll expenses. In 1997, the Company paid SPAD in excess
of $2.4 million, and in 1998 in excess of $9.9 million. Until
late 1999, Mr. Tooker's son-in-law was an officer and project
manager for SPAD, whose compensation was included as a
reimbursable expense billed to the Company during this time.
Although the expenditures were recorded on the Company's books
and records for the years in which they were accrued, the
relationship involving Mr. Tooker's son-in-law was not approved
by the Board of Directors.
News Releases regarding Mr. Tooker's departure and certain
other matters were issued by the Company on February 22, 2000 and
March 9, 2000.
In connection with the aforementioned matters, the Company has
received and responded to an information request as part of an
informal inquiry by the Securities and Exchange Commission.
Transactions with Stockholders
Registration Rights Agreement
The Company is party to a Registration Agreement (the
"Registration Agreement") with Court Square pursuant to which
such stockholder has the right to cause the Company to register
shares of Common Stock (the "registrable securities") under the
Securities Act. As of May 30, 2000, 1,620,652 outstanding shares
of Common Stock constitute registrable securities and therefore
will be eligible for registration pursuant to the Registration
Agreement. Under the terms of the Registration Agreement, the
holders of at least a majority of the registrable securities can
require the Company, subject to certain limitations, to file up
to three "long-form" registration statements under the Securities
Act covering all or part of the registrable securities, and,
subject to certain limitations, to file an unlimited number of
"short-form" registration statements under the Securities Act
covering all or part of the registrable securities. The Company
is obligated to pay all registration expenses (other than
underwriting discounts and commissions and subject to certain
limitations) incurred in connection with the demand
registrations. In addition, the Registration Statement provides
the Court Square with "piggyback" registration rights, subject to
certain limitations, whenever the Company files a registration
statement on a registration form that can be used to register
registrable securities.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) and (d) Financial Statements
See "Index to Financial Statements and
Schedules" on Page 31.
(b) Reports on Form 8-K filed during the last quarter of the
period covered by this report.
The Company filed a News Release on Form 8-K dated
November 4, 1999 related to Stage Stores, Inc.
announcing third quarter 1999 sales.
The Company filed a News Release on Form 8-K dated
November 12, 1999 related to Stage Stores, Inc.
announcing the completion of the refinancing of the
Company's accounts receivable program.
The Company filed a News Release on Form 8-K dated
November 18, 1999 related to Stage Stores, Inc.
announcing third quarter 1999 results.
The Company filed a News Release on Form 8-K dated
December 10, 1999 related to Stage Stores, Inc.
announcing the dismissal of the class action lawsuit.
The Company filed a News Release on Form 8-K dated
January 6, 2000 related to Stage Stores, Inc.
announcing 1999 holiday period sales.
The Company filed a News Release on Form 8-K dated
February 3, 2000 related to Stage Stores, Inc.
announcing an amendment to the credit agreement,
discussing the Company's cost reduction program and
reporting fourth quarter 1999 sales.
The Company filed a copy of the Fifth Amendment
Agreement to the Credit Agreement, dated as of February
3, 2000, on Form 8-K dated February 7, 2000.
The Company filed a News Release on Form 8-K dated
February 23, 2000 related to Stage Stores, Inc.
announcing the departure of the Company's President and
Chief Executive Officer and a commitment to increase
the Company's working capital facility.
The Company filed a News Release on Form 8-K dated
March 9, 2000 related to Stage Stores, Inc. announcing
fourth quarter and full year 1999 results. The Company
also provided additional details on the departure of
the Company's President and Chief Executive Officer as
announced in a News Release on Form 8-K dated February
23, 2000.
The Company filed a News Release on Form 8-K dated May
1, 2000 related to Stage Stores Inc. announcing the
departure of the Company's Vice Chairman and Chief
Financial Officer.
The Company filed a News Release on Form 8-K dated
June 1, 2000 related to Stage Stores Inc. announcing a
major restructuring under Chapter 11 of the United
States Bankruptcy Code and commencement of its
reorganization proceedings in the United States
Bankruptcy Court in Houston, Texas.
(c) Exhibits - See "Exhibit Index" at X-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STAGE STORES, INC.
/s/ John J. Wiesner June 6, 2000
John J. Wiesner
Chairman, Chief Executive
Officer and President
(principal executive officer)
STAGE STORES, INC.
/s/ Charles M. Sledge June 6, 2000
Charles M. Sledge
Senior VP Finance, Treasurer and Secretary
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the date indicated.
/s/ John J. Wiesner Chairman of the Board June 6, 2000
John J. Wiesner of Directors
/s/ Jack Bush Director June 6, 2000
Jack Bush
/s/ Robert Huth Director June 6, 2000
Robert Huth
/s/ Richard Jolosky Director June 6, 2000
Richard Jolosky
/s/ Harold Compton Director June 6, 2000
Harold Compton
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Number
Financial Statements
Report of Independent Accountants F-1
Consolidated Balance Sheet at January 29, 2000 and January 30, 1999 F-2
Consolidated Statement of Operations for 1999, 1998 and 1997 F-3
Consolidated Statement of Cash Flows for 1999, 1998 and 1997 F-4
Consolidated Statement of Stockholders' Equity for 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
Schedules
All schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
EXHIBIT INDEX
The following documents are the exhibits to the Form 10-K.
For convenient reference, each exhibit is listed according to the
Exhibit Table of Regulation S-K.
Exhibit
Number Exhibit
*2.1 Agreement and Plan of Merger, dated as of
March 5, 1997, between Stage Stores, Inc. and C.R.
Anthony Company (Incorporated by Reference to Exhibit
2.1 of Registration No. 333-27809 on Form S-4).
*2.2 First Amendment to Agreement and Plan of
Merger, dated as of May 20, 1997, between Stage Stores,
Inc. and C. R. Anthony Company (Incorporated by
Reference to Exhibit 2.2 of Registration No. 333-27809
on Form S-4).
*3.1 Amended and Restated Certificate of
Incorporation of Stage Stores, Inc. (Incorporated by
Reference to Exhibit 3.3 of Registration No. 333-5855
on Form S-1).
*3.2 Amended and Restated By-Laws of Stage Stores,
Inc. (Incorporated by Reference to Exhibit 3.4 of
Registration No. 333-5855 on Form S-1).
*3.3 Restated Articles Certificate of
Incorporation of Specialty Retailers, Inc.
(Incorporated by Reference to Exhibit 3.3 of
Registration No. 333-32695 on Form S-4).
*3.4 Amended and Restated Bylaws of Specialty
Retailers, Inc. (Incorporated by Reference to Exhibit
3.4 of Registration No. 333-32695 on Form S-4).
*3.5 Certificate of Incorporation of
Specialty Retailers, Inc. (NV) (Incorporated by
Reference to Exhibit 3.5 of Registration No. 333-32695
on Form S-4).
*3.6 Bylaws of Specialty Retailers, Inc. (NV)
(Incorporated by Reference to Exhibit 3.6 of
Registration No. 333-32695 on Form S-4).
*3.7 Rights Agreement dated as of
November 11, 1998 between Stage Stores, Inc. and
ChaseMellon Shareholder Services, L.L.C. as Rights
Agent (Incorporated by Reference to Exhibit 1 of Form 8-
K of Stage Stores, Inc., dated November 12, 1998).
*4.1 Credit Agreement dated as of June
17, 1997 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit Suisse
First Boston (Incorporated by Reference to Exhibit 4.1
of Registration No. 333-32695 on Form S-4).
*4.2 Amendment Agreement dated as of June 26, 1997
by and among Specialty Retailers, Inc., Stage Stores,
Inc., the banks named therein and Credit Suisse First
Boston to the Credit Agreement dated as of June 17,
1997 (Incorporated by Reference to Exhibit 4.2 on Form
10-K of Stage Stores, Inc., for fiscal year ended
January 30, 1999).
*4.3 Second Amendment Agreement dated as of October 1,
1997 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit
Suisse First Boston to the Credit Agreement dated as
of June 17, 1997 (Incorporated by Reference to Exhibit
4.3 on Form 10-K of Stage Stores, Inc., for fiscal
year ended January 30, 1999).
*4.4 Third Amendment Agreement dated as of October 6, 1998
by and among Specialty Retailers, Inc., Stage Stores,
Inc., the banks named therein and Credit Suisse First
Boston to the Credit Agreement dated as of June 17,
1997. (Incorporated by Reference to Exhibit 4.1 on Form
10-Q of Stage Stores, Inc., dated October 31, 1998).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*4.5 Fourth Amendment Agreement dated as
of January 27, 1999 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997. (Incorporated by Reference
to Form 8-K of Stage Stores, Inc., dated January 28,
1999).
*4.6 Fifth Amendment Agreement dated as
of February 3, 2000 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997. (Incorporated by Reference
to Form 8-K of Stage Stores, Inc., dated February 7,
2000).
**4.7 Sixth Amendment Agreement dated as of
February 18, 2000 by and among Specialty Retailers,
Inc., Stage Stores, Inc., the banks named therein and
Credit Suisse First Boston to the Credit Agreement
dated as of June 17, 1997.
**4.8 Credit Agreement dated as of March 6,
2000 by and among Specialty Retailers, Inc., Stage
Stores, Inc., the banks named therein and Credit Suisse
First Boston.
*4.9 Indenture dated as of June 17, 1997 relating
to the $200,000,000 aggregate principal amount of 81/2%
Senior Notes due 2005 among Specialty Retailers, Inc.,
Stage Stores, Inc. and State Street Bank and Trust
Company, and First Supplemental Indenture dated as of
July 2, 1997 (Incorporated by Reference to Exhibit 4.2
of Registration No. 333-32695 on Form S-4).
*4.10 Indenture dated as of June 17, 1997 relating
to the $100,000,000 aggregate principal amount of 9%
Senior Subordinated Notes due 2007 among Specialty
Retailers, Inc., Stage Stores, Inc. and State Street
Bank and Trust Company, and First Supplemental
Indenture dated as of July 2, 1997 (Incorporated by
Reference to Exhibit 4.3 of Registration No. 333-32695
on Form S-4).
*4.11 Indenture between 3 Bealls Holding
Corporation and Bankers Trust Company, as Trustee,
relating to 3 Bealls Holding Corporation's 9%
Subordinated Debentures due 2002 (Incorporated by
Reference to Exhibit 4.2 of Registration No. 33-24571
on Form S-4) and First Supplemental Indenture dated
August 2, 1993 (Incorporated by Reference to Exhibit
4.4 of Registration No. 33-68258 on Form S-4).
*4.12 Indenture between 3 Bealls Holding
Corporation and IBJ Schroder Bank and Trust Company, as
Trustee, relating to 3 Bealls Holding Corporation's 7%
Junior Subordinated Debentures due 2002 (Incorporated
by Reference to Exhibit 4.3 of Registration No. 33-
24571 on Form S-4) and First Supplemental Indenture
dated August 2, 1993 (Incorporated by Reference to
Exhibit 4.5 of Registration No. 33-68258 on Form S-4).
**4.13 Second Amended and Restated Pooling and
Servicing Agreement by and among SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc., and
Bankers Trust (Delaware) dated November 1, 1999.
**4.14 Amendment and Consent to the Second Amended
and Restated Pooling and Servicing Agreement by and
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., and Bankers Trust (Delaware) dated
December 9, 1999.
*4.15 Amended and Restated Receivables
Purchase Agreement among SRI Receivables Purchase Co.,
Inc. and Originators dated May 30, 1996 (Incorporated
by Reference to Exhibit 4.7 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*4.16 First Amendment to the Amended and
Restated Receivables Purchase Agreement among SRI
Receivables Purchase Co., Inc. and Originators dated
August 1, 1998 (Incorporated by Reference to Exhibit
4.14 on Form 10-K of SRI Receivables Purchase Co.,
Inc., for fiscal year ended January 30, 1999).
**4.17 Second Amendment to the Amended and Restated
Receivables Purchase Agreement among SRI Receivables
Purchase Co., Inc. and Originators dated November 9,
1999.
*4.18 Receivables Transfer Agreement
among Specialty Retailers, Inc., and Granite National
Bank, N.A. dated as of August 1, 1998 (Incorporated by
Reference to Exhibit 4.15 on Form 10-K of SRI
Receivables Purchase Co., Inc., for fiscal year ended
January 30, 1999).
**4.19 First Amendment to the Receivables
Transfer Agreement among Specialty Retailers, Inc., and
Granite National Bank, N.A. dated as of November 9,
1999.
**4.20 Series 1999-1 Supplement to the Second
Amended and Restated Pooling and Servicing Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc. and Bankers Trust "Delaware", dated as
of November 9, 1999, including amendments as of
December 9, 1999.
**4.21 Issuance Supplement I to the Series 1999-1
Supplement to the Second Amended and Restated Pooling
and Servicing Agreement among SRI Receivables Purchase
Co., Inc., Specialty Retailers, Inc. and Bankers Trust
"Delaware", dated as of November 9, 1999.
**4.22 Issuance and Indemnity Agreement among
Specialty Retailers, Inc., SRI Receivables Purchase
Co., Inc., Bankers Trust "Delaware" and R.V.I. Guaranty
Co. Ltd, dated as of December 9, 1999.
**4.23 Class A-1 Certificate Purchase Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class A-1 Purchasers parties
thereto and Credit Suisse First Boston, dated as of
November 9, 1999.
**4.24 Class A-2 Certificate Purchase Agreement
among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class A-2 Purchasers parties
thereto and Credit Suisse First Boston, dated as of
November 9, 1999.
**4.25 Class B Certificate Purchase Agreement among
SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., the Class B Purchasers parties thereto
and Credit Suisse First Boston, dated as of November 9,
1999.
**4.26 Class C and Class D Certificate Purchase
Agreement among SRI Receivables Purchase Co., Inc.,
Specialty Retailers, Inc., and Credit Suisse First
Boston, dated as of November 9, 1999.
*10.1 Registration Agreement by and among Specialty
Retailers, Inc., Tyler Capital Fund, L.P. Tyler
Massachusetts, L.P., Tyler International, L.P.-I, Tyler
International, L.P.-II, Bain Venture Capital, Citicorp
Capital Investors, Ltd., Acadia Partners, L.P., Drexel
Burnham Lambert Incorporated, and certain other
Purchasers, dated December 29, 1988 (Incorporated by
Reference to Exhibit 10.10 of Registration No. 33-27714
on Form S-1) and Amendment to Registration Agreement
dated August 2, 1993 (Incorporated by Reference to
Exhibit 10.5 of Registration No. 33-68258 on Form S-4).
*10.2 Apparel Retailers, Inc. Stock Option Plan
(Incorporated by Reference to Exhibit 10.13 of
Registration No. 33-68258 on Form S-4).
EXHIBIT INDEX
(Continued)
Exhibit
Number Exhibit
*10.3 Employment Agreement between Stage Stores,
Inc. and Carl E. Tooker dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.3 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
*10.4 Stock Option Agreement between Specialty
Retailers, Inc. and Carl E. Tooker dated June 9, 1993
(Incorporated by Reference to Exhibit 10.18 of
Registration No. 33-68258 on Form S-4).
*10.5 Employment Agreement between James Marcum and
Stage Stores, Inc. dated April 1, 1998. (Incorporated
by Reference to Exhibit 10.6 on Form 10-K of Stage
Stores, Inc., dated January 31, 1998).
*10.6 Employment Agreement between Stephen Lovell
and Stage Stores, Inc. dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.7 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
*10.7 Employment Agreement between Ron Lucas and
Stage Stores, Inc. dated April 1, 1998. (Incorporated
by Reference to Exhibit 10.8 on Form 10-K of Stage
Stores, Inc., dated January 31, 1998).
*10.8 Employment Agreement between Jim Bodemuller
and Stage Stores, Inc. dated April 1, 1998.
(Incorporated by Reference to Exhibit 10.9 on Form 10-K
of Stage Stores, Inc., dated January 31, 1998).
**10.9 Employment Agreement between John J. Wiesner
and Stage Stores, Inc. dated February 22, 2000.
**10.10 First Amendment to Employment Agreement
between John J. Wiesner and Stage Stores, Inc. dated
May 5, 2000.
*10.11 Securities Purchase Agreement among
Palais Royal, Inc. and certain selling stockholders of
Uhlmans, dated May 9, 1996 (Incorporated by Reference
to Exhibit 10.1 on Form 10-Q of Stage Stores, Inc.,
dated June 12, 1996).
*10.12 Stage Stores, Inc. Amended and Restated 1996
Equity Incentive Plan (Incorporated by Reference to
Exhibit A of the Proxy Statement for the annual meeting
of stockholders of Stage Stores, Inc., dated April 13,
1999).
*21.1 List of Registrant's Subsidiaries.
**23.1 Consent of PricewaterhouseCoopers LLP.
**27.1 Financial Data Schedule.
________
* Previously Filed
** Filed Herewith
Report of Independent Accountants
To the Board of Directors and Stockholders of
Stage Stores, Inc.
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, stockholders'
equity and cash flows present fairly, in all material respects,
the financial position of Stage Stores, Inc. and its subsidiaries
(the "Company") at January 29, 2000 and January 30, 1999, and the
results of their operations and their cash flows for each of the
three years in the period ended January 29, 2000, in conformity
with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted
our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
incurred a net loss of $281.9 million for the year ended January
29, 2000 and had a working capital deficit and stockholders'
deficit of $258.2 million and $75.0 million, respectively, at
January 29, 2000. As described in Note 2 to the financial
statements, the Company's financial performance to date for the
year ending February 3, 2001 has resulted in restrictions on the
credit terms for the purchase of merchandise inventory.
Additionally, the Company is in violation of certain terms of its
loan agreements. As a result, on June 1, 2000 the Company, filed
for protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 2 to
the financial statements. The financial statements do not
include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 1 to the financial statements, the Company
adopted Statement of Position 98-5, "Reporting on Cost of Start-
Up Activities," during the year ended January 29, 2000.
PricewaterhouseCoopers LLP
Houston, Texas
March 9, 2000, except as to Notes 2, 6, 11, 13 and 14 to the
financial statements, which are as of June 1, 2000
Stage Stores, Inc.
Consolidated Balance Sheet
(in thousands, except par values)
January 29, 2000 January 30, 1999
ASSETS
Cash and cash equivalents $20,179 $12,832
Undivided interest in accounts
receivable trust 41,600 69,816
Merchandise inventories, net 261,104 341,316
Prepaid expenses 7,945 24,981
Other current assets 26,246 34,436
Deferred income taxes -- 25,056
Total current assets 357,074 508,437
Property, equipment and leasehold
improvements, net 181,834 233,263
Goodwill, net -- 92,551
Other assets 15,779 23,429
Total assets $554,687 $857,680
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Accounts payable $40,955 $82,779
Accrued expenses and other
current liabilities 72,177 52,706
Current portion of long-term debt 9,830 4,814
Long-term debt classified as current 492,393 --
Total current liabilities 615,355 140,299
Long-term debt including credit
facilities -- 487,968
Other long-term liabilities 14,299 21,175
Deferred income taxes -- 3,846
Total liabilities 629,654 653,288
Preferred stock, par value $1.00, non-
voting, 3 shares authorized, no shares
issued or outstanding -- --
Common stock, par value $0.01, 75,000
shares authorized, 26,834 and 26,718
shares issued and outstanding,
respectively 268 267
Class B common stock, par value $0.01,
convertible non-voting, 3,000 shares
authorized, 1,250 shares issued and
outstanding 13 13
Additional paid-in capital 266,590 265,716
Accumulated deficit (337,500) (55,610)
Accumulated other comprehensive income (4,338) (5,994)
Stockholders' equity (deficit) (74,967) 204,392
Commitments and contingencies -- --
Total liabilities and
stockholders' equity (deficit) $554,687 $857,680
Stage Stores, Inc.
Consolidated Statement of Operations
(in thousands, except earnings per share)
Fiscal Year
1999 1998 1997
Net sales $1,121,567 $1,173,547 $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses 897,117 839,238 730,179
Gross profit 224,450 334,309 343,137
Selling, general and
administrative expenses 387,816 271,477 240,011
Store opening and closure
program costs 44,986 10,192 8,686
Operating income (loss) (208,352) 52,640 94,440
Interest, net 48,634 46,471 38,277
Income (loss) before income
tax, extraordinary item and
cumulative effect of change
in accounting principle (256,986) 6,169 56,163
Income tax expense 20,217 2,455 21,623
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle (277,203) 3,714 34,540
Extraordinary item, net of
tax -- early retirement of debt (749) -- (18,295)
Cumulative effect of change in
accounting principle, net of
tax - reporting costs
of start-up activities (3,938) -- --
Net income (loss) $(281,890) $3,714 $16,245
Basic earnings (loss) per
common share data:
Basic earnings per common share
before extraordinary item and
cumulative effect of change
in accounting principle $(9.89) 0.13 $1.34
Extraordinary item, net of
tax -- early retirement of debt (0.03) -- (0.71)
Cumulative effect of change in
accounting principle, net of tax -
reporting costs of start-up
activities (0.14) -- --
Basic earnings (loss) per
common share $(10.06) $0.13 $0.63
Basic weighted average common
shares outstanding 28,028 27,885 25,808
Diluted earnings (loss) per
common share data:
Diluted earnings per common share
before extraordinary item and
cumulative effect of change
in accounting principle $(9.89) $0.13 $1.30
Extraordinary item, net of tax --
early retirement of debt (0.03) -- (0.69)
Cumulative effect of change in
accounting principle, net of tax -
reporting costs of start-up
activities (0.14) -- --
Diluted earnings (loss) per
common share $(10.06) $0.13 $0.61
Diluted weighted average common
shares outstanding 28,028 28,428 26,483
Stage Stores, Inc.
Consolidated Statement of Cash Flows
(in thousands)
Fiscal Year
1999 1998 1997
Cash flows from operating activities:
Net income (loss) $(281,890) $3,714 $16,245
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 173,631 33,474 19,828
Deferred income taxes 20,151 2,371 27,438
Accretion of discount 1,254 1,138 1,231
Amortization of debt issue costs 2,930 2,577 2,274
Loss on early retirement of debt 749 -- 18,295
Cumulative effect of change in
accounting principle 3,938 -- --
Changes in operating assets and
liabilities:
Decrease (increase) in undivided
interest in accounts receivable
trust 28,216 (8,605) 22,777
Decrease (increase) in
merchandise inventories 80,212 (38,201) (76,451)
Decrease (increase) in other
assets 24,629 (2,637) (26,970)
Increase (decrease) in accounts
payable and accrued liabilities (29,919) (9,341) 14,167
Total adjustments 305,791 (19,224) 2,589
Net cash provided by (used in)
operating activities 23,901 (15,510) 18,834
Cash flows from investing activities:
Additions to property, equipment and
leasehold improvements (22,037) (88,719) (64,859)
Acquisitions, net of cash acquired -- -- (4,946)
Net cash used in investing
activities (22,037) (88,719) (69,805)
Cash flows from financing activities:
Proceeds from:
Credit facilities 43,000 96,300 45,700
Long-term debt -- -- 299,718
Common stock 128 955 22,522
Payments on:
Long-term debt (34,813) (2,596) (299,533)
Additions to debt issue costs (2,832) (913) (12,407)
Net cash provided by financing
activities 5,483 93,746 56,000
Net increase (decrease) in cash and
cash equivalents 7,347 (10,483) 5,029
Cash and cash equivalents:
Beginning of year 12,832 23,315 18,286
End of year $20,179 $12,832 $23,315
Supplemental disclosures:
Cash flow information:
Interest paid $45,528 $43,015 $45,988
Income taxes paid (refunded) $197 $(2,872) $(14,436)
Non-cash investing and financing
activities:
In connection with various
acquisitions, liabilities were
assumed as follows:
Fair value allocated to assets
acquired $-- $-- $120,665
Cash paid for assets acquired,
including acquisition expenses -- -- (4,946)
Value of Common Stock exchanged -- -- (72,284)
Liabilities assumed $-- $-- $43,435
Stage Stores, Inc.
Consolidated Statement of Stockholders' Equity (Deficit)
(in thousands)
Fiscal Year
1999 1998 1997
Shares Outstanding
Shares of common stock issued:
Beginning balance 26,718 26,500 22,033
Issuance of stock 116 218 4,467
Ending balance 26,834 26,718 26,500
Shares of Class B stock issued:
Beginning balance 1,250 1,250 1,250
Ending balance 1,250 1,250 1,250
Stockholders' Equity (Deficit)
Common stock issued:
Beginning balance $267 $265 $220
Issuance of stock 1 2 45
Ending balance 268 267 265
Class B stock issued:
Beginning balance 13 13 13
Ending balance 13 13 13
Additional Paid-in Capital:
Beginning balance 265,716 264,679 169,811
Issuance of stock 874 953 94,761
Vested compensatory stock
options -- 84 107
Ending balance 266,590 265,716 264,679
Accumulated deficit and
accumulated other
comprehensive income:
Beginning balance (61,604) (59,879) (77,778)
Comprehensive income (loss):
Net income (loss) (281,890) 3,714 16,245
Other comprehensive
income (loss) 1,656 (5,439) 1,654
Total comprehensive
income (loss) (280,234) (1,725) 17,899
Ending balance (341,838) (61,604) (59,879)
Total Stockholders' Equity
(Deficit) $(74,967) $204,392 $205,078
Accumulated other comprehensive
income:
Beginning balance $(5,994) $(555) $(2,209)
Comprehensive income
(loss) - Minimum pension
liability adjustment,
net of tax 1,656 (5,439) 1,654
Ending balance $(4,338) $(5,994) $(555)
Stage Stores, Inc.
Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
Description of Business: Stage Stores, Inc. ("Stage Stores"
or the "Company"), through its wholly-owned subsidiary, Specialty
Retailers, Inc. ("SRI"), operates family apparel stores primarily
under the names "Bealls", "Palais Royal" and "Stage" offering
nationally recognized brand name family apparel, accessories,
cosmetics and footwear. As of January 29, 2000, the Company
operated 648 stores in thirty-three states located throughout the
United States.
Principles of Consolidation: The consolidated financial
statements include the accounts of Stage Stores and its wholly-
owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Fiscal Year: References to a particular year are to the
Company's fiscal year which is the 52 or 53 week period ending on
the Saturday closest to January 31 of the following calendar year
(e.g., a reference to "1999" is a reference to the fiscal year
ended January 29, 2000).
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Cash and Cash Equivalents: The Company considers highly
liquid investments with initial maturities of less than three
months to be cash equivalents in its statement of cash flows.
Accounts Receivable Securitization: The Company securitizes
substantially all of its trade accounts receivable through a
wholly-owned special purpose entity, SRI Receivables Purchase
Co., Inc. ("SRPC"). SRPC holds a retained interest in the
securitization vehicle (the "Retained Interest"), a special
purpose trust (the "Trust"). The Company accounts for the
Retained Interest in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, the
Retained Interest is accounted for as an investment in debt
securities and classified as trading securities. Accordingly, the
Retained Interest is recorded at fair value in the accompanying
balance sheet with any change in fair value reflected currently
in income. The unrealized gain recorded to income in 1999, 1998
and 1997 was $7.3 million, $3.2 million and $0.7 million,
respectively.
Merchandise Inventories: The Company states its merchandise
inventories at the lower of cost or market based upon the retail
method of accounting, cost being determined using the last-in,
first-out ("LIFO") method. Market is estimated on a pool-by-pool
basis. The Company believes that the LIFO method, which charges
the most recent merchandise costs to the results of current
operations, provides a better matching of current costs with
current revenues in the determination of operating results.
During 1999 inventory quantities were reduced. This reduction
resulted in a liquidation of LIFO inventory quantities carried at
higher costs prevailing in prior years as compared with the cost
of 1999 purchases, the effect of which increased cost of goods
sold by approximately $8.8 million and increased net loss by
approximately $8.8 million or $0.31 dollars per share.
Property, Equipment and Leasehold Improvements: Property,
equipment and leasehold improvements are stated at cost and
depreciated over their estimated useful lives using the straight-
line method. The estimated useful lives of leasehold
improvements do not exceed the term of the related lease,
including renewal options. The estimated useful lives in years
are generally as follows:
Buildings 20-25
Store and office fixtures and equipment 5-12
Warehouse equipment 5-15
Leasehold improvements 5-30
Goodwill and Other Intangibles: The Company amortizes
goodwill and intangible assets on a straight-line basis over the
estimated future periods benefited, not to exceed forty years.
Amortization periods for goodwill and other intangibles
associated with acquisitions are currently five to forty years.
Each year, the Company evaluates the remaining useful life
associated with goodwill based upon, among other things,
historical and expected long-term results of operations.
Accumulated amortization of goodwill was $10.3 million at January
30, 1999.
Debt Issue Costs: Debt issue costs are accounted for as a
deferred charge and amortized on a straight-line basis over the
term of the related issue. Amortization of debt issue costs were
$2.9 million, $2.6 million and $2.3 million for 1999, 1998 and
1997, respectively.
Accrued Expenses and Other Current Liabilities: Accrued
expenses and other current liabilities include accrued payroll
and related payroll taxes of $8.3 million and $7.3 million at
January 29, 2000 and January 30, 1999, respectively.
Financial Instruments: Except for the Retained Interest, the
Company records all financial instruments at cost. The cost of
all financial instruments, except long-term debt and the Retained
Interest, approximates fair value.
Comprehensive income: Other comprehensive income refers to
revenues, expenses, gains and losses that under generally
accepted accounting principles are recorded directly as an
adjustment to stockholders' equity. Minimum pension liability
adjustment is the Company's only component of comprehensive
income. The minimum pension liability adjustments recorded in
the accompanying statement of stockholders' equity are net of tax
expense (benefit) of ($1.7) million, $3.5 million and ($1.1)
million in 1999, 1998 and 1997, respectively.
Store Pre-Opening Expenses: Costs related to the opening of
new stores are expensed as incurred.
Advertising Expenses: Advertising costs are charged to
operations when the related advertising first takes place.
Advertising costs were $52.5 million, $50.4 million and $39.5
million for 1999, 1998 and 1997, respectively. Prepaid
advertising costs were $1.3 million and $2.7 million at January
29, 2000 and January 30, 1999, respectively.
Impairment of Assets: The Company reviews for the impairment
of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An
impairment loss would be recognized when estimated future cash
flows expected to result from the use of the asset and its
eventual disposition are less than its carrying amount.
Income Taxes: The provision for income taxes is computed
based on the pretax income included in the Consolidated Statement
of Operations. The asset and liability approach is used to
recognize deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the
carrying amounts for financial reporting purposes and the tax
basis of assets and liabilities. A valuation allowance is to be
established if it is more likely than not that some portion of
the deferred tax asset will not be realized.
Earnings per Share: Basic earnings per share is computed
using the weighted average number of common shares outstanding
during the periods. Diluted earnings per share is computed using
the weighted average number of common shares as well as all
potentially dilutive common share equivalents outstanding. Stock
options and restricted stock are the only potentially dilutive
share equivalents the Company has outstanding for the periods
presented. Incremental shares of 543 thousand and 675 thousand
in 1998 and 1997, respectively, were used in the calculation of
diluted earnings per common share. All common share equivalents
were excluded from the computation of diluted earnings per share
in 1999, as they were anti-dilutive. Common share equivalents of
408 thousand and 245 thousand in 1998 and 1997, respectively,
were not included in the computation of diluted earnings per
share as they were anti-dilutive.
Start-up Costs: In April 1998, the Accounting Standards
Executive Committee issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"),
effective for fiscal years beginning after December 15, 1998.
SOP 98-5 provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred.
Initial adoption of SOP 98-5 is to be reported as the cumulative
effect of a change in accounting principle. The Company adopted
SOP 98-5 in the first quarter of 1999 which resulted in a net of
tax charge of $3.9 million.
Reclassifications: The accompanying Consolidated Financial
Statements include reclassifications from financial statements
issued in previous years.
New Accounting Pronouncements: In June 1998 the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which requires that all derivative financial
instruments be recorded in the financial statements. SFAS No.
133 is effective for the Company in the first quarter of 2001,
and the Company is in the process of ascertaining the impact this
new standard will have on its financial statements. In March
2000, the FASB issued interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation which provides
guidance for certain issues arising from the application of APB
Opinion No. 25; the Company is currently evaluating the impact of
application of this interpretation on its financial statements.
NOTE 2 - LIQUIDITY AND MANAGEMENT PLANS
The Company incurred a net loss of $281.9 million for the
year ended January 29, 2000; the Company also had working capital
deficit and stockholders' deficit of $258.3 million and $75.0
million respectively, at January 29, 2000.
The Company is highly leveraged and depends on adequate
trade support to fund its inventory working capital requirements.
As a result of the Company's poor financial performance to date
for the year ending February 3, 2001, the vendor community has
significantly restricted the Company's access to normal trade
terms. As a result, the Company can not currently believe it has
sufficient liquidity to fund its working capital requirements
As of June 1, 2000, the Company was in violation of certain
covenants under its various debt agreements. As a result,
substantially all of the Company's debt has been classified as
current in the accompanying balance sheet at January 29, 2000.
These violations of the terms of its debt agreements could allow
lenders to take actions to accelerate the repayment schedule of
these debt instruments. The Company would be unable to pay
amounts becoming due as a result of any acceleration of repayment
terms.
As a result of the foregoing, the Company filed for
protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code ("Chapter 11") on June 1, 2000. Under Chapter
11, the Company is seeking approval to operate as a debtor-in-
possession. The Company is currently negotiating with a lender
to finance the Company's working capital requirements during
Chapter 11 reorganization proceedings, however there can be no
assurances the financing will be obtained or approved by the
Court.
Under Chapter 11, the Company would intend to operate its
business as debtor-in-possession, subject to the approval of the
Bankruptcy Court for certain proposed actions. Additionally, one
or more creditor committees would be formed and would have the
right to review and object to any non-ordinary course of business
transactions and participate in the formulation of any plan or
plans of reorganization.
As of the petition date, actions to collect pre-petition
indebtedness are stayed and other contractual obligations may not
be enforced against the Company. In addition, the Company may
reject executory contracts and lease obligations, and parties
affected by these rejections may file claims with the Bankruptcy
Court in accordance with the reorganization process.
Substantially all liabilities as of the petition date are subject
to settlement under a plan of reorganization to be voted upon by
all impaired classes of creditors and equity security holders and
approved by the Bankruptcy Court.
As a result of the foregoing matters, the estimate of
expected future cash flows of stores was lowered. The Company
recorded an impairment loss of $41.7 million in 1999, consisting
of increased depreciation and amortization of $26.0 million
related to property, equipment and leasehold improvements
associated with underperforming stores and associated goodwill of
$15.7 million. The impairment loss is included in selling,
general and administrative expense in the accompanying statement
of operations. Additionally, because of the foregoing matters the
Company reevaluated the recoverability of its remaining goodwill;
as a result the Company wrote-off the remaining balance amounting
to $67.9 million and other intangible assets amounting to $1.0
million during 1999.
The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity
of operations, realization of assets and liquidation of
liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to
this event, including the Company's highly leveraged financial
structure and recurring losses from operations as reflected in
the consolidated financial statements, such realization of assets
and liquidation of liabilities is subject to uncertainty.
Further, a plan of reorganization could materially change the
amounts reported in the consolidated financial statements, which
do not give effect to any adjustments to the carrying value of
assets or amounts of liabilities that might be necessary as a
consequence of a plan of reorganization. Additionally, there will
likely be additional store closures as part of the reorganization
process which would result in additional adjustments. The ability
of the Company to continue as a going concern is dependent upon,
among other things, confirmation of a plan of reorganization,
future profitable operations, the ability to comply with debtor-
in-possession agreements and the ability to generate sufficient
cash from operations and financing sources to meet obligations.
Additionally, the accompanying consolidated financial statements
do not include any adjustments that would be required if the
Company were in liquidation.
Substantially all of the Company's liabilities are subject
to settlement under reorganization proceedings. The Company's
debt to banks and bondholders is in default of the terms of the
applicable loan agreements, notes and debentures. For financial
reporting purposes, those liabilities and obligations have been
classified as current liabilities. The ultimate adequacy of
security for any secured debt obligations and settlement of all
liabilities and obligations cannot be determined until a plan of
reorganization is confirmed.
NOTE 3 - STORE CLOSURE PROGRAM
During the second quarter of 1999, the Company implemented a
store closure program under which the Company closed 35
underperforming stores during the last three quarters of 1999.
During the fourth quarter of 1999, the Company implemented a
store closure program to close an additional 64 stores. As of
January 29, 2000, 5 of the stores have been closed while the
remaining 59 stores are expected to be closed by the end of the
third quarter of 2000.
In connection with these closures, the Company recorded
$59.0 million of pretax costs, of which $14.8 million is included
in cost of sales while the remaining $44.2 million is included in
store opening and closure program costs. Of the $59.0 million of
costs, approximately $9.4 million represents severance and lease
termination costs, approximately $2.8 million represents a
reserve for uncollectible accounts receivable associated with the
Company's private label credit card program, approximately $3.4
million represents write-off of prepaid supplies and signage,
approximately $14.8 million represents a lower of cost or market
reserve related to the inventory being liquidated in the stores
in the store closure program, while the balance relates primarily
to the write-off of fixed assets and intangibles associated with
these stores. As of January 29, 2000, the accompanying balance
sheet includes a lower of cost or market reserve of $6.2 million
related to the inventory remaining to be liquidated in the stores
in the closure program and $8.2 million for estimated severance
and lease termination costs to be paid.
The stores included in the store closure program had the
following operating results prior to store closure charges:
1999 1998 1997
Net sales $56,062 $72,929 $61,281
Gross margin 17,380 26,196 21,292
Direct operating expense 21,942 29,424 20,683
Contribution before
corporate allocations $(4,562) $(3,228) $609
NOTE 4 - ACCOUNTS RECEIVABLE SECURITIZATION
Pursuant to the accounts receivable securitization (the
"Accounts Receivable Program"), the Company sells substantially
all of the accounts receivable generated by the holders of the
Company's private label credit card accounts to SRPC on a daily
basis in exchange for cash or an increase in the Company's
interest. SRPC is a separate limited-purpose subsidiary that is
operated in a fashion intended to ensure that its assets and
liabilities are distinct from those of the Company and its other
affiliates as SRPC's creditors have a claim on its assets prior
to becoming available to any creditor of the Company. On November
9, 1999, the Company completed a refinancing of the existing term
and revolving certificates outstanding under its Accounts
Receivable Program. In connection with the refinancing, the
previously existing term and revolving certificates were replaced
with new term and revolving certificates (the "New
Certificates"). The New Certificates provide the Company with a
maximum availability of $329.9 million, subject to the amount of
receivables held in the Trust. The New Certificates consists of
$283.5 million of revolving certificates and $46.4 million of
term certificates. The revolving certificates consist of Class A
and Class B Variable Funding Certificates and the term
certificates consist of Class C and Class D Floating Rate Asset
Backed Certificates. In addition, the trust has issued Class E
Certificates, which are subordinate to all of the other
certificates. The amount of the outstanding balance under the
revolving certificates will vary based upon a number of factors
which include, among others, the level of receivables in the
Trust and the working capital needs of the Company. The
commitment period for the revolving certificates expires in
November 2000 and is subject to annual renewal with consent from
the holders of the revolving certificates. The term certificates
begin to amortize during September 2002. Under certain
circumstances, collections on the accounts receivable portfolio
which would have otherwise been available to the Company, may be
retained within the Trust to be unavailable to the Company until
the satisfaction of certain conditions. As of January 29, 2000,
$1.2 million was being retained in the Trust. In addition,
certain conditions could cause an early amortization event in the
Trust. If such an event occurs, the amortization period for all
the certificates would begin immediately. The filing of
protection under Chapter 11 of Title 11 of the United States
Bankruptcy Code would trigger an early amortization event, which
results in the acceleration of principle payments to certain
classes of certificate holders. Additionally, an amortization
event could result in write down in the recorded amount of the
undivided interest in the accounts receivable trusts included in
the accompanying balance sheet.
Based upon the amount of receivables in the Trust at the
time of closing, the Company received $292.4 million of proceeds.
Of this amount, $259.3 million was used to retire the outstanding
balances under the previously existing Trust certificates, which
were scheduled to begin amortizing in December of 1999. The
remainder of the proceeds were used to redeem the previously
existing $30.0 million aggregate principle amount of SRPC 12.5%
Trust certificate-backed notes and other costs associated with
the refinancing. In connection with the refinancing, the Company
recorded an after-tax extraordinary charge of approximately $0.7
million in the fourth quarter of 1999 related to the early
retirement of debt.
Amounts outstanding under the New Certificates are funded by
the issuance of commercial paper in the open market through a
facility agent at various rates and maturities. If the
commercial paper market is unavailable, amounts outstanding under
the revolving component of the New Certificates will be funded by
a liquidity provider. If accounts receivable balances in the
Trust fall below the level required to support the term
certificates and revolving certificates, certain principal
collections may be retained in the Trust until such time as the
receivable balances exceed the certificates then outstanding and
the required Company's interest. The Trust may issue additional
series of certificates from time to time. Terms of any future
series will be determined at the time of issuance. The
outstanding balances of the term certificates totaled $46.4
million and $165.0 million at January 29, 2000 and January 30,
1999, respectively. There was $270.7 million and $115.6 million
outstanding under the revolving certificates at January 29, 2000
and January 30, 1999, respectively.
Total accounts receivable transferred to the Trust during
1999, 1998 and 1997 were $567.1 million, $585.3 million and
$508.9 million, respectively. The cash flows generated from the
accounts receivable in the Trust are dedicated to: (i) the
purchase of new accounts receivable generated by the Company;
(ii) payment of a return on the certificates; and (iii) the
payment of a servicing fee to SRI. Any remaining cash flows are
remitted to SRPC. The New Certificates entitle the holders to
receive a return, based upon the London Interbank Offered Rate
("LIBOR"), plus a specified margin. At January 29, 2000, the
blended rate of return on the New Certificates was 6.5%.
Accounts receivable sold to SRPC that subsequently become
defaulted are allocated to each certificate class by order of
preference. Class A Certificates are senior to all of the other
certificates and Class E Certificates are subordinate to all the
other certificates. The Class E Certificates are held by the
Company and comprise the Company's undivided interest in the
Trust. This amount represents the Company's total risk exposure
with respect to the Accounts Receivable Program.
NOTE 5 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as
follows (in thousands):
January 29, 2000 January 30, 1999
Land $3,074 $3,074
Buildings 16,980 16,980
Fixtures and equipment 206,632 198,588
Leasehold improvements 132,843 130,870
359,529 349,512
Accumulated depreciation 177,695 116,249
$181,834 $233,263
Depreciation expense was $73.9 million, $25.9 million and
$16.8 million for 1999, 1998 and 1997, respectively. Depreciation
expense for 1999 includes impairment charges of $26.0 million
related to property, equipment and leasehold improvements
associated with underperforming stores and $17.3 million of
writedown related to stores included in the store closure
program. Gains and losses on retirement or disposition of fixed
assets are recognized when incurred and are included in income
(loss) from operations. See Note 2 to financial statements.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 29, 2000 Janaury 30, 1999
Senior Notes $200,000 $200,000
Senior Subordinated Notes,
net of discount 99,721 99,696
Credit Facility 185,000 142,000
SRPC Notes -- 30,000
Other long-term debt 17,502 21,086
502,223 492,782
Less debt classified as current 492,393 --
Less current maturities 9,830 4,814
$-- $487,968
As of June 1, the Company was in violation of certain of its
covenants under its various debt agreements. These violations of
the terms of its debt agreements could allow lenders to take
actions to accelerate the repayment schedule of these debt
instruments. Therefore, the Company's debt has been classified as
current.
The Senior Notes were issued during June 1997 by SRI with a
principal amount of $200.0 million, bear interest at 8.5% payable
semi-annually on January 15 and July 15, and mature July 15,
2005. The Senior Notes are general unsecured obligations and
rank senior to all subordinated debt of SRI including the Senior
Subordinated Notes.
The Senior Subordinated Notes were issued during June 1997
by SRI with a principal amount of $100.0 million and at a
discount which results in a combined effective interest rate of
9.03%. The Senior Subordinated Notes bear interest at 9% payable
semi-annually on January 15 and July 15 and mature July 15, 2007.
The Senior Subordinated Notes are subordinated to the obligations
under the Senior Notes.
Concurrently with the issuance of the Senior Notes and
Senior Subordinated Notes, SRI entered into a new credit facility
with a group of lenders (the "Credit Facility") which replaced
the Company's existing $75.0 million credit facility. The Credit
Facility provides for: (i) a $100.0 million working capital and
letter of credit facility (the "Working Capital Facility")
pursuant to which SRI shall have the right at any time prior to
June 17, 2000 to solicit one or more lenders and/or new financial
institutions to provide up to $25 million in additional
commitments to increase the Working Capital Facility to an amount
not to exceed $125 million in the aggregate, subject to certain
conditions, of which up to $50 million may be used for letters of
credit; and (ii) a $100.0 million expansion facility (the
"Expansion Facility"). The Credit Facility matures on June 14,
2002 provided that in addition to certain mandatory reductions in
commitments, the commitments under the Expansion Facility will be
reduced on the fourth anniversary of the signing of the Credit
Facility by the amount, if any, necessary so that total
reductions in the amount of the commitments under the Expansion
Facility (taking into account all mandatory reductions) will have
been at least $25 million. A commitment fee on the unused
commitments of each of the Working Capital Facility and Expansion
Facility is payable quarterly in arrears. The amount of the
commitment fee is determined based on the Adjusted Leverage Ratio
(as defined in the Credit Facility), and ranges from 0.25% to
0.50% per annum. Advances under the Working Capital Facility and
Expansion Facility bear interest at the Company's option, at the
Base Rate plus the applicable Margin Percentage or at the
Eurodollar Rate plus the applicable Margin Percentage (each as
defined in the Credit Facility). The Margin Percentage is
determined from time to time based on the Adjusted Leverage Ratio
and was 2.25% for the Base Rate and 3.25% for the Eurodollar Rate
at January 29, 2000. The effective interest rate for borrowings
outstanding under the Credit Facility was 8.8% at January 29,
2000.
The Credit Facility contains covenants which, among other things,
restrict the: (i) incurrence of additional debt; (ii) incurrence
of capitalized lease obligations; (iii) payment of dividends;
(iv) formation of certain business combinations; (v) acquisition
of subordinated debt; (vi) use of proceeds received under the
agreement; (vii) aggregate amount of capital expenditures; (viii)
transactions with related parties; and (ix) changes in lines of
business. In addition, the Credit Facility requires the Company
to maintain compliance with certain specified financial
covenants, including covenants relating to minimum interest
coverage, minimum fixed charge coverage and maximum leverage
ratios. The Credit Facility also limits the amount which can be
outstanding for a specified length of time each year. A portion
of the Credit Facility is collateralized by SRI's distribution
center located in Jacksonville, Texas, including equipment
located therein and a pledge of SRPC stock. The net book value
of the distribution center was approximately $5.4 million at
January 29, 2000.
On March 9, 2000, SRI entered into a new $35.0 million
senior revolving credit facility (the "Senior Revolving Credit
Facility") with certain of the lenders participating in the
Credit Facility. The Senior Revolving Credit Facility matures
June 14, 2002 and provides for working capital borrowings and is
collateralized by a perfected first priority security interest on
$50.0 million of inventory. Advances under the Senior Revolving
Credit Facility will bear interest at the Company's option, at
the Base Rate plus the applicable Margin Percentage or at the
Eurodollar Rate plus the applicable Margin Percentage (each as
defined in the Senior Revolving Credit Facility). SRI will pay a
commitment fee on the unused commitment of 0.50% per annum
payable quarterly in arrears. In connection with the Senior
Revolving Credit Facility, the Credit Facility was amended to
provide (a) a first priority lien on the Company's corporate
concentration cash account (b) a second priority lien on
inventory equal to $50.0 million less borrowings outstanding
under the Senior Revolving Credit Facility (c) a first priority
lien on all tangible personal property, including furniture,
fixtures and equipment (excluding inventory except to the amount
described in (b) above). In addition, the amendment limits the
amount of readily available cash or cash equivalents in the
Company's corporate concentration cash account to $20.0 million
after giving effect to any borrowings under the Credit Facility.
Under the terms of the new credit facility, the Company will
issue warrants to the lenders to purchase 7.5% of the Company's
outstanding common stock. The exercise price under the warrants
will be determined based upon the average closing price of the
Company's stock for the 30 days following the date of commitment.
The warrants will expire on March 6, 2003.
The Company had $2.8 million of availability under the
Credit Facility at January 29, 2000. In addition, the Company
had cash and cash equivalents on hand of $20.2 million at January
29, 2000. The Company had $6.0 million of availability under the
combined credit facilities at May 25, 2000.
During November 1999, the Company retired the $30.0 million
aggregate principle amount of SRPC 12.5% Trust Certificate-Backed
Notes in connection with the refinancing related to the Accounts
Receivable Program (see note 4).
In connection with various acquisitions, the Company has
indebtedness which bear interest between 7% and 12% and maturity
dates between 2000 through 2004.
Aggregate maturities of long-term debt excluding the Credit
Facility for the next five years are: 2000 - $4.8 million; 2001 -
$2.6 million; 2002 - $2.7 million; 2003 - $14.2 million and 2004
- - $0.2 million.
Management estimates the fair value of its long-term debt to
be $325.7 million and $482.4 million at January 29, 2000 and
January 30, 1999, respectively. In developing its estimates,
management considered quoted market prices for each instrument,
if available, current market interest rates in relation to the
coupon interest rates of each instrument, the relative
subordination of each instrument and the relative liquidity of
the instrument as indicated by the presence or lack of an active
market. Given the matters discussed in Note 2, the current market
value of the Company's long-term debt would be substantially
below the aforementioned amounts.
NOTE 7 - STOCKHOLDERS' EQUITY
The Company's authorized common equity securities consist of
par value $0.01 per share common stock ("Common Stock") and par
value $0.01 per share Class B common stock ("Class B Common
Stock"). Except as otherwise described herein, all shares of
Common Stock and Class B Common Stock are identical and entitle
the holders thereof to the same rights and privileges (except
with respect to voting privileges). Holders of Class B Common
Stock may elect at any time to convert any or all of such shares
into Common Stock, on a share-for-share basis, to the extent the
holder thereof is not prohibited from owning additional voting
securities by virtue of regulatory restrictions. The holders of
Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Except as required by law,
holders of Class B Common Stock do not have the right to vote on
any matters to be voted upon by the stockholders.
During September 1997, the Company completed an offering of
approximately 7.1 million shares of common stock, 6.4 million
shares of which were secondary shares representing the shares
owned by two venture capital firms. The remaining 650,000 shares
were issued as primary shares, a result of an over-allotment
provision. The shares sold by the Company resulted in net
proceeds to the Company of approximately $20.7 million, which
were used to reduce borrowings outstanding under the Company's
Credit Facility.
In November 1998, the Company adopted a Stockholder Rights
Plan designed to protect Company stockholders in the event of
takeover activity that would deny them the full value of their
investment. Terms of this plan provide for a dividend
distribution of one right for each share of Common Stock of the
Company to holders of record at the close of business on November
13, 1998. The rights will become exercisable only in the event,
with certain exceptions, a person or group of affiliated or
associated persons accumulates 15% or more of the Company's
voting stock, or if a person or group announces an offer to
acquire 15% or more. The rights will expire on November 10,
2008. Each right will entitle the holder to buy one one-hundred
thousandth of a share of a new series of preferred stock at a
price of $60. In addition, upon the occurrence of certain
events, holders of the rights would be entitled to purchase
either Company stock or shares in an "acquiring entity" at half
of market value. Further, at any time after a person or group
acquires 15% or more (but less than 50%) of the Company's
outstanding voting stock, the Board of Directors may, at its
option, exchange part or all of the Rights (other than Rights
held by the acquiring person or group, which would become void)
for shares of the Company's common stock on a one-for-one basis.
The Company generally will be entitled to redeem the rights at
$0.01 per right at any time until the tenth day following the
acquisition of a 15% position in its voting stock.
NOTE 8 - STOCK OPTION PLANS
In 1993, the Company adopted the Third Amended and Restated
Stock Option Plan (the "1993 Stock Option Plan") designed to
provide incentives to present and future executive, managerial
and other key employees and advisors to the Company (the
"Participants") as selected by the Board of Directors or the
compensation committee of the Board of Directors (the "Board").
All options granted under the 1993 Stock Option Plan were non-
qualified within the meaning of Section 422A of the Internal
Revenue Code. The number of shares of common stock which could
be granted under the 1993 Stock Option Plan was 1,894,540 shares.
As of January 29, 2000, there were 906,124 options outstanding
under the 1993 Stock Option Plan.
During 1996, the Company adopted the 1996 Equity Incentive
Plan (the "Incentive Plan"). The Incentive Plan provides for the
granting of the following types of awards: stock options, stock
appreciation rights ("SARs"), restricted stock, performance
units, performance grants and other types of awards that the
Board deems to be consistent with the purposes of the Incentive
Plan. An aggregate of 3,500,000 shares of common stock have been
reserved for issuance under the Incentive Plan. No Participant
shall be entitled to receive grants of common stock, stock
options or SARs with respect to common stock, in any calendar
year in excess of 400,000 shares in the aggregate. As of January
29, 2000, there were 1,204,483 options and 378,525 shares of
restricted stock outstanding under the Incentive Plan.
The Board will have exclusive discretion to select the
Participants and to determine the type, size and terms of each
award, to modify the terms of awards, to determine when awards
will be granted and paid, and to make all other determinations
which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan is
scheduled to terminate ten years from the date that the Incentive
Plan was initially approved and adopted by the stockholders of
the Company, unless extended for up to an additional five years
by action of the Board. With limited exceptions, including
termination of employment as a result of death, disability or
retirement, or except as otherwise determined by the Board,
rights to these forms of contingent compensation are forfeited if
a recipient's employment or performance of services terminates
within a specified period following the award. Generally, a
Participant's rights and interest under the Incentive Plan will
not be transferable except by will or by the laws of descent and
distribution.
Options are rights to purchase a specified number of shares
of common stock at a price fixed by the Board. The option price
may be equal to or greater than the fair market value of the
underlying shares of common stock, but in no event less than the
fair market value on the date of grant. Options granted under
the 1993 Stock Option Plan generally become exercisable in
installments of 20% per year on each of the first through the
fifth anniversaries of the grant date and have a maximum term of
ten years. Options granted under the Incentive Plan generally
become exercisable in installments of 25% per year on each of the
first through fourth anniversaries of the grant date and have a
maximum term of ten years.
A summary of the option activity under the various plans
follows:
Number of Weighted
Outstanding Average
Options Option
Price
Options outstanding at
February 1, 1997 1,475,581 6.61
Granted 570,550 23.84
Surrendered (124,015) 13.31
Exercised (208,023) 2.22
Options outstanding at
January 31, 1998 1,714,093 12.39
Granted 505,200 38.08
Surrendered (147,185) 26.35
Exercised (217,218) 4.57
Options outstanding at
January 30, 1999 1,854,890 19.15
Granted 497,608 6.80
Surrendered (144,107) 25.94
Exercised (97,784) 0.84
Options outstanding at
January 29, 2000 2,220,607 16.62
Exercisable options under the various plans at January 30, 1999
and January 31, 1998 were 526,752 and 333,159 with a weighted
average exercise price of $7.88 and $2.87, respectively. A
summary of outstanding and exercisable options as of January 29,
2000 follows:
Number of Weighted Weighted Average
Option Outstanding Average Remaining
Price Options Exercise Price Contractual Life
$0.00 - $0.12 5,542 $0.11 2.8
2.42 - 3.75 306,011 2.94 5.7
5.00 - 8.00 729,531 6.36 7.9
9.00 - 13.88 180,635 10.53 8.7
17.00 - 21.15 245,400 20.90 6.5
22.00 - 30.00 346,888 22.82 7.2
33.75 - 42.13 27,000 37.17 7.8
49.75 - 51.88 269,600 51.61 8.2
2,110,607 16.78 7.4
Number of
Option Exercisable Weighted Average
Price Options Exercise Price
$0.00 - $0.12 5,542 $0.11
2.42 - 3.75 229,722 2.79
5.00 - 8.00 174,858 5.28
9.00 - 13.88 47,053 10.53
17.00 - 21.15 17,500 19.81
22.00 - 30.00 194,125 22.95
33.75 - 42.13 13,000 37.15
49.75 - 51.88 69,689 51.61
751,489 14.56
A summary of the restricted stock activity under the various
plans follows:
Number of Weighted
Shares Average Grant
Date
Fair Value
Unvested restricted stock grants
outstanding at February 1, 1997 -- --
Granted 220,000 32.04
Surrendered -- --
Vested -- --
Unvested restricted stock grants
outstanding at January 31, 1998 220,000 32.04
Granted 73,300 41.48
Surrendered -- --
Vested -- --
Unvested restricted stock grants
outstanding at January 30, 1999 293,300 34.40
Granted 123,750 6.45
Surrendered (20,475) 35.00
Vested (18,050) 41.38
Unvested restricted stock grants
outstanding at January 29, 2000 378,525 24.90
The 1999 and 1998 grants vest 25% per year on each of the
first through fourth anniversary dates of the grant date and
contain certain accelerated vesting provisions. The 1997 grants
vest at the end of three year period and contain certain
accelerated vesting provisions. The issuance of shares which have
vested has been recorded as non-cash increase in stockholders
equity.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its
plans. Compensation expense was $3.1 million, $3.2 million and
$0.5 million in 1999, 1998 and 1997, respectively. The following
pro forma data is calculated as if compensation cost for the
Company's stock option plans were determined based upon the fair
value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation":
Fiscal Year
1999 1998 1997
Pro forma net income (loss) (in thousands) $(283,396) $1,106 $15,407
Pro forma basic earnings (loss)
per common share (10.11) 0.04 0.60
Pro forma diluted earnings (loss)
per common share (10.11) 0.04 0.58
Weighted average grant-date value
of options granted 5.63 22.30 13.96
The fair value of the options granted is estimated using the
Black-Scholes option-pricing model with the following assumptions
for 1999: no dividend yield; volatility of 88.95%; risk-free
interest rate of 6.7%; assumed forfeiture rate at 100.00% and an
expected life of 7.86 years. For 1998, the following assumptions
were used: no dividend yield; volatility of 47.32%; risk-free
interest rate of 4.9%; assumed forfeiture rate of 71.27% and an
expected life of 7.8 years. For 1997, the following assumptions
were used: no dividend yield; volatility of 47.32%; risk-free
interest rate of 5.5%; assumed forfeiture rate of 76.92% and an
expected life of 7.42 years. The pro forma amounts above are not
likely to be representative of future years because options vest
over several years and additional awards generally are made each
year.
NOTE 9 - EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SSI
Restated Retirement Plan (the "Retirement Plan"), a qualified
defined benefit plan. Benefits are administered through a trust
arrangement which provides monthly payments or lump sum
distributions. The Retirement Plan covers substantially all
employees who have completed one year of service with 1,000 hours
of service as of June 30, 1998. Benefits under the plan are
based upon a percentage of the participant's earnings during each
year of credited service. Supplemental pension benefits for
certain key executives are provided under the SRI Supplemental
Executive Retirement Plan (the "Supplemental Retirement Plan"), a
non-qualified defined benefit plan.
Information regarding the Retirement Plan and the Supplemental
Retirement Plan is as follows (in thousands):
January 29, 2000 January 30, 1999
Change in benefit obligation:
Benefit obligation at beginning of year $31,639 $34,716
Service cost 731 917
Interest cost 2,109 2,191
Actuarial (gain) loss (2,860) 3,056
Plan disbursements (2,449) (3,913)
Plan curtailment -- (5,991)
Plan settlement -- 663
Projected benefit obligation at end
of year 29,170 31,639
Change in plan assets:
Fair value of plan assets at
beginning of year 21,711 26,624
Actual return on plan assets 1,089 (1,550)
Employer contributions 2,880 550
Plan disbursements (2,449) (3,913)
Fair value of plan assets at end of year 23,231 21,711
Funded status (5,939) (9,928)
Unrecognized prior service cost 306 326
Unrecognized net actuarial (gain) loss 7,317 9,890
Net amount recognized $1,684 $288
Amounts recognized in the consolidated
balance sheet consist of:
Accrued benefit liability $(5,427) $(9,538)
Accumulated other comprehensive income 7,111 9,826
Net amount recognized $1,684 $288
January 29, 2000 January 30, 1999
Weighted-average assumptions as of
year end:
Discount rate 7.0% 6.5%
Expected long-term rate of return
on plan assets 9.0% 9.0%
Rate of annual compensation increase 5.0% N/A
Rate of increase in maximum benefit
and compensation limits N/A 3.5%
Assumed rate of increase in taxable
wage base N/A N/A
The components of pension cost for the Retirement Plan and
the Supplemental Retirement Plan were as follows (in thousands):
Fiscal Year
1999 1998 1997
Net periodic pension cost for the fiscal year ended:
Service cost $731 $917 $1,738
Interest cost 2,109 2,191 2,328
Expected return on plan assets (1,888) (2,367) (2,521)
Amortization of prior service cost 20 18 (6)
Recognized actuarial loss 512 127 507
Net periodic pension cost $1,484 $886 $2,046
Included in accrued expenses and other accrued liabilities
is $6.3 million for estimated contributions to the Retirement
Plan in 2000.
The Company's funding policy for the Retirement Plan is to
contribute the minimum amount required by applicable regulations.
Retirement Plan assets include 100,000 shares of Stage Stores
common stock purchased during the Company's initial public
offering.
Effective June 30, 1998, the Retirement Plan was frozen.
There will be no future benefit accruals after that date. Any
service after that date will continue to count toward vesting and
eligibility for normal and early retirement. The Company
recorded a gain in 1998 of $2.0 million associated with the plan
curtailment.
The Company has a contributory 401(k) savings plan covering
substantially all qualifying employees. Under the 401(k),
participants may contribute up to 15% of their qualifying
earnings, subject to certain restrictions. The Company currently
matches 50% of each participant's contributions, limited to 6% of
each participant's salary. The Company's matching contributions
were approximately $1.0 million for 1999, $0.8 million for 1998
and $0.4 million for 1997.
NOTE 10 - OPERATING LEASES
The Company leases stores, service center facilities, the
corporate headquarters and equipment under operating leases. A
number of store leases provide for escalating minimum rent.
Rental expense is recognized on a straight-line basis over the
life of such leases. The majority of the Company's store leases
provide for contingent rentals, generally based upon a percentage
of net sales. The Company has renewal options for most of its
store leases; such leases generally require that the Company pay
for utilities, taxes and maintenance expense. A summary of
rental expense associated with operating leases follows (in
thousands):
Fiscal Year
1999 1998 1997
Minimum rentals $51,926 $48,022 $37,601
Contingent rentals 3,838 3,993 4,545
Equipment rentals 4,544 3,854 1,240
$60,308 $55,869 $43,386
Minimum rental commitments on long-term operating leases at
January 29, 2000, net of sub-leases, are as follows (in
thousands):
Fiscal Year:
2000 $52,435
2001 47,641
2002 41,197
2003 34,246
2004 27,619
Thereafter 112,888
$316,026
NOTE 11 - INCOME TAXES
All Company operations are domestic. Income tax expense
charged to continuing operations consisted of the following (in
thousands):
Fiscal Year
1999 1998 1997
Federal income tax expense (benefit):
Current $-- $(66) $11,012
Deferred 28,617 3,246 8,413
28,617 3,180 19,425
State income tax expense (benefit):
Current 66 150 193
Deferred (8,466) (875) 2,005
(8,400) (725) 2,198
$20,217 $2,455 $21,623
A reconciliation between the federal income tax expense
charged to continuing operations computed at statutory tax rates
and the actual income tax expense recorded follows (in
thousands):
Fiscal Year
1999 1998 1997
Federal income tax expense at
the statutory rate $(91,585) $2,159 $19,657
State income taxes, net (5,460) (471) 1,428
Goodwill amortization 26,040 742 388
Permanent differences, net 1,674 25 150
Valuation reserve 89,548 -- --
$20,217 $2,455 $21,623
In connection with the early retirement of various indebtedness,
the Company recorded extraordinary charges of $0.7 million and
$18.3 million in 1999 and 1997, respectively, net of applicable
income taxes of $0.0 and $11.5 million in 1999 and 1997,
respectively. The 1997 income tax benefit relating to the
extraordinary items is comprised of a $9.9 million deferred
federal tax benefit and a $1.6 million deferred state tax
benefit. During 1999, the Company recorded a charge of $3.9
million in connection with the cumulative effect of a change in
accounting principle reporting costs of start-up activities, net
of applicable income taxes of $0.0 million.
Deferred tax liabilities (assets) consist of the following (in
thousands):
January 29, 2000 January 30, 1999
Gross deferred tax liabilities:
Depreciation and amortization $-- $14,790
State income taxes 5,183 1,838
Other 5,711 7,786
10,894 24,414
Gross deferred tax assets:
Retained Certificates (3,033) (2,460)
Net operating loss carryforwards (74,747) (25,160)
AMT tax credit carryforward (2,686) (3,040)
Depreciation and amortization (2,860) --
Accrued expenses (5,109) (4,558)
Pensions (2,599) (4,231)
Escalating leases (5,884) (1,802)
Accrued payroll costs -- (1,445)
Inventory reserves (2,841) (2,546)
Other (683) (382)
(100,442) (45,624)
Valuation allowance 89,548 --
Net deferred tax assets $-- $(21,210)
The net change in the valuation allowance for deferred tax
assets was an increase of $89.5 million in 1999, which, relates
to federal and state net operating loss carryforwards. Based on
the projected earnings of the Company and matters set forth in
Note 2, management believes it is more likely than not that the
net deferred tax assets will not be realized and has, therefore,
provided a full valuation allowance against the net deferred tax
assets.
The Company has net operating loss carryforwards for federal
income tax purposes of approximately $178.9 million, which if not
utilized will expire in varying amounts between 2007 and 2021.
The Company has net operating loss carryforwards for state income
tax purposes of approximately $230.0 million, which if not
utilized, will expire in varying amounts between 2002 and 2021.
The Company's ability to utilize net operating loss carryforwards
may be limited if certain changes in ownership occur or as a
result of the bankruptcy process.
NOTE 12 - QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows
(in thousands):
Fiscal Year 1999
Q1 Q2 Q3 Q4
Net sales $262,591 $269,848 $264,327 $324,801
Gross profit 70,359 74,021 77,203 2,867
Operating income (loss) 8,391 (8,332) 12,560 (220,971)
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (2,269) (15,091) 224 (260,067)
Extraordinary item, net
of tax - early
retirement of debt -- -- -- (749)
Cumulative effect of
change in accounting
principle, net of tax -
reporting costs of
start-up activities (2,402) -- -- (1,536)
Net income (loss) (4,671) (15,091) 224 (262,352)
Basic earnings (loss)
per common share data:
Basic earnings per common
share before
extraordinary item and
cumulative effect of
change in accounting
principle (0.08) (0.54) 0.01 (9.26)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (0.03)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (0.09) -- -- (0.05)
Basic earnings (loss) per
common share (0.17) (0.54) 0.01 (9.34)
Diluted earnings (loss)
per common share data:
Diluted earnings per
common share before
extraordinary item
cumulative effect of
change in accounting
principle (0.08) (0.54) 0.01 (9.26)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (0.03)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (0.09) -- -- (0.05)
Diluted earnings (loss)
per common share (0.17) (0.54) 0.01 (9.34)
During the fourth quarter of 1999, the Company recorded
certain one-time pretax charges aggregating $205.7 million.
Fiscal Year 1998
Q1 Q2 Q3 Q4
Net sales $272,788 $271,805 $271,605 $357,349
Gross profit 87,225 82,239 75,252 89,593
Operating income 25,278 12,678 7,226 7,458
Net income (loss) 9,035 765 (3,152) (2,934)
Basic earnings (loss)
per common share 0.33 0.03 (0.11) (0.10)
Diluted earnings (loss)
per common share 0.32 0.03 (0.11) (0.10)
NOTE 13 - RELATED PARTY TRANSACTIONS
The Company has made loans, in an aggregate principal amount
of $2.7 million and $2.1 million at January 29, 2000 and January
30, 1999, respectively, to certain present and former executive
officers of the Company. These loans are full recourse loans and
are secured by a pledge of the shares of common stock owned by
such executive officers. The loans provide for interest from 5.7%
to 9.0% and mature no later than November 3, 2000. At January 29,
2000, the Company has recorded a reserve of $1.6 million related
to these loans for potential uncollectibility.
On February 22, 2000, Carl Tooker left employment with the
Company, effective that date. Mr. Tooker was Chairman, Chief
Executive Officer and President of the Company. Mr. Tooker's
departure follows an inquiry conducted by a Special Committee
consisting of all of the non-management members of the Board of
Directors, which reviewed certain transactions between the
Company and Mr. Tooker. The effects of the transactions reviewed
have been reflected in the Company's results for prior periods,
and the Committee believes they are not material to the financial
condition or operations of the Company. However, these
transactions had not been properly reported to the Company's
Board of Directors.
The Company purchased Mr. Tooker's personal residence in
1997 at a price specified by him, and assumed all liability for
the property, including upkeep and existing debt payments, until
it was sold in 1999. The Company sustained a loss of $806,556 as
a result of this transaction.
In May, 1997 the Company entered into a severance agreement
and a separate consulting contract in connection with the
separation of an employee who shortly thereafter became Mr.
Tooker's spouse. The Company recorded in its books and records
payments to or for the benefit of his spouse beginning in May,
1997, and ending in August 1998, totaling $608,317. The Special
Committee also determined that while employed by the Company in
1996 and 1997, this employee entered into transactions with a
company with whom her sister was believed to be affiliated, in
which the Company paid a total of $313,260 for purchases of
clothing inventory. The Special Committee did not find any
overcharges with respect to the inventory purchases.
Demand has been made upon Mr. Tooker to reimburse the
Company for the unauthorized payments regarding his personal
residence and the severance paid to his spouse. In addition, the
Company has demanded repayment by Mr. Tooker of outstanding loans
he obtained from the Company, with interest thereon, totaling
approximately $1.1 million. Some of these loans are secured by
collateral which includes securities of the Company. Mr. Tooker
has not responded to the Company's demands.
The Special Committee further determined that during the years
1997 through 1999, the Company maintained a contractual
relationship with Stage Planning and Design, Inc. ("SPAD"),
believed to be a wholly owned subsidiary of U.S. Builders, Inc.,
to manage the construction of store remodeling. Under the terms
of this agreement, the Company was required to and did reimburse
or pay direct all of SPAD's costs, including all payroll
expenses. In 1997, the Company paid SPAD in excess of $2.4
million, and in 1998 in excess of $9.9 million. Until late 1999,
Mr. Tooker's son-in-law was an officer and project manager for
SPAD, whose compensation was included as a reimbursable expense
billed to the Company during this time. Although the
expenditures were recorded on the Company's books and records for
the years in which they were accrued, the relationship involving
Mr. Tooker's son-in-law was not previously discussed with and
approved by the Board of Directors.
In connection with the aforementioned matters, the Company
has received and responded to an information request as part of
an informal inquiry by the Securities and Exchange Commission.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Litigation: From time to time, the Company and its
subsidiaries are involved in various litigation matters arising
in the ordinary course of its business.
On March 30, 1999, a class action lawsuit was filed against
the Company and certain of its officers, directors and
stockholders in the United States District Court for the Southern
District of Texas by John C. Weld, Jr., a stockholder who
purchased 125 shares of the Company's common stock on August 3,
1998, alleging violations of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder (the "Weld Suit"). The Company believed that the
allegations of the Weld Suit are without merit, and on July 23,
1999, the Company filed a motion to dismiss. United States
District Judge Kenneth Hoyt entered an order on December 8, 1999
dismissing the Weld Suit. The order has been appealed by Mr.
Weld.
On March 28, 2000, the Company filed a lawsuit against Carl
Tooker. The lawsuit was filed in the District Court of Harris
County, Texas, 333 District Court, Case No. 2000-15666. The
lawsuit is an action for damages arising from transactions
Mr. Tooker engaged in or directed while serving as President,
Chief Executive Officer and Chairman of the Board of Directors of
the Company which transactions benefited him personally or were
otherwise contrary to his duties as an officer and director. The
suit also seeks recovery of debt owed by Mr. Tooker to the
Company pursuant to loans and promissory notes Mr. Tooker caused
the Company to make to him while serving in those capacities, and
for conversion of stock collateral pledged to the Company to
secure his indebtedness. The Company also seeks a mandatory
injunction requiring Mr. Tooker to deposit into the registry of
the Court all remaining stock collateral in his possession, and
for a declaratory judgment that Mr. Tooker was properly
terminated "for cause" under the terms of his employment
agreement. The Company seeks to recover not less than an
aggregate of $2,755,672, accrued interest, punitive damages,
costs and reasonable attorneys' fees. On or about April 27, 2000
Mr. Tooker filed an Answer and Counterclaim against the Company
and a Third Part Petition against the Company's Chairman, Interim
Chief Executive Officer and President, John J. Wiesner, Martin
Stringer, the Company's counsel and counsel to the Special
Committee, and the law firm of McKinney & Stringer, P.C. The
answer generally denies all allegations made by the Company. Mr.
Tooker seeks damages from the Company of approximately $3.9
million, plus attorney's fees, interest, and costs for breach of
his employment contract, and a like amount, including punitive
damages, from the third-party defendants for alleged tortious
interference with his employment contract. Mr. Tooker also seeks
to impose a constructive trust on the $300,000 in the Company's
possession for certain contractual benefits he claims to be due
under his employment agreement. The remaining claims seek
damages against the Company and in part against the third-party
defendants, totaling $18 million, plus punitive damages, fees,
interest and costs, on theories of defamation, civil conspiracy,
breach of fiduciary duty and breach of duty of good faith and
fair dealing. The case is in its initial development, prior to
any discovery. The Company and the third-party defendants
dispute his allegations and intend to vigorously defend all of
Mr. Tooker's claims.
In March 2000, eleven former employees of SRI d/b/a Palais
Royal, filed two separate suits in the United States District
Court for the Southern District of Texas against the Company, SRI
and Mary Elizabeth Pena, arising out of alleged conduct occurring
over an unspecified time while the plaintiffs were working at one
or more Palais Royal stores in the Houston, Texas area. The
plaintiffs allege that on separate occasions they were falsely
accused of stealing merchandise and other company property and
giving discounts for purchases against company policy. The suits
accuse the defendants of defamation, false imprisonment,
intentional infliction of mental distress, assault and violation
of the Racketeer Influenced and Corrupt Organizations (RICO) Act.
The claims seek unspecified damages for mental anguish, lost
earnings, exemplary damages, treble damages, interest, attorneys'
fees and costs. The Company denies the allegations and intends
to vigorously defend the claims.
Letters of Credit: The Company issues letters of credit to
support certain merchandise purchases which are required to be
collateralized. The Company had outstanding letters of credit
totaling approximately $12.2 million at January 29, 2000, all of
which were collateralized by the Credit Facility (see Note 6).
These letters of credit expire within twelve months of issuance.
Concentration of Credit Risk: Financial instruments which
potentially subject the Company to concentrations of credit risk
are primarily cash, short-term investments and the accounts
receivable transferred to the Trust (see Note 4). The Company's
cash management and investment policies restrict investments to
low-risk, highly-liquid securities and the Company performs
periodic evaluations of the relative credit standing of the
financial institutions with which it deals. The credit risk
associated with the accounts receivable transferred to the Trust
is limited by the large number of customers in the Company's
customer base. The Company's customers primarily reside in the
central United States.
NOTE 15 - C. R. ANTHONY COMPANY ACQUISITION
During June 1997, the Company acquired C.R. Anthony Company ("CR
Anthony") which operated 246 family apparel stores in small
markets throughout the central and midwestern United States under
the names "Anthony's" and "Anthony's Limited". The Company
issued 3,607,044 shares in exchange for the outstanding common
stock of CR Anthony. The purchase price for CR Anthony
(including the common stock issued by the Company) was
approximately $77.2 million, including acquisition costs and net
of cash acquired. CR Anthony had net sales of $288.4 million and
net income of $4.8 million for the year ended February 1, 1997.
The following unaudited pro forma information gives effect
to the acquisition of CR Anthony as if the transaction had
occurred at the beginning of the periods presented (in thousands,
except per common share data):
Fiscal
1997
(unaudited)
Net sales $1,181,816
Income before extraordinary items $33,482
Net income $15,187
Basic earnings per common
share before extraordinary items $1.23
Basic earnings per common share $0.56
Diluted earnings per common
share before extraordinary items $1.20
Diluted earnings per common share $0.54
The above amounts are based on certain estimates and
assumptions which the Company believes are reasonable. The pro
forma results do not purport to be indicative of the results
which would have occurred if the acquisition or refinancing had
actually taken place at the beginning of the periods presented,
nor are they necessarily indicative of the results of any future
periods.
The acquisition of CR Anthony was accounted for under the
purchase method of accounting. Accordingly, the total
acquisition cost was allocated to the assets acquired and
liabilities assumed at their estimated fair values based upon
information currently available to the Company. The excess of
the purchase price over the estimated fair value of such assets
and liabilities was recognized as goodwill and is being amortized
on a straight-line basis over forty years.
NOTE 16 - CONSOLIDATING FINANCIAL STATEMENTS
SRI is the primary obligor under the long-term indebtedness
issued in connection with the Note Offering (see Note 64). Stage
Stores and Specialty Retailers, Inc. (NV), a wholly-owned
subsidiary of Stage Stores (which was incorporated during June,
1997), are guarantors under such indebtedness. The consolidating
condensed financial information for Stage Stores and its wholly-
owned subsidiaries are presented below. The financial data for
SRI Receivables Purchase Co. does not reflect the total
consolidated operating performance of the Company's Accounts
Receivable Program. For a summary of the total consolidated
operating performance of the Company's Accounts Receivable
Program, see Note 4.
Consolidating Condensed Balance Sheet
January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
ASSETS
Cash and cash equivalents $18,077 $-- $-- $18,077
Undivided interest in
accounts receivable trust (13,101) 54,701 -- 41,600
Merchandise
inventories, net 261,104 -- -- 261,104
Prepaid expenses 7,725 220 -- 7,945
Other current assets 17,755 8,491 -- 26,246
Total current assets 291,560 63,412 -- 354,972
Property, equipment and
leasehold improvements,
net 180,761 -- -- 180,761
Other assets 13,111 2,608 -- 15,719
Investment in subsidiaries 36,690 -- (36,690) --
Total assets $522,122 $66,020 $(36,690) $551,452
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable $40,955 $-- $-- $40,955
Accrued expenses and
other current liabilities 69,385 2,770 -- 72,155
Current portion
of long-term debt 9,830 -- -- 9,830
Long-term debt
classified as current 492,393 -- -- 492,393
Total current liabilities 612,563 2,770 -- 615,333
Long-term debt -- -- -- --
Other long-term
liabilities 14,299 -- -- 14,299
Intercompany
notes/advances 160,719 26,560 -- 187,279
Investment in subsidiaries -- -- -- --
Total liabilities 787,581 29,330 -- 816,911
Preferred stock -- -- -- --
Common stock -- -- -- --
Class B common stock -- -- -- --
Additional paid-
in capital 3,317 33,908 (33,908) 3,317
Accumulated earnings
(deficit) (264,438) 2,782 (2,782) (264,438)
Accumulated other
comprehensive income (4,338) -- -- (4,338)
Stockholders' equity
(deficit) (265,459) 36,690 (36,690) (265,459)
Total liabilities and
stockholders' equity
(deficit) $522,122 $66,020 $(36,690) $551,452
Consolidating Condensed Balance Sheet
January 29, 2000
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
ASSETS
Cash and cash equivalents $102 $2,000 $-- $20,179
Undivided interest in
accounts receivable trust -- -- -- 41,600
Merchandise
inventories, net -- -- -- 261,104
Prepaid expenses -- -- -- 7,945
Other current assets -- -- -- 26,246
Total current assets 102 2,000 -- 357,074
Property, equipment and
leasehold improvements, net -- 1,073 -- 181,834
Other assets -- 60 -- 15,779
Investment in subsidiaries -- -- -- --
Total assets $102 $3,133 $-- $554,687
LIABILITIES AND
STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable $-- $-- $-- $40,955
Accrued expenses and other
current liabilities 22 -- -- 72,177
Current portion
of long-term debt -- -- -- 9,830
Long-term debt
classified as current -- -- -- 492,393
Total current liabilities 22 -- -- 615,355
Long-term debt -- -- -- --
Other long-term liabilities -- -- -- 14,299
Intercompany notes/advances 18 (187,297) -- --
Investment in subsidiaries 75,029 -- (75,029) --
Total liabilities 75,069 (187,297) (75,029) 629,654
Preferred stock -- -- -- --
Common stock 268 -- -- 268
Class B common stock 13 -- -- 13
Additional paid-in capital 266,590 160,915 (164,232) 266,590
Accumulated
earnings (deficit) (337,500) 29,515 234,923 (337,500)
Accumulated other 4,338
comprehensive income (4,338) -- 4,338 (4,338)
Stockholders'
equity (deficit) (74,967) 190,430 75,029 (74,967)
Total liabilities and
stockholders' equity
(deficit) $102 $3,133 $-- $554,687
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
ASSETS
Cash and cash equivalents $10,882 $ -- $-- $10,882
Undivided interest in
accounts receivable trust (13,228) 83,044 -- 69,816
Merchandise inventories,
net 341,316 -- -- 341,316
Prepaid expenses 24,082 899 -- 24,981
Other current assets 53,566 5,926 -- 59,492
Total current assets 416,618 89,869 -- 506,487
Property, equipment and
leasehold improvements,
net 231,499 -- -- 231,499
Goodwill, net 92,551 -- -- 92,551
Other assets 18,967 4,402 -- 23,369
Investment in
subsidiaries 37,886 -- (37,886) --
Total assets $797,521 $94,271 $(37,886) 853,906
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $82,779 $-- $-- $82,779
Accrued expenses
and other current
liabilities 49,726 2,888 -- 52,614
Current portion
of long-term debt 4,814 -- -- 4,814
Total current
liabilities 137,319 2,888 -- 140,207
Long-term debt 457,968 30,000 -- 487,968
Other long-term
liabilities 25,021 -- -- 25,021
Intercompany
notes/advances 151,273 23,497 -- 174,770
Total liabilities 771,581 56,385 -- 827,966
Preferred stock -- -- -- --
Common stock -- -- -- --
Class B common stock -- -- -- --
Additional paid-in
capital 3,317 32,130 (32,130) 3,317
Accumulated
earnings (deficit) 28,617 5,756 (5,756) 28,617
Accumulated other
comprehensive income (5,994) -- -- (5,994)
Stockholders' equity 25,940 37,886 (37,886) 25,940
Total liabilities and
stockholders' equity $797,521 $94,271 $(37,886) $853,906
Consolidating Condensed Balance Sheet
January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
ASSETS
Cash and cash equivalents $2 $1,948 $-- $12,832
Undivided interest in
accounts receivable trust -- -- -- 69,816
Merchandise inventories, net -- -- -- 341,316
Prepaid expenses -- -- -- 24,981
Other current assets -- -- -- 59,492
Total current assets 2 1,948 -- 508,437
Property, equipment and
leasehold improvements, net -- 1,764 -- 233,263
Goodwill, net -- -- -- 92,551
Other assets -- 60 -- 23,429
Investment in subsidiaries 204,349 -- (204,349) --
Total assets $204,351 $3,772 $(204,349) $857,680
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable $-- $-- $-- $82,779
Accrued expenses and
other current liabilities 92 -- -- 52,706
Current portion of
long-term debt -- -- -- 4,814
Total current liabilities 92 -- -- 140,299
Long-term debt -- -- -- 487,968
Other long-term liabilities -- -- -- 25,021
Intercompany notes/advances (133) (174,637) -- --
Total liabilities (41) (174,637) -- 653,288
Preferred stock -- -- -- --
Common stock 267 -- -- 267
Class B common stock 13 -- -- 13
Additional paid-in capital 265,716 160,040 (163,357) 265,716
Accumulated
earnings (deficit) (55,610) 18,369 (46,986) (55,610)
Accumulated other
comprehensive income (5,994) -- 5,994 (5,994)
Stockholders' equity 204,392 178,409 (204,349) 204,392
Total liabilities and
stockholders' equity $204,351 $3,772 $(204,349) $857,680
Consolidating Condensed Statement of Operations
Fiscal Year ended January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailes, Inc. Purchase Co. Eliminations Consolidated
Net sales $1,121,567 $-- $-- $1,121,567
Cost of sales and
related buying,
occupancy and
distribution expenses 897,117 -- -- 897,117
Gross profit 224,450 -- -- 224,450
Selling, general and
administrative expenses 389,873 (1,597) -- 388,276
Store opening and
closure program costs 44,986 -- -- 44,986
Operating income (210,409) 1,597 -- (208,812)
Interest expense, net 61,894 3,457 -- 65,351
Income (loss) before
income taxes, equity in
net earnings of
subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (272,303) (1,860) -- (274,163)
Income tax
expense (benefit) 14,842 (637) -- 14,205
Income (loss) before
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (287,145) (1,223) -- (288,368)
Equity in net earnings
of subsidiaries (2,974) -- 2,974 --
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (290,119) (1,223) 2,974 (288,368)
Extraordinary item -
early retirement of
debt, net of tax (204) (545) -- (749)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax (2,732) (1,206) -- (3,938)
Net income (loss) $(293,055) $(2,974) $2,974 $(293,055)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 29, 2000
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Net sales $-- $-- $-- $1,121,567
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 897,117
Gross profit -- -- -- 224,450
Selling, general and
administrative expenses 125 (585) -- 387,816
Store opening and program
closure costs -- -- -- 44,986
Operating income (125) 585 -- (208,352)
Interest expense, net -- (16,717) -- 48,634
Income (loss)
before income taxes,
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (125) 17,302 -- (256,986)
Income tax
expense (benefit) (44) 6,056 -- 20,217
Income (loss) before
equity in net earnings
of subsidiaries,
extraordinary item and
cumulative effect of
change in accounting
principle (81) 11,246 -- (277,203)
Equity in net earnings
of subsidiaries (281,809) -- 281,809 --
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle (281,809) 11,246 281,809 (277,203)
Extraordinary item -
early retirement of
debt, net of tax -- -- -- (749)
Cumulative effect of
change in accounting
principle - reporting
costs of start-up
activities, net of tax -- -- -- (3,938)
Net income (loss) $(281,890) $11,246 $281,809 $(281,890)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Elimination Consolidated
Net sales $1,173,547 $ -- $ -- $1,173,547
Cost of sales and
related buying,
occupancy and
distribution expenses 839,238 -- -- 839,238
Gross profit 334,309 -- -- 334,309
Selling, general and
administrative expenses 277,523 (1,467) -- 276,056
Store opening and
closure costs 10,192 -- -- 10,192
Operating income 46,594 1,467 -- 48,061
Interest expense, net 65,345 (3,435) -- 61,910
Income (loss) before
income taxes (18,751) 4,902 -- (13,849)
Income tax expense
(benefit) (6,377) 1,826 -- (4,551)
Income (loss) before
equity in net earnings
of subsidiaries (12,374) 3,076 -- (9,298)
Equity in net earnings
of subsidiaries 3,076 -- (3,076) --
Net income (loss) $(9,298) $3,076 $(3,076) $(9,298)
Consolidating Condensed Statement of Operations
Fiscal Year ended January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Elimiations Consolidated
Net sales $ -- $ -- $ -- $1,173,547
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 839,238
Gross profit -- -- -- 334,309
Selling, general and
administrative expenses 93 (4,672) -- 271,477
Store opening and
closure costs -- -- -- 10,192
Operating income (93) 4,672 -- 52,640
Interest expense, net -- (15,439) -- 46,471
Income (loss) before
income taxes (93) 20,111 -- 6,169
Income tax expense (benefit) (33) 7,039 -- 2,455
Income (loss) before equity
in net earnings
of subsidiaries (60) 13,072 -- 3,714
Equity in net earnings
of subsidiaries 3,774 -- (3,774) --
Net income (loss) $3,714 $13,072 $(3,774) $3,714
Consolidating Condensed Statement of Operations
Fiscal Year ended January 31, 1998
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Net sales $1,073,316 $-- $-- $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses 730,179 -- -- 730,179
Gross profit 343,137 -- -- 343,137
Selling, general and
administrative expenses 242,843 (2,865) -- 239,978
Store opening and
closure costs 8,686 -- -- 8,686
Operating income 91,608 2,865 -- 94,473
Interest expense, net 47,746 (1,164) -- 46,582
Income (loss) before
income taxes 43,862 4,029 -- 47,891
Income tax expense
(benefit) 17,234 1,483 -- 18,717
Income (loss) before
equity in net earnings
of subsidiaries and
extraordinary item 26,628 2,546 -- 29,174
Equity in net earnings
of subsidiaries 1,904 -- (1,904) --
Income (loss) before
extraordinary item 28,532 2,546 (1,904) 29,174
Extraordinary item -
early retirement of debt (17,653) (642) -- (18,295)
Net income (loss) $10,879 $1,904 $(1,904) $10,879
Consolidating Condensed Statement of Operations
Fiscal Year ended January 31, 1998
(in thousands)
Specialty
Stage Retailer, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Net sales $-- $-- $-- $1,073,316
Cost of sales and related
buying, occupancy and
distribution expenses -- -- -- 730,177
Gross profit -- -- -- 343,137
Selling, general and
administrative expenses 30 3 -- 240,011
Store opening and
closure costs -- -- -- 8,686
Operating income (30) (3) -- 94,440
Interest expense, net -- (8,305) -- 38,277
Income (loss) before
income taxes (30) 8,302 -- 56,163
Income tax expense (benefit) -- 2,906 -- 21,623
Income (loss) before equity
in net earnings of
subsidiaries and
extraordinary item (30) 5,396 -- 34,540
Equity in net earnings
of subsidiaries 16,275 -- (16,275) --
Income (loss) before
extraordinary item 16,245 5,396 (16,275) 34,540
Extraordinary item -
early retirement of debt -- -- -- (18,295)
Net income (loss) $16,245 $5,396 $(16,275) $16,245
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 29, 2000
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $28,755 $(4,878) $-- $23,877
Cash flows from
investing activities:
Investment in subsidiaries -- -- -- --
Additions to property,
equipment and leasehold
improvements (22,037) -- -- (22,037)
Proceeds from the sales
of accounts receivable,
net (34,878) 34,878 -- --
Dividend from subsidiary -- -- -- --
Net cash used in
investing activities (56,915) 34,878 -- (22,037)
Cash flows from
financing activities:
Proceeds from working
capital facility 43,000 -- -- 43,000
Proceeds from issuance
of commom stock -- -- -- --
Proceeds from capital
contribution -- -- -- --
Payments on long-term
debt (4,813) (30,000) -- (34,813)
Additions to debt
issue costs (2,832) -- -- (2,832)
Dividend paid -- -- -- --
Net cash provided by
(used in) financing
activities 35,355 (30,000) -- 5,355
Net increase (decrease)
in cash and cash
equivalents 7,195 -- -- 7,195
Cash and cash equivalents:
Beginning of period 10,882 -- -- 10,882
End of period $18,077 $ -- $ -- $18,077
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 29, 2000
(in thousands)
Specialty
Stage Retailers Stage Stores
Stores, Inc. Inc. (NV) Elimiations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $ -- $24 $-- $23,901
Cash flows from
investing activities:
Investment in subsidiaries (128) -- 128 --
Additions to property,
equipment and leasehold
improvements -- -- -- (22,037)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary 100 -- (100) --
Net cash used in investing
activities (28) -- 28 (22,037)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 43,000
Proceeds from issuance
of common stock 128 -- -- 128
Proceeds from capital
contribution -- 128 (128) --
Payments on long-term debt -- -- -- (34,813)
Additions to debt issue costs -- -- -- (2,832)
Dividend paid -- (100) 100 --
Net cash provided by (used
in) financing activities 128 28 (28) 5,483
Net increase (decrease) in
cash and cash equivalents 100 52 -- 7,347
Cash and cash equivalents:
Beginning of period 2 1,948 -- 12,832
End of period $102 $2,000 $ -- $20,179
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 30, 1999
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Elimination Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $(28,747) $11,586 $-- $(17,161)
Cash flows from
investing activities:
Investment in subsidiaries -- -- -- --
Additions to property,
equipment and leasehold
improvements (88,047) -- -- (88,047)
Proceeds from the sales
of accounts receivable,
net 2,504 (2,504) -- --
Dividend from subsidiary 9,082 -- (9,082) --
Net cash used in investing
activities (76,461) (2,504) (9,082) (88,047)
Cash flows from
financing activities:
Proceeds from working
capital facility 96,300 -- -- 96,300
Proceeds from issuance of
common stock -- -- -- --
Proceeds from capital
contribution -- -- -- --
Payments on long-term debt (2,596) -- -- (2,596)
Additions to debt issue
costs (913) -- -- (913)
Dividends paid -- (9,082) 9,082 --
Net cash provided by
(used in) financing
activities 92,791 (9,082) 9,082 92,791
Net increase (decrease)
in cash and cash
equivalents (12,417) -- -- (12,417)
Cash and cash equivalents:
Beginning of period 23,299 -- -- 23,299
End of period $10,882 $-- $-- $10,882
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 30, 1999
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $(31) $1,682 $-- $(15,510)
Cash flows from
investing activities:
Investment in subsidiaries (1,038) -- 1,038 --
Additions to property,
equipment and leasehold
improvements -- (672) -- (88,719)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary 100 -- (100) --
Net cash used in investing
activities (938) (672) 938 (88,719)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 96,300
Proceeds from issuance of
common stock 955 -- -- 955
Proceeds from capital
contribution -- 1,038 (1,038) --
Payments on long-term debt -- -- -- (2,596)
Additions to det issue costs -- -- -- (913)
Dividend paid -- (100) 100 --
Net cash provided by (used
in) financing activities 955 938 (938) 93,746
Net increase (decrease) in
cash and cash equivalents (14) 1,948 -- (10,483)
Cash and cash equivalents:
Beginning of period 16 -- -- 23,315
End of period $2 $1,948 $-- $12,832
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended
January 31, 1998
(in thousands)
Specialty SRI Receivables SRI SRI
Retailers, Inc. Purchase Co. Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by
(used in) operating
activities $36,822 $(17,988) $-- $18,834
Cash flows from
investing activities:
Acquisitions, net of
cash acquired (4,946) -- -- (4,946)
Investment in subsidiaries 21,243 -- -- 21,243
Intercompany notes/advances 22,522 -- -- 22,522
Additions to property,
equipment and leasehold
improvements (64,859) -- -- (64,859)
Proceeds from the sales
of accounts receivable,
net (19,962) 19,962 -- --
Dividend from subsidiary 1,904 -- (1,904) --
Net cash used in
investing activities (44,098) 19,962 (1,904) (26,040)
Cash flows from
financing activities:
Proceeds from working
capital facility 45,700 -- -- 45,700
Proceeds from issuance
of long-term debt 299,718 -- -- 299,718
Proceeds from issuance
of common stock -- -- -- --
Proceeds from capital
contribution (21,243) -- -- (21,243)
Payments on long-term
debt (299,533) -- -- (299,533)
Additions to debt
issue costs (12,337) (70) -- (12,407)
Dividend paid -- (1,904) 1,904 --
Net cash provided by
(used in) financing
activities 12,305 (1,974) 1,904 12,235
Net indecrease in cash
and cash equivalents 5,029 -- -- 5,029
Cash and cash equivalents:
Beginning of period 18,270 -- -- 18,270
End of period $23,299 $-- $-- $23,299
Consolidating Condensed Statement of Cash Flows
Fiscal Year ended January 31, 1998
(in thousands)
Specialty
Stage Retailers, Stage Stores
Stores, Inc. Inc. (NV) Eliminations Consolidated
Cash flows from
operating activities:
Net cash provided by (used
in) operating activities $-- $-- $-- $18,834
Cash flows from
investing activities:
Acquisitions, net of
cash acquired -- -- -- (4,946)
Investment in subsidiaries (21,243) -- -- --
Intercompany
notes/advances (1,279) (21,243) -- --
Additions to property,
equipment and leasehold
improvements -- -- -- (64,859)
Proceeds from the sales of
accounts receivable, net -- -- -- --
Dividend from subsidiary -- -- -- --
Net cash used in investing
activities (22,522) (21,243) -- (69,805)
Cash flows from
financing activities:
Proceeds from working
capital facility -- -- -- 45,700
Proceeds from issuance of
long-term debt -- -- -- 299,718
Proceeds from issuance of
common stock 22,522 -- -- 22,522
Proceeds from capital
contributions -- 21,243 -- --
Payments on long-term debt -- -- -- (299,533)
Additions to debt issue costs -- -- -- (12,407)
Dividend paid -- -- -- --
Net cash provided by
(used in) financing
activities 22,522 21,243 -- 56,000
Net increase in cash and
cash equivalents -- -- -- 5,029
Cash and cash equivalents:
Beginning of period 16 -- -- 18,286
End of period $16 $-- $-- $23,315