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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 31, 1998
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. 000-21011
STAGE STORES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 76-0407711
incorporation or organization) (I.R.S. Employer Identifications No.)
10201 Main Street, Houston, Texas
(Address of principal executive 77025
offices) (Zip Code)
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 X No
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 April 6, 1998 was $1,327,934,192.
At April 6, 1998, there were 26,557,339 shares of Common Stock and 1,250,584
shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held May 14, 1998 (the "Proxy Statement") are incorporated by reference into
Part III.
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 "1997" IS A REFERENCE TO THE
FISCAL YEAR ENDED JANUARY 31, 1998).
ITEM 1. BUSINESS
GENERAL
Stage Stores, Inc. (the "Company" or "Stage Stores") operates the store of
choice for well-known, national brand name family apparel in over 500 small
towns and communities across the central United States. Stage Stores' history
began in 1988 when the management of Palais Royal, together with a venture
capital firm, acquired the family owned Bealls and Palais Royal chains which
were originally founded in the 1920's. The Company has developed a unique
franchise focused on small markets, differentiating itself from the competition
by offering a broad range of 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
have only been able to shop for branded merchandise in distant 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) strong 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: (i)
experience with smaller markets; (ii) ability to effectively manage merchandise
assortments in a small store format; and (iii) established operating systems
designed for efficient management within small 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 31, 1998, the Company, through its wholly-owned subsidiary,
Specialty Retailers, Inc. ("SRI"), operated 607 stores primarily through its
"Stage", "Bealls" and "Palais Royal" trade names in twenty-four states
throughout the central United States. Approximately 85% of these stores are
located in small markets and communities with populations below 30,000. The
Company's store format (averaging approximately 16,000 total selling square
feet) and merchandising capabilities enable the Company to operate profitably in
small markets. The remainder of the Company's stores operate in metropolitan
areas, primarily in suburban Houston.
The Company's merchandising strategy focuses on the traditionally higher
margin categories of women's, men's and children's branded apparel, accessories
and footwear. Merchandise mix may vary from store to store to accommodate
differing demographic factors. The Company purchases merchandise from a vendor
base of over two thousand vendors. Over 85% of 1997 sales consisted of branded
merchandise, including nationally recognized brands such as Levi Strauss, Liz
Claiborne, Chaps/Ralph Lauren, Calvin Klein, Guess, Hanes, Nike, Reebok and
Haggar Apparel. Levi accounted for approximately 11% of the Company's 1997
retail purchases. No other vendor accounted for more than 6%. 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 1997.
1
The Company offers a carefully edited 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 1997 1996
----------------------------------------
Men's/Young Men........ 20% 22%
Misses Sportswear...... 15 16
Shoes.................. 11 9
Juniors................ 9 12
Accessories & Gifts.... 9 9
Children............... 9 9
Intimate............... 5 5
Special Sizes.......... 5 5
Cosmetics.............. 5 5
Misses Dresses......... 3 4
Dresses & Suits........ 3 --
Boys................... 2 3
Furs & Coats........... 2 1
Activewear............. 2 --
----------------
100% 100%
================
EMPLOYEES
During 1997, the Company employed an average of 14,069 full and part-time
employees at all of its locations, of which 1,731 were salaried and 12,338 were
hourly. The Company's central office (which includes corporate, credit and
distribution center offices) employed an average of 402 salaried and 939 hourly
employees during 1997. In its stores during 1997, the Company employed an
average of 1,329 salaried and 11,399 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 one hundred thirty
thousand square foot building in Houston, Texas. The Company leases the building
and most of the land at its Houston facility. The Company owns its approximately
450,000 square foot distribution center and its credit department facility, both
located in Jacksonville, Texas. The Jacksonville distribution center
collateralizes the Company's Credit Facility (as defined herein). See Note 6 to
the Consolidated Financial Statements.
2
At January 31, 1998, the Company operated 607 stores located in twenty-four
states as follows:
Number of
State Stores
----- ------
Alabama......... 2
Arizona......... 4
Arkansas........ 26
California...... 1
Colorado........ 8
Illinois........ 13
Indiana......... 9
Iowa............ 14
Kansas.......... 25
Louisiana....... 45
Michigan........ 7
Minnesota....... 9
Mississippi..... 8
Missouri........ 18
Montana......... 11
Nebraska........ 6
New Mexico...... 26
North Dakota.... 2
Ohio............ 26
Oklahoma........ 71
South Dakota.... 6
Texas........... 257
Wisconsin....... 2
Wyoming......... 11
---------
Total........... 607
=========
Stores generally range in size from 4,200 to 55,000 square feet, with the
average being 16,000 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 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 its business. Management
believes that none of the matters in which the Company or its subsidiaries are
currently involved, either individually or in the aggregate, is material to the
financial position, results of operations, or cash flows of the Company or its
subsidiaries.
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 31, 1998.
3
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 is quoted on the
New York Stock Exchange under the symbol "SGE". As of April 6, 1998, (the date
of record for Proxy Statement matters) there was one holder of Class B Common
Stock and 253 holders of record of Common Stock. The following table sets
forth, for the periods indicated, the high and low closing bid prices for the
Common Stock as reported by the NASDAQ National Market System. The Common Stock
commenced trading on October 25, 1996.
Common Stock
Prices
----------------
High Low
------- -------
Quarter ended November 2, 1996. $ 19.25 $ 18.25
Quarter ended February 1, 1997. 20.50 17.38
Quarter ended May 3, 1997...... 24.50 17.25
Quarter ended August 2, 1997... 29.19 19.25
Quarter ended November 1, 1997. 43.38 28.88
Quarter ended January 31, 1998. 43.13 32.25
Since its inception, the Company has not declared or paid any regular cash
or other dividends on its Common Stock other than in connection with the
Distribution (see Item 6. "Selected Financial Data"), 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.
4
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
the Company's Consolidated Financial Statements. Certain reclassifications of
prior year data have been made to conform to the 1997 reporting format. These
reclassifications had no impact on operating income or net income (loss) for the
years presented. All dollar amounts are stated in thousands, except for per
share and store data.
Fiscal Year
-------------------------------------------------------------------------------
1997 1996 1995(1) 1994 1993
----------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Net sales .................................. $ 1,073,316 $ 776,550 $ 682,624 $ 581,463 $ 557,422
Cost of sales and related buying,
occupancy and distribution
expenses ................................. 730,179 532,563 468,347 398,659 384,843
----------- --------- --------- --------- ---------
Gross profit ............................... 343,137 243,987 214,277 182,804 172,579
Selling, general and
administrative expenses .................. 240,011 172,579 149,102 126,200 115,008
Store opening and closure costs ............ 8,686 2,838 3,689 5,647 199
----------- --------- --------- --------- ---------
Operating income (2) ....................... 94,440 68,570 61,486 50,957 57,372
Interest, net .............................. 38,277 45,954 43,989 40,010 36,377
----------- --------- --------- --------- ---------
Income before income tax and
extraordinary items ...................... 56,163 22,616 17,497 10,947 20,995
Income tax expense ......................... 21,623 8,594 6,767 4,317 7,569
----------- --------- --------- --------- ---------
Income before extraordinary items .......... 34,540 14,022 10,730 6,630 13,426
Extraordinary items ........................ (18,295) (16,081) -- (308) (16,208)
----------- --------- --------- --------- ---------
Net income (loss) .......................... $ 16,245 $ (2,059) $ 10,730 $ 6,322 $ (2,782)
=========== ========= ========= ========= =========
Basic earnings (loss) per
common share (3) ......................... $ 0.63 $ (0.13) $ 0.88 $ 0.52 $ (0.23)
=========== ========= ========= ========= =========
Basic weighted average common
shares outstanding ....................... 25,808 15,394 12,255 12,224 12,204
=========== ========= ========= ========= =========
Diluted earnings (loss) per
common share (3) ......................... $ 0.61 $ (0.13) $ 0.86 $ 0.52 $ (0.23)
=========== ========= ========= ========= =========
Diluted weighted average common
shares outstanding ....................... 26,483 15,927 12,483 12,146 12,095
=========== ========= ========= ========= =========
MARGIN AND OTHER DATA:
Gross profit margin ........................ 32.0% 31.4% 31.4% 31.4% 31.0%
Selling, general and
administrative expense rate ............. 22.4% 22.2% 21.8% 21.7% 20.6%
Operating income margin (2) ................ 8.8% 8.8% 9.0% 8.8% 10.3%
STORE DATA: (4)
Comparable store sales growth .............. 4.1% 3.3% 0.8% 4.1% 6.3%
Net sales per selling area
square foot .............................. $ 147 $ 151 $ 157 $ 157 $ 149
Number of stores open at end of
period ................................... 607 315 256 188 180
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital ............................ $ 318,064 $ 235,219 $ 170,108 $ 148,229 $ 156,782
Total assets ............................... 759,396 509,283 408,254 366,243 343,406
Long-term debt ............................. 395,248 298,453 380,039 349,775 347,468
Stockholders' equity (deficit)(5) .......... 205,078 92,266 (72,314) (81,193) (87,727)
5
- -----------------------------------
(1) 1995 includes 53 weeks.
(2) Operating income and operating income margin decreased during 1994
compared to 1993 due primarily to the impact of the implementation of the
Company's accounts receivable securitization program (see Note 4 to the
Company's Consolidated Financial Statements) combined with a $5.2 million
provision associated with store closures.
(3) Historical per common share data reflects the impact of a .94727 for 1
reverse stock split of the common stock consummated concurrently with the
initial public offering of the Company's common stock. Additionally, the
Company adopted SFAS 128 (as defined herin) and Staff Accounting Bulletin
No. 98 during 1997. All prior period per common share data have been
restated to conform to the provisions of these statements.
(4) Comparable store sales growth and net sales per selling square foot for
1995 have been determined based on a comparable 52 week period.
(5) Stockholders' equity reflects extraordinary charges associated with
refinancings of $18.3 million in 1997, $16.1 million in 1996 and $16.2
million in 1993 as well as a $74.8 million cash distribution to the
Company's stockholders in 1993. Stockholders' equity at the end of 1996
reflects the impact of the initial public offering of the Company's common
stock.
6
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 seasonality of demand for apparel which can be affected by
weather patterns, levels of competition, competitors' marketing strategies,
changes in fashion trends and availability of product and the failure to achieve
the expected results of merchandising and marketing plans or store opening or
closing plans. The occurrence of any of the above could have a material adverse
impact on the Company's operating results. See "Risk Factors" below. Certain
information herein contains estimates which represent management's best judgment
as to 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 the store of choice for well-known national
brand name family apparel in over 500 small towns and communities across the
central United States. The Company has recognized the high level of brand
awareness in small markets and has identified these markets as a profitable and
underserved niche. The Company has developed a unique franchise focused on these
small markets, differentiating itself from the competition by offering a broad
range of brand name merchandise with a high level of customer service in
convenient locations.
At January 31, 1998, the Company, through Specialty Retailers, Inc.
("SRI"), operated 607 stores primarily under its "Stage", "Bealls" and "Palais
Royal" trade names in twenty-four states throughout the central United States.
Approximately 85% of these stores are located in small markets and communities
with populations below 30,000. The Company's store format (averaging
approximately 16,000 total selling square feet) and merchandising capabilities
enable the Company to operate profitably in small markets. The remainder of the
Company's stores operate in metropolitan areas, primarily in suburban Houston.
In recent years, the Company has undertaken several initiatives to realize
the full potential of its unique franchise in small markets, including: (i)
recruiting a new senior management team; (ii) embarking on a store expansion
program to capitalize on available opportunities in new markets through new
store openings and strategic acquisitions; (iii) continuing to refine the
Company's retailing concept; and (iv) closing unprofitable stores. As a result
of these initiatives, the lower operating costs of small market stores, and the
benefits of economies of scale, the Company has among the highest operating
income margins in the apparel retailing industry.
SIGNIFICANT 1997 EVENTS. During the second quarter of 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 converted 130
of the acquired locations to the Company's format primarily under its "Stage"
and "Bealls" trade names during the third and fourth quarters of 1997. As of
March 31, 1998, the Company has converted an additional 69 CR Anthony stores to
the Company's format and trade names and intends to convert the majority of the
remaining CR Anthony stores during the Spring of 1998.
CR Anthony's operating strategy was to offer brand name and private label
apparel and footwear for the entire family at competitive prices. The stores
acquired are located in sixteen states, with the highest concentrations in
Texas, Oklahoma, Kansas and New Mexico. Approximately 87% of CR Anthony stores
are located in small markets and communities with populations generally below
30,000 and its stores' format average approximately 12,000 square feet.
The Company believes that the acquisition of CR Anthony is consistent with
its growth strategy and provided an opportunity for the Company to accelerate
its expansion program in existing markets and extend its presence in new
markets. The Company believes that the acquisition is attractive because: (i)
there is a relatively small number of markets in which the two companies
directly overlap; (ii) a majority of the acquired stores are in markets which
fit the Company's demographic profile; (iii) a majority of the acquired stores
are comparable in size to the Company's stores in similar markets; and (iv) the
acquired stores fit the Company's geographic requirements.
7
The addition of the CR Anthony stores not only expands the geographic
reach of the Company, but it is expected that there will be meaningful synergies
between the Company and CR Anthony including: (i) central overhead cost savings;
(ii) CR Anthony revenue enhancement opportunities; and (iii) CR Anthony gross
margin improvement opportunities. As of January 31, 1998, the consolidation of
CR Anthony's general office functions into the Company was substantially
complete.
During the second quarter of 1997, the Company, through SRI, completed an
offering of $300.0 million of long-term indebtedness consisting of $200.0
million in aggregate principal amount of 8 1/2% Senior Notes due 2005 (the
"Senior Notes") and $100.0 million in aggregate principal amount of 9% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes" and collectively
with the issuance of the Senior Notes, the "Note Offering"). The gross proceeds
from the Note Offering of approximately $299.7 million were used to: (i) retire
the Company's existing 10% Senior Notes due 2000 and 11% Senior Subordinated
Notes due 2003; (ii) to pay related fees and expenses; and (iii) to pay a
portion of the costs associated with the acquisition of CR Anthony. Concurrently
with this transaction, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility provides for a $100.0 million working
capital and letter of credit facility and a $100.0 million expansion facility.
The Credit Facility replaced the Company's previous $75.0 million credit
facility (the "Old Credit Facility"). See Note 3 to the Company's Consolidated
Financial Statements.
During the third quarter of 1997, the Company completed an offering of
approximately 7.1 million shares of common stock at a price of $34 7/8 per share
(the "Secondary Offering"). 6.4 million shares of this offering 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.
During the fourth quarter of 1997, the Company replaced the existing $40.0
million revolving certificate in its Accounts Receivable Trust (the "Old
Revolving Certificate") with a new and more efficient asset backed commercial
paper facility (the "Revolving Certificate"). The Revolving Certificate has an
$82.5 million capacity at terms and rates more favorable than the Old Revolving
Certificate. The larger facility will allow the Company to take advantage of the
increase in accounts receivable in the Trust as a result of the acquisition of
CR Anthony as well as to accommodate planned future growth. See Note 4 to the
Company's Consolidated Financial Statements.
The financial information, discussion and analysis that follow should be
read in conjunction with the Company's Consolidated Financial Statements
included elsewhere herein.
8
RESULTS OF OPERATIONS
The following sets forth the results of operations as a percentage of
sales for the periods indicated.
Fiscal Year
------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Net sales ......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales and related
buying, occupancy and
distribution expenses .......... 68.0 68.6 68.6 68.6 69.0
------ ------ ------ ------ ------
Gross profit margin ............... 32.0 31.4 31.4 31.4 31.0
Selling, general and
administrative expenses ........ 22.4 22.2 21.8 21.7 20.6
Store opening and closure costs ... 0.8 0.4 0.6 0.9 0.1
------ ------ ------ ------ ------
Operating income margin ........... 8.8 8.8 9.0 8.8 10.3
Net interest expense .............. 3.6 5.9 6.4 6.9 6.5
====== ====== ====== ====== ======
Income before income tax
and extraordinary item ......... 5.2% 2.9% 2.6% 1.9% 3.8%
====== ====== ====== ====== ======
1997 COMPARED TO 1996
Sales for 1997 increased 38.2% to $1,073.3 million from $776.6 million in
1996. The increase in sales was due primarily to a $61.5 million increase in
sales from stores opened during 1997 and 1996 which are not included in
comparable store sales, $204.8 million of sales from the recently acquired CR
Anthony stores, as well as a 4.1% increase in comparable store sales. These
increases were partially offset by the impact of closing nine stores during
1997. The increase in comparable store sales was due primarily to the strength
in the Company's small market stores where comparable store sales increased
6.1%.
Gross profit increased 40.6% to $343.1 million in 1997 from $244.0 million
in 1996. Gross profit as a percentage of sales increased to 32.0% in 1997 from
31.4% in 1996. Gross profit for 1997 was favorably impacted by an increase in
markup on merchandise sold relating to an improved mix of inventories and a
lower markdown rate, the result of a continued focus and tight control over
inventories as well as reduced shrinkage expense as a rate of sales.
Selling, general and administrative expenses for 1997 increased 39.1% to
$240.0 million from $172.6 million in 1996. As a percentage of sales, these
expenses increased to 22.4% in 1997 from 22.2% in 1996 due to $5.6 million in
duplicative costs associated with the acquisition of CR Anthony and a decrease
in the service charge income associated with the Company's private label credit
card program as a percentage of sales resulting from a planned increase in the
liquidation rate in the portfolio as the Company focused on improving its
collection efforts. This decrease in service charge income as a percentage of
sales was partially offset by a reduction in bad debt expense as a percentage of
sales from 2.8% in 1996 to 2.0% in 1997. Advertising expenses as a percentage of
sales for 1997 and 1996 were 3.7% and 3.8%, respectively.
Operating income for 1997 increased 37.6% to $94.4 million from $68.6
million for 1996 due to the factors discussed above. Operating income as a
percentage of sales was 8.8% in 1997 and 1996.
Net interest expense decreased 16.7% to $38.3 million in 1997 from $46.0
million in 1996. Net interest expense decreased due to the retirement of the
Senior Discount Debentures in October 1996 in connection with the Company's
initial public offering (the "Initial Stock Offering") partially offset by
additional interest associated with the issuance of the $30.0 million in
aggregate principal amount of 12.5% Trust Certificate-Backed Notes (the "SRPC
Notes") during May 1996 and additional borrowings under the Company's Credit
Facility as a result of the CR Anthony acquisition and new store growth. During
the second quarter of 1997, the Company completed the Note Offering. As a result
of the Note Offering, the Company's weighted average interest rate on its senior
long-term debt decreased from 10.5% to 8.7%. This decrease in the weighted
average interest rate was offset by the increased borrowing levels incurred in
connection with the Note Offering.
9
In connection with the Note Offering, the replacement of the Old Credit
Facility, and the replacement of the Old Revolving Certificate, the Company
recorded an extraordinary charge of $18.3 million, net of applicable income
taxes of $11.5 million.
1996 COMPARED TO 1995
Sales for 1996 increased 13.8% to $776.5 million from $682.6 million in
1995. The increase in sales was due primarily to a $88.0 million increase in
sales from stores opened during 1996 and 1995, combined with a 3.3% increase in
comparable store sales. Total sales for 1996 were not directly comparable to
1995 because 1995 had one additional selling week when compared to 1996.
Eliminating the extra selling week from 1995 (approximately $10.0 million in
sales), sales for 1996 increased 15.5%.
Gross profit increased 13.9% to $244.0 million in 1996 from $214.3 million
in 1995. Gross profit for 1996 was favorably impacted by an increase in markup
on merchandise sold relating to an improved mix of inventories and a lower
markdown rate, the result of a continued focus and tight control over
inventories. These factors were offset by a $2.4 million decline in LIFO
credits. Gross profit margin was 31.4% in 1996 and 1995.
Selling, general and administrative expenses for 1996 increased 15.8% to
$172.6 million from $149.1 million in 1995. As a percentage of sales, these
expenses increased to 22.2% in 1996 from 21.8% in 1995 due to: (i) the extra
selling week in 1995 which had the impact of lowering the selling, general and
administrative expense rate for 1995; (ii) duplicative costs associated with the
acquisition of Uhlmans; and (iii) an increase in bad debt expense associated
with the Company's proprietary credit card program, partially offset by an
increase in service charge income as a result of higher late fees assessed on
delinquent accounts. Bad debt expense as a percentage of sales in 1996 increased
to 2.8% from 2.2% in 1995. The increase in bad debt expense was the result of a
general rise in the level of personal bankruptcies in the Company's accounts
receivable portfolio as well as the Company's adoption of higher late fees.
Advertising expenses as a percentage of sales for 1996 and 1995 were 3.8% and
3.9%, respectively.
Operating income for 1996 increased 11.5% to $68.6 million from $61.5
million for 1995 due to the factors discussed above. Operating income as a
percentage of sales was 8.8% in 1996 as compared to 9.0% in 1995.
Net interest expense increased 4.5% to $46.0 million in 1996 from $44.0
million in 1995. Net interest expense increased due to the issuance of the SRPC
Notes and $18.3 million in aggregate principal amount of 11% Series D Senior
Subordinated Notes due 2003 during August 1995. These increases were offset by
decreased accretion of discount on the Senior Discount Debentures which were
retired in October 1996 in connection with the Initial Stock Offering.
In connection with the Initial Stock Offering and the replacement of an
existing credit facility, the Company recorded an extraordinary charge of $16.1
million, net of applicable income taxes of $9.8 million.
10
SEASONALITY AND INFLATION
The Company's business is seasonal and sales and profits 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 1997 Fiscal Year 1996
------------------------------------------------- --------------------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------------------------------------------------- --------------------------------------------------
Net sales ................ $191,512 $238,137 $274,269 $369,398 $163,177 $182,750 $ 182,562 $248,061
Gross profit ............. 61,925 73,902 86,822 120,488 52,081 56,623 56,208 79,075
Operating income ......... 20,524 19,736 15,789 38,391 16,045 13,925 12,342 26,258
Quarters' operating
income as a percent of
annual .................. 22% 21% 17% 40% 24% 20% 18% 38%
Income (loss) before
extraordinary items ..... 7,094 6,246 3,673 17,527 2,652 868 (265) 10,767
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
During the second quarter of 1996, the Company purchased Uhlmans for
approximately $27.3 million, including acquisition costs and net of cash
acquired. The Company, through SRI Receivables Purchase Co., Inc. ("SRPC"),
issued $30.0 million in aggregate principal amount of SRPC Notes during May
1996, the proceeds of which were used to fund the Uhlmans acquisition. The SRPC
Notes are secured by two certificates of beneficial ownership in a special
purpose trust (the "Retained Certificates"). Interest on the SRPC Notes is
payable semi-annually on June 15 and December 15 of each year. Amounts received
by SRPC from the Retained Certificates are expected to provide a source of cash
flows to pay the interest on the SRPC Notes. The scheduled amortization of
principal will commence in December 2000 and is subject to the collection
experience of the receivables underlying the Trust Certificates (as defined
herein) at that time. The issuance of the SRPC Notes does not impact the ability
of the Company to issue additional certificates to third-party investors under
the Accounts Receivable Program.
During the third quarter of 1996, the Company completed the Initial Stock
Offering. The net proceeds from the Initial Stock Offering were approximately
$165.7 million after deducting underwriting discounts and expenses related to
the Initial Stock Offering. The net proceeds were primarily used to retire the
Senior Discount Debentures. The remaining proceeds of approximately $26.5
million were used for general corporate purposes.
During the second quarter of 1997, the Company completed the Note
Offering. The gross proceeds from the issuance of these notes (approximately
$299.7 million) were used to: (i) retire the Old Senior and Old Senior
Subordinated Notes; (ii) to pay related fees and expenses; and (iii) to pay
costs associated with the acquisition of CR Anthony. Concurrently with this
transaction, the Company entered into the Credit Facility. The Credit Facility
provides for a $100.0 million working capital and letter of credit facility and
a $100.0 million expansion facility. The Credit Facility replaced the Company's
previous $75.0 million credit facility.
During the third quarter of 1997, the Company completed the Secondary
Offering. As a result of the Secondary Offering, the Company issued 650,000
primary shares. These shares 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.
11
The Company securitizes substantially all of its trade accounts
receivables through SRPC, a wholly-owned special purpose entity. SRPC holds a
retained interest in the securitization vehicle, a special purpose trust (the
"Trust") which is represented by the Retained Certificates. The Company
transfers, on a daily basis, substantially all of the accounts receivable
generated from purchases by the holders of the Company's proprietary credit card
to SRPC. SRPC is a separate limited-purpose subsidiary that is operated in a
manner 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 such assets becoming available to any creditor of the
Company. SRPC transfers, on a daily basis, the accounts receivable purchased
from the Company to the Trust in exchange for cash or an increase in the
Retained Certificates. The remaining interest in the Trust is held by
third-party investors which are represented by the Trust Certificates.
Since its inception, the Trust has issued $165.0 million of term
certificates and a revolving certificate (collectively, the "Trust
Certificates") to third parties representing undivided interests in the Trust.
Prior to the fourth quarter of 1997, the Old Revolving Certificate was held by a
bank which agreed to purchase interest in the Trust equal to the amount of
accounts receivable in the Trust above the level required to support the term
certificates, up to a maximum of $40.0 million. During the fourth quarter of
1997, the Company replaced the Old Revolving Certificate with the Revolving
Certificate. The Revolving Certificate has a capacity of $82.5 million. Amounts
outstanding under the Revolving Certificate 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 Certificate would be funded by a liquidity
provider. The Revolving Certificate is a more efficient asset backed commercial
facility which has terms and rates more favorable than the Old Revolving
Certificate. The larger facility will allow the Company to take advantage of the
increase in accounts receivable in the Trust as a result of the acquisition of
CR Anthony as well as to accommodate planned future growth.
The Retained Certificates are effectively subordinated to the interests of
third-party investors, and are pledged to secure the SRPC Notes. If the amount
of accounts receivable in the Trust falls below the level required to support
the Trust Certificates, certain principal collections may be retained in the
Trust until such time as the accounts receivable balances exceed the amount of
accounts receivable required to support the Trust Certificates and any required
transferor's interest. SRPC receives distributions from the Trust of cash in
excess of amounts required to satisfy the Trust's obligations to third-party
investors on the Trust Certificates. Cash so received by SRPC may be used to
purchase additional accounts receivable from, or make distributions to, the
Company after SRPC has satisfied its obligations on the SRPC Notes. The Trust
may issue additional series of certificates from time to time on various terms.
Terms of any future series will be determined at the time of issuance.
Total working capital increased $82.9 million to $318.1 million at January
31, 1998 from $235.2 million at February 1, 1997, due primarily to the
acquisition of CR Anthony.
The Company's primary capital requirements are for working capital, debt
service and capital expenditures. Based upon the current capital structure,
management anticipates cash interest payments to be approximately $40.0 million
during each of 1998 and 1999. Capital expenditures are generally for new store
openings, remodeling of existing stores and facilities and customary store
maintenance. Capital expenditures in 1997 were $64.9 million as compared to
$26.1 million in 1996. Management expects capital expenditures to be
approximately $65.0 million during 1998, consisting primarily of 40 new store
openings, remodeling of existing stores, the conversion of the majority of the
remaining CR Anthony stores to the Company's format and the implementation of a
new merchandising system. Required aggregate principal payments on debt total
$2.7 million and $4.9 million for 1998 and 1999, respectively.
The Company's short-term liquidity needs are provided by: (i) existing
cash balances; (ii) operating cash flows; (iii) the Accounts Receivable Program;
and (iv) the Credit Facility. The Company expects to fund its long-term
liquidity needs from its operating cash flows, the issuance of debt and/or
equity securities, the securitization of its accounts receivable and bank
borrowings.
Management believes that funds provided by operations, together with funds
available under the Credit Facility and the Accounts Receivable Program will be
adequate to meet the Company's anticipated requirements for working capital,
interest payments, planned capital expenditures and principal payments on debt.
Estimates as to
12
working capital needs and other expenditures may be materially affected if the
foregoing sources are not available or do not otherwise provide sufficient funds
to meet the Company's obligations.
RISK FACTORS
LEVERAGE AND RESTRICTIVE COVENANTS: Due to the level of the Company's
indebtedness, any material adverse development affecting the business of the
Company could significantly limit its ability to withstand competitive pressures
and adverse economic conditions, to take advantage of expansion opportunities or
other significant business opportunities that may arise, or to meet its
obligations as they become due. The Company's debt 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. See "Liquidity and
Capital Resources."
FUTURE GROWTH AND RECENT ACQUISITIONS; LIQUIDITY: Key components of the
Company's growth strategy are to (i) continue to identify and acquire new store
locations where the Company believes it can operate profitably and (ii) identify
and consummate strategic acquisitions. Such expansions and acquisitions could be
material in size and cost. The Company's ability to achieve its expansion plans
is dependent upon many factors, including the availability and permissibility
under restrictive covenants of financing, general and market specific economic
conditions, the identification of suitable markets, the availability and leasing
of suitable sites on acceptable terms, the hiring, training and retention of
qualified management and other store personnel and the integration of new stores
into the Company's information systems and operations. As a result, there can be
no assurance that the Company will be able to achieve its targets for opening
new stores (including acquisitions) or that such new stores will operate
profitably when opened or acquired.
The Company's growth strategy may significantly expand the Company's
capital expenditure and working capital requirements, and the Company's ability
to meet such requirements may be adversely affected by the Company's level of
indebtedness and the restrictive covenants contained therein, especially in
periods of economic downturn.
ECONOMIC AND MARKET CONDITIONS; SEASONALITY: Substantially all 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 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 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 adverse effect 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 begin to carry similar
13
branded merchandise, which could have a material 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 executive management team, including the Company's Chairman and
Chief Executive Officer, Carl Tooker. Although the Company has entered into
employment agreements with each of the Company's executive officers, it is
possible that members of executive management may leave the Company, and such
departures could have a material adverse effect on the Company's business and
financial condition. The Company does not maintain key-man life insurance on any
of its executive officers.
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. Although the Company did not experience this trend in 1997, 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 adverse effect on the Company's business and
financial condition.
ACCOUNTS RECEIVABLE PROGRAM: The Company currently securitizes
substantially all of the receivables derived from its proprietary credit card
accounts through the Accounts Receivable Program. Under this program, the
Company causes such receivables to be transferred to the Trust, which from time
to time issues certificates to investors backed by such receivables. The
Accounts Receivable Program has provided the Company with substantially more
liquidity (through the issuance and sale of such certificates) than it would
have had without this program. There can be no assurance that the Company will
be able to continue to securitize its receivables in this manner. There can be
no assurance that receivables will continue to be generated by credit card
holders, or that new credit card accounts will continue to be established at the
rate historically experienced by the Company. Any decline in the generation of
receivables or in the rate or pattern of cardholder payments on accounts could
have a material adverse effect on the Company's business and financial
condition. In addition, significant increases in the floating rates paid on
investor certificates and/or significant deterioration in the performance of the
Company's receivables portfolio could trigger an early repayment requirement,
which could materially adversely affect liquidity. See "Liquidity and Capital
Resources."
INTEREST RATE RISK: Although the Company is protected to a certain extent
by interest rate caps, investors in the receivables-backed certificates of the
Trust receive interest payments on such certificates based on a floating rate.
In addition, borrowings under the New Credit Facility bear a floating rate of
interest. If market rates of interest increase, the Company's operating results
could be materially adversely affected. See "Liquidity and Capital Resources."
YEAR 2000 INFRASTRUCTURE: The Company is currently in the process of
finalizing its evaluation of its information technology infrastructure for its
Year 2000 compliance. The Company does not expect that the cost to modify its
information technology infrastructure to be Year 2000 compliant will be material
to its financial condition or results of operations. The Company does not
anticipate any material disruption in its operations as a result of any failure
by the Company to be in compliance. The Company has limited information
concerning the Year 2000 compliance status of its suppliers. In the event that
the Company or any of its significant suppliers does not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included on page
19 for information required under this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
14
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 April 1, 1998:
NAME AGE POSITION
- --------------------------- ---------------------------------------------------
Carl Tooker 50 Chairman, Chief Executive Officer and President
James Marcum 38 Director, Vice Chairman and Chief Financial Officer
Harry Brown 51 Vice Chairman and Chief Merchandising Officer
Stephen Lovell 42 Vice Chairman and Chief Field Operations Officer
Ron Lucas 50 Executive Vice President, Human Resources
Harold Compton 50 Director
Robert Huth 52 Director
Richard Jolosky 63 Director
Jack Bush 63 Director
David Thomas 48 Director
John Wiesner 60 Director
Mr. Tooker joined the Company as Director, President and Chief Operating
Officer on July 1, 1993. On July 1, 1994, Mr. Tooker was appointed Chief
Executive Officer and on January 27, 1997, Mr. Tooker was elected Chairman of
the Board. Mr. Tooker has 25 years of experience in the retail industry, 18 of
which were spent in the May Co. where he served as Chairman and Chief Operating
Officer of Filene's of Boston from 1988 to 1990. In 1990, Mr. Tooker joined
Rich's, a division of Federated Department Stores, Inc., as President and Chief
Operating Officer, and in 1991 Mr. Tooker was promoted to Chief Executive
Officer of Rich's where he served until joining the Company in 1993.
Mr. Brown joined the Company on August 4, 1997 as Executive Vice President
and Chief Merchandising Officer and was promoted to Vice Chairman on March 5,
1998. Prior to joining the Company, Mr. Brown was the Executive Vice President
for Merchandising, Planning and Marketing at Office Depot in Del Ray Beach,
Florida since 1995. Mr. Brown served as the Executive Vice President, General
Merchandise Manager over all apparel, accessories and cosmetics at Marshall's
from 1990 to 1995, and as Sr. Vice President of Merchandising for both men's and
women's apparel at Macy's, a division of Federated Department Stores, Inc., from
1978 to 1990.
Mr. Marcum joined the Company in June 1995 as Executive Vice President and
Chief Financial Officer, was elected to the Board on August 20, 1997 and was
promoted to Vice Chairman and Chief Financial Officer on March 5, 1998. Prior to
joining the Company, Mr. Marcum held various positions at the Melville
Corporation where he was employed since 1983. Mr. Marcum served as Treasurer of
Melville Corporation from 1986 to 1989, Vice President and Controller of
Marshalls, Inc., a division of the Melville Corporation, from 1989 to 1990 and
from 1990 to 1995 as Senior Vice President and Chief Financial Officer of
Marshalls, Inc. From 1980 to 1983, Mr. Marcum was employed at Coopers and
Lybrand L.L.P.
Mr. Lovell joined the Company in June 1995 as Executive Vice President and
Director of Stores and was promoted to Vice Chairman on March 5, 1998. Before
joining the Company, Mr. Lovell served in various positions at Hit or Miss, a
division of TJX Companies, where he was employed since 1980 and where he served
since January 1987 as Senior Vice President and Director of Stores.
Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human
Resources and was promoted to Executive Vice President on March 5, 1998. Between
1987 and 1995, Mr. Lucas served as Vice President,
15
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. Compton has been a Director since March 1997. Mr. Compton is also
Executive Vice President and Chief Operating Officer of CompUSA, Inc. where he
has served since January 1995. Mr. Compton is also President of CompUSA Stores.
Previously, he served as Executive Vice President-Operations from August 1994 to
January 1995. Prior to joining CompUSA, Inc., Mr. Compton served as President
and Chief Operating Officer of Central Electric Inc. from December 1993 to
August 1994. Previously, Mr. Compton served as Executive Vice
President-Operations & Human Resources of HomeBase, Inc. from 1989 to 1993. Mr.
Compton is a director of Linens `N Things, Inc. and Jumbo Sports.
Mr. Huth has been a Director since March 1997. Mr. Huth is also Director,
President and Chief Operating Officer of David's Bridal where he has served
since 1995. Prior to joining David's Bridal, Mr. Huth was employed by Melville
Corporation from 1987 to 1995, where he served as Director, Executive Vice
President and Chief Financial Officer.
Mr. Jolosky has been a Director since March 1997. Mr. Jolosky is also
Director and President of Payless ShoeSource, Inc. where he has served since
1996. Mr. Jolosky previously 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.
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, as well as Chairman of Carolina Art & Frame Company, Chief
Concept Officer of Artistree Art, Frame and Design Company, Chairman, Director
and Chief Executive Officer of Jumbo Sports, Director of Bradlees Stores and
Vice-Chairman of the Strategic Board of Directors of the College of Business and
Public Administration at the University of Missouri. From 1991 to August 1995,
he was President and Director of Michaels Stores, Inc.
Mr. Thomas has been a Director since September 1997. Mr. Thomas has been a
Managing Director of Citicorp Venture Capital, Ltd. for more than five years and
a Vice President of Court Square Capital Limited previous to that. Mr. Thomas is
a director of Lifestyle Furnishings International Ltd., Galey & Lord, Inc.,
Anvil Knitwear, Inc., Davco Restaurants Inc. and a number of private companies.
Mr. Wiesner has been a Director since July 1997 and currently serves as a
consultant to the Company through April 1998. 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, and President from 1987 to 1990 and
1992 to 1995. Mr. Wiesner is also currently a director of Lamont Apparel, Inc.
and Elder Beerman, Inc.
Certain other information regarding directors and officers is incorporated
herein by reference to the information under the heading "Director and Officer
and Ten Percent Stockholder Security Reports" in the Proxy Statement.
16
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Information regarding compensation of directors is incorporated herein by
reference to the information under the heading "Compensation of Directors" in
the Proxy Statement.
COMPENSATION OF EXECUTIVE OFFICERS
Information regarding compensation of executive officers is incorporated
herein by reference to the information under the heading "Executive
Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the information under the
heading "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
incorporated herein by reference to the information under the heading "Certain
Relationships and Related Transactions" in the Proxy Statement.
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 19.
(b) Reports on Form 8-K
None.
(c) Exhibits - See "Exhibit Index" at X-1.
17
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/ CARL TOOKER April 17, 1998
Carl Tooker
Chairman, Chief Executive Officer and President
STAGE STORES, INC.
/s/ JAMES MARCUM April 17, 1998
James Marcum
Vice Chairman and Chief Financial Officer (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/ CARL TOOKER Chairman of the Board April 17, 1998
Carl Tooker of Directors
/s/ JAMES MARCUM Director April 17, 1998
James Marcum
/s/ JACK BUSH Director April 17, 1998
Jack Bush
/s/ ROBERT HUTH Director April 17, 1998
Robert Huth
/s/ JOHN WIESNER Director April 17, 1998
John Wiesner
18
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
NUMBER
------
FINANCIAL STATEMENTS
Report of Independent Accountants................................. F-1
Consolidated Balance Sheet at January 31, 1998 and February 1, 1997 F-2
Consolidated Statement of Operations for 1997, 1996 and 1995...... F-3
Consolidated Statement of Cash Flows for 1997, 1996 and 1995...... F-4
Consolidated Statement of Stockholders' Equity for 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements........................ F-7
SCHEDULES
All schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Stage Stores, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Stage Stores, Inc. and its subsidiaries at January 31, 1998 and
February 1, 1997, and the results of their operations and their cash flows for
each of the three years in the period ended January 31, 1998, in conformity with
generally accepted accounting principles. 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 generally accepted auditing
standards 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.
PRICE WATERHOUSE LLP
Houston, Texas
March 12, 1998
F-1
STAGE STORES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except par values)
January 31, February 1,
1998 1997
--------- ---------
ASSETS
Cash and cash equivalents ........................... $ 23,315 $ 18,286
Undivided interest in accounts receivable trust ..... 61,211 80,672
Merchandise inventories, net ........................ 303,115 187,717
Prepaid expenses .................................... 20,417 15,690
Other current assets ................................ 57,788 32,797
--------- ---------
Total current assets .......................... 465,846 335,162
Property, equipment and leasehold improvements, net . 171,654 111,189
Goodwill, net ....................................... 95,486 47,173
Other assets ........................................ 26,410 15,759
--------- ---------
Total assets .................................. $ 759,396 $ 509,283
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable .................................... $ 91,799 $ 54,336
Accrued interest .................................... 2,044 12,908
Accrued expenses and other current liabilities ...... 53,939 32,699
--------- ---------
Total current liabilities ..................... 147,782 99,943
Long-term debt including credit facilities .......... 395,248 298,453
Other long-term liabilities ......................... 11,288 18,621
--------- ---------
Total liabilities ............................. 554,318 417,017
--------- ---------
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, 26,500 and 22,033 shares
issued and outstanding, respectively .............. 265 220
Class B common stock, par value $0.01, non-voting,
3,000 shares authorized, 1,250 shares
issued and outstanding ............................ 13 13
Additional paid-in capital .......................... 264,679 169,811
Accumulated deficit ................................. (59,879) (77,778)
--------- ---------
Stockholders' equity ............................. 205,078 92,266
--------- ---------
Commitments and contingencies ....................... -- --
--------- ---------
Total liabilities and stockholders' equity ....... $ 759,396 $ 509,283
========= =========
The accompanying notes are an integral part of this statement.
F-2
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except earnings per share)
Fiscal Year
-------------------------------------
1997 1996 1995
------------- ---------- ----------
Net sales ................................. $ 1,073,316 $ 776,550 $682,624
Cost of sales and related buying,
occupancy and distribution expenses ..... 730,179 532,563 468,347
----------- --------- --------
Gross profit .............................. 343,137 243,987 214,277
Selling, general and administrative expenses 240,011 172,579 149,102
Store opening and closure costs ........... 8,686 2,838 3,689
----------- --------- --------
Operating income .......................... 94,440 68,570 61,486
Interest, net ............................. 38,277 45,954 43,989
----------- --------- --------
Income before income tax and
extraordinary items .................... 56,163 22,616 17,497
Income tax expense ........................ 21,623 8,594 6,767
----------- --------- --------
Income before extraordinary items ......... 34,540 14,022 10,730
Extraordinary items -- early retirement
of debt ................................ (18,295) (16,081) --
=========== ========= ========
Net income (loss) ......................... $ 16,245 $ (2,059) $ 10,730
=========== ========= ========
BASIC EARNINGS (LOSS) PER COMMON SHARE DATA:
Basic earnings per common share before
extraordinary items .................... $ 1.34 $ 0.91 $ 0.88
Extraordinary items -- early retirement
of debt ................................ (0.71) (1.04) --
----------- --------- --------
Basic earnings (loss) per common share .... $ 0.63 $ (0.13) $ 0.88
=========== ========= ========
Basic weighted average common shares
outstanding ............................ 25,808 15,394 12,255
=========== ========= ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE DATA:
Diluted earnings per common share before
extraordinary items .................... $ 1.30 $ 0.88 $ 0.86
Extraordinary items -- early retirement
of debt ................................ (0.69) (1.01) --
----------- --------- --------
Diluted earnings (loss) per common share .. $ 0.61 $ (0.13) $ 0.86
=========== ========= ========
Diluted weighted average common shares
outstanding ............................ 26,483 15,927 12,483
=========== ========= ========
The accompanying notes are an integral part of this statement.
F-3
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
FISCAL YEAR
---------------------------------
1997 1996 1995
--------- --------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................. $ 16,245 $ (2,059) $ 10,730
--------- --------- --------
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization .................... 19,828 14,181 12,816
Deferred income taxes ............................ 27,438 15,650 (4,065)
Accretion of discount ............................ 1,231 11,097 13,940
Amortization of debt issue costs ................. 2,274 2,104 1,860
Issuance of long-term debt in lieu of interest
payment ........................................ -- -- 147
Loss on early retirement of debt ................. 18,295 16,081 --
Changes in operating assets and liabilities:
Decrease (increase) in undivided interest in
accounts receivable trust .................... 22,777 (18,815) 7,885
Increase in merchandise inventories ............ (76,451) (28,199) (31,650)
Increase in other assets ....................... (26,970) (3,339) (6,611)
Increase (decrease) in accounts payable
and accrued liabilities ...................... 14,167 (6,614) 1,202
--------- --------- --------
Total adjustments ............................ 2,589 2,146 (4,476)
--------- --------- --------
Net cash provided by operating activities ...... 18,834 87 6,254
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted investments ................. -- -- (100)
Acquisitions, net of cash acquired ................. (4,946) (27,346) (1,167)
Additions to property, equipment and
leasehold improvements .......................... (64,859) (26,096) (28,638)
--------- --------- --------
Net cash used in investing activities .......... (69,805) (53,442) (29,905)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Credit facilities ................................. 45,700 -- --
Long-term debt .................................... 299,718 30,000 16,458
Common stock ...................................... 22,522 165,969 68
Payments on:
Long-term debt .................................... (299,533) (140,677) (266)
Redemption of common stock ........................ -- (46) (122)
Additions to debt issue costs ..................... (12,407) (3,878) (807)
--------- --------- --------
Net cash provided by financing activities ...... 56,000 51,368 15,331
--------- --------- --------
Net increase (decrease) in cash and cash equivalents 5,029 (1,987) (8,320)
Cash and cash equivalents:
Beginning of year ................................ 18,286 20,273 28,593
--------- --------- --------
End of year ...................................... $ 23,315 $ 18,286 $ 20,273
========= ========= ========
The accompanying notes are an integral part of this statement.
F-4
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(in thousands)
FISCAL YEAR
------------------------------
1997 1996 1995
--------- -------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid ............................... $ 45,988 $ 32,094 $27,845
========= ========= ========
Income taxes paid (refunded) ................ $ (14,436) $ 6,988 $ 5,939
========= ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In connection with various acquisitions, liabilities were assumed as
follows:
FISCAL YEAR
------------------------------
1997 1996 1995
--------- -------- -------
Fair value allocated to assets acquired ....... $ 120,665 $ 35,001 $ 1,702
Cash paid for assets acquired, including
acquisition expenses ........................ (4,946) (27,346) (1,167)
Value of Common Stock exchanged ............... (72,284) -- --
Purchase price payable at closing ............. -- -- (393)
--------- -------- -------
Liabilities assumed ........................... $ 43,435 $ 7,655 $ 142
========= ======== =======
The accompanying notes are an integral part of this statement.
F-5
STAGE STORES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock
-----------------------------------------
Class B
-------------------
Additional
Shares Shares Paid-in Accumulated
Outstanding Amount Outstanding Amount Capital Deficit Total
----------- ------ ----------- ------ ------- ------------- ---------
Balance, January 28, 1995 ......................... 10,781 $107 1,391 $ 14 $ 3,572 $(84,886) $ (81,193)
Net income ........................................ -- -- -- -- -- 10,730 10,730
Vested compensatory stock options ................. -- -- -- -- 284 -- 284
Issuance of stock ................................. 115 2 -- -- 66 -- 68
Adjustment for minimum pension liability .......... -- -- -- -- -- (2,081) (2,081)
Retirement of stock ............................... (30) -- -- -- (122) -- (122)
------- ---- ------ ---- --------- -------- ---------
Balance, February 3, 1996 ......................... 10,866 109 1,391 14 3,800 (76,237) (72,314)
Net loss .......................................... -- -- -- -- -- (2,059) (2,059)
Vested compensatory stock options ................. -- -- -- -- 198 -- 198
Issuance of stock ................................. 11,032 110 -- -- 165,859 -- 165,969
Conversion of Class B common stock ................ 141 1 (141) (1) -- -- --
Adjustment for minimum pension liability .......... -- -- -- -- -- 518 518
Retirement of stock ............................... (6) -- -- -- (46) -- (46)
------- ---- ------ ---- --------- -------- ---------
Balance, February 1, 1997 ......................... 22,033 220 1,250 13 169,811 (77,778) 92,266
Net income ........................................ -- -- -- -- -- 16,245 16,245
Vested compensatory stock options ................. -- -- -- -- 107 -- 107
Issuance of stock ................................. 4,467 45 -- -- 94,761 -- 94,806
Adjustment for minimum pension liability .......... -- -- -- -- -- 1,654 1,654
------- ---- ------ ---- --------- -------- ---------
Balance, January 31, 1998 ......................... 26,500 $265 1,250 $ 13 $ 264,679 $(59,879) $ 205,078
======= ==== ====== ==== ========= ======== =========
The accompanying notes are an integral part of this statement.
F-6
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 branded fashion apparel and accessories for
women, men and children. As of January 31, 1998, the Company operated 607 stores
in twenty-four states located throughout the central 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 "1997" is a reference to
the fiscal year ended January 31, 1998). All fiscal years presented consisted of
52 weeks except for 1995 which consisted of 53 weeks.
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.
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, a special purpose trust (the
"Trust"), which is represented by two certificates of beneficial ownership in
the Trust (the "Retained Certificates"). The Company accounts for the Retained
Certificates 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 Certificates are accounted for as
investments in debt securities and classified as trading securities.
Accordingly, the Retained Certificates are recorded at fair value in the
accompanying balance sheet with any change in fair value reflected currently in
income.
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 as compared to the
first-in, first-out ("FIFO") 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. If the FIFO method had been used, inventories at January 31,
1998 and February 1, 1997 would have been lower by $7.6 million and $5.3
million, respectively.
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 as follows:
Buildings.................................. 20-25
Store and office fixtures and equipment.... 7-12
Warehouse equipment........................ 5-15
Leasehold improvements..................... 5-50
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
F-7
STAGE STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
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 $2.3 million, $2.1 million and $1.9
million for 1997, 1996 and 1995, respectively.
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 $7.4 million and
$5.4 million at January 31, 1998 and February 1, 1997, respectively.
STORE PRE-OPENING EXPENSES: Pre-opening expenses of new stores are
charged to operations in the year the store opens.
ADVERTISING EXPENSES: Advertising costs are charged to operations when
the related advertising first takes place. Advertising costs were $39.5 million,
$29.7 million and $25.9 million for 1997, 1996 and 1995, respectively. Prepaid
advertising costs were $3.6 million and $1.2 million at January 31, 1998 and
February 1, 1997, respectively.
STATEMENT OF CASH FLOWS: The Company considers highly liquid investments
with initial maturities of less than three months to be cash equivalents in its
statement of cash flows.
FINANCIAL INSTRUMENTS: Except for the Retained Certificates, the Company
records all financial instruments at cost. The cost of all financial
instruments, except long-term debt and the Retained Certificates, approximates
fair value.
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 is less than its carrying amount. The Company has not identified any
such impairment losses.
EARNINGS PER SHARE: The Company adopted Statement of Financial
Accounting Standard No. 128, "Earnings per Share" ("SFAS 128") during the fourth
quarter of 1997. SFAS 128 requires the Company to report both basic earnings per
share, which is based on the weighted average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted
average number of common shares as well as all potentially dilutive common
shares outstanding. Stock options and restricted stock are the only potentially
dilutive shares the Company has outstanding for the periods presented. All prior
years' earnings per share data in the accompanying Consolidated Financial
Statements have been restated to reflect the provisions of SFAS 128. Prior to
the initial public offering of the Company's common stock (see Note 3), the fair
value of the Company's common stock was determined in good faith by the Board of
Directors based upon the Company's historical and projected financial
performance.
STOCK SPLIT: Share and per share amounts for all periods presented
reflect the impact of a .94727 for 1 reverse stock split of the Company's common
stock consummated concurrently with the Company's initial public offering in
October 1996.
RECLASSIFICATIONS: The accompanying Consolidated Financial Statements
include reclassifications from financial statements issued in previous years.
F-8
NOTE 2 - 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 Fiscal 1996
------------ ------------
(unaudited)
Net sales.................................. $1,181,816 $1,064,942
============ ============
Income before extraordinary items.......... $ 33,482 $ 24,334
============ ============
Net income ................................ $ 15,187 $ 8,253
============ ============
Basic earnings per common share before
extraordinary items...................... $ 1.23 $ 1.28
============ ============
Basic earnings per common share............ $ 0.56 $ 0.43
============ ============
Diluted earnings per common share before
extraordinary items...................... $ 1.20 $ 1.25
============ ============
Diluted earnings per common share.......... $ 0.54 $ 0.42
============ ============
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. This preliminary purchase price allocation will be adjusted, if
necessary, based on additional information as it becomes available.
NOTE 3 -COMMON STOCK OFFERINGS AND REFINANCINGS
During October 1996, the Company completed an initial public offering
whereby the Company sold 10,750,000 shares of its common stock to the public.
The net proceeds of $165.7 million were used primarily to retire the 12 3/4%
Senior Discount Debentures due 2000 (the "Senior Discount Debentures") at 112.7%
of the accreted value ($120.0 million). In addition, the Company replaced its
working capital facility in January 1997.
During June 1997, the Company, through SRI, completed a refinancing of
the Company's capital structure consisting of $300.0 million of long-term debt
and $200.0 million of working capital facility. The long-term indebtedness
consisted of $200.0 million in aggregate principal amount of 8 1/2% Senior Notes
due 2005 (the "Senior Notes") and $100.0 million in aggregate principal amount
of 9% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes" and
collectively with the issuance of the Senior Notes, the "Note Offering"). The
gross proceeds from the Note Offering of approximately $299.7 million were used
to: (i) retire SRI's existing 10% Senior Notes due 2000 (the "Old Senior Notes")
and 11% Senior Subordinated Notes due 2003 (the "Old Senior
F-9
Subordinated Notes"); (ii) to pay related fees and expenses; and (iii) to pay a
portion of the costs associated with the acquisition of CR Anthony. Concurrently
with this transaction, the Company entered into a new $200.0 million credit
facility (the "Credit Facility"). The Credit Facility provides for a $100.0
million working capital and letter of credit facility and a $100.0 million
expansion facility. The Credit Facility replaced the Company's previous $75.0
million credit facility (the "Old Credit Facility").
During September 1997, the Company completed an offering of
approximately 7.1 million shares of common stock at a price of $34 7/8 per
share. 6.4 million shares of this offering 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.
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
Retained Certificates. 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. The Trust currently has $165.0 million of term certificates as well as
a revolving certificate outstanding which represent undivided interests in the
Trust. Prior to the fourth quarter of 1997, the revolving certificate was held
by a bank which agreed to purchase interests in the Trust equal to the amount of
accounts receivable in the Trust above the level required to support the term
certificates, up to a maximum of $40.0 million (the "Old Revolving
Certificate"). During the fourth quarter of 1997, the Company replaced the Old
Revolving Certificate with a new revolving certificate (the "Revolving
Certificate"). Amounts outstanding under the Revolving Certificate, which are
currently limited to $82.5 million, 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 Certificate 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 Retained
Certificates. 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 $165.0 million at January
31, 1998 and February 1, 1997. There was $77.0 million outstanding under the
Revolving Certificate at January 31, 1998. No amounts were outstanding under the
Old Revolving Certificate at February 1, 1997.
Total accounts receivable transferred to the Trust during 1997, 1996 and
1995 were $508.9 million, $441.4 million and $411.6 million, respectively. The
cash flows generated from the accounts receivable in the Trust are dedicated to:
(i) the purchase of new accounts receivable generated by the Company; (ii)
payment of a return on the certificates; and (iii) the payment of a servicing
fee to SRI. Any remaining cash flows are remitted to SRPC. The term certificates
entitle the holders to receive a return, based upon the London Interbank Offered
Rate ("LIBOR"), plus a specified margin. Principal payments commence on December
31, 1999 but can be accelerated upon occurrence of certain events. The Company
is currently protected against increases above 12% with respect to the term
certificates under an agreement entered into with a bank. The Company is exposed
to a loss in the event of non-performance by the bank. However, the Company does
not anticipate non-performance by the bank. The Revolving Certificate entitles
the holder to receive a return based upon a commercial paper rate, or a base
rate plus a specified margin depending on the type of funding outstanding for
the Revolving Certificate. The purchase commitment for the Revolving Certificate
is three years, subject to renewal at the option of the parties. At January 31,
1998, the average rate of return on the term certificates and the Revolving
Certificate were 6.9% and 5.8%, respectively.
F-10
The following table reflects the total consolidated operating
performance of the Company's Accounts Receivable Program, the results of which
are included in selling, general and administrative expenses in the Company's
Consolidated Financial Statements (in thousands):
Fiscal Year
----------------------------------
1997 1996 1995
--------- -------- ---------
Finance charge income billed to cardholders...$ 51,141 $48,555 $ 41,321
Return paid to certificateholders............. (12,612) (11,428) (11,529)
Servicing and bad debt expenses............... (38,399) (37,626) (28,551)
Other......................................... (86) 279 (62)
========= ======== =========
$ 44 $ (220) $ 1,179
========= ======== =========
NOTE 5 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in
thousands):
January 31, February 1,
1998 1997
---------------- ----------------
Land..................................... $ 3,074 $ 3,074
Buildings................................ 16,911 16,308
Fixtures and equipment................... 146,260 104,958
Leasehold improvements................... 96,798 63,022
----------- ----------
263,043 187,362
Accumulated depreciation................. 91,389 76,173
----------- ----------
$ 171,654 $ 111,189
=========== ==========
Depreciation expense was $16.8 million, $12.3 million and $10.8 million
for 1997, 1996 and 1995, respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 31, February 1,
1998 1997
-------------- --------------
Senior Notes.................................... $ 200,000 $ --
Old Senior Notes................................ 20 130,000
Senior Subordinated Notes, net of discount...... 99,673 --
Old Senior Subordinated Notes, net of discount.. -- 116,686
Credit facilities............................... 45,700 --
SRPC Notes...................................... 30,000 30,000
Other long-term debt............................ 22,547 24,404
----------- ----------
397,940 301,090
Less current maturities......................... 2,692 2,637
----------- ----------
$ 395,248 $ 298,453
=========== ==========
F-11
The Senior Notes were issued by SRI with a principal amount of $200.0
million, bear interest at 8 1/2% 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 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.
The Senior Notes and Senior Subordinated Notes are guaranteed by Stage
Stores and contain restrictive covenants which, among other things, limit: (i)
SRI's ability to sell certain assets, pay dividends, retire its common stock or
retire certain debt; (ii) its ability to incur additional debt or issue stock;
and (iii) certain related party transactions.
The Old Senior Notes were issued with a principal amount of $150.0
million and bear interest at 10% payable semi-annually on February 15 and August
15. At February 1, 1997 an affiliate of a significant stockholder held $44.2
million of the Old Senior Notes. Interest expense related to the Old Senior
Notes held by related parties was $1.7 million for 1997 and $4.4 million for
1996 and 1995. All but $20,000 of the Old Senior Notes were retired in
connection with the Note Offering (see Note 3).
The Old Senior Subordinated Notes consist of two series with principal
balances of $100.0 million and $18.3 million. The $18.3 million series was
issued at a discount which resulted in a combined effective interest rate for
both series of 11.3%. Both series bore interest at 11% payable semi-annually on
February 15 and August 15 and were retired in connection with the Note Offering
(see Note 3).
Concurrently with the Note Offering, SRI entered into the 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. SRI will pay a commitment fee on the unused commitments of
each of the Working Capital Facility and Expansion Facility payable quarterly in
arrears. The amount of the commitment fee will be determined based on the
Adjusted Leverage Ratio (as defined in the Credit Facility), and will range from
0.25% to 0.50% per annum. Advances under the Working Capital Facility and
Expansion 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 Credit Facility). The
Margin Percentage will be determined from time to time based on the Adjusted
Leverage Ratio and was 0.75% for the Base Rate and 1.75% for the Eurodollar Rate
at January 31, 1998. The effective interest rate for borrowings outstanding
under the Credit Facility was 7.8% at January 31, 1998.
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 will require the Company to
maintain compliance with certain specified financial covenants, including
covenants relating to minimum interest coverage, minimum fixed charge coverage
and maximum Adjusted Leverage Ratio. A portion of the Credit Facility is secured
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 $6.5 million at January 31, 1998.
F-12
During 1996, the Company issued $30.0 million in aggregate principal
amount of 12.5% Trust Certificate-Backed Notes (the "SRPC Notes"). The SRPC
Notes are collateralized by the Retained Certificates. Interest and principal
payments are made from amounts otherwise received by SRPC from funds associated
with the Retained Certificates and are non-recourse to the Company to the extent
these funds are insufficient to make scheduled interest and principal payments.
Interest is payable semi-annually on June 15 and December 15 of each year
commencing December 15, 1996. Principal repayments are scheduled to begin during
December 2000.
In connection with various acquisitions, the Company has indebtedness
which bear interest between 7% and 12% and have maturity dates between 1998
through 2003.
Aggregate maturities of long-term debt for the next five years are: 1998
- - $2.7 million; 1999 - $4.9 million; 2000 - $4.9 million; 2001 - $32.7 million
and 2002 - $2.4 million.
Management estimates the fair value of its long-term debt to be $414.0
million and $320.1 million at January 31, 1998 and February 1, 1997,
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.
NOTE 7 - 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, technical 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 31, 1998, there were 1,156,568 options outstanding under
the 1993 Stock Option Plan. During 1996, the 1993 Stock Option Plan was frozen
and replaced by 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 1,500,000
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 31, 1998, there were 557,525
options and 220,000 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
F-13
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:
Weighted
Number of Average
Outstanding Option
Options Price
------------ --------
Options outstanding at January 28, 1995 ........... 703,846 $ 0.91
Granted ....................................... 409,108 2.95
Surrendered ................................... (7,435) 1.50
Exercised ..................................... (99,985) 0.32
-----------
Options outstanding at February 3, 1996 ........... 1,005,534 1.80
Granted ....................................... 783,819 10.72
Surrendered ................................... (31,550) 4.48
Exercised ..................................... (282,222) 1.10
-----------
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
===========
Exercisable options at February 1, 1997 and February 3, 1996 were
181,358 and 241,355, respectively. A summary of outstanding and exercisable
options as of January 31, 1998 follows:
Weighted
Weighted Average
Number of Average Remaining Number of Weighted
Outstanding Exercise Contractual Exercisable Average
Option Price Options Price Life Options Exercise Price
- -------------- ------------ ----------- ------------- ------------ -------------
$0.11 110,632 $0.11 5.3 71,518 $0.11
2.27 168,906 2.27 6.3 74,702 2.27
3.04 223,470 3.04 7.4 107,157 3.04
5.28 426,126 5.28 8.1 73,410 5.28
10.56 19,034 10.56 8.4 6,372 10.56
16.50 - 24.00 698,675 22.10 9.0 -- --
24.01 - 30.00 29,250 28.70 9.5 -- --
30.01 - 40.00 38,000 37.73 9.8 -- --
------------ ------------
1,714,093 $10.98 333,159 $2.87
============ ============
During 1997, 220,000 shares of restricted stock with a weighted average
grant-date fair value of $32.04 were granted under the Incentive Plan. The stock
vests at the end of a three year period and contains certain accelerated vesting
provisions. No shares were vested at January 31, 1998. Compensation expense is
being amortized over the vesting period on a straight-line basis.
F-14
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for its plans.
Compensation expense was $0.5 million for 1997 and $0.3 million for 1996 and
1995. The following unaudited 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
----------------------------
1997 1996 1995
------- ------- ----------
Pro forma net income (loss) ..................... $15,407 $(2,653) $ 10,592
Pro forma basic earnings (loss) per common share 0.60 (0.17) 0.86
Pro forma diluted earnings (loss) per common
share ......................................... 0.58 (0.17) 0.85
Weighted average grant-date value of options
granted ....................................... 13.96 8.33 3.59
The fair value of the options granted is estimated using the
Black-Scholes option-pricing model with the following assumptions for 1997: 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. For 1995 and 1996,
the following assumptions were used: no dividend yield; volatility of 34.35%;
risk-free interest rate of 6.25%; assumed forfeiture rate of 68.26% and an
expected life of eight 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 8 - EMPLOYEE BENEFIT PLANS
Pension benefits for employees are provided under the SRI 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.
Benefits under the plan are based upon a percentage of the participant's
earnings during each year of credited service.
The following sets forth the funded status of the Retirement Plan and
the amounts recognized in the Consolidated Financial Statements (in thousands):
January 31, February 1,
1998 1997
--------- ----------
Actuarial present value of benefits:
Vested benefit obligations ........................ $(27,547) $(24,650)
======== ========
Accumulated benefit obligations ................... $(29,234) $(25,660)
======== ========
Projected benefit obligations ........................ $(34,716) $(33,790)
Market value of plan assets, primarily fixed
income and equity securities ...................... 26,924 20,990
-------- --------
Pension obligations in excess of assets .............. (7,792) (12,800)
Unrecognized prior service income .................... (15) (21)
Unrecognized net loss ................................ 6,405 11,772
Adjustment required to recognize minimum
liability ......................................... (908) (3,621)
-------- --------
Accrued pension cost ................................. $ (2,310) $ (4,670)
======== ========
F-15
Assumptions utilized in determining projected obligations and funding amounts:
Discount rate ............................................ 7.75% 7.50%
Rate of increase in compensation levels .................. 4.00% 4.00%
Expected long-term rate of return on plan assets ......... 9.00% 9.00%
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.
The components of pension cost for the Retirement Plan were as follows
(in thousands):
Fiscal Year
----------------------------------
1997 1996 1995
--------- -------- ---------
Service cost........................... $ 1,738 $ 1,269 $ 771
Interest cost.......................... 2,328 2,085 2,139
Actual loss (return) on plan assets.... (2,521) (2,047) (3,377)
Net amortization and deferral.......... 501 789 2,292
--------- -------- ---------
$ 2,046 $ 2,096 $ 1,825
========= ======== =========
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 25% of each participant's
contributions, limited to 6% of each participant's salary. The Company's
matching contributions were approximately $0.4 million for 1997 and 1996 and
$0.2 million for 1995.
NOTE 9 - 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
----------------------------------
1997 1996 1995
--------- -------- ---------
Minimum rentals......................... $ 37,601 $30,397 $ 26,943
Contingent rentals...................... 4,545 3,318 2,618
Equipment rentals....................... 1,240 829 593
--------- -------- ---------
$ 43,386 $34,544 $ 30,154
========= ======== =========
F-16
Minimum rental commitments on long-term operating leases at January 31,
1998, net of sub-leases, are as follows (in thousands):
Fiscal Year:
1998........................................... $ 45,053
1999........................................... 41,600
2000........................................... 35,851
2001........................................... 30,008
2002........................................... 24,918
Thereafter..................................... 117,465
========
$294,895
========
NOTE 10 - INCOME TAXES
All Company operations are domestic. Income tax expense charged to
continuing operations consisted of the following (in thousands):
Fiscal Year
----------------------------------
1997 1996 1995
--------- -------- ---------
Federal income tax expense (benefit):
Current............................. $ 11,012 $(7,443) $ 9,772
Deferred............................ 8,413 15,399 (3,630)
--------- -------- ---------
19,425 7,956 6,142
--------- -------- ---------
State income tax expense (benefit):
Current............................. 193 764 1,060
Deferred............................ 2,005 (126) (435)
--------- -------- ---------
2,198 638 625
--------- -------- ---------
$ 21,623 $ 8,594 $ 6,767
========= ======== =========
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
----------------------------------
1997 1996 1995
--------- -------- ---------
Federal income tax expense at the
statutory rate........................ $ 19,657 $ 7,915 $ 6,124
State income taxes, net................. 1,428 414 406
Permanent differences, net.............. 538 265 290
Other, net.............................. -- -- (53)
--------- -------- ---------
$ 21,623 $ 8,594 $ 6,767
========= ======== =========
In connection with the early retirement of various indebtedness, the
Company recorded extraordinary charges of $18.3 million and $16.1 million in
1997 and 1996, respectively. These charges were net of applicable income taxes
of $11.5 million and $9.8 million in 1997 and 1996, 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. The 1996 income tax benefit relating to
F-17
the extraordinary item is comprised of a $7.7 million current federal tax
benefit, a $0.9 million deferred federal tax benefit and a $1.2 million state
tax benefit. Deferred tax liabilities (assets) consist of the following (in
thousands):
January 31, February 1,
1998 1997
--------------- ---------------
Gross deferred tax liabilities:
Depreciation and amortization.......... $ 11,811 $ 12,903
Inventory reserves..................... 2,841 3,735
State income taxes..................... 6,554 495
Other.................................. 1,497 1,660
----------- ----------
22,703 18,793
----------- ----------
Gross deferred tax assets:
Retained Certificates.................. (3,070) (2,173)
Accrued consolidation costs............ (665) (1,318)
Net operating loss carryforwards....... (24,604) (2,961)
AMT tax credit carryforward ........... (3,094) --
Accrued expenses....................... (4,380) (1,607)
Pensions............................... (1,378) (2,163)
Escalating leases...................... (2,242) (1,482)
Charitable contribution carryforward... (632) (575)
Accrued payroll costs.................. (2,557) (1,212)
Other.................................. (184) (403)
----------- ----------
(42,806) (13,894)
----------- ----------
Deferred tax assets valuation allowance.... -- --
----------- ----------
$ (20,103) $ 4,899
=========== ==========
As a result of the extraordinary loss on the early retirement of debt
during 1997 and 1996, the Company has recorded a $3.1 million and $17.0 million
federal income tax receivable, respectively.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $57.0 million, which if not utilized will expire in
varying amounts between 2007 and 2013. Included in this amount is approximately
$13.0 million which is subject to an annual limitation of approximately $2.7
million. The Company has net operating loss carryforwards for state income tax
purposes of approximately $89.0 million, which if not utilized, will expire in
varying amounts between 2003 and 2013.
NOTE 11 - EARNINGS PER SHARE
During the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share." Stock
options and restricted stock are the only potentially dilutive shares the
Company has outstanding for the periods presented.
Options to purchase 10,000 shares of common stock at $39.00 per share
and 15,000 shares of common stock at $38.63 per share were outstanding at the
end of fiscal 1997 but were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares. Additionally, 220,000 shares of restricted
common stock were granted during 1997 and considered anti-dilutive at the end of
fiscal 1997.
F-18
Options to purchase 255,763 shares of common stock at $21.11 per share
were outstanding at the end of fiscal 1996 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares.
All options to purchase common stock outstanding during 1995 were
included in the computation of diluted earnings per share.
NOTE 12 - QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows (in
thousands):
Fiscal Year 1997
-------------------------------------
Q1 Q2 Q3 Q4
-------- --------- --------- --------
Net sales ............................... $191,512 $238,137 $274,269 $369,398
Gross profit ............................ 61,925 73,902 86,822 120,488
Operating income ........................ 20,524 19,736 15,789 38,391
Income before extraordinary items ....... 7,094 6,246 3,673 17,527
Net income (loss) ....................... 7,094 (11,134) 3,523 16,762
Basic earnings (loss) per common share
data:
Basic earnings per common share before
extraordinary items ................ 0.30 0.27 0.13 0.63
Extraordinary items - early retirement
of debt ............................ -- (0.74) -- (0.03)
Basic earnings (loss) per common share 0.30 (0.48) 0.13 0.60
Diluted earnings (loss) per common
share data:
Diluted earnings per common share
before extraordinary items ......... 0.30 0.25 0.13 0.62
Extraordinary items - early retirement
of debt ............................ -- (0.68) -- (0.03)
Diluted earnings (loss) per common
share .............................. 0.30 (0.44) 0.13 0.59
Fiscal Year 1996
-------------------------------------
Q1 Q2 Q3 Q4
-------- --------- -------- ---------
Net sales ............................... $163,177 $ 182,750 $182,562 $248,061
Gross profit ............................ 52,081 56,623 56,208 79,075
Operating income ........................ 16,045 13,925 12,342 26,258
Income (loss) before extraordinary items 2,652 868 (265) 10,767
Net income (loss) ....................... 2,652 868 (16,071) 10,492
Basic earnings (loss) per common share
data:
Basic earnings (loss) per common share
before extraordinary items ......... 0.20 0.07 (0.02) 0.46
Extraordinary items - early retirement
of debt ............................ -- -- (1.16) (0.01)
Basic earnings (loss) per common share 0.20 0.07 (1.18) 0.45
Diluted earnings (loss) per common share
data:
Diluted earnings (loss) per common
share before extraordinary items ... 0.21 0.07 (0.02) 0.45
Extraordinary items - early retirement
of debt ............................ -- -- (1.12) (0.01)
Diluted earnings (loss) per common
share .............................. 0.21 0.07 (1.14) 0.44
F-19
NOTE 13 - RELATED PARTY TRANSACTIONS
Pursuant to a professional service agreement with an affiliate of a
principal stockholder, the Company paid fees for professional services rendered
and expense reimbursements in the amount of $2.7 million and $0.8 million for
1996 and 1995, respectively. Upon consummation of the initial public offering
(see Note 3), this agreement was terminated. As a result, there were no such
fees in 1997.
The Company has made loans, in an aggregate principal amount of $1.2
million, to certain 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 7.25%
and mature no later than June 1, 2000.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
LITIGATION: The Company is subject to claims and litigation arising in
the normal course of its business. The Company does not believe that any of
these proceedings will have a material adverse effect on its financial position
or its results of operations.
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 $14.7 million
at January 31, 1998, 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 3). 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. Substantially all of the Company's customers
reside in the central United States.
F-20
NOTE 15 - CONSOLIDATING FINANCIAL STATEMENTS
SRI is the primary obligor under the long-term indebtedness issued in
connection with the Note Offering (see Note 3). 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 company's investments in it's
wholly-owned subsidiaries are accounted for using the equity method. 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
FEBRUARY 1, 1997
(in thousands)
- --------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Stage
Retailers, Purchase SRI SRI Stores, Stores
ASSETS Inc. Co. Elimination Consolidated Inc. Eliminations Consolidated
------ -----------------------------------------------------------------------------------------------
Cash and cash equivalents ....... $ 18,270 $ -- $ -- $ 18,270 $ 16 $ -- $ 18,286
Undivided interest in accounts
receivable trust .............. (9,419) 90,091 -- 80,672 -- -- 80,672
Merchandise inventories, net .... 187,717 -- -- 187,717 -- -- 187,717
Prepaid expenses ................ 15,679 11 -- 15,690 -- -- 15,690
Other current assets ............ 27,165 5,632 -- 32,797 -- -- 32,797
-----------------------------------------------------------------------------------------------
Total current assets ............ 239,412 95,734 -- 335,146 16 -- 335,162
Property, equipment and leasehold
improvements, net ............. 111,189 -- -- 111,189 -- -- 111,189
Goodwill, net ................... 47,173 -- -- 47,173 -- -- 47,173
Other assets .................... 8,308 7,451 -- 15,759 -- -- 15,759
Investment in subsidiaries ...... 35,482 -- (35,482) -- 28,144 (28,144) --
-----------------------------------------------------------------------------------------------
Total assets .................... $ 441,564 $103,185 $(35,482) $509,267 $ 28,160 $(28,144) $ 509,283
===============================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Accounts payable ................ $ 54,336 $ -- $ -- $ 54,336 $ -- $ -- $ 54,336
Accrued interest ................ 12,411 497 -- 12,908 -- -- 12,908
Accrued expenses and other
current liabilities ........... 31,866 722 -- 32,588 111 -- 32,699
-----------------------------------------------------------------------------------------------
Total current liabilities ....... 98,613 1,219 -- 99,832 111 -- 99,943
Long-term debt .................. 268,453 30,000 -- 298,453 -- -- 298,453
Intercompany notes/advances ..... 29,176 35,041 -- 64,217 (64,217) -- --
Other long-term liabilities ..... 17,178 1,443 -- 18,621 -- -- 18,621
-----------------------------------------------------------------------------------------------
Total liabilities ............... 413,420 67,703 -- 481,123 (64,106) -- 417,017
Preferred stock ................. -- -- -- -- -- -- --
Common stock .................... -- -- -- -- 220 -- 220
Class B common stock ............ -- -- -- -- 13 -- 13
Additional paid-in capital ...... 3,317 29,726 (29,726) 3,317 169,811 (3,317) 169,811
Accumulated equity (deficit) .... 24,827 5,756 (5,756) 24,827 (77,778) (24,827) (77,778)
-----------------------------------------------------------------------------------------------
Stockholders' equity ............ 28,144 35,482 (35,482) 28,144 92,266 (28,144) 92,266
-----------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity .......... $ 441,564 $103,185 $(35,482) $509,267 $ 28,160 $(28,144) $ 509,283
===============================================================================================
F-21
CONSOLIDATING CONDENSED BALANCE SHEET
JANUARY 31, 1998 (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Specialty Stage
Retailers, Purchase SRI SRI Stores, Retailers, Stores
Inc. Co. Elimination Consolidated Inc. Inc.(NV) Eliminations Consolidated
-----------------------------------------------------------------------------------------------------
ASSETS
------
Cash and cash equivalents $ 23,299 $ -- $ -- $ 23,299 $ 16 $ -- $ -- $ 23,315
Undivided interest in
accounts receivable
trust .................. (11,234) 72,445 -- 61,211 -- -- -- 61,211
Merchandise
inventories, net ....... 303,115 -- -- 303,115 -- -- -- 303,115
Prepaid expenses ......... 19,944 473 -- 20,417 -- -- -- 20,417
Other current assets ..... 49,980 7,808 -- 57,788 -- -- -- 57,788
-----------------------------------------------------------------------------------------------------
Total current assets ..... 385,104 80,726 -- 465,830 16 -- -- 465,846
Property, equipment
and leasehold
improvements, net ...... 170,401 -- -- 170,401 -- 1,253 -- 171,654
Goodwill, net ............ 95,486 -- -- 95,486 -- -- -- 95,486
Other assets ............. 20,653 5,757 -- 26,410 -- -- -- 26,410
Investment in
subsidiaries ........... 40,312 -- (40,312) -- 205,075 -- (205,075) --
-----------------------------------------------------------------------------------------------------
Total assets ............. $ 711,956 $86,483 $(40,312) $758,127 $ 205,091 $ 1,253 $(205,075) $ 759,396
=====================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
---------
Accounts payable ......... $ 91,799 $ -- $ -- $ 91,799 $ -- $ -- $ -- $ 91,799
Accrued interest ......... 1,556 488 -- 2,044 -- -- -- 2,044
Accrued expenses and
other current
liabilities ............ 53,545 142 -- 53,687 252 -- -- 53,939
-----------------------------------------------------------------------------------------------------
Total current
liabilities ............ 146,900 630 -- 147,530 252 -- -- 147,782
Long-term debt ........... 365,248 30,000 -- 395,248 -- -- -- 395,248
Intercompany
notes/advances ......... 149,258 14,324 -- 163,582 (436) (163,146) -- --
Other long-term
liabilities ............ 9,874 1,217 -- 11,091 197 -- -- 11,288
-----------------------------------------------------------------------------------------------------
Total liabilities ........ 671,280 46,171 -- 717,451 13 (163,146) -- 554,318
Preferred stock .......... -- -- -- -- -- -- -- --
Common stock ............. -- -- -- -- 265 -- -- 265
Class B common stock ..... -- -- -- -- 13 -- -- 13
Additional paid-in
capital ................ 3,317 34,556 (34,556) 3,317 264,679 159,002 (162,319) 264,679
Accumulated equity
(deficit) .............. 37,359 5,756 (5,756) 37,359 (59,879) 5,397 (42,756) (59,879)
-----------------------------------------------------------------------------------------------------
Stockholders' equity ..... 40,676 40,312 (40,312) 40,676 205,078 164,399 (205,075) 205,078
-----------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity ... $ 711,956 $86,483 $(40,312) $758,127 $ 205,091 $ 1,253 $(205,075) $ 759,396
=====================================================================================================
F-22
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 3, 1996
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Stage
Retailers, Purchase SRI SRI Stores, Stores
Inc. Co. Elimination Consolidated Inc. Eliminations Consolidated
-----------------------------------------------------------------------------------------------
Net sales .......................... $682,624 $ -- $ -- $682,624 $ -- $ -- $682,624
Cost of sales and
related buying,
occupancy and
distribution
expenses ......................... 468,347 -- -- 468,347 -- -- 468,347
-----------------------------------------------------------------------------------------------
Gross profit ....................... 214,277 -- -- 214,277 -- -- 214,277
Selling, general and
administrative
expenses ......................... 171,342 (22,245) -- 149,097 5 -- 149,102
Store opening and
closure costs .................... 3,689 -- -- 3,689 -- -- 3,689
-----------------------------------------------------------------------------------------------
Operating income (loss) ............ 39,246 22,245 -- 61,491 (5) -- 61,486
Interest expense, net .............. 31,554 (1,053) -- 30,501 13,488 -- 43,989
-----------------------------------------------------------------------------------------------
Income (loss) before
income taxes ..................... 7,692 23,298 -- 30,990 (13,493) -- 17,497
Income tax expense
(benefit) ........................ 2,666 8,651 -- 11,317 (4,550) -- 6,767
-----------------------------------------------------------------------------------------------
Income (loss) before
equity in net
earnings of
subsidiaries and
extraordinary item ............... 5,026 14,647 -- 19,673 (8,943) -- 10,730
Equity in net earnings
of subsidiaries .................. 14,647 -- (14,647) -- 19,673 (19,673) --
-----------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item ............... 19,673 14,647 (14,647) 19,673 10,730 (19,673) 10,730
Extraordinary item -
early retirement of debt ......... -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------
Net income (loss) .................. $ 19,673 $ 14,647 $(14,647) $ 19,673 $ 10,730 $ (19,673) $ 10,730
===============================================================================================
F-23
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED FEBRUARY 1, 1997
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Stage
Retailers, Purchase SRI SRI Stores, Stores
Inc. Co. Elimination Consolidated Inc. Eliminations Consolidated
-----------------------------------------------------------------------------------------------
Net sales ........................ $ 776,550 $ -- $ -- $ 776,550 $ -- $ -- $ 776,550
Cost of sales and
related buying,
occupancy and
distribution
expenses ....................... 532,563 -- -- 532,563 -- -- 532,563
-----------------------------------------------------------------------------------------------
Gross profit ..................... 243,987 -- -- 243,987 -- -- 243,987
Selling, general and
administrative expenses ........ 178,497 (5,935) -- 172,562 17 -- 172,579
Store opening and
closure costs .................. 2,838 -- -- 2,838 -- -- 2,838
-----------------------------------------------------------------------------------------------
Operating income ................. 62,652 5,935 -- 68,587 (17) -- 68,570
Interest expense, net ............ 34,671 344 -- 35,015 10,939 -- 45,954
-----------------------------------------------------------------------------------------------
Income (loss) before
income taxes ................... 27,981 5,591 -- 33,572 (10,956) -- 22,616
Income tax expense (benefit) ..... 10,261 2,023 -- 12,284 (3,690) -- 8,594
-----------------------------------------------------------------------------------------------
Income (loss) before
equity in net
earnings of
subsidiaries and
extraordinary item ............. 17,720 3,568 -- 21,288 (7,266) -- 14,022
Equity in net earnings
of subsidiaries ................ 3,568 -- (3,568) -- 5,207 (5,207) --
-----------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item ............. 21,288 3,568 (3,568) 21,288 (2,059) (5,207) 14,022
Extraordinary item -
early retirement of debt ....... (16,081) -- -- (16,081) -- -- (16,081)
-----------------------------------------------------------------------------------------------
Net income (loss) ................ $ 5,207 $ 3,568 $(3,568) $ 5,207 $ (2,059) $(5,207) $ (2,059)
===============================================================================================
F-24
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 1998
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Specialty Stage
Retailers, Purchase SRI SRI Stores, Retailers, Stores
Inc. Co. Elimination Consolidated Inc. Inc.(NV) Eliminations Consolidated
----------------------------------------------------------------------------------------------------------
Net sales ............ $ 1,073,316 $ -- $ -- $ 1,073,316 $ -- $ -- $ -- $ 1,073,316
Cost of sales and
related buying,
occupancy and
distribution
expenses ........... 730,179 -- -- 730,179 -- -- -- 730,179
----------------------------------------------------------------------------------------------------------
Gross profit ......... 343,137 -- -- 343,137 -- -- -- 343,137
Selling, general and
administrative
expenses ........... 242,843 (2,865) -- 239,978 30 3 -- 240,011
Store opening and
closure costs ...... 8,686 -- -- 8,686 -- -- -- 8,686
----------------------------------------------------------------------------------------------------------
Operating income
(loss) ............. 91,608 2,865 -- 94,473 (30) (3) -- 94,440
Interest expense,
net ................ 47,746 (1,164) -- 46,582 -- (8,305) -- 38,277
----------------------------------------------------------------------------------------------------------
Income (loss) before
income taxes ....... 43,862 4,029 -- 47,891 (30) 8,302 -- 56,163
Income tax expense
(benefit) .......... 17,234 1,483 -- 18,717 -- 2,906 -- 21,623
----------------------------------------------------------------------------------------------------------
Income (loss) before
equity in net
earnings of
subsidiaries and
extraordinary item . 26,628 2,546 -- 29,174 (30) 5,396 -- 34,540
Equity in net earnings
of subsidiaries .... 1,904 -- (1,904) -- 16,275 -- (16,275) --
----------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary item . 28,532 2,546 (1,904) 29,174 16,245 5,396 (16,275) 34,540
Extraordinary item -
early retirement
of debt ............ (17,653) (642) -- (18,295) -- -- -- (18,295)
----------------------------------------------------------------------------------------------------------
Net income (loss) .... $ 10,879 $ 1,904 $(1,904) $ 10,879 $ 16,245 $ 5,396 $(16,275) $ 16,245
==========================================================================================================
F-25
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 3, 1996
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Stage
Retailers, Purchase SRI SRI Stores, Stores
Inc. Co. Elimination Consolidated Inc. Eliminations Consolidated
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by
(used in) operating activities ...... $(17,088) $ 24,063 $ -- $ 6,975 $ (721) $ -- $ 6,254
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted investments .... (100) -- -- (100) -- -- (100)
Acquisitions, net of cash acquired .... (1,167) -- -- (1,167) -- -- (1,167)
Additions to property, equipment
and leasehold improvements .......... (28,638) -- -- (28,638) -- -- (28,638)
Proceeds from the sale of accounts
receivable, net ..................... (2,391) 2,391 -- -- -- -- --
-----------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing Activities ................ (32,296) 2,391 -- (29,905) -- -- (29,905)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt ................... 16,458 -- -- 16,458 -- -- 16,458
Proceeds from issuance
of common stock ..................... -- -- -- -- 68 -- 68
Payments on long-term debt ............ (266) -- -- (266) -- -- (266)
Redemption of common stock ............ -- -- -- -- (122) -- (122)
Additions to debt issue costs ......... (795) -- -- (795) (12) -- (807)
Dividends paid to SRI ................. 26,454 (26,454) -- -- -- -- --
-----------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities ................ 41,851 (26,454) -- 15,397 (66) -- 15,331
-----------------------------------------------------------------------------------------------
Net decrease in cash
and cash equivalents ................ (7,533) -- -- (7,533) (787) -- (8,320)
Cash and cash equivalents:
Beginning of year ................... 27,797 -- -- 27,797 796 -- 28,593
-----------------------------------------------------------------------------------------------
End of year ......................... $ 20,264 $ -- $ -- $ 20,264 $ 9 $ -- $ 20,273
===============================================================================================
F-26
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED FEBRUARY 1, 1997
(in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Stage
Retailers, Purchase SRI SRI Stores, Stores
Inc. Co. Elimination Consolidated Inc. Eliminations Consolidated
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net cash provided by (used in)
operating activities ............. $(20,479) $ 20,583 $ -- $ 104 $ (17) $ -- $ 87
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisitions, net of
cash acquired ..................... (27,346) -- -- (27,346) -- -- (27,346)
Intercompany notes/advances ......... -- -- -- -- (165,899) 165,899
Additions to property, equipment
and leasehold improvements ........ (26,096) -- -- (26,096) -- -- (26,096)
Proceeds from the sale of accounts
receivable, net ................... 18,284 (18,284) -- -- -- -- --
-----------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing Activities ............ (35,158) (18,284) -- (53,442) (165,899) 165,899 (53,442)
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance
of long-term debt ................. -- 30,000 -- 30,000 -- -- 30,000
Proceeds from issuance
of common stock ................... -- -- -- -- 165,969 -- 165,969
Payments on long-term debt .......... (140,677) -- -- (140,677) -- -- (140,677)
Intercompany notes/advances ......... 165,899 -- -- 165,899 -- (165,899) --
Redemption of common stock .......... -- -- -- -- (46) -- (46)
Additions to debt issue costs ....... (1,056) (2,822) -- (3,878) -- -- (3,878)
Dividends paid to SRI ............... 29,477 (29,477) -- -- -- -- --
-----------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing activities ... 53,643 (2,299) -- 51,344 165,923 (165,899) 51,368
-----------------------------------------------------------------------------------------------
Net increase (decrease) in cash
and cash equivalents .............. (1,994) -- -- (1,994) 7 -- (1,987)
Cash and cash equivalents:
Beginning of year ................. 20,264 -- -- 20,264 9 -- 20,273
-----------------------------------------------------------------------------------------------
End of year ....................... $ 18,270 $ -- $ -- $ 18,270 $ 19 $ -- $ 18,286
===============================================================================================
F-27
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31, 1998
(in thousands, unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
SRI
Specialty Receivables Stage Specialty Stage
Retailers, Purchase SRI SRI Stores, Retailers Stores
Inc. Co. Elimination Consolidated Inc. Inc.(NV) Eliminations Consolidated
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net cash provided by
(used in) operating
activities .......... $ 36,822 $(17,988) $ -- $ 18,834 $ -- $ -- $ -- $ 18,834
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Acquisitions, net of
cash acquired ....... (4,946) -- -- (4,946) -- -- -- (4,946)
Investment in
subsidiaries ........ 21,243 -- -- 21,243 (21,243) -- --
Intercompany
notes/advances ...... 22,522 -- -- 22,522 (1,279) (21,243) -- --
Additions to property,
equipment and
leasehold
improvements ........ (64,859) -- -- (64,859) -- -- -- (64,859)
Proceeds from the sale
of accounts
receivable, net ..... (19,962) 19,962 -- -- -- -- -- --
Dividends from
subsidiary .......... 1,904 -- (1,904) -- -- -- -- --
--------------------------------------------------------------------------------------------------------
Net cash provided by
(used in) investing
Activities ........ (44,098) 19,962 (1,904) (26,040) (22,522) (21,243) -- (69,805)
--------------------------------------------------------------------------------------------------------
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Proceeds from working
capital facility .... 45,700 -- -- 45,700 -- -- -- 45,700
Proceeds from issuance
of long-term debt ... 299,718 -- -- 299,718 -- -- -- 299,718
Proceeds from issuance
of common stock ..... -- -- -- -- 22,522 -- -- 22,522
Proceeds from capital
contributions ....... (21,243) -- -- (21,243) -- (21,243) -- --
Payments on long-
term debt ........... (299,533) -- -- (299,533) -- -- -- (299,533)
Additions to debt
issue costs ......... (12,337) (70) -- (12,407) -- -- -- (12,407)
Dividend paid ......... -- (1,904) 1,904 -- -- -- -- --
--------------------------------------------------------------------------------------------------------
Net cash provided by
(used in) financing
activities ........ 12,305 (1,974) 1,904 12,235 22,522 21,243 -- 56,000
--------------------------------------------------------------------------------------------------------
Net increase in cash
and cash equivalents 5,029 -- -- 5,029 -- -- -- 5,029
Cash and cash
equivalents:
Beginning of year ... 18,270 -- -- 18,270 16 -- -- 18,286
--------------------------------------------------------------------------------------------------------
End of year ......... $ 23,299 $ -- $ -- $ 23,299 $ 16 $ -- $ -- $ 23,315
========================================================================================================
F-28
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).
*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 Indenture dated as of June 17, 1997 relating to the $200,000,000
aggregate principal amount of 8 1/2% 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).
*4.3 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).
*4.4 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).
X-1
*4.5 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).
*4.6 Indenture among SRI Receivables Purchase Co., Inc., Specialty
Retailers, Inc., as Administrative Agent, and Bankers Trust
Company, as Trustee and Collateral Agent, relating to the 12.5%
Trust Certificate-Backed Notes of SRI Receivables Purchase Co.,
Inc. (including form of note). (Incorporated by Reference to
Exhibit 4.1 on Form 10-Q of Apparel Retailers Inc., dated
May 4, 1996).
*4.7 Series 1997-1 Supplement dated as of December 3, 1997 to Amended
and Restated Pooling and Servicing Agreement dated as of August
11, 1995 and Amended on May 30, 1996 by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) on behalf of the Series 1997-1
Certificateholders (Incorporated by Reference to Exhibit 10.1
on Form 10-Q of Stage Stores, Inc., dated November 1, 1997).
**4.8 Class A Certificate Purchase Agreement amount SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc., the Class A
Purchasers party thereto and Credit Suisse First Boston dated as
of December 3, 1997.
**4.9 Class B Certificate Purchase Agreement amount SRI Receivables
Purchase Co., Inc., Specialty Retailers, Inc., the Class B
Purchasers party thereto and Credit Suisse First Boston dated as
of December 3, 1997.
*4.10 Amended and Restated Series 1993-1 Supplement among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) dated May 30, 1996 (Incorporated by
Reference to Exhibit 4.3 on Form 10-Q of Apparel
Retailers, Inc., dated May 4, 1996).
*4.11 Amended and Restated Series 1995-1 Supplement by and among SRI
Receivables Purchase Co., Inc., Specialty Retailers, Inc. and
Bankers Trust (Delaware) on behalf of the Series 1995-1
Certificateholders dated May 30, 1996 (Incorporated by
Reference to Exhibit 4.6 on Form 10-Q of Apparel Retailers,
Inc., dated May 4, 1996).
*4.12 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).
*4.13 Certificate Purchase Agreements between SRI Receivables Purchase
Co., Inc. and the Purchasers of the Series 1993-1 Offered
Certificates (Incorporated by Reference to Exhibit 4.10 of
Registration No. 33-68258 on Form S-4).
*4.14 Certificate Purchase Agreement among SRI Receivables Purchase Co.,
Inc., Specialty Retailers, Inc. and the Certificate Purchaser
dated August 11, 1995 (Incorporated by Reference to Exhibit 4.9
on Form 10-Q of Apparel Retailers, Inc., dated October 28,
1995).
X-2
*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).
**10.3 Employment Agreement between Stage Stores, Inc. and Carl E.Tooker
dated April 1, 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 Harry Brown and Stage Stores, Inc.
dated April 1,1998.
**10.6 Employment Agreement between James Marcum and Stage Stores, Inc.
dated April 1, 1998.
**10.7 Employment between Stephen Lovell and Stage Stores, Inc. dated
April 1, 1998.
**10.8 Employment Agreement between Ron Lucas and Stage Stores, Inc.
dated April 1, 1998.
**10.9 Employment Agreement between Jim Bodemuller and Stage Stores, Inc.
dated April 1, 1998.
*10.10 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).
*10.11 Stage Stores, Inc. Equity Incentive Plan (Incorporated by
Reference to Exhibit 10.29 of Registration No. 333-5855 of Form
S-1).
*21.1 List of Registrant's Subsidiaries (Incorporated by Reference to
Exhibit 21.1 of Registration No. 333-32695 on Form S-4).
**23.1 Consent of Price Waterhouse LLP.
**27.1 Financial Data Schedule.
- ----------
* Previously Filed
** Filed Herewith
X-3