ITEM 1. BUSINESS
General
Stage Stores, Inc. (the "Company" or "Stage Stores") operates the store of choice for well-known, nationally recognized brand name apparel, accessories, cosmetics and footwear in over 500 small towns and communities throughout the United States. Stage Stores was formed in 1988 when the management of Palais Royal, together with several venture capital firms, acquired the family owned Bealls and Palais Royal chains which were originally founded in the 1920's. The Company has developed a unique franchise focused on 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.
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 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 operations 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 30, 1999, the Company, through its wholly-owned subsidiary, Specialty Retailers, Inc. ("SRI"), operated 679 stores in thirty-four states throughout the United States. Although the Company's stores may be operated under its "Stage", "Bealls" and "Palais Royal" trade names depending on the geographic market, the Company operates the vast majority of the stores under one concept and strategy. Approximately 75% 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, cosmetics 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 1998 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 9% of the Company's 1998 retail purchases. No other vendor accounted for more than 5%. In addition, the Company, through its membership in Associated Merchandising Corporation ("AMC", a cooperative buying service), purchases imported merchandise for its private label program. The membership provides the Company with synergistic purchasing opportunities allowing it to augment its branded merchandise assortments. Private label merchandise purchased through AMC accounted for approximately 6% of the Company's total retail purchases for 1998.
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 1998 1997
Men's/Young Men 20% 20% Misses Sportswear 15 15 Shoes 11 11 Juniors 10 9 Children 9 9 Accessories & Gifts 8 9 Special Sizes 6 5 Cosmetics 5 5 Intimate 4 5 Dresses & Suits 3 3 Boys 3 2 Misses Dresses 2 3 Coats 2 2 Activewear 2 2 100% 100%
Employees
During 1998, the Company employed an average of 14,680 full and part-time employees at all of its locations, of which 1,947 were salaried and 12,733 were hourly. The Company's central office (which includes corporate, credit and distribution center offices) employed an average of 490 salaried and 1,083 hourly employees during 1998. In its stores during 1998, the Company employed an average of 1,457 salaried and 11,650 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.
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 5 to the Consolidated Financial Statements.
At January 30, 1999, the Company operated 679 stores located in thirty-four states as follows:
Number of State Stores
Alabama 4 Arizona 4 Arkansas 27 Colorado 7 Florida 1 Georgia 1 Illinois 14 Indiana 16 Iowa 16 Kansas 27 Louisiana 49 Maryland 1 Michigan 7 Minnesota 12 Mississippi 17 Missouri 21 Montana 11 Nebraska 7 Nevada 3 New Mexico 27 New York 2 North Dakota 2 Ohio 26 Oklahoma 70 Oregon 7 Pennsylvania 2 South Carolina 1 South Dakota 9 Texas 269 Virginia 1 Washington 4 West Virginia 1 Wisconsin 3 Wyoming 10 Total 679
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.
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. In addition, on March 30, 1999, a class action lawsuit was filed against the Company and certain of its officers, directors and stockholders in the United States District Court for the Southern District of Texas by John C. Weld, Jr., a stockholder who purchased 125 shares of the Company's common stock on August 3, 1998, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder (the "Weld Suit"). The Company believes that the allegations of the Weld suit are without merit and intends to defend the case vigorously.
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.
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 30, 1999.
PART II
ITEM 5.
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 5, 1999, (the date of record for Proxy Statement matters) there was one holder of Class B Common Stock and 293 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 and the NYSE New York Stock Exchange.
Common Stock Prices High Low Close
Quarter ended May 3, 1997 $24.50 $17.25 $20.50 Quarter ended August 2, 1997 29.19 19.25 29.00 Quarter ended November 1, 1997 43.38 28.88 36.50 Quarter ended January 31, 1998 43.13 32.25 38.78 Quarter ended May 2, 1998 53.00 35.75 51.13 Quarter ended August 1, 1998 53.75 25.00 25.44 Quarter ended October 31, 1998 26.13 8.75 13.25 Quarter ended January 30, 1999 15.00 6.75 8.00
The Company has not declared or paid any cash dividends on its Common Stock during its two most recent fiscal years 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth selected consolidated financial data for the periods indicated. The selected consolidated financial data were derived from, and should be read in conjunction with, the Company's Consolidated Financial Statements. All dollar amounts are stated in thousands, except for per share data.
Fiscal Year 1998 1997 1996 1995(1) 1994
Statement of operations data: Net sales $1,173,547 $1,073,316 $776,550 $682,624 $581,463 Cost of sales and related buying, occupancy and distribution expenses 839,238 730,179 532,563 468,347 398,659 Gross profit 334,309 343,137 243,987 214,277 182,804 Selling, general and administrative expenses 271,477 240,011 172,579 149,102 126,200 Store opening and closure costs 10,192 8,686 2,838 3,689 5,647 Operating income 52,640 94,440 68,570 61,486 50,957 Interest, net 46,471 38,277 45,954 43,989 40,010 Income before income tax and extraordinary items 6,169 56,163 22,616 17,497 10,947 Income tax expense 2,455 21,623 8,594 6,767 4,317 Income before extraordinary items 3,714 34,540 14,022 10,730 6,630 Extraordinary items, net of tax -- (18,295) (16,081) -- (308) Net income (loss) $3,714 $16,245 $(2,059) $10,730 $6,322 Basic earnings (loss) per common share $0.13 $0.63 $(0.13) $0.88 $0.52 Basic weighted average common shares outstanding 27,885 25,808 15,394 12,255 12,224 Diluted earnings (loss) per common share $0.13 $0.61 $(0.13) $0.86 $0.52 Diluted weighted average common shares outstanding 28,428 26,483 15,927 12,483 12,146 Margin and other data: Gross profit margin 28.5% 32.0% 31.4% 31.4% 31.4% Selling, general and administrative expense rate 23.1% 22.4% 22.2% 21.8% 21.7% Operating income margin 4.5% 8.8% 8.8% 9.0% 8.8% Store data: (1) Comparable store sales growth (3.0%) 4.1% 3.3% 0.8% 4.1% Store openings 86 301(2) 69 68 10 Number of stores open at end of period 679 607 315 256 188 Total selling area square footage (thousands) 10,548 9,557 5,670 4,886 3,777 Balance sheet data (at end of period): Working capital $368,138 $318,064 $235,219 $170,108 $148,229 Total assets 857,680 759,396 509,283 408,254 366,243 Long-term debt 487,968 395,248 298,453 380,039 349,775 Stockholders' equity (deficit) 204,392 205,078 92,266 (72,314) (81,193) ___________________________________
(1) 1995 includes 53 weeks. Comparable store sales growth for 1995 has been determined based on a comparable 52 week period.
(2) Includes 104 stores acquired from C. R. Anthony Company in 1997 which were not converted to the Company's format and trade names until 1998.
ITEM 7.
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 and 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 of the date hereof based on information currently available; however, the Company does not intend to update this information to reflect developments or information obtained after the date hereof and disclaims any legal obligation to the contrary.
General
Overview. The Company operates the store of choice for nationally recognized brand name family apparel, accessories, cosmetics and footwear in over 500 small towns and communities throughout the United States. The Company has recognized the high level of brand awareness and demand for fashionable, quality apparel by consumers in small markets and has identified these markets as a profitable and underserved niche. The Company has developed a 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 30, 1999, the Company, through Specialty Retailers, Inc. ("SRI"), operated 679 stores in thirty-four states throughout the United States. Although the Company's stores may be operated primarily under its "Stage", "Bealls" and "Palais Royal" trade names depending on the geographical market, the Company operates the vast majority of the stores under one concept and strategy. Approximately 75% 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.
Significant Events. 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 8.5% Senior Notes due 2005 and $100.0 million in aggregate principal amount of 9% Senior Subordinated Notes due 2007 (collectively, 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 C. R. Anthony Company ("CR Anthony"). Concurrently with this transaction, the Company entered into a new credit facility with a group of lenders (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 5 to the Company's Consolidated Financial Statements.
During the second quarter of 1997, the Company acquired CR Anthony which operated 246 family apparel stores in small markets throughout the central and midwestern United States. The Company converted 130 of the acquired locations to the Company's format primarily under its "Stage" and "Bealls" trade names during the fall of 1997 and an additional 104 stores during the Spring of 1998 while closing 12 of the acquired stores.
During the third quarter of 1997, the Company completed an offering of approximately 7.1 million shares of common stock of which 6.4 million shares 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 $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 increased capacity at terms and rates more favorable than the Old Revolving Certificate. The Company amended the Revolving Certificate in the third quarter of 1998 to increase the limit that may be outstanding from $82.5 million to $165.0 million through March 31, 1999 to reflect the growth in the Company's accounts receivable portfolio. The maximum outstanding under the revolving certificate will be reduced to $144.4 million from April 1, 1999 to September 30, 1999 and $82.5 million thereafter. 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 3 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.
Results of Operations
The following sets forth the results of operations as a percentage of sales for the periods indicated.
Fiscal Year 1998 1997 1996 Net sales 100.0% 100.0% 100.0% Cost of sales and related buying, occupancy and distribution expense 71.5 68.0 68.6 Gross profit margin 28.5 32.0 31.4 Selling, general and administrative expenses 23.1 22.4 22.2 Store opening and closure costs 0.9 0.8 0.4 Operating income margin 4.5 8.8 8.8 Net interest expense 4.0 3.6 5.9 Income before income tax and extraordinary item 0.5% 5.2% 2.9%
1998 Compared to 1997
Sales for 1998 increased 9.3% to $1,173.5 million from $1,073.3 million in 1997. The increase in sales was primarily due to an approximately $132.8 million increase in sales from stores opened or acquired during 1998 and 1997 which are not included in comparable store sales, partly offset by a 3.0% decline in comparable store sales. Management believes the majority of the decline in comparable store sales was attributable to (i) the extreme hot weather and drought conditions during the second quarter of 1998 in a substantial portion of the Company's market area, (ii) the unseasonably warm weather which existed throughout the majority of the 1998 Christmas selling period, (iii) the implementation of a "value pricing" program on selected private label merchandise and (iv) the aggressive but prudent management of the Company's inventory levels throughout the fall selling season.
The extreme weather conditions which impacted the majority of the Company's markets during late June and July 1998 resulted in reduced customer traffic and changed customers' spending patterns during this period. As a result, comparable store sales for the second quarter decreased 5.0%. Unseasonably warm weather conditions in most markets in the third and fourth quarters of 1998 negatively impacted the sales of the traditional cold weather categories of merchandise. In response, the Company accelerated its promotional activities during this period by increasing the level of permanent and promotional markdowns on its seasonal merchandise. This strategy lowered the average retail unit price of merchandise sold during the fall selling season which negatively impacted net sales. As a result of these factors and those discussed below, comparable store sales for the fall selling season decreased 4.3%.
In order to mitigate any potential economic impact that the record summer heat and drought conditions had on the small market communities in which the Company operates, the Company implemented a value pricing strategy on a small portion of its private label merchandise. Under the value pricing strategy, the Company reduced the price point on certain key private label basic items for the fall season. The program was designed to generate sufficient additional unit sales to offset the reduction in the average unit selling price. Due to the increased promotional activities discussed above during the fourth quarter, the program did not accomplish its goals. For 1999, based upon the results of this program, the Company eliminated the value pricing strategy from its merchandise mix.
Finally, the Company aggressively managed its inventory levels throughout the fall selling season due to the softness in overall sales. Actions taken to control inventory levels included a significant reduction in the aggregate amount of merchandise receipts for the fall selling season as well as the acceleration of the Company's promotional activities discussed above. The significant reduction in the receipt flow for the fall selling season negatively impacted the freshness and content of certain of the Company's merchandise offerings thereby further depressing sales levels. However, as a result of its aggressive promotional activities and prudent management of its inventory levels, retail inventory per square foot on a comparable store basis at year-end 1998 was approximately 8% lower than the corresponding 1997 level. Management believes it has identified the content issues within its merchandise offerings created during 1998 and has put plans in place to address these issues in 1999.
Gross profit decreased 2.6% to $334.3 million in 1998 from $343.1 million in 1997. Gross profit as a rate of sales decreased to 28.5% in 1998 from 32.0% in 1997. Contributing to the decline in gross profit were the higher levels of markdowns designed to stimulate traffic during the adverse weather conditions in the second quarter and the aggressive discounting and promotional activity during the second half of the year designed to drive unit sales and liquidate seasonal merchandise. In addition, the lower gross margin percentage reflects the impact of fixed buying, occupancy, and distribution expense components included in cost of goods sold in relation to lower sales levels as well as slightly higher shrinkage expense.
Selling, general and administrative expenses increased 13.1% to $271.5 million in 1998 from $240.0 million in 1997. Selling, general and administrative expenses as a percentage of sales for 1998 increased to 23.1% from 22.4% in 1997. Factors contributing to the increase in selling, general and administrative expenses as a percent of sales were the negative leverage resulting from the reduced sales level and the increased promotional expense associated with the aggressive management of the Company's inventory level discussed above. Advertising expenses as a percentage of sales were 4.3% in 1998 as compared to 3.7% in 1997. Offsetting these increases were approximately $5.6 million of certain duplicative and one-time costs associated with the CR Anthony acquisition which were incurred in 1997 as well as the positive impact of the Company's newly formed credit card bank which has allowed the Company to charge its customers a service charge and late fee rate structure consistent with other national apparel retailers.
Store opening and closure costs for 1998 increased to $10.2 million from $8.7 million for the same period in 1997 due to an increase in the number of stores opened during 1998 as compared to 1997.
Operating income for 1998 decreased to $52.6 million from $94.4 million in 1997 due to the factors discussed above. Operating income as a percent of sales for 1998 was 4.5% as compared to 8.8% in 1997.
Net interest expense for 1998 increased 21.4% to $46.5 million from $38.3 million in 1997 due to higher levels of borrowings under the Credit Facilities resulting from the Company's expansion program.
The Company's net income before extraordinary items for 1998 decreased to $3.7 million as compared to $34.5 million in 1997 due to the impact of the factors discussed above.
1997 Compared to 1996
Sales for 1997 increased 38.2% to $1,073.3 million from $776.5 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 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 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 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.
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.
Seasonality and Inflation
The Company's business is seasonal and sales traditionally are lower during the first nine months of the year (February through October) and higher during the last three months of the year (November through January). Working capital requirements fluctuate during the year and generally reach their highest levels during the third and fourth quarters.
Fiscal Year 1998 Fiscal Year 1997 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Net sales $272,788 $271,805 $271,605 $357,349 $191,512 $238,137 $274,269 $369,398 Gross profit 87,225 82,239 75,252 89,593 61,925 73,902 86,822 120,488 Operating income 25,278 12,678 7,226 7,458 20,524 19,736 15,789 38,391 Quarter's operating income as a percent of annual 48% 24% 14% 14% 22% 21% 17% 40% Income (loss) before ex- traordinary items $9,035 $765 $(3,152) $(2,934) $7,094 $6,246 $3,673 $17,527 Net income (loss) $9,035 $765 $(3,152) $(2,934) $7,094 $(11,134) $3,523 $16,762
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
Total working capital increased $50.0 million to $368.1 million at January 30, 1999 from $318.1 million at January 31, 1998. The most significant change in working capital was the increase in inventories associated with the 104 CR Anthony stores which the Company converted to its format and trade names during the first half of 1998 and the 86 new stores opened during the current year.
The Company's primary capital requirements are for working capital, debt service and capital expenditures. Cash interest payments were $43.0 million in 1998 and based upon the current capital structure, management anticipates cash interest payments will be approximately $44.0 million during 1999. Capital expenditures are generally for new store openings, remodeling of existing stores and facilities and customary store maintenance. Capital expenditures were $88.7 million during 1998 as compared to $64.9 million in 1997. Capital expenditures during 1998 were primarily related to 86 new store openings, remodeling of existing stores, the conversion of 104 CR Anthony stores to the Company's format and the implementation of a new merchandising system. Management estimates that capital expenditures will be approximately $23.0 million for 1999. Required aggregate principal payments on existing debt, excluding the Credit Facility, total $4.8 million and $34.8 million for 1999 and 2000, respectively.
The Company's current 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. Outstanding borrowings under the Credit Facility were $142.0 million at January 30, 1999 as compared to $45.7 million at January 31, 1998. The Company had $45.6 million of availability under the Credit Facility at January 30, 1999. The outstanding balances under the revolving certificates associated with the Accounts Receivable Program were $115.6 million and $77.0 million at January 30, 1999 and January 31, 1998, respectively, while outstanding balances under term certificates were $165.0 million at both January 30, 1999 and January 31, 1998. Principal repayments under the term certificates commence on December 31, 1999. However, the Company currently expects to refinance these certificates prior to that date. Therefore, the Company does not believe this will have an impact on its liquidity or cash flow for 1999 although there can be no assurances that the Company will successfully refinance the Accounts Receivable Program or as to the terms of any such refinancing. See Note 3 to the Company's Consolidated Financial Statements.
The Company continually monitors its liquidity position and compliance with its various debt agreements. During the third and fourth quarters of 1998, the Company's Credit Facility was amended to lessen certain covenant requirements and clarify certain defined terms contained in the Credit Facility. In addition, the Credit Facility was modified to allow a maximum of $170.0 million of borrowings to be outstanding for thirty days during the period from January 27, 1999 through July 31, 1999. As of February 25, 1999, this requirement had been satisfied. The Company believes the current covenant levels provide sufficient flexibility to allow the Company to execute its business plan.
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 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.
Recent Accounting Pronouncements
In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. Initial adoption of SOP 98-5 is to be reported as the cumulative effect of a change in accounting principle. The Company will adopt SOP 98-5 in the first quarter of 1999 and estimates adoption will result in an after tax charge of approximately $2.4 million.
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 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 and Weather: A substantial portion of the Company's operations are located in the central United States. In addition, many of the Company's stores are situated in small towns and rural environments that are substantially dependent upon the local economy. The retail apparel business is dependent upon the level of consumer spending, which may be adversely affected by an economic downturn or a decline in consumer confidence. An economic downturn, particularly in the central United States and any state (such as Texas) from which the Company derives a significant portion of its net sales, could have a material 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.
The Company's business depends in part on normal weather patterns across its markets. Any unusual weather patterns in the Company's markets, such as what occurred in 1998, can have a material impact on the Company's business and financial condition.
Competition: The retail apparel business is highly competitive. Although competition varies widely from market to market, the Company faces substantial competition, particularly in its Houston area markets, from national, regional and local department and specialty stores. Some of the Company's competitors are considerably larger than the Company and have substantially greater financial and other resources. Although the Company currently offers branded merchandise not available at certain other retailers (including large national discounters) in its small market stores, there can be no assurance that existing or new competitors will not carry similar branded merchandise in the future, which could have a material 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 1998, 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 substantially increased the Company's liquidity (through the issuance and sale of such certificates). There can be no assurance that the Company will be able to continue to securitize its receivables in this manner. Furthermore, 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. Principal repayments under the term certificates commence on December 31, 1999. However, the Company currently expects to refinance these certificates prior to that date. Therefore, the Company does not believe this will have an impact on its liquidity or cash flow for 1999 although there can be no assurances that the Company will successfully refinance the Accounts Receivable Program or as to the terms of any such refinancing. See Note 3 to the Company's Consolidated Financial Statements. 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 Credit Facility bear a floating rate of interest. If market rates of interest increase, the Company's financial results could be materially adversely affected. See "Liquidity and Capital Resources."
Centralized Operations: The Company's buying, credit, distribution and other corporate operations are highly centralized in three main locations. The Company's operations could be materially affected if a catastrophic event (such as but not limited to fire, hurricanes or floods) impacts use of these facilities. There can be no assurances that the Company would be successful in obtaining alternative servicing facilities in a timely manner if such a catastrophic event should occur.
Year 2000 Infrastructure: The Year 2000 issue relates to the way computer systems and programs define calendar dates. They could fail or make miscalculations due to interpreting a date including "00" to mean 1900, not 2000. Also, other systems and equipment may contain imbedded hardware or software that may have a time element and affect their operation. The Company began working on the Year 2000 compliance issue in 1996 and heightened its focus and resource commitment in 1997 with the establishment of a formalized project plan and management oversight function. The Company has divided its Year 2000 risk assessment and remediation efforts into the following three categories: information systems, peripheral systems and hardware, and third party vendors.
The Company has completed the evaluation of its critical information systems infrastructure for Year 2000 compliance and has developed detailed work plans to achieve compliance prior to possible system failures. The systems have been segregated into the following five logical, manageable groups: (1) human resource, time keeping, and payroll systems (2) point-of-sale and sales audit systems (3) credit systems (4) financial reporting and accounts payable systems and (5) merchandising systems. Year 2000 remediation is being addressed through a combination of modifications or upgrades to existing applications or replacement. The Company has dedicated in-house resources and has contracted with third party vendors to complete the necessary coding changes, testing and installation. The five groups of systems are in various stages of completion. The Company estimates Year 2000 readiness related to information systems is 65% complete and anticipates will be substantially complete by the end of the second quarter of fiscal year 1999.
The Company has substantially completed an inventory of its major peripheral systems and hardware and is in the process of assessing and remediating Year 2000 non-compliance issues. These include, but are not limited to, mainframe computer hardware and operating systems, communications networks, personal computers and network systems, printers, store register systems and processors, scanners, and emergency power systems. The Company estimates Year 2000 readiness related to peripheral systems and hardware is 75% complete and anticipates will be substantially complete by the end of the second quarter of fiscal year 1999.
The Company is installing a new merchandising system which is anticipated to be completed during the first half of 1999. If installation is not complete, the Company has made arrangements with the third party presently working on the Company's Year 2000 compliance issues to remediate the legacy system. To the extent there are unforeseen issues associated with the implementation of the new system, the Company's business could be adversely impacted.
The Company's plan is to have addressed its significant Year 2000 issues prior to being affected by them. However, if the Company identifies additional risks related to Year 2000 compliance or its progress in planned remediation efforts deviates from the anticipated timeline, the Company will develop contingency plans as deemed necessary at that time. It is currently estimated that the aggregate cost of the Company's Year 2000 efforts paid to third parties to assist in remediation will be approximately $2.3 million, of which approximately $1.6 million has been spent. These costs are being expensed as incurred. These amounts do not include any costs associated with the implementation of contingency plans or the cost associated with the replacement of information systems, hardware or equipment, substantially all of which would be capitalized. The failure to correct a material Year 2000 problem could result in an interruption in certain normal business activities or operations. Presently, 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 Year 2000 compliance status of its suppliers. The Company has, however, identified its major suppliers and has sent a survey letter which is being used to evaluate the potential risk to the Company if these vendors fail to remedy their Year 2000 issues. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Financial Statements and Schedules" included on page 21 for information required under this Item 8.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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, 1999:
Name Age Position Carl Tooker 51 Chairman, Chief Executive Officer an President James Marcum 39 Director, Vice Chairman and Chief Financial Officer Stephen Lovell 43 Vice Chairman and Chief Field Operations Officer Gregg Kennedy 51 Executive Vice President and Chief Merchandising Officer Jim Bodemuller 53 Executive Vice President and Chief Information Officer Ron Lucas 51 Executive Vice President, Human Resources Harold Compton 51 Director Robert Huth 53 Director Richard Jolosky 64 Director Jack Bush 64 Director David Thomas 49 Director John Wiesner 61 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 26 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. 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 as Senior Vice President and Chief Financial Officer of Marshalls, Inc. from 1990 to 1995. Mr. Marcum has been nominated as a director candidate for The Bombay Company, Inc. to be voted on by shareholders at their annual meeting on May 20, 1999.
Mr. Lovell joined the Company in June 1995 as Executive Vice President and Director of Stores and was promoted to Vice Chairman and Chief Field Operations Officer 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. Kennedy joined the Company in August 1998 as Vice President, Divisional Merchandising Manager, was promoted to Senior Vice President, General Merchandise Manager in November 1998 and was promoted to Executive Vice President and Chief Merchandising Officer in February 1999. Between 1993 and 1998, Mr. Kennedy was Vice President, General Merchandising Manager at Belk Department Stores. In 1991 he joined H.L. Reeds Department Stores as President. From 1989 to 1991 he held a variety of merchandising and store management positions at Federated Department Stores and from 1976 to 1989 he was Vice President, Divisional Merchandise Manager for women's sportswear at Kaufmann's, a division of May Company.
Mr. Bodemuller joined the Company in July 1997 as Senior Vice President, Planning and Allocation, was promoted to Executive Vice President, Planning and Allocation in March 1998 and was promoted to Executive Vice President and Chief Information Officer in March 1999. From 1995 to 1997 Mr. Bodemuller was Senior Vice President, Planning Allocation and Information Systems at Woolworths. Between 1993 and 1995 he was Senior Vice President and Chief Information Officer at Marshalls, Inc., a division of the Mellville Corporation and from 1982 to 1993 he was Corporate Vice President, MIS at May Company.
Mr. Lucas joined the Company in July 1995 as Senior Vice President, Human Resources and was promoted to Executive Vice President, Human Resources on March 5, 1998. Between 1987 and 1995, Mr. Lucas served as Vice President, Human Resources at two different divisions of Limited, Inc., the Limited Stores Division and Lane Bryant. Previously, he spent seventeen years at the Venture Stores Division of May Co. where from 1985 to 1987 he was Vice President, Organization Development.
Mr. 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 of CompUSA Stores 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 and 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 served as Director, Executive Vice President and Chief Financial Officer of Melville Corporation from 1987 to 1995.
Mr. Jolosky has been a Director since March 1997. Mr. Jolosky is also Director and Vice Chairman of Payless ShoeSource, Inc. where he has served since 1996. Prior to joining Payless Shoe Source, Inc., 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, Director and Chief Executive Officer of Jumbo Sports, Director of TeleQuip Company and Chairman of the Strategic Board of Directors of the College of Business and Public Administration at the University of Missouri. From 1991 to August 1995, Mr. Bush 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. and a Vice President of Court Square Capital Limited for more than five years. Mr. Thomas is a director of Lifestyle Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc., Neenah Corporation, Plainwell, Inc., Sleepmaster Corporation and American Commercial Lines, LLC.
Mr. Wiesner has been a Director since July 1997. 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 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.
ITEM 11.
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.
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.
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.
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 21.
(b) Reports on Form 8-K
The Company filed a News Release on Form 8-K dated November 5, 1998 related to Stage Stores, Inc.'s Board adopting a rights plan and third quarter 1998 sales results.
The Company filed a News Release on Form 8-K dated November 12, 1998 related to Stage Stores, Inc. announcing the resignation of the Chief Merchandising Officer.
The Company filed a Form 8-K on November 12, 1998 related to the adoption of the stockholder rights plan. Filed as an exhibit was the Rights Agreement dated as of November 11, 1998 between Stage Stores, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent.
The Company filed a News Release on Form 8-K dated November 19, 1998 related to Stage Stores, Inc. third quarter and nine months 1998 results.
The Company filed a News Release on Form 8-K dated January 7, 1999 related to Stage Stores, Inc. 1998 holiday period sales results.
The Company filed a News Release on Form 8-K dated January 27, 1999 related to the Fourth Amendment Agreement dated as of January 27, 1999 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston to the Credit Agreement dated as of June 17, 1997.
The Company filed a News Release on Form 8-K dated February 4, 1999 related to Stage Stores, Inc. announcing fourth quarter 1998 sales.
The Company filed a News Release on Form 8-K dated February 19, 1999 related to Stage Stores, Inc. naming of a new executive vice president, chief merchandising officer.
The Company filed a News Release on Form 8-K dated March 11, 1999 related to Stage Stores, Inc. announcing fourth quarter and full year 1998 results.
The Company filed a News Release on Form 8-K dated April 2, 1999 related to Stage Stores, Inc. denial of allegations of securities laws violations.
(c) Exhibits - See "Exhibit Index" at X-1.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
STAGE STORES, INC.
/s/ Carl Tooker April 13, 1999 Carl Tooker Chairman, Chief Executive Officer and President (principal executive officer)
STAGE STORES, INC.
/s/ James Marcum April 13, 1999 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 of Directors April 13, 1999 Carl Tooker
/s/ James Marcum Director April 13, 1999 James Marcum
/s/ Jack Bush Director April 13, 1999 Jack Bush
/s/ Robert Huth Director April 13, 1999 Robert Huth
/s/ John Wiesner Director April 13, 1999 John Wiesner
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Number
Financial Statements
Report of Independent Accountants Consolidated Balance Sheet at January 30, 1999 and January 31, 1998 Consolidated Statement of Operations for 1998, 1997 and 1996 Consolidated Statement of Cash Flows for 1998, 1997 and 1996 Consolidated Statement of Stockholders' Equity for 1998, 1997 and 1996 Notes to Consolidated Financial Statements
Schedules
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
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 (the "Company") at January 30, 1999 and January 31, 1998, and the results of their operations and their cash flows for each of the three years in the period ended January 30, 1999, 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.
PricewaterhouseCoopers LLP
Houston, Texas March 10, 1999
Stage Stores, Inc. Consolidated Balance Sheet (in thousands, except par values)
January 30, 1999 January 31, 1998
ASSETS Cash and cash equivalents $ 12,832 $23,315 Undivided interest in accounts receivable trust 69,816 61,211 Merchandise inventories, net 341,316 303,115 Prepaid expenses 24,981 20,417 Other current assets 59,492 57,788 Total current assets 508,437 465,846
Property, equipment and leasehold improvements, net 233,263 171,654 Goodwill, net 92,551 95,486 Other assets 23,429 26,410 Total assets $857,680 $759,396
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 82,779 $91,799 Accrued expenses and other current liabilities 52,706 53,291 Current portion of long-term debt 4,814 2,692 Total current liabilities 140,299 147,782
Long-term debt including credit facilities 487,968 395,248 Other long-term liabilities 25,021 11,288 Total liabilities 653,288 554,318
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, 26,718 and 26,500 shares issued and outstanding, respectively 267 265 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 265,716 264,679 Accumulated deficit (55,610) (59,324) Accumulated other comprehensive income (5,994) (555) Stockholders' equity 204,392 205,078 Commitments and contingencies -- -- Total liabilities and stockholder's equity $857,680 $759,396
Stage Stores, Inc. Consolidated Statement of Operations (in thousands, except earnings per share)
Fiscal Year 1998 1997 1996
Net sales $1,173,547 $1,073,316 $ 776,550 Cost of sales and related buying, occupancy and distribution expenses 839,238 730,179 532,563 Gross profit 334,309 343,137 243,987
Selling, general and administrative expenses 271,477 240,011 172,579 Store opening and closure costs 10,192 8,686 2,838 Operating income 52,640 94,440 68,570
Interest, net 46,471 38,277 45,954
Income before income tax and extraordinary items 6,169 56,163 22,616 Income tax expense 2,455 21,623 8,594 Income before extraordinary items 3,714 34,540 14,022 Extraordinary items -- early retirement of debt, net of tax -- (18,295) (16,081)
Net income (loss) $ 3,714 $ 16,245 $ (2,059)
Basic earnings (loss) per common share data: Basic earnings per common share before extraordinary items $ 0.13 $ 1.34 $ 0.91 Extraordinary items -- early retirement of debt -- (0.71) (1.04) Basic earnings (loss) per $ 0.13 $ 0.63 $ (0.13) common share
Basic weighted average common shares outstanding 27,885 25,808 15,394
Diluted earnings (loss) per common share data: Diluted earnings per common share before extraordinary items $ 0.13 $ 1.30 $ 0.88 Extraordinary items -- early retirement of debt -- (0.69) (1.01) Diluted earnings (loss) per $ 0.13 $ 0.61 $ (0.13) common share
Diluted weighted average common shares outstanding 28,428 26,483 15,927
Stage Stores, Inc. Consolidated Statement of Cash Flows (in thousands)
Fiscal Year 1998 1997 1996 Cash flows from operating activities:
Net income (loss) $3,714 $16,245 $(2,059) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 33,474 19,828 14,181 Deferred income taxes 2,371 27,438 15,650 Accretion of discount 1,138 1,231 11,097 Amortization of debt issue costs 2,577 2,274 2,104 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 (8,605) 22,777 (18,815) Increase in merchandise inventories (38,201) (76,451) (28,199) Increase in other assets (2,637) (26,970) (3,339) Increase (decrease) in accounts payable and accrued liabilities (9,341) 14,167 (6,614) Total adjustments (19,224) 2,589 2,146 Net cash provided by (used in) opeating activities (15,510) 18,834 87
Cash flows from investing activities:
Acquisitions, net of cash acquired -- (4,946) (27,346) Additions to property, equipment and leasehold improvements (88,719) (64,859) (26,096) Net cash used in investing activities (88,719) (69,805) (53,442)
Cash flows from financing activities:
Proceeds from: Credit facilities 96,300 45,700 -- Long-term debt -- 299,718 30,000 Common stock 955 22,522 165,969 Payments on: Long-term debt (2,596) (299,533) (140,677) Redemption of common stock -- -- (46) Additions to debt issue costs (913) (12,407) (3,878) Net cash provided by financing activities 93,746 56,000 51,368
Net increase (decrease) in cash and cash equivalents (10,483) 5,029 (1,987)
Cash and cash equivalents: Beginning of year 23,315 18,286 20,273 End of year $12,832 $23,315 $18,286
Supplemental disclosures: Cash flow information: Interest paid $43,015 $45,988 $32,094
Income taxes paid (refunded) $(2,872) $(14,436) $6,988
Non-cash investing and financing activities: In connection with various acquisitions, liabilities were assumed as follows: Fair value allocated to assets aquired $ -- $120,665 $35,001 Cash paid for assets aquired, including acquisition expenses -- (4,946) (27,346) Value of Common Stock exchanged -- (72,284) -- Purchase price payable at closing -- -- -- Liabilities assumed $ -- $43,435 $7,655
Stage Stores, Inc. Consolidated Statement of Stockholders' Equity (in thousands) Fiscal Year 1998 1997 1996 Shares Outstanding Shares of common stock issued: Beginning balance 26,500 22,033 10,866 Issuance of stock 218 4,467 11,032 Conversion of Class B common stock -- -- 141 Retirement of stock -- -- (6) Ending balance 26,718 26,500 22,033
Shares of Class B stock issued: Beginning balance 1,250 1,250 1,391 Conversion of Class B common stock -- -- (141) Ending balance 1,250 1,250 1,250
Stockholders' Equity Common stock issued: Beginning balance $265 $220 $109 Issuance of stock 2 45 110 Conversion of Class B common stock -- -- 1 Ending balance 267 265 220
Class B stock issued: Beginning balance 13 13 14 Conversion of Class B common stock -- -- (1) Ending balance 13 13 13
Additional Paid-in Capital: Beginning balance 264,679 169,811 3,800 Issuance of stock 953 94,761 165,859 Vested compensatory stock options 84 107 198 Retirement of stock -- -- (46) Ending balance 265,716 264,679 169,811
Accumulated deficit and accumulated other comprehensive income: Beginning balance (59,879) (77,778) (76,237) Comprehensive income (loss): Net income (loss) 3,714 16,245 (2,059) Other comprehensive income (loss) (5,439) 1,654 518 Total comprehensive income (loss) (1,725) 17,899 (1,541) Ending balance (61,604) (59,879) (77,778) Total Stockholders' Equity $204,392 $205,078 $92,266
Accumulated other comprehensive income: Beginning balance $ (555) $ (2,209) $(2,727) Comprehensive income (loss) - Minimum pension liability adjustment net of tax (5,439) 1,654 518 Ending balance $ (5,994) $ (555) $(2,209)
Stage Stores, Inc. Notes to Consolidated Financial Statements
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Stage Stores, Inc. ("Stage Stores" or the "Company"), through its wholly-owned subsidiary, Specialty Retailers, Inc. ("SRI"), operates family apparel stores primarily under the names "Bealls", "Palais Royal" and "Stage" offering nationally recognized brand name family apparel, accessories, cosmetics and footwear. As of January 30, 1999, the Company operated 679 stores in thirty-four states located throughout the United States.
Principles of Consolidation: The consolidated financial statements include the accounts of Stage Stores and its wholly- owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Fiscal Year: References to a particular year are to the Company's fiscal year which is the 52 or 53 week period ending on the Saturday closest to January 31 of the following calendar year (e.g., a reference to "1998" is a reference to the fiscal year ended January 30, 1999).
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. The gain recorded to income in 1998, 1997 and 1996 was $3.2 million, $0.7 million and $1.3 million, respectively.
Merchandise Inventories: The Company states its merchandise inventories at the lower of cost or market based upon the retail method of accounting, cost being determined using the last-in, first-out ("LIFO") method. Market is estimated on a pool-by-pool basis. The Company believes that the LIFO method, which charges the most recent merchandise costs to the results of current operations, provides a better matching of current costs with current revenues in the determination of operating results.
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 5-12 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 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 $2.6 million, $2.3 million and $2.1 million for 1998, 1997 and 1996, 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 $10.3 million and $7.4 million at January 30, 1999 and January 31, 1998, 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 $50.4 million, $39.5 million and $29.7 million for 1998, 1997 and 1996, respectively. Prepaid advertising costs were $2.7 million and $3.6 million at January 30, 1999 and January 31, 1998, respectively.
Cash and Cash Equivalents: The Company considers highly liquid investments with initial maturities of less than three months to be cash equivalents in its statement of cash flows.
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 are less than its carrying amount. The Company has not identified any such impairment losses.
Earnings per Share: Basic earnings per share is computed using the weighted average number of common shares outstanding during the periods. Diluted earnings per share is computed using the weighted average number of common shares as well as all potentially dilutive common share equivalents outstanding. Stock options and restricted stock are the only potentially dilutive share equivalents the Company has outstanding for the periods presented. Incremental shares of 543 thousand, 675 thousand and 533 thousand in 1998, 1997 and 1996, respectively, were used in the calculation of diluted earnings per common share. Common share equivalents of 408 thousand, 245 thousand and 256 thousand in 1998, 1997 and 1996, respectively, were not included in the computation of diluted earnings per share as they were anti- dilutive.
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.
Comprehensive income: During the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Other comprehensive income refers to revenues, expenses, gains and losses that under generally accepted accounting principles are recorded directly as an adjustment to stockholders' equity. Minimum pension liability adjustment is the Company's only component of comprehensive income. The minimum pension liability adjustments recorded in the accompanying statement of stockholders' equity are net of tax expense (benefit) of $3.5 million, ($1.1) million and ($0.3) million in 1998, 1997 and 1996, respectively. Prior year statements have been restated in accordance with the provisions of SFAS 130.
Start-up Costs: In April 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), effective for fiscal years beginning after December 15, 1998. SOP 98-5 provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. Initial adoption of SOP 98-5 is to be reported as the cumulative effect of a change in accounting principle. The Company will adopt SOP 98-5 in the first quarter of 1999.
Reclassifications: The accompanying Consolidated Financial Statements include reclassifications from financial statements issued in previous years.
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. 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. 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. The excess of the purchase price over the estimated fair value of such assets and liabilities was recognized as goodwill and is being amortized on a straight-line basis over forty years.
NOTE 3 - 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 facility (the "Revolving Certificate") outstanding which represent undivided interests in the Trust. During September 1998, the Company amended the Revolving Certificate to increase the limit that may be outstanding from $82.5 million to $165.0 million through March 31, 1999. The maximum outstanding under the Revolving Certificate will be reduced to $144.4 million from April 1, 1999 to September 30, 1999 and $82.5 million thereafter. 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 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 30, 1999 and January 31, 1998. There was $115.6 million and $77.0 million outstanding under the Revolving Certificate at January 30, 1999 and January 31, 1998 respectively.
Total accounts receivable transferred to the Trust during 1998, 1997 and 1996 were $585.3 million, $508.9 million and $441.4 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, such event is not anticipated. 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 which was entered into December 1997 is three years, subject to renewal at the option of the parties. At January 30, 1999, the average rate of return on the term certificates and the Revolving Certificate were 6.2% and 5.1%, respectively.
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 1998 1997 1996
Finance charge income billed to cardholders $ 64,627 $51,141 $48,555 Return paid to certificateholders (15,879) (12,612) (11,428) Servicing and bad debt expenses (44,588) (38,399) (37,626) Other trust expenses (1,192) (788) (987) $2,968 $(658) $(1,486)
NOTE 4 - PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements were as follows (in thousands):
January 30, 1999 January 31, 1998
Land $3,074 $3,074 Buildings 16,980 16,911 Fixtures and equipment 198,588 146,260 Leasehold improvements 130,870 96,798 349,512 263,043 Accumulated depreciation 116,249 91,389 $233,263 $171,654
Depreciation expense was $25.9 million, $16.8 million and $12.3 million for 1998, 1997 and 1996, respectively.
NOTE 5 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
January 30, 1999 January 31, 1998
Senior Notes $ 200,000 $ 200,000 Senior Subordinated Notes, net of discount 99,696 99,673 Credit Facility 142,000 45,700 SRPC Notes 30,000 30,000 Other long-term debt 21,086 22,567 492,782 397,940 Less current maturities 4,814 2,692 $ 487,968 $ 395,248
The Senior Notes were issued during June 1997 by SRI with a principal amount of $200.0 million, bear interest at 8.5% payable semi-annually on January 15 and July 15, and mature July 15, 2005. The Senior Notes are general unsecured obligations and rank senior to all subordinated debt of SRI including the Senior Subordinated Notes.
The Senior Subordinated Notes were issued during June 1997 by SRI with a principal amount of $100.0 million and at a discount which results in a combined effective interest rate of 9.03%. The Senior Subordinated Notes bear interest at 9% payable semi-annually on January 15 and July 15 and mature July 15, 2007. The Senior Subordinated Notes are subordinated to the obligations under the Senior Notes.
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 gross proceeds from the issuance of these notes (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) pay related fees and expenses; and (iii) pay costs associated with the acquisition of CR Anthony.
Concurrently with the issuance of the Senior Notes and Senior Subordinated Notes, SRI entered into a new credit facility with a group of lenders (the "Credit Facility") which replaced the Company's existing $75.0 million credit facility. The Credit Facility provides for: (i) a $100.0 million working capital and letter of credit facility (the "Working Capital Facility") pursuant to which SRI shall have the right at any time prior to June 17, 2000 to solicit one or more lenders and/or new financial institutions to provide up to $25 million in additional commitments to increase the Working Capital Facility to an amount not to exceed $125 million in the aggregate, subject to certain conditions, of which up to $50 million may be used for letters of credit; and (ii) a $100.0 million expansion facility (the "Expansion Facility"). The Credit Facility matures on June 14, 2002 provided that in addition to certain mandatory reductions in commitments, the commitments under the Expansion Facility will be reduced on the fourth anniversary of the signing of the Credit Facility by the amount, if any, necessary so that total reductions in the amount of the commitments under the Expansion Facility (taking into account all mandatory reductions) will have been at least $25 million. 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 1.75% for the Base Rate and 2.75% for the Eurodollar Rate at January 30, 1999. The effective interest rate for borrowings outstanding under the Credit Facility was 7.6% at January 30, 1999.
The Credit Facility contains covenants which, among other things, restrict the: (i) incurrence of additional debt; (ii) incurrence of capitalized lease obligations; (iii) payment of dividends; (iv) formation of certain business combinations; (v) acquisition of subordinated debt; (vi) use of proceeds received under the agreement; (vii) aggregate amount of capital expenditures; (viii) transactions with related parties; and (ix) changes in lines of business. In addition, the Credit Facility requires the Company to maintain compliance with certain specified financial covenants, including covenants relating to minimum interest coverage, minimum fixed charge coverage and maximum leverage ratios. The Credit Facility also limits the amount which can be outstanding for a specified length of time each year. A portion of the Credit Facility is 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 $6.0 million at January 30, 1999.
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 maturity dates between 1998 through 2003.
Aggregate maturities of long-term debt excluding the Credit Facility for the next five years are: 1999 - $4.8 million; 2000 - $34.8 million; 2001 - $2.6 million; 2002 - $2.7 million and 2003 - - $14.2 million.
Management estimates the fair value of its long-term debt to be $482.4 million and $414.0 million at January 30, 1999 and January 31, 1998, 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 6 - STOCKHOLDERS' EQUITY
The Company's authorized common equity securities consist of par value $0.01 per share common stock ("Common Stock") and par value $0.01 per share Class B common stock ("Class B Common Stock"). Except as otherwise described herein, all shares of Common Stock and Class B Common Stock are identical and entitle the holders thereof to the same rights and privileges (except with respect to voting privileges). Holders of Class B Common Stock may elect at any time to convert any or all of such shares into Common Stock, on a share-for-share basis, to the extent the holder thereof is not prohibited from owning additional voting securities by virtue of regulatory restrictions. The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Except as required by law, holders of Class B Common Stock do not have the right to vote on any matters to be voted upon by the stockholders.
During 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 at 112.7% of the accreted value ($120.0 million).
During September 1997, the Company completed an offering of approximately 7.1 million shares of common stock, 6.4 million shares of which were secondary shares representing the shares owned by two venture capital firms. The remaining 650,000 shares were issued as primary shares, a result of an over-allotment provision. The shares sold by the Company resulted in net proceeds to the Company of approximately $20.7 million, which were used to reduce borrowings outstanding under the Company's Credit Facility.
In November 1998, the Company adopted a Stockholder Rights Plan designed to protect Company stockholders in the event of takeover activity that would deny them the full value of their investment. Terms of this plan provide for a dividend distribution of one right for each share of Common Stock of the Company to holders of record at the close of business on November 13, 1998. The rights will become exercisable only in the event, with certain exceptions, a person or group of affiliated or associated persons accumulates 15% or more of the Company's voting stock, or if a person or group announces an offer to acquire 15% or more. The rights will expire on November 10, 2008. Each right will entitle the holder to buy one one-hundred thousandth of a share of a new series of preferred stock at a price of $60. In addition, upon the occurrence of certain events, holders of the rights would be entitled to purchase either Company stock or shares in an "acquiring entity" at half of market value. Further, at any time after a person or group acquires 15% or more (but less than 50%) of the Company's outstanding voting stock, the Board of Directors may, at its option, exchange part or all of the Rights (other than Rights held by the acquiring person or group, which would become void) for shares of the Company's common stock on a one-for-one basis. The Company generally will be entitled to redeem the rights at $0.01 per right at any time until the tenth day following the acquisition of a 15% position in its voting stock.
NOTE 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 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 30, 1999, there were 924,394 options outstanding under the 1993 Stock Option Plan.
During 1996, the Company adopted the1996 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 30, 1999, there were 930,496 options and 290,800 shares of restricted stock outstanding under the Incentive Plan.
The Board will have exclusive discretion to select the Participants and to determine the type, size and terms of each award, to modify the terms of awards, to determine when awards will be granted and paid, and to make all other determinations which it deems necessary or desirable in the interpretation and administration of the Incentive Plan. The Incentive Plan is scheduled to terminate ten years from the date that the Incentive Plan was initially approved and adopted by the stockholders of the Company, unless extended for up to an additional five years by action of the Board. With limited exceptions, including termination of employment as a result of death, disability or retirement, or except as otherwise determined by the Board, rights to these forms of contingent compensation are forfeited if a recipient's employment or performance of services terminates within a specified period following the award. Generally, a Participant's rights and interest under the Incentive Plan will not be transferable except by will or by the laws of descent and distribution.
Options are rights to purchase a specified number of shares of common stock at a price fixed by the Board. The option price may be equal to or greater than the fair market value of the underlying shares of common stock, but in no event less than the fair market value on the date of grant. Options granted under the 1993 Stock Option Plan generally become exercisable in installments of 20% per year on each of the first through the fifth anniversaries of the grant date and have a maximum term of ten years. Options granted under the Incentive Plan generally become exercisable in installments of 25% per year on each of the first through fourth anniversaries of the grant date and have a maximum term of ten years.
A summary of the option activity under the various plans follows:
Number of Weighted Outstanding Average Options Option Price
Options outstanding at February 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 Granted 505,200 38.08 Surrendered (147,185) 26.35 Exercised (217,218) 4.57 Options outstanding at January 30, 1999 1,854,890 19.15
Exercisable options under the various plans at January 31, 1998 and February 1, 1997 were 333,159 and 181,358 with a weighted average exercise price of $2.87 and $1.55, respectively. A summary of outstanding and exercisable options as of January 30, 1999 follows:
Weighted Weighted Average Weighted Number of Average Remaining Number of Average Option Outstanding Exercise Contractual Remaining Exercise Price Options Price Life Options Price
$0.00 - $0.12 84,308 $0.11 4.4 84,308 $0.11 2.24 - 3.05 271,835 2.77 5.9 197,021 2.80 5.00 - 8.00 343,961 5.28 7.1 116,328 5.28 9.00 - 13.88 181,735 10.57 9.6 6,829 10.56 17.00 - 21.15 245,400 20.90 7.5 8,250 19.95 22.00 - 30.00 391,401 22.85 8.0 107,766 23.25 33.75 - 42.13 28,000 37.35 8.8 6,250 37.14 49.75 - 51.88 308,250 51.61 9.1 -- -- 1,854,890 19.15 526,752 7.88
During 1998, 73,300 shares of restricted stock with a weighted average grant-date fair value of $41.48 were granted under the Incentive Plan and vest 25% per year on each of the first through fourth anniversaries of the grant date. 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 and vest at the end of a three year period and contain certain accelerated vesting provisions. No shares were vested at January 30, 1999. Compensation expense is being amortized over the vesting period on a straight-line basis.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its plans. Compensation expense was $3.2 million, $0.5 million and $0.3 million in 1998, 1997 and 1996, respectively. 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 1998 1997 1996 Pro forma net income (loss) (in thousands) $1,106 $15,407 $(2,653) Pro forma basic earnings (loss) per common share 0.04 0.60 (0.17) Pro forma diluted earnings (loss) per common share 0.04 0.58 (0.17) Weighted average grant-date value of options granted 22.30 13.96 8.33
The fair value of the options granted is estimated using the Black-Scholes option-pricing model with the following assumptions for 1998: no dividend yield; volatility of 47.32%; risk-free interest rate of 4.9%; assumed forfeiture rate at 71.27% and an expected life of 7.8 years. For 1997, the following assumptions were used: no dividend yield; volatility of 47.32%; risk-free interest rate of 5.5%; assumed forfeiture rate of 76.92% and an expected life of 7.42 years. For 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
During 1998, the Company adopted Statement of Financial Accounting Standards No. 132 "Employers' Disclosures about Pensions and other Postretirement Benefits - an amendment of FASB Statements No. 87, 88, and 106" ("SFAS 132"). SFAS 132 standardizes the disclosure requirements for pensions and other postretirement benefits. Prior year disclosures have been restated in accordance with the provisions of SFAS 132.
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 as of June 30, 1998. Benefits under the plan are based upon a percentage of the participant's earnings during each year of credited service. Supplemental pension benefits for certain key executives are provided under the SRI Supplemental Executive Retirement Plan (the "Supplemental Retirement Plan"), a non-qualified defined benefit plan.
Information regarding the Retirement Plan and the Supplemental Retirement Plan is as follows (in thousands):
January 30, 1999 January 31, 1998 Change in benefit obligation: Benefit obligation at beginning of year $ 34,716 $ 31,641 Service cost 917 1,738 Interest cost 2,191 2,328 Actuarial (gain) loss 3,056 970 Benefits paid (3,913) (1,961) Plan curtailment (5,991) -- Plan settlement 663 -- Projected benefit obligation at end of year 31,639 34,716
Change in plan assets: Fair value of plan assets at beginning of year 26,624 20,942 Actual return on plan assets (1,550) 5,369 Employer contributions 550 2,574 Benefits paid (3,913) (1,961) Fair value of plan assets at end of year 21,711 26,924
Funded status (9,928) (7,792) Unrecognized prior service cost 326 (15) Unrecognized net actuarial (gain) loss 9,890 6,405 Net amount recognized $ 288 $ (1,402)
Amounts recognized in the consolidated balance sheet consist of: Accrued benefit liability $ (9,538) $ (2,310) Accumulated other comprehensive income 9,826 908 Net amount recognized $ 288 $ (1,402)
January 30, 1999 January 31, 1998 Weighted-average assumptions as of year end: Discount rate 6.5% 7.75% Expected long-term rate of return on plan assets 9.0% 9.0% Rate of annual compensation increase N/A 4.0% Rate of increase in maximum benefit and compensation limits 3.5% 3.5% Assumed rate of increase in taxable wage base N/A N/A
The components of pension cost for the Retirement Plan and the Supplemental Retirement Plan were as follows (in thousands):
Fiscal Year 1998 1997 1996 Net periodic pension cost for the fiscal year ended: Service cost $ 917 $ 1,738 $ 1,269 Interest cost 2,191 2,328 2,085 Expected return on plan assets (2,367) (2,521) (2,047) Amortization of prior service cost 18 (6) (6) Recognized actuarial loss 127 507 795 Net periodic pension cost $ 886 $ 2,046 $ 2,096
The Company's funding policy for the Retirement Plan is to contribute the minimum amount required by applicable regulations. Retirement Plan assets include 100,000 shares of Stage Stores common stock purchased during the Company's initial public offering.
Effective June 30, 1998, the Retirement Plan was frozen. There will be no future benefit accruals after that date. Any service after that date will continue to count toward vesting and eligibility for normal and early retirement. The Company recorded a gain of $2.0 million associated with the plan curtailment.
The Company has a contributory 401(k) savings plan covering substantially all qualifying employees. Under the 401(k), participants may contribute up to 15% of their qualifying earnings, subject to certain restrictions. The Company currently matches 50% of each participant's contributions, limited to 6% of each participant's salary. The Company's matching contributions were approximately $0.8 million for 1998 and $0.4 million for 1997 and 1996.
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 1998 1997 1996
Minimum rentals $48,022 $37,601 $30,397 Contingent rentals 3,993 4,545 3,318 Equipment rentals 3,854 1,240 829 $55,869 $43,386 $34,544
Minimum rental commitments on long-term operating leases at January 30, 1999, net of sub-leases, are as follows (in thousands):
Fiscal Year: 1999 $52,380 2000 45,261 2001 39,375 2002 34,022 2003 28,482 Thereafter 117,565 $317,085
NOTE 10 - INCOME TAXES
All Company operations are domestic. Income tax expense charged to continuing operations consisted of the following (in thousands):
Fiscal Year 1998 1997 1996
Federal income tax expense (benefit): Current $ (66) $11,012 $(7,443) Deferred 3,246 8,413 15,399 3,180 19,425 7,956 State income tax expense (benefit): Current 150 193 764 Deferred (875) 2,005 (126) (725) 2,198 638
$ 2,455 $21,623 $8,594
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 1998 1997 1996
Federal income tax expense at the statutory rate $ 2,159 $19,657 $7,915 State income taxes, net (471) 1,428 414 Permanent differences, net 767 538 265 $ 2,455 $21,623 $8,594
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 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 30, 1999 January 31, 1998
Gross deferred tax liabilities: Depreciation and amortization $14,790 $11,811 Inventory reserves -- 2,841 State income taxes 1,838 1,497 Other 7,786 6,554 24,414 22,703 Gross deferred tax assets: Retained Certificates (2,460) (3,070) Net operating loss carryforwards (25,160) (24,604) AMT tax credit carryforward (3,040) (3,094) Accrued expenses (4,558) (4,380) Pensions (4,231) (1,378) Escalating leases (1,802) (2,242) Accrued payroll costs (1,445) (2,557) Inventory reserves (2,546) -- Other (382) (1,481) (45,624) (42,806)
Net deferred tax assets $(21,210) $(20,103)
The Company has net operating loss carryforwards for federal income tax purposes of approximately $55.5 million, which if not utilized will expire in varying amounts between 2007 and 2020. Included in this amount is approximately $8.3 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 $109.4 million, which if not utilized, will expire in varying amounts between 2003 and 2020.
NOTE 11 - QUARTERLY FINANCIAL INFORMATION
Unaudited quarterly financial data is summarized as follows (in thousands):
Fiscal Year 1998 Q1 Q2 Q3 Q4
Net sales $272,788 $271,805 $271,605 $357,349 Gross profit 87,225 82,239 75,252 89,593 Operating income 25,278 12,678 7,226 7,458 Net income (loss) 9,035 765 (3,152) (2,934) Basic earnings (loss) per common share 0.33 0.03 (0.11) (0.10) Diluted earnings (loss) per common share 0.32 0.03 (0.11) (0.10)
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
NOTE 12 - 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 for 1996. Upon consummation of the Company's initial public offering, this agreement was terminated. As a result, there were no such fees in 1998 and 1997.
The Company has made loans, in an aggregate principal amount of $2.1 million and $1.2 million at January 30, 1999 and January 31, 1998, respectively, 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 13 - 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 $12.4 million at January 30, 1999, all of which were collateralized by the Credit Facility (see Note 5). 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. The Company's customers primarily reside in the central United States.
NOTE 14 - CONSOLIDATING FINANCIAL STATEMENTS
SRI is the primary obligor under the long-term indebtedness issued in connection with the Note Offering (see Note 5). Stage Stores and Specialty Retailers, Inc. (NV), a wholly-owned subsidiary of Stage Stores (which was incorporated during June, 1997), are guarantors under such indebtedness. The consolidating condensed financial information for Stage Stores and its wholly- owned subsidiaries are presented below. The financial data for SRI Receivables Purchase Co. does not reflect the total consolidated operating performance of the Company's Accounts Receivable Program. For a summary of the total consolidated operating performance of the Company's Accounts Receivable Program, see Note 3.
Consolidating Condensed Balance Sheet January 30, 1999 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co. ASSETS Cash and cash equivalents $10,882 $ -- $ -- $10,882 Undivided interest in accounts receivable trust (13,228) 83,044 -- 69,816 Merchandise inventories, net 341,316 -- -- 341,316 Prepaid expenses 24,082 899 -- 24,981 Other current assets 53,566 5,926 -- 59,492 Total current assets 416,618 89,869 -- 506,487
Property, equipment and leasehold improvements, net 231,499 -- -- 231,499 Goodwill, net 92,551 -- -- 92,551 Other assets 18,967 4,402 -- 23,369 Investment in subsidiaries 37,886 -- (37,886) -- Total assets $797,521 $94,271 $(37,886) $853,906
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $82,779 $ -- $ -- $82,779 Accrued expenses and other current liabilities 49,726 2,888 -- 52,614 Current portion of long-term debt 4,814 -- -- 4,814 Total current liabilities 137,319 2,888 -- 140,207
Long-term debt 457,968 30,000 -- 487,968 Intercompany notes/advances 151,273 23,497 -- 174,770 Other long-term liabilities 25,021 -- -- 25,021 Total liabilities 771,581 56,385 -- 827,966
Preferred stock -- -- -- -- Common stock -- -- -- -- Class B common stock -- -- -- -- Additional paid-in capital 3,317 32,130 (32,130) 3,317 Accumulated earnings (deficit) 28,617 5,756 (5,756) 28,617 Accumulated other comprehensive income (5,994) -- -- (5,994) Stockholders' equity 25,940 37,886 (37,886) 25,940 Total liabilities and stockholders' equity $797,521 $94,271 $(37,886) $853,906
Consolidating Condensed Balance Sheet January 30, 1999 (in thousands, unaudited)
Stage Specialty Stage Stores Stores, Retailers, Eliminations Consolidated Inc. Inc. (NV) ASSETS Cash and cash equivalents $ 2 $ 1,948 $ -- $12,832 Undivided interest in accounts receivable trust -- -- -- 69,816 Merchandise inventories, net -- -- -- 341,316 Prepaid expenses -- -- -- 24,981 Other current assets -- -- -- 59,492 Total current assets 2 1,948 -- 508,437
Property, equipment and leasehold improvements, net -- 1,764 -- 233,263 Goodwill, net -- -- -- 92,551 Other assets -- 60 -- 23,429 Investment in subsidiaries 204,349 -- (204,349) -- Total assets $204,351 $ 3,772 $(204,349) $857,680
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ -- $ -- $ -- $82,779 Accrued expenses and other current liabilities 92 -- -- 52,706 Current portion of long-term debt -- -- -- 4,814 Total current liabilities 92 -- -- 140,299
Long-term debt -- -- -- 487,968 Intercompany notes/advances (133) (174,637) -- -- Other long-term liabilities -- -- -- 25,021 Total liabilities (41) (174,637) -- 653,288
Preferred stock -- -- -- -- Common stock 267 -- -- 267 Class B common stock 13 -- -- 13 Additional paid-in capital 265,716 160,040 (163,357) 265,716 Accumulated earnings (deficit) (55,610) 18,369 (46,986) (55,610) Accumulated other comprehensive income (5,994) -- 5,994 (5,994) Stockholders' equity 204,392 178,409 (204,349) 204,392 Total liabilities and stockholders' equity $204,351 $ 3,772 $(204,349) $857,680
Consolidating Condensed Balance Sheet January 31, 1998 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co. ASSETS Cash and cash equivalents $23,299 $ -- $ -- $23,299 Undivided interest in accounts receivable trust (11,234) 72,445 -- 61,211 Merchandise inventories, net 303,115 -- -- 303,115 Prepaid expenses 19,944 473 -- 20,417 Other current assets 49,980 7,808 -- 57,788 Total current assets 385,104 80,726 -- 465,830
Property, equipment and leasehold improvements, net 170,401 -- -- 170,401 Goodwill, net 95,486 -- -- 95,486 Other assets 20,653 5,757 -- 26,410 Investment in subsidiaries 40,312 -- (40,312) -- Total assets $711,956 $86,483 $(40,312) $758,127
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $91,799 $ -- $ -- $91,799 Accrued expenses and other current liabilities 52,409 630 -- 53,039 Current portion of long-term debt 2,692 -- -- 2,692 Total current liabilities 146,900 630 -- 147,530
Long-term debt 365,248 30,000 -- 395,248 Intercompany notes/advances 149,258 14,324 -- 163,582 Other long-term liabilities 9,874 1,217 -- 11,091 Total liabilities 671,280 46,171 -- 717,451
Preferred stock -- -- -- -- Common stock -- -- -- -- Class B common stock -- -- -- -- Additional paid-in capital 3,317 34,556 (34,556) 3,317 Accumulated earnings (deficit) 37,914 5,756 (5,756) 37,914 Accumulated other comprehensive income (555) -- -- (555) Stockholders' equity 40,676 40,312 (40,312) 40,676 Total liabilities and stockholders' equity $711,956 $86,483 $(40,312) $758,127
Consolidating Condensed Balance Sheet January 31, 1998 (in thousands, unaudited)
Stage Specialty Stage Stores Stores, Retailers, Eliminations Consolidated Inc. Inc. (NV) ASSETS Cash and cash equivalents $ 16 $ -- $ -- $23,315 Undivided interest in accounts receivable trust -- -- -- 61,211 Merchandise inventories, net -- -- -- 303,115 Prepaid expenses -- -- -- 20,417 Other current assets -- -- -- 57,788 Total current assets 16 -- -- 465,846
Property, equipment and leasehold improvements, net -- 1,253 -- 171,654 Goodwill, net -- -- -- 95,486 Other assets -- -- -- 26,410 Investment in subsidiaries 205,075 -- (205,075) -- Total assets $205,091 $ 1,253 $(205,075) $759,396
LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ -- $ -- $ -- $91,799 Accrued expenses and other current liabilities 252 -- -- 53,291 Current portion of long-term debt -- -- -- 2,692 Total current liabilities 252 -- -- 147,782
Long-term debt -- -- -- 395,248 Intercompany notes/advances (436) (163,146) -- -- Other long-term liabilities 197 -- -- 11,288 Total liabilities 13 (163,146) -- 554,318
Preferred stock -- -- -- -- Common stock 265 -- -- 265 Class B common stock 13 -- -- 13 Additional paid-in capital 264,679 159,002 (162,319) 264,679 Accumulated earnings (deficit) (59,324) 5,397 (43,311) (59,324) Accumulated other comprehensive income (555) -- 555 (555) Stockholders' equity 205,078 164,399 (205,075) 205,078 Total liabilities and stockholders' equity $205,091 $1,253 $(205,075) $759,396
Consolidating Condensed Statement of Operations Fiscal Year ended January 30, 1999 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co.
Net sales $1,173,547 $ -- $ -- $1,173,547 Cost of sales related buying, occupancy and distribution expenses 839,238 -- -- 839,238 Gross profit 334,309 -- -- 334,309
Selling, general and administrative expenses 277,523 (1,467) -- 276,056 Store opening and closure costs 10,192 -- -- 10,192 Operating income 46,594 1,467 -- 48,061
Interest expense, net 65,345 (3,435) -- 61,910
Income (loss) before income taxes (18,751) 4,902 -- (13,849) Income tax expense (benefit) (6,377) 1,826 -- (4,551) Income (loss) before equity in net earnings of subsidiaries (12,374) 3,076 -- (9,298) Equity in net earnings of subsidiaries 3,076 -- (3,076) -- Net income (loss) $(9,298) $3,076 $(3,076) $(9,298)
Consolidating Condensed Statement of Operations Fiscal Year ended January 30, 1999 (in thousands, unaudited)
Stage Specialty Stage Stores Stores, Retailers, Eliminations Consolidated Inc. Inc. (NV)
Net sales $ -- $ -- $ -- $1,173,547 Cost of sales and related buying, occupancy and distribution expenses -- -- -- 839,238 Gross profit -- -- -- 334,309
Selling, general and administrative expenses 93 (4,672) -- 271,477 Store opening and closure costs -- -- -- 10,192 Operating income (93) 4,672 -- 52,640
Interest expense, net -- (15,439) -- 46,471
Income (loss) before income taxes (93) 20,111 -- 6,169 Income tax expense (benefit) (33) 7,039 -- 2,455 Income (loss) before equity in net earnings of subsidiaries (60) 13,072 -- 3,714 Equity in net earnings of subsidiaries 3,774 -- (3,774) -- Net income (loss) $3,714 $13,072 $(3,774) $3,714
Consolidating Condensed Statement of Operations Fiscal Year ended January 31, 1998 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co.
Net sales $1,073,316 $ -- $ -- $1,073,316 Cost of sales and related buying, occupancy and distribution expenses 730,179 -- -- 730,179 Gross profit 343,137 -- -- 343,137
Selling, general and administrative expenses 242,843 (2,865) -- 239,978 Store opening and closure costs 8,686 -- -- 8,686 Operating income 91,608 2,865 -- 94,473
Interest expense, net 47,746 (1,164) -- 46,582
Income (loss) before income taxes 43,862 4,029 -- 47,891 Income tax expense (benefit) 17,234 1,483 -- 18,717 Income (loss) before equity in net earnings of subsidiaries and extraordinary item 26,628 2,546 -- 29,174 Equity in net earnings of subsidiaries 1,904 -- (1,904) -- Income (loss) before extraordinary item 28,532 2,546 (1,904) 29,174 Extraordinary item - early retirement of debt (17,653) (642) -- (18,295) Net income (loss) $10,879 $1,904 $(1,904) $10,879
Consolidating Condensed Statement of Operations Fiscal Year ended January 31, 1998 (in thousands, unaudited)
Stage Specialty Eliminations Stage Stores Stores, Retailers, Consolidated Inc. Inc. (NV)
Net sales $ -- $ -- $ -- $1,073,316 Cost of sales and related buying, occupancy and distribution expenses -- -- -- 730,179 Gross profit -- -- -- 343,137
Selling, general and administrative expenses 30 3 -- 240,011 Store opening and closure costs -- -- -- 8,686 Operating income (30) (3) -- 94,440
Interest expense, net -- (8,305) -- 38,277
Income (loss) before income taxes (30) 8,302 -- 56,163 Income tax expense (benefit) -- 2,906 -- 21,623 Income (loss) before equity in net earnings of subsidiaries and extraordinary item (30) 5,396 -- 34,540 Equity in net earnings of subsidiaries 16,275 -- (16,275) -- Income (loss) before extraordinary item 16,245 5,396 (16,275) 34,540 Extraordinary item - early retirement of debt -- -- -- (18,295) Net income (loss) $16,245 $5,396 $(16,275) $16,245
Consolidating Condensed Statement of Operations Fiscal Year ended February 1, 1997 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co.
Net sales $776,550 $ -- $ -- $776,550 Cost of sales and related buying, occupancy and distribution expenses 532,563 -- -- 532,563 Gross profit 243,987 -- -- 243,987
Selling, general and administrative expenses 178,497 (5,935) -- 172,562 Store opening and closure costs 2,838 -- -- 2,838 Operating income 62,652 5,935 -- 68,587
Interest expense, net 34,671 344 -- 35,015
Income (loss) before income taxes 27,981 5,591 -- 33,572 Income tax expense (benefit) 10,261 2,023 -- 12,284 Income (loss) before equity in net earnings of subsidiaries and extraordinary item 17,720 3,568 -- 21,288 Equity in net earnings of subsidiaries 3,568 -- (3,568) -- Income (loss) before extraordinary item 21,288 3,568 (3,568) 21,288 Extraordinary item - early retirement of debt (16,081) -- -- (16,081) Net income (loss) $5,207 $3,568 $(3,568) $5,207
Consolidating Condensed Statement of Operations Fiscal Year ended February 1, 1997 (in thousands, unaudited)
Stage Stage Stores Stores, Eliminations Consolidated Inc.
Net sales $ -- $ -- $776,550 Cost of sales and related buying, occupancy and distribution expenses -- -- 532,563 Gross profit -- -- 243,987
Selling, general and administrative expenses 17 -- 172,579 Store opening and closure costs -- -- 2,838 Operating income (17) -- 68,570
Interest expense, net 10,939 -- 45,954
Income (loss) before income taxes (10,956) -- 22,616 Income tax expense (benefit) (3,690) -- 8,594 Income (loss) before equity in net earnings of subsidiaries and extraordinary item (7,266) -- 14,022 Equity in net earnings of subsidiaries 5,207 (5,207) -- Income (loss) before extraordinary item (2,059) (5,207) 14,022 Extraordinary item - early retirement of debt -- -- (16,081) Net income (loss) $(2,059) $(5,207) $(2,059)
Consolidating Condensed Statement of Cash Flows Fiscal Year ended January 30, 1999 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co. Cash flows from operating activities: Net cash provided by (used in) operating activities $(28,747) $11,586 $ -- $(17,161)
Cash flows from investing activities: Investment in subsidiaries -- -- -- -- Additions to property equipment and leasehold improvments (88,047) -- -- (88,047) Proceeds from the sales of accounts receivable, net 2,504 (2,504) -- -- Dividend from subsidiary 9,082 -- (9,082) -- Net cash used in investing activities (76,461) (2,504) (9,082) (88,047)
Cash flows from financing activities: Proceeds from working capital facility 96,300 -- -- 96,300 Proceeds from issuance of common stock -- -- -- -- Proceeds from capital contribution -- -- -- -- Payments on long-term debt (2,596) -- -- (2,596) Additions to debt issue costs (913) -- -- (913) Dividend paid -- (9,082) 9,082 -- Net cash provided by (used in) financing activities 92,791 (9,082) 9,082 92,791
Net increase (decrease) cash and cash equivalents (12,417) -- -- (12,417)
Cash and cash equivalents: Beginning of period 23,299 -- -- 23,299 End of period $10,882 $ -- $ -- $10,882
Consolidating Condensed Statement of Cash Flows Fiscal Year ended January 30, 1999 (in thousands, unaudited)
Stage Specialty Stage Stores Stores, Retailers, Eliminations Consolidated Inc. Inc. (NV) Cash flows from operating activities: Net cash provided by (used in) operating activities $(31) $1,682 $ -- $(15,510)
Cash flows from investing activities: Investment in subsidiaries (1,038) -- 1,038 -- Additions to property, equipment and leasehold improvements -- (672) -- (88,719) Proceeds from the sales of accounts receivable, net -- -- -- -- Dividend from subsidiary 100 -- (100) -- Net cash used in investing activites (938) (672) 938 (88,719)
Cash flows from financing activities: Proceeds from working capital facility -- -- -- 96,300 Proceeds from issuance of common stock 955 -- -- 955 Proceeds from capital contribution -- 1,038 (1,038) -- Payments on long-terrm debt -- -- -- (2,596) Additions to debt issue costs -- -- -- (913) Dividend paid -- (100) 100 -- Net cash provided by (used in) financing activities 955 938 (938) 93,746
Net increase (decrease) in cash and cash equivalents (14) 1,948 -- (10,483)
Cash and cash equivalents: Beginning of period 16 -- -- 23,315 End of period $ 2 $1,948 $ -- $12,832
Consolidating Condensed Statement of Cash Flows Fiscal Year ended January 31, 1998 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co. Cash flows from operating activities: Net cash provided by (used in) operating activities $36,822 $(17,988) $ -- $18,834
Cash flows from investing activities: Acquisitions, net of cash aquired (4,946) -- -- (4,946) Investment in subsidiaries 21,243 -- -- 21,243 Intercompany notes/advances 22,522 -- -- 22,522 Additions to property, equipment and leasehold improvements (64,859) -- -- (64,859) Proceeds from the sale of accounts receivable, net (19,962) 19,962 -- -- Dividend from subsidiary 1,904 -- (1,904) -- Net cash used in investing activities (44,098) 19,962 (1,904) (26,040)
Cash flows from financing activities: Proceeds from working capital facility 45,700 -- -- 45,700 Proceeds from issuance of long-term debt 299,718 -- -- 299,718 Proceeds from issuance of common stock -- -- -- -- Proceeds from capital contributions (21,243) -- -- (21,243) Payments on long-term debt (299,533) -- -- (299,533) Additions to debt issue costs (12,337) (70) -- (12,407) Dividend paid -- (1,904) 1,904 -- Net cash provided by (used in) financing activities 12,305 (1,974) 1,904 12,235
Net increase in cash and cash equivalents 5,029 -- -- 5,029
Cash and cash equivalents: Beginning of period 18,270 -- -- 18,270 End of period $23,299 $ -- $ -- $23,299
Consolidating Condensed Statement of Cash Flows Fiscal Year ended January 31, 1998 (in thousands, unaudited)
Stage Specialty Stage Stores Stores, Retailers, Eliminations Consolidated Inc. Inc. (NV)
Cash flows from operating activities: Net cash provided by (used in) operating activities $ -- $ -- $ -- $18,834
Cash flows from investing activities: Acquisitions, net of cash aquired -- -- -- (4,946) Investment in subsidiaries (21,243) -- -- -- Intercompany notes/advances (1,279) (21,243) -- -- Additions to property, equipment and leasehold improvements -- -- -- (64,859) Proceeds from the sales of accounts receivable, net -- -- -- -- Dividend from subsidiary -- -- -- -- Net cash used in investing activities (22,522) (21,243) -- (69,805)
Cash flows from financing activities: Proceeds from working capital facility -- -- -- 45,700 Proceeds from issuance of long-term debt -- -- -- 299,718 Proceeds from issuance of common stock 22,522 -- -- 22,522 Proceeds from capital contributions -- 21,243 -- -- Payments on long-term debt -- -- -- (299,533) Additions to debt issue costs -- -- -- (12,407) Dividend paid -- -- -- -- Net cash provided by (used in) financing activities 22,522 21,243 -- 56,000
Net increase in cash and cash equivalents -- -- -- 5,029
Cash and cash equivalents: Beginning of period 16 -- -- 18,286 End of period $ 16 $ -- $ -- $23,315
Consolidating Condensed Statement of Cash Flows Fiscal Year ended February 1, 1997 (in thousands, unaudited)
Specialty SRI SRI SRI Retailers, Receivables Eliminations Consolidated Inc. Purchase Co. Cash flows from operating activities: Net cash provided by (used in) operating activities $(20,479) $20,583 $ -- $ 104
Cash flows from investing activities: Acquisitions, net of cash aquired (27,346) -- -- (27,346) Intercompany notes/advances -- -- -- -- Additions to property, equipment and leasehold improvements (26,096) -- -- (26,096) Proceeds from the sales of accounts receivable, net 18,284 (18,284) -- -- Net cash used in investing activities (35,158) (18,284) -- (53,442)
Cash flows from financing activities: Proceeds from issuance of long-term debt -- 30,000 -- 30,000 Proceeds from issuance of common stock -- -- -- -- Payments on long-term debt (140,677) -- -- (140,677) Intercompany notes/advances 165,899 -- -- 165,899 Redemption of common stock -- -- -- -- Additions to debt issue costs (1,056) (2,822) -- (3,878) Dividends paid to SRI 29,477 (29,477) -- -- Net cash provided by (used in) financing activities 53,643 (2,299) -- 51,344
Net increase (decrease) in cash and cash equivalents (1,994) -- -- (1,994)
Cash and cash equivalents: Beginning of period 20,264 -- -- 20,264 End of period $18,270 $ -- $ -- $18,270
Consolidating Condensed Statement of Cash Flows Fiscal Year ended February 1, 1997 (in thousands, unaudited)
Stage Stage Stores Stores, Eliminations Consolidated Inc. Cash flows from operating activities: Net cash provided by (used in) operating activities $(17) $ -- $ 87
Cash flows from investing activities: Acquisitions, net of cash aquired -- -- (27,346) Intercompany notes/advances (165,899) 165,899 -- Additions to property, equipment and leasehold improvements -- -- (26,096) Proceeds from the sales of accounts receivable, net -- -- -- Net cash used in investing activities (165,899) 165,899 (53,442)
Cash flows from financing activities: Proceeds from issuance of long-term debt -- -- 30,000 Proceeds from issuance of common stock 165,969 -- 165,969 Payments on long-term debt -- -- (140,677) Intercompany notes/advances -- (165,899) -- Redemption of common stock (46) -- (46) Additions to debt issue costs -- -- (3,878) Dividends paid to SRI -- -- -- Net cash provided by (used in) financing activities 165,923 (165,899) 51,368
Net increase (decrease) in cash and cash equivalents 7 -- (1,987)
Cash and cash equivalents: Beginning of period 9 -- 20,273 End of period $ 16 $ -- $18,286
EXHIBIT INDEX
The following documents are the exhibits to the Form 10-K. For convenient reference, each exhibit is listed according to the Exhibit Table of Regulation S-K.
Exhibit Number Exhibit
*2.1 Agreement and Plan of Merger, dated as of March 5, 1997, between Stage Stores, Inc. and C.R. Anthony Company (Incorporated by Reference to Exhibit 2.1 of Registration No. 333-27809 on Form S-4).
*2.2 First Amendment to Agreement and Plan of Merger, dated as of May 20, 1997, between Stage Stores, Inc. and C. R. Anthony Company (Incorporated by Reference to Exhibit 2.2 of Registration No. 333-27809 on Form S-4).
*3.1 Amended and Restated Certificate of Incorporation of Stage Stores, Inc. (Incorporated by Reference to Exhibit 3.3 of Registration No. 333-5855 on Form S-1).
*3.2 Amended and Restated By-Laws of Stage Stores, Inc. (Incorporated by Reference to Exhibit 3.4 of Registration No. 333-5855 on Form S-1).
*3.3 Restated Articles Certificate of Incorporation of Specialty Retailers, Inc. (Incorporated by Reference to Exhibit 3.3 of Registration No. 333-32695 on Form S-4).
*3.4 Amended and Restated Bylaws of Specialty Retailers, Inc. (Incorporated by Reference to Exhibit 3.4 of Registration No. 333-32695 on Form S-4).
*3.5 Certificate of Incorporation of Specialty Retailers, Inc. (NV) (Incorporated by Reference to Exhibit 3.5 of Registration No. 333-32695 on Form S-4).
*3.6 Bylaws of Specialty Retailers, Inc. (NV) (Incorporated by Reference to Exhibit 3.6 of Registration No. 333-32695 on Form S-4).
*3.7 Rights Agreement dated as of November 11, 1998 between Stage Stores, Inc. and ChaseMellon Shareholder Services, L.L.C. as Rights Agent (Incorporated by Reference to Exhibit 1 of Form 8-K of Stage Stores, Inc., dated November 12, 1998).
*4.1 Credit Agreement dated as of June 17, 1997 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston (Incorporated by Reference to Exhibit 4.1 of Registration No. 333-32695 on Form S-4).
**4.2 Amendment Agreement dated as of June 26, 1997 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston to the Credit Agreement dated as of June 17, 1997.
**4.3 Second Amendment Agreement dated as of October 1, 1997 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston to the Credit Agreement dated as of June 17, 1997.
*4.4 Third Amendment Agreement dated as of October 6, 1998 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston to the Credit Agreement dated as of June 17, 1997. (Incorporated by Reference to Exhibit 4.1 on Form 10-Q of Stage Stores, Inc., dated October 31, 1998). EXHIBIT INDEX (Continued) Exhibit Number Exhibit
*4.5 Fourth Amendment Agreement dated as of January 27, 1999 by and among Specialty Retailers, Inc., Stage Stores, Inc., the banks named therein and Credit Suisse First Boston to the Credit Agreement dated as of June 17, 1997. (Incorporated by Reference to Form 8-K of Stage Stores, Inc., dated January 28, 1999).
*4.6 Indenture dated as of June 17, 1997 relating to the $200,000,000 aggregate principal amount of 8.5% 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).
*4.7 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).
*4.8 Indenture between 3 Bealls Holding Corporation and Bankers Trust Company, as Trustee, relating to 3 Bealls Holding Corporation's 9% Subordinated Debentures due 2002 (Incorporated by Reference to Exhibit 4.2 of Registration No. 33-24571 on Form S-4) and First Supplemental Indenture dated August 2, 1993 (Incorporated by Reference to Exhibit 4.4 of Registration No. 33-68258 on Form S-4).
*4.9 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).
*4.10 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).
*4.11 Amended and Restated Pooling and Servicing Agreement by and among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., and Bankers Trust (Delaware) dated August 11, 1995 (Incorporated by Reference to Exhibit 4.6 on Form 10-Q of Apparel Retailers, Inc., dated October 28, 1995).
*4.12 First Amendment to Amended and Restated Pooling and Servicing Agreement by and among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., and Bankers Trust (Delaware) dated May 30, 1996 (Incorporated by Reference to Exhibit 4.2 on Form 10-Q of Apparel Retailers, Inc., dated May 4, 1996).
*4.13 Amended and Restated Series 1997-1 Supplement dated as of October 16, 1998 to Amended and Restated Pooling and Servicing Agreement dated as of August 11, 1995 and Amended on May 30, 1996 and August 1, 1998 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 4.2 on Form 10-Q of Stage Stores, Inc., dated October 31, 1998).
EXHIBIT INDEX (Continued) Exhibit Number Exhibit
*4.14 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. (Incorporated by Reference to Exhibit 4.8 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*4.15 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. (Incorporated by Reference to Exhibit 4.9 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*4.16 Class B-2 Certificate Purchase Agreement dated as of October 16, 1998 by and among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., the Class B-2 Purchasers parties thereto, and Credit Suisse First Boston. (Incorporated by Reference to Exhibit 4.3 on Form 10-Q of Stage Stores, Inc., dated October 31, 1998).
*4.17 Amendment No. 1 to Class A Certificate Purchase Agreement dated as of October 16, 1998 by and among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., the Class A Purchasers parties thereto and Credit Suisse First Boston. (Incorporated by Reference to Exhibit 4.4 on Form 10-Q of Stage Stores, Inc., dated October 31, 1998).
*4.18 Amendment No. 1 to Class B Certificate Purchase Agreement dated as of October 16, 1998 by and among SRI Receivables Purchase Co., Inc., Specialty Retailers, Inc., the Class B Purchasers parties thereto and Credit Suisse First Boston. (Incorporated by Reference to Exhibit 4.5 on Form 10-Q of Stage Stores, Inc., dated October 31, 1998).
*4.19 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).
*4.20 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).
*4.21 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).
*4.22 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).
*4.23 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).
*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
EXHIBIT INDEX (Continued) Exhibit Number Exhibit
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. (Incorporated by Reference to Exhibit 10.3 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.4 Stock Option Agreement between Specialty Retailers, Inc. and Carl E. Tooker dated June 9, 1993 (Incorporated by Reference to Exhibit 10.18 of Registration No. 33-68258 on Form S-4).
*10.5 Employment Agreement between Harry Brown and Stage Stores, Inc. dated April 1,1998. (Incorporated by Reference to Exhibit 10.5 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.6 Employment Agreement between James Marcum and Stage Stores, Inc. dated April 1, 1998. (Incorporated by Reference to Exhibit 10.6 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.7 Employment between Stephen Lovell and Stage Stores, Inc. dated April 1, 1998. (Incorporated by Reference to Exhibit 10.7 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.8 Employment Agreement between Ron Lucas and Stage Stores, Inc. dated April 1, 1998. (Incorporated by Reference to Exhibit 10.8 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.9 Employment Agreement between Jim Bodemuller and Stage Stores, Inc. dated April 1, 1998. (Incorporated by Reference to Exhibit 10.9 on Form 10-K of Stage Stores, Inc., dated January 31, 1998).
*10.10 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 Subsidiares.
**23.1 Consent of PricewaterhouseCoopers LLP.
**27.1 Financial Data Schedule.
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* Previously Filed ** Filed Herewith