Phar-Mor names new head, eyes 63 closings - Antonio C. Alvarez

Discount Store News, Oct 5, 1992

YOUNGSTOWN, Ohio - Phar-Mor has taken two steps - subject to bankruptcy court approval - that are important elements in its efforts to reorganize following its mid-August bankruptcy filing.

The company has named Antonio C. Alvarez, a turnaround specialist, as president and chief operating officer. The proposed three-year contract will pay him $900,000 a year, undisclosed bonuses based on performance and a "success fee" and equity should Phar-Mor emerge from bankruptcy.

Phar-Mor also plans to close up to 63 of its 309 stores, 36 that are unprofitable and possibly 27 more, subject to renegotiation of leases. The remaining stores are profitable, Phar-Mor said, or can be turned around by such moves as reducing footage or shutting nearby units.

The company is considering opening only a few of the 20 stores it originally planned to open this fall. After it filed the Chapter 11 petition, it opened 10 stores, but nothing since the first week of September.

The United States Bankruptcy Court in Youngstown was due to hold a hearing Oct. 1 on Phar-Mor's store closing plans - including determining the fate of the 27 units - and will possibly consider the company's debtor-in-possession petition. The latter hearing depends on the status of negotiations for funding the DIP instrument, with Phar-Mor seeking $150 million to $200 million in financing to be able to fully stock stores for the all-important holiday selling season.

Phar-Mor filed for bankruptcy after taking a $350 million write-off that it alleges was due to a "fraud and embezzlement scheme" on the part of former president and coo Michael Monus and former chief financial officer Patrick Finn. Both were fired at the end of July. Senior vice president Joel Arnold was fired in mid-August for allegedly being aware that false information was being given to Phar-Mor's board, but failing to inform them about it. In the alleged scheme, Monus is reported to have diverted about $10 million to a basketball league he had started and to have manipulated the books to make the company seem profitable.

Monus at press time was reported to be planning to file for personal bankruptcy. The Warren, Ohio, Tribune Chronicle reported that Finn was cooperating with federal officials and Phar-Mor, describing how he and Monus changed financial records on company computers. So far, neither has been charged with any crime.

Alvarez, 44, co-founded Alvarez & Marsal Inc., a New York-based turn around consultancy in 1983. He was a consultant to Phar-Mor prior to being named president and ceo. At one time, he was a partner in Coopers & Lybrand, the big accounting firm that worked for Phar-Mor until June. Phar-Mor and Coopers & Lybrand have sued each other, each contending the other party should have discovered the financial irregularities.

Phar-Mor officials and other sources contend the company is basically a profitable operation. It had $50 million in cash as collateral for its banks at the time of the bankruptcy filing, and sales since then have increased the figure to $145 million.

This is enough to fund normal operations on a cash basis, the company said. But it has had to adjust payment terms to obtain merchandise from vendors, including paying cash for delivery of some goods. It has already received early holiday season merchandise like giftwrap.

Phar-Mor is closing three departments - home office furniture, office electronics and sports apparel - as part of its reorganizational plan to focus on core categories: health & beauty care, drugs and foods and snacks. It stopped ordering merchandise for the three discontinued departments and is considering disposal of the remaining stock, either through in-store liquidations and/or sales to a liquidator.

The 36 stores set to close will mark Phar-Mor's exit from these states, Utah, with three units and Nebraska and Arkansas, one store each, and two major Texas cities, San Antonio (three stores) and Austin (five units). It is also closing three of its Jacksonville, Fla., units.

Some stores being closed were due to hold going-out-of-business sales starting in October, while others will have merchandise transferred to nearby units. About 2,200 full-and part-time employees will be affected by the closing.