Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended August 3, 1996
Commission File Number 33-71922
LOEHMANN'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2500 Halsey Street
Bronx, New York 10461
Registrant's telephone number, including area code (718) 409-2000
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--------- ----------
Number of shares outstanding of Registrant's Common Stock and Class B Common
Stock, as of September 13, 1996; 8,322,186 and 469,237, respectively.
<PAGE>
Loehmann's, Inc.
Quarter ended August 3, 1996
CONTENTS
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets-August 3, 1996 and February 3, 1996 1
Consolidated Statements of Operations-Quarters and six months ended
August 3, 1996 and July 29, 1995 2
Consolidated Statements of Cash Flows-Quarters and six months ended
August 3, 1996 and July 29, 1995 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II-OTHER INFORMATION
Item 2. Changes in Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
Loehmann's, Inc.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1996
(In thousands, except share amounts)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,884 $ 12,512
Accounts receivable, net 847 804
Merchandise inventory 46,560 43,721
Prepaid expenses and other 1,770 918
------- ------
Total current assets 51,061 57,955
Property, equipment and leaseholds, net 59,142 60,245
Deferred debt issuance costs and other assets, net 3,997 3,296
Purchase price in excess of assets acquired, net 41,467 42,115
------- ------
Total assets $ 155,667 $ 163,611
======= =======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 18,512 $ 21,474
Accrued expenses 16,643 16,709
Accrued interest 2,855 7,037
Current portion of long-term debt 66 66
------- ------
Total current liabilities 38,076 45,286
Long-term debt:
Revolving Line of Credit 2,791 -
11-7/8% senior secured notes 95,000 -
13-3/4% senior subordinated notes - 77,550
10-1/2% senior secured notes - 51,471
Revenue bonds and notes, less current portion 2,686 2,712
------- ------
Total long-term debt 100,477 131,733
Other noncurrent liabilities 393 393
Series A preferred stock, subject to mandatory redemption,
41,500,000 shares authorized, 0 and 37,405,739 shares
issued and
outstanding at August 3, 1996 and February 3, 1996,
respectively - 15,279
Common stockholders' equity (deficit):
Common stock, 25,000,000 shares authorized; 8,322,186
and 4,725,420 shares issued and outstanding at August 3,
1996 and February 3, 1996, respectively 83 47
Class B convertible common stock, 469,237 shares
authorized, 2,352 2,352
issued and outstanding
Additional paid-in capital 79,340 23,857
Accumulated deficit (65,054) (55,336)
------- ------
Total common stockholders equity (deficit) 16,721 (29,080)
------- ------
Total liabilities and common stockholders
equity (deficit) $ 155,667 $ 163,611
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
1
<PAGE>
Loehmanns, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
AUGUST 3, JULY 29, AUGUST 3, JULY 29,
1996 1995 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales $ 90,652 $ 89,426 $ 194,772 186,932
Cost of sales 62,552 62,544 132,938 129,227
------- ------- ------- -------
Gross profit 28,100 26,882 61,834 57,705
Store operating expenses 15,206 15,548 33,056 32,465
Pre-opening costs - - 376 -
General and administrative 5,596 4,904 11,255 9,994
expenses
Depreciation and amortization 2,899 3,064 6,046 6,062
Charge for store closings and the
impairment of assets - 15,300 - 15,300
------- ------- ------- -------
Operating income (loss) 4,399 (11,934) 11,101 (6,116)
Interest expense, net 3,759 4,533 7,990 8,955
------- ------- ------- -------
Income (loss) before income taxes 640 (16,467) 3,111 (15,071)
Provision for income taxes 10 49 60 108
------- ------- ------- -------
Income (loss) before 630 (16,516) 3,051 (15,179)
extraordinary item
Extraordinary loss for early
retirement of debt 7,101 - 7,101 -
------- ------- ------- -------
Net loss (6,471) (16,516) (4,050) (15,179)
Stock dividends on and accretion
of preferred stock 5,082 416 5,668 922
------- ------- ------- -------
Net loss applicable to common
stock (11,553) (16,932) (9,718) (16,101)
======= ======= ======= =======
Net loss per share applicable to
common stock before extraordinary (.51) (3.23) (.38) (3.07)
item ======= ======= ======= =======
Net loss per share applicable to
common stock after extraordinary (1.33) (3.23) (1.40) (3.07)
item ======= ======= ======= =======
Weighted average number of common
shares outstanding 8,669 5,242 6,934 5,247
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE>
Loehmanns, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
AUGUST 3, JULY 29, AUGUST 3, JULY 29,
1996 1995 1996 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6,471) (16,516) $ (4,050) $ (15,179)
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 2,899 3,064 6,046 6,062
Accretion of 10-1/2% senior secured notes 118 329 510 649
Non-cash charges for store closings,
impairment of assets and other 10,538 10,538
Loss on early retirement of senior notes 7,101 7,101
Changes in current assets and liabilities:
Accounts receivable, net 1,019 447 (43) (227)
Merchandise inventory 9,845 9,981 (2,839) (514)
Prepaid expenses and other (715) 285 (852) 152
Accounts payable (16,793) (10,430) (2,962) (1,068)
Accrued expenses (700) 2,545 (66) 818
Accrued interest (135) 4,020 (4,182) (64)
------- ------- ------- -------
Net changes in current assets and
liabilities: (7,479) 6,848 (10,944) (903)
Net change in other assets
and liabilities (3,374) 14 (3,408) (18)
------- ------- ------- -------
Net adjustments (735) 20,793 (695) 16,328
------- ------- ------- -------
Net cash (used in) provided by operating
activities (7,206) 4,277 (4,745) 1,149
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,391) (1,871) (3,727) (3,080)
------- ------- ------- -------
Net cash used in investing activities (2,391) (1,871) (3,727) (3,080)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under credit facility, net 2,791 2,791
Redemption of 10-1/2% senior secured notes (54,337) (1,584) (55,905) (1,584)
Redemption of 13-3/4% senior subordinated
notes (78,325) (78,325)
Redemption of 11-7/8% senior secured notes (5,165) (5,165)
Issuance of 11-7/8% senior secured notes 100,000 100,000
Redemption of Preferred Stock (20,947) (20,947)
Issuance of common stock 55,388 55,421
Other financing activities, net (10) (2) (26) (3)
------- ------- ------- -------
Net cash used in financing activities (605) (1,586) (2,156) (1,587)
------- ------- ------- -------
Net (decrease) increase in cash and cash
equivalents (10,202) 820 (10,628) (3,518)
Cash and cash equivalents at beginning of
period 12,086 8,484 12,512 12,822
------- ------- ------- -------
Cash and cash equivalents at end of period 1,884 9,304 $ 1,884 $ 9,304
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash interest paid during period 4,194 195 12,352 $ 8,472
======= ======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Unaudited)
August 3, 1996
1. BASIS OF PRESENTATION
Effective May 7, 1996, the Company's predecessor, Loehmann's Holdings, Inc., a
Maryland corporation ("Holdings"), whose only material assets consisted of all
of the outstanding stock of and an intercompany note issued by Loehmann's,
Inc., merged with and into a new wholly-owned Delaware subsidiary formed for
the purpose of reincorporating Holdings from Maryland to Delaware. Effective
May 8, 1996, the surviving corporation of such merger merged with and into the
Company, with the Company being the ultimate surviving corporation (together
with the reincorporation from Maryland to Delaware, the "Holdings Merger"). As
a result of the Holdings Merger, each share of Holdings' Common Stock, par
value $0.008403361 per share, and Class B Common Stock, par value $0.008403361
per share, was converted into approximately 0.22 shares of Loehmann's, Inc.
Common Stock, par value $0.01 per share and 0.22 shares of Class B Common
Stock, par value $0.01 per share, respectively, and the number of common
shares authorized was changed to 25,000,000. Accordingly, the financial
information appearing herein (including all share and per share data) reflects
the retroactive application of the Holdings Merger.
The accompanying consolidated financial statements include the accounts of
Loehmann's, Inc. and its wholly-owned subsidiaries, collectively referred to
hereafter as the Company. All significant intercompany items have been
eliminated in consolidation.
The balance sheet at August 3, 1996 and the statements of operations and cash
flows for each of the quarters and six months ended August 3, 1996 and July
29, 1995 have been prepared by the Company without audit. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain informa-tion and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter and six months ended August 3, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ended February 1, 1997. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the financial
statements and notes for the fiscal year ended February 3, 1996 included in
the Company's Registration Statement on Form S-1, filed with the Securities
and Exchange Commission (File No. 33-97100) and declared effective on May 7,
1996.
4
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Unaudited) (continued)
August 3, 1996
1. BASIS OF PRESENTATION (CONTINUED)
Net loss per share amounts were determined by dividing net income (after
deducting dividends on and accretion of preferred stock) by the weighted
average number of common shares outstanding during each period. Options to
purchase common stock were not considered in calculations of net loss per
share applicable to common stock as their effect was antidilutive. The
Company's previously announced per share value results for the periods gave
effect to common share equivalents outstanding during the relevant periods.
2. INCOME TAXES
The provision for income taxes primarily represents alternative minimum tax
and state and local taxes for states that do not allow net operating loss
carryforwards. At August 3, 1996, the potential tax benefit from the current
year's loss has been reduced by a corresponding increase in the valuation
allowance recorded against the deferred tax asset resulting from the current
year's loss.
3. USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual amounts could
differ.
4. EQUITY AND DEBT OFFERING
On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and $100.0
million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior
Notes"). The net proceeds received from such offerings (the "Offerings") were
used (i) to redeem in full $52.5 million face amount of the Company's 10-1/2%
Senior Secured Notes due 1997, at a redemption price of 103.5% of the face
amount of such notes, plus accrued and unpaid interest, (ii) to redeem in full
$77.6 million face amount of the Company's 13-3/4% Senior Subordinated Notes
due 1999 at a redemption price of 101.0% of the face amount of such notes,
plus accrued and unpaid interest and (iii) to redeem all issued and
outstanding shares of the Company's Series A Preferred Stock at its
liquidation price of $0.56 per share for a total of $20.9 million
(collectively, the "Existing Obligations").
5
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Unaudited) (continued)
August 3, 1996
4. EQUITY AND DEBT OFFERING (CONTINUED)
As a result of these transactions, the Company incurred approximately $4.7
million in extraordinary losses on the early extinguishment of debt and $2.0
million in losses from the write-off of related deferred financing costs
associated with such indebtedness, and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.
Supplemental earnings per share for the quarter ended August 3, 1996 include
approximately 3,572,000 shares deemed to be sold by the Company in connection
with the Offerings to redeem the Existing Obligations as if such redemptions
had occurred at the beginning of the year. If such transactions had occurred
at the beginning of that year, net income per share for the quarter and six
months ended August 3, 1996 would have been $0.10 and $0.37, respectively.
5. SENIOR NOTES
As part of the Offerings, the Company sold $100.0 million aggregate face
amount of 11-7/8% Senior Notes. The Senior Notes mature on May 15, 2003, are
limited to $100.0 million aggregate face amount, and are unsecured senior
obligations of the Company, senior in right of payment to any subordinated
indebtedness of the Company. The Senior Notes bear interest at a rate of
11-7/8% from May 10, 1996 or from the most recent interest payment date to
which interest has been paid, payable semiannually on May 15 and November 15
in each year, commencing November 15, 1996.
During the second quarter of 1996, the Company purchased and retired $5.0
million face amount of the 11 7/8% senior notes on the open market incurring
an extraordinary loss of approximately $365,000 in connection with this
purchase.
The Senior Notes are subject to redemption at any time on or after May 15,
2000 at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or integral multiples
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning May 15th
of the years indicated below:
6
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Unaudited) (continued)
August 3, 1996
5. SENIOR NOTES (CONTINUED)
REDEMPTION
PRICE
YEAR
2000 105.938%
2001 102.969%
2002 and thereafter 100.000%
in each case, together with accrued and unpaid interest, if any, to the
redemption date (subject to the rights of holders of record on relevant record
dates to receive interest due on an interest payment date). The Senior Notes
are not entitled to the benefit of any sinking fund.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company or any of its subsidiaries to incur
additional indebtedness, transfer or sell assets, pay dividends or make
certain other restricted payments, incur liens, enter into certain
transactions with affiliates or consummate certain mergers, consolidations or
sales of all or substantially all of its assets. In addition, subject to
certain conditions, the Company is obligated to make offers to repurchase the
Senior Notes with the net proceeds of certain asset sales. These covenants are
subject to certain exceptions and qualifications.
6. NEW CREDIT AGREEMENT
Effective June 12, 1996, the Company amended and restated its credit agreement
with Bank-America Business Credit, Inc. (the "Bank") to provide the Company
with a new credit facility (the "Credit Facility"). The Credit Facility
provides for a $35.0 million revolving line of credit with interest payable at
the Company's option, on amounts drawn under the facility at either the Bank's
prime rate plus 0.75%, or LIBOR plus 2.2% at the Company's option.
The Company also is required to pay a per annum fee equal to 0.375% on the
undrawn portion of the Bank's commitment in respect of the Credit Facility.
7
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements (Unaudited) (continued)
August 3, 1996
6. NEW CREDIT AGREEMENT (CONTINUED)
The Credit Facility is subject to certain borrowing base limita-tions,
subjects the Company to certain covenants, imposes limitations upon
investments, dividends and other restricted payments and capital expenditures.
The Credit Facility is secured by substantially all of the Company's assets,
including accounts receivable, inventory, fixtures and equipment and is not
subject to scheduled annual repayments, except upon maturity. The Credit
Facility has a term of four years.
At August 3, 1996, outstanding borrowings under the Credit Facility were
approximately $2.8 million.
7. CHARGE FOR STORE CLOSINGS
During the second quarter of fiscal 1995, the Company implemented a plan to
close 11 underperforming stores and, as a result, recorded a $10.35 million
charge to continuing operations. These closures were intended to improve
overall chain profitability and achieve a more competitive cost structure.
The store closures were completed by the end of August 1995. Reserved amounts
at August 3, 1996 relating to long-term lease commitments are not material.
Operating results of those stores during the quarter and six months ended July
29, 1995 were not significant.
8. CHARGE FOR IMPAIRMENT OF ASSETS
During the second quarter of fiscal 1995, the Company completed certain market
analyses as part of an overall strategic plan. As an outcome of those
analyses, the Company shortened the period of time in which it intended to
occupy certain stores and, as a consequence, the undiscounted cash flows
estimated to be generated from the revised intended use was not sufficient to
recover the assets' carrying amount. Based on these indicators, the primary
intangible assets associated with these locations were determined to be
impaired as defined by Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("FAS No. 121"). Accordingly, the Company recorded a $4.95
million impairment loss to continuing opera-tions, representing the excess net
book value of these assets over their fair value. Fair value was based on
appraisal value.
8
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). The Company's actual results
may differ from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this report. See Other Information Item 5.
GENERAL
On May 10, 1996, the Company sold 3,572,000 shares of Common Stock and $100.0
million principal amount of 11-7/8% Senior Notes due 2003 (the "Senior
Notes"). The net proceeds received from such offerings (the "Offerings") were
used (i) to redeem in full $52.5 million face amount of the Company's 10-1/2%
Senior Secured Notes due 1997, at a redemption price of 103.5% of the face
amount of such notes plus accrued and unpaid interest, (ii) to redeem in full
$77.6 million face amount of the Company's 13-3/4% Senior Subordinated Notes
due 1999 at a redemption price of 101.0% of the face amount of such notes,
plus accrued and unpaid interest and (iii) to redeem all issued and
outstanding shares of the Company's Series A Preferred Stock at its
liquidation price of $0.56 per share totaling $20.9 million. As a result of
these transactions, the Company incurred approximately $4.7 million in
extraordinary losses on the early extinguishment of debt, $2.0 million in
extraordinary losses from the write-off of related deferred financing costs
associated with such indebtedness, and a $5.1 million charge to accumulated
deficit from the accelerated accretion of the Series A Preferred Stock to its
liquidation price of $0.56 per share.
RESULT OF OPERATIONS-COMPARISON OF THE QUARTERS ENDED AUGUST 3, 1996 AND JULY
29, 1995
Net sales for the thirteen week period ended August 3, 1996, were $90.7
million as compared to $89.4 million for the comparable period in the prior
year, an increase of approximately $1.3 million or 1.4%. Comparable store
sales (sales at stores that were in operation for both periods) increased by
2.1%. The increase in net sales was due to the improved comparable stores
results, plus the opening of two new stores (Merrick and Houston) opened in
the first quarter of fiscal 1996 partially offset by the impact of the eleven
stores closed in August 1995.
Gross profit for the thirteen week period ended August 3, 1996, was $28.1 as
compared to $26.9 million for the same period in the prior year, an increase
of $1.2 million or 4.5%. Gross margin percent increased to 31.0% from 30.1% in
the prior year period. The improvement in margin percent was a result of the
continuing shift in the Company's sales mix towards merchandise with higher
average gross margins coupled with a reduction of markdowns and inventory
shortage.
9
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Store operating expenses for the thirteen week period ended August 3, 1996,
were $15.2 million as compared to $15.5 million during the same period in the
prior year, a decrease of approximately $0.3 million, or 2.2%. As a percentage
of net sales, store operating expenses decreased to 16.8% from 17.4% in the
prior year period. The decrease in store operating expenses was primarily due
to a reduction in store payroll expense.
General and administrative expenses for the thirteen week period ended August
3, 1996, were $5.6 million as compared to $4.9 million during the same period
in the prior year, an increase of $0.7 million, or 14.1%. As a percentage of
net sales, general and administrative expenses were 6.2% versus 5.5% during
the same period in the prior year. The increase in general and administrative
expenses was primarily due to the continued investment in corporate
infrastructure to support the Company's planned new-store expansion program.
Depreciation and amortization expense for the thirteen week period ended
August 3, 1996, was $2.9 million as compared to $3.1 million for the same
period in the prior year, a decrease of approximately $0.2 million, or 5.4%.
This decrease primarily resulted from the reduction in the amortization of
deferred financing fees associated with the recent long term debt changes.
Net interest expense for the thirteen week period ended August 3, 1996 was
$3.8 million as compared to $4.5 million for the same period in the prior
year, a decrease of approximately $0.7 million or 17.1%. The reduction in net
interest expense resulted from the Company's net reduction of long-term debt
of approximately $30.0 million and a reduction of the average interest rate
paid on the long term debt by approximately 60 basis points. In May 1996, the
Company redeemed its 10-1/2% Senior Secured Notes and 13-3/4% Senior
Subordinated Notes totaling $130.0 million face value and issued $100.0
million face value of 11-7/8% Senior Notes.
RESULT OF OPERATIONS-COMPARISON OF THE SIX MONTHS ENDED AUGUST 3, 1996 AND
JULY 29, 1995
Net sales for the twenty-six week period ended August 3 were $194.8 million
versus $186.9 million during the same period in the prior year, an increase of
$7.9 million, or 4.2%. Comparable store sales (sales at stores that were in
operation for both periods) increased by 4.7%.
10
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Gross profit for the twenty-six week period ended August 3, 1996 was $61.8
million, as compared to $57.7 million for the comparable period in the prior
year, an increase of $4.1 million, or 7.2%. Gross margin percent increased to
31.8% from 30.9% in the prior year period. The improvement in margin percent
was primarily a result of the continuing shift in the Company's sales mix
towards merchandise with higher average gross margins coupled with a reduction
of markdowns and inventory shortage.
Store operating expenses for the twenty-six week period ended August 3, 1996,
were $33.1 million as compared to $32.5 million during the comparable period
in the prior year, an increase of $0.6 million, or 1.8%. As a percentage of
net sales, store operating expenses decreased to 17.0% from 17.4% from the
comparable prior year period. The dollar increase in store operating expenses
was primarily due to an increase in sales variable expense associated with the
sales increase of $7.8 million.
Pre-opening costs totaled $376,000 during the twenty-six weeks ended August 3,
1996. These costs were associated with the opening of two new stores in
Merrick, New York and Houston, Texas. The Company charges the costs associated
with the new store openings to operations in the fiscal quarter of the store's
opening. The Company anticipates opening five additional stores in fiscal
1996, one of which opened in San Diego, California in August 1996.
General and administrative expenses for the twenty-six week period ended
August 3, 1996 were $11.3 million as compared to $10.0 million during the
comparable period in the prior year, an increase of approximately $1.3
million, or 12.6%. As a percent of net sales, general and administrative
expenses increased to 5.8% as compared to 5.4% for the same period in the
prior year. The dollar increase in general and administrative expenses was
primarily due to the continued investment in corporate infrastructure to
support the Company's planned new-store expansion program.
Depreciation and amortization for the twenty-six week period ended August 3,
1996, was essentially unchanged from the same period in the prior year.
Net interest expense for the twenty-six week period ended August 3, 1996 was
$8.0 million versus $9.0 million for the comparable period in the prior year,
a decrease of $1.0 million, or 10.8%. The reduction in net interest expense
resulted from the Company's net reduction of long-term debt of approximately
$30.0 million and a reduction of the average interest rate paid on the long
term debt by approximately 60 basis points. In May 1996, the Company redeemed
its 10-1/2% Senior Secured Notes and 13-3/4% Senior Subordinated Notes
totaling $130.0 million face value and issued $100.0 million face value of
11-7/8% Senior Notes.
11
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
For the thirteen and twenty-six week periods ended July 29, 1995, the Company
recorded a $10.35 million charge related to the implementation of a plan to
close eleven underperforming stores. The Company believes that these closures
will improve overall chain profitability and achieve a more competitive cost
structure. Additionally, the Company recorded a $4.95 million charge to
continuing operations in connection with the write-down to fair value of
certain primarily intangible assets that were determined to have been impaired
in accordance with FAS No. 121. Of this combined $15.3 charge, $10.45 million
represents a non-cash charge. (See Notes 7 and 8 to the accompanying financial
statements).
LIQUIDITY AND CAPITAL RESOURCES
Net cash used as a result of operating activities totaled $7.2 million during
the thirteen weeks ended August 3, 1996. Cash of $3.6 million was provided
from operations after adding back non-cash charges, offset by the use of net
working capital of approximately $7.4 million primarily related to seasonal
needs and the use of cash of $3.4 million for new debt issuance costs. In
addition, the Company used cash of approximately $2.4 million to fund capital
expenditures and used cash of approximately $0.6 million for financing
activities.
Net cash used as a result of operating activities totaled $4.7 million during
the twenty-six weeks ended August 3,1996. Cash of $9.6 million was provided
from operations after adding back non-cash charges, offset by the use of net
working capital of $11.0 million related to new store activity and a reduction
in accrued interest expense. In addition, $3.4 million cash was used for new
debt issuance costs. The Company used cash of approximately $3.7 million to
fund capital expenditures and approximately $2.2 million for financing
activities.
On June 12, 1996, the Company amended and restated its credit agreement with
Bank-America Business Credit, Inc. (the "Bank") to provide the Company with a
new credit facility (the "Credit Facility"). The Credit Facility provides for
a $35.0 million revolving line of credit with interest payable, at the
Company's option, on amounts drawn under the facility at either (i) the Bank's
prime plus 0.75%, or (ii) LIBOR plus 2.2%. The Company also is required to pay
a per annum fee equal to 0.375% on the undrawn portion of the Bank's
commitment with respect of the Credit Facility. The Credit Facility is subject
to certain borrowing base limita-tions, subjects the Company to certain
covenants, imposes limitations upon investments, dividends and other
restricted payments and capital expenditures. The Credit Facility is secured
by substantially all of the Company's assets, including accounts receivable,
inventory, fixtures and equipment and is not subject to scheduled annual
repayments, except upon maturity. The Credit Facility has a term of four
years.
12
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
The Company believes that cash generated from operations will be sufficient to
satisfy its cash requirements for fiscal 1996, as supplemented if necessary,
by borrowings under the Credit Facility.
13
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In connection with the mergers described in Item 4 below, the Company amended
and restated its Certificate of Incorporation (the "New Charter") and adopted
new By-Laws (the "New By-Laws" and together with the New Charter, the "New
Documents"). The New Documents include provisions that change certain rights
of the Company's shareholders as previously provided in the Company's
Certificate of Incorporation (the "Previous Charter") and By-Laws (the
"Previous By-Laws") together with the Previous Charter, the "Previous
Documents") as in effect prior to the mergers. These changes are summarized
below and copies of the New Documents are incorporated by reference as
exhibits to this report.
Change in Authorized Stock. The Previous Charter authorized a total of
77,200,000 shares of stock, of which 33,600,000 shares were Common Stock, par
value $0.008403361 per share, 2,100,000shares were Class B Common Stock, par
value $0.008403361 per share, and 41,500,000 shares were Series A Preferred
Stock, par value $0.005602241 per share. The New Charter authorizes a total of
66,969,237 shares of stock, of which 25,000,000 shares are Common Stock, par
value $0.01 per share, 469,237 shares are Class B Common Stock, par value
$0.01 per share, and 41,500,000 shares are Series A Preferred Stock, par value
$0.01 per share.
Shareholders Meetings. The New Documents provide that (i) any action required
or permitted to be taken by the stockholders of the Company may be effected
only at an annual or special meeting of stockholders and prohibit stockholder
action by written consent in lieu of a meeting in all circumstances and (ii) a
special meeting of the stockholders may only be called by the Board of
Directors, the Chairman of the Board of Directors or the President. The
Previous By-Laws provided that a special meeting of stockholders also could be
called by the holders of stock entitled to cast not less than 25% of the votes
at such meeting.
Advance Notice Provisions. The New By-Laws establish an advance notice
procedure for stockholders to make nominations of candidates for election as
directors, or to bring other business before an annual meeting of stockholders
of the Company. The New By-Laws provide that only persons who are nominated
by, or at the direction of, the Board of Directors, or by a stockholder who
has given timely written notice to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of
14
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
the Company. Under the New By-Laws, for notice of stockholder nominations to
be made at an annual meeting to be timely, such notice must be received by the
Company not less than 30 days nor more than 60 days prior to the meeting, or
in the event that less than 40 days' notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. Under the New
By-Laws, a stockholder's notice also must contain certain information
specified in the New By-Laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 26, 1996, Loehmann's Holdings, Inc., a Maryland corporation and
predecessor to the Company ("Holdings"), held a special meeting of
stockholders. At the meeting, holders of all of the 16,345,679 shares
represented in person or by proxy at the meeting voted for the merger of
Holdings into a new wholly-owned subsidiary formed for the purpose of such
merger, with the Delaware corporation being the surviving corporation of such
merger (the "Reincorporation Merger"). In addition, 16,337,163 votes were cast
for, and 8,516 votes were cast against, approval of the Company's New Stock
Incentive Plan. On May 7, 1996, the shareholders of the surviving corporation
of the Reincorporation Merger approved, by written consent signed by
shareholders representing 11,913,656 shares of such corporation's Common
Stock, the merger of that corporation into the Company, with the Company being
the surviving corporation.
ITEM 5. OTHER INFORMATION
Certain statements in this quarterly report on Form 10-Q under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this quarterly report and in future filings by
the Company with the Securities and Exchange Commission, constitute "forward
looking statements" with the meaning of the Reform Act. Such forward looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements. Such
factors include, among others, the following: general economic and business
conditions; competition; success of operating initiatives; development and
operating costs; advertising and promotional efforts; brand awareness; the
existence or adherence to development schedules; the existence or absence of
adverse publicity; availability,
15
<PAGE>
Loehmann's, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
locations and terms of sites for store development; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; changes
in, or the failure to comply with, government regulations; construction costs
and other factors referenced in this quarterly report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of Loehmann's, Inc.,
filed as Exhibit 3.1 to Loehmann's, Inc.'s Registration Statement on
Form S-1 (Registration No. 33-97100) and incorporated herein by
reference.
3.2 By-laws of Loehmann's, Inc., filed as Exhibit 3.2 to Loehmann's,
Inc.'s Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
4.1 11-7/8% Senior Note Indenture dated as of May 10, 1996 between
Loehmann's, Inc. and United States Trust Company of New York. Filed
as Exhibit 4.1 to Loehmann's Inc.'s Registration Statement on Form
S-1 (Registration No 33-97100) and incorporated herein by reference.
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended August 3, 1996.
16
<PAGE>
Loehmann's, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 13, 1996
Loehmann's, Inc.
By /S/ Philip Kaplan
Philip Kaplan
President, Chief Operating Officer and Director
By /S/ Robert Glass
Robert Glass
Senior Vice President, Chief Financial Officer
17
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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