UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1998
Commission File
Number 0-28410
LOEHMANN'S, INC.
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(Exact name of registration as specified in its charter)
Delaware 22-2341356
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street, Bronx, New York 10461
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (718) 409-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of
registrant as of April 28, 1998 was $34,245,074.
The Company had 8,976,932 shares of Common Stock and 48,431 shares of Class
B Common Stock outstanding as of April 28, 1998.
Documents incorporated by reference: The information required by Part II,
Items 5, 6, 7, 8 and 9, is incorporated by reference to the Company's Annual
Report to Stockholders; the information required by Part III, Items 10, 11, 12
and 13, is incorporated by reference to the Company's proxy statement which will
be filed with the Commission not more than 120 days after the end of the
Company's 1997 fiscal year.
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PART I.
ITEM 1. BUSINESS
Loehmann's, Inc., a Delaware corporation ("Loehmann's" or the "Company"),
founded in 1921 as the "Original Designer Outlet," is a leading national
specialty retailer of well known designer and brand name women's fashion
apparel, men's furnishings, accessories, and shoes offered at prices that are
typically 30% to 65% below department store prices. The Company believes it has
developed a unique franchise as the largest national upscale off-price specialty
retailer in the industry. The Company's strong brand name, loyal customer base
and long-standing relationships with leading designers and vendors of quality
merchandise has enabled it to maintain its franchise. The Company's target
customers are relatively affluent women between the ages of 30 and 55 who are
attracted to designer and other high quality merchandise offered at exceptional
values. As of April 28, 1998 the Company operated 69 stores in major
metropolitan markets located in 22 states.
INDUSTRY OVERVIEW
According to published reports, total retail sales of women's apparel and
accessories in the United States were in excess of $89.0 billion in 1997. The
womenswear industry is served by a variety of distribution channels including
department stores, specialty stores and off-price retailers.
The women's apparel industry is categorized into five product
classifications: designer, bridge, better, moderate and budget. Designer
merchandise is the most expensive product classification and is characterized by
high fashion styling. Designer brands include Donna Karan, Calvin Klein, Ralph
Lauren and Anne Klein. Bridge products are typically brand name merchandise
which may carry designer labels but are less expensive than the designer
classification and allow customers to purchase designer-like merchandise at
below designer prices. Bridge brands include DKNY, Anne Klein II, Adrienne
Vittadini, CK/Calvin Klein, Emanuel Ungaro and Tahari. Apparel in the better
classification carries brand name labels but is less expensive than bridge
apparel. Better brands include Jones New York, Harve Benard and Kenar.
Merchandise in the moderate classification is also generally brand name but is a
less expensive product category. Moderate brands include Oleg Cassini and Leslie
Fay. Budget merchandise is the least expensive product classification.
Designer and bridge merchandise is generally sold in finer department
stores such as Bloomingdale's, Lord & Taylor, Nordstrom and Saks Fifth Avenue.
Because manufacturers of designer and bridge merchandise are very concerned
about maintaining the upscale image of their trademarks, they are typically very
selective about which retailers carry their products. As a result, the Company
believes that most other off-price retailers have limited access to designer and
bridge merchandise.
BUSINESS STRATEGY
The Company's strategy is to deliver value to its customers by offering at
substantial discounts a wide selection of high quality in-season merchandise,
including designer and bridge apparel, accessories and shoes. The Company
believes that it differentiates itself from finer department stores by offering
similar merchandise at significantly lower prices and from other
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off-price apparel retailers by offering a broad range of designer and bridge
merchandise. The principal elements of the Company's business strategy are as
follows:
EMPHASIS ON IN-SEASON DESIGNER AND HIGH QUALITY MERCHANDISE
The Company offers a wide selection of in-season apparel, accessories and
shoes, approximately one-third of which is designer and bridge merchandise. The
Company, like finer department stores, is known for carrying designer and bridge
labels, including Donna Karan, Calvin Klein, Ralph Lauren, Adrienne Vittadini,
Tahari, Dana Buchman, Andrea Jovine and Emanuel Ungaro.
VALUE PRICING
The Company provides its customers with exceptional value by offering its
merchandise at prices that are typically 30% to 65% below prices charged by
department stores for the same items and that are comparable to or lower than
prices charged by other off-price retailers.
CAPITALIZE ON LONG-STANDING VENDOR RELATIONSHIPS
Loehmann's believes that it is uniquely positioned among off-price
retailers as a principal choice for well known designers who believe that their
prestige will be preserved by having their merchandise offered by Loehmann's
because of its high quality image and affluent customer base. Loehmann's
long-standing vendor relationships and its ability to sell large quantities of
goods have provided the Company with ready access to a wide selection of
merchandise, often on a preferential basis.
BROADEN MERCHANDISE CATEGORIES
The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include gifts, shoes and a broader
range of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for approximately 20% of the Company's net sales in fiscal 1997, an
increase from 13% in fiscal 1993. In addition, the Company has introduced men's
wear at 19 of its locations with plans to expand to 50 locations in 1998.
FLEXIBLE PURCHASING STRATEGY
The Company relies on a flexible purchasing strategy under which it enters
any given month with a substantial portion of its purchasing requirements
unfulfilled. This strategy enables the Company to react to sales trends, fashion
trends and changing customer preferences while enhancing the Company's ability
to negotiate with its vendors and take advantage of market inefficiencies and
opportunities as they may arise.
EFFICIENT INVENTORY MANAGEMENT
The Company ships new high quality merchandise to its stores on a daily
basis. The Company believes it is able to constantly replenish its stores
because of its allocation and distribution system, which enables the Company to
distribute merchandise to its stores typically within 48 to 72 hours after
delivery to its distribution center. In addition, the Company utilizes
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a cyclical markdown strategy which automatically reduces prices as goods age. As
a result of this inventory management, the Company is able to enhance its gross
margin, maintain a comparatively low investment in inventory, increase its
inventory turn and react more effectively to changing fashion trends and
customer preferences.
LOW-COST STRUCTURE
In order to provide its customers with exceptional value while maximizing
profitability and cash flow, the Company is focused on maintaining an efficient,
low-cost operating structure. Key elements of this focus include the Company's
no-frills store format, lean corporate overhead and disciplined real estate
strategy.
EXPANSION STRATEGY
In fiscal 1997 the Company continued its store expansion program, opening
new stores in existing suburban markets where the Loehmann's franchise is well
established and in other locations which have appealing demographics. The
Company opened seven stores in fiscal 1997, in addition to the seven stores
opened in fiscal 1996. The Company plans to open three stores in fiscal 1998,
two of these stores have already been opened in Long Beach, California, and
Cincinnati, Ohio. The Company closed four stores in fiscal 1997 and converted
one store into a clearance center. As part of the Company's ongoing strategy to
focus on larger, more profitable stores, and to continue to reposition its
merchandise offerings, the Company closed nine stores in March 1998, and expects
to close one additional store during the year.
The Company has retained the services of a retail consulting firm that has
conducted an extensive analysis of the relevant demographics to advise the
Company with respect to its expansion strategy. All decisions as to store
openings are decided on a case by case basis by the Company's Board of Directors
based on the recommendations of management.
MERCHANDISING
SELECTION
The Company offers a wide selection of women's sportswear, dresses, suits,
outerwear, coats, accessories, intimate apparel and shoes, as well as a
selection of gifts, infantwear, kid's wear and men's furnishings. The Company
does not offer budget merchandise in its stores. Most of the Company's
merchandise is in-season and is therefore generally available at Loehmann's
during the same selling season as it is available in department stores. The
following is a list of many of the key brands offered at the Company's stores:
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Adrienne Vittadini Dana Buchman Kenar
Andrea Jovine DKNY Oleg Cassini
A Line by Anne Klein Donna Karan Ralph Lauren
Anne Klein II Emmanuel Ungaro Tahari
Calvin Klein Harve Benard
CK/Calvin Klein Jones NY
The Company continually seeks to broaden its appeal and has over the past
several years expanded its merchandise mix to include shoes and a broader range
of accessories and intimate apparel. These items, which typically generate
higher gross margins than the Company's traditional apparel categories,
accounted for over 20% of the Company's net sales in fiscal 1997, an increase
from 13% in fiscal 1993. The following table shows the percentages of the
Company's net sales attributable to its various product categories for fiscal
1993 through fiscal 1997:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sportswear ......................... 49.6% 48.8% 47.6% 48.1% 47.8%
Dresses and suits .................. 28.6 26.5 26.0 24.6 22.9
Coats and outerwear ................ 5.9 5.2 5.1 5.0 4.7
Accessories/intimate apparel ....... 11.3 13.0 14.5 14.6 13.6
Shoes .............................. 2.1 3.4 5.5 5.8 6.5
Men's .............................. -- -- -- -- 2.5
Other .............................. 2.5 3.1 1.3 1.9 2.0
Total .............................. 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
All Loehmann's stores carry items from each of its merchandise categories.
However, the allocation of merchandise among the stores varies based upon
factors relating to the demographics and geographic location of each store as
well as the size of the store and its ability to adequately display the
merchandise. In a continuing effort to broaden its appeal, both infantwear and
women's large sizes and petite apparel were offered in approximately 40 of the
Company's stores during fiscal 1997 and men's furnishings was introduced in 19
locations.
PRICING
The Company seeks to provide its customers with exceptional value by
offering its merchandise at prices that are typically 30% to 65% below prices
charged by department stores for the same items and that are comparable to or
lower than prices charged by other off-price retailers. The Company's central
buying staff adheres to a disciplined approach to acquiring merchandise that
enables the Company to consistently offer its merchandise at favorable prices.
The Company's buyers will only acquire merchandise at prices which permit the
Company to offer its merchandise for sale initially at a significant discount to
the first marked down price that a department store would charge for the same
item. Each item of merchandise offered by the Company carries a price tag
displaying the Company's price as well as the typical department store's initial
price for the same item.
The Company uses a cyclical markdown policy to reduce prices automatically
as goods age. The purpose of this policy is to improve inventory turnover and
minimize the amount of unsold
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merchandise at the end of the season, while reinforcing the customer's
perception of value and enabling the Company to provide the stores with fresh
merchandise on a regular basis. In addition, the Company closely monitors prices
charged by competitors in each of its markets and adjusts its prices to preserve
its pricing advantage.
VENDOR RELATIONSHIPS AND PURCHASING
The Company believes it is well positioned among off-price retailers as a
principal choice for well known designers who believe that their prestige will
be preserved by having their merchandise offered by Loehmann's because of its
high quality image and affluent customer base. Many of the Company's most active
suppliers have been selling merchandise to the Company for at least 10 years.
Because of these long-standing vendor relationships and its ability to sell
large quantities of goods, the Company has ready access to a wide selection of
merchandise, often on a preferential basis.
The Company does not engage in significant forward purchasing and a large
portion of its purchasing requirements in any given month intentionally remains
unfulfilled at the beginning of the month. This strategy enables the Company to
react to fashion trends and changing customer preferences while enhancing the
Company's ability to negotiate with its vendors and take advantage of market
inefficiencies and opportunities as they may arise.
The Company purchases a majority of its inventory during the manufacturer's
selling season enabling the Company to offer merchandise during the same selling
season as it is available in department stores. The Company also purchases a
portion of its inventory at the end of the season, when the Company is prepared
to purchase a manufacturer's remaining items at an even steeper discount.
Vendors who sell to the Company do not need to build into their price structure
any anticipation of returns, markdown allowances or advertising allowances, all
of which are typical in the department store industry. In addition, the Company
pays for goods within an average of approximately 25 to 30 days and often picks
up the merchandise directly from the vendors.
The Company purchases its inventory from over 400 suppliers, which in many
cases include separate divisions of a single manufacturer or designer. These
suppliers include a substantial majority of the designer and brand name apparel
manufacturers in the United States. Some purchases are also made in the European
market, primarily Italy. The Company does not have any long-term supply
contracts with its suppliers.
The Company maintains its own central buying staff, comprised of 17
experienced off-priced buyers, many of who also have extensive experience with
traditional department stores. Historically, the Company has had very low
turnover within its buying group, enabling Loehmann's to capitalize on an
experienced, respected group of buyers capable of enhancing the Company's
already strong vendor relationships.
STORE LAYOUT
Loehmann's store format and merchandise presentation are designed to
project the image of deep discount and exceptional value, as well as to
emphasize Loehmann's niche as the off-price equivalent of an upscale specialty
store. Loehmann's stores are divided into two shopping areas: a large, open
selling area with wall-to-wall merchandise and a smaller, separate, and more
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intimate area called "The Back Room." The Company presents moderate and better
sportswear, dresses and suits, as well as all outerwear, men's apparel,
accessories, intimate apparel and shoes on the main selling floor. Designer and
bridge merchandise, including gowns, dresses, suits and sportswear, are
displayed in The Back Room.
The Back Room provides a key point of differentiation to the consumer, as
it projects the image of designer goods sold in a no-frills environment and,
therefore, at exceptional values. Although the Company estimates that The Back
Room generally accounts for only approximately 10% to 15% of a typical
Loehmann's store's selling space, The Back Room has generated approximately
one-third of the Company's net sales over the last several years.
All stores are low maintenance, simple, and functional facilities designed
to maximize selling space and contain overhead costs. Store layouts are flexible
in that product groupings can be easily moved or expanded. All stores have two
or more communal fitting rooms. However, in response to customer preferences,
private fitting rooms have been added in most stores. Because the Company is
committed to maintaining virtually all of its in-store inventory on the selling
floor, its stores do not require significant space devoted to inventory storage.
DISTRIBUTION
The Company operates a 126,000 square foot centralized distribution center
located at the Company's headquarters and a 32,000 square foot satellite
warehouse for processing shoes located near the main distribution center. In
addition, the Company leases a 150,000 square foot facility in Secaucus, New
Jersey. As merchandise arrives at the distribution center, it is priced,
ticketed, assigned to individual stores by the Company's merchandising systems,
packaged for delivery and transported to the stores. The time from receipt of
goods at the distribution center to placement of merchandise in the stores
typically ranges from 48 to 72 hours.
ADVERTISING AND PROMOTION
Over the years, Loehmann's has built its reputation through "word-of-mouth"
advertising. In the last three fiscal years, the Company has significantly
increased its advertising expenditures. The Company advertises predominantly
through direct mail and to a lesser extent through newspaper advertising.
A significant portion of the Company's advertising efforts involve direct
mail announcements to members of "The Insider Club," a free membership program.
Members receive notification of special events throughout the year and a 15%
discount on their birthdays. The list of members now includes approximately 1.6
million active customers. In addition, the Company entered into an agreement
with First USA Bank and launched a co-branded Platinum Visa Card in November
1997.
STORE OPERATIONS
The Company operates its stores to enhance the customer's shopping
experience by creating a friendly shopping environment within a self-service
operation. The Company's stores are organized into eight separate geographic
districts each with a regional manager. Regional managers monitor the financial
performance of the stores in their respective geographic districts and
frequently visit stores to ensure adherence to the Company's merchandising,
operations and
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personnel standards. The typical staff for a Loehmann's store consists of a
store manager, and a number of associate store and department managers, sales
specialists and additional full and part-time hourly associates depending upon
the store's needs.
Senior management meets with the regional managers on a periodic basis to
maintain a clear line of communication. In addition, "mystery shoppers" shop the
stores to help ensure that sales associates are friendly and helpful and
maintain all of the Company's merchandising, customer service and loss
prevention standards.
Store management personnel currently complete a training program at a
designated training store before assuming management responsibility. Sales
specialists receive product and customer service training at the store level.
All store and regional managers participate in a bonus plan that ties
compensation awards to the achievement of specified store profit goals and
overall Company profits and also are eligible in the Company's stock option
plan.
MANAGEMENT INFORMATION SYSTEMS
Each Loehmann's store is linked to the Company's headquarters through a
point-of-sale system that interfaces with an IBM RS6000 computer equipped with
integrated merchandising, distribution and accounting software packages. The
Company's point-of-sale computer system has features that include merchandise
scanning, the capture of customer sales information and on-line credit card
approval. These features improve transaction accuracy, speed and checkout time
as well as increase overall store efficiency.
The Company's management information and control systems enable the
Company's corporate headquarters to promptly identify sales trends, identify
merchandise to be marked down and monitor merchandise mix and inventory levels
at individual stores. The Company believes that the current management
information and control systems are capable of supporting the Company's planned
expansion for the foreseeable future.
The Company has outside service contracts to maintain its computer software
programs and expects that all modifications and conversions will be completed on
a timely basis. The total dollar amount that the Company estimates will be spent
to address the year 2000 issue is not expected to have a material financial
impact.
EMPLOYEES
At January 31, 1998, the Company had 2,827 employees, of whom 1,900 were
store sales and clerical employees, 202 performed store managerial functions,
and 725 were corporate and warehouse personnel. Except for managerial employees,
professional support staff and the Company's buyers, all employees are paid on
an hourly basis. None of the Company's employees are represented by a labor
union. The Company believes that its employee relations are good.
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TRADEMARK AND SERVICE MARK
"Loehmann's" has been registered as a trademark and a service mark with the
United States Patent and Trademark Office. The registration of the trademark and
the service mark may be renewed to extend the original 20-year registration
period indefinitely, provided the marks are still in use. The Company intends to
continue to use its trademark and service mark and to maintain their
registrations. The Company believes its trademark and service mark have received
broad recognition and their continued existence is important to the Company's
business.
COMPETITION
All aspects of the off-price fashion apparel business are highly
competitive, and the Company expects competitive pressures to increase in the
future as more factory outlet centers open and department stores continue price
discounting. The Company believes that the principal elements of competition are
the price, quality, selection and presentation of merchandise, store location
and customer service. Management believes that the Company is well positioned to
compete on the basis of each of these factors. The competitive environment may
also be affected by factors beyond a particular retailer's control, such as
shifts in consumer preferences, change in population demographics and traffic
patterns, and fluctuating economic conditions.
The Company competes primarily with finer department stores. The Company
believes it competes successfully with such department stores by offering a wide
selection of comparable quality merchandise at significantly lower prices. Many
department stores have increased their promotional efforts, although such
promotions are typically focused on moderate merchandise. Should finer
department stores continue to price more aggressively, the Company's margins may
be adversely affected. Most of the department stores and some of the off-price
and discount retailers with which the Company competes have access to
substantially greater financial and marketing resources than those available to
the Company.
The Company also faces competition from factory outlet malls and a variety
of off-price and discount retailers, some of which are relatively new companies,
but many of which are established retail chains or divisions thereof. Such
competitors include Burlington Coat Factory, Filene's Basement, Marshall's, Saks
Off 5th, Syms, and T.J. Maxx. The Company believes it competes successfully with
other off-price and discount retailers by reason of the quality, selection and
price of the designer and other better quality merchandise available in the
Company's stores.
In recent years, some designer and other better quality women's apparel has
been offered through mail order catalogs. While not significant at the present
time, the Company cannot predict the impact of this and other in-home shopping
competition.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Business," "Management's Discussions
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this Form 10-K or incorporated by reference herein, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"). Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause
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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,
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 report.
ITEM 2. PROPERTIES
As of April 28, 1998, the Company operated 69 stores in 22 states including
seven stores opened in fiscal 1997 and two stores opened in fiscal 1998. The
Company does not own any of its stores and has no manufacturing facilities.
Indicated below is a listing of the regions in which the Company operates
its stores:
Percent of
Number of Fiscal Year
REGION Stores 1997 Sales (1)
- ------ ------ --------------
California ............. 17 26.1%
New York .............. 9 23.4
Other Mid-Atlantic ..... 7 9.1
New Jersey ............. 6 9.0
Florida ................ 5 8.5
Midwest ................ 7 5.6
New England ............ 5 5.4
Texas .................. 4 4.7
Other Southeast ........ 5 4.3
Other West ............. 4 3.9
------ ------
69 100.0%
====== ======
- --------
(1) These percentages exclude sales from the Company's 4 stores closed in
fiscal 1997, and the Company's two stores opened and nine stores closed
in fiscal 1998.
LEASES
The leases for the Company's stores typically provide for a 15 to 20-year
term with three five-year renewals that are automatic unless the Company elects
to terminate the lease. The rental rate is a fixed amount rather than a
contingent payment based on a store's gross sales. The leases typically contain
tax escalation clauses and require the Company to pay insurance, utilities,
repair and maintenance expenses. Increases in the fixed rent payable during the
renewal terms are generally less than 10% to 15% of the base rent (although this
percentage may increase for new stores). The leases have initial or renewal
terms expiring as follows: 1998-1999 (13 stores); 2000-2002 (26 stores);
2003-2005 (9 stores); and 2006 and later (33 stores).
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Two of three leases that expire by year-end fiscal 1998 have renewal
options. The Company has generally been successful in renewing its store leases
as they expire.
The Company leases the land for a 153,000 square foot facility located in
an industrial park in the Bronx, New York, which serves as its corporate
headquarters and as the site of its central warehousing and distribution
operations. This facility contains 27,000 square feet of office space and
126,000 square feet of warehouse space. The ground lease with respect to the
land on which the facility is situated provides for aggregate annual base rental
payments of $37,500. The lease expires in 2010, but is renewable at certain
increased rates until 2050. The facility is subject to two mortgages which
relate to New York City Industrial Development Agency Revenue Bonds. In
addition, the Company leases a 32,000 square foot warehouse in the Bronx, New
York, which serves as additional warehouse space. The lease expires on December
31, 1998 and provides for annual rental payments of $198,000. The Company also
leases a 150,000 square foot warehouse in Secaucus, New Jersey, which serves as
additional warehouse space. The lease expires on January 31, 1999, and provides
for annual rental payments of $675,000.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any litigation or regulatory proceedings against
the Company which would materially impact its business or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the fourth quarter of fiscal 1997.
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company incorporates by reference herein the section entitled "Market
Prices of Common Stock" in the Company's Annual Report to Stockholders for
fiscal 1997 filed as an exhibit to this Form 10-K, which complies with the
information called for by Item 5 of the Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference herein the sections entitled
"Financial Highlights" and "Selected Financial Data" in the Company's Annual
Report to Stockholders for fiscal 1997 filed as an exhibit to this Form 10-K,
which complies with the information called for by Item 6 of the Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company incorporates by reference herein the section entitled
"Management Discussion and Analysis" in the Company's Annual Report to
Stockholders for fiscal 1997 filed as an exhibit to this Form 10-K, which
complies with the information called for by Item 7 of the Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company incorporates by reference herein the information contained in
the Consolidated Financial Statements in the Company's Annual Report to
Stockholders for fiscal 1997 filed as an exhibit to this Form 10-K, which
complies with the information called for by Item 7 of the Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates by reference herein the sections entitled
"Election of Directors" and "Management" in the Company's proxy statement which
complies with the information called for by Item 10 of the Form 10-K. The proxy
statement will be filed with the Commission at a later date, that is not more
than 120 days after the end of the Company's 1997 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference herein the section entitled
"Management" in the Company's proxy statement which complies with the
information called for by Item 11 of the Form 10-K. The proxy statement will be
filed with the Commission at a later date, that is not more than 120 days after
the end of the Company's 1997 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference herein the section entitled "Security
Ownership of Certain Beneficial Owners and Management" in the Company's proxy
statement which complies with the information called for by Item 12 of the Form
10-K. The proxy statement will be filed with the Commission at a later date,
that is not more than 120 days after the end of the Company's 1997 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference herein the sections entitled "Certain
Transactions" and "Management" in the Company's proxy statement which complies
with the information called for by Item 13 of the Form 10-K. The proxy statement
will be filed with the Commission at a later date, that is not more than 120
days after the end of the Company's 1997 fiscal year.
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PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report.
(1) List of Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) List of Financial Statement Schedules
Schedules are omitted because they are either not applicable or the
required information is shown in the financial statements or notes
thereto.
(3) List of 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 hereby 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, as Trustee, filed as Exhibit 4.1 to Loehmann's,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period
ended May 4, 1996 (Comm. File No. 0- 28410), and incorporated
herein by reference.
4.2 Second Amended and Restated Credit Agreement, dated as of May
6, 1996, between Loehmann's, Inc., BankAmerica Business
Credit, Inc., as Agent, and certain Banks party thereto, filed
as Exhibit 4.2 to Loehmann's, Inc.'s Registration Statement on
Form S-1 (Registration No. 333-12881) and incorporated herein
by reference.
4.3 A letter from Loehmann's, Inc. to the Securities and Exchange
Commission agreeing to furnish copies of certain debt
instruments.*
4.4 First Amendment to Credit Agreement, dated as of July 23,
1997, between Loehmann's, Inc., and BankAmerica Business
Credit, Inc., as Agent and sole lender, filed as Exhibit 4.1
to Loehmann's, Inc. Quarterly Report on Form 10-Q for the
quarterly period ended August 2, 1997 (Comm. File No.
0-28410), and incorporated herein by reference.
14
<PAGE>
4.5 Second Amendment to Credit Agreement, dated as of August 15,
1997, between Loehmann's, Inc., and BankAmerica Business
Credit, Inc., as Agent and sole lender, filed as Exhibit 4.2
to Loehmann's, Inc. Quarterly Report on Form 10-Q for the
quarterly period ended August 2, 1997 (Comm. File No.
0-28410), and incorporated herein by reference.
4.6 Third Amendment to Credit Agreement, dated as of December 30,
1997, between Loehmann's, Inc., and BankAmerica Business
Credit, Inc., as Agent and sole lender.*
10.1 Lease Agreement between the New York City Industrial
Development Agency and Loehmann's, Inc. dated as of December
1, 1983, filed as Exhibit 10.3 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-1 (Registration No. 33-25718)
and incorporated herein by reference.
10.2 Amended and Restated Agreement among Loehmann's Holdings,
Inc., Loehmann's, Inc. and Philip Kaplan dated as of September
19, 1988 and Memorandum dated March 1, 1993 amending such
Agreement, filed as Exhibit to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-71922)
and incorporated herein by reference.
10.3 Amendment No. 1 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Philip Kaplan dated as of
November 1, 1995, filed as Exhibit 10.9 to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.
10.4 Amendment No. 2 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Philip Kaplan dated as of
April 5, 1996, filed as Exhibit 10.10 to Loehmann's Holdings,
Inc.'s Registration Statement on Form S-1 (Registration No.
33-97100) and incorporated herein by reference.
10.5 Agreement among Loehmann's Holdings, Inc., Loehmann's, Inc.
and Robert N. Friedman dated as of November 1, 1995, filed as
Exhibit 10.11 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-97100) and
incorporated herein by reference.
10.6 Amendment No. 1 to Employment Agreement among Loehmann's
Holdings, Inc., Loehmann's, Inc. and Robert N. Friedman dated
as of April 5, 1996, filed as Exhibit 10.12 to Loehmann's
Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.
10.7 Compensation/Consultation Agreement between Loehmann's
Holdings, Inc. and Norman Matthews, filed as Exhibit 10.8 to
Loehmann's Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-25718) and incorporated herein by
reference.
10.8 Loehmann's, Inc. Amended and Restated Deferred Profit Sharing
Plan, effective January 31, 1993, filed as Exhibit 10.15 to
Loehmann's Holdings, Inc.'s Registration Statement on Form S-1
(Registration No. 33-97100) and incorporated herein by
reference.
15
<PAGE>
10.9 Loehmann's Holdings, Inc. 1988 Stock Option Plan, filed as
Exhibit 10.10 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-25718) and
incorporated herein by reference.
10.10 Non-Qualified Stock Option Agreement dated September 30, 1988
between Loehmann's Holdings, Inc. and Philip Kaplan, filed as
Exhibit 10.11 to Loehmann's Holdings, Inc.'s Registration
Statement on Form S-1 (Registration No. 33-25718) and
incorporated herein by reference.
10.11 Loehmann's, Inc. New Stock Incentive Plan, filed as Exhibit
10.18 to Loehmann's, Inc.'s Registration Statement on Form S-1
(Registration No. 33- 97100) and incorporated herein by
reference.
10.12 Executive Incentive Compensation Plan, filed as Exhibit 10.13
to Loehmann's Holdings, Inc.'s Registration Statement on Form
S-1 (Registration No. 33-25718) and incorporated herein by
reference.
10.13 Non-Qualified Stock Option Agreement dated as of December 10,
1993 between Loehmann's Holdings, Inc. and Norman S. Matthews,
filed as Exhibit 10.15 to Loehmann's Holdings, Inc.'s
Registration Statement on Form S-4 (Registration No. 33-71922)
and incorporated herein by reference.
10.14 Employment Agreement between Loehmann's, Inc. and Robert
Glass, dated as of February 27, 1998.*
10.15 Consulting Agreement between Loehmann's, Inc. and Philip
Kaplan, dated as of April 3, 1998.*
13 Such portions of the Annual Report to Stockholders for 1997 as
are expressly incorporated herein by reference.*
23 Consent of Independent Auditors.*
27 Financial Data Schedule.*
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended January 31, 1998.
- --------------
* Filed herewith
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 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.
LOEHMANN'S, INC.
Dated: May 1, 1998 By: /s/ Robert Glass
--------------------
Robert Glass, President, Chief
Operating Officer, Secretary and
Director
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Friedman and Robert Glass, such
person's true and lawful attorney-in-fact and agents, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this report filed pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and to
file the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ Norman S. Matthews Chairman of the Board and Director May 1, 1998
- -----------------------
Norman S. Matthews
/s/ Robert N. Friedman Chairman, Chief Executive Officer and May 1, 1998
- ----------------------- Director
Robert N. Friedman
/s/ Robert Glass President, Chief Operating Officer, May 1, 1998
- ----------------------- Secretary and Director
Robert Glass
/s/ Dennis R. Hernreich Vice President Finance, Chief Financial May 1, 1998
- ----------------------- Officer, Treasurer and Assistant
Dennis R. Hernreich Secretary
17
<PAGE>
/s/ Philip Kaplan Director May 1, 1998
- -----------------------
Philip Kaplan
- ----------------------- Director May 1, 1998
Janet A. Hickey
/s/ Richard E. Kroon Director May 1, 1998
- -----------------------
Richard E. Kroon
- ----------------------- Director May 1, 1998
Christina A. Mohr
/s/ Arthur E. Reiner Director May 1, 1998
- -----------------------
Arthur E. Reiner
/s/ Cynthia R. Cohen Director May 1, 1998
- -----------------------
Cynthia R. Cohen
/s/ Lorrence T. Kellar
- ----------------------- Director May 1, 1998
Lorrence T. Kellar
18
Exhibit 4.3
[Loehmann's Letterhead]
May 1, 1998
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
Loehmann's, Inc. Form 10-K
Ladies and Gentlemen:
In accordance with Item 601(b)(4)(iii) of Regulation S-K, Loehmann's, Inc.
(the "Registrant") has not filed herewith any instrument with respect to
long-term debt not being registered where the total number of securities
authorized thereunder does not exceed ten percent (10%) of the total assets of
the Registrant and its subsidiaries on a consolidated basis. The Registrant
hereby agrees to furnish a copy of any such agreement to the Securities and
Exchange Commission upon request.
Sincerely,
LOEHMANN'S, INC.
By: /s/ Dennis Hernreich
------------------------
Dennis Hernreich
Title: VP Finance, Chief Financial
Officer, Treasurer and Assistant
Secretary
Exhibit 4.6
THIRD AMENDMENT
TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of December 30, 1997
(this "Amendment"), amends in certain respects the Second Amended and Restated
Credit Agreement (as heretofore amended, supplemented, or otherwise modified,
the "Credit Agreement") dated as of May 6, 1996 between Loehmann's, Inc. (the
"Borrower"), and BankAmerica Business Credit, Inc., as Agent and sole lender
(the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower has requested that the Lender amend certain
provisions of the Credit Agreement and the Lender is willing to make such
amendments on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Amendment and for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Borrower and
the Lender hereby agree as follows.
SECTION 1. DEFINED TERMS. Terms defined in the Credit Agreement and not
otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
SECTION 2. AMENDMENTS TO CREDIT AGREEMENT.
(a) The second sentence of Section 2.1(b) is hereby deleted in
its entirety and the following is substituted therefor:
"The aggregate Revolving Credit Loan Commitments shall not
exceed (A) $45,000,000 from August 15, 1997 through May 31,
1998 or (B) $35,000,000 at other times."
(b) The amount set forth opposite the Lender's name on the
signature pages of the Credit Agreement under the caption "Commitment" is hereby
deemed amended in its entirety to read as follows:
"'Commitment':
$45,000,000 from August 15, 1997 through May 31,
1998, and $35,000,0000 at all other times."
<PAGE>
(c) The Borrower and the Lender hereby agree that at any time
the aggregate Revolving Credit Loan Commitments in effect exceed $35,000,000,
the Lender may maintain a reserve against Availability of up to $1,000,000.
(d) Section 6.1 of the Credit Agreement is hereby amended by
deleting the amount "$21,000,000" set forth opposite the dates January 31 and
April 30, 1998 in the table set forth in such Section and substituting therefor
the amount "$18,000,000".
(e) Section 6.2 of the Credit Agreement is hereby amended by
deleting the text appearing opposite the date January 30, 1999 in the table set
forth in such Section and substituting therefor the amount "$9,000,000".
(f) Section 6.3 of the Credit Agreement is hereby amended by
deleting the rations set forth opposite the dates January 31, 1998 and April 30,
1998 in the table set forth in such Section and substituting therefor the ratios
"1.4 to 1.0" and "1.3 to 1.0", respectively.
(g) Section 6.4 of the Credit Agreement is hereby amended by
deleting the amount set forth opposite the date April 30, 1998 in the table set
forth in such Section and substituting therefor the amount "$19,000,000".
(h) Section 8.19 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and substituting therefor the following:
"8.19. Limitation on New Store Openings. Open more
than three (3) additional stores during the Fiscal Year ending
January 30, 1999; provided, however, that the Borrower may
open an additional two (2) stores during such Fiscal Year (for
a total of five (5) new stores during such Fiscal Year) if the
Borrower's EBDAIT for the previous four (4) Fiscal Quarters
was at least $28,000,000."
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be
effective as of the date first above written when the Agent shall have received
the following:
(a) counterparts of this Amendment executed by the Borrower
and the Lender, and
(b) payment by the Borrower to the Lender of an amendment fee
in the amount of $50,000, which fee shall be deemed fully earned when paid;
SECTION 4. COVENANTS. As soon as available, but not later than January
23, 1998, the Borrower shall deliver to the Lender the following:
<PAGE>
(a) a certification from a Responsible Officer of the Borrower
that the provisions of this Amendment do not contravene the provisions of any
other agreement to which the Borrower is a party or would constitute a default
under any such agreement; and
(b) such other certificates, representations, instruments and
other documents as the Lender may require (including, without limitation, a
certified copy of the resolutions of the Board of Directors of the Borrower
authorizing the execution and delivery of this Amendment, and the performance of
the Credit Agreement as amended hereby), in form and substance satisfactory to
the Lender.
The failure by the Borrower to deliver the items referred to in the
foregoing paragraphs (a) and (b) within the time period specified shall
constitute an Event of Default.
SECTION 5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to the Lender and the Agent that (i) the execution,
delivery and performance of this Amendment by the Borrower are within its
corporate powers and have been duly authorized by all necessary corporate
action, (ii) no consent, approval, authorization of, or declaration or filing
with, any Public Authority, and no consent of any other Person, is required in
connection with the execution, delivery and performance of this Amendment,
except for those already duly obtained, (iii) this Amendment has been duly
executed by the Borrower and constitutes the legal, valid and binding obligation
of the Borrower, enforceable against it in accordance with its terms and (iv)
the execution, delivery and performance by the Borrower of this Amendment do not
and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon the property of the Borrower or any of its Subsidiaries by reason of the
terms of (a) any contract, mortgage, Lien, lease, agreement, indenture, or
instrument to which the Borrower or any of its Subsidiaries is a party or which
is binding upon it, (b) any Requirement of Law applicable to the Borrower or any
of its Subsidiaries, or (c) the Certificate or Articles of Incorporation or
By-Laws of the Borrower or any of its Subsidiaries.
SECTION 6. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
(a) On and after the date hereof, each reference in the Credit
Agreement to "this Agreement" "hereunder" "hereof" "herein" or words of like
import, and each reference in the other Loan Documents to the Credit Agreement,
shall mean and be a reference to the Credit Agreement as amended hereby.
(b) Except as specifically amended above, all of the terms of
the Credit Agreement shall remain unchanged and in full force and effect.
(c) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right, power or remedy of the
Lender or the Agent under
<PAGE>
the Credit Agreement or any of the other Loan Documents, nor constitute a waiver
of any provision of the Credit Agreement or any of the other Loan Documents.
SECTION 7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
instrument.
SECTION 8. GOVERNING LAW. This Amendment shall be governed by, and
shall be construed and enforced in accordance with, the laws of the State of New
York.
SECTION 9. HEADINGS. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment or be given any substantive effect.
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
date first above written.
LOEHMANN'S INC.
By: /s/ Robert Glass
--------------------
Title: Senior Vice President/
Chief Financial Officer
BANKAMERICA BUSINESS CREDIT INC.,
as Lender and Agent
By: /s/ Louis Alexander
-----------------------
Title: Vice President
Exhibit 10.14
AGREEMENT
among
LOEHMANN'S, INC.
and
ROBERT GLASS
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions...........................................................1
2. Term of Employment....................................................4
3. Duties of Executive...................................................4
4. Base Salary...........................................................5
5. Performance Cash Bonuses..............................................5
6. Automobile, Etc.......................................................6
7. Life Insurance........................................................6
8. Medical Insurance.....................................................7
9. Disability Insurance..................................................8
10. Tax Returns...........................................................8
11. Discount on Purchases; Expenses.......................................8
12. Vacation..............................................................8
13. Other Benefits........................................................9
14. Stock Options.........................................................9
15. Termination of Employment............................................10
(a) Death or Total Disability...................................10
(b) For Cause or Lack of Good Reason............................10
(c) Without Cause or With Good Reason...........................11
(d) Change of Control...........................................12
(e) Non-Renewal.................................................13
16. No Mitigation........................................................14
17. Non-Hire.............................................................14
i
<PAGE>
18. Indemnification......................................................14
19. Confidentiality......................................................15
20. Severability.........................................................16
21. Enforcement..........................................................16
22. Withholding..........................................................16
23. Entire Agreement.....................................................16
24. Continuation of Employment...........................................17
25. Governing Law........................................................17
26. Miscellaneous........................................................18
ii
<PAGE>
THIS EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of
February 27, 1998, by and between LOEHMANN'S, INC., a Delaware corporation (the
"Company"), and ROBERT GLASS, residing at One Horizon Road, Fort Lee, New Jersey
07024, herein called the "Executive,"
WITNESSETH, That:
In consideration of the mutual promises and agreements hereinafter set
forth, it is agreed between the Company and the Executive as follows:
1. Definitions. As used herein, including Exhibits A and B hereto,
"Actively Traded" means listed on the New York Stock Exchange, the American
Stock Exchange or constituting a National Market System security quoted by the
National Association of Securities Dealers Automated Quotation market system;
"Board of Directors" means the board of directors of the Company;
"Cause" means (i) the willful failure (other than any failure resulting
from the Executive's incapacity due to physical or mental illness) of the
Executive to substantially perform his normal duties with the Company under this
Agreement in any material respect, where such failure is not reasonably
corrected within 30 days after receipt of notice from the Board of Directors
specifying such failure or failures of the Executive, (ii) the willful engaging
by the Executive in conduct which is materially injurious to the Company or any
of its Subsidiaries (but any act or failure to act which gives rise to a right
of termination under both this clause (ii) and clause (i) above shall be treated
as if such right arose under clause (i)) or (iii) the conviction of the
Executive of any crime or offense constituting a felony;
<PAGE>
"Common Share" means a share of the Common Stock of the Company, par
value $.01 per share;
"EBITDA" has the meaning ascribed to that term in Section 5 hereof, and
shall be calculated in accord with generally accepted accounting principles as
in effect at the time of calculation and consistent with the calculation for
prior Fiscal Years;
"Fiscal Year" means the 12 month period ending on the Saturday closest
to January 31 (i.e., January 31, 1998; January 30, 1999), or such other annual
fiscal accounting period of the Company as may be adopted by the Company from
time to time;
"Good Reason" means (i) a material adverse alteration in the nature or
status of the Executive's position, duties or responsibilities from those in
effect as of the inception of the Period of Employment; (ii) a reduction in or
failure to pay or provide when due any of the compensation (it being understood
that base salary cannot be reduced under this Agreement) or other benefits
required to be paid or provided to the Executive hereunder, if, but only if,
such reduction or failure continues for 10 days following written notice from
the Executive specifying the nature of the reduction or failure; (iii) a change
in the principal place of the Executive's employment to a location more than 100
miles from the place of the Executive's principal residence as of the date of
this Agreement, excluding required travel on the Company's business; or (iv) any
other failure of the Company to fulfill its obligations under this Agreement in
any material respect;
<PAGE>
"Group" means a syndicate or group deemed a "person" within the meaning
of Rule 13d-5 promulgated by the Securities and Exchange Commission;
"Period of Employment" means the period commencing on April 1, 1998 and
ending on March 31, 2000. The Period of Employment shall be automatically
renewed for successive one-year periods at the Base Salary (as defined in
Section 4 below) then in effect unless the Company provides Executive with
written notice at least six (6) months prior to the end of the current Period of
Employment that it does not wish to extend the Period of Employment (a "Notice
of Non- Renewal"). If the Company provides the Executive with a Notice of
Non-Renewal, the Executive's employment will be deemed to have been terminated
at the end of the Period of Employment.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a government
or political subdivision or any agency or instrumentality thereof;
"Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are directly or
indirectly owned by the Company; and
"Total Disability" or "Totally Disabled" means the disability, withing
the meaning of the Company's short-term disability plan, for a continuous period
of 100 days, or for any 100 days within a 365 day period, and a determination,
by a physician mutually acceptable to the Company and the Executive, at the end
of such
<PAGE>
period that the Executive is unable to perform the normal duties of the
Executive hereunder.
2. Term of Employment. The Company agrees to employ the Executive, and
the Executive agrees to render personal services to the Company and its
Subsidiaries, during the Period of Employment as President and Chief Operating
Officer of the Company, and to perform such executive duties and assignments
consistent with those positions as may at any time and from time to time be
required by the Board of Directors, except that the Executive shall not be
required to hold any position or to perform any duty or assignment materially
inconsistent with those positions or his experience and qualifications, it being
agreed and understood that the personal services to be rendered by Executive to
the Company and its Subsidiaries hereunder are of a special and unique
character. Executive shall also serve as a member of the Board of Directors and
on such other committees of the Board of Directors as the Board of Directors may
reasonably request without additional compensation.
3. Duties of Executive. Executive agrees that, at all times during the
Period of Employment, Executive will:
(i) faithfully and diligently serve the Company to the best of
Executive's ability; and
(ii) devote Executive's undivided time and attention, during
the Company's then customary business hours, to the performance of his duties
hereunder and to the business and affairs of the Company and its Subsidiaries
and to promoting the best interests of the Company and its Subsidiaries to such
extent as
<PAGE>
may be necessary for the proper performance of the personal services to be
rendered by Executive hereunder, and he shall not, either during or outside of
business hours, engage in any activity inimical to the best interests of the
Company or any of its Subsidiaries.
4. Base Salary. The Company agrees to pay Executive an annual base
salary (the "Base Salary") for his services during the Period of Employment of
$300,000, in semi-monthly installments, subject to Section 22 hereof. The rate
of Executive's base salary shall be reviewed annually as of each April 1 except
that no such annual review shall result in any reduction in the Executive's base
salary as in effect at the date of such review. In computing the base salary
payable hereunder for any period covering less than a full Fiscal Year, the
annual rate of base salary shall be prorated in the proportion that the number
of days contained in such period bears to 360.
5. Performance Cash Bonuses.
(i) With respect to each Fiscal Year ending during the Period
of Employment, Executive will be eligible to receive a cash bonus equal to 60%
of his Base Salary in effect for such Fiscal Year. Such bonus will be paid if
the Company's consolidated earnings before interest, taxes, depreciation and
amortization ("EBITDA") target for such Fiscal Year is attained, which target
will be established by Executive and the Board of Directors prior to April 30 of
each Fiscal Year. If the Executive's employment terminates at the end of the
Period of Employment, the bonus shall be prorated in the proportion that the
number of full months of such fiscal year that the Executive was employed by the
Company bears to 12. If such a bonus
<PAGE>
is earned with respect to any Fiscal Year, such bonus will be paid to Executive
within 30 days following receipt by the Company of certified consolidated
financial statements for the relevant year, but not later than 75 days after the
end of the Fiscal Year to which such bonus relates.
6. Automobile, Etc. During the Period of Employment, the Executive
shall be entitled to receive an allowance for automobile, gasoline, club dues
and other expenses of $15,000 in the aggregate for each Fiscal Year, prorated in
the case of any Fiscal Year which is less than 12 months in duration or which
does not fall entirely within the Period of Employment.
7. Life Insurance.
(a) During his employment with the Company, the Company shall
provide the Executive with term life insurance providing a death benefit equal
to three times his then base salary, it being understood that the Executive is
presently insurable at normal rates and that the Executive will bear the cost of
such insurance upon renewal to the extent such cost exceeds normal rates.
(b) After the termination of Executive's employment hereunder
(including upon expiration of the contract term) other than for (i) "Cause" or
(ii) "Lack of Good Reason" (as such terms are hereafter defined), for the
remainder of Executive's life or until Executive attains the age of 70 or
obtains full-time employment with any Person other than the Company, the Company
shall obtain and maintain life insurance for Executive's benefit in the amount
equal to his Base Salary upon the termination of such employment. For purposes
of the preceding
<PAGE>
sentence, Executive's retirement from the Company after age 62 shall not be
deemed a termination of this Agreement for "Lack of Good Reason."
8. Medical Insurance.
(a) During his employment with the Company, the Executive
shall be entitled to group medical insurance coverage in accordance with the
terms and conditions of such plans as are maintained by the Company, it being
understood, however, that nothing contained herein shall prevent the Company
from amending, modifying or terminating such plans in any manner if, but only
if, the Executive is treated no less favorably than other participants in such
plans as a result of such amendment, modification or termination, and except
that the Executive shall be entitled to a group medical plan at group rates,
together with excess medical reimbursement of at least $5,000 a year for
medical, dental, optical or other health expenses not covered or only partially
covered under the Company's group medical plan.
(b) After the termination of Executive's employment hereunder
(including upon expiration of the contract term) other than for (i) Cause or
(ii) Lack of Good Reason, the Company shall continue to provide medical
insurance to Executive and his spouse for the duration of their respective lives
in accordance with the terms and conditions of such plans as are maintained by
the Company; provided, that, if Executive obtains full-time employment with any
Person other than the Company, the Company shall not be obligated to provide
coverage set forth in this Section 8(b). For purposes of the preceding sentence,
Executive's retirement from
<PAGE>
the Company after age 62 shall not be deemed a termination of this Agreement for
"Lack of Good Reason."
9. Disability Insurance. During the Period of Employment, the Company
shall provide the Executive with long-term disability insurance providing an
annual benefit in the event of such disability at least equal to one-half of his
then base salary. In the event of the Executive's illness or disability, the
Company shall continue to pay the Executive his base salary at his then annual
rate, and continue to provide all benefits and all other compensation required
by this Agreement unless and until the Executive's employment is terminated by
reason of his Total Disability and an eligibility, waiting or comparable period
under the disability insurance policy expires and payments to the Executive
begin under the policy.
10. Tax Returns. During the Period of Employment, the Company shall pay
for preparation of the Executive's federal and state income tax returns by the
Company's regular outside accountants or, if the Executive so elects, shall
reimburse the Executive in an amount of up to a maximum of $2,100 per year for
fees paid to another accountant in connection with the preparation of such
returns.
11. Discount on Purchases; Expenses. The Executive shall benefit from
the Company's Executive Discount Purchase Plan. The Company shall reimburse
Executive for all items of normal expense incurred by Executive as an employee
of the Company as authorized or approved under guideline and policies fixed from
time to time by the Board of Directors.
12. Vacation. During the Period of Employment, the Executive shall be
entitled to four weeks of vacation per year, during which the Executive shall
<PAGE>
receive his normal compensation payable hereunder. The Company shall not pay the
Executive any additional compensation for any vacation time not used by the
Executive.
13. Other Benefits. The Company and its Subsidiaries have adopted
certain employee benefit plans and have established certain arrangements
concerning executive perquisites which may, from time to time, confer rights and
benefits on the executive in accordance with their terms, and the Company and it
Subsidiaries may, in the future, adopt additional employee benefit plans and
establish additional arrangements concerning executive perquisites, and may in
the future amend, modify or terminate any of the aforesaid employee benefit
plans and arrangements, all in accordance with their terms and in accordance
with applicable law. Subject to any limitations imposed from time to time under
applicable law or regulation, the Executive shall be entitled to participate in
all such benefit plans which cover senior employees of the Company and its
Subsidiaries. The Company shall reimburse Executive for reasonable legal fees
incurred in connection with the review and negotiation of this Agreement,
provided that such reimbursement shall not exceed $10,000.
14. Stock Options. Upon execution of this Agreement, the Company shall
grant to the Executive options (the "New Options") to purchase 100,000 Common
Shares under the Loehmann's, Inc. Amended and Restated New Stock Incentive Plan
(the "Stock Option Plan") at an exercise price per Common Share equal to the
fair market value (as defined in the Stock Option Plan) of a Common Share on the
date hereof, the terms of which shall be set forth in an
<PAGE>
individual award agreement between the Company and the Executive. All options
held by Executive, including the New Options, shall become immediately vested
and exercisable immediately prior to a Change in Control.
15. Termination of Employment.
(a) Death or Total Disability. The employment of the Executive
will terminate upon his death or Total Disability. If, during the Period of
Employment, the employment of the Executive is terminated due to death or Total
Disability, the Executive or his estate shall receive, within 30 days of such
termination, base salary provided for in Section 4 as then in effect, accrued
through the date of termination. In addition, Executive shall be entitled to the
proceeds of the life insurance provided pursuant to Section 7 which become
payable by reason of the Executive's death, or the disability payments payable
pursuant to Section 9, as the case may be, and the medical benefits provided for
in Section 8(b)); provided that Executive shall also be paid any bonus pursuant
to Section 5 earned with respect to any previously completed Fiscal Year which
remains unpaid as of such date of termination and any amounts to which Executive
may be entitled pursuant to the plans, policies and practices of the Company
then in effect. Upon such termination Executive shall have no further rights to
benefits under this Agreement (except indemnification under Section 18 and as
otherwise provided for in this Agreement).
(b) For Cause or Lack of Good Reason. The employment of the
Executive may be terminated by the Company at any time for Cause. If, during the
Period of Employment, the employment of the Executive is terminated by the
Company for Cause or by the Executive without Good Reason ("Lack of Good
<PAGE>
Reason"), the Executive shall receive, within 30 days of such termination, base
salary provided for in Section 4 as then in effect, accrued through the date of
termination, any bonus pursuant to Section 5 earned with respect to any
previously completed Fiscal Year which remains unpaid as of such date of
termination and any amounts to which Executive may be entitled pursuant to the
plans, policies and practices of the Company then in effect. Upon such
termination Executive shall have no further rights to benefits under this
Agreement (except indemnification under Section 18 and as otherwise provided for
in this Agreement).
(c) Without Cause or With Good Reason. The employment of the
Executive may also be terminated by the Company at any time without Cause or by
the Executive at any time with Good Reason. If, during the Period of Employment,
the employment of the Executive is terminated by the Company without Cause, or
by the Executive with Good Reason, the Executive shall continue to receive the
Base Salary provided for in Section 4 as then in effect for the 12 months
following termination or the remainder of the Period of Employment, whichever is
longer. In addition, Executive shall be entitled to the benefits contemplated by
Sections 7(b) and 8(b) hereof, any bonus pursuant to Section 5 earned with
respect to any previously completed Fiscal Year which remains unpaid as of such
date of termination and any amounts to which Executive may be entitled pursuant
to the plans, policies and practices of the Company then in effect. Upon such
termination Executive shall have no further rights to benefits under this
Agreement (except indemnification under Section 18 and as otherwise provided for
in this Agreement).
<PAGE>
(d) Change of Control. If Executive's employment is terminated
coincident with or within one year after a Change of Control (as defined below),
either by the Company or by Executive for Good Reason, Executive shall be paid,
within 10 days after such termination, a lump sum, in cash, equal to 2 times
Executive's Base Salary then in effect. In addition, Executive shall be entitled
to the benefits contemplated by Sections 7(b) and 8(b) hereof, any bonus
pursuant to Section 5 earned with respect to any previously completed Fiscal
Year which remains unpaid as of such date of termination and any amounts to
which Executive may be entitled pursuant to the plans, policies and practices of
the Company then in effect. Except as provided in this paragraph 15(d), upon a
termination of employment pursuant to this paragraph, Executive shall have no
further rights to benefits under this Agreement (except indemnification under
Section 18 and as otherwise provided for in this Agreement).
For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred if (1) any "Person" (as such term is used in Section 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), becomes
the "beneficial owner" (as determined pursuant to Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the combined voting power of the Company's then
outstanding securities; or (2) during any period of two consecutive years,
individuals who at the beginning of such period constitute the members of the
Company's Board of Directors (the "Board") and any new director, whose election
to the board or nomination for election to the Board by the Company's
stockholders was approved by a vote of a
<PAGE>
majority of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; or (3) the Company shall merge with or consolidate into any other
corporation, other than a merger or consolidation which would result in the
holders of the voting securities of the Company outstanding immediately prior
thereto holding immediately thereafter securities representing more than fifty
percent (50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or
consolidation; or (4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets or such a plan is
commenced or such a sale or other disposition is consummated.
(e) Non-Renewal. If the Company elects not to extend the
Period of Employment and provides Executive with a notice of Non-Renewal (a
"Non-Renewal Termination"), Executive's employment will be deemed terminated on
the last day of the Period of Employment and Executive will be entitled to a
lump sum payment within 30 days of the date of termination in an amount equal to
one year's Base Salary at the rate in effect on the date of termination. In
addition, Executive shall be entitled to the benefits contemplated by Sections
7(b) and 8(b) hereof, any bonus pursuant to Section 5 earned with respect to any
previously completed Fiscal Year which remains unpaid as of such date of
termination and any amounts to which Executive may be entitled pursuant to the
plans, policies and practices of the Company then in effect). Upon such
termination Executive shall have
<PAGE>
no further rights to benefits under this Agreement (except indemnification under
Section 18 and as otherwise provided for in this Agreement).
16. No Mitigation. Executive shall not be required to mitigate the
amount of any damages that Executive may incur or other payments to be made to
Executive hereunder as a result of any termination or expiration of this
Agreement, nor shall any payments to Executive be reduced by any other payments
Executive may receive, except as set forth herein.
17. Non-Hire. Executive agrees that if Executive's employment with the
Company is terminated for any reason, Executive will not for a period of two
years following the date of termination (the "Non-Hire Period") directly or
indirectly (i) solicit or encourage any member of senior management to leave the
employment of the Company or (ii) hire any member of senior management who was
an employee of the Company during the Period of Employment or the Non-Hire
Period.
18. Indemnification. The Company shall, and shall cause its
Subsidiaries, if any, to, indemnify the Executive to the fullest extent
permitted (including payment of reasonable expenses in advance of final
disposition of a pro ceeding) by applicable law and the Certificates of
Incorporation and By-Laws of the Company and such Subsidiaries, as in effect at
the time of the subject act or omission, and the Executive shall be entitled to
the protection of any insurance policies the Company or any such Subsidiary may
elect to maintain for the benefit of any of its directors and officers, against
all reasonable costs, charges and expenses incurred or sustained by him or his
legal representatives at the time such costs, charges and
<PAGE>
expenses are incurred or sustained, in connection with any action, suit or
proceeding to which he (or his legal representatives or other successors) may be
made a party by reason of his being or having been a director, officer or
employee of the Company or any Subsidiary, or his serving or having served any
other enterprise as a director, officer or employee at the request of the
Company. This covenant and agreement of the Company and its Subsidiaries shall
survive this Agreement and continue in force and effect after the expiration of
the term hereof, whether by limitation or otherwise.
19. Confidentiality. Executive covenants and agrees to hold in
strictest confidence any and all of the Company's confidential data, including
but not limited to information and documents concerning the Company's business,
suppliers, supplier and customer lists, marketing methods, advertising plans,
files, trade secrets, patents and patent applications, "know-how," techniques or
other technical information not of a published nature or other information which
shall come into Executive's possession or custody concerning the business of the
Company except (i) to the extent any such information enters the public domain
other than by reason of a breach by the Executive of this Section 19 and (ii) to
the extent the Executive is required by law to disclose any such information and
(iii) except to the extent such information is generally known to the industry
or the public other than as a result of Executive' breach of this Agreement. The
Executive will immediately notify the Company if he believes he is required by
law to disclose any such information, so that the Company may determine whether
or not to oppose such requirement. This covenant and agreement of Executive
shall survive this Agreement and continue in
<PAGE>
force and effect after the expiration of the term hereof, whether by limitation
or otherwise.
20. Severability. The Company and Executive hereby agree that should
any court of competent jurisdiction determine that any provision of this
Employment Agreement shall, but for the provisions of this Section 20, be
illegal or void as against public policy, for any reason, then such provision
shall automatically be amended to the extent (but only to the extent) necessary
to make it sufficiently narrow in scope, time and geographic area that such
court shall determine it not to be illegal or void as against public policy. If
any such provision cannot be amended to the extent provided in the preceding
sentence, then such provision shall be severed from this Agreement. In either
event, all other remaining terms and provisions shall remain in full force and
effect.
21. Enforcement. The Company and Executive shall each be entitled to
pursue all legal and equitable rights and remedies to secure performance of the
obligations and duties of the other under this Employment Agreement, and
enforcement of one or more of such rights and remedies shall in no way preclude
the Company or Executive from pursuing, at the same time or subsequently, any
and all other rights and remedies available to each of them.
22. Withholding. All payments to be made to the Executive under this
Agreement shall be reduced by all required withholding.
23. Entire Agreement. The entire understanding and agreement between
the parties has been incorporated into this Agreement, and this Agreement
supersedes all other agreements and understandings between the parties with
respect
<PAGE>
to the employment of Executive by the Company. This Employment Agreement shall
inure to the benefit of, and shall be binding upon, the Company, heirs,
successors and assigns, and none of the provisions of this Agreement are
intended to be, nor shall they be construed to be, for the benefit of or
enforceable by any Person who is not a party hereto. Executive agrees that this
Agreement may be assigned by the Company to a Subsidiary of the Company; such
assignment, however, shall not relieve the Company of any of its obligations
hereunder except to the extent that such obligations are actually discharged by
such Subsidiary and shall not involve duties that are inconsistent with the
duties described in Section 3 hereof or any reduction in status. By signing
below, the Company each warrants and represents that this Agreement and the
Company's performance hereunder have been duly authorized by all requisite
corporate action (including the approval of their respective boards of
directors), and that this Agreement constitutes their legal and binding
obligation, duly enforceable against each of them in accordance with its terms.
24. Continuation of Employment. Unless the parties otherwise agree in
writing, continuation of Executive's employment with the Company beyond the
expiration of the Employment Term shall be deemed an employment at will and
shall not be deemed to extend any of the provisions of this Agreement, and
Executive's employment may thereafter be terminated at will by Executive or the
Company.
25. Governing Law. Any question or other matter arising under this
Agreement, whether of validity, interpretation, performance or otherwise, shall
be determined in accordance with and governed by laws of the State of New York.
<PAGE>
26. Miscellaneous.
(a) The captions in this Agreement are not part of the
provisions hereof, are merely for the purpose of reference and shall have no
force or effect for any purpose whatsoever, including the construction of the
provisions of this Agreement, and if any caption is inconsistent with any
provisions of this Agreement, such provisions shall govern.
(b) This Agreement may not be waived, changed, modified or
discharged orally, but only by an agreement in writing signed by the party
against whom any waiver, change, modification or discharge is sought.
(c) All notices given hereunder shall be in writing and shall
be sent by registered or certified mail, return receipt requested, or by Federal
Express or other national overnight courier service capable of providing
delivery confirmation, or by hand-delivery, or by facsimile transmission with
confirmed receipt, and, if intended for the Company shall be addressed to at
2500 Halsey Street, Bronx, New York 10461, Attention: Mr. Philip Kaplan, or at
such other address or addresses and for the attention of such other person or
persons of which the Company shall have given notice to the Executive in the
manner herein provided, and if intended for the Executive, shall be addressed to
him at the address set forth above or such other residence address as shown by
the employment records of the Company, or to such designee of which the
Executive shall have given notice to the company in the manner herein provided.
Each such notice shall be deemed to be given on the date received at the address
of the addressee or upon refusal to accept delivery.
<PAGE>
(d) The Company and the Executive will treat this Agreement as
confidential, and neither of them will disclose the contents of this Agreement
to any person, except as may be required by law and except as the Company may
need to do so in its dealings with banks or other lenders or otherwise in the
normal course of business.
(e) The Executive irrevocably (i) consents to the jurisdiction
of the Supreme Court of the State of New York, New York County, and of any
Federal court located in or having jurisdiction over that County in connection
with any act taken or omitted hereunder, (ii) waives and agrees not to assert in
any such action, suit or other proceeding that he is not personally subject to
the jurisdiction of such courts, that the action, suit or other proceeding is
brought in an inconvenient forum or that the venue of the action, suit or other
proceeding is improper, (iii) waives personal service of any summons, complaint
or other process and (iv) agrees that the service thereof may be made by
certified or registered mail directed to the Executive at his address for
purposes of notices hereunder. Should the Executive fail to appear or answer
within 30 days, he shall be deemed in default and judgment may be entered by the
company against him for the amount or other relief as demanded in any summons,
complaint or other process so served. Nothing contained herein shall affect the
rights of the Company to bring such an action, suit or other proceeding in any
other jurisdiction.
(f) This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one Agreement binding
on all
<PAGE>
the parties notwithstanding that all of the parties are not signatories to the
original or the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
to the day and year first above written.
LOEHMANN'S, INC.
By: /s/ Robert N. Friedman
----------------------
Name: Robert N. Friedman
Title: Chairman
/s/ Robert Glass
----------------
Robert Glass
Exhibit 10.15
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), is made effective as of
April 3, 1998 (the "Effective Date"), by and between Loehmann's, Inc. (the
"Company") and Philip Kaplan ("Consultant").
WHEREAS, Consultant has heretofore been employed by the Company as
President pursuant to the employment agreement, dated as of September 19, 1988,
as amended, by and between Loehmann's Holdings, Inc., Loehmann's Inc. and
Consultant (the "Prior Agreement");
WHEREAS, Consultant and the Company desire that Consultant retire from,
and resign, his employment as President of the Company and all other officer
positions Consultant currently holds at the Company and its affiliates;
WHEREAS, the Company desires to retain Consultant as a consultant of
the Company, and Consultant desires to be so retained by the Company, on the
terms and subject to the conditions more fully set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, the Company and Consultant agree as follows:
1. Consulting Arrangement. The Company hereby retains Consultant, and
Consultant hereby agrees to serve as a consultant to the Company, on the terms
and subject to the conditions of this Agreement. Consultant will, from time to
time at the request of the Company upon reasonable advance notice, provide
advice with respect to the business of the Company and its strategic business
plan. It is
<PAGE>
understood that such consulting services shall be incidental to, and shall not
interfere with, the other business activities and commitments of Consultant.
Consultant shall not be required to travel, except at his convenience, in
performing services hereunder.
2. Term. The term of Consultant's consultancy under this Agreement (the
"Consulting Term") shall commence on the Effective Date and, unless sooner
terminated pursuant to Section 5 hereof, shall expire on the fifth anniversary
of the Effective Date.
3. Compensation. The Company shall pay Consultant a retainer (the
"Retainer") at the rate of $75,000 per year (which represents twenty percent
(20%) of Consultant's base salary as in effect immediately prior to the date
hereof), payable in equal monthly installments, in advance, during the
Consulting Term. Subject to Section 5 below, Consultant shall be entitled to the
full Retainer regardless of the amount and frequency of consulting services
actually requested of him. In addition, with respect to each twelve (12) month
period occurring during the Consulting Term, Consultant shall be entitled to
receive an automobile and gasoline allowance of $15,000. In the event of the
Consultant's death prior to the expiration of the Consulting Term, the Company
shall continue to pay the Retainer to the Consultant's estate for the remainder
of the Consulting Term.
4. Status; Taxes
(a) Status of Consultant. Consultant shall continue to be treated as an
employee of the Company for payroll purposes and for purposes of the Company's
stock option plans until the earlier of the expiration of the Consulting Term
and the Consultant's death; provided that, except for Consultant's rights to
continued life
<PAGE>
insurance protection under Section 9 of the Prior Agreement and continued
medical coverage and reimbursement under Section 10 of the Prior Agreement
(which rights shall expressly survive Consultant's resignation of as an officer
of the Company and its affiliates and are hereby incorporated herein by
reference as if set forth herein), Consultant shall not be entitled to
participate in any other employee benefit plans or other benefits or conditions
of employment available to the employees of the Company or its affiliates.
Consultant shall have no authority to act as an agent of the Company, except on
authority specifically so delegated, and he shall not represent to the contrary
to any person. Consultant shall only consult, render advice and perform such
tasks as Consultant determines are necessary to achieve the results specified by
the Company.
(b) Taxes. All payments made to Consultant under this Agreement will be
subject to the withholding of federal, state and local income and employment
taxes that the Company determines are required by applicable law or regulation.
5. Termination. This Agreement and Consultant's retention hereunder may
only be terminated by the Company for "Cause" (as defined in Section 8). In the
event of a termination by the Company for Cause, neither the Company nor
Consultant shall have any further obligations hereunder, except that
Consultant's entitlement to continued life insurance and medical insurance
coverage and reimbursement under Sections 9 and 10 of the Prior Agreement shall
survive any termination of this Agreement. For the avoidance of doubt, it is
further expressly agreed that any such termination for Cause shall not adversely
affect any rights to compensation or benefits the Consultant may have under the
Prior Agreement.
<PAGE>
6. Nondisclosure of Confidential Information.
(a) Except as required in connection with the performance of
Consultant's services to the Company hereunder or as may be required by
applicable law, Consultant agrees that he will never at any time, either during
or after the Consulting Term, directly or indirectly, use, publish, disseminate,
distribute or otherwise disclose any "Confidential Information" (as defined in
Section 8) without the prior written consent of the President or Chief Executive
Officer of the Company and he shall retain all Confidential Information in trust
in a fiduciary capacity for the sole use and benefit of the Company. Consultant
acknowledges that the Confidential Information of the Company is valuable,
special and unique to its business and is information on which such business
depends, is proprietary to the Company, and that the Company wishes to protect
such Confidential Information by keeping it secret and confidential for the sole
use and benefit of the Company. Consultant will take all steps necessary and
reasonably requested by the Board of Directors of the Company, to ensure that
all such Confidential Information is kept secret and confidential for the sole
use and benefit of the Company; and
(b) Upon termination of Consultant's consultancy with the
Company for any reason, all documents, procedural manuals, guides,
specifications, plans, drawings, designs and similar materials, diaries,
records, notebooks, and similar repositories of or containing Confidential
Information, including all copies thereof, then in Consultant's possession or
control, whether prepared by Consultant or others shall be left with or
forthwith returned by Consultant to the Company.
<PAGE>
7. Entire Agreement/Prior Agreement. The provisions contained herein
constitute the entire agreement between the parties with respect to the subject
matter of this Agreement and supersede any and all prior agreements,
understandings and communications between the parties, oral or written, with
respect to such subject matter.
8. Definitions. For purposes of this Agreement, the following terms
have the respective meanings set forth below:
"Cause" shall mean Consultant's conviction of, or plea of guilty or
nolo contendere to, a felony regarding the business or assets of the Company.
"Confidential Information" shall mean that proprietary information of
the Company, of whatever kind or nature, disclosed to Consultant or known by
Consultant (whether or not discovered or developed by Consultant) as a
consequence of or through Consultant's past, present or future relationship or
employment with the Company; provided, however, that Confidential Information
shall not include any information that is publicly known or publicly available,
other than as a result of Consultant's breach of this restrictive covenant. Such
proprietary information shall include, without limitation, information
materially relating to the Company's business or the products, characteristics
and specifications, components, research and development, plans for development
of new products, computer programs, trade secrets, marketing strategies, sources
of raw materials, supply and material purchasing, operating and other costs
data, "Company Customer" (as defined below) identity and needs, cost and pricing
data, inventory control and practices, terms and conditions of agreements to
which the Company is a party (such as independent
<PAGE>
contractor agreements, supply or distributorship contracts), and any of which
information is not generally known in the industry, and shall specifically
include all such proprietary information contained in manuals, memoranda, plans,
drawings, and designs, specifications, computer programs and records of the
Company.
"Company Customer" shall mean any person or entity to or from whom the
Company (i) submitted a bid or received an order for the purchase, supplying or
distribution of products; or (ii) entered into an agreement for the purchase,
supplying or distribution of products; or (iii) purchased, supplied or
distributed products.
9. Expenses. The Company shall reimburse Consultant for any reasonable
expenses incurred by him in connection with the performance of his services
hereunder; provided that such services were directed by the Company and any
material expenses shall be subject to preapproval by the President or next most
senior officer of the Company.
10. Modifications. Any waiver, alteration, amendment or modification of
any provisions of this Agreement shall not be valid unless in writing and signed
by the Company and Consultant.
11. Assignment. The Company may assign its rights and delegate its
obligations under this Agreement to any successor-in-interest to its business,
except such assignment shall not relieve the Company of any of its duties and
obligations under this Agreement without Consultant's prior written consent.
Except as provided in the previous sentence, neither party may assign any of its
or his rights or delegate any of its or his duties under this Agreement without
the consent of the other and any attempted assignment in violation of this
provision shall be void.
<PAGE>
12. Binding Effect. Subject to the limitations set forth in Section 12,
this Agreement shall be binding upon and inure to the benefit of the
successors-in-interest and permitted assigns of the Company and Consultant.
13. Notice. All notices and other communications required or permitted
under this Agreement shall be made in writing and shall be deemed given if
delivered personally, sent by registered or certified mail, return receipt
requested, postage prepaid, or sent by nationally recognized overnight courier
service, addressed as follows:
(i) if to the Company, to the attention of the Company's
Corporate Secretary at the principal executive offices of the Company in New
York;
(ii) if to Consultant, the last known address of Consultant on
the personnel records of the Company; or to such other addresses as a party
shall designate in the manner provided in this Section 13. Any notice or other
communication shall be deemed given (a) on the date three (3) business days
after it shall have been mailed, if sent by certified mail or (b) on the date
one (1) business day after it shall have been given to a nationally-recognized
overnight courier service.
14. Choice of Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York applicable to contracts made
and to be performed entirely within such jurisdiction.
<PAGE>
15. Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, the Company and Consultant have executed this
Agreement as of the date first above written.
Loehmann's, Inc.
By:
/s/ Robert N. Friedman
----------------------
Robert N. Friedman
Chairman
/s/ Philip Kaplan
-----------------
Philip Kaplan
Exhibit 13
SUCH PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
FOR 1997 AS ARE INCORPORATED HEREIN BY REFERENCE
FINANCIAL HIGHLIGHTS
Loehmann's, Inc.
<TABLE>
<CAPTION>
Percent
1997 1996 Change
--------------- --------------- ----------
OPERATING RESULTS
<S> <C> <C> <C>
Net Sales ................................................ $443,310,000 $417,758,000 6.1%
EBITDA ................................................... $18,032,000 $36,828,000 -51.0%
Non-recurring Charge...................................... 9,300,000 0 N/A
Operating (Loss) Income................................... (2,701,000) 24,980,000 N/A
Pro-forma Net (Loss) Income............................... (9,483,000) 8,700,000 N/A
Pro-forma Net (Loss)......................................
Income per Share................................... ($1.00) $0.92 N/A
Net (Loss) Applicable.....................................
to Common Stock.................................... (15,672,000) (1,216,000) N/A
Diluted Net Loss per Share................................
Applicable to Common Stock ($1.75) ($0.14) N/A
FINANCIAL POSITION........................................
Shareholders Equity....................................... 9,706,000 25,243,000 -61.5%
Total Assets ............................................. 189,226,000 176,200,000 7.4%
Working Capital .......................................... 27,092,000 22,278,000 21.6%
Number of Stores at End of Period ........................ 76 73 4.1%
Total Square Footage ..................................... 1,492,000 1,279,000 16.7%
</TABLE>
MARKET PRICES OF COMMON STOCK
The Company's common stock has been traded on the NASDAQ National
Market System since May 7, 1996 under the symbol LOEH. As of April 1, 1998,
there were approximately 100 shareholders of record of the Company's common
stock. The following table shows the high and low sales price for the Company's
common stock for each quarterly period from May 7, 1996, the date of the
Company's initial public offering, through January 30, 1998.
Fiscal Quarter Ended High Low
- -------------------- ---- ---
August 3, 1996 ................................ $28.125 $18.000
November 2, 1996 .............................. $30.000 $20.375
February 1, 1997 .............................. $31.000 $14.625
May 3, 1997 ................................... $19.500 $ 6.250
August 2, 1997 ................................ $ 8.250 $ 6.000
November 1, 1997 .............................. $10.125 $ 5.688
January 31, 1998 .............................. $ 7.875 $ 3.500
<PAGE>
On January 30, 1998, the closing market price of the Company's Common
Stock was $3.81. The Company has not paid dividends on its common stock or its
Class B Common Stock since inception and does not anticipate paying a cash
dividend in the foreseeable future. Certain of the Company's debt agreements
contain various covenants which may restrict the payment of cash dividends. On
April 1, 1998, the closing market price of the Company's Common Stock was
$4 3/8.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking
statements" within 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 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, terms
and development 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 report.
MANAGEMENT DISCUSSION AND ANALYSIS
LOEHMANN'S, INC.
RESULTS OF OPERATIONS
The table below sets forth certain financial data of the Company
expressed as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year (1)
---------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales ............................................ 100.0% 100.0% 100.0%
Gross margin ......................................... 28.4 31.9 31.1
Selling, general and administrative expenses ......... 25.1 23.0 23.2
Depreciation and amortization ........................ 2.6 2.8 3.1
Charge for store closings and impairment of assets ... 1.3 -- 4.0
Operating income ..................................... (0.6) 6.0 0.9
Interest expense, net ................................ 2.9 3.2 4.7
Income (loss) before income taxes .................... (3.5)% 2.8% (3.8)%
</TABLE>
- -------------
(1) Fiscal 1997 and 1996 had 52 weeks, and fiscal 1995 had 53 weeks. Numbers
may not total due to rounding.
<PAGE>
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased by approximately $25.6 million, or 6.1%, to $443.3
million during fiscal 1997 as compared to $417.8 million during fiscal 1996.
Comparable store sales (sales at stores that were in operation for both periods)
decreased by 6.8% during fiscal 1997 as compared to fiscal 1996. The increase in
reported net sales for fiscal 1997 is the result of sales from new stores,
offset by the effect of closed stores and the comparable store sales decrease of
6.8%. The Company opened 7 new stores if fiscal 1997 and 7 new stores in fiscal
1996, and closed 4 stores in fiscal 1997 and 3 stores in fiscal 1996.
Gross profit decreased by approximately $7.4 million to $125.8 million
during fiscal 1997 as compared to $133.1 million for fiscal 1996. Gross margin
decreased to 28.4% for fiscal 1997 from 31.9% in the prior fiscal year. The
decrease in gross margin is primarily the result of: (i) an increase in
markdowns which represents 2.7% of sales, and (ii) a one time charge which
represents 0.8% of sales, for the planned liquidation of inventory in ten stores
to be closed in 1998, and for the planned liquidation of inventory as part of
the Company's strategy to reposition its merchandise offerings.
Selling, general and administrative expenses increased by approximately
$15.1 million to $111.4 million during fiscal 1997 as compared to $96.3 million
for fiscal 1996. As a percentage of net sales, selling, general and
administrative expense increased to 25.1% in fiscal 1997 from 23.0% in the prior
year. The dollar increase in selling, general and administrative expenses was
primarily related to: (i) $17.4 million in store operating expenses related to
1996 and 1997 new stores including store payroll, occupancy and advertising
costs partially offset by (ii) $3.4 million primarily related to store closings.
The increase in selling, general and administrative expense as a percentage of
sales is primarily the result of higher relative occupancy costs as a percentage
of sales for new stores and the comparable store expansions.
Depreciation and amortization for fiscal 1997 described by
approximately $0.4 million to $11.4 million as compared to $11.8 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to: (i) a decrease in amortization of deferred financing fees
related to the refinancing of debt associated with the debt offering in fiscal
1996, (ii) an increase in depreciation related to the opening of the seven new
stores and the expansion and renovation of eight stores in fiscal 1997, (iii) a
lengthening of the estimated depreciable lives of assets for certain stores
whose primary lease terms were extended, and (iv) a decrease in depreciation
associated with the natural retirement of certain assets.
In connection with the Company's ongoing strategy to focus on larger,
more profitable stores, the Company provided for a charge in the amount of $5.7
million for the closing of ten stores during 1998. This charge consists of the
write off of property, plant, and equipment, closing expenses, and costs
associated with net lease obligations of $2.1 million, $0.6 million, and $3.0
million, respectively. See Note 9 to the Consolidated Financial Statements.
Operating (loss) income decreased by $27.7 million to $(2.7) million,
or (0.6)% of sales, in fiscal 1997 as compared to $25.0 million, or 6.0% of
sales, in fiscal 1996. The decrease in operating income as a percentage of sales
from 6.0% to (0.6)% in fiscal 1997 primarily consists of the following: (i) 1.3%
related to the charge for store closings, (ii) 2.1% related
<PAGE>
to selling, general, and administrative expenses primarily resulting from higher
occupancy costs as a percentage of sales associated with new and expanded
stores, and (iii) 3.5% related to a decrease in gross profit resulting from
higher markdowns and the planned liquidation of inventory to reposition its
merchandise offerings and for the closing of stores.
Interest expense decreased by $0.5 million to $12.8 million for fiscal
1997 as compared to $13.4 million for fiscal 1996. The reduction in net interest
expense primarily resulted from the effect of the Company's reduction of
approximately $30.0 million of senior notes and a reduction of the average
interest rate paid on the long term debt by approximately 60 basis points on May
7, 1996, partially offset by interest expense incurred on borrowings under the
revolving line of credit. See Note 4 of the Consolidated Financial Statements.
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales increased by approximately $31.7 million, or 8.2%, to $417.8
million during fiscal 1996 as compared to $386.1 million during fiscal 1995. The
reporting period for fiscal 1996 was comprised of 52 weeks while fiscal 1995 had
53 weeks. For the comparable 52 week period, sales increased 9.3%. Comparable
store sales (sales at stores that were in operation for both periods) increased
by 1.6% during fiscal 1996 as compared to fiscal 1995 on a 52 week basis. The
increase in reported net sales for fiscal 1996 was a result of the comparable
store increase of 1.6%, plus sales from new stores offset by the effect of
closed stores and the effect of the fifty third week of fiscal 1995. The Company
closed 11 stores in fiscal 1995 and 3 stores in fiscal 1996, two of which were
replaced by new stores.
Gross profit increased by approximately $12.9 million to $133.1 million
during fiscal 1996 as compared to $120.2 million for fiscal 1995. Gross margin
increased to 31.9% for fiscal 1996 from 31.1% in the prior fiscal year. The
increase in margin was primarily a result of a continuing shift in the Company's
sales mix towards merchandise with a higher average gross margin coupled with a
reduction of markdowns as a percentage of sales.
Selling, general and administrative expenses increased by approximately
$6.8 million to $96.3 million during fiscal 1996 as compared to $89.5 million
for fiscal 1995. As a percentage of net sales, selling, general and
administrative expenses decreased to 23.0% in fiscal 1996 from 23.2% in the
prior year. The dollar increase in selling, general and administrative expenses
was related to: (i) $1.7 million of pre-opening expenses associated with the
seven new stores opened in fiscal 1996; (ii) $3.7 million in store operating
expenses primarily related to new stores including occupancy and advertising
costs and (iii) $2.3 million primarily due to the Company's continued investment
in corporate infrastructure to support the new store program partially offset by
$0.9 million primarily related to cost recoveries associated with occupancy
expense.
Depreciation and amortization for fiscal 1996 decreased by
approximately $0.3 million to $11.8 million as compared to $12.1 million for the
prior fiscal year. The reduction in depreciation and amortization is
attributable to the closing of 11 stores in fiscal 1995, the effect of a $4.95
million asset impairment charge recorded in fiscal 1995, along with a reduction
in amortization expense resulting from the refinancing of debt associated with
the debt offering. See Note 3 to the Consolidated Financial Statements. This was
partially offset by additional depreciation associated with capital expenditures
in fiscal 1996 related to the opening of the seven new stores and renovations of
the Company's existing store base.
<PAGE>
Operating income increased by $21.7 million to $25.0 million for fiscal
1996 as compared to $3.3 million for fiscal 1995. Before the charges for store
closings and impairment of assets in fiscal 1995, operating income increased by
approximately $6.4 million to $25.0 million for fiscal 1996 from $18.6 million
for fiscal 1995. As a percentage of net sales, operating income before the
charges for store closings and impairment of assets increased to 6.0% from 4.8%.
The increase in operating income, before the charge for store closings and
impairment of assets, is primarily a result of new store contribution.
Interest expense decreased by $4.8 million to $13.4 million for fiscal
1996 as compared to $18.2 million for fiscal 1995. The reduction in net interest
expense primarily resulted from the Company's reduction of approximately $30.0
million of senior notes and a reduction of the average interest rate paid on the
senior notes by approximately 60 basis points, partially offset by interest
expense incurred on borrowings under the revolving line of credit. 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 (the "Redemption"). Additionally, the
reduction in net interest expense resulted from an increase in interest income
earned on invested cash and $0.6 million interest capitalized on fixed asset
additions. As a result of the Redemption, 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.
In fiscal 1996, the Company utilized approximately $5.0 million of tax
net operating losses. See Note 2 of the Consolidated Financial Statements.
QUARTERLY RESULTS AND SEASONALITY
While the Company's net sales do not show significant seasonal
variation, the Company's operating income has traditionally been significantly
higher in its first and third fiscal quarters. The Company believes that its
merchandise is purchased primarily by women who are buying for their own
wardrobes rather than as gifts. As a result, the Company does not experience
increases in net sales during the Christmas shopping season. Results of
operations during the second and fourth quarters are traditionally impacted by
end of season clearance events. In addition, fourth quarter operations can be
affected by employee performance bonuses.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 31, 1998. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
--------------------------------------------------------------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(In thousands, except per share data)
Unaudited
STATEMENT OF OPERATIONS DATA
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ....................... $ 104,120 $ 90,652 $ 114,393 $ 108,593 $ 112,595 $ 95,292 $ 126,495 $ 108,928
Gross profit .................... 33,734 28,100 37,349 33,938 35,106 25,621 40,465 24,570
<PAGE>
Selling, general and
administrative expenses (1)... 23,885 20,802 25,528 26,078 28,868 24,393 30,053 28,056
Depreciation and amortization.... 3,148 2,899 2,845 2,956 2,864 2,668 2,946 2,955
Non-recurring charge............. - - - - - - - 5,660
Operating income (loss) ......... 6,702 4,399 8,976 4,903 3,374 (1,440) 7,466 (12,101)
Interest expense ................ 4,231 3,759 2,698 2,673 2,972 3,140 3,278 3,455
Income (loss) before
extraordinary item ........... 2,421 630 6,274 2,228 380 (4,587) 4,122 (15,587)
Extraordinary loss for early
retirement of debt ........... - 7,101 - - - - - -
Net income (loss) ............... $ 1,835 $ (11,553) $ 6,274 $ 2,228 $ 380 $ (4,587) $ 4,122 $ (15,587)
Basic earnings (loss) per share
before extraordinary item........ $ 0.35 $ (0.51) $ 0.71 $ 0.25 $ 0.04 $ (0.51) $ 0.46 $ (1.73)
Basic earnings (loss) per share
after extraordinary item $ 0.35 $ (1.33) $ 0.71 $ 0.25 $ 0.04 $ (0.51) $ 0.46 $ (1.73)
Diluted earnings (loss) per share
before extraordinary item..... $ 0.31 $ (0.51) $ 0.66 $ 0.23 $ 0.04 $ (0.51) $ 0.45 $ (1.73)
Diluted earnings (loss) per share $ 0.31 $ (1.33) $ 0.66 $ 0.23 $ 0.04 $ (0.51) $ 0.45 $ (1.73)
after extraordinary item
</TABLE>
- -----------------
(1) Reflects income of $0.5 million of occupancy-related cost recovery items in
the fourth quarter of fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities totaled $7.5 million for fiscal
1997 of which $9.2 million was for an increase in inventory related primarily to
the opening of seven new stores and the expansion of eight comparable stores
during the year. Net cash used in investing activities was $16.7 million in
fiscal 1997, principally related to the new store and expansion store activity
during the year. Net cash used for operating and investing activities was
financed primarily by the increase in borrowings of $23.6 million under the
Company's revolving credit facility.
In February 1998, the Company amended its credit agreement with its
bank to provide for: (i) the elimination of all financial covenants related to
the Credit Facility, (ii) an increase in the Credit Facility to $50.0 million,
and (iii) an extension of the term of the Credit Facility to June 2001. See Note
4 of the Consolidated Financial Statements. At January 31, 1998, outstanding
borrowings under the Credit Facility were approximately $33.8 million. The
Company believes that cash generated from operations together with funds
available under the Credit Facility will be sufficient to satisfy its cash
requirements in fiscal 1998. In addition, the Company has reduced its capital
expenditure requirements for fiscal 1998 to $9.0 million by decreasing its new
store and comparable store expansion program, and has put special emphasis
toward inventory management in order to maintain control over markdown
requirements during fiscal 1998.
YEAR 2000
The Company presently believes that the year 2000 issue will not pose
significant operational problems for its computer systems. The Company has
outside service contracts to maintain its computer software programs and expects
that all modifications and conversions will be completed on a timely basis. The
total dollar amount that the company estimates will be spent to address its year
2000 issues is not expected to have a material financial impact.
<PAGE>
However, if such modifications and conversions are not made, or are not
completed in a timely manner, the year 2000 issue could have a material adverse
impact upon Company operations.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Loehmann's, Inc.
We have audited the accompanying consolidated balance sheets of
Loehmann's Inc. as of January 31, 1998, and February 1, 1997, and the related
consolidated statements of operations, changes in common stockholders' equity
(deficit) and cash flows for the fiscal years ended January 31, 1998, February
1, 1997, and February 3, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Loehmann's Inc. at January 31, 1998 and February 1, 1997, and the consolidated
results of its operations and cash flows for the fiscal years ended January 31,
1998, February 1, 1997, and February 3, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
March 6, 1998
- --------------------------------------------------------------------------------
<PAGE>
CONSOLIDATED BALANCE SHEETS
Loehmann's, Inc.
<TABLE>
<CAPTION>
January 31, February 1,
1998 1997
----------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents........................................ $ 1,767 $ 2,292
Accounts receivable and other assets............................. 5,575 4,400
Merchandise inventory............................................ 67,521 58,304
Total current assets................................................. 74,863 64,996
Property, equipment and leaseholds, net.............................. 71,612 66,515
Deferred debt issuance costs and other assets, net................... 3,228 3,870
Purchase price in excess of net assets acquired, net................. 39,523 40,819
----------------------------------------
$ 189,226 $ 176,200
Total assets......................................................... ----------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable................................................. $ 21,570 $ 19,634
Accrued expenses................................................. 23,632 20,484
Accrued interest................................................. 2,496 2,530
Current portion of long-term debt................................ 73 70
Total current liabilities............................................ 47,771 42,718
Long-term debt:
Revolving line of credit......................................... 33,771 10,188
117/8% senior notes.............................................. 95,000 95,000
Revenue bonds and notes.......................................... 2,589 2,662
Total long-term debt................................................. 131,360 107,850
Other noncurrent liabilities......................................... 389 389
Common stockholders' equity:
Common stock, 25,000,000 shares authorized; 8,976,932
and 8,756,739 shares issued and outstanding at
January 31, 1998, and February 1, 1997, respectively........... 89 87
Class B convertible common stock, 469,237 shares
authorized, 48,431 and 142,277 at January 31, 1998,
and February 1, 1997, respectively............................. 244 713
Additional paid-in capital....................................... 81,597 80,995
Accumulated deficit.............................................. (72,224) (56,552)
Total common stockholders' equity.................................... 9,706 25,243
----------------------------------------
Total liabilities and common stockholders' equity.................... $ 189,226 $ 176,200
----------------------------------------
</TABLE>
- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
Loehmann's, Inc.
<TABLE>
<CAPTION>
Fiscal year ended
--------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net Sales............................................................ $ 443,310 $ 417,758 $ 386,090
Cost of sales........................................................ 317,548 284,637 265,889
Gross profit......................................................... 125,762 133,121 120,201
Selling, general and administrative expenses......................... 111,370 96,293 89,485
Depreciation and amortization........................................ 11,433 11,848 12,120
Charge for store closings and impairment assets...................... 5,660 -- 15,300
Operating income..................................................... (2,701) 24,980 3,296
Interest expense, net................................................ 12,845 13,361 18,153
Income (loss) before income taxes.................................... (15,546) 11,619 (14,857)
Provision for income taxes........................................... 126 66 106
Income (loss) before extraordinary item.............................. (15,672) 11,553 (14,963)
Extraordinary loss on early extinguishment of debt................... -- 7,101 --
Net income (loss).................................................... (15,672) 4,452 (14,963)
Stock dividends on and normal and accelerated accretion of
preferred stock...................................................... -- 5,668 2,056
$ (15,672) $ (1,216) $ (17,019)
Net loss applicable to common stock.................................. ---------------- ---------------- ----------------
Basic (loss) earnings per share before extraordinary item............ $ (1.75) $ 0.74 $ (3.12)
Basic (loss) per share after extraordinary item...................... $ (1.75) $ (0.15) $ (3.12)
Diluted (loss) earnings per share before extraordinary item.......... $ (1.75) $ 0.69 $ (3.12)
Diluted (loss) per share after extraordinary item.................... $ (1.75) $ (0.14) $ (3.12)
Weighted average number of common shares outstanding................. 8,961 7,901 5,463
Weighted average number of common shares and common 8,961 8,529 5,463
share equivalents outstanding........................................ ---------------- ---------------- ----------------
</TABLE>
- ------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Loehmann's, Inc.
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK COMMON STOCK
----------------------- ---------------------- Additional
Number of Number of Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Totals
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) ------------- -------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances as of January 28, 1995.......... 4,704,089 $47 469,237 $ 2,352 $23,636 $(38,317) $ (12,282)
Stock options earned..................... -- -- -- -- 199 -- 199
Exercise of stock options................ 21,331 -- -- -- 22 -- 22
Net loss for the fiscal year ended
February 3, 1996..................... -- -- -- -- -- (14,963) (14,963)
Dividend on and accretion of preferred
stock................................ -- -- -- -- -- (2,056) (2,056)
Balances as of February 3, 1996.......... 4,725,420 47 469,237 2,352 23,857 (55,336) (29,080)
Issuance of common stock................. 3,572,000 36 -- -- 55,343 -- 55,379
Exercise of stock options................ 132,359 1 -- -- 159 -- 160
Conversion of Class B common stock....... 326,960 3 (326,960) (1,639) 1,636 -- --
Net income for the fiscal year ended
February 1, 1997..................... -- -- -- -- -- 4,452 4,452
Dividend on and accretion of preferred
stock................................ -- -- -- -- -- (5,668) (5,668)
Balances as of February 1, 1997.......... 8,756,739 87 142,277 713 80,995 (56,552) 25,243
Exercise of stock options................ 126,347 1 -- -- 134 -- 135
Conversion of Class B common stock....... 93,846 1 (93,846) (469) 468 -- --
Net loss for the fiscal year ended
January 31, 1998..................... -- -- -- -- -- (15,672) (15,672)
------------- -------- --------- --------- ---------- ----------- ----------
Balances as of January 31, 1998 8,976,932 $89 48,431 $ 244 $81,597 $(72,224) $ 9,706
</TABLE>
- ----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Loehmann's, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
January 31, February 1, February 3,
1998 1997 1996
-----------------------------------------------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss)........................................................ $ (15,672) $ 4,452 $ (14,963)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization..................................... 11,433 11,848 12,120
Accretion of 10 1/2% senior secured notes......................... -- 510 1,328
Charges for store closings, impairment of assets and other........ 2,110 -- 10,538
Loss on early retirement of 10 1/2% senior secured notes and
13 3/4% senior subordinated notes............................ -- 7,101 --
Changes in assets and liabilities:
Accounts receivable and other assets......................... (1,175) (2,678) 678
Merchandise inventory........................................ (9,217) (14,583) 417
Accounts payable............................................. 1,936 (1,840) (276)
Accrued expenses............................................. 3,148 3,775 (3)
Accrued interest............................................. (34) (4,507) 250
Net change in current assets and liabilities............................. 8,201 (19,833) 1,066
Net change in other noncurrent assets and liabilities.................... (15) 549 (627)
Total adjustments........................................................ 8,186 175 24,425
-----------------------------------------------------
Net cash (used in) provided by operations (7,486) 4,627 9,462
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................................... (16,687) (16,037) (8,130)
Net cash used in investing activities.................................... (16,687) (16,037) (8,130)
-----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on revolving credit facilities................................ 23,583 10,188 --
Redemption of 10 1/2% senior secured notes............................... -- (55,905) (1,584)
Redemption of 13 3/4% senior subordinated notes.......................... (78,325) --
Redemption of 117/8% senior notes........................................ (5,165) --
Sale of 117/8% senior notes, net of issuance costs....................... 95,863 --
Redemption of Series A Preferred Stock................................... (20,947) --
Sale of common stock..................................................... 135 55,379 --
Other financing activities, net.......................................... (70) 102 (58)
-----------------------------------------------------
Net cash provided by (used in) financing activities...................... 23,648 1,190 (1,642)
-----------------------------------------------------
Net (decrease) increase in cash and cash equivalents..................... (525) (10,220) (310)
Cash and cash equivalents at beginning of period......................... $ 2,292 $ 12,512 $ 12,822
Cash and cash equivalents at end of period............................... $ 1,767 $ 2,292 $ 12,512
-----------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the fiscal year for interest............................ $ 13,212 $ 18,807 $ 16,845
Cash paid during the fiscal year for income taxes........................ $ 233 $ 218 $ 103
-----------------------------------------------------
</TABLE>
- ------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loehmann's, Inc.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Effective May 7, 1996, the Company effected a reincorporation from
Maryland, to Delaware by Loehmann's Holdings, Inc. ("Holdings"), the Company's
predecessor, merging into the Company (the "Merger"). As a result of the Merger,
each share of Holdings common stock and Class B common stock was converted into
approximately 0.22 shares of the Company's common and Class B common and the
authorized number of common 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 Merger.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany items
have been eliminated.
FISCAL YEAR
The Company follows the standard fiscal year of the retail industry
which is a 52 or 53 week period ending on Saturday closest to January 31. Fiscal
years ended January 31, 1998, February 1, 1997 and February 3, 1996 had 52
weeks, 52 weeks and 53 weeks, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid marketable securities purchased
with an original maturity of three months or less to be cash and cash
equivalents.
MERCHANDISE INVENTORY
Merchandise inventory is valued at the lower of cost or market as
determined by the retail inventory method. However, certain warehoused inventory
that is not available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at January 31, 1998 and
February 1, 1997 was $20.1 million and $11.9 million, respectively.
<PAGE>
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. Advertising costs were
$15.4 million, $14.8 million and $13.0 million during fiscal years 1997, 1996
and 1995, respectively.
DEPRECIATION AND AMORTIZATION
Building and furniture, fixtures and equipment are depreciated on a
straight-line basis over their estimated useful lives. Leasehold interests
represent the beneficial value of operating leases as determined by an
independent appraisal of the individual leases at the date such leases were
acquired by the Company and such amounts are amortized on a straight-line basis
over the related lease term.
Leasehold improvements are amortized on a straight-line basis over the
shorter of the related lease terms or their useful life.
PRE-OPENING COSTS
Expenses incurred in connection with the opening of new stores are
expensed in the fiscal quarter in which the store opens. In fiscal 1997 and 1996
the Company incurred $1.3 million and $1.7 million respectively in pre-opening
costs. No pre-opening costs were incurred in fiscal 1995.
PURCHASE PRICE IN EXCESS OF NET ASSETS ACQUIRED, NET
The purchase price in excess of identifiable net assets acquired is
being amortized on a straight-line basis over 40 years. Amortization for fiscal
years 1997, 1996 and 1995 amounted to $1.3 million annually. Accumulated
amortization at January 31, 1998 and February 1, 1997 was $12.2 million and
$10.9 million, respectively.
CLASS B COMMON STOCK
Each share of Class B Common Stock is convertible into one share of
Common Stock, subject to adjustment at any time. During fiscal 1997,
approximately 93,846 shares of Class B Common Stock were converted. The
Company's various credit agreements prohibit or restrict any such repurchase.
CAPITALIZED INTEREST
Interest on borrowed funds is capitalized during construction of
property and is amortized on a straightline basis over the depreciable lives of
the related assets. Interest of $397,000 and $640,000 was capitalized during
fiscal 1997 and fiscal 1996, respectively. Interest capitalized during fiscal
1995 was not material.
DEFERRED DEBT ISSUANCE COSTS
Deferred debt issuance costs are amortized over the terms of the
related debt agreements. Deferred debt issuance costs were $4.2 million at
January 31, 1998 and $4.1 million at February 1, 1997. Amortization expenses for
fiscal years 1997, 1996, and 1995 amounted to
<PAGE>
$0.6 million, $0.8 million and $1.2 million, respectively. Total accumulated
amortization at January 31, 1998 and February 1, 1997 amounted to $1.1 million
and $0.5 million respectively.
INCOME TAXES
Income taxes are provided using the liability method.
NET LOSS PER SHARE OF COMMON STOCK
Basic EPS is determined by dividing net income/loss (after deducting
dividends on and accretion of preferred stock) by the weighted average number of
Common and Class B Common shares outstanding during the period. Diluted EPS is
determined by dividing net income/loss (after deducting dividends on and
accretion of preferred stock) by the weighted average number of Common and Class
B Common shares and common stock equivalents outstanding during the period.
Outstanding options to purchase Common Stock were not considered in the
calculation of Diluted EPS for fiscal 1997 and fiscal 1995, as their effects
were antidilutive.
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements (see Note 6). The adoption of Financial Accounting Standards Board
Statement No. 128 did not have a material adverse effect upon the Company's
financial statements.
2. INCOME TAXES
The Company's provision for income taxes primarily represents state and
local minimum and alternative minimum taxes.
<PAGE>
Significant components of deferred tax liabilities and assets are as
follows:
January 31, February 1,
1998 1997
-----------------------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards ..............$ 12,251 $ 8,146
Excess book depreciation and amortization ..... 4,365 6,037
Store closing reserve.......................... 3,643 4
Compensation .................................. -- 925
Capitalization of inventory expenses .......... 711 617
Other, net .................................... 996 429
Total deferred tax assets ......................... 21,966 16,158
Deferred tax liabilities .......................... (269) (205)
Net deferred tax assets ........................... 21,696 15,953
Less valuation allowance .......................... (21,696) (15,953)
$ -- $ --
-----------------------------
Following is a reconciliation of the statutory Federal income tax rate and the
effective income tax rate application to earnings before income taxes:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
-------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate ...................................... 35.0% 35.0% 35.0%
Tax effect of extraordinary item ........................ -- (21.4) --
Utilization of net operating loss carry forward ......... -- (17.8)% --
Valuation allowance adjustment .......................... (32.4) -- (31.9)
Goodwill ................................................ (3.0) 3.9 (3.2)
Other, net............................................... (0.4) 0.9 (0.6)
Effective tax rate ...................................... (0.8)% 0.6% (0.7)%
</TABLE>
At January 31, 1998, the Company had net operating loss carryforwards
of approximately $31.3 million and $24.5 million for regular and alternative
minimum tax purposes, respectively. Net operating losses begin to expire in 2003
and future years.
3. 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 the Company's 10-1/2% Senior Secured Notes, at a
redemption price of 103.5%, (ii) to redeem in full the Company's 13-3/4% Senior
Subordinated Notes at a redemption price of 101.0%, 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 (collectively, the "Existing Obligations").
<PAGE>
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.
4. LONG-TERM DEBT
The Company's long-term debt consists of:
January 31, February 1,
1998 1997
---------- -----------
(In thousands)
Revolving line of Credit(a) ........................ $ 33,771 $ 10,188
117/8 senior notes, due 2003(b)..................... 95,000 95,000
9 1/2% New York City Industrial Development
Agency revenue bonds, due 2004.................... 2,250 2,250
5 1/2% City of New York note due in varying
installments to 2004.............................. 412 482
---------- -----------
131,433 107,920
Less current maturities............................. 73 70
---------- -----------
Long-term debt...................................... $131,360 $107,850
---------- -----------
- ---------------
(a) In February 1998, the Company amended its credit agreement with its bank
(the "Credit Facility") to provide for: (i) the elimination of all financial
covenants under the Credit Facility, (ii) an extension of the term of the
Credit Facility to June 2001, and (iii) an increase in the Credit Facility
to $50.0 million with interest at either the Bank's prime rate plus 0.75%,
or LIBOR plus 2.2% at the Company's option. The Credit Facility is subject
to certain borrowing base limitations, and imposes certain other limitations
on the Company. The Credit Facility is secured by substantially all of the
Company's assets and is not subject to scheduled repayments, except upon
maturity. At January 31, 1998, the Company's outstanding amounts under
letters of credit were $1,719,563.
(b) Interest is payable semiannually on May 15 and November 15 in each year. The
Company is entitled to redeem the Notes commencing May 15, 2000 at
redemption prices of 105.938%, 102.969% and 100% of the principal amount
during 2000, 2001 and 2002, respectively.
The Senior Notes Indenture contains certain covenants that, among other
things, limit the ability of the Company 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.
<PAGE>
Based on a quoted market price of 104.4%, the fair value of the 117/8 senior
notes outstanding at January 31, 1998 approximated $99.1 million.
During the second quarter of 1996, the Company purchased and retired $5.0
million face amount of the 117/8% senior notes on the open market incurring
an extraordinary loss of approximately $365,000 in connection with this
purchase.
5. PROPERTY, EQUIPMENT AND LEASEHOLDS, NET
Property, equipment and leaseholds are recorded at cost less
accumulated depreciation and amortization. The components of property, equipment
and leaseholds are as follows:
Useful January 31, February 1,
Lives 1998 1997
--------- ----------- -----------
(In years) (In thousands)
Building ................................... 20 $ 7,879 $ 7,879
Furniture, fixtures and equipment .......... 3-8 44,246 35,835
Leasehold interests......................... 5-29 45,853 51,781
Leasehold improvements ..................... 5-29 33,332 28,675
Total property, equipment and leaseholds.... 131,010 124,170
Accumulated depreciation and amortization... (59,698) (57,655)
Property, equipment and leaseholds, net..... $ 71,612 $ 66,515
<PAGE>
6. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
(loss) earnings per share:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
-------------------------------------------------
<S> <C> <C> <C>
NUMERATOR
Net operating (loss) income................................. $ (15,672) $ 11,553 $ (14,963)
Preferred stock dividends on and normal and
accelerated accretion................................... -- 5,668 2,056
Numerator for basic and diluted (loss) earnings
per share before extraordinary item..................... (15,672) 5,885 (17,019)
Extraordinary item.......................................... -- 7,101 --
Numerator for basic and diluted (loss) per share
after extraordinary item................................ (15,672) (1,216) (17,019)
DENOMINATOR
Denominator for basic (loss) earnings per share
-- weighted average shares.............................. 8,961 7,901 5,463
Effect of dilutive securities:
Employee stock options.................................. -- 628 --
Dilutive potential common shares........................ -- 628 --
Denominator for diluted (loss) earnings per
share -- adjusted weighted average shares
and assumed conversions................................. $ 8,961 $ 8,529 $ 5,463
Basic (loss) earnings per share before
extraordinary item...................................... $ (1.75) $ 0.74 $ (3.12)
Basic (loss) per share after extraordinary item............. $ (1.75) $ (0.15) $ (3.12)
Diluted (loss) earnings per share before
extraordinary item...................................... $ (1.75) $ 0.69 $ (3.12)
Diluted (loss) per share after extraordinary item........... $ (1.75) $ (0.14) $ (3.12)
</TABLE>
Options to purchase 858,179 shares of common stock at an average price of $7.63
per share were outstanding at January 31, 1998, but were not included in the
computation of diluted loss per share because the effect would be antidilutive.
Options to purchase 464,643 shares of common stock at an average price of $1.65
per share were outstanding at February 3, 1996, but were not included in the
computation of diluted loss per share because the effect would be antidilutive.
7. STOCK OPTION PLANS
On September 30, 1988, the Company adopted the Loehmann's Holdings,
Inc. 1988 Stock Option Plan, as amended on April 2, 1992, pursuant to which a
committee appointed by the Board of Directors is authorized to grant options to
purchase up to 1,077,010 shares of Common Stock to key employees and directors.
On May 7, 1996, the Company adopted the Loehmann's, Inc. New Stock Incentive
Plan (the "New Stock Option Plan") as amended on June 19, 1997. A maximum of
646,892 shares of Common Stock may be delivered by the Company pursuant to
options or other awards authorized by a committee appointed by the Board of
Directors. On June 19, 1997, the Company adopted the Loehmann's, Inc. Director's
Stock Option Plan. A maximum of 250,000 shares of Common Stock may be delivered
by the Company pursuant to options or other awards authorized by a committee
appointed by the Board of Directors.
<PAGE>
The following information pertains to the Company's stock option plans:
<TABLE>
<CAPTION>
January 31, February 1, February 3,
1998 1997 1996
-------------------------- ------------------------------ ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------ ------------- ------------- ---------------- ------------- -------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding options,
beginning of year .............. 875 $ 7.00 729 $ 2.77 604 $ 1.37
Granted .......................... 147 8.58 324 17.74 264 4.76
Canceled ......................... (38) 14.86 (46) 17.96 (120) 1.07
Exercised......................... (126) 1.18 (132) 1.20 (19) 1.36
Outstanding options,
end of year .................... 858 $ 7.63 875 $ 7.00 729 $ 2.77
Options exercisable, end
of year ........................ 474 $ 4.59 450 $ 3.02 432 $ 2.30
Options available for
future grant ..................... 423 N/A 77 N/A 42 N/A
</TABLE>
Stock options are granted to officers and key employees based upon a
price determined by the Board of Directors of the Company. Compensation expense
is recorded in the period that options are earned.
The 858,179 options outstanding at January 31, 1998, vest over a range
of two to five years from the date of grant provided the individuals remain in
the employ of the Company. Options are exercisable at a price ranging from $1.07
to $23.13. Options issued under the 1988 Stock Option Plan generally must be
exercised within five years from the date they are earned. Options issued under
the New Stock Option Plan must be exercised prior to the tenth anniversary of
the grant date.
The Company has elected to follow APB 25 and related interpretations in
accounting for stock options and accordingly has recognized no compensation
expense. Had compensation cost been determined based upon the fair value at
grant date for awards consistent with the methodology prescribed by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the Company would have incurred an additional compensation cost
of $1.0 million or $0.11 per share for fiscal 1997, $0.6 million or $0.07 per
share for fiscal 1996, and $0.1 million or $0.01 per share for fiscal 1995.
The fair value of these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following assumptions for
fiscal 1997, 1996 and 1995: risk-free interest rate of 6.3%, an expected life of
3 to 7 years and a dividend yield of zero. For fiscal 1997, 1996 and 1995,
volatility was 85.8%, 58.0% and 38.7%, respectively.
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
The Company is the lessee under various long-term operating leases for
store locations and equipment rentals for up to 29 years, including renewal
options. The leases typically provide for three five-year renewals that are
automatic unless the Company elects to terminate the lease. Rent expense related
to these leases amounted to $15.4 million, $10.1 million and $8.1 million for
the fiscal years ended January 31, 1998, February 1, 1997 and February 3, 1996,
respectively. Future minimum payments under noncancelable operating leases
consisted of the following at January 31, 1998:
(IN THOUSANDS)
1998 $ 15,993
1999 15,644
2000 14,818
2001 13,969
2002 13,876
Thereafter 154,026
--------------
Total $ 228,326
9. CHARGE FOR STORE CLOSINGS
During the fourth quarter of fiscal 1997, the Company implemented a
plan to close ten underperforming stores and, as a result, recorded a $5.7
million charge to continuing operations. These closures are intended to improve
the Company's liquidity and future operating profitability.
The store closures will be materially completed by the end of March
1998. Net sales and store operating income (loss), including certain
specifically allocated charges, for these stores were $21.3 million and $(0.8)
million, respectively, in fiscal 1997, $24.9 million and $1.5 million,
respectively, in fiscal 1996 and, $26.2 million and $1.2 million, respectively,
in fiscal 1995.
The charge for store closings consisted of write-offs of property,
plant and equipment, costs associated with net lease obligations and other
expenses of $2.1 million, $3.0 million and $0.6 million, respectively.
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 remaining at February 3, 1996 relating to long-term lease commitments
were not material. Net sales and store operating income (loss), including
certain specifically allocated charges, for these stores were $8.2 million and
$0.1 million, respectively, in fiscal 1995.
The charge for store closings consisted of write-offs of property,
plant and equipment, markdowns associated with store closings, costs associated
with net lease obligations and other expenses of $5.5 million, $3.6 million,
$0.95 million and $0.3 million, respectively.
<PAGE>
10. CHARGE FOR IMPAIRMENT OF ASSETS
During the second quarter of fiscal 1995, the Company completed certain
market analyses as part of its overall strategic plan. As an outcome of these
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 an impairment loss of approximately
$4.95 million to continuing operations, representing the excess net book value
of these assets over their fair value. Fair value was based on appraisal value.
The impairment charge consisted of leasehold interests, furniture,
fixtures and equipment and leasehold improvements of $4.45 million, $0.25
million and $0.25 million, respectively.
11. EMPLOYEE BENEFIT PLANS
In October 1996, the Company established a defined contribution
retirement savings plan (401(k)) covering all eligible employees. This plan
succeeds the previously discretionary profit sharing plan with all prior
individual account balances and vesting terms transferred to the new plan. The
plan allows participants to defer a portion of their annual compensation and
receive a matching employer contribution on a portion of that deferral. During
fiscal 1997 and fiscal 1996, the Company recorded contributions of $209,000 and
$71,000, respectively, to the 401(k) plan. The Company recorded a contribution
of $500,000 to the profit sharing plan in fiscal 1995.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Loehmann's, Inc. 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net Sales .......................................... $ 443,310 $ 417,758 $ 386,090 $ 392,606 $ 373,443
Net loss applicable to common stock ................ $ 15,672 $ 1,216 $ 17,019 $ 3,308 $ 13,727
Diluted net loss per share applicable to
common stock ..................................... $ 1.75 $ 0.14 $ 3.12 $ 0.63 $ 2.18
Total Assets ....................................... $ 189,226 $ 176,200 $ 163,611 $ 178,612 $ 177,666
Long-term obligations .............................. $ 131,360 $ 107,650 $ 131,733 $ 131,967 $ 130,827
Redeemable Series A preferred stock ................ -- -- $ 15,279 $ 13,223 $ 11,421
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Loehmann's, Inc. of our report dated March 6, 1998, included in
the 1997 Annual Report to Stockholders of Loehmann's, Inc.
We also consent to the incorporation by reference in Registration
Statements (Form S-8 Numbers 333-31701, 333-05751 and 333-05749) of Loehmann's,
Inc. of our report dated March 6, 1998, with respect to the consolidated
statements incorporated herein by reference.
/s/ Ernst & Young LLP
---------------------
New York, New York
May 1, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-K and is qualified in it entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> JAN-31-1998
<CASH> 1,767
<SECURITIES> 0
<RECEIVABLES>(1) 5,575
<ALLOWANCES> 0
<INVENTORY> 67,521
<CURRENT-ASSETS> 74,863
<PP&E,NET>(2) 71,612
<ACC DEP> 0
<TOTAL-ASSETS> 189,226
<CURRENT-LIABILITIES> 47,771
<BONDS> 95,000
0
0
<COMMON> 89
<OTHER-SE> 9,617
<TOTAL-LIABILITY-AND-EQUITY> 189,226
<SALES> 443,310
<TOTAL-REVENUES> 443,310
<CGS> 317,548
<TOTAL-COSTS> 317,548
<OTHER-EXPENSES> 128,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,845
<INCOME-PRETAX> (15,546)
<INCOME-TAX> 126
<INCOME-CONTINUING> (15,672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,672)
<EPS-PRIMARY> (1.75)
<EPS-DILUTED> (1.75)
(1) Receivables shown net of allowances.
(2) PP&E is net of accumulated depreciation.
</TABLE>
