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 30, 1999
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 Rights to Purchase Series B Preferred 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. [X]
The aggregate market value of voting stock held by nonaffiliates of
registrant as of April 14, 1999 was $10,956,279.
The Company had 9,052,607 shares of Common Stock and 26,087 shares of
Class B Common Stock outstanding as of April 15, 1999.
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.
<PAGE>
PART I.
ITEM 1. BUSINESS
Loehmann's, Inc. ("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 is one of the largest national
upscale off-price specialty retailers in the industry. The Company has a strong
brand name, loyal customer base and long-standing relationships with leading
designers and vendors of quality merchandise. The Company's target customers are
relatively affluent women between the ages of 30 and 55 who are attracted to
designer and other name brand merchandise offered at exceptional values. As of
April 12, 1999 the Company operated 69 stores in major metropolitan markets
located in 22 states.
INDUSTRY OVERVIEW
WOMEN'S APPAREL
According to published reports, total retail sales of women's apparel
and accessories in the United States were in excess of $92.0 billion in 1998.
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 and Harve Benard. 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
selective about which retailers carry their products.
OTHER PRODUCTS
The men's apparel industry includes tailored apparel (suits,
formalwear, slacks, sportcoats and outer wear), sportswear (casual pants,
sportshirts, sweaters and jackets) and furnishings (dress shirts, ties, belts,
suspenders, underwear, socks, scarves and gloves). Loehmann's offers primarily
men's furnishings to its customers.
The men's furnishings industry is served by a variety of distribution
channels including department stores, specialty menswear stores, off-price
retailers and catalog retailers. The
<PAGE>
Company offers primarily designer and name brand men's furnishings, which are
generally sold in finer department stores and specialty stores such as
Bloomingdale's, Lord & Taylor, Nordstrom, Saks Fifth Avenue and Brooks Brothers.
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.
The Company believes that it differentiates itself from finer department stores
by offering similar merchandise at significantly lower prices and from other
off-price apparel retailers by offering a broader range of designer, bridge and
better merchandise. The principal elements of the Company's business strategy
are as follows:
EMPHASIS ON IN-SEASON HIGH QUALITY MERCHANDISE
The Company offers a wide selection of in-season, high-quality, name
brand merchandise. The Company, like finer department stores, is known for
carrying name brand merchandise, including Donna Karan, Calvin Klein, Ralph
Lauren, Adrienne Vittadini, Tahari, Dana Buchman, 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 prices charged
by other off-price retailers.
CAPITALIZE ON LONG-STANDING VENDOR RELATIONSHIPS
Loehmann's believes that it is 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.
BROADER MERCHANDISE CATEGORIES
The Company has broadened its appeal over the past several years by
expanding its merchandise mix to include gifts, shoes, young contemporary,
fragrances 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 19% of the Company's net sales
in fiscal 1998, an increase from 16% in fiscal 1994. In addition, in 1997 the
Company introduced men's wear at 19 of its locations and expanded to 52
locations in 1998.
MARKETING
The Company has intensified its marketing programs with the objective
of increasing its customer base. The focus of the marketing program is
primarily: 1) to reactivate existing customers whose shopping frequency has
decreased, 2) to prospect for new customers, particularly in new and expansion
store markets and 3) to nurture customer loyalty among existing Loehmann's
frequent shoppers.
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NO-FRILLS STORE FORMAT
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, self-service store format. All stores are low maintenance,
simple, and functional facilities designed to maximize selling space and contain
overhead costs.
NEW STORE FORMAT
In fiscal 1998, the Company opened new stores in Cleveland, Ohio,
Cincinnati, Ohio and Long Beach, California and completed the expansion of two
others. As part of the Company's ongoing strategy to focus on larger,
approximately 25,000 square foot stores, the Company closed ten stores in 1998.
The Company does not plan to open or expand any new stores in 1999.
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.
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.
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 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 some of the
name brands offered at the Company's stores:
Adrienne Vittadini Dana Buchman Jones NY
A Line by Anne Klein DKNY Oleg Cassini
Anne Klein II Donna Karan Ralph Lauren
Calvin Klein Emmanuel Ungaro Tahari
CK/Calvin Klein Harve Benard
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The following table shows the percentages of the Company's net sales
attributable to its various product categories for fiscal 1994 through fiscal
1998:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sportswear ......................... 48.8% 47.6% 48.1% 47.8% 47.0%
Dresses and suits .................. 26.5 26.0 24.6 22.9 17.3
Coats and outerwear ................ 5.2 5.1 5.0 4.7 4.4
Accessories/intimate apparel ....... 13.0 14.5 14.6 13.6 13.0
Shoes .............................. 3.4 5.5 5.8 6.5 6.1
Men's .............................. - - - 2.5 7.6
Gifts............................... - - .3 .6 1.7
Other .............................. 3.1 1.3 1.6 1.4 2.9
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 display adequately the
merchandise.
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 has historically used a cyclical markdown policy to reduce
prices automatically as goods age. This policy has been modified slightly, as
the prices of goods that are selling well are no longer automatically reduced at
pre-determined time intervals. The purpose of this policy is to improve
inventory turnover and minimize the amount of unsold 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
Due to its high quality image and affluent customer base, the Company
believes it is a principal choice for well known designers who believe that
their image will be preserved by having their merchandise offered by Loehmann's.
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.
<PAGE>
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. Although the
Company has always been able to fulfill its inventory needs, its opportunistic
purchasing strategy does not always permit Loehmann's to purchase specific types
of goods. For example, certain types of popular merchandise may be unavailable
in certain sizes or colors depending on market conditions.
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 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 name brand
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 18
experienced off-price 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
intimate area called AThe Back Room. The Company presents moderate and better
sportswear, dresses and suits, as well as all outerwear, men's, 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.
<PAGE>
All stores are low maintenance, simple, and functional facilities
designed to maximize selling space and contain overhead costs. The Company has
moved towards a model store format of approximately 25,000 square feet by
opening new stores, expanding others and closing older, smaller stores. 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. The
satellite warehouse location will be used until May 1999. The Company has leased
a 272,000 square foot facility in Rutherford, New Jersey to augment its main
facility at headquarters and to replace the 150,000 square foot facility in
Secaucus, New Jersey and the satellite warehouse. The Rutherford, New Jersey
facility should be fully operational by May 1999.
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.
MARKETING AND ADVERTISING
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.
During the fourth quarter of fiscal 1998, the Company intensified its
marketing programs with the objective of increasing its customer base. The focus
of the marketing program was primarily, 1) reactivating existing customers whose
shopping frequency has decreased, 2) prospecting for new customers, particularly
in new and expansion store markets, and 3) nurturing customer loyalty among
existing Loehmann's frequent shoppers. The response to these initiatives was
encouraging as fourth quarter comparative store sales in fiscal year 1998
increased by 4.4% and the Company intends to continue these programs into 1999.
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 four separate geographic
districts each with a regional manager. Regional
<PAGE>
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 personnel standards. The typical staff
for a Loehmann's store consists of a store manager, 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, 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 has outside service contracts to maintain its computer
software programs and expects that all modifications and conversions for Year
2000 issues 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 30, 1999, the Company had 2,827 employees, of whom 2,106
were store sales and clerical employees, 137 performed store managerial
functions, and 584 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.
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
<PAGE>
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.
Competitive conditions in the men's furnishings industry are comparable
to those in the women's apparel industry. However, as the Company's primary
focus is on women's apparel, the Company's men's offerings are limited to such
items as shirts, belts and ties. These items are intended to complement women's
apparel and are often impulse purchases.
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 Filene's Basement, Marshall's, Saks Off 5th, Syms,
Burlington Coat Factory 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.
<PAGE>
CORPORATE STRUCTURE
Loehmann's is a Delaware corporation with no subsidiaries. As of
January 30, 1999, the Company had 25,000,000 shares of common stock, par value
$0.01 per share (the "Common Stock"), 469,237 shares of Class B common stock,
par value $0.01 per share (the "Class B Common Stock"), and 1,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock") authorized,
of which 9,052,607 shares of Common Stock and 26,087 shares of Class B Common
Stock were issued and outstanding. In addition, as of January 30, 1999, the
Company had $139,473,000 of long-term indebtedness outstanding, consisting of
$34,030,00 under a revolving Credit Facility (the "Credit Facility"), a
$7,850,000 term loan, $95,000,000 aggregate principal amount of 11 7/8% Senior
Notes due 2003 (the "Notes"), and $2,593,000 of revenue bonds and notes.
In anticipation of the Company's initial public offering on May 7,
1996, in order to effect a reincorporation from Maryland to Delaware, Loehmann's
Holdings, Inc. ("Holdings"), the Company's predecessor, was merged 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 Stock and Class B Common Stock, respectively, and the
authorized number of shares of Common Stock was increased to 25,000,000.
On May 10, 1996, the Company issued and sold 3,572,000 shares of Common
Stock in its initial public offering and issued and sold $100 million principal
amount of the Notes in a concurrent debt offering, resulting in net proceeds of
approximately $155 million to the Company. The proceeds received from these
offerings were used to redeem indebtedness and all the issued and outstanding
shares of the Company's Series A Preferred Stock.
In September 1998, the Company adopted a stockholder rights plan (the
"Plan") designed to protect the long-term value of the Company for its
stockholders during any future unsolicited acquisition attempt. In connection
with the Plan, the Board of Directors declared a dividend of one preferred share
purchase right (a "Right") for each share of the Company's Common Stock
outstanding on October 5, 1998 (the "Record Date"). The Rights will expire on
October 5, 2008.
The Rights will be exercisable only if a person or group acquires 15%
or more of the Company's Common Stock or announces a tender offer upon the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's Common Stock. Each Right will entitle stockholders to buy
one one-hundredth of a share of a new series of preferred stock at an exercise
price of $15.00.
If Loehmann's is acquired in a merger or other business combination
transaction after a person has acquired 15% or more of the Company's outstanding
Common Stock, each Right will entitle its holder to purchase, at the Right's
then-current exercise price, a number of the acquiring company's common shares
having a market value of twice such price. In addition, if a person or group
acquires 15% or more of the Company's outstanding Common Stock, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current exercise price, a number of the shares of
Common Stock having market value of twice such price.
<PAGE>
Under certain circumstances, the Board of Directors may exchange the
Rights, in whole or in part, at an exchange ratio of one share of Common Stock
(or one-hundredth of a share of the new series of preferred stock) per Right.
Prior to the acquisition by a person or group of beneficial ownership
of 15% or more of the Company's Common Stock, the Rights are redeemable for one
cent per Right at the option of the Board of Directors. Prior to such time, the
terms of the Rights may be amended by the Board of Directors.
RISK FACTORS
An investment in the Company is subject to certain risks. These risks
are associated with the Company's leverage, its history of losses, the ongoing
competitive pressures in the apparel industry, changes in the level of consumer
spending or preferences in apparel, potential disruptions in the relationships
established with certain vendors and the Company's reliance on key personnel.
Future economic and industry trends that could potentially impact revenue and
profitability are difficult to predict. See "Special Note Regarding
Forward-looking Statements".
SUBSTANTIAL LEVERAGE AND RESTRICTIVE COVENANTS
The Company has substantial indebtedness and, as a result, significant
debt service obligations. As of January 30, 1999, the Company had approximately
$139.5 million of outstanding indebtedness. The degree to which the Company is
leveraged could have several material adverse effects, including, but not
limited to the following: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) the Company's
substantial leverage could make it more vulnerable to a downturn in general
economic conditions; (iii) the Company may be more highly leveraged than other
companies with which it competes, which may place it at a competitive
disadvantage and (iv) a substantial portion of the Company's cash flow from
operations may be dedicated to the payment of interest on its indebtedness,
thereby reducing the funds available to the Company for its operations. The
Company's indebtedness contains financial and operating covenants including, but
not limited to, restrictions on the Company's ability to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, create liens, sell assets, enter into certain transactions with
affiliates and enter into certain mergers and consolidations. Failure by the
Company to comply with such covenants may result in an event of default, which,
if not cured or waived, could have a material adverse effect on the Company. In
addition, upon the occurrence of a Change of Control (as defined in the
indenture pursuant to which the Company's Notes were issued (the "Senior Note
Indenture")), the Company will be obligated to repurchase the Notes at 101% of
their principal amount. In such event, there is no assurance that the Company
will be able to obtain the necessary financing to repurchase the Notes.
HISTORY OF LOSSES
The Company has incurred net losses in each fiscal year since fiscal
1995. There can be no assurance that such losses will not continue in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<PAGE>
COMPETITION
All aspects of the women's apparel industry, including the off-price
retail segment, are highly competitive. The Company competes primarily with
department stores, other off-price retailers, specialty stores, discount stores
and mass merchandisers, many of which have substantially greater financial and
marketing resources than the Company. Finer department stores, which constitute
the Company's principal competitors, offer a broader selection of merchandise
and higher quality service. In addition, many department stores have become more
promotional and have reduced their price points, and certain finer department
stores and certain of the Company's vendors have opened outlet stores which
offer off-priced merchandise in competition with the Company. Accordingly, the
Company may face periods of intense competition in the future which could have
an adverse effect on its financial results. See "Competition".
ADEQUATE SOURCES OF MERCHANDISE SUPPLY AND TRADE CREDIT
The Company's business is dependent to a significant degree upon its
ability to purchase quality merchandise at substantially below normal wholesale
prices. The Company does not have any long-term supply contracts with its
suppliers. The loss of certain key vendors or the failure to establish and
maintain relationships with popular vendors could have a material adverse effect
on the Company's business. The Company believes it currently has adequate
sources of quality merchandise; however, there can be no assurance that the
Company will be able to acquire sufficient quantities and an appropriate mix of
such merchandise at acceptable prices.
The Company is also dependent upon financing from its trade creditors.
If any such financing were to become unavailable for any reason, there could be
a material adverse effect on the Company.
MERCHANDISE TRENDS
The Company's success depends in part on its ability to anticipate and
respond to changing merchandise trends and consumer preferences in a timely
manner. Accordingly, any failure by the Company to anticipate, identify and
respond to changing fashion trends could adversely affect consumer acceptance of
the merchandise in the Company's stores, which in turn could adversely affect
the Company's business and its image with its customers. If the Company
miscalculates either the market for its merchandise or its customers' purchasing
habits, it may be required to sell a significant amount of unsold inventory at
below average markups over the Company's cost, or below cost, which would have
an adverse effect on the Company's financial condition and results of
operations.
IMPACT OF ECONOMIC CONDITIONS ON INDUSTRY RESULTS
The Company's business is sensitive to customers' spending patterns,
which in turn are subject to prevailing economic conditions. There can be no
assurance that consumer spending will not be affected by economic conditions,
thereby impacting the Company's growth, net sales and profitability. A decline
in economic conditions in one or more of the markets in which the Company's
stores are concentrated, mainly California and the Northeast, could have an
adverse effect on the Company's financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the
performance of its senior management team, particularly Robert N. Friedman,
Chairman and Chief Executive Officer and
<PAGE>
Robert Glass, President and Chief Operating Officer. The loss of services of any
of the Company's executive officers could have a material adverse impact on the
Company. The Company's success will depend on its ability to motivate and retain
its key employees and to attract and retain qualified personnel in the future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Business", "Management
Discussion 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 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; year 2000
preparedness; 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 and terms of trade credit and other financing;
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 12, 1999, the Company operated 69 stores in 22 states. 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:
REGION Number of Percent of
Stores Fiscal Year
1998 Sales (1)
- ----------------------------------------------------------
California ............. 17 26.8%
New York .............. 10 24.0
New Jersey ............. 6 9.9
Other Mid-Atlantic ..... 6 8.7
Florida ................ 5 8.4
Midwest ................ 8 5.7
New England ............ 5 4.8
Texas .................. 4 4.3
Other Southeast ........ 4 3.8
Other West ............. 4 3.6
-------- --------
69 100.0%
======== ========
- --------------
(1) These percentages exclude sales from the Company's three stores opened
and ten stores closed in fiscal 1998.
<PAGE>
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 (3 stores); 2000-2002 (21 stores);
2003-2005 (13 stores); and 2006 and later (32 stores).
The three leases that expire by year-end fiscal 1999 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 was extended and
expires on May 31, 1999 and provides for rental payments of $90,000 in fiscal
1999. The Company also leased a 150,000 square foot warehouse in Secaucus, New
Jersey, which served as additional warehouse space. The lease expired on January
30, 1999, and provided for an annual rental payment of $625,000. The Company has
leased a 272,000 square foot facility in Rutherford, New Jersey to replace the
Secaucus facility and the additional 32,000 square foot facility in the Bronx.
The lease provides for annual rental payments of $1,251,000.
Pursuant to the agreement dated May 12, 1998 between the Company and
Congress Financial Corporation ("Congress"), the Company pledged all of its'
rights under one of its' store leases to Congress.
ITEM 3. LEGAL PROCEEDINGS
Forty Three Apparel, Inc. v. Loehmann's Department Stores, Inc., The
Bigio Group, LLC, Debbie Friedman and Robert Friedman (Bankr. Ct. S.D.N.Y.). On
December 10, 1998, a complaint was filed by Forty Three Apparel, Inc. against
the Company in the United States Bankruptcy Court for the Southern District of
New York. The complaint also named, as co-defendants, Robert Friedman (the Chief
Executive Officer of the Company), his wife Debbie Friedman and the Bigio Group,
LLC, a company affiliated with Ms. Friedman.
The action alleges that the Company breached its contractual
obligations to Forty Three Apparel, a vendor with whom it did business, by
allegedly canceling certain orders from Forty Three Apparel and taking certain
allegedly unauthorized credits and/or deductions with respect to Forty Three
Apparel's account. Forty Three Apparel claims $700,000 in compensatory damages
from the Company. Forty Three Apparel alleges that Mr. Friedman induced this
alleged breach of contract and claims as against Mr. Friedman, $700,000 in
compensatory damages and $10,000,000 in punitive damages on that claim.
Management
<PAGE>
believes that the Company has substantial and meritorious defenses to these
claims. Mr. Friedman and his counsel have advised the Company that Mr. Friedman
also believes he has substantial and meritorious defenses to these claims.
The action further alleges claims of unfair competition, unjust
enrichment, misappropriation and inducement of Ms. Friedman's alleged breach of
fiduciary duty to Forty Three Apparel against the Company and others, all
apparently arising from the alleged use of confidential information obtained by
Ms. Friedman while an employee of Forty Three Apparel and from the Company's and
Mr. Friedman's alleged participation in this conduct. On these claims, Forty
Three Apparel is seeking $20,000,000 in compensatory damages and $10,000,000 in
punitive damages from the Company and Mr. Friedman. Management believes that the
Company has substantial and meritorious defenses to these claims. Mr. Friedman
and his counsel have advised the Company that Mr. Friedman also believes he has
substantial and meritorious defenses to these claims.
The Company has submitted an Answer to the Complaint, generally denying
the material allegations of the Complaint as against the Company, and has
asserted counterclaims against Forty Three Apparel alleging breach of
contractual obligations and fraud. The Company seeks compensatory damages in an
amount to be determined at trial but not less than $1,000,000 on the breach of
contract claim and fraud claim respectively, and punitive damages on the fraud
claim in an amount to be determined at trial but not less than $2,000,000.
The pending litigation is in a preliminary stage and it is not possible
to determine the ultimate outcome of the lawsuit. As noted above, management
believes that the Company has substantial and meritorious defenses to Forty
Three Apparel's claims and believes the Company's claims against Forty Three
Apparel to be meritorious.
The Company's charter and by-laws require the Company, to the extent
permitted by law, to indemnify its officers and directors against suits brought
against them in connection with their positions as officers and directors of the
Company. As a result, the Company may in the future advance or reimburse certain
litigation-related amounts to Mr. Friedman.
In addition, the Company may be a party to various other legal
proceedings, many of which involve claims for coverage encountered in the
ordinary course of business. Based on information presently available, the final
outcome of all such proceedings should not have a material adverse effect upon
the Company's results of operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None, during the fourth quarter of fiscal 1998.
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded on the NASDAQ National
Market System ("NASDAQ") since May 7, 1996 under the symbol LOEH. As of April 8,
1999, 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 3, 1997 through
January 30, 1999.
Fiscal Quarter Ended High Low
-------------------- ---- ---
May 3, 1997 .............................. $ 19.50 $ 6.25
August 2, 1997 ........................... $ 8.25 $ 6.00
November 1, 1997 ......................... $ 10.13 $ 5.69
January 31, 1998 ......................... $ 7.88 $ 3.50
May 2, 1998............................... $ 6.13 $ 3.13
August 1, 1998 ........................... $ 6.94 $ 3.81
October 31, 1998 ......................... $ 5.38 $ 2.00
January 30, 1999 ......................... $ 3.69 $ 1.03
On January 30, 1999, the closing market price of the Company's Common
Stock was $1.19. 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. The Senior Note Indenture and the Credit
Facility contain various covenants which may restrict the payment of cash
dividends. On April 14, 1999, the closing market price of the Company's Common
Stock was $1.41. The Company's continued listing on NASDAQ is dependent upon the
Company meeting certain maintenance criteria, which the Company does not
currently meet.
During fiscal year 1998, 22,344 shares of Common Stock were issued upon
conversion of the Company's Class B Common Stock in reliance on Section 3(a)(9)
under the United States Securities Act of 1933 (the "Securities Act"). The
exemption provided under Section 3(a)(9) was available because the shares of
Common Stock were issued by the Company to its existing security holders
exclusively, and no commission or other remuneration was paid for soliciting the
conversions.
During fiscal year 1998, the Company issued to its employees 344,500
options to purchase shares of Common Stock in reliance on Section 4(2) under the
Securities Act ("Section 4(2)"). These options are exercisable at prices ranging
from $2.13 to $4.44. Such options were issued pursuant to the Company's New
Stock Incentive Plan and vest over a range of one to five years from the date of
grant, provided that the individuals remain in the employ of the Company. Such
options expire on the tenth anniversary of the date of grant. The exemption
provided under Section 4(2) was available because all of the options were issued
to four members of the Company's senior management, each of whom is financially
sophisticated and highly experienced in business.
<PAGE>
During fiscal year 1998, the Company issued to its non-employee
directors 18,000 options to purchase shares of Common Stock in reliance on
Section 4(2) under the Securities Act. The options are exercisable at a price of
$3.75. Such options were issued pursuant to the Company's Stock Option Plan For
Non-Employee Directors and vest over a range of one to three years from the date
of grant, provided the optionee remains in service of the Company as a director
on such date. Such options expire either on the tenth anniversary of the date of
grant, or the expiration of one year from the date the optionee's service with
the Company terminates. The exemption provided under Section 4(2) was available
because such options were granted to seven of the Company's directors, each of
whom is financially sophisticated and highly experienced in business.
Consequently, the grantees of the options are "sophisticated investors," and the
granting of the options did not involve a public offering within the meaning of
Section 4(2).
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference herein the section entitled
"Selected Financial Data" in the Company's Annual Report to Stockholders for
fiscal 1998 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 1998 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 in the Company's Annual Report
to Stockholders for fiscal 1998 filed as an exhibit to this Form 10-K, which
complies with the information called for by Item 8 of the Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons are the executive officers and directors of the
Company.
Name Age Position
- ---- --- --------
Norman S. Matthews (1)(2).......... 66 Chairman of the Board and Director
Robert N. Friedman (1)............. 58 Chairman, Chief Executive Officer and
Director
Robert Glass (1)................... 52 President, Secretary, Chief Operating
Officer and Director
Anthony D'Annibale................. 38 Senior Vice President Merchandising
Jan Heppe.......................... 47 Senior Vice President and Director of
Stores
Philip Kaplan...................... 68 Director
Richard E. Kroon (2)............... 56 Director
Christina A. Mohr (3).............. 43 Director
Arthur E. Reiner (2)............... 58 Director
Lorrence T. Kellar (3)............. 61 Director
Cynthia R. Cohen (2)(3)............ 46 Director
- -----------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
The Company's Board of Directors currently consists of nine members and
is divided into three classes (the "Classes"), each Class serving staggered
terms. The term of the Class A Directors expires at the Company's next annual
meeting of stockholders. The term of the Class B Directors expires at the first
annual meeting of the Company's stockholders following the end of the Company's
fiscal year ending January 29, 2000. The term of the Class C Directors expires
at the first annual meeting of the Company's stockholders following the end of
the Company's fiscal year ending January 27, 2001.
Set forth below are the biographies of the directors of the Company.
CLASS A DIRECTORS
ROBERT N. FRIEDMAN has been Chairman, Chief Executive Officer and a
Director of the Company since November 1995 and was President, Chief Executive
Officer and a Director of the Company from September to November 1995. Mr.
Friedman was President and Chief Executive Officer of Loehmann's Holdings, Inc.
a predecessor of the Company ("Holdings") from April 1992 until May 1996. Prior
to joining the Company, Mr. Friedman was employed by R.H. Macy Co., Inc. for 28
years in various capacities, including President and Vice Chairman,
Merchandising, at Macy's East from 1990-1992, Chairman and C.E.O. of Macy's
Bamberger Division and Chairman and C.E.O. of Macy's South/Bullocks. He serves
on the Board of Trustees of The Fashion Institute of Technology.
<PAGE>
ROBERT GLASS has been a Director of the Company since February 1998 and
has served as President, Chief Operating Officer and Secretary since April 1998.
From September 1994 to March 1998, Mr. Glass served as Senior Vice President,
Chief Financial Officer, Treasurer and Assistant Secretary of the Company. From
1992 to 1994, Mr. Glass served as a retail consultant. Prior to that time, he
held a number of senior retail management positions, including Chief Financial
Officer and later President of Gold Circle Stores, a division of Federated
Department Stores, Inc., and Executive Vice President of Thrifty Drug from 1990
to 1992.
PHILIP KAPLAN has been a Director of the Company since September 1988
and served as President, Chief Operating Officer, and Secretary of the Company
from November 1995 to March 1998. He was Chairman and Chief Operating Officer of
the Company from September to November 1995 and served as Chairman, Chief
Operating Officer, Secretary and Treasurer from September 1988 to September
1995. Mr. Kaplan was Vice Chairman, Treasurer and a Director Holdings, Inc. from
February 1987 until May 1996. Mr. Kaplan was president of Verdi International, a
manufacturer of luggage, from 1983 to 1987, Senior Vice President of Abraham and
Strauss, a division of Federated Department Stores, Inc., from 1979 until 1983
and Executive Vice President-Chief Financial Officer of E.J. Korvette's from
1971 until 1979.
NORMAN S. MATTHEWS has been Chairman of the Board and a Director of the
Company since September 1995. Mr. Matthews served as Chairman of the Board of
Holdings from December 1993 until May 1996 and as a Director of Holdings from
October 1988 until May 1996. Mr. Matthews currently serves as a consultant to
various retailers. He was President of Federated Department Stores from March
1987 until April 1988 and served in other executive capacities with Federated
Department Stores prior to that date. He is a Director of Progressive Corp., an
insurance holding company, Lechters, Inc., a housewares chain, Finlay
Enterprises, Inc. and its subsidiary, Finlay Fine Jewelry Corporation, a jewelry
lessee in major department stores, Toys "R" Us, a children's specialty retailer,
and Eye Care Centers of America, Inc.
CLASS B DIRECTORS
LORRENCE T. KELLAR has been a Director of the Company since September
1997. Mr. Kellar has been Vice President of Real Estate for the Kmart
Corporation since April 1996. Prior to that, Mr. Kellar had been Vice President
of Real Estate and Finance of The Kroger Co., a supermarket retailer, from 1988
to April 1996. He is a Director of Frisch's Restaurant, Multi-Color Corporation
and a Trustee of Bartlett Mutual Fund Group.
RICHARD E. KROON has been a Director of the Company since September
1995 and was a Director of Holdings from 1988 until May 1996. Mr. Kroon has been
Managing Partner of the Sprout Group, the venture capital affiliate of Donaldson
Lufkin & Jenrette, Inc. ("DLJ"), since 1981. Mr. Kroon is President, Director
and Chief Executive Officer of DLJ Capital Corporation, a subsidiary of DLJ. He
is a Director of Educational Medical, Inc., the National Venture Capital
Association, and several private companies.
CHRISTINA A. MOHR has been a Director of the Company since September
1995 and was a director of Holdings from January 1994 until May 1996. Ms. Mohr
has been Managing Director at Salomon Smith Barney (formerly Salomon Brothers,
Inc.), an investment banking firm, since February 1997. Prior to that, Ms. Mohr
had been Managing Director, Banking Group of Lazard Freres & Co. LLC, an
investment banking firm, from 1990 to February 1997. She was a Vice President,
Banking Group, from 1984 to 1990. She is a Director of United Retail Group,
Inc., a retail chain.
<PAGE>
CLASS C DIRECTORS
CYNTHIA R. COHEN has been a Director of the Company since September
1995 and was a Director of Holdings from January 1994 until May 1996. Since
1990, Ms. Cohen has been President of Strategic Mindshare, a retail marketing
and strategy consulting firm. Prior to that, Ms. Cohen was a partner of Touche
Ross (a predecessor of Deloitte & Touche LLP). Ms. Cohen is a Director of
Capital Factors, Inc., a factoring company and The Sports Authority a sporting
goods retailer.
ARTHUR E. REINER has been a Director of the Company since August 1996.
Mr. Reiner became Chairman of Finlay Enterprises, Inc. ("Enterprises") effective
February 1, 1999 and, from January 1995 to such date, served as Vice Chairman of
that company. Mr. Reiner has also served as President and Chief Executive
Officer of Enterprises since January 30, 1996 and as Chairman of the Board and
Chief Executive Officer of Finlay Fine Jewelry Corporation, Enterprise's wholly
owned subsidiary since January 3, 1995. Prior to joining Finlay, Mr. Reiner had
spent over 30 years with the Macy's organization. From February 1992 to October
1994, Mr. Reiner was Chairman and Chief Executive Officer of Macy's East, a
subsidiary of Macy's. From 1988 to 1992, Mr. Reiner was Chairman and Chief
Executive Officer of Macy's Northeast, which was combined with Macy's Atlanta
division to form Macy's East in 1992. Mr. Reiner was Chairman of the Educational
Foundation for th Fashion Industries from 1985 to 1995 and currently is Vice
Chairman.
Set forth below are biographies of the executive officers of the
Company who are not also directors.
ANTHONY D'ANNIBALE has been Senior Vice President Merchandising of the
Company since 1996. From 1994 to 1996 he was Vice President of Merchandising and
from 1989 to 1994 he served in various merchandising capacities of the Company.
Prior to 1989, Mr. D'Annibale held various buying positions at Steinbach
Department Stores - a division of the Amcena Corporation.
JAN HEPPE has been Senior Vice President and Director of Stores of the
Company since September 1995. Prior to that time, she held a number of senior
retail management positions including Senior Vice President/General Manager of
the John Wanamaker Department Store in Philadelphia, Pennsylvania from 1992
through 1995, Divisional Vice President/ General Manager of the John Wanamaker
Department Store in Moorestown, New Jersey from 1991 to 1992 and a senior
management retail position at Henri Bendel in 1991. Prior to 1991, Ms. Heppe was
General Manager of On Course, a catalog and wholesale operation and also held
various executive positions at Gimbels, Philadelphia, Pennsylvania.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of Forms 3 and 4 and amendments thereto furnished
to the Company during and with respect to its most recent fiscal year and upon
written representations from persons known to the Company to be subject to
Section 16 of the Exchange Act (a "reporting person"), no one failed to file
when due reports required by Section 16(a) of the Exchange Act during the fiscal
year ended January 30, 1999.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by
or paid to the named executive officers for services rendered to the Company
during the fiscal years ended January 30, 1999, January 31, 1998 and February 1,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Long Term
Other Compensation
Annual Securities All Other
Name and Fiscal Compensation Underlying Compensation
Principal Position Year Salary($)(1) Bonus($) ($) Options(#) ($)(2)
- ------------------ ------ ------------ -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert N. Friedman.......... 1998 624,000 -- (3) -- 2,691
Chairman and Chief 1997 575,000 -- (3) -- 2,406
Executive Officer 1996 550,000 550,000 (3) 63,614 2,750
Robert Glass................ 1998 312,337 -- (3) 100,000 2,692
President, Chief Operating 1997 257,500 -- (3) -- 2,388
Officer and Secretary 1996 232,500 56,870 (3) 31,172 1,213
Jan Heppe................... 1998 258,000 15,000 (3) -- 2,692
Senior Vice President and 1997 240,000 -- (3) -- 2,400
Director of Stores 1996 198,875 50,000 (3) 31,172 1,125
Dennis Hernreich (4) 1998 186,876 85,000 (3) 59,500 1,061
Senior Vice President 1997 141,000 - (3) - 762
Finance, Chief Financial 1996 84,500 20,000 (3) 4,500 225
Officer, Treasurer and
Assistant Secretary
Anthony D'Annibale (5) 1998 204,900 15,000 (3) - 2,692
Senior Vice President 1997 188,300 - (3) - 2,400
Merchandising 1996 168,750 40,950 (3) 31,172 875
- -----------
</TABLE>
(1) As a result of a payroll conversion, the fiscal 1998 salaries include
one additional payment. The amount of the additional payment is $23,078
for Mr. Friedman, $12,307 for Mr. Glass, $9,615 for Ms. Heppe and
$8,462 for Mr. D'Annibale.
(2) Consists of (i) Company contributions in fiscal 1998 under the
Loehmann's Inc. 401(k) Savings and Investment Plan of $2,692 for Mr.
Friedman, $2,692 for Mr. Glass, $2,692 for Ms. Heppe, $1,061 for Mr.
Hernreich and $2,692 for Mr. D'Annibale;(ii) Company contributions in
fiscal 1997 under the Loehmann's Inc. 401(k) Savings and Investment
Plan of $2,406 for Mr. Friedman, $2,388 for Mr. Glass, $2,400 for Ms.
Heppe, $762 Mr. Hernreich and $2,400 for
<PAGE>
Mr. D'Annibale; (iii) Company contributions in fiscal 1996 under the
Loehmann's 401(k) Savings and Investment Plan of $2,750 for Mr.
Friedman, $1,213 for Mr. Glass, $1,125 for Ms. Heppe, $ 225 for Mr.
Hernreich and $ 875 for Mr. D'Annibale.
(3) For each named executive officer, the aggregate amount of other annual
compensation is less than the lesser of 10% of such officer's total
salary and bonus for such year or $50,000.
(4) Dennis Hernreich became an executive officer of the Company in March
1998. Mr. Hernreich resigned his position with the Company effective
April 30, 1999.
(5) Anthony D'Annibale became an executive officer of the Company in March
1998.
The following table provides certain summary information concerning
individual grants of stock options made to each of the executives named in the
Summary Compensation Table above during the fiscal year ended January 30, 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------------
Potential Realizable
Number of % of Total Value at Assumed
Securities Options Annual Rates of
Underlying Granted To Exercise or Stock Price
Options Employees in Base Price Expiration Appreciation
Name Granted (#) Fiscal Year ($/share) Date 5% 10%
- ---- ----------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert Glass 100,000 31.7% $ 3.50 (1) $ 220,000 $ 558,000
Jan Heppe 20,000 6.3% $ 3.50 (2) $ 44,000 $ 111,600
Dennis
Hernreich 5,000 1.6% $ 3.50 (3) $ 11,000 $ 27,900
10,000 3.2% $ 3.50 (2) $ 22,000 $ 55,800
44,500 14.1% $ 3.00 (3) $ 84,105 $ 212,710
Anthony
D'Annibale 20,000 6.3% $ 3.50 (2) $ 44,000 $ 111,600
</TABLE>
(1) One fourth of these options vested March 1, 1999. The remainder vest on
the fifth anniversary of the date of grant and expire on the tenth
anniversary of the date of grant.
(2) These options fully vest on the fifth anniversary of the date of grant and
expire on the tenth anniversary of the date of grant.
(3) On fifth of the options vest in each of fiscal 1999, 2000, 2001, 2002 and
2003 and expire with certain exceptions on the tenth anniversary of the
date of grant.
The following table sets forth information concerning the value of
unexercised options as of January 30, 1999 held by the executives named in the
Summary Compensation Table above.
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Name Shares Value Number of Value of Unexercised
Acquired Realized Securities In-the-Money Options
On Exercise ($) Underlying at Fiscal Year End ($)
(#) Unexercised Exercisable/Unexercisable(1)
- ---- ----------- -------- Options ----------------------------
at Fiscal Year
End(#)
Exercisable/Unexer-
cisable
------------------
<S> <C> <C> <C> <C>
Robert N. Friedman 306,227 0 $6,735 --
Robert Glass 40,639 81,704 $1,095 $274
Jan Heppe 6,703 24,469 -- --
Dennis Hernreich 1,000 58,500 -- --
Anthony D'Annibale 9,606 24,917
- ------------------------------
</TABLE>
(1) Based on a stock price at January 30, 1999 of $1.1875
EMPLOYMENT AND SEVERANCE AGREEMENTS
MR. FRIEDMAN
Mr. Friedman's employment agreement, as amended (the "Friedman
Agreement"), provides that he will serve as Chairman and Chief Executive Officer
of the Company from February 1, 1999 through January 31, 2001, subject to
automatic successive one-year extensions unless either party provides the other
party with at least 30 days prior written notice that it does not wish to extend
the Period of Employment (as defined in the Friedman Agreement), provided that
the Period of Employment shall continue in effect at least until the later of
(x) January 31,2001 and (y) 12 months following notice by the Company of its
election not to extend the Period of Employment, for an annual base salary of
not less than $550,000 for fiscal 1996, $575,000 for fiscal 1997 and $600,000
for fiscal 1998, fiscal 1999 and fiscal 2000. Mr. Friedman is also eligible to
receive an annual bonus equal to 100% of his base salary in effect for each of
fiscal 1996 and fiscal 1997 and 60% of his base salary in effect for fiscal
1998, fiscal 1999, and fiscal 2000 if, for each such fiscal year, the Company
attains its targeted financial goals (as defined by the Compensation Committee).
The Friedman Agreement also provides for certain insurance and other benefits to
be maintained and paid by the Company.
The Friedman Agreement provided for a grant to Mr. Friedman on November
1, 1995, of options to purchase up to 187,638 shares of Common Stock at an
exercise price of $5.01 per share. Of such options, 71,474 vested in fiscal
1996, 71,474 vested in fiscal 1997 and 44,690 vested at the end of fiscal 1998.
In addition, on February 23, 1996, the Company granted Mr. Friedman options to
purchase up to 35,707 shares of Common Stock at an exercise price of $8.06.
One-half of such options vested automatically at the end of fiscal 1996 and the
remainder vested at the end of fiscal 1997. In addition, on April 5, 1996 the
Company granted Mr. Friedman options to purchase 27,907 shares of Common Stock
at an exercise price of $8.06. Of such options, 9,302 vested in fiscal 1996,
9,303 vested in fiscal 1997 and 9,302 vested in fiscal 1998. As of April 1,
1999, 437,472 of Mr. Friedman's options had vested and, of these vested options,
131,245 had been exercised.
<PAGE>
The Friedman Agreement provides that if Mr. Friedman's employment is
terminated by the Company without Cause or by Mr. Friedman with Good Reason (as
such terms are defined in the Friedman Agreement), the Company will be required
to pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Friedman will also
be entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr.
Friedman's employment is terminated, either by the Company or by Mr. Friedman
for Good Reason, coincident with or within one-year after a Change of Control
(as defined in the Friedman Agreement), the Company will be required to pay Mr.
Friedman a lump sum, in cash, equal to two times his base salary then in effect
and all unvested options will vest in full. If Mr. Friedman's employment is
terminated by the Company without Cause, Mr. Friedman for Good Reason or as a
result of a Change of Control, the Company also, with certain exceptions, will
be required to continue to maintain life insurance for Mr. Friedman for the
remainder of his life or until he attains the age of 70 with a death benefit
equal to his base salary at the date of termination and medical insurance for
Mr. Friedman and his spouse until their respective deaths. The Company also will
be required to maintain life insurance for Mr. Friedman and medical insurance
for Mr. Friedman and his spouse, as described in the foregoing sentence, upon
Mr. Friedman's retirement or voluntary termination from the Company after the
period of employment provided for in the Friedman Agreement.
The Friedman Agreement provides that the Company has certain rights to
purchase shares of the Common Stock and/or vested options held by Mr. Friedman
upon termination of his employment. Finally, the Friedman Agreement provides
that Mr. Friedman will not, with certain exceptions, "engage or be engaged in a
competing business" (as defined in the Friedman Agreement) for a period of two
years following termination of his employment (unless he is terminated without
Cause or he resigns with Good Reason).
MR. GLASS
Mr. Glass's employment agreement (the "Glass Agreement") provides that
he will serve as President and Chief Operating Officer of the Company from April
1, 1998 through March 31, 2000 for an annual base salary of $300,000 for fiscal
1998 and $320,000 for fiscal 1999. The annual base salary shall be reviewed each
April 1 except that no such review shall result in any reduction of the annual
base salary then in effect. Mr. Glass also is eligible to receive an annual
bonus equal to 60% of his annual base salary in effect, if, for each such fiscal
year, the Company attains its targeted financial goals (as defined by the
Compensation Committee). In addition, the bonus percentage can increase if the
Company exceeds achievement of certain financial goals (as defined by the
Compensation Committee). The Glass Agreement also provides for certain insurance
and other benefits to be maintained and paid by the Company.
The Glass Agreement provided for a grant to Mr. Glass on March 4, 1998
of options to purchase 100,000 shares of Common Stock at an exercise price of
$3.50 per share. Of such options, 25,000 vested March 1, 1999 the remainder vest
and become exercisable on the fifth anniversary of the date of grant, or a
Change in Control (as defined in the Glass Agreement). All expire on the tenth
anniversary of the date of the grant.
The Glass Agreement provides that if Mr. Glass's employment is
terminated by the Company without Cause or by Mr. Glass with Good Reason (as
such terms are defined in the Glass Agreement), the Company will be required to
pay his base salary then in effect for the greater of 12 months following his
termination or the remainder of his term of employment. Mr. Glass will also be
entitled to receive any bonus earned with respect to any previously completed
fiscal year which remains unpaid as of the date of termination. If Mr. Glass's
employment is terminated, either by the Company or by Mr. Glass for Good
<PAGE>
Reason, coincident with or within one-year after a Change of Control, the
Company will be required to pay Mr. Glass a lump sum, in cash, equal to two
times his base salary then in effect and all unvested options will vest in full.
If Mr. Glass's employment is terminated by the Company without Cause, Mr. Glass
for Good Reason or as a result of a Change of Control, the Company also, with
certain exceptions, will be required to continue to maintain life insurance for
Mr. Glass for the remainder of his life or until he attains the age of 70 with a
death benefit equal to his base salary at the date of termination and medical
insurance for Mr. Glass and his spouse until their respective deaths. The
Company will also be required to maintain life insurance for Mr. Glass and
medical insurance for Mr. Glass and his spouse, as described in the foregoing
sentence, upon Mr. Glass's retirement or voluntary termination from the Company
after the period of employment provided for in the Glass Agreement.
The Glass Agreement provides that if Mr. Glass's employment is
terminated for any reason, Mr. Glass will not for a period of two years
following termination of his employment 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 Mr. Glass's employment under the Glass Agreement or the two year period
after Mr. Glass's employment is terminated.
COMPENSATION OF MEMBERS OF THE BOARD OF DIRECTORS
For serving as a director of the Company, each non-employee director
receives, $15,000 per year, $1,000 per Board of Directors meeting attended in
person, $500 per Board of Directors meeting attended by telephone, and $500 per
Board of Directors committee meeting attended. Certain directors who are not
employees of the Company will be entitled to receive benefits under the
directors stock option plan (the "Directors Stock Option Plan") and all
directors of the Company will be entitled to receive benefits under the
Directors Deferred Compensation Plan. Under the terms of the Directors Stock
Option Plan, each person, who is not an employee of the Company, and who is
first elected, appointed or otherwise first becomes a director (an "Eligible
Director") will be granted an option to purchase 6,000 shares of Common Stock as
of the date on which such person first becomes an Eligible Director (an "Initial
Option"). Each person who was an Eligible Director as of the effective date of
the plan was granted an option to purchase 6,000 shares of Common Stock (the
"Special Option"). Each person who is an Eligible Director on February 1st of
each year will receive an option to purchase 3,000 shares of Common Stock (an
"Annual Option"). The Directors Stock Option Plan also provides that the Board
of Directors shall have discretionary authority to award options to acquire up
to an aggregate of 100,000 shares of Common Stock to one or more Eligible
Directors ("Discretionary Options"). All options granted under the Directors
Stock Option Plan are "nonqualified" stock options subject to the provisions of
Section 83 of the Internal Revenue Code of 1986, as amended.
Each Initial Option and Special Option vests and becomes exercisable in
1/3 increments on each of the first, second and third anniversaries of the date
of grant; provided that the Eligible Director is in the service of the Company
as a director on such date. Each Annual Option vests and becomes exercisable in
full on the one year anniversary of the date of grant, provided that the
Eligible Director is in the service of the Company as a director on such date.
In the event of the termination of the Eligible Director's service as a director
prior to the time all or any portion or an Initial Option, a Special Option, or
an Annual Option vests, such option, to the extent not yet vested, terminates.
Discretionary Options are subject to vesting conditions established by the Board
of Directors and provided in a separate award agreement evidencing the award of
such Discretionary Option. Any unexercised portion of an option automatically
becomes null and void at the time of the earliest to occur of (i) the expiration
of 10 years
<PAGE>
from the grant date and (ii) the expiration of one year from the date the
Eligible Director's service terminates. The Directors Stock Option Plan provides
that the option exercise price for the options shall be the "fair market value"
(as defined in the Directors Stock Option Plan) of the Common Stock on the date
of grant.
In addition, the Company has a consulting agreement with Mr. Kaplan.
Mr. Kaplan will act as a director and consultant to the Company. Under the
agreement, he is paid a retainer of $75,000 per year and is entitled to a
$15,000 per year auto allowance. This consulting agreement became effective in
April 1998 and extends for a five-year period.
COMPENSATION OF CHAIRMAN OF THE BOARD
The Company has a consulting agreement with Mr. Matthews, pursuant to
which he is currently paid $75,000 per annum. In addition, in connection with
Mr. Matthews' agreement to serve as Chairman of the Board, Mr. Matthews was
granted options pursuant to the Loehmann's Holding's Inc. 1988 Stock Option Plan
(the "1988 Stock Plan") to purchase up to 91,232 shares of the Common Stock,
24,197 exercisable at $1.07 per share, 22,345 exercisable at $4.48 per share,
22,345 exercisable at $2.24 per share and 22,345 exercisable at $8.95 per share.
In addition, on July 1, 1995 Mr. Matthews was granted options pursuant to the
1988 Stock Plan to purchase 44,689 shares of the Common Stock at $5.01 per
share. Within 180 days upon termination, depending on the cause of termination,
the Company has the right to purchase Mr. Matthews' shares and unexercised
vested options. The Company also has a right of first refusal upon notice of
proposed sale of shares by Mr. Matthews.
In addition, on June 19, 1997, Mr. Matthews was granted options
pursuant to the Directors Stock Option Plan to purchase 65,000 shares at $7.06
per share. Such options shall vest in full on the earlier of (i) June 19, 2001
or (ii) a Change of Control (as defined in the Directors Stock Option Plan) of
the Company, and expire at the earlier of (i) 10 years from the grant date and
(ii) one year from the date Mr. Matthews' service terminates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Mr. Matthews, Mr. Kroon, Mr. Reiner and Ms. Cohen
served as members of the Compensation Committee of the Board of Directors.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 3, 1999
with respect to beneficial ownership of shares of the Common Stock by (i) all
stockholders known by the Company to be beneficial owners of more than 5% of
such class, (ii) each director, (iii) each executive officer named in the
Summary Compensation Table and (iv) all directors and executive officers as a
group. Unless otherwise indicated in the notes below, the address of each
beneficial owner is in care of Loehmann's, Inc., 2500 Halsey Street, Bronx, New
York 10461.
Name and Address of Beneficial Owner Shares of Percentage
Common Stock
- ------------------------------------ ------------ ----------
Sprout Capital V(1)........................... 200,779 2.2%
Sprout Growth, L.P.(1)........................ 242,769 2.7%
Sprout Growth, Ltd.(1)........................ 27,025 *
DLJ Venture Capital Fund II, L.P.(1).......... 12,065 *
Donaldson, Lufkin & Jenrette Securities
Corporation(1)............................. 126,161 1.4%
Alliance Capital Management L.P.(1)........... 1,000 *
J&W Seligman & Co. Incorporated(2)............ 1,199,870 13.3%
Dimensional Fund Advisors (3)................. 457,000 5.1%
Mark A. Boyar (4)............................. 505,200 5.6%
Norman S. Matthews(5)......................... 129,562 1.4%
Robert Friedman(6)............................ 306,227 3.2%
Philip Kaplan(7).............................. 117,174 1.3%
Robert Glass(8)............................... 40,639 *
Jan Heppe(9).................................. 4,468 *
Dennis Hernreich (10)......................... 16,000 *
Anthony D'Annibale (11)....................... 9,606 *
Lorrence T. Kellar (12)....................... 8,000 *
Richard E. Kroon(1)(13)....................... 5,000 *
Christina A. Mohr(13)......................... 5,000 *
Arthur E. Reiner(13).......................... 5,000 *
Cynthia R. Cohen(13).......................... 5,000 *
All directors and executive officers as a
group (12 persons)(14)..................... 653,911 6.8%
- -----------
* Less than 1%
(1) Based in part upon information provided in a Schedule 13G filed with the
Commission. Sprout Capital V, Sprout Growth, L.P., Sprout Growth, Ltd.,
DLJ Venture Capital II, L.P., Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ" and, collectively with the other entities named above,
the "Sprout Group") are all affiliates. Mr. Kroon, who is currently a
Director, is also general partners of, or executive officers in (1)
certain of the affiliates of DLJ that own shares of Common Stock or (2)
entities that control such affiliates. The business address of all such
Sprout Group entities is 277 Park Avenue, New York, New York 10172. Mr.
Kroon disclaims beneficial ownership of such shares. Because of their
direct and indirect ownership of a majority of the capital stock of DLJ,
AXA Assurances I.A.R.D. Mutuelle, AXA Assurances Vie Mutuelle, Alpha
Assurances I.A.R.D. Mutuelle, Alpha Assurances Vie Mutuelle, AXA Courtage
Assurance Mutuelle, AXA, Alliance Capital Management L.P. and The
Equitable Companies Incorporated may be deemed to beneficially own all of
the shares of Common Stock beneficially owned by the Sprout Group. The
business address of Alpha Assurances I.A.R.D. Mutuelle and Alpha
Assurances Vie Mutuelle is 100-101 Terrasse Boieldien, 92042 Paris La
Defense France. The business address of AXA Assurances I.A.R.D. Mutuelle
and AXA Assurances Vie Mutuelle is 21, rue de Chateaudun, 75009 Paris
France. The business address of AXA Courtage Assurance Mutuelle is 26, rue
Louis le Grand, 75002 Paris France. The business address of AXA is 23,
avenue Matignon, 75008 Paris France. The business address of The Equitable
Companies Incorporated is 787 Seventh Avenue, New York, New York 10019.
The business address of Alliance Capital Management L.P. is 1345 Avenue of
the Americas, New York, New York 10105.
<PAGE>
(2) Based upon information provided in a Schedule 13G filed with the
Commission. The holdings of J.&W. Seligman & Co. Incorporated ("JWS")
include all shares of Common Stock beneficially owned by Seligman Value
Fund Series, Inc. - Seligman Small-Cap Value Fund (the "Fund"). JWS, as
investment adviser for the Fund, may be deemed to beneficially own the
shares of the Fund. Accordingly, the shares owned by JWS include those
shares owned by the Fund. In addition, William C. Morris, as the owner of
a majority of the outstanding voting securities of JWS, may be deemed to
beneficially own the shares reported herein by JWS. The business address
of JWS, the Fund and William C. Morris is 100 Park Avenue, New York, NY
10017.
(3) Based upon information provided in a Schedule 13G filed with the
Commission. Dimensional Fund Advisors Inc. ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors Act of
1940, furnishes investment advise to four investment companies registered
under the Investment Company Act of 1940, and serves as investment manager
to certain other investment vehicles, including commingled group trusts.
(These investment companies and investment vehicles are the "Portfolios").
In its role as investment advisor and investment manager, Dimensional
possesses both voting and investment power over the securities of the
Company that are owned by the Portfolios. All securities reported in this
schedule are owned by the Portfolios, and Dimensional disclaims beneficial
ownership of such securities. The business address for Dimensional Fund
Advisors is 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(4) Based upon information provided in a schedule 13D filed with the
Commission. Mark A. Boyer beneficially owns 505,200 shares, approximately
5.6%, of Common Stock, which includes (i) 14,500 shares of Common Stock
which are directly beneficially owned by Mr. Boyar, (ii) 340,200 shares of
Common Stock beneficially held by Boyar Asset Management, Inc., (iii)
21,000 shares of Common Stock beneficially held by Boyar GP Holdings, Ltd.
and Boyar Partners, L.P. and (iv) 129,500 shares of Common Stock
beneficially held by N.R.M.B., Inc. all of which may be deemed to be
beneficially owned by Mr. Boyar. Mr. Boyar, however, disclaims beneficial
ownership of all such shares, except for the 14,500 shares of Common Stock
he directly beneficially owns. The business address of Mr. Boyar, Boyar
Asset Management, Inc., Boyar GP Holdings, Ltd., N.R.M.B., Inc. and Boyar
Partners, L.P. is 35 East 21st Street, New York, NY 10010.
(5) Includes 22,345 shares of Class B Common Stock which are convertible into
Common Stock and options to purchase 89,378 shares of Common Stock which
are exercisable within sixty (60) days of the date hereof. Does not
include options to purchase 65,000 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof. Includes 17,839
shares owned.
(6) Includes options to purchase 306,227 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof.
(7) Includes options to purchase 52,041 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Includes 65,133
shares owned.
(8) Includes options to purchase 40,639 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 81,704 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(9) Includes options to purchase 6,703 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 24,469 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(10) Includes options to purchase 1,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Includes 15,000
shares owned. Does not include options to purchase 58,500 shares of Common
Stock which are not exercisable within sixty (60) days of the date hereof
(11) Includes options to purchase 9,606 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 24,917 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof.
(12) Includes options to purchase 5,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Includes 3,000
shares owned. Does not include options to purchase 7,000 shares of Common
Stock which are not exercisable within sixty (60) days of the date hereof.
(13) Includes options to purchase 5,000 shares of Common Stock which are
exercisable within sixty (60) days of the date hereof. Does not include
options to purchase 7,000 shares of Common Stock which are not exercisable
within sixty (60) days of the date hereof.
(14) Includes 22,345 shares of Class B Common Stock which are convertible into
Common Stock and options to purchase 530,594 shares of Common Stock which
are exercisable within sixty (60) days of the date hereof. Does not
include options to purchase 289,590 shares of Common Stock which are not
exercisable within sixty (60) days of the date hereof. Includes 97,972
shares owned.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 1998 fiscal year, the Company purchased $450,000 of
merchandise for resale from the Bigio Group, LLC ("Bigio"). Robert N. Friedman,
who is Chairman and Chief Executive Officer, and a Director of the Company, is
married to Deborah Friedman, who is the owner and a principal of Bigio. Mr.
Friedman has an interest in these transaction as a result of his relationship
with Deborah Friedman.
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
Schedule II, Valuation and Qualifying Accounts
Other 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 A letter from Loehmann's, Inc. to the Securities and
Exchange Commission agreeing to furnish copies of
certain debt instruments.*
4.3 Agreement between Loehmann's Inc. and Congress
Financial Corporation, dated as of May 12, 1998,
filed as Exhibit 4.1 to Loehmann's Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended
May 2, 1998 (Comm. File No. 0-28410), and
incorporated herein by reference.
4.4 Agreement between Loehmann's Inc. and Fleet Bank,
N.A., dated as of May 12, 1998, filed as Exhibit 4.2
to Loehmann's Inc.'s Quarterly Report on Form 10-Q
for the quarterly period ended May 2, 1998 (Comm.
File No. 0-28410), and incorporated herein by
reference.
<PAGE>
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 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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.
<PAGE>
10.11 Employment Agreement between Loehmann's, Inc. and
Robert Glass, dated as of February 27, 1998, filed as
Exhibit 10.14 to Loehmann's, Inc.'s Annual Report on
Form 10-K for the year ended January 31, 1998 (Comm.
File NO. 0-24810), and incorporated herein by
reference.
10.12 Consulting Agreement between Loehmann's, Inc. and
Philip Kaplan, dated as of April 3, 1998, filed as
Exhibit 10.15 to Loehmann's, Inc.'s Annual Report on
Form 10-K for the year ended January 31, 1998 (Comm.
File NO. 0-24810), and incorporated herein by
reference.
10.13 Severance Agreement between Loehmann's, Inc. and
Bonnie Dexter- Wolterstorff, dated January 9, 1998,
filed as Exhibit 10.17 to Loehmann's, Inc.'s Annual
Report on Form 10-K for the year ended January 31,
1998 (Comm. File NO. 0-24810), and incorporated
herein by reference.
10.14 Form of Agency Agreement between Loehmann's, Inc. and
a joint venture of Gordon Brothers Retail Partners,
LLC and The Ozer Group, LLC, dated February 27, 1998
filed as Exhibit 10.17 to Loehmann's, Inc.'s Annual
Report on Form 10-K for the year ended January 31,
1998 (Comm. File NO. 0-24810), and incorporated
herein by reference.
13 Such portions of the Annual Report to Stockholders
for 1998 as are expressly incorporated herein by
reference.*
23 Consent of Independent Auditors.*
24 Powers of Attorney (included on the signature page of
this Form 10-K)*
27 Financial Data Schedule*
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended January 30,
1999.
- --------------
* Filed herewith
<PAGE>
SCHEDULE II
LOEHMANN'S, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Balance at Charged to Charged to Balance at
Beginning Cost and Other end of
Description of Period Expense Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year ended January 30, 1999
---------------------------
Reserve for Store Closings $7,130 $6,823 (a) $307
===== ===== ===
Year ended January 31, 1998
---------------------------
Reserve for Store Closings $10 $7,190 $70 (a) $7,130
===== == =====
Year ended February 1, 1997
---------------------------
Reserve for Store Closings $445 $435 (a) $10
=== === ==
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Payments for leasehold obligation expenses and other store closing
expenses.
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to its
Annual Report on Form 10-K to be signed on its behalf by the undersigned
thereunto duly authorized.
LOEHMANN'S, INC.
Dated: April 29, 1999
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
- ----------------------
Norman S. Matthews Chairman of the Board and Director April 29, 1999
/s/ Robert N. Friedman
- ----------------------
Robert N. Friedman Chairman, Chief Executive Officer April 29, 1999
and Director
/s/ Robert Glass
- ----------------
Robert Glass President, Chief Operating Officer April 29, 1999
and Director
/s/ Dennis R. Hernreich
- -----------------------
Dennis R. Hernreich Senior Vice President, Finance, April 29, 1999
Chief Financial Officer, and Chief
Accounting Officer
/s/ Cynthia R. Cohen
- --------------------
Cynthia R. Cohen Director April 29, 1999
<PAGE>
/s/ Philip Kaplan
- -----------------
Philip Kaplan Director April 29, 1999
/s/ Lorrence T. Kellar
- ----------------------
Lorrence T. Kellar Director April 29, 1999
/s/ Richard E. Kroon
- --------------------
Richard E. Kroon Director April 29, 1999
/s/ Christina A. Mohr
- ---------------------
Christina A. Mohr Director April 29, 1999
/s/ Arthur E. Reiner
- --------------------
Arthur E. Reiner Director April 29, 1999
EXHIBIT 4.2
[LETTERHEAD OF LOEHMANN'S, INC.]
April 28, 1999
Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 2054
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.
/s/ Dennis R. Hernreich
-----------------------
Dennis R. Hernreich
Title: Senior VP Finance, Chief Financial
Officer, Treasurer and Assistant
Secretary
EXHIBIT 13
LOEHMANN'S INC. ANNUAL REPORT 1998
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 8, 1999,
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 3, 1997 through January 30,
1999.
Fiscal Quarter Ended High Low
- -------------------- ---- ---
May 3, 1997 ................................... $ 19.50 $ 6.25
August 2, 1997 ................................ $ 8.25 $ 6.00
November 1, 1997 .............................. $ 10.13 $ 5.69
January 31, 1998 .............................. $ 7.88 $ 3.50
May 2, 1998.................................... $ 6.13 $ 3.13
August 1, 1998 ................................ $ 6.94 $ 3.81
October 31, 1998 .............................. $ 5.38 $ 2.00
January 30, 1999 .............................. $ 3.69 $ 1.03
On January 30, 1999, the closing market price of the Company's common
stock was $1.19. 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. The Senior Notes Indenture and the Company's
revolving credit facility contain various covenants which may restrict the
payment of cash dividends. On April 14, 1999, the closing market price of the
Company's Common stock was $1.41. The Company's continued listing on the NASDAQ
National Market System is dependent upon the Company meeting certain maintenance
criteria, which the Company does not currently meet.
ii
<PAGE>
Index to Financial Statements
Loehmann's Inc.
Contents
Report of Independent Auditors 2
Balance Sheets at January 30, 1999 and January 31, 1998 3
Statements of Operations for the fiscal years ended
January 30, 1999, January 31, 1998 and February 1, 1997 4
Statements of Changes in Common Stockholders'
Equity (Deficit) for the fiscal years ended January 30, 1999,
January 31, 1998 and February 1, 1997 5
Statements of Cash Flows for the fiscal years ended
January 30, 1999, January 31, 1998 and February 1, 1997 6
Notes to Financial Statements 7
1
<PAGE>
Report of Independent Auditors
Board of Directors
Loehmann's Inc.
We have audited the accompanying balance sheets of Loehmann's Inc. as of January
30, 1999, and January 31, 1998, and the related statements of operations,
changes in common stockholders' equity (deficit) and cash flows for the fiscal
years ended January 30, 1999, January 31, 1998, and February 1, 1997. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Loehmann's Inc. at January 30,
1999, and January 31, 1998, and the results of its operations and cash flows for
the fiscal years ended January 30, 1999, January 31, 1998, and February 1, 1997
in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
- ---------------------
New York, New York
March 10, 1999
2
<PAGE>
Loehmann's Inc.
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
January January
30, 1999 31, 1998
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,325 $ 1,767
Accounts receivable and other assets 4,883 5,575
Merchandise inventory 69,605 67,521
--------- ---------
Total current assets 75,813 74,863
Property, equipment and leaseholds, net 71,462 71,612
Deferred debt issuance costs and other assets, net 3,195 3,228
Purchase price in excess of net assets acquired, net 38,223 39,523
--------- ---------
Total assets $188,693 $189,226
========= =========
Liabilities and common stockholders' equity
Current liabilities:
Accounts payable $ 25,544 $ 21,570
Accrued expenses 13,435 11,792
Accrued interest 2,688 2,496
Customer merchandise credits 2,289 4,710
Reserve for store closings 307 7,130
Current portion of long-term debt 70 73
--------- ---------
Total current liabilities 44,333 47,771
Long-term debt:
Revolving line of credit due May 2001 41,880 33,771
11 7/8% senior notes due May 2003 95,000 95,000
Revenue bonds and notes 2,523 2,589
--------- ---------
Total long-term debt 139,403 131,360
Other noncurrent liabilities 339 389
Common stockholders' equity:
Common stock, $0.01 par value, 25,000,000 shares authorized;
9,052,607 and 8,976,932 shares issued and outstanding at January 30,
1999, and January 31, 1998, respectively. 90 89
Class B convertible common stock, 469,237 shares authorized;
26,087 and 48,431 shares issued and outstanding at January 30, 1999,
and January 31, 1998. 142 244
Additional paid-in capital 81,758 81,597
Accumulated deficit (77,372) (72,224)
Total common stockholders' equity 4,618 9,706
--------- ---------
Total liabilities and common stockholders' equity $188,693 $189,226
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Loehmann's Inc.
Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal year ended
January January February
30, 1999 31, 1998 1, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Net sales $432,017 $443,310 $417,758
Cost of sales 294,895 317,548 284,637
------------------ ------------------ ------------------
Gross profit 137,122 125,762 133,121
Selling, general, and administrative expenses 116,096 111,370 96,293
Depreciation and amortization 12,201 11,433 11,848
Charge (credit) for store closings and impairment of assets (1,216) 5,660 -
------------------ ------------------ ------------------
Operating income (loss) 10,041 (2,701) 24,980
Interest expense, net 14,514 12,845 13,361
------------------ ------------------ ------------------
Income (loss) before income taxes (4,473) (15,546) 11,619
Provision for income taxes 115 126 66
------------------ ------------------ ------------------
Income (loss) before extraordinary item (4,588) (15,672) 11,553
Extraordinary loss on early extinguishment of debt 560 - 7,101
------------------ ------------------ ------------------
Net (loss) income (5,148) (15,672) 4,452
================== ================== ==================
Stock dividends on and normal and accelerated
accretion of preferred stock - - 5,668
------------------ ------------------ ------------------
Net loss applicable to common stock $(5,148) $(15,672) $(1,216)
================== ================== ==================
Earnings per share:
Basic:
Income (loss) before extraordinary item $ (0.51) $ (1.75) $ 0.74
Extraordinary item (0.06) - (0.89)
Net loss $ (0.57) $ (1.75) $ (0.15)
Diluted:
Income (loss) before extraordinary item $ (0.51) $ (1.75) $ 0.69
Extraordinary item (0.06) - (0.83)
Net Income (loss) $ (0.57) $ (1.75) $ (0.14)
================== ================== ==================
Weighted average number of common shares outstanding 9,063 8,961 7,901
================== ================== ==================
Weighted average number of common shares and
common share equivalents outstanding 9,063 8,961 8,529
================== ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Loehmann's Inc.
Statements of Changes in Common Stockholders' Equity (Deficit)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Class B Common Stock Additional
Number of Number of Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Totals
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 93,846 1 (93,846) (469) 468 - -
stock
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
----------------------------------------------------------------------------------------------
Exercise of stock options 53,331 1 - - 59 - 60
Conversion of Class B common 22,344 0 (22,344) (102) 102 - -
stock
Net loss for the fiscal year ended
January 30, 1999 - - - - - (5,148) (5,148)
----------------------------------------------------------------------------------------------
Balances as of January 30, 1999 9,052,607 $ 90 26,087 $142 $81,758 $ (77,372) $ 4,618
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Loehmann's Inc.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Fiscal year ended
January January February
30, 1999 31, 1998 1, 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income $ (5,148) $ (15,672) $ 4,452
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 12,201 11,433 11,848
Write-off of deferred financing fees on early
extinguishment of debt 60 - -
Accretion of 10 1/2% senior secured notes - - 510
Charges for store closings, impairment of assets and
other - 2,110 -
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 692 (1,175) (2,678)
Merchandise inventory (2,084) (9,217) (14,583)
Accounts payable 3,974 1,936 (1,840)
Accrued expenses 1,643 (1,530) 3,060
Customer merchandise credits (2,421) (2,502) 1,150
Reserve for store closings (6,823) 7,180 (435)
Accrued interest 192 (34) (4,507)
--------------- --------------- ----------------
Net change in current assets and liabilities (4,827) (5,342) (19,833)
Net change in other noncurrent assets and liabilities (443) (15) 549
--------------- --------------- ----------------
Total adjustments 6,991 8,186 175
--------------- --------------- ----------------
Net cash (used in) provided by operations 1,843 (7,486) 4,627
Cash flows from investing activities
Capital expenditures (9,938) (16,687) (16,037)
--------------- --------------- ----------------
Net cash used in investing activities (9,938) (16,687) (16,037)
--------------- --------------- ----------------
Cash flows from financing activities
Borrowings on revolving credit facilities 8,109 23,583 10,188
Financing fees for new credit facility (432)
Redemption of 10 1/2% senior secured notes (55,905)
Redemption of 13 3/4% senior subordinated notes (78,325)
Redemption of 11 7/8% senior notes (5,165)
Sale of 11 7/8% senior notes, net of issuance costs 95,863
Redemption of Series A Preferred Stock (20,947)
Sale of common stock 57 135 55,379
Other financing activities, net (81) (70) 102
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--------------- --------------- ----------------
Net cash provided by (used in) financing activities 7,653 23,648 1,190
--------------- --------------- ----------------
Net (decrease) increase in cash and cash equivalents (442) (525) (10,220)
Cash and cash equivalents at beginning of period 1,767 2,292 12,512
--------------- --------------- ----------------
Cash and cash equivalents at end of period $ 1,325 $ 1,767 $ 2,292
=============== =============== ================
Supplemental disclosure of cash flow information
Cash paid during the fiscal year for interest $14,527 $13,212 $18,807
=============== =============== ================
=============== =============== ================
Cash paid during the fiscal year for income taxes $ 104 $ 233 $ 218
=============== =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
Loehmann's Inc.
Notes to Financial Statements
January 30, 1999
1. Summary of Significant Accounting Policies
Organization
Effective May 7, 1996, the Company effected a reincorporation from Maryland to
Delaware by having Loehmann's Holdings, Inc. ("Holdings"), the Company's
predecessor, merge into the Company (the "Merger"). As a result of the Merger,
each share of Holdings common stock and Class B common stock (the "Class B
Common Stock") was converted into approximately 0.22 shares of the Company's
common stock (the "Common Stock") and Class B Common Stock and the authorized
number of shares of Common Stock 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 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 the Saturday closest to January 31. Fiscal years
ended January 30, 1999, January 31, 1998 and February 1, 1997 had 52 weeks.
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 financial statements and accompanying notes.
Actual results could differ from those estimates.
8
<PAGE>
1. Summary of Significant Accounting Policies (continued)
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
immediately available for sale is valued on a specific cost basis. The
merchandise inventory valued on a specific cost basis at January 30, 1999 and
January 31, 1998 was $16.9 million and $20.1 million, respectively.
Advertising Expense
The cost of advertising is expensed as incurred. Advertising costs were $17.1
million, $15.4 million, and $14.8 million during fiscal years 1998, 1997, and
1996, 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 1998, 1997 and 1996 the
Company incurred $0.6 million, $1.3 million and $1.7 million, respectively in
pre-opening costs. The Company had no deferred pre-opening charges as of January
30, 1999. Effective January 31, 1999, the Company will be required to adopt
Statement of Position 98-5, Reporting On The Cost Of Start-Up Activities ("SOP
98-5"). SOP 98-5 requires that the cost of start-up activities be expensed as
incurred. The adoption of this statement is not expected to have a material
effect on the financial statements.
9
<PAGE>
1. Summary of Significant Accounting Policies (continued)
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 expense for
fiscal years 1998, 1997 and 1996 amounted to $1.3 million annually. Accumulated
amortization at January 30, 1999 and January 31, 1998 was $13.6 million and
$12.2 million, respectively.
Class B Common Stock
Each share of Class B Common Stock will be convertible into one share of Common
Stock, subject to adjustment at any time. During fiscal years 1998 and 1997,
22,344 and 93,846 shares, respectively, of Class B Common Stock were converted.
Subject to restrictions in the Company's various credit agreements, the Company
is required to offer to purchase the Class B Common Stock at its independently
appraised value. 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 by charges to earnings over the depreciable lives of the related
assets. Interest of $263,000, $397,000 and $640,000 was capitalized during
fiscal years 1998, 1997 and 1996, respectively.
Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized over the terms of the related debt
agreement. Deferred debt issuance costs were $4.6 million at January 30, 1999
and $4.2 million at January 31, 1998. Amortization expense for fiscal years
1998, 1997, and 1996 amounted to $0.8 million, $0.6 million and $0.8 million,
respectively. Total accumulated amortization at January 30, 1999 and January 31,
1998 amounted to $1.6 million and $1.1 million, respectively.
In May 1998, the Company refinanced its line of credit and wrote-off the
unamortized financing costs of $60,000 relating to the prior line of credit. In
addition, the Company incurred an early termination fee of $0.5 million and
these items are shown as an extraordinary loss on the early extinguishment of
debt.
Income Taxes
Income taxes are provided using the liability method.
10
<PAGE>
1. Summary of Significant Accounting Policies (continued)
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 shares of
Common Stock and Class B Common Stock 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 shares of Common
Stock, Class B Common Stock 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 1998 and fiscal 1997, as their effects
were antidilutive.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for fiscal periods beginning after June 15, 1999. The adoption of this
statement is not expected to have a material effect on the financial statements.
Other Comments
Certain items in fiscal 1997 have been reclassified to present them on a basis
consistent with fiscal 1998.
2. Income Taxes
The Company's provision for income taxes primarily represents state and local
minimum and alternative minimum taxes.
11
<PAGE>
Income Taxes (continued)
Significant components of deferred tax assets and liabilities are as follows:
January January
30, 1999 31, 1998
-----------------------------
(In thousands)
Deferred tax assets:
Net operating loss carryforwards $ 18,215 $ 12,251
Excess tax depreciation and amortization 2,775 4,365
Store closing reserve 817 3,643
Capitalization of inventory expenses 778 711
Other, net 1,026 996
-----------------------------
Total deferred tax assets 23,611 21,966
-----------------------------
Deferred tax liabilities $ (272) $ (269)
Net deferred tax assets 23,339 21,697
Less valuation allowance (23,339) (21,697)
-----------------------------
$ - $ -
=============================
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 January February
30, 1999 31, 1998 1, 1997
--------------- --------------- ---------------
<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 (27.9) (32.4) -
Goodwill (9.0) (3.0) 3.9
Other, net (0.4) (0.4) 0.9
--------------- --------------- ---------------
Effective tax rate (2.3)% (0.8)% 0.6%
=============== =============== ===============
</TABLE>
At January 30, 1999, the Company had net operating loss carryforwards of
approximately $46.6 million and $33.5 million for regular and alternative
minimum tax purposes, respectively. Net operating losses begin to expire in 2003
and future years.
12
<PAGE>
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 (the "Senior Secured
Notes"), at a redemption price of 103.5%, (ii) to redeem in full the Company's
13 3/4% Senior Subordinated Notes (the "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")
As a result of these transactions, the Company incurred approximately $4.7
million in extraordinary losses on the early extinguishment of debt, $2.0
million in 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 January
30, 1999 31, 1998
--------------- ---------------
(in thousands)
Revolving line of Credit (a) $34,030 $33,771
Term loan (a) 7,850 -
11 7/8% 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 343 412
--------------- ---------------
139,473 131,433
Less current maturities 70 73
--------------- ---------------
Long-term debt $139,403 $131,360
=============== ===============
(a) On May 12, 1998, the Company refinanced the indebtedness under a credit
facility with borrowings under a new secured credit facility with Congress
Financial Corporation (the "Credit Facility") and an $7.85 million term loan
with another bank (the "Term Loan"). The Credit Facility
13
<PAGE>
4. Long-term Debt (continued)
provides for a revolving line of credit and a letter of credit facility
aggregating $60.0 million. The availability of the revolving line of credit and
letters of credit under the Credit Facility is subject to certain
inventory-related borrowing base requirements. The indebtedness under the Credit
Facility bears interest at variable rates based on LIBOR or the prime rate and
matures in three years. The Credit Facility contains certain customary covenants
(including limitations on indebtedness, liens and restricted payments) but does
not contain any financial covenants. The Credit Facility is secured by the
Company's inventory, accounts receivable and certain assets. The Term Loan is a
three-year loan that bears interest at a variable rate based on LIBOR. The
repayment of the indebtedness under the Term Loan is supported by a letter of
credit Issued under the Credit Facility.
(b) Interest is payable semiannually on May 15 and November 15 in each
year. The Company is entitled to redeem the Senior 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 (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.
Based on a quoted market price of 65.0%, the fair value of the 11 7/8%
Senior Notes outstanding at January 30, 1999 approximated $61.8 million.
During the second quarter of 1996, the Company purchased and retired $5.0
million face amount of the 11 7/8% Senior Notes on the open market
incurring an extraordinary loss of approximately $365,000 in connection
with this purchase.
14
<PAGE>
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:
<TABLE>
<CAPTION>
Useful January January
Lives 30, 1999 31, 1998
--------------- --------------- ---------------
(In years) (In thousands)
<S> <C> <C> <C>
Building 20 $7,879 $7,879
Furniture, fixtures and equipment 3-8 47,240 44,246
Leasehold interests 5-29 45,853 45,853
Leasehold improvements 5-29 38,921 33,332
Total property, equipment and leaseholds 139,893 131,010
Accumulated depreciation and amortization (68,431) (59,698)
Property, equipment and leaseholds, net $71,462 $71,612
=============== ===============
</TABLE>
15
<PAGE>
6. Earnings Per Share
The following table sets forth the computation of basic and diluted (loss)
earnings per share:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Numerator
Net operating (loss) income $(4,588) $(15,672) $11,553
Preferred stock dividends on and normal and accelerated accretion - - 5,668
--------------- --------------- ---------------
Numerator for basic and diluted (loss) earnings per share before
extraordinary item (4,588) (15,672) 5,885
Extraordinary item 560 - 7,101
Numerator for basic and diluted (loss) per share after extraordinary (5,148) (15,672) (1,216)
item
=============== =============== ===============
Denominator
Denominator for basic (loss) earnings per share - weighted average 9,063 8,961 7,901
shares
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 $9,063 $8,961 $8,529
Basic (loss) earnings per share before extraordinary item $(0.51) $(1.75) $0.74
Extraordinary item (0.06) - (0.89)
Basic (loss) per share after extraordinary item $(0.57) $(1.75) $(0.15)
Diluted (loss) earnings per share before extraordinary item $(0.51) $(1.75) $0.69
Extraordinary item (0.06) - (0.83)
Diluted (loss) per share after extraordinary item $(0.57) $(1.75) $(0.14)
=============== =============== ===============
</TABLE>
Options to purchase 985,574 shares of Common Stock at an average price of $3.63
per share were outstanding at January 30, 1999, but were not included in the
computation of diluted loss per share because the effect would have been
antidilutive.
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.
7. Stockholders' Equity
Shareholders Rights Plan
In September 1998, the Company adopted a stockholder rights plan (the "Plan")
designed to protect the long-term value of the Company for its stockholders
during any future unsolicited acquisition attempt. In connection with the Plan,
the Board of Directors declared a dividend of one preferred share purchase right
(a "Right") for each share of the Common Stock outstanding on October 5, 1998
(the "Record Date"). The Rights will expire on October 5, 2008.
16
<PAGE>
7. Stockholders' Equity (continued)
The Rights will be exercisable only if a person or group acquires 15% or more of
the Common Stock or announces a tender offer upon the consummation of which
would result in ownership by a person or group of 15% or more of the Common
Stock. Each Right will entitle stockholders to buy one one-hundredth of a share
of a new series of preferred stock at an exercise price of $15.00.
If Loehmann's is acquired in a merger or other business combination transaction
after a person has acquired 15% or more of the Company's outstanding Common
Stock, each Right will entitle its holder to purchase, at the Rights
then-current exercise price, a number of the acquiring company's common stock
having a market valve of twice such price. In addition, if a person or group
acquires 15% or more of the Company's outstanding Common Stock, each Right will
entitle its holder (other than such person or members of such group) to
purchase, at the Right's then-current exercise price, a number of shares of the
Common Stock having market value of twice such price.
Under certain circumstances, the Board of Directors may exchange the Rights, in
whole or in part, at an exchange ratio of one share of common stock (or
one-hundredth of a share of the new series of preferred stock) per Right.
Prior to the acquisition by a person or group of beneficial ownership of 15% or
more of the Common Stock, the Rights are redeemable for one cent per Right at
the option of the Board of Directors. Prior to such time, the terms of the
Rights may be amended by the Board of Directors.
8. Stock Option Plans
On September 30, 1988, the Company adopted the Loehmann's Holdings, Inc. 1988
Stock Option Plan (the "1998 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 (the "Board Committee"). On June 19, 1997, the Company
adopted the Loehmann's, Inc. Director's Stock Option Plan (the "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 the Board
Committee.
17
<PAGE>
Stock Option Plans (continued)
The following information pertains to the Company's stock option plans:
<TABLE>
<CAPTION>
Fiscal year ended January 30, 1999 January 31, 1998 February 1, 1997
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------------- -------------- -------------- ------------- -------------- -------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Outstanding options, beginning
of year 858 $7.63 875 $7.00 729 $2.77
Granted 362 3.40 147 8.58 324 17.74
Canceled (182) 16.58 (38) 14.86 (46) 17.96
Exercised (53) 1.07 (126) 1.18 (132) 1.20
------------- -------------- -------------- ------------- -------------- ------------
Outstanding options, end of year 985 $3.63 858 $7.63 875 $7.00
============= ============== ============== ============= ============== ============
Options exercisable, end of year 476 $4.99 474 $4.59 450 $3.02
============= ============== ============== ============= ============== ============
Options available for future grant 230 N/A 423 N/A 77 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 985,574 options outstanding at January 30, 1999, 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 $8.95.
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 and Director's 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's net loss and diluted net loss per share would have increased by
$1.0 million or $0.11 per share for fiscal 1998, $0.9 million or $0.10 per share
for fiscal 1997, and $0.5 million or $0.05 per share for fiscal 1996.
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
1998, 1997, and 1996: risk-free interest rate of 6.3%, an expected life of 3 to
7 years and a dividend yield of zero. For fiscal 1998, 1997, and 1996,
volatility was 96.7%, 85.8% and 58.0%, respectively. Any options granted in the
future will
18
<PAGE>
be subject to the fair value pro forma calculation. The pro forma adjustments
for 1998, 1997, and 1996 may not be indicative of future years.
9. 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 $18.4 million, $15.4 million and $10.1 million for the fiscal
years ended January 30, 1999, January 31, 1998, and February 1, 1997,
respectively.
Future minimum payments under noncancelable operating leases consisted of the
following at January 30, 1999:
(In thousands)
1999 $18,439
2000 17,903
2001 16,980
2002 16,054
2003 15,541
Thereafter 157,490
---------------
Total $242,407
===============
10. 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 were intended to improve the
Company's liquidity and future operating profitability. 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.
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.
Nine of the store closures were materially completed by the end of March 1998.
The tenth store closure was completed in the fourth quarter of fiscal year 1998.
The Company intends to reopen one of the closed stores as a clearance center.
Reserved amounts remaining at January 30, 1999 are $307,000 and relate to
long-term lease commitments. For fiscal 1998, there was a charge to gross margin
of $1.2 million for additional markdowns taken on the inventory at the closed
stores. In addition, the lease termination costs for the closed stores were less
than originally expected and this resulted in a credit for store closings of
$1.2 million.
19
<PAGE>
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 1998
and fiscal 1997, the Company recorded contributions of $254,000 and $209,000,
respectively, to the 401(k) plan.
Selected Financial Data
Loehmann's, Inc.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Net Sales $ 432,017 $ 443,310 $ 417,758 $ 386,090 $ 392,606
Net loss applicable to common stock $ 5,148 $ 15,672 $ 1,216 $ 17,019 $ 3,308
Diluted net loss per share applicable to common $ 0.57 $ 1.75 $ 0.14 $ 3.12 $ 0.63
stock
Total Assets $ 188,693 $ 189,226 $ 176,200 $ 163,611 $ 178,612
Long-Term obligations $ 139,403 $ 131,360 $ 107,850 $ 131,733 $ 131,967
Redeemable Series A preferred stock $ - $ - $ - $ 15,279 $ 13,223
</TABLE>
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
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)
1998 1997 1996
<S> <C> <C> <C>
Net sales ............................................ 100.0% 100.0% 100.0%
Gross margin from operations(2)....................... 32.0 29.2 31.9
Selling, general and administrative expenses..........
Occupancy costs.................................. 7.1 6.2 4.6
Other selling, general and administrative........ 19.8 18.9 18.4
Total selling, general and administrative expenses.... 26.9 25.1 23.0
Depreciation and amortization ........................ 2.8 2.6 2.8
Charge for store closings and impairment of assets ... (0.3) 1.3 -
Operating income ..................................... 2.3 (0.6) 6.0
Interest expense, net ................................ 3.4 2.9 3.2
Income (loss) before income taxes .................... (1.0)% (3.5)% 2.8%
</TABLE>
- --------------
(1) Numbers may not total due to rounding.
(2) Before markdowns related to store closings
The following table sets forth certain financial and operating
statistics of the Company:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Inventory ............................................ $69,605,000 $67,521,000 $58,304,000
Capital expenditures.................................. 9,938,000 16,687,000 16,037,000
Working capital....................................... 31,480,000 27,092,000 22,278,000
Outstanding line of credit............................ 41,880,000 33,771,000 10,188,000
Long-term debt........................................ 139,403,000 131,360,000 107,850,000
Stockholders' equity.................................. 4,618,000 9,706,000 25,243,000
Number of stores...................................... 69 76 73
Total square footage.................................. 1,452,000 1,492,000 1,279,000
Average Square feet per store......................... 21,000 19,600 17,500
</TABLE>
21
<PAGE>
Fiscal 1998 Compared to Fiscal 1997
Net sales were $432.0 million for fiscal 1998, a decrease of
approximately $11.3 million, or 2.5%, compared to $443.3 million during fiscal
1997. Comparable store sales (sales at stores that were in operation for both
periods) decreased by 1.6% during fiscal 1998 as compared to fiscal 1997. The
Company opened 3 new stores in fiscal 1998 and 7 new stores in fiscal 1997, and
closed 10 stores in fiscal 1998 and 4 stores in fiscal 1997. The decrease in
reported net sales for fiscal 1998 is the result of (i) the stores closed during
the year, partially offset by increased sales at the new stores opened in 1998
and 1997 and (ii) the decrease in comparable store sales of 1.6% during the
year.
Gross profit from operations, before markdowns related to closed
stores, increased by approximately $8.9 million to $138.3 million during fiscal
1998 as compared to $129.4 million for fiscal 1997. Gross margin, as a
percentage of net sales, before markdowns related to closed stores, increased to
32.0% for fiscal 1998 from 29.2% in the prior fiscal year. Gross profit,
including markdowns for closed stores in fiscal 1998 and 1997 of $1.2 million
and $3.6 million respectively, increased by approximately $11.3 million during
fiscal 1998 to $137.1 million as compared to $125.8 million in fiscal 1997.
Gross margin, as a percentage of net sales, after markdowns related to closed
stores, increased to 31.7% in fiscal 1998 from 28.4% in the prior year.
The increase in gross margin of 3.3 percentage points is primarily the
result of: (i) a decrease in markdowns which represents 2.1 percentage points ,
(ii) change in merchandise mix toward higher margin categories which represents
.5 percentage points, and (iii) the one time charge in fiscal 1997 for the
liquidation of inventory in ten stores closed in 1998 which represents 0.8
percentage points of fiscal 1997 sales.
Selling, general and administrative expenses increased by approximately
$4.7 million to $116.1 million during fiscal 1998 as compared to $111.4 million
for fiscal 1997. As a percentage of net sales, selling, general and
administrative expense increased to 26.9% in fiscal 1998 from 25.1% in the prior
year. The dollar increase in selling, general and administrative expenses was
primarily related to: (i) $8.0 million in store operating expenses related to
1998 new stores and recently expanded stores including store payroll, occupancy
and advertising costs, partially offset by (ii) $5.2 million in cost savings
related to closed stores. 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 recent store
expansions.
Depreciation and amortization for fiscal 1998 increased by
approximately $0.8 million to $12.2 million as compared to $11.4 million for the
prior fiscal year. The increase in depreciation and amortization is attributable
to: (i) an increase in depreciation related to the opening of the three new
stores and the expansion and renovation of eight stores in fiscal 1997, offset
by (ii) a decrease in depreciation associated with the natural retirement of
certain assets.
22
<PAGE>
Operating income increased by $12.7 million to $10.0 million, or 2.3%
of sales, in fiscal 1998 as compared to an operating loss of $(2.7) million, or
(0.6)% of sales, in fiscal 1997. The increase in operating income as a
percentage of sales from (0.6)% to 2.3% in fiscal 1998 primarily consists of the
following: (i) 3.3% related to an increase in gross margin resulting from lower
markdowns and higher average initial mark-ups, offset by (ii) (1.5)% related to
selling, general, and administrative expenses primarily resulting from higher
occupancy costs as a percentage of sales associated with new and expanded
stores. Operating income also includes a credit of $1.2 million for lease
termination costs at closed stores. These costs were included in the store
closing reserve for fiscal year 1997 and the costs actually incurred were less
than originally expected.
Interest expense increased by $1.7 million to $14.5 million for fiscal
1998 as compared to $12.8 million for fiscal 1997. The increase in net interest
expense was due to higher average borrowings on the Company's revolving line of
credit primarily resulting from investing activities in 1997 and 1998. See Note
4 of the Financial Statements.
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 (which resulted from inflated inventory
levels caused by slow selling women's apparel, primarily designer and bridge
lines), 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
23
<PAGE>
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.
Included in selling, general and administrative expense are bonus
payments made to the Company's executive officers. The Company's executives
received no bonus payments in fiscal 1997, and were paid an aggregate $942,565
in bonuses in fiscal 1996.
Depreciation and amortization for fiscal 1997 decreased 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 and (iii)
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 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 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 Financial Statements.
Quarterly Results and Seasonality
While the Company's net sales do not show significant seasonal
variation, the Company's
24
<PAGE>
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 results of operations can be affected by employee
performance bonuses, because although bonuses are accrued throughout the fiscal
year and are estimated on a quarterly basis, bonus amounts are not definitively
known until year-end goals are achieved.
The following table sets forth certain unaudited operating data for the
Company's eight fiscal quarters ended January 30, 1999. The unaudited quarterly
information includes all normal recurring adjustments which management considers
necessary for a fair presentation of the information shown.
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1998
--------------------------------------------------------------------------------------------------
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 $112,595 $95,292 $126,495 $108,928 $110,227 $97,058 $112,005 $112,727
Gross profit 35,106 25,621 40,465 24,570 37,045 31,319 37,924 30,834
Selling, general and
administrative expenses 28,868 24,393 30,053 28,056 28,604 26,229 30,450 30,813
Depreciation and amortization 2,864 2,668 2,946 2,955 3,135 2,914 3,001 3,151
Non-recurring charge - - - 5,660 - - - (1,216)
Operating income (loss) 3,374 (1,440) 7,466 (12,101) 5,306 2,176 4,473 (1,914)
Interest expense 2,972 3,140 3,278 3,455 3,540 3,731 3,610 3,633
Income (loss) before
extraordinary item 380 (4,587) 4,122 (15,587) 1,742 (1,619) 830 (5,541)
Extraordinary loss on early
extinguishment of debt - - - - - 560 - -
Net income (loss) 380 (4,587) 4,122 (15,587) 1,742 (2,179) 830 (5,541)
Earnings per share:
Basic:
Income (loss) before
extraordinary item $ 0.04 $ (0.51) $ 0.46 $ (1.73) $ 0.19 $ (0.18) $ 0.09 $ (0.61)
Extraordinary item - - - - - (0.06) - -
Net Income (loss) $ 0.04 $ (0.51) $ 0.46 $ (1.73) $ 0.19 $ (0.24) $ 0.09 $ (0.61)
Diluted:
Income (loss) before
extraordinary item $ 0.04 $ (0.51) $ 0.45 $ (1.73) $ 0.19 $ (0.18) $ 0.09 $ (0.61)
Extraordinary item - - - - - (0.06) - -
Net Income (loss) $ 0.04 $ (0.51) $ 0.45 $ (1.73) $ 0.19 $ (0.24) $ 0.09 $ (0.61)
</TABLE>
25
<PAGE>
Liquidity and Capital Resources
Historically, the Company's primary sources of liquidity are cash
generated from operations, borrowings under its revolving credit facility (the
"Credit Facility") and trade credit financing. During fiscal years 1996, 1997
and 1998 the Company opened 17 new stores and expanded 13 existing stores,
consistent with its new store format strategy of larger store size to
accommodate its broadened merchandising strategy. In this three year period, the
Company expended approximately $42 million of capital expenditures, funded
primarily from the Credit Facility.
The Company has reduced its capital expenditure requirements for fiscal
year 1999 to approximately $4 million from $10 million in fiscal 1997. Rather
than continue with new store openings and store expansions, the Company has
placed an emphasis on (1) increasing comparative store sales, (2) continuing to
improve and broaden its merchandising mix, and (3) implementing its marketing
programs, designed to attract new customers, retain existing customers, and
reward best customers. The new store and expansion store programs will resume
once the goals are met in these areas.
The Company's debt structure is composed primarily of its Credit
Facility and Senior Notes (the "Senior Notes"), which do not mature until May
2001 and May 2003, respectively. The Company anticipates that there will be no
cash requirements for working capital during fiscal year 1999, and therefore its
cash flow from operations will be used primarily for 1) capital expenditures,
approximately $4 million in fiscal year 1999, and 2) reducing amounts
outstanding under its Credit Facility.
During fiscal year 1998, net cash provided by operating activities
totaled $1.8 million compared to fiscal 1997 where there was a net usage of cash
of $7.5 million. The improvement was due primarily to the reduction in the net
loss for the year. Working capital increased 16.2% from $27.1 million in 1997 to
$31.5 million in 1998. Net cash used in investing activities was $9.9 million in
fiscal 1998, principally related to the new store and expansion store activity
completed during the year. Net cash used for operating and investing activities
was financed primarily by the increase in borrowings of $8.1 million under the
Credit Facility.
The Company's outstanding long-term indebtedness as at January 30,
1999, February 1, 1997, and February 3, 1996, was $139.5 million, $131.4
million, and $107.9 million, respectively. Interest expense increased by $1.7
million, to $14.5 million, for fiscal 1998, as compared to $12.8 million for
fiscal 1997. The increase in net interest expense primarily resulted from an
increase in the average borrowings under the Credit Facility to finance capital
expenditures. In addition, in fiscal 1998, the Company made principal payments
of $73,000 on its long-term indebtedness.
26
<PAGE>
On May 12, 1998, the Company refinanced the indebtedness under its
prior credit facility with borrowings under the Credit Facility with Congress
Financial along with a $7.9 million Term Loan with another bank (the "Term
Loan"). The Credit Facility provides for a revolving line of credit and a letter
of credit facility aggregating $60.0 million. The Term Loan is supported by a
letter of credit issued under the Credit Facility. The terms of the loans are
for three years and do not contain any financial covenants. At January 30, 1999,
outstanding borrowings under the Credit Facility and the Term Loan were
approximately $41.9 million. See Note 4 of the Financial Statements.
In fiscal 1999, the Company's material commitments will include
servicing its indebtedness (primarily interest on the Credit Facility and the
Notes) and capital expenditures. Because indebtedness under the Credit Facility
bears interest at floating rates based on LIBOR, the Company's debt service
costs in fiscal 1999 will fluctuate. However, assuming that interest rates
remain constant, the Company expects that: (i) its total debt service costs in
fiscal 1999 will be somewhat less than the $14.5 million in fiscal 1998 due to
the Company's expected decreased debt levels, and (ii) the amount of principal
reduction in fiscal 1999 will remain approximately $70,000.
The Company believes that cash generated from operations together with
funds available under the Credit Facility and through trade credit financing
will be sufficient to satisfy its cash requirements in fiscal 1999. Although the
Company fully anticipates that it will be able to continue meeting its
obligations as they come due, the Company's ability to do so will depend on its
ability to successfully implement its business plans, general economic and
business conditions, and the other factors noted in "Special Note Regarding
Forward Looking Statements."
Year 2000
The "Year 2000 Issue" is caused by the fact that computers read dates
as two digit numbers. As a result, in the year 2000, computers may be unable to
distinguish between the year 1900 and the year 2000, possibly resulting in
computer malfunctions or failures.
The efficient operation of the Company's business is dependent in part
on its computer software programs and operating system (collectively, Programs
and Systems). These Programs and Systems are used in several key areas of the
Company's business, including purchasing, inventory management, point-of-sale
and financial reporting, as well as in various administrative functions. Certain
of these Programs and Systems are maintained
27
<PAGE>
by third-party software providers.
The Company is in the process of addressing the Year 2000 issue, and as
a result of this process, the Company has identified three phases of its Year
2000 Project: i) inventory, ii) assessment, iii) remediation and testing. The
Company has completed its inventory and assessment of its computer and
application software, as well as non-information technology equipment. Plans for
establishing compliance have been developed, which include, among other things:
the identification of which non-compliant hardware and software will be upgraded
or replaced, the timetable and resources (both internal and external) required
to achieve those objectives, and the estimated costs. The Company expects to
complete remediation and testing of its Programs and Systems by mid-1999.
Approximately 60% of the necessary upgrades have occurred to date. The majority
of this work has been performed by third-party software providers, often as part
of existing software maintenance agreements.
The Company is in the process of identifying and communicating with its
service providers, financial institutions and suppliers to determine their Year
2000 state of readiness and the extent to which the failure of any of these
systems may impact the Company's operations.
Based upon current information, the Company estimates that the costs of
addressing the Year 2000 issue have not been material and are expected to
continue to be immaterial. The planned expenditures for the Company's Year 2000
project are approximately $0.7 million, of which approximately 30% has been
spent. Although the Company is not currently aware of any material operational
issues or costs associated with preparing its systems for the Year 2000, there
can be no assurance that there will not be a delay in or increased costs
associated with, the implementation of the necessary systems and changes to
address the Year 2000 issues.
To date, the Company believes that it is difficult to identify its most
reasonably likely worst case Year 2000 scenario. However, a reasonable worst
case scenario would be the failure of major third-party software suppliers, to
finish their upgrades to both store and financial systems. Continuing failures
in these areas could have a material adverse effect on the Company's results of
operations. To date, the Company has not established a contingency plan for Year
2000 issues. Where needed, the Company will establish contingency plans, based
on our actual testing experience, to limit to the extent possible, the effect of
Year 2000 issues on the Company's results of operations. Any such plans would
necessarily be limited to situations which the Company can reasonably be
expected to control. The Company expects contingency plans to be in place by
July 31, 1999.
The cost of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's estimates.
Based on the testing done to date,
28
<PAGE>
the Company currently believes that the Year 2000 issue will not pose
significant operational problems for its computer systems. However, due to
uncertainties inherent in the Year 2000 issue, the Company will develop various
courses of action to mitigate the effect of any unforeseen disruptions resulting
from failures either by the Company's computer systems, or those of other
companies on which the Company's systems and operations rely. Notwithstanding
any such contingency plans, if the required modifications and conversions are
not made, or are not completed on a timely basis, or the systems of third
parties (i.e. suppliers and financial institutions) with whom the Company relies
on directly, or indirectly, to be Year 2000 compliant, are not operational, the
Year 2000 could have a material adverse effect on the future results of
operations.
29
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 10, 1999, included in
the 1998 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 10, 1999, with respect to the consolidated
statements incorporated herein by reference.
/s/ Ernst & Young LLP
- ---------------------
New York, New York
April 30, 1999
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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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> JAN-30-1999
<CASH> 1,325
<SECURITIES> 0
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<INVENTORY> 69,605
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<CURRENT-LIABILITIES> 44,333
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0
0
<COMMON> 90
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<TOTAL-LIABILITY-AND-EQUITY> 188,693
<SALES> 432,017
<TOTAL-REVENUES> 432,017
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<OTHER-EXPENSES> 127,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,514
<INCOME-PRETAX> (4,473)
<INCOME-TAX> 115
<INCOME-CONTINUING> (4,588)
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<EXTRAORDINARY> (560)
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