Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 29, 2000
Commission File Number 0-28410
LOEHMANN'S, INC.
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(Exact name of registrant 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 executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 409-2000
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Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of Registrant's Common Stock and Class B Common
Stock, as of June 1, 2000; 9,053,967 and 26,087, respectively.
<PAGE>
Loehmann's, Inc.
Contents
Part I--Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets--April 29, 2000 and January 29, 2000........................... 1
Statements of Operations--Three months ended
April 29, 2000 and May 1, 1999.............................................. 2
Statements of Cash Flows--Three months ended
April 29, 2000 and May 1, 1999.............................................. 3
Notes to Financial Statements................................................. 4
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition............................................. 6
Part II--Other Information
Item 3. Defaults Upon Senior Securities....................................... 9
Item 5. Other Information..................................................... 9
Item 6. Exhibits and Reports on Form 8-K...................................... 9
Signature.....................................................................10
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Balance Sheets
<TABLE>
<CAPTION>
April 29, January 29,
2000 2000
---------------------------------
Unaudited
(In thousands, except
share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,958 $ 1,229
Accounts receivable and other assets 4,728 3,388
Merchandise inventory 52,472 46,674
---------------------------------
Total current assets 59,158 51,291
Property, equipment and leaseholds,net 50,086 56,019
Deferred debt issuance costs and other assets, net 956 1,021
Purchase price in excess of net assets acquired, net 36,599 36,923
---------------------------------
Total assets $ 146,799 $ 145,254
=================================
Liabilities and common stockholders' deficit
Current liabilities:
DIP credit agreement $ 12,765 $ 9,120
Accounts payable 8,692 6,530
Accrued expenses 13,978 12,495
Accrued interest 18 57
Current portion of long-term debt 381 391
---------------------------------
Total current liabilities 35,834 28,593
Liabilities subject to compromise 146,011 141,733
Other noncurrent liabilities 3,384 3,776
Common stockholders' deficit:
Common stock, $0.01 par value, 25,000,000 shares authorized; 9,053,967 shares
issued and outstanding at April 29, 2000 and January 29, 2000 90 90
Class B convertible common stock, 469,237 shares authorized; 26,087 shares
issued and outstanding at April 29, 2000 and January 29, 2000 142 142
Additional paid-in capital 81,760 81,760
Accumulated deficit (120,422) (110,840)
---------------------------------
Total common stockholders' deficit (38,430) (28,848)
---------------------------------
Total liabilities and common stockholders' deficit $ 146,799 $ 145,254
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
April 29, May 1,
2000 1999
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(In thousands, except per share data)
<S> <C> <C>
Net sales $ 92,221 $ 108,231
Cost of sales 62,665 73,679
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Gross profit 29,556 34,552
Selling, general and administrative expenses 27,180 31,543
Depreciation and amortization 2,673 3,190
----------------------------------------------------------
Operating loss (297) (181)
Interest expense, net 423 3,660
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Loss before reorganization costs and
income taxes (720) (3,841)
Reorganization costs 8,812 -
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Loss before income taxes (9,532) (3,841)
Provision for income taxes 50 38
----------------------------------------------------------
Net loss applicable to common stock $ (9,582) (3,879)
==========================================================
Loss per share: Basic and diluted: $ (1.06) $ (0.43)
==========================================================
Weighted average number of common shares outstanding 9,079 9,079
Weighted average number of common shares and common share
equivalents outstanding 9,079 9,079
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Loehmann's, Inc.
(Debtor-In-Possession)
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
April 29, May 1,
2000 1999
----------------------------------------------------------
(In thousands)
<S> <C> <C>
Cash flows (used in) provided by operating activities
Net loss $ (9,582) $ (3,879)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Reorganization expenses 8,204 -
Depreciation and amortization 2,673 3,190
Changes in current assets and liabilities:
Accounts receivable and other assets (1,340) (2,034)
Merchandise inventory (5,798) (14,127)
Accounts payable 2,024 14,663
Accrued expenses 1,569 1,772
Accrued interest (49) 2,827
----------------------------------------------------------
Net changes in current assets and liabilities: (3,594) 3,101
Net change in other noncurrent assets and liabilities (392) 65
----------------------------------------------------------
Total adjustments, net 6,891 6,356
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Net cash (used in) provided by operating activities (2,691) 2,477
----------------------------------------------------------
Cash flows used in investing activities
Capital expenditures (225) (1,628)
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Net cash used in investing activities (225) (1,628)
----------------------------------------------------------
Cash flows provided by (used in) financing activities
Borrowings (repayments) under credit facility, net 3,645 (85)
Other financing activities, net - (7)
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Net cash provided by (used in) financing activities 3,645 (92)
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Net increase in cash and cash equivalents 729 757
Cash and cash equivalents at beginning of period 1,229 1,325
----------------------------------------------------------
Cash and cash equivalents at end of period $ 1,958 $ 2,082
==========================================================
Supplemental disclosure of cash flow information
Cash interest paid during period $ 423 $ 796
==========================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Notes to Financial Statements
1. Basis of Presentation
On May 18, 1999 (the "Petition Date") the Company filed a petition for relief
under chapter 11 of the Bankruptcy Code (the "Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
Since the Petition Date, the Company has continued to operate as a
debtor-in-possession under the Bankruptcy Code.
On March 24, 2000, with the support of the Creditor's Committee, the Company
filed a Disclosure Statement (the "Disclosure Statement") and a Plan of
Reorganization (the "Plan of Reorganization") with the Bankruptcy Court. On
April 24, 2000, the Bankruptcy Court approved the Disclosure Statement related
to the Plan of Reorganization and scheduled a plan confirmation hearing for June
27, 2000. On May 24, 2000 solicitation packages were mailed to creditors and
other related parties.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. As a result
of the chapter 11 proceedings and circumstances relating to this event,
including the Company's debt structure and its recurring losses, such
realization of assets and liquidation of liabilities are subject to uncertainty.
In the chapter 11 proceedings, substantially all liabilities as of the Petition
Date are subject to compromise or other treatment under a plan of
reorganization. For financial reporting purposes, those liabilities and
obligations whose disposition is dependent on the outcome of the chapter 11
proceedings have been segregated and classified as liabilities subject to
compromise in the balance sheets. Generally, actions to enforce or otherwise
effect repayment of all pre-chapter 11 liabilities as well as all pending
litigation against the Company are stayed while the Company continues its
business operations as a debtor-in-possession. Schedules have been filed by the
Company with the Court setting forth the assets and liabilities of the Company
as of the Petition Date as reflected in the Company's accounting records.
Differences between amounts reflected in such schedules and claims filed by
creditors are currently being investigated and either amicably resolved or
adjudicated. The ultimate amount of and settlement terms for such are not
presently determinable.
Financial accounting and reporting during a chapter 11 case is prescribed in
Statement of Position No. 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly,
pre-petition liabilities, which may be subject to settlement, have been
classified as liabilities subject to compromise in the accompanying balance
sheet at April 29, 2000. SOP 90-7 also requires that the Company record all
transactions incurred as a result of the chapter 11 filing separately as
reorganization items on the statement of operations for the three month period
ended April 29, 2000.
The Company is operating its business during the reorganization process and has
a $75 million debtor-in-possession financing facility (the "DIP Facility"). The
Company believes that the DIP Facility will allow it to meet its merchandise
inventory and normal operating expense needs, as well as presently anticipated
capital expenditure requirements, for the remainder of the fiscal year.
4
<PAGE>
The accompanying financial statements do not reflect any adjustment to the
carrying value of assets or liabilities that may result from the Plan of
Reorganization as discussed above.
The balance sheet at April 29, 2000 and the statements of operations and cash
flows for the quarter ended April 29, 2000 include, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain information and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter ended April 29, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ended February 3, 2001. It is suggested that these unaudited financial
statements be read in conjunction with the financial statements and notes for
the fiscal year ended January 29, 2000 included in the Company's Annual Report
on Form 10-K for such year.
2. Liabilities Subject to Compromise and Reorganization Items
Liabilities subject to compromise in the accompanying balance sheet includes the
following amounts at April 29, 2000:
11 7/8% senior notes $ 95,000
Accounts payable 31,867
Accrued lease rejection claims 8,872
Accrued interest on senior notes 5,672
Other liabilities 4,600
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Total liabilities subject to compromise $ 146,011
==========
SOP 90-7 requires that the Company record all transactions incurred as a result
of the chapter 11 filing separately as reorganization items. Accordingly,
reorganization items included in the statements of operations include the
following for the three month period ended April 29, 2000:
Asset write offs at closed stores $ 4,022
Accrued lease rejection claims 4,182
Proceeds from sales of leases (1,200)
Professional fees 900
Other liabilities 908
----------
Total reorganization costs $ 8,812
==========
5
<PAGE>
3. Charge for Store Closings
During the first quarter of fiscal 2000, the Company implemented a plan to close
eleven underperforming stores and, as a result, recorded a $7.2 million charge.
These closures are intended to improve the Company's future profitability and
liquidity.
The store closures were completed by the end of May 2000. Net sales and
operating income (loss), including certain specifically allocated charges, for
these stores were $3.8 million and $(0.5) million for the three months ended
April 29, 2000 and $8.2 million and $0.3 million for the same period in the
prior year.
The charge for store closings consisted of write-offs of property, plant and
equipment, costs associated with net lease rejection claims and other expenses
of $4.0 million, $3.0 million and $0.2 million, respectively.
4. Income Taxes
The provision for income taxes primarily represents alternative minimum tax and
state and local taxes for states that do not allow net operating loss
carryforwards.
5. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts could differ
from the estimates.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reorganization
On May 18, 1999 the Company filed a petition for relief under chapter 11 of the
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). Since the Petition Date,
the Company has continued to operate as a debtor-in-possession under the
Bankruptcy Code.
The Company's management has developed a reorganization plan and evaluated its
operations. On March 24, 2000, with the support of the Creditor's Committee, the
Company filed a Disclosure Statement (the "Disclosure Statement") and a Plan of
Reorganization (the "Plan of Reorganization") with the Bankruptcy Court. On
April 24, 2000, the Bankruptcy Court approved the Disclosure Statement related
to the Plan of Reorganization and scheduled a plan confirmation hearing for June
27, 2000. On May 24, 2000 solicitation packages were mailed to creditors and
other related parties. Until a
6
<PAGE>
reorganization plan is confirmed by the Bankruptcy Court, payments of
pre-petition liabilities are limited to those approved by the Bankruptcy Court.
The Plan of Reorganization as filed with the Bankruptcy Court on March 24, 2000,
and as amended on April 24, 2000 provides that holders of Common Stock and
holders of options to purchase Common Stock shall not be entitled to, and shall
not, receive any property or interest in property on account of their shares of
Common Stock and options to purchase Common Stock. If the Plan of Reorganization
is approved, the Company's unsecured creditors will receive all of the Company's
Common Stock.
As a result of the chapter 11 filing, the Company has defaulted on certain
indebtedness. See "Part II - Item 3 - Defaults Upon Senior Securities."
In its chapter 11 case, the Company may sell assets and settle liabilities for
amounts other than those reflected in the financial statements. The
administrative and reorganization expense resulting from the chapter 11 filing
will unfavorably affect results. Moreover, future results may be adversely
affected by other claims and factors resulting from the chapter 11 filing.
Results of Operations - Comparison of the Quarters Ended April 29, 2000 and May
1, 1999
Net sales for the thirteen week period ended April 29, 2000, were $92.2 million
as compared to $108.2 million for the comparable period in the prior year, a
decrease of approximately $16.0 million or 14.8%. Comparable store sales (sales
at stores that were in operation for both periods) increased by 1.0%. The
overall sales decline is attributable to the impact of the fourteen stores
closed in July 1999 which generated $11 million, and the eleven stores closed in
March 2000 which generated an additional $5.0 million for the quarter ended May
1, 1999.
Gross profit for the thirteen week period ended April 29, 2000, was $29.6
million as compared to $34.6 million for the same period in the prior year.
Gross margin percentage increased to 32.0% from 31.9% in the prior year period.
The gross profit margin was impacted by an accrual of $1.3 million for the
planned liquidation of inventory at the eleven closed stores. Gross profit from
ongoing operations was $30.9 million or 33.5% as a percentage of net sales. The
increase in gross margin percentage from ongoing operations was due primarily to
an increase in the initial markup.
Selling, general and administrative expenses for the thirteen week period ended
April 29, 2000, were $27.2 million as compared to $31.5 million during the same
period in the prior year, a decrease of $4.3 million, or 13.7%. The decrease was
due primarily to the closing of fourteen stores in July 1999 and the eleven
stores closed in March of 2000.
Depreciation and amortization expense for the thirteen week period ended April
29, 2000, was $2.7 million as compared to $3.2 million for the same period in
the prior year.
The Company has provided for a charge in the amount of $7.2 million for the
closing of eleven stores. This charge consists of the write-off of property,
plant and equipment, closing expenses and costs associated with lease rejection
claims of $4.0 million, $0.2 million and $4.2 million, respectively.
7
<PAGE>
These charges were offset by the estimated proceeds from the sales of leases of
$1.2 million. The Company also incurred $1.6 million of other reorganization
costs including $0.9 million for professional fees and $0.7 million for
severance costs.
Net interest expense for the thirteen week period ended April 29, 2000 was $0.4
million as compared to $3.7 million for the same period in the prior year, a
decrease of approximately $3.3 million or 89.2%. Interest expense has not been
accrued on the 11 7/8% senior notes since the chapter 11 filing on May 18, 1999.
(see "Liquidity and Capital Resources"). In the quarter ended May 1, 1999,
interest expense for the 11 7/8% notes was $2.8 million.
Liquidity and Capital Resources
As previously mentioned, the Company has a DIP Facility which provides for a
revolving line of credit and a letter of credit facility aggregating $75.0
million. The DIP Facility expires on the earlier of (a) the second anniversary
of the DIP Facility, (b) the effective date of a plan of reorganization for the
Company, or (c) acceleration following the occurrence of an event of default.
The availability of the revolving line of credit and letters of credit under the
DIP Facility is subject to certain inventory-related borrowing base
requirements. The indebtedness under the DIP Facility bears interest at variable
rates based on LIBOR plus 2.25% or the prime rate plus 0.5%. The DIP Facility
contains certain customary covenants (including limitations on indebtedness,
liens and restricted payments) but does not contain any financial covenants. The
DIP Facility is secured by substantially all of the Company's assets. As of May
27, 2000, the Company had borrowings of $4.9 million and letters of credit of
$2.5 million outstanding under the DIP Facility, with $28.0 million of remaining
availability for borrowings under the DIP Facility. The Company intends to use
the DIP Facility during the pendency of the chapter 11 case to finance its
working capital and capital expenditure requirements.
Cash used in operations for the three months ended April 29, 2000, was $2.7
million. Borrowings under the DIP Facility were $3.6 million.
As previously noted, the Company is currently operating its business as a
debtor-in-possession under chapter 11 of the Bankruptcy Code. Continuation of
the Company as a going concern is contingent upon, among other things,
confirmation by the Bankruptcy Court of a reorganization plan, the Company's
ability to return to profitability and generate sufficient cash from operations.
The Company believes that cash generated from operations and funds available
under the DIP Facility will be sufficient to satisfy its cash requirements
through fiscal 2000.
8
<PAGE>
Part II. Other Information
Item 3. Defaults Upon Senior Securities.
As previously disclosed, as a result of the chapter 11 filing, the Company did
not make the interest payment on its 11-7/8% Senior Notes due 2003, which
payment was due on May 17, 1999. As of the Petition Date, $100.6 million in
unpaid principal and interest of such notes was outstanding. Since the notes are
an unsecured obligation, the Company is not required to pay interest during its
chapter 11 case.
Item 5. Other Information
Other Information
This Quarterly Report on Form 10-Q and, in particular, Management's Discussion
and Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the Securities Exchange Act of 1934. The
Company's actual results of operations and future financial condition may differ
materially from those expressed or implied in any such forward-looking
statements as a result of many factors, including factors that may be beyond the
Company's control. The Company is currently operating its business as
debtor-in-possession under chapter 11 of the Bankruptcy Code. Continuation of
the Company as a going concern is contingent upon its ability to comply with its
debtor-in-possession financing facility, the Company's ability to generate
sufficient cash from operations and its ability to obtain financing sources to
meet its future obligations. Other factors that may cause actual results of
operations and future financial condition to differ from those expressed or
implied in any forward-looking statements contained herein include adverse
changes in relationships with key factors and vendors, changes in consumer
preferences, competition from existing and potential competitors and general
economic conditions.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements contained herein or that may be made from time to time by or on
behalf of the Company.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended April 29, 2000.
9
<PAGE>
Loehmann's, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 13, 2000
Loehmann's, Inc.
By: /s/ Robert Glass
----------------
Robert Glass
President, Chief Operating Officer and Director
10
