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 October 28, 2000
Commission File Number 0-28410
LOEHMANN'S HOLDINGS, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4129380
----------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
----------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 409-2000
---------------------
Indicate by a check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes No
Indicate by a check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[X] Yes No
Common Stock, par value $0.01 per share: 3,333,333 shares are outstanding as of
December 12, 2000.
<PAGE>
Loehmann's Holdings, Inc.
Contents
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets--October 28, 2000 and January 29, 2000................................... 3
Consolidated Statements of Operations--Period from October 10, 2000 to
October 28, 2000; Period from January 30, 2000 to October 9, 2000; Period from July 30,
2000 to October 9, 2000; Thirteen and Thirty-Nine Weeks ended October 30, 1999.................... 4
Consolidated Statements of Cash Flows--Period from October 10, 2000 to October 28,
2000; Period from January 30, 2000 to October 9, 2000; Thirty-Nine Weeks ended October 30, 1999... 5
Notes to Financial Statements........................................................................ 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition.................................................................... 12
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ 15
Item 2. Changes In Securities........................................................................ 15
Item 5. Other Information............................................................................ 16
Item 6. Exhibits and Reports on Form 8-K............................................................. 16
Signature............................................................................................ 18
</TABLE>
<PAGE>
Loehmann's Holdings, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
COMPANY COMPANY
----------------- ------------------
(in thousands) OCTOBER 28, JANUARY 29,
2000 2000
----------------- ------------------
Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,772 $ 1,229
Accounts receivable and other assets 3,988 3,388
Merchandise inventory 51,648 46,674
----------------- ------------------
Total current assets 58,408 51,291
Property, equipment and leaseholds, net 47,735 56,019
Deferred financing fees and other assets, net 1,766 1,021
Reorganization value in excess of identifiable assets 19,668 -
Purchase price in excess of net assets acquired, net - 36,923
----------------- ------------------
Total assets $ 127,577 $ 145,254
================= ==================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 12,053 $ 6,530
Accrued expenses 22,335 12,552
DIP credit agreement - 9,120
Revolving line of credit 11,867 -
Current portion of long-term debt - 391
----------------- ------------------
Total current liabilities 46,255 28,593
11% Senior notes due 2005 25,000 -
Liabilities subject to compromise - 141,733
Other noncurrent liabilities 4,180 3,776
Stockholders' equity (deficit):
Common stock - old - 232
Common stock - new 33 -
Additional paid-in capital 49,967 81,760
Retained earnings (accumulated deficit) 2,142 (110,840)
----------------- ------------------
Total stockholders' equity (deficit) 52,142 (28,848)
----------------- ------------------
Total liabilities and stockholders' equity $ 127,577 $ 145,254
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Loehmann's Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR Predecessor Company
COMPANY
----------------- -----------------------------------------------------------
PERIOD FROM PERIOD FROM Thirteen PERIOD FROM Thirty Nine
OCTOBER 10, JULY 30, Weeks Ended JANUARY 30, Weeks Ended
2000 TO 2000 TO October 30, 2000 TO October 30,
OCTOBER 28, OCTOBER 9, 1999 OCTOBER 9, 1999
(in thousands) 2000 2000 2000
----------------- -------------- --------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 19,805 $ 70,928 $ 93,962 $ 238,534 $ 292,141
Cost of sales 12,005 44,493 60,511 156,173 200,953
----------------- -----------------------------------------------------------
Gross profit 7,000 26,435 33,451 82,361 91,188
Selling, general and administrative expenses 4,971 19,454 26,956 69,424 88,107
Depreciation and amortization 461 1,830 2,736 7,078 9,102
----------------- -----------------------------------------------------------
Operating income (loss) 2,368 5,151 3,759 5,859 (6,021)
Interest expense (net) 225 251 525 918 5,363
----------------- -----------------------------------------------------------
Income (loss) before reorganization items,
fresh start adjustments, income taxes and
extraordinary item 2,143 4,900 3,234 4,941 (11,384)
Reorganization items - (10,084) 2,833 (20,626) (18,231)
Fresh start adjustments - (21,382) - (21,382) -
----------------- -----------------------------------------------------------
Income (loss) before income taxes and
extraordinary item 2,142 (26,566) 6,067 (37,067) (29,615)
Provision for income taxes 1 17 14 128 80
----------------- -----------------------------------------------------------
Net income (loss) before extraordinary item 2,142 (26,583) 6,053 (37,195) (29,695)
Extraordinary item - gain on discharge of
debt - 66,050 - 66,050 -
-------------------------------------------------------------------------------
Net income (loss) applicable to common
stock $ 2,142 $ 39,467 $ 6,053 $ 28,855 $ (29,695)
================= ===========================================================
Earnings per share
Basic and diluted:
Net income $ 0.64
================
Weighted average number of common
shares outstanding 3,333
================
</TABLE>
Per share and share information - see Note 4.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
Loehmann's Holdings, Inc.
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY Predecessor Company
---------------------- ---------------------------------------
(in thousands) PERIOD FROM PERIOD FROM Thirty Nine
OCTOBER 10, JANUARY 30, Weeks
2000 TO 2000 TO ended
OCTOBER 28, OCTOBER 9, October 30,
2000 2000 2000
---------------------- ---------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,142 $ 28,855 $ (29,695)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 461 7,078 9,101
Reorganization items 8,446 10,368
Gain on discharge of debt (66,050) -
Fresh start adjustments 21,382 -
Changes in current assets and liabilities:
Accounts receivable and other assets 1,023 (1,832) (1,800)
Merchandise inventory 3,322 (9,778) 5,992
Accounts payable (4,761) 10,229 17,880
Accrued expenses 1,710 1,560 14,303
------------------- ---------------- ---------------
Net changes in current assets and liabilities 1,294 179 36,375
Net change in other noncurrent assets and liabilities 13 (111) (487)
------------------- ---------------- ---------------
Total adjustments, net 1,768 (29,076) 55,357
------------------- ---------------- ---------------
Net cash provided by (used in) operating activities 3,910 (221) 25,662
------------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (294) (2,956) (3,140)
------------------- ---------------- ---------------
Net cash used in investing activities (294) (2,956) (3,140)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under new credit facility (3,878) 15,745 -
Repayment of DIP facility - (9,120) (19,148)
Repayments of revenue bonds and notes - - (2,212)
Other financing activities, net - (1,643) (130)
---------------------- ---------------------------------------
Net cash (used in) provided by financing activities (3,878) 4,982 (21,490)
Net (decrease) increase in cash and cash equivalents (262) 1,805 1,032
Cash and cash equivalents at beginning of period 3,034 1,229 1,325
------------------- ---------------- ---------------
Cash and cash equivalents at end of period $ 2,772 $ 3,034 $ 2,357
=================== ================ ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash interest paid during period $ 87 $ 975 $ 2,089
====================== =======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
Loehmann's Holdings, Inc.
Notes To Financial Statements
1. BASIS OF PRESENTATION
On May 18, 1999 (the "Petition Date") Loehmann's, Inc. 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").
On July 28, 2000 Loehmann's, Inc. filed a Second Amended Plan of Reorganization
(the "Second POR") with the Bankruptcy Court. The Second POR was subsequently
accepted by the required percentages of those creditors entitled to vote on the
plan. A plan confirmation hearing was held on September 6, 2000 and the Second
POR, as further modified on that date (the "Amended POR"), was confirmed by the
Bankruptcy Court. On October 10, 2000, Loehmann's Operating Co., a new operating
subsidiary of Loehmann's, Inc., entered into a secured credit facility with
Bankers Trust Company (the "New Credit Facility"). Concurrently, Loehmann's
Holdings, Inc. ("Loehmann's Holdings" or the "Company"), a newly formed holding
company, entered into an indenture (the "Senior Notes Indenture") for 11% Senior
Notes due 2005 (the "New Senior Notes"). As a result of both of these agreements
being finalized, all conditions precedent to the effectiveness of the Amended
POR were met and the Amended POR become effective on October 10, 2000 (the
"Effective Date"), thereby allowing the Company to formally emerge from
bankruptcy. From the Petition Date until the Effective Date, Loehmann's, Inc.
operated as a debtor-in-possession under the Bankruptcy Code.
Under the Amended POR, a holding company, Loehmann's Holdings, Inc., was formed
which owns 100% of Loehmann's, Inc. Loehmann's Holdings distributed 3,333,333
shares of common stock, par value $0.01 per share (the "New Common Stock"), and
$25,000,000 of its New Senior Notes to the general unsecured creditors of
Loehmann's, Inc. Distributions to the general unsecured creditors of Loehmann's,
Inc. were made in New Common Stock or in a combination of New Common Stock and
New Senior Notes depending on the elections made by the holders of general
unsecured claims. The Amended POR provided that no stockholders and option
holders of Loehmann's, Inc. common stock would receive any distribution on
account of their shares of common stock or options to purchase common stock.
In addition to the formation of Loehmann's Holdings, two new wholly-owed
subsidiaries of Loehmann's, Inc. were formed and all of the Company's assets
were transferred to these subsidiaries, Loehmann's Operating Co. and Loehmann's
Real Estate Holdings, Inc.
During its chapter 11 proceeding, Loehmann's, Inc. operated its business as a
debtor-in-possession and had a $75 million debtor-in-possession financing
facility, which was subsequently reduced to $60 million (the "DIP Facility").
Loehmann's Operating Co. entered into the New Credit Facility, which was used
to, among other things, pay off the DIP Facility. The Company believes that the
New Credit Facility will allow it to meet its merchandise
6
<PAGE>
inventory and normal operating expense needs, as well as its capital expenditure
requirements, for the remainder of the fiscal year.
The Financial Statements presented herein are unaudited and have been prepared
by the Company according to the rules and regulations of the Securities and
Exchange Commission and according to the principles of fresh start accounting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code ("SOP 90-7"). As a result of the application of fresh start
accounting, the Company was required to report its financial results for the
thirteen and thirty-nine weeks ended October 28, 2000 in two separate periods in
this Form 10-Q. Moreover, as a result of the application of fresh start
accounting, the successor Company's financial statements (hereinafter defined)
are not comparable to the Company's financial statements for prior periods.
The following table describes the periods presented in the financial statements
and related notes thereto:
Period Referred to as
------ --------------
Results for the Successor
Company From October 10,
2000 to October 28, 2000 "Successor Company 2000 19-Day Period"
Results for the Predecessor
Company From July 30, 2000
to October 9, 2000 "Predecessor Company 2000 72-Day Period"
Results for the Predecessor
Company Thirteen Weeks
Ended October 30, 1999 "1999 Third Quarter"
Results for the Predecessor
Company From January 30, 2000
to October 9, 2000 "Predecessor Company 2000 254-Day Period"
Results for the Predecessor
Company Thirty-Nine Weeks
Ended October 30, 1999 "1999 Nine-Month Period"
7
<PAGE>
The following table describes the periods presented in the Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Combined Successor Company
2000 19-Day Period and
Predecessor Company 2000
72-Day Period (Results for
the Thirteen Weeks Ended
October 28, 2000) "2000 Third Quarter"
Combined Successor Company
2000 19-Day Period and
Predecessor Company 2000
254-Day Period (Results
for the Thirty-Nine Weeks
Ended October 28, 2000) "2000 Nine-Month Period"
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information have been
made. These financial statements should be read in conjunction with the
financial statements and related notes contained in the Company's Annual Report
on Form 10-K for the fiscal year ended January 29, 2000. Certain information
normally included in financial statements and related notes prepared in
accordance with generally accepted accounting principles has been condensed or
omitted.
2. REORGANIZATION ITEMS AND FRESH START ADJUSTMENTS
In accounting for the effects of the reorganization, the Company has implemented
SOP 90-7. SOP 90-7 is applicable because pre-reorganization shareholders will
receive none of the Company's New Common Stock and the reorganization value of
the assets of the successor company is less than the total pre-petition
liabilities allowed plus post-petition liabilities.
As set forth in the Loehmann's, Inc. disclosure statement, the Company's
reorganization value has been established at $75 million. Two methodologies were
used to derive the reorganization value, (i) a comparison of the Company and its
projected performance to how the market values comparable companies, and (ii) a
calculation of the present value of the free cash flows under the Company's
financial projections, including an assumption of a terminal value.
In allocating the reorganization value, the Company's assets were recorded at
their assumed fair value with the excess of the reorganization value over the
value of identifiable assets reported as reorganization value in excess of
identifiable assets, which will be amortized over 25 years. In applying SOP
90-7, the Company wrote off $36.2 million of purchase price in excess of
identifiable assets relating to a leveraged buyout transaction in 1988.
As part of fresh start accounting, the Company has provided for a sales return
accrual of $1.0 million at October 10, 2000 in accordance with the adoption of
SEC Staff Accounting No. 101, Revenue Recognition in Financial Statements ("SAB
101"). The Company has also
8
<PAGE>
changed its method of capitalizing inventory preparation costs and as a result
wrote-off $1.0 million of inventory preparation costs.
The net effect of all fresh start adjustments resulted in a charge of $21.4
million, which is reflected in the statement of operations for the Predecessor
Company 2000 254-Day Period and Predecessor Company 2000 72-Day Period.
The effect of the Amended POR and the application of fresh start accounting on
the Company's October 10, 2000 preconfirmation balance sheet is as follows:
<TABLE>
<CAPTION>
Confirmation of Plan
-------------------------------------------
(in thousands) Pre-Fresh Start Debt Fresh Start Successor
Balance Sheet Discharge Balance Sheet
October 10, October 10,
2000 2000
------------------ -------------- -------------- -----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,034 $ 3,034
Accounts receivable and other assets 5,220 (209)(e) 5,011
Merchandise inventory 56,452 (1,482)(f) 54,970
------------------ -----------------
Total current assets 64,706 63,015
Property, equipment and equipment, net 48,332 (500)(g) 47,832
Deferred debt issuance costs and other
assets, net 3,280 (1,541)(a) 1,739
Purchase price in excess of net assets
acquired, net 36,173 (36,173)(h) -
Reorganization value in excess of
identifiable assets - 19,722 (i) 19,722
------------------ -------------- -------------- -----------------
Total assets $ 152,491 $ (1,541) $ (18,642) $ 132,308
================== ============== ============== =================
LIABILITIES AND COMMON STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 16,814 $ 16,814
Accrued expenses 13,527 4,360 (b) 2,740 (j) 20,627
Revolving line of credit 15,745 15,745
------------------ ---------------
Total current liabilities 46,086 53,186
11% Senior Notes due 2005 - 25,000 (c) 25,000
Liabilities subject to compromise 145,411 (145,411)(d) -
Other noncurrent liabilities 4,122 4,122
Stockholders' equity (deficit) (43,128) 114,510 (21,382) 50,000
------------------ -------------- -------------- ---------------
Total liabilities and stockholders' equity $ 152,491 $ (1,541) $ (18,642) $ 132,308
================== ============== ============== ===============
</TABLE>
------------------------------------------------------------------------------
(a) Write-off of deferred financing fees on old 11 7/8% senior notes
9
<PAGE>
(b) Reclass portion of liabilities subject to compromise to be paid in
cash. Includes lease cure payments of $966,000, convenience claims of
$137,000 and reclamation claims of $3,257,000
(c) Issuance of new 11% Senior notes due 2005
(d) Discharge of debt
(e) Reserve for uncollectible receivables
(f) Adjustment to inventory for discontinued product offerings and a change
in accounting for the capitalization of inventory preparation costs
(g) Write-off of property, plant and equipment due to the exiting of the
Bronx, New York warehouse facility
(h) Elimination of Predecessor Company Purchase price in excess of net
assets acquired
(i) Record Reorganization value in excess of identifiable assets
(j) Record accrual for sales return of $1,045,000 in accordance with the
adoption of SAB 101, a reserve for additional severance costs in
connection with the exiting of the Bronx, New York warehouse facility
of $200,000 and other fresh start adjustments for $1,495,000
3. LONG TERM DEBT
The 11% Senior Notes due 2005 were issued under the Senior Note Indenture
between Loehmann's Holdings, Inc. and United States Trust Company of New York,
the trustee, dated October 10, 2000. In the initial distribution to creditors,
$25 million of notes were issued to those general unsecured creditors of
Loehmann's, Inc. who elected to receive the New Senior Notes as part of their
distribution.
Interest on the New Senior Notes shall be payable as follows: (1) the first
payment of interest due on April 30, 2001 shall be paid through the addition of
such interest to the accreted value of the New Senior Notes on such date; (2)
thereafter, the Company shall have the option to pay interest on the Senior
Notes on each interest payment date either in cash or through the addition of
such interest to the accreted value of the Senior Notes on the applicable
interest payment date; provided that the Company shall be required to pay
interest on the Senior Notes in cash on any particular interest payment date if,
as of such interest payment date, the Company would have had, on a pro forma
basis, positive free cash flow as defined in the New Credit Facility agreement.
4. COMMON STOCK
As of the Effective Date, the Company had authorized 5,500,000 shares of common
stock, par value $.01 per share. At December 12, 2000, 3,333,333 shares of
common stock were issued and outstanding, including 1,367,749 shares of common
stock held by American Stock Transfer and Trust Company as the Distribution
Agent under the Plan of Reorganization in a Disputed Claims Equity Reserve
pending determination of the entitlement thereto of holders of certain disputed
claims against Loehmann's, Inc.
Pursuant to the Amended POR, the Company also adopted an Equity Incentive Plan
for directors and key senior management pursuant to which 425,000 shares of its
new common stock were reserved for future issuance upon the exercise of stock
options granted or to be granted pursuant to the Plan. On the Effective Date,
the Company granted options to purchase an aggregate of 262,500 shares of common
stock at an exercise price of $15.00 per share to certain key senior management
employees. One quarter of these options vested on the Effective Date and an
additional quarter will vest on each of the first three
10
<PAGE>
anniversaries of the Effective Date. Directors of the Company were granted
options to purchase 75,000 shares on the Effective Date, which vested
immediately, at an exercise price to be set at the market price of the stock
after it is listed.
Per share and share information for the predecessor Company for all periods
presented in the statement of operations have been omitted as such information
is not deemed to be meaningful.
5. REORGANIZATION ITEMS
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 (in thousands) for the Predecessor Company 2000 254-Day Period ended
October 9, 2000:
Fresh start adjustments $ 21,382
Write-off of assets at closed stores 4,014
Professional fees 3,925
Accrued lease rejection claims 2,840
Other 9,847
----------------
Total reorganization costs $ 42,008
================
6. 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.
7. 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion below compares the results of operations for the 2000 Third
Quarter to the 1999 Third Quarter and the 2000 Nine-Month Period to the 1999
Nine-Month Period. These periods are summarized in the following table:
<TABLE>
<CAPTION>
2000 1999 2000 1999
THIRD Third NINE Nine
(in thousands) QUARTER Quarter MONTHS Months
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 90,733 $ 93,962 $ 258,339 $ 292,141
Cost of sales 56,498 60,511 168,178 200,953
--------------------------------------------------------------
Gross profit 34,235 33,451 90,161 91,188
Selling, general and administrative expenses 24,425 26,956 74,395 88,107
Depreciation and amortization 2,291 2,736 7,539 9,102
--------------------------------------------------------------
Operating income (loss) 7,519 3,759 8,227 (6,021)
Interest expense (net) 476 525 1,143 5,363
--------------------------------------------------------------
Income (loss) before reorganization items,
fresh start adjustments, income taxes and
extraordinary item 7,043 3,234 7,084 (11,384)
Reorganization items (10,084) 2,833 (20,626) (18,231)
Fresh start adjustments (21,382) - (21,382) -
--------------------------------------------------------------
Income (loss) before income taxes and
extraordinary item (24,423) 6,067 (34,924) (29,615)
Provision for income taxes 18 14 129 80
--------------------------------------------------------------
Net income (loss) before extraordinary item (24,441) 6,053 (35,053) (29,695)
Extraordinary item - gain on discharge of
debt 66,050 - 66,050 -
--------------------------------------------------------------
Net income (loss) applicable to common
stock $ 41,609 $ 6,053 $ 30,997 $ (29,695)
==============================================================
</TABLE>
RESULT OF OPERATIONS - COMPARISON OF THE THIRTEEN WEEKS ENDED OCTOBER 28, 2000
(THE 2000 THIRD QUARTER) AND OCTOBER 30, 1999 (THE 1999 THIRD QUARTER)
Comparable store sales (sales at stores that were in operation for both periods)
increased by 4.9%. Net sales for the 2000 Third Quarter were $90.7 million as
compared to $94.0 million for the comparable period in the prior year, a
decrease of approximately $3.3 million or 3.4%. The overall sales decline is
attributable to the impact of eleven stores closed in March 2000 which generated
$7.4 million in sales for the 1999 Third Quarter.
Gross profit for the 2000 Third Quarter was $34.2 million as compared to $33.5
million for the same period in the prior year. Gross margin percentage increased
to 37.7% from 35.6% in the prior year period. The increase in gross profit was
due primarily to an increase in the initial markup of merchandise and a
reduction in markdowns, which decreased as a percentage of sales from 24.0% to
22.7%.
12
<PAGE>
Selling, general and administrative expenses for the 2000 Third Quarter, were
$24.4 million as compared to $27.0 million during the same period in the prior
year, a decrease of approximately $2.6 million, or 9.4%. As a percentage of net
sales, selling, general and administrative expenses were 26.9% versus 28.7%
during the comparable period last year. The decrease was due primarily to (i)
expenses incurred at the eleven stores closed in March 2000 and (ii) reductions
in corporate overhead.
Depreciation and amortization expense for the 2000 Third Quarter, was $2.3
million as compared to $2.7 million for the same period in the prior year. This
decrease is primarily the result of the closing of eleven stores in March 2000
and the write-off of assets at those stores.
Reorganization costs for the 2000 Third Quarter, were $10.1 million as compared
to income of $2.8 million for the same period in the prior year. The prior year
period includes $2.4 million from the sale of leases at closed stores as well as
a reversal of previously accrued charges for lease termination costs of $2.8
million. Fresh start adjustments were $21.4 million. Refer to Note 2 -
Reorganization Items and Fresh Start Adjustments.
Net interest expense was $0.5 million for both the 2000 Third Quarter and for
the same period in the prior year. Interest expense includes an accrual for $0.1
million of interest on the New Senior Notes and interest expense of $0.4 million
on the Company's revolving line of credit.
RESULT OF OPERATIONS--COMPARISON OF THE THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000
(THE 2000 NINE-MONTH PERIOD) AND OCTOBER 30, 1999 (THE 1999 NINE-MONTH PERIOD)
Comparable store sales (stores that were in operation for both periods)
increased by 2.0%. Net sales for the 2000 Nine-Month Period were $258.3 million
as compared to $292.1 million during the comparable period last year, a decrease
of $33.8 million, or 11.6%. The overall sales decline is attributable to the
impact of the eleven stores closed in March 2000 which generated an additional
$17.6 million in sales for the 1999 Nine-Month Period and the fourteen stores
closed in July 1999 which generated $21.0 million during the same period.
Gross profit for the 2000 Nine-Month Period was $90.2 million, as compared to
$91.2 million for the comparable period last year. Gross margin percentage
increased to 34.9% from 31.2% in the prior year period. Excluding the effect of
inventory liquidation at closed stores, gross margin percentage from ongoing
operations for the 2000 Nine-Month Period was 35.3%. Gross margin for the period
last year included an inventory liquidation charge of $6.1 million at the closed
stores. Excluding that charge, gross margin percentage from ongoing operations
for the 1999 Nine-Month Period was 34.3%. The increase in gross profit
percentage from ongoing operations from 34.3% to 35.3% was due primarily to an
increase in the initial markup of merchandise.
Selling, general and administrative expenses for the 2000 Nine-Month Period were
$74.4 million as compared to $88.1 million during the same period in the prior
year, a decrease of
13
<PAGE>
approximately $13.7 million, or 15.6%. As a percentage of net sales, selling,
general and administrative expenses were 28.8% versus 30.2% during the
comparable period last year. The decrease was due primarily to (i) expenses at
the closed stores and (ii) reductions in corporate overhead.
Depreciation and amortization for the 2000 Nine-Month Period was $7.5 million as
compared to $9.1 million for the same period in the prior year. The decrease of
$1.6 million is due to the write-off of property, plant and equipment at the
closed stores.
In the 2000 Nine-Month Period, the Company provided for a charge in the amount
of $7.5 million for the closing of 11 stores. This charge consists of the
write-off of property, plant and equipment, closing expenses and costs
associated with net lease rejection claims of $4.0 million, $0.9 million and
$2.6 million, respectively. In addition, the Company (i) incurred $13.1 million
of reorganization costs, (ii) recorded a charge for fresh start adjustments of
$21.4 million and (iii) recorded a gain on the discharge of debt in the amount
of $66.1 million.
In the 1999 Nine-Month Period, the Company provided for a charge in the amount
of $12.7 million for the closing of 14 stores. This charge consists of the
write-off of property, plant and equipment, closing expenses and costs
associated with lease rejection claims of $10.4 million, $0.6 million and $4.1
million, respectively. These charges were offset by the proceeds from the sales
of leases of $2.4 million. In addition, the Company incurred $5.5 million of
other reorganization costs.
Net interest expense for the 2000 Nine-Month Period was $1.1 million as compared
to $5.4 million for the same period in the prior year, a decrease of
approximately $4.3 million. Interest related to borrowings under bank credit
facilities was $1.0 million, compared with $2.2 million for the comparable
period in the prior year due to decreased borrowings. In the 1999 Nine-Month
Period, interest expense included $3.3 million for the old 11 7/8% senior notes.
No interest was accrued or paid on the old senior notes after the Company filed
for bankruptcy on May 18, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As previously mentioned, the Company entered into the New Credit Facility with
Bankers Trust Company on the Effective Date of emergence. On the Effective Date,
the Company paid off the balance owing on the DIP Facility of $15.7 million. The
New Credit Facility provides for a $75.0 million revolving line of credit and
letter of credit facility with a $15.0 million fixed asset sublimit. The fixed
asset sublimit is reduced by $750,000 each quarter commencing on January 1,
2001. The New Credit Facility is secured by substantially all of the Company's
assets and expires on September 30, 2005. The availability of the revolving line
of credit and letters of credit under the New Credit Facility is subject to
certain inventory-related borrowing base requirements.
In connection with entering into the credit agreement, the Company paid a fee of
$1,125,000 to Bankers Trust Company. The indebtedness under the New Credit
Facility bears interest at variable rates based on LIBOR plus 4.0% or the prime
rate plus 3.0% on
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borrowings less than or equal to the fixed asset sublimit. For borrowings in
excess of the fixed asset sublimit the interest rates are LIBOR plus 2.5% or the
prime rate plus 1.5%. There is an unused line fee of 0.50% per annum on the
unused portion of the facility.
The New Credit Facility contains certain customary covenants, including
limitations on indebtedness, liens and restricted payments. In addition, the
Company is required to satisfy, among other things, certain financial
performance criteria including minimum EBITDA requirements, fixed charge
coverage and inventory turn ratios and maximum capital expenditure costs.
As of December 4, 2000, the Company had borrowings of $13.1 million and letters
of credit of $2.6 million outstanding under the New Credit Facility, with $40.9
million of remaining unused availability for borrowings. The Company believes
that cash generated from operations and funds available under the New Credit
Facility will be sufficient to satisfy its cash requirements through the
remainder of the fiscal year.
PART II - OTHER INFORMATION
ITEM 1. 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 parties reached a
settlement and as part of the settlement, Loehmann's Inc. agreed to pay $125,000
to Forty Three Apparel and allow them a general unsecured claim in Loehmann's
Chapter 11 case of $500,000.
ITEM 2. CHANGE IN SECURITIES
Pursuant to the Amended POR, on the Effective Date, all outstanding shares of
the old common stock of Loehmann's, Inc., $0.01 par value were canceled.
As of the Effective Date, 5,500,000 shares of New Common Stock of Loehmann's
Holdings, Inc. had been authorized. Under the Amended POR, Loehmann's Holdings
distributed 3,333,333 shares of New Common Stock and $25,000,000 of its New
Senior Notes to the general unsecured creditors of Loehmann's, Inc.
Distributions to the general unsecured creditors of Loehmann's, Inc. were made
in New Common Stock or in a combination of New Common Stock and New Senior Notes
depending on the elections made by the holders of general unsecured claims. The
Amended POR provided that no stockholders and option holders of Loehmann's, Inc.
common stock would receive any distribution on account of their shares of common
stock or options to purchase common stock.
Pursuant to the Amended POR, the Company also adopted an Equity Incentive Plan
for directors and key senior management pursuant to which 425,000 shares of its
new common stock were reserved for future issuance upon the exercise of stock
options granted or to be
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granted pursuant to the Plan. On the Effective Date, the Company granted options
to purchase an aggregate of 262,500 shares of common stock at an exercise price
of $15.00 per share to certain key senior management employees. One quarter of
these options vested on the Effective Date and an additional quarter will vest
on each of the first three anniversaries of the Effective Date. Directors of the
Company were granted options to purchase 75,000 shares on the Effective Date,
which vested immediately, at an exercise price to be set at the market price of
the stock after it is listed.
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
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 safe harbor provisions of the Securities
Litigation Reform Act of 1995. 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. 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
(a) Exhibits
27 Financial Data Table
(b) Reports on Form 8-K:
Report filed on October 17, 2000 containing,
Item 5. Other Information
Exhibits:
10.1 Credit Agreement, dated as of September 29, 2000, among
Loehmann's Operating Co., as Borrower, the Lenders, and
Bankers Trust Company, as Agent.
99.1 Press Release, dated October 10, 2000.
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Loehmann's Holdings, 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: December 12, 2000
<TABLE>
<CAPTION>
Loehmann's Holdings, Inc.
<S> <C>
By /s/ Robert Glass
-----------------------------------------------------
Robert Glass
President, Chief Operating Officer, Chief Financial
Officer and Director
</TABLE>
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