<PAGE> 1
FORM 10-Q
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
_____ SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
_____ SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _______
COMMISSION FILE NUMBER 1-10745
THE CALDOR CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1282044
________ __________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
20 GLOVER AVENUE, NORWALK, CT 06856-5620
_____________________________ __________
(Address of principal executive offices) (Zip Code)
(203) 846-1641
______________
(Registrant's telephone number, including area code)
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 (or for such shorter period that 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 [ ]
The number of shares of common stock outstanding as of November 30, 1996 was
17,061,962.
<PAGE> 2
THE CALDOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION `
ITEM 1 :
FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Accountants' Review Report 3
Consolidated Statements of Operations for the Thirteen and Thirty-Nine
Weeks Ended November 2, 1996 and October 28, 1995 5
Consolidated Balance Sheets as of November 2, 1996 and February 3, 1996 6
Consolidated Statement of Changes in Stockholders' Equity (Deficit) 7
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
November 2, 1996 and October 28, 1995 8
Notes to Consolidated Financial Statements 10
ITEM 2 :
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 15
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 20
</TABLE>
-2-
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
The Caldor Corporation
Norwalk, Connecticut
We have reviewed the accompanying consolidated balance sheet of The Caldor
Corporation (Debtor-in-Possession) and subsidiaries (the "Company") as of
November 2, 1996 and the related consolidated statements of operations for the
thirty-nine and thirteen week periods ended November 2, 1996 and October 28,
1995, and changes in stockholders' equity (deficit) for the thirty-nine week
period ended November 2, 1996, and cash flows for the thirty-nine week periods
ended November 2, 1996 and October 28, 1995. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
As discussed in Notes 1 and 2 to the consolidated financial statements, the
Company and certain of its subsidiaries filed for reorganization under Chapter
11 of the United States Bankruptcy Code in September 1995. The accompanying
consolidated financial statements do not purport to reflect or provide for the
consequences of the bankruptcy proceedings. In particular, such financial
statements do not purport to show (a) as to assets, their realizable value on a
liquidation basis or their availability to satisfy liabilities; (b) as to
pre-petition liabilities, the amounts that may be allowed for claims or
contingencies, or the status and priority thereof; (c) as to stockholder
accounts, the effect of any changes that may be made in the capitalization of
the Company; (d) as to operations, the effect of any changes that may be made in
its business. The eventual outcome of these matters is not presently
determinable.
3
<PAGE> 4
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements [and Note 1 to the annual financial statements
for the year ended February 3, 1996 (not presented herein)], the bankruptcy
filings and related circumstances and the losses from operations raise
substantial doubt about its ability to continue as a going concern. The
continuation of its business as a going concern is contingent upon, among other
things, future profitable operations, the ability to generate sufficient cash
from operations and financing sources to meet obligations, and the development
and confirmation of a plan of reorganization. Management's plans concerning
these matters are also discussed in the notes to the respective financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of the uncertainties referred to herein and
in the preceding paragraph.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Caldor Corporation
(Debtor-in-Possession) and subsidiaries as of February 3, 1996, and the related
consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for the year then ended and in our report dated April
30, 1996, we expressed an unqualified opinion on those consolidated financial
statements and included explanatory paragraphs related to (a) the Company's
filing for reorganization under Chapter 11 of the Federal Bankruptcy Code, (b)
the Company's 1995 loss from operations which raises substantial doubt about the
Company's ability to continue as a going concern, and (c) the change in method
of discounting reserves for self-insurance programs. The consolidated statements
of operations and cash flows for the year ended February 3, 1996 are not
presented herein. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of February 3, 1996 and related consolidated
statement of changes in stockholders' equity/(deficit) for the year then ended
is fairly stated, in all material respects, in relation to the consolidated
financial statements from which it has been derived.
DELOITTE & TOUCHE LLP
New York, New York
December 13, 1996
4
<PAGE> 5
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED: THIRTY-NINE WEEKS ENDED:
------------------------------ ------------------------------
NOVEMBER 2, OCTOBER 28, NOVEMBER 2, OCTOBER 28,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 568,596 $ 591,386 $ 1,759,368 $ 1,826,466
Cost of goods sold (Note 3) 407,166 439,539 1,288,342 1,334,737
Selling, general and administrative expenses 192,333 190,426 536,649 519,788
Interest expense, net 11,176 10,404 28,617 30,454
----------- ----------- ----------- -----------
Loss before reorganization items,
income taxes and extraordinary item (42,079) (48,983) (94,240) (58,513)
Reorganization items (Note 6) 5,881 4,637 25,421 4,637
----------- ----------- ----------- -----------
Loss before income taxes
and extraordinary item (47,960) (53,620) (119,661) (63,150)
Income tax provision (benefit) (Note 7) (21,020) (24,651)
----------- ----------- ----------- -----------
Loss before extraordinary item (47,960) (32,600) (119,661) (38,499)
Extraordinary loss (net of income tax
benefit of $3,232) (5,164)
----------- ----------- ----------- -----------
Net loss $ (47,960) $ (32,600) $ (119,661) $ (43,663)
=========== =========== =========== ===========
Per share amounts:
Loss before extraordinary item $ (2.81) $ (1.92) $ (7.05) $ (2.28)
=========== =========== =========== ===========
Net loss $ (2.81) $ (1.92) $ (7.05) $ (2.58)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares used in computing per
share amounts 17,062 16,964 16,977 16,914
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-5-
<PAGE> 6
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
NOVEMBER 2, 1996 FEBRUARY 3, 1996
---------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,659 $ 25,577
Restricted cash (Note 4) 1,523
Accounts receivable 21,651 18,059
Merchandise inventories 677,155 499,948
Assets held for disposal, net 25,265
Refundable income taxes 12,455 5,380
Prepaid expenses and other current assets 21,208 17,047
----------- -----------
Total current assets 764,651 591,276
----------- -----------
Property and equipment, net 445,402 457,638
Property under capital leases, net 88,691 94,339
Debt issuance costs 3,241 4,674
Deferred income taxes 16,626
Other assets 8,794 9,466
----------- -----------
Total assets $ 1,310,779 $ 1,174,019
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 253,527 $ 156,240
Accrued expenses 69,519 70,835
Other accrued liabilities 49,243 52,836
Borrowings under revolving credit agreement (Note 2) 259,000 40,000
----------- -----------
Total current liabilities 631,289 319,911
----------- -----------
Long- term debt 10,073
Obligations under capital leases 8,589 8,640
Other long-term liabilities 28,907 25,158
Liabilities subject to compromise (Note 5) 714,096 783,102
Stockholders' equity (deficit):
Preferred stock, par value $.01-
authorized, 10,000,000 shares;
issued and outstanding, none
Common stock, par value $.01-
authorized, 50,000,000 shares;
issued and outstanding, 17,061,962
and 16,921,433 shares, respectively 171 170
Additional paid-in capital 203,553 205,047
Deficit (283,146) (163,485)
Unearned compensation (2,753) (4,524)
----------- -----------
Total stockholders' equity (deficit) (82,175) 37,208
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 1,310,779 $ 1,174,019
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
-6-
<PAGE> 7
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
OUTSTANDING ADDITIONAL
COMMON STOCK PAID-IN UNEARNED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EQUITY (DEFICIT)
------ ------ ------- ------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 3, 1996 16,921,433 $ 170 $ 205,047 $(163,485) $(4,524) $ 37,208
Cancellation of restricted stock (64,516) (1) (2,299) 1,918 (382)
Shares issued under director
stock plan 13,876 42 42
Shares issued under restricted
stock plan 191,169 2 763 (765)
Amortization of unearned
compensation 618 618
Net loss (119,661) (119,661)
----------- --------- --------- --------- ------- --------
Balance, November 2, 1996 17,061,962 $ 171 $ 203,553 $(283,146) $(2,753) $(82,175)
=========== ========= ========= ========= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements
-7-
<PAGE> 8
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED:
NOVEMBER 2, 1996 OCTOBER 28, 1995
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(119,661) $ (43,663)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of debt issuance costs 1,289 675
Depreciation and other amortization 41,539 37,934
Extraordinary loss on early retirement of debt 3,471
Amortization of unearned compensation 618 625
Write-off of financing costs 1,318
Reorganization items 25,421 4,637
Working capital and other (51,787) (16,424)
--------- ---------
Net cash used in operating activities
before reorganization items (102,581) (11,427)
Reduction of liabilities subject to compromise (40,753)
Reorganization items paid (26,106) (1,461)
--------- ---------
Net cash used in operating activities (169,440) (12,888)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (24,765) (49,770)
Acquisition of leasehold interests (5,241)
--------- ---------
Net cash used in investing activities (24,765) (55,011)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirement of Senior Secured Notes (59,500)
Proceeds from borrowings under Term Debt 50,000
Proceeds from issuance of common stock
and exercise of stock options 42 160
Repayment of construction loan previously subject to compromise (5,753)
Proceeds from borrowings under construction loans 10,392
Proceeds from borrowings under revolving credit agreement 219,000 151,853
Proceeds from real estate loan 37,145
Increase in restricted cash (1,523)
Repayment of Term Debt and other long-term debt (22,871) (3,874)
--------- ---------
Net cash provided by financing activities 199,287 175,784
--------- ---------
Increase in cash and cash equivalents 5,082 107,885
Cash and cash equivalents, beginning of period 25,577 21,100
--------- ---------
Cash and cash equivalents, end of period $ 30,659 $ 128,985
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-8-
<PAGE> 9
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE 39 WEEKS ENDED:
-----------------------
NOVEMBER 2, 1996 OCTOBER 28, 1995
---------------- ----------------
<S> <C> <C>
WORKING CAPITAL AND OTHER COMPRISED OF:
Accounts receivable $ (3,592) $ (5,985)
Merchandise inventories (177,207) (158,242)
Prepaid expenses and other current assets (4,161) (1,378)
Assets held for disposal, net 25,265
Refundable income taxes and deferred income taxes 9,551
Accounts payable 97,287 116,571
Accrued expenses (1,316) 79,199
Federal and state income taxes payable (35,155)
Other accrued liabilities (2,011) (6,853)
Other assets and long-term liabilities 4,397 (4,581)
--------- ---------
$ (51,787) $ (16,424)
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
-9-
<PAGE> 10
THE CALDOR CORPORATION AND
SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands except per share data)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Caldor Corporation (the "Registrant") and subsidiaries (collectively,
the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and the
instructions for Form 10-Q 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. The Registrant and certain of its subsidiaries (collectively,
the "Debtors") filed petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") on September 18, 1995 (the
"Filing"). The Debtors are presently operating their business as
debtors-in-possession subject to the jurisdiction of the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court").
The Company's consolidated financial statements have been prepared on a
going concern basis, which contemplates continuity of operations.
The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient
cash from operations and financing sources to meet obligations. As a
result of the Filing and related circumstances, however, such
realization of assets and liquidation of liabilities is subject to
significant uncertainty. While under the protection of Chapter 11, the
Debtors may sell or otherwise dispose of assets, and liquidate or
settle liabilities, for amounts other than those reflected in the
accompanying consolidated financial statements. Further, a plan of
reorganization could materially change the amounts reported in the
accompanying consolidated statements. The consolidated financial
statements do not include any adjustments relating to a recoverability
of the value of recorded asset amounts or the amounts and
classification of liabilities that might be necessary as a
consequence of a plan of reorganization.
With respect to the unaudited consolidated financial statements for the
thirteen and thirty-nine weeks ended November 2, 1996, it is the
Registrant's opinion that all necessary adjustments (consisting of
normal and recurring adjustments) have been included to present a fair
statement of results for the interim periods. Although these
consolidated financial statements are unaudited, they have been
reviewed by the Company's independent accountants, Deloitte & Touche
LLP, for conformity with accounting requirements for interim financial
reporting. Their report on such review is included herein.
These statements should be read in conjunction with the Company's
financial statements included in the Registrant's Annual Report on Form
10-K for the fiscal year ended February 3, 1996. Due to the seasonal
nature of the Company's sales and the Filing, operating results for the
interim period are not necessarily indicative of results that may be
expected for the fiscal year ending February 1, 1997. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission.
10
<PAGE> 11
Certain reclassifications have been made to prior periods' financial
statements to conform with classifications used in the current period.
2. REORGANIZATION CASE
In the Chapter 11 case, substantially all liabilities as of the date of
the Filing are subject to resolution under a plan of reorganization to
be voted upon by the Debtors' creditors and stockholders and confirmed
by the Bankruptcy Court. Amended and Restated Schedules have been filed
by the Debtors with the Bankruptcy Court setting forth the assets and
liabilities of the Debtors as of the date of the Filing as shown by the
Debtors' accounting records. The Bankruptcy Court fixed August 12, 1996
as the last date by which creditors of the Debtors could file proofs of
claim. The Debtors are investigating and are in the process of
reconciling differences between amounts shown by the Debtors and claims
filed by creditors. The amount and settlement terms for such disputed
liabilities are subject to allowance by the Bankruptcy Court.
Ultimately the adjustment of the total liabilities of the Debtors
remains subject to a Bankruptcy Court approved plan of reorganization,
and, accordingly, the amount of such liabilities is not presently
determinable. The Bankruptcy Court has extended the period in which the
Debtors possess the exclusive right to file a plan of reorganization
through February 28, 1997 and the period in which the Debtors can
solicit acceptances for the plan of reorganization through April 30,
1997. At this point, it is uncertain what, if anything, a plan of
reorganization may provide for equity security holders.
On April 2, 1996, the Bankruptcy Court approved the closing of 12
under-performing stores (the "Closed Stores") and the Debtors'
retention of a liquidator to conduct store closing sales (the "Closing
Sales"). The liquidation sales were completed and the stores were
closed by the end of June 1996.
On June 7, 1996, the Bankruptcy Court approved the Debtors' reclamation
program, which authorizes the Debtors to settle the claims of 425
vendors that submitted reclamation demands at the time of the Filing.
The program provides for each reclamation vendor that extends credit
support comparable to pre-petition terms to receive both a cash payment
of up to 50% of its eligible reclamation claim and priority treatment
for the remainder of its claim. Reclamation cash payments of $6.5
million were made in the third quarter 1996 and $9.0 million on a year
to date basis. To the extent these payments exceed $10 million, the
Debtors are required to pay the Term Debt (as defined in the
Debtor-in-Possession financing arrangement (the "DIP Facility")) in an
equivalent amount (up to $8.5 million).
On July 16, 1996, the Bankruptcy Court approved the Second Amendment
(the "Second Amendment") to the DIP Facility which, among other things,
rescinded the reduction of the Tranche A Facility commitment that
occurred on May 4, 1996 and eliminated the $50 million reduction of the
Tranche A Facility commitment that was scheduled for October 5, 1996.
Instead, the Second Amendment provided for an automatic $50 million
reduction of the Tranche A Facility commitment on May 3, 1997.
Concurrently, the Bankruptcy Court authorized and directed the
application by the Company of the net proceeds of the Closing Sales, to
the payment of the Term Debt. The Company has paid $22.5 million to
Chase, as agent, for application to the Term Debt.
Under the Bankruptcy Code, the Debtors may elect to assume or reject
real estate leases, employment contracts, personal property leases,
service contracts and other executory pre-petition contracts, subject
to Bankruptcy Court approval. As of November 2, 1996, the Debtors had
rejected the leases for the 12 Closed Stores and for 13 additional real
estate leases, assumed 13 real estate leases, conditionally assumed 4
real estate leases and had reached agreement with landlords to
terminate an additional 7
11
<PAGE> 12
leases without liability. The Debtors continue to review leases and
contracts, as well as other operational and merchandising changes, and
cannot presently determine or reasonably estimate the ultimate outcome
of, or liability resulting from, this review. Additional information
with respect to the Debtors' Chapter 11 case is set forth in the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996.
3. COST OF GOODS SOLD
During the year ended February 3, 1996, the Company recorded reserves
for additional vendor claims of approximately $29 million estimated to
result upon the reconciliation of pre-petition liabilities and for
anticipated losses on the liquidation of inventories in 1996 of
approximately $39 million. Based upon 10 months of claims
reconciliation experience, the Company has reduced its provision and
liability for vendor claims by approximately $15 million in 1996. In
addition, the Company has refined its practice of capitalizing certain
costs in inventory, resulting in additional cost of goods sold of
approximately $13 million upon the liquidation of such inventories. The
impact of these items, which is included in cost of goods sold in 1996,
was not material to the Company's consolidated financial position or
results of operations.
4. RESTRICTED CASH
As of November 2, 1996, the restricted cash balance of $1.5 million is
being held in an escrow account pending final resolution of issues
concerning the Closing Sales agreement between the Company and the
liquidator.
5. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise are subject to future adjustments
depending on Bankruptcy Court actions and further developments with
respect to disputed claims.
Liabilities subject to compromise are as follows:
<TABLE>
<CAPTION>
November 2, 1996 February 3, 1996
---------------- ----------------
<S> <C> <C>
Accounts payable $240,627 $265,249
Term Debt 192,500 215,000
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 109,087 109,087
Accrued expenses 79,652 90,343
Capital lease obligations 39,858 45,234
Construction loans 11,511 17,264
Industrial revenue bonds
and mortgage notes 3,716 3,780
-------- --------
Total $714,096 $783,102
</TABLE>
Accounts payable subject to compromise was reduced by reclamation
payments (as discussed in Note 2), the reduction to the liability for
vendor claims (as discussed in Note 3) and the ongoing reconciliation
of differences between amounts shown by Debtors and creditors. Term
Debt was reduced by the application of the net proceeds of the
Closing Sales of $22.5 million (see Note 2). Accrued expenses were
reduced by Bankruptcy Court approved payments for sales and use tax
and reclamation claims. Capital lease obligations were reduced by
normal amortization. Construction loans were reduced by the
refinancing transaction, approved by the Bankruptcy Court, for the
Silver Spring, MD store.
12
<PAGE> 13
The Company has determined that the Term Debt and the real estate loan
referenced in the DIP Facility (the "Real Estate Loan") are
prepetition obligations which are still subject to bankruptcy
proceedings and, accordingly, has reclassified these obligations from
long term debt to liabilities subject to compromise.
6. REORGANIZATION ITEMS
Reorganization items consisted of the following for the thirty-nine
weeks ended November 2, 1996:
<TABLE>
<S> <C>
Retention costs $ 7,891
Professional fees 11,344
Severance costs 2,409
Other 3,777
-------
Total provision for reorganization $25,421
</TABLE>
7. INCOME TAXES
Income taxes are provided based on the asset and liability method of
accounting pursuant to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." At February 3, 1996, the Company
recorded approximately $5.4 million as refundable income taxes and
approximately $16.6 million as deferred income tax assets which amounts
would be recovered upon the filing of its October 1995 and October 1996
tax returns and utilization of net operating loss carrybacks. During
the third quarter of 1996, the remaining refunds receivable have been
reclassified to current assets.
The Company has also generated substantial net operating loss
carryforwards as a result of the net losses incurred in 1995 and 1996.
Utilization of the Company's loss carryforwards is dependent upon
sufficient future taxable income. The Company has established a full
valuation allowance against these carryforward benefits and, therefore,
has not recorded any tax benefits related to fiscal 1996 losses.
8. RECENT ACCOUNTING PRONOUNCEMENTS
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS No.121") during the First
Quarter 1996. The adoption of this statement did not have an impact on
the Company's results of operations. As part of the ongoing review of
its operations, the Company is currently negotiating with landlords
regarding rent reductions and lease restructurings. In the event the
Company does not achieve certain expected rent reductions, the Company
could incur an impairment charge for certain of its properties.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"),
which is effective for the Company beginning February 4, 1996. SFAS No.
123 requires expanded disclosures of stock-based compensation
arrangements with employees and encourages (but does not require)
compensation expense to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to
continue to apply Accounting Principles Board Opinion No. 25 ("APB No.
25"), which recognizes compensation costs based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply
APB No. 25 to its stock-based compensation awards to employees and will
disclose the required pro-forma effects on net income and earnings per
share.
13
<PAGE> 14
9. RETIREMENT PLAN
The Caldor Retirement Plan, a noncontributory defined benefit pension
plan covering eligible employees, was amended on August 1, 1996 to
discontinue additional accruals for Plan participants. Retirement Plan
benefits accrued prior to August 1, 1996 are not affected by the change
and current participants in the Plan are eligible to vest with
additional years of service after August 1, 1996.
10. RESTRICTED STOCK PLAN
During the Second Quarter 1996, 191,169 restricted stock awards were
granted to certain key employees at no cost to these employees. The
outstanding restricted stock award shares vest on the later of three
years subsequent to their award date or six months following the date
the Debtors emerge from Chapter 11. The cost of restricted stock
awards, based on the stock's fair market value at the award date, is
charged to stockholders' equity and subsequently amortized against
earnings over the vesting period.
14
<PAGE> 15
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Debtors filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code ("Chapter 11") on September 18, 1995 and are presently operating
their business as debtors-in-possession subject to the jurisdiction of the
Bankruptcy Court. As a result of the Filing, the cash requirements for the
payments of accounts payable and certain other liabilities that arose prior to
the Filing are in most cases deferred until a plan of reorganization is approved
by the Bankruptcy Court.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED NOVEMBER 2, 1996 ("THIRD QUARTER 1996") AS COMPARED TO
THIRTEEN WEEKS ENDED OCTOBER 28, 1995 ("THIRD QUARTER 1995"):
Total sales for Third Quarter 1996 were $568.6 million compared to $591.4
million for Third Quarter 1995, a decrease of $22.8 million, or 3.9%. This
decrease was primarily due to a 3.1% decrease in comparable store sales and 12
stores that were closed since the first quarter 1996, partially offset by the
sales from 9 new stores opened since July 1995. The decrease in comparable store
sales was primarily attributable to changes in the Company's marketing strategy,
including the discontinuance of one-day sales events, mid-week circulars and
coupon sales, as well as the intense competitive environment. The Company made
the determination that the marketing programs it discontinued are not profitable
or compatible with its long-term marketing strategy.
Gross margin as a percentage of sales for Third Quarter 1996 increased by 2.7%
to 28.4% from 25.7% in Third Quarter 1995. The increase in gross margin during
Third Quarter 1996 was primarily due to improved support from the Company's
vendors which resulted in higher vendor allowances and normal receipts of
merchandise, both of which were negatively impacted in Third Quarter 1995 as a
result of the Filing. In addition, the increase was partially due to higher
initial markup, offset slightly by higher markdowns in the quarter as compared
to last year. The Company, while maintaining year-to-date shrinkage results
consistent with historical performance, recorded a lower provision for
inventory shortage, as compared to Third Quarter 1995.
During Third Quarter 1996, to better balance its promotional and regular-priced
business and to provide better everyday values, the Company introduced its Price
Cut Program, which lowered everyday prices on items in electronics, health and
beauty aids, household chemicals and housewares. This program did not
significantly impact Third Quarter 1996 results and will be extended to
additional items in the fourth quarter. The Company believes that the impact of
the Price Cut Program will be partially offset by reduced promotional and
permanent markdowns and by increased sales of regular-priced merchandise.
Selling, general and administrative expenses ("SG&A expenses") as a percentage
of sales for Third Quarter 1996 increased by 1.6% to 33.8% compared to 32.2% in
Third Quarter 1995. This increase was attributable primarily to a decrease in
sales levels, an increase in depreciation expense, higher rents and related
costs for new stores and an increase in insurance related reserves resulting
from the utilization of higher actuarial assumptions in establishing such
reserves. These higher costs were partially offset by reduced advertising
expenses in the
15
<PAGE> 16
quarter. The Company has adopted a number of expense reduction initiatives,
including changes in marketing strategy, reduction of corporate overhead and the
discontinuance of additional accruals to the pension plan, and intends to
implement additional programs to reduce SG&A expenses.
Interest expense, net, for Third Quarter 1996 increased by $0.8 million
primarily due to interest incurred on loans for the Silver Spring, MD and West
Brockton, MA stores. As a percentage of sales, interest expense, net, for Third
Quarter 1996 was 2.0% compared to 1.8% in Third Quarter 1995.
Average monthly revolving credit borrowings were $192.0 million at a weighted
average interest rate of 6.6% in Third Quarter 1996 compared to $196.8 million
at 7.0% for Third Quarter 1995. The weighted average interest rate of the Term
Debt was 6.3% in Third Quarter 1996 compared to 6.7% in Third Quarter 1995.
The Company did not record any tax benefit in Third Quarter 1996 since the
utilization of the Company's loss carryforwards is dependent upon sufficient
future taxable income and the Company has established a full valuation allowance
against these carryforward benefits.
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of professional fees and retention costs, were $5.9 million in Third
Quarter 1996 compared to $4.6 million in Third Quarter 1995.
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 ("YEAR-TO-DATE 1996") AS COMPARED TO
THIRTY-NINE WEEKS ENDED OCTOBER 28, 1995 ("YEAR-TO-DATE 1995"):
Total sales for Year-To-Date 1996 were $1,759.4 million compared to $1,826.5
million for Year-To-Date 1995, a decrease of $67.1 million, or 3.7%. This
decrease was primarily due to a 4.0% decrease in comparable store sales and 12
stores that were closed since the first quarter 1996, partially offset by the
sales from 9 new stores opened since July 1995. The decrease in comparable store
sales was primarily attributable to changes in the Company's marketing strategy,
including the discontinuance of one-day sales events, mid-week circulars and
coupon sales, as well as the intense competitive environment. The Company made
the determination that the marketing programs it discontinued are not profitable
or compatible with its long-term marketing strategy. Sales were also adversely
affected in the second quarter by extremely mild summer weather in the Northeast
region as compared to last year which negatively impacted certain apparel and
seasonal merchandise categories.
Gross margin as a percentage of sales for Year-To-Date 1996 decreased by 0.1% to
26.8% from 26.9% for Year-To-Date 1995. The decrease in gross margin in the
first and second quarters was mainly attributable to the Company aggressively
taking markdowns on seasonal merchandise, increased competitive pricing and an
increase in the reserve for shrinkage. This decrease was partially offset by an
increase in gross margin in Third Quarter 1996 due to higher markups and higher
vendor allowances. In addition, while maintaining year-to-date shrinkage
results consistent with historical performance, the Company reduced its
provision for inventory shortage in Third Quarter 1996 as compared to last year.
SG&A expenses as a percentage of sales for Year-To-Date 1996 increased by 2.0%
to 30.5% compared to 28.5% for Year-To-Date 1995. This increase was
attributable primarily to a decrease in sales levels, higher rents and related
costs for new stores, reduced handling charge income due to revised chargeback
policies related to vendor shipments,an increase in depreciation expense and an
increase in insurance related reserves resulting from the utilization of higher
actuarial assumptions in establishing such reserves. Higher advertising costs
in the first quarter of 1996 were partially offset by expense reductions
resulting from changes in marketing strategy in the second and third quarters
of 1996. The Company has adopted a number of
16
<PAGE> 17
expense reduction initiatives, including changes in marketing strategy,
reduction of corporate overhead and the discontinuance of additional accruals to
the pension plan, and intends to implement additional programs to reduce SG&A
expenses.
Interest expense, net, for Year-To-Date 1996 decreased by $1.8 million due to a
decrease in both average short-term borrowings and average short term interest
rates. As a percentage of sales, interest expense, net, for Year-To-Date 1996
was 1.6% compared to 1.7% for Year-To-Date 1995. Average monthly revolving
credit borrowings were $145.3 million at a weighted average interest rate of
6.6% for Year-To-Date 1996 compared to $194.1 million at 7.1% for Year-To-Date
1995. The weighted average interest rate of the Term Debt was 6.5% for
Year-To-Date 1996 compared to 6.8% for Year-To-Date 1995.
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of professional fees and retention and severance costs, were $25.4
million for Year-To-Date 1996 compared to $4.6 million for Year-To-Date 1995.
FINANCIAL CONDITION
The Company's working capital as of November 2, 1996 decreased by $138.0 million
from February 3, 1996. Inventories increased by $177.2 million and accounts
payable increased by $97.3 million principally due to seasonal increases and
improved support from the Company's vendors, as well as the six new stores
opened between April and July 1996. The Company incurred a net loss of $119.7
million for Year-To-Date 1996, compared to a net loss of $43.7 million in the
same period last year. These factors, along with capital expenditures of $24.8
million, contributed to the increase in borrowings under the DIP Facility of
$219.0 million. Assets held for disposal were liquidated through the Closing
Sales and the proceeds were applied to the Term Debt. In addition, the Company
continues to liquidate aged inventories that were on hand at February 3, 1996.
Net cash used in operating activities for Year-To-Date 1996 was $169.4 million
as compared to $12.9 million for Year-To-Date 1995. This use of cash for
operating activities was primarily due to the Company's net loss of $119.7
million compared to a net loss of $43.7 million last year, reorganization items
of $26.1 million, the seasonal nature of the Company's business and the
reduction in liabilities subject to compromise, partially offset by the receipt
of $10.2 million in income tax refunds. The reduction in liabilities subject to
compromise, approved by the Bankruptcy Court, included reclamation payments made
to vendors, payments for sales and use tax, the refinancing of the loan relating
to the Silver Spring, MD store, and the normal amortization of capital lease
obligations.
For Year-To-Date 1996, $24.8 million was spent for capital expenditures compared
to $49.8 million for Year-To-Date 1995. The Company's capital expenditures for
1996 are projected to be approximately $40 million and will be used for a
regional distribution center, new stores, management information systems and
normal store upgrades and improvements.
On October 17, 1995, the Bankruptcy Court entered a final order approving the
DIP Facility as provided under the Amended and Restated Revolving Credit and
Guaranty Agreement dated as of October 17, 1995, among the Registrant, as the
borrower thereunder, the subsidiaries of the Registrant named therein, as the
guarantors thereunder, and a bank group led by Chemical Bank (now merged with,
and known as The Chase Manhattan Bank) ("Chase"). The DIP Facility amends and
restates, in its entirety, the Registrant's Debtor-In-Possession Revolving
Credit and Guaranty Agreement dated as of September 18, 1995 with Chase as
agent. Pursuant to the terms of the DIP Facility, as amended, the Banks have
made available to the Registrant a revolving credit and letter of credit
facility in an aggregate principal amount, at November 2,
17
<PAGE> 18
1996, not to exceed a total of $492.4 million, divided into two (2) separate
tranches consisting of (i) a post-petition revolving credit and letter of credit
facility in an aggregate principal amount not to exceed $250 million (reflecting
the Second Amendment (as hereinafter defined)) to be made available by the
Tranche A Banks (the "Tranche A Facility") and (ii) the continued use of the
revolving credit and letter of credit portion of the pre-petition credit
facility made available by the Tranche B Banks (the "Tranche B Facility") in an
aggregate principal amount of $242.4 million which principal amount may be
borrowed, paid and reborrowed. The Company's maximum borrowing under the Tranche
A Facility, up to $250 million, may not exceed the lesser of 60% of Eligible
Cost Value of Inventory or 50% of Eligible Retail Value of Inventory. The DIP
Facility has a sublimit of $175 million for the issuance of letters of credit.
On July 16, 1996, the Bankruptcy Court approved the Second Amendment which,
among other things, provided for rescinding a $50 million line reduction that
took effect on May 4, 1996 and eliminating the $50 million reduction of the
Tranche A Facility commitment that was scheduled for October 5, 1996. Instead,
the Second Amendment provided for an automatic $50 million reduction of the
Tranche A Facility commitment on May 3, 1997. Concurrently, the Bankruptcy Court
authorized and directed the application by the Company of the net proceeds of
the Closing Sales, previously authorized by the Bankruptcy Court, to the payment
of the Term Debt. The Company has paid $22.5 million to Chase, as agent, for
application to the Term Debt. The Tranche B Facility must be fully utilized
before the Company can borrow under the Tranche A Facility. The DIP Facility
expires on September 18, 1997.
Borrowings under the DIP Facility may be used to fund working capital, inventory
purchases and for other general corporate purposes. The DIP Facility contains
restrictive covenants, including, among other things, limitations on the
creation of additional liens and indebtedness, limitations on capital
expenditures, capital leases and annual rents, the sale of assets and the
maintenance of minimum earnings before interest, taxes, depreciation,
amortization, and reorganization items, the maintenance of inventory levels, and
a prohibition on the payment of dividends.
The DIP Facility provides that advances made (i) under the Tranche A Facility
will bear interest at a rate of 0.5% per annum in excess of ABR, or, at the
Registrant's option, a rate of 1.5% per annum in excess of the reserve adjusted
LIBOR for the interest periods of one, three or six months or (ii) under the
Tranche B Facility will bear interest at ABR, or, at the Registrant's option, at
a rate of 0.75% per annum in excess of LIBOR.
The Tranche A Facility and the Tranche B Facility expire on the earlier of
September 18, 1997 or the date of entry of an order by the Bankruptcy Court
confirming a plan of reorganization.
The Tranche A Banks and the Tranche B Banks were granted a lien on all of the
assets of the Debtors and a superpriority claim for all obligations of the
Debtors arising under the Tranche A Facility and the Tranche B Facility,
respectively. However, the claim of the Tranche B Banks is subordinate in
priority to the claim of the Tranche A Banks. In addition, Chase, as agent, was
granted a security interest in all of the shares of capital stock now or
hereafter issued to the Registrant by certain of its subsidiaries. A replacement
security interest in all collateral, subordinate to the security interests and
liens granted to the Tranche A Banks and the Tranche B Banks on all of the
assets of the Debtors and subject to the conditions of the financing order of
the Bankruptcy Court, dated October 17, 1995, has been granted to the
pre-petition banks in an amount limited to the aggregate decline in the value of
collateral securing the Term Debt and the Real Estate Loan.
As of November 2, 1996, the outstanding borrowings under the DIP Facility were
$259.0 million and open letters of credit were $52.8 million.
The Company believes that cash on hand, amounts available under the DIP
Facility, utilization of capital leases and funds from operations will enable
the Company to meet its current
18
<PAGE> 19
liquidity and capital expenditure requirements. Until a plan of reorganization
is approved, the Company's long-term liquidity and the adequacy of its capital
resources cannot be determined.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (the "SEC") (including the Quarterly Report on Form 10-Q)
may contain statements which are not historical facts, so-called
"forward-looking statements", which involve risks and uncertainties. In
particular, statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the SEC.
The Company's future results are subject to substantial risks and uncertainties.
The Company is operating as a debtor-in-possession under the Bankruptcy Code and
its future results are subject to the development and confirmation of a plan of
reorganization. The Company's business is seasonal; a substantial portion of its
sales and income from operations are generated during the fourth quarter of the
fiscal year which includes the Christmas selling season. Any substantial
decrease in sales during such period would have a material adverse effect on the
financial condition and results of operations of the Company. The Company has
working capital needs which are expected to be funded largely through borrowings
under the DIP Facility. The DIP Facility contains financial and other covenants
that restrict, among other things, the ability of the Company and its
subsidiaries to incur additional indebtedness, create liens, pay dividends on or
repurchase shares of capital stock, and make certain loans, investments or
guarantees. Such restrictions may limit the Company's operating and financial
flexibility. For further information, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Financial Condition".
19
<PAGE> 20
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit Number Description
15 Letter in lieu of consent of Deloitte & Touche LLP
re unaudited interim financial information
b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter for which
this report is filed.
20
<PAGE> 21
SIGNATURES
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.
The Caldor Corporation
(Registrant)
Date: December 16, 1996 By: /s/ Don R. Clarke
-------------------------- ----------------------
Don R. Clarke
Chairman and Chief Executive Officer
Date: December 16, 1996 By: /s/ John G. Reen
-------------------------- ----------------------
John G. Reen
Executive Vice President and
Chief Financial Officer
21
<PAGE> 1
Exhibit 15
December 13, 1996
The Caldor Corporation
Norwalk, Connecticut
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The Caldor Corporation (Debtor-In-Possession) and subsidiaries
("Caldor") for the periods ended November 2, 1996 and October 28, 1995, as
indicated in our report dated December 13, 1996; because we did not perform an
audit, we expressed no opinion on the information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended November 2, 1996, is
incorporated by reference in a) Registration Statement No. 33-44996 of Caldor on
Form S-8, b) Registration Statement No. 33- 41321 of Caldor on Form S-8, c)
Registration Statement No. 33-51510 of Caldor on Form S-8, d) Registration
Statement No. 33-67438 of Caldor on Form S-8, and e) Registration Statement No.
33-84526 of Caldor on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Registration Statement
prepared or certified by an accountant or a report prepared or certified by an
accountant within the meaning of Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
New York, New York
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