<PAGE> 1
UNITED STATES
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 QUARTERLY PERIOD ENDED NOVEMBER 1, 1997
OR
- --- 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 28, 1997 was
16,902,839.
<PAGE> 2
<TABLE>
<CAPTION>
THE CALDOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
<S> <C>
ITEM 1 : CONSOLIDATED FINANCIAL STATEMENTS
Independent Accountants' Review Report 3
Consolidated Statements of Operations for the Thirteen and Thirty-Nine
Weeks Ended November 1, 1997 and November 2, 1996 5
Consolidated Balance Sheets as of November 1, 1997 and February 1, 1997 6
Consolidated Statement of Stockholders' Deficit 7
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended
November 1, 1997 and November 2, 1996 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 21
</TABLE>
2
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
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 1, 1997 and the related consolidated statements of operations for the
thirty-nine and thirteen week periods ended November 1, 1997 and November 2,
1996, stockholders' deficit for the thirty-nine week period ended November 1,
1997, and cash flows for the thirty-nine week periods ended November 1, 1997 and
November 2, 1996. 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 consolidated
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 1, 1997 (not presented herein), the bankruptcy
filing 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 1, 1997, 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
18, 1997 (May 2, 1997 as to Note 5), 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 and (b) the Company's 1996 loss from operations which
raises substantial doubt about the Company's ability to continue as a going
concern. The consolidated statements of operations, cash flows and stockholders'
equity (deficit) for the year ended February 1, 1997 are not presented herein.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of February 1, 1997 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 16, 1997
4
<PAGE> 5
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1: Consolidated Financial Statements
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
THIRTEEN WEEKS ENDED: THIRTY-NINE WEEKS ENDED:
--------------------- ------------------------
NOVEMBER 1, NOVEMBER 2, NOVEMBER 1, NOVEMBER 2,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 562,859 $ 568,596 $ 1,686,645 $ 1,759,368
Cost of merchandise sold 411,090 420,388 1,233,288 1,295,282
Selling, general and administrative expenses 170,408 179,111 493,154 529,709
Interest expense, net 11,537 11,176 32,884 28,617
----------- ----------- ----------- -----------
Loss before reorganization items and income taxes (30,176) (42,079) (72,681) (94,240)
Reorganization items (Note 5) 4,615 5,881 16,449 25,421
----------- ----------- ----------- -----------
Loss before income taxes (34,791) (47,960) (89,130) (119,661)
Income tax provision (Note 6) 300 300
----------- ----------- ----------- -----------
Net loss $ (35,091) $ (47,960) $ (89,430) $ (119,661)
=========== =========== =========== ===========
Net loss per share $ (2.08) $ (2.81) $ (5.29) $ (7.05)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares used in computing per
share amounts 16,903 17,062 16,914 16,977
=========== =========== =========== ===========
See notes to consolidated financial statements.
5
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
NOVEMBER 1, 1997 FEBRUARY 1, 1997
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 30,147 $ 27,477
Restricted cash (Note 3) 1,006 5,254
Accounts receivable 13,580 12,216
Merchandise inventories 616,713 450,499
Assets held for disposal, net -- 8,177
Refundable income taxes (Note 6) -- 13,040
Prepaid expenses and other current assets 25,023 17,422
----------- -----------
Total current assets 686,469 534,085
----------- -----------
Property and equipment, net 397,641 420,598
Property under capital leases, net 82,884 87,473
Debt issuance costs 2,218 2,516
Other assets 5,470 5,851
----------- -----------
$ 1,174,682 $ 1,050,523
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 242,041 $ 152,151
Accrued expenses 49,718 62,787
Other accrued liabilities 60,693 64,478
Current maturities of long-term debt 550 550
Borrowings under DIP Facility 299,198 152,000
----------- -----------
Total current liabilities 652,200 431,966
----------- -----------
Long-term debt 18,065 18,463
Other long-term liabilities 32,770 28,322
Liabilities subject to compromise (Note 4) 709,115 719,980
Stockholders' 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, 16,902,839
and 16,939,106 shares, respectively 169 169
Additional paid-in capital 201,334 201,823
Deficit (438,240) (348,810)
Unearned compensation (731) (1,390)
----------- -----------
Total stockholders' deficit (237,468) (148,208)
----------- -----------
$ 1,174,682 $ 1,050,523
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
(Unaudited)
OUTSTANDING
COMMON STOCK ADDITIONAL
------------ PAID-IN UNEARNED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION DEFICIT
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997 16,939,106 $ 169 $ 201,823 $ (348,810) $ (1,390) $ (148,208)
Cancellation of restricted stock (36,267) (489) 312 (177)
Amortization of unearned
compensation 347 347
Net loss (89,430) (89,430)
----------- ----------- ----------- ----------- ----------- -----------
Balance, November 1, 1997 16,902,839 $ 169 $ 201,334 $ (438,240) $ (731) $ (237,468)
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
<TABLE>
<CAPTION>
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
FOR THE THIRTY-NINE WEEKS ENDED:
------------------------------------
NOVEMBER 1, 1997 NOVEMBER 2, 1996
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (89,430) $(119,661)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of debt issuance costs 2,928 1,289
Depreciation and other amortization 40,860 41,539
Amortization of unearned compensation 347 618
Reorganization items 16,449 25,421
Working capital and other (81,054) (51,787)
--------- ---------
Net cash used in operating activities
before reorganization items (109,900) (102,581)
Reorganization items:
Reduction of liabilities subject to compromise (10,865) (40,753)
Reorganization items paid (13,915) (26,106)
--------- ---------
Net cash used in operating activities (134,680) (169,440)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,698) (24,765)
--------- ---------
Net cash used in investing activities (13,698) (24,765)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and exercise of stock options 42
Repayment of construction loan previously subject to compromise (5,753)
Proceeds from borrowings under construction loans 10,392
Proceeds from borrowings under DIP Facility 147,198 219,000
Decrease (increase) in restricted cash 4,248 (1,523)
Repayment of long-term debt (398) (22,871)
--------- ---------
Net cash provided by financing activities 151,048 199,287
--------- ---------
Increase in cash and cash equivalents 2,670 5,082
Cash and cash equivalents, beginning of period 27,477 25,577
--------- ---------
Cash and cash equivalents, end of period $ 30,147 $ 30,659
========= =========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
<TABLE>
<CAPTION>
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
FOR THE THIRTY-NINE WEEKS ENDED:
--------------------------------
NOVEMBER 1, 1997 NOVEMBER 2, 1996
---------------- ----------------
<S> <C> <C>
WORKING CAPITAL AND OTHER COMPRISED OF:
Accounts receivable $ (1,364) $ (3,592)
Merchandise inventories (166,214) (177,207)
Prepaid expenses and other current assets (7,601) (4,161)
Assets held for disposal, net 8,177 25,265
Refundable income taxes 13,040 9,551
Accounts payable 89,890 97,287
Accrued expenses (13,069) (1,316)
Other accrued liabilities (1,056) (2,011)
Other assets and long-term liabilities (2,857) 4,397
--------- ---------
$ (81,054) $ (51,787)
========= =========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 10
THE CALDOR CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands)
(unaudited)
1. BASIS OF PRESENTATION
The 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 in
accordance with generally accepted accounting principles applicable to
a going concern, which contemplates continuity of operations,
realization of assets and liquidation of liabilities and commitments in
the normal course of business. The Filing, related circumstances and
the losses from operations, raise substantial doubt about its ability
to continue as a going concern. 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 consolidated financial statements. Further, a plan of
reorganization could materially change the amounts reported in the
consolidated financial 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
thirty-nine and thirteen weeks ended November 1, 1997 ("Third Quarter
1997"), 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 periods presented. 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 consolidated statements should be read in conjunction with the
Company's consolidated financial statements included in the
Registrant's Annual Report on Form 10-K for the fiscal year ended
February 1, 1997. Due to the seasonal nature of the Company's sales and
the Filing, operating results for the interim period are not
10
<PAGE> 11
necessarily indicative of results that may be expected for the fiscal
year ending January 31, 1998. 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.
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 for claims that arose prior to the Filing. The Debtors 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, 1998 and the period in which the Debtors can
solicit acceptances for the plan of reorganization through April 30,
1998. The Company has begun preliminary analyses to formulate a plan of
reorganization and, while no plan of reorganization has been proposed,
at this time it would appear unlikely that such a plan would provide
for recovery by equity security holders.
On March 12, 1997 the Bankruptcy Court approved the closing of 4
under-performing stores and the Debtor's retention of a liquidator to
conduct store closing sales (the "4 Store Closing Sales"). These sales
were completed and the stores were closed by the end of May 1997.
Concurrently, the Registrant, as the borrower thereunder, the
subsidiaries of the Registrant named therein, as the guarantors
thereunder, and the bank group led by the Chase Manhattan Bank
("Chase") entered into an amendment (the "Third Amendment") to 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 Chase ("the DIP Facility").
Pursuant to the Third Amendment, all of the proceeds of the 4 Store
Closing Sales were applied to a prepayment of the Tranche B loans and
the Tranche B facility commitment was reduced by such amount.
On June 4, 1997, the Bankruptcy Court entered a final order approving
the Fourth Amendment to the DIP Facility (the "Fourth Amendment") which
extended the DIP Facility to June 15, 1998 (the "Extended DIP
Facility"). The Extended DIP Facility provides for a revolving credit
and letter of credit facility in an aggregate principal amount not to
exceed $450 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 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
$200 million which
11
<PAGE> 12
principal amount may be borrowed, paid and reborrowed. In addition, the
Extended DIP Facility provides for, among other things, a mandatory
paydown of the aggregate principal amount of the outstanding loans
(exclusive of letters of credit) to $165 million for a period of 15
consecutive business days during the period from December 15, 1997
through January 15, 1998, capital expenditures not to exceed $30
million through the fiscal year ending January 31, 1998 ("Fiscal Year
1997") and $16 million (subject to a $3 million increase if certain
EBITDA projections are achieved) thereafter through the maturity date,
revised EBITDA thresholds for the trailing four quarters for each of
the fiscal quarters in Fiscal Year 1997 and for the fiscal quarter
ending April 30, 1998 and revised monthly inventory amounts through
June 15, 1998. The Extended DIP Facility provides that advances made
(i) under the Tranche A Facility will bear interest at a rate of 0.75%
per annum in excess of ABR, or, at the Registrant's option, a rate of
1.75% per annum in excess of LIBOR for the interest periods of one,
three or six months or (ii) under the Tranche B Facility will bear
interest at 0.25% per annum in excess of ABR, or, at the Registrant's
option, a rate of 1.0% per annum in excess of LIBOR. The Registrant
incurred approximately $3 million in bank fees associated with the
extension of the DIP Facility, which were paid in the second quarter of
1997. In all other material respects the DIP Facility remains
unchanged. For further information, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial
Condition."
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 1, 1997, the Debtors had
rejected the leases for 31 locations, assumed 17 real estate leases
(seven of which were for stores opened prior to 1996, two were for
warehouses and the balance were for stores that were opened in 1996),
conditionally assumed one real estate lease and had reached agreement
with landlords to terminate an additional seven 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.
On September 18, 1997, the New York Stock Exchange announced that
trading in the Company's Common Stock would be suspended immediately
and application would be made to the Securities and Exchange Commission
("SEC") to delist the issue. On November 25, 1997, the SEC delisted the
Company's Common Stock.
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 1, 1997.
3. RESTRICTED CASH
As of November 1, 1997, the restricted cash balance of $1 million is
being held in a segregated account, pursuant to stipulation, pending
resolution of a motion filed in Bankruptcy Court by a vendor of the
Company.
12
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4. 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 were as
follows:
<TABLE>
<CAPTION>
November 1, 1997 February 1, 1997
---------------- ----------------
<S> <C> <C>
Accounts payable $226,226 $226,506
Term Loan 187,469 191,100
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 129,900 129,900
Accrued expenses 77,064 80,784
Capital lease obligations 36,084 39,318
Construction loan 11,511 11,511
Industrial revenue bonds
and mortgage notes 3,716 3,716
-------- --------
Total $709,115 $719,980
</TABLE>
Liabilities subject to compromise under reorganization proceedings
include substantially all current and long-term unsecured debt as of
the date of the Filing. Pursuant to the provisions of the Bankruptcy
Code, payment of those liabilities may not be made except pursuant to a
plan of reorganization or Bankruptcy Court order while the Debtors
continue to operate as debtors-in-possession. The liability for
rejected leases and other miscellaneous claims includes the Company's
estimate of its liability for certain leases that have either been
rejected or the Company anticipates rejecting. Liabilities subject to
compromise were reduced by application of closing sale proceeds (of
stores closed in 1996) to payment of the Term Loan, reclamation
payments and amortization of capital lease obligations.
5. REORGANIZATION ITEMS
Reorganization items that were directly associated with the Company's
Chapter 11 reorganization proceedings and the resulting restructuring
of its operations consisted of the following for the thirty-nine weeks
ended November 1, 1997 and November 2, 1996:
<TABLE>
<CAPTION>
November 1, 1997 November 2, 1996
---------------- ----------------
<S> <C> <C>
Retention costs $ 7,014 $ 7,891
Professional fees 6,146 11,344
Other 3,289 6,186
------- -------
Total provision for reorganization $16,449 $25,421
</TABLE>
6. INCOME TAXES
Income taxes are provided based on the asset and liability method of
accounting pursuant to Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." The Company has
generated substantial net operating loss carryforwards as a result of
the net losses incurred in 1995 and 1996. Utilization of
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<PAGE> 14
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 1997 losses. During 1997, the
Company received federal income tax refunds recorded as refundable
income taxes in the balance sheet at February 1, 1997. The Company
recorded a tax provision of $0.3 million for certain state franchise
and capital taxes in Third Quarter 1997.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 128, "Earnings Per Share," which is effective for the
Company beginning with the fourth quarter of Fiscal Year 1997. SFAS No.
128 establishes standards for computing and presenting earnings per
share. The Company has determined that the adoption of SFAS No. 128
will not have a significant impact on the Company's earnings (loss) per
share.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure", which is effective for the
Company beginning with the fourth quarter of Fiscal Year 1997.
SFAS No. 129 establishes standards for disclosing information about
an entity's capital structure by superseding and consolidating
previously issued accounting standards. The financial statements of
the Company are prepared in accordance with the requirements of
SFAS No. 129.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the Company beginning with the fiscal
year ending January 30, 1999 ("Fiscal Year 1998"). SFAS No. 130
establishes standards for reporting and display of comprehensive
income (the change in equity from transactions and other events except
those resulting from investment by owners). The Company is currently
evaluating the effects of this change on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which is effective beginning
with Fiscal Year 1998. SFAS No. 131 will require that segment financial
information be publicly reported on the basis that is used internally
for evaluating segment performance. The Company is currently evaluating
the effects of this change on its financial statements.
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 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. The Bankruptcy Court has
extended the period in which the Debtors possess the exclusive right to file a
plan of reorganization through February 28, 1998 and the period in which the
Debtors can solicit acceptances for the plan of reorganization through April 30,
1998. The Company has begun preliminary analyses to formulate a plan of
reorganization and, while no plan of reorganization has been proposed, at this
time it would appear unlikely that such a plan would provide for recovery by
equity security holders.
RESULTS OF OPERATIONS
Results of operations expressed as a percentage of net sales were as follows for
the thirteen weeks ended November 1, 1997 and the thirteen weeks ended November
2, 1996 ("Third Quarter 1996"):
<TABLE>
<CAPTION>
November 1, 1997 November 2, 1996
--------------------- -----------------------
(dollars in thousands) $ % $ %
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 562,859 100.0 568,596 100.0
Cost of merchandise sold 411,090 73.0 420,388 73.9
Gross margin 151,769 27.0 148,208 26.1
Selling, general and
administrative expenses 170,408 30.3 179,111 31.5
Interest expense, net 11,537 2.1 11,176 2.0
Loss before reorganization items
and income taxes (30,176) (5.4) (42,079) (7.4)
Net loss (35,091) (6.2) (47,960) (8.4)
</TABLE>
Net sales for Third Quarter 1997 were $562.9 million compared to $568.6 million
for Third Quarter 1996, a decrease of $5.7 million, or 1.0%. This decrease was
primarily due to the closing of four stores since the first quarter of 1997
partially offset by the sales from a new store opened in November 1996 and a
0.9% increase in comparable store sales.
Gross margin as a percentage of sales for Third Quarter 1997 increased by 0.9%
to 27.0% from 26.1% in Third Quarter 1996 primarily due to reduced markdowns
partially offset by lower overall initial markups. In Third Quarter 1996, to
better balance its promotional and regular-priced business and to provide fair
prices everyday, the Company introduced its Price Cut Program, which lowered
everyday prices on selected items in electronics, health and beauty aids,
diapers, household chemicals, furniture, hardware and housewares. The Price Cut
Program was not fully in place in time to have a significant impact on Third
Quarter 1996 Gross
15
<PAGE> 16
Margin. In the second quarter of 1997, the Company extended the Price Cut
Program to certain other product categories such as basic apparel commodities,
paper products, film and cosmetics.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
for Third Quarter 1997 was 30.3% compared to 31.5% for Third Quarter 1996, a
decrease of 1.2% or $8.7 million. The decrease was primarily due to the closing
of stores since the prior period and a reduction of corporate overhead.
Interest expense, net, for Third Quarter 1997 increased by $0.4 million
primarily due to an increase in average revolving credit borrowings and weighted
average interest rates as compared to Third Quarter 1996. Average revolving
credit borrowings were $227.3 million at a weighted average interest rate of
7.4% in Third Quarter 1997 compared to $192.0 million at a weighted average
interest rate of 6.6% for Third Quarter 1996. The weighted average interest rate
of the Term Loan was 6.5% in Third Quarter 1997 compared to 6.4% in Third
Quarter 1996. As a percentage of sales, interest expense, net, for Third Quarter
1997 was 2.1% compared to 2.0% for Third Quarter 1996.
The Company did not record a tax benefit in Third Quarter 1997 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. However, a provision of $0.3 million for
certain state franchise and capital taxes has been recorded in Third Quarter
1997.
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of retention costs and professional fees, were $4.6 million in Third
Quarter 1997 compared to $5.9 million in Third Quarter 1996.
16
<PAGE> 17
Results of operations expressed as a percentage of sales were as follows for the
thirty-nine weeks ended November 1, 1997 ("Year-To-Date 1997") and the
thirty-nine weeks ended November 2, 1996 ("Year-To-Date 1996"):
<TABLE>
<CAPTION>
November 1, 1997 November 2, 1996
------------------------ -----------------------
(dollars in thousands) $ % $ %
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 1,686,645 100.0 1,759,368 100.0
Cost of merchandise sold 1,233,288 73.1 1,295,282 73.6
Gross margin 453,357 26.9 464,086 26.4
Selling, general and
administrative expenses 493,154 29.2 529,709 30.1
Interest expense, net 32,884 1.9 28,617 1.6
Loss before reorganization items
and income taxes (72,681) (4.3) (94,240) (5.4)
Net loss (89,430) (5.3) (119,661) (6.8)
</TABLE>
Net sales for Year-To-Date 1997 were $1,686.6 million compared to $1,759.4
million for Year-To-Date 1996, a decrease of $72.8 million or 4.1%. This
decrease was primarily due to the closing of 16 stores since the first quarter
of 1996 and a 2.7% decrease in comparable store sales partially offset by the
sales from 7 new stores opened since mid-April 1996. The decrease in comparable
store sales was primarily attributable to changes in the Company's marketing
strategy, including the discontinuance of mid-week circulars, coupon sales and
one-day sales events, unseasonably cool weather in the Northeast that negatively
impacted the Company's sales of seasonal merchandise in the second quarter of
1997 and the intensely competitive retail environment. The Company made the
determination that the discontinued marketing programs were neither profitable
nor compatible with its long-term marketing strategy.
Gross margin as a percentage of sales for Year-To-Date 1997 increased by 0.5% to
26.9% from 26.4% for Year-To-Date 1996. The increase was primarily due to
reduced markdowns, partially offset by lower overall initial markups as compared
to Year-To-Date 1996 due to changes in the Company's marketing strategy, the
Price Cut Program and an increase in the reserve for inventory shrinkage.
SG&A expenses as a percentage of sales for Year-To-Date 1997 was 29.2% compared
to 30.1% for Year-To-Date 1996 a decrease of 0.9% or $36.6 million. This
decrease was primarily attributable to store closings and initiatives to control
and reduce SG&A adopted by the Company in the second quarter of 1996, including
changes in marketing strategy, which have reduced advertising expenses, and a
reduction of corporate overhead.
Interest expense, net, for Year-To-Date 1997 increased by $4.3 million primarily
due to an increase in average revolving credit borrowings and an increase in
weighted average interest rates. Average revolving credit borrowings were $210.3
million at a weighted average interest rate of 7.0% for Year-To-Date 1997
compared to $145.3 million at 6.6% for Year-To-Date 1996. The weighted average
interest rate of the Term Loan was 6.5% for Year-To-Date 1997 compared to 6.3%
for Year-To-Date 1996. As a percentage of sales, interest expense, net, for
Year-To-Date 1997 was 1.9% compared to 1.6% for Year-To-Date 1996.
The Company did not record a tax benefit in Year-To-Date 1997 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. However, a provision of $0.3 million for
certain state franchise and capital taxes has been recorded for Year-To-Date
1997.
17
<PAGE> 18
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of retention costs and professional fees, were $16.4 million
Year-To-Date 1997 compared to $25.4 million for Year-To-Date 1996.
FINANCIAL CONDITION
The Company's working capital as of November 1, 1997 decreased by $67.9 million
from February 1, 1997. The Company received its income tax refund receivable
reflected in the balance sheet at February 1, 1997. Accounts payable increased
by $89.9 million primarily due to seasonal increases in inventory of $166.2
million. Accrued expenses decreased $13.1 million primarily due to payments made
against certain accruals established at fiscal year-end 1996. Borrowings under
the DIP Facility increased $147.2 million primarily due to the seasonal
increases in inventory not financed by accounts payable, the decrease in accrued
expenses, the net loss of $89.4 million incurred for Year-To-Date 1997, capital
expenditures of $13.7 million and reorganization item payments of $13.9 million.
Net cash used in operating activities for Year-To-Date 1997 was $134.7 million.
This use of cash for operating activities was primarily due to the Company's net
loss of $89.4 million in Year-To-Date 1997, seasonal increases in inventory not
financed by accounts payable and reorganization item payments of $13.9 million.
For Year-To-Date 1997, $13.7 million was spent for capital expenditures. The
Company's capital expenditures for Fiscal Year 1997 are projected to be
approximately $30 million to be used primarily for management information
systems, store remodeling, distribution center and store upgrades and
improvements.
The Company and its key vendors utilize software and related technologies that
will be affected by the ability of these technologies to distinguish and
properly process date sensitive information when the year changes to 2000. Many
existing applications, as was common in the market place, were designed to only
accommodate a two digit date position which represents the year. A review of
the Company's and its key vendors' systems is currently under way to determine
the scope and related costs of, and means to address, the Year 2000 issue in
order to avoid material disruption to the Company. Although management believes
that failure to address this issue in a timely manner could have a detrimental
effect on the Company's results of operations, management believes that it will
be able to take the necessary steps, including modification or replacement of
its affected systems and collaboration with its vendors, to prevent material
disruption. While this work is expected to involve significant costs, the
Company believes that the total costs will not have a material adverse impact
on its financial position or results of operations.
On October 17, 1995, the Bankruptcy Court entered a final order approving the
DIP Facility. The DIP Facility amended and restated, in its entirety, the
Registrant's Debtor-In-Possession Revolving Credit and Guaranty Agreement dated
as of September 18, 1995 with Chase as agent. On June 4, 1997, the Bankruptcy
Court entered a final order approving the Fourth Amendment which extended the
DIP Facility to June 15, 1998. Pursuant to the terms of the Extended DIP
Facility, the bank group has made available to the Registrant an aggregate
principal amount of up to $450 million consisting of (i) up to $250 million
under the Tranche A Facility and (ii) $200 million under the Tranche B Facility
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 "Borrowing Base"). The Extended DIP Facility has
a sublimit of $175 million for the issuance of letters of credit. The Tranche B
Facility must be fully utilized before the Company can borrow under the Tranche
A Facility.
18
<PAGE> 19
Borrowings under the Extended DIP Facility may be used to fund working capital
and inventory purchases and for other general corporate purposes. The Extended
DIP Facility provides for, among other things, a mandatory paydown of the
aggregate principal amount of the outstanding loans (exclusive of letters of
credit) to $165 million for a period of 15 consecutive business days during the
period from December 15, 1997 through January 15, 1998, capital expenditures not
to exceed $30 million through Fiscal Year 1997 and $16 million (subject to a $3
million increase if certain EBITDA projections are achieved) thereafter through
the maturity date and revised EBITDA thresholds for the trailing four quarters
for each of the fiscal quarters in Fiscal Year 1997 and for the fiscal quarter
ending April 30, 1998. The Extended DIP Facility also contains restrictive
covenants, including, among other things, limitations on the creation of
additional liens and indebtedness, 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 Extended DIP Facility provides that advances made (i) under the Tranche A
Facility will bear interest at a rate of 0.75% per annum in excess of ABR, or at
the Registrant's option, a rate of 1.75% per annum in excess of LIBOR for the
interest periods of one, three or six months or (ii) under the Tranche B
Facility will bear interest at 0.25% per annum in excess of ABR, or, at the
Registrant's option, a rate of 1.0% per annum in excess of LIBOR.
The Tranche A Banks and the Tranche B Banks were granted a lien on all of the
assets of the Debtors and a super priority 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. The
pre-petition banks have been granted a security interest in all assets of the
Debtors, subordinate to the security interests and liens thereon granted to the
Tranche A Banks and the Tranche B Banks, subject to the conditions of the
financing order of the Bankruptcy Court, dated October 17, 1995.
As of November 1, 1997, the outstanding borrowings under the Extended DIP
Facility were $299.2 million and open letters of credit were $50.1 million.
The Company believes that cash on hand, amounts available under the Extended DIP
Facility and funds from operations will enable the Company to meet its current
liquidity and capital expenditure requirements until the current expiration date
of the Extended DIP Facility on June 15, 1998. 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" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements. 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.
19
<PAGE> 20
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 Extended DIP Facility. The Extended 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. 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."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which is
effective for the Company beginning with the fourth quarter of Fiscal Year 1997.
SFAS No. 128 establishes standards for computing and presenting earnings per
share. The Company has determined that the adoption of SFAS No. 128 will not
have a significant impact on the Company's earnings (loss) per share.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information About
Capital Structure", which is effective for the Company beginning with the
fourth quarter of Fiscal Year 1997. SFAS No. 129 establishes standards for
disclosing information about an entity's capital structure by superseding and
consolidating previously issued accounting standards. The financial statements
of the Company are prepared in accordance with the requirements of SFAS No.
129.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for the Company beginning with Fiscal Year 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income (the
change in equity from transactions and other events except those resulting from
investment by owners). The Company is currently evaluating the effects of this
change on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective beginning with Fiscal
Year 1998. SFAS No. 131 will require that segment financial information be
publicly reported on the basis that is used internally for evaluating segment
performance. The Company is currently evaluating the effects of this change on
the Company's financial statements.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
15 Letter in lieu of consent of Deloitte & Touche LLP
re unaudited interim financial information.
27 Financial Data Schedule.
</TABLE>
b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed for the quarter for which
this report is filed.
21
<PAGE> 22
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, 1997 By: /s/ Warren D. Feldberg
----------------- -------------------------------------
Warren D. Feldberg
Chairman, Chief Executive Officer and
Director
Date: December 16, 1997 By: /s/ John G. Reen
----------------- -------------------------------------
John G. Reen
Executive Vice President,
Chief Financial Officer and Director
22
<PAGE> 23
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
15 Letter in lieu of consent of Deloitte & Touche LLP
re unaudited interim financial information.
27 Financial Data Schedule.
</TABLE>
23
<PAGE> 1
Exhibit 15
December 16, 1997
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 1, 1997 and November 2, 1996, as
indicated in our report dated December 16, 1997; 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 1, 1997, 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 Section 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
New York, New York
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> NOV-01-1997
<CASH> 30,147
<SECURITIES> 0
<RECEIVABLES> 13,580
<ALLOWANCES> 0
<INVENTORY> 616,713
<CURRENT-ASSETS> 686,469
<PP&E> 709,248
<DEPRECIATION> 228,723
<TOTAL-ASSETS> 1,174,682
<CURRENT-LIABILITIES> 652,200
<BONDS> 293,990
0
0
<COMMON> 169
<OTHER-SE> (237,637)
<TOTAL-LIABILITY-AND-EQUITY> 1,174,682
<SALES> 1,686,645
<TOTAL-REVENUES> 1,686,645
<CGS> 1,233,288
<TOTAL-COSTS> 1,233,288
<OTHER-EXPENSES> 509,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,884
<INCOME-PRETAX> (89,130)
<INCOME-TAX> 300
<INCOME-CONTINUING> (89,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (89,430)
<EPS-PRIMARY> (5.29)
<EPS-DILUTED> (5.29)
</TABLE>
