<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 MAY 2, 1998
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 June 1, 1998 was
16,902,839.
<PAGE> 2
THE CALDOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1 : CONSOLIDATED FINANCIAL STATEMENTS
Independent Accountants' Review Report 3
Consolidated Statements of Operations for the Thirteen Weeks
Ended May 2, 1998 and May 3, 1997 5
Consolidated Balance Sheets as of May 2, 1998 and January 31, 1998 6
Consolidated Statement of Stockholders' Deficit 7
Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended May 2, 1998 and May 3, 1997 8
Notes to Consolidated Financial Statements 10
ITEM 2 : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
PART II - OTHER INFORMATION
ITEM 6 : EXHIBITS AND REPORTS ON FORM 8-K 21
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 May 2,
1998 and the related consolidated statements of operations for the thirteen week
periods ended May 2, 1998 and May 3, 1997, stockholders' deficit for the
thirteen week period ended May 2, 1998, and cash flows for the thirteen week
periods ended May 2, 1998 and May 3, 1997. 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 January 31, 1998 (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 January 31, 1998, 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
24, 1998, 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 recurring losses from operations raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated
statements of operations and cash flows for the year ended January 31, 1998 are
not presented herein. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of January 31, 1998 and related
consolidated statement of 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
June 9, 1998
4
<PAGE> 5
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)
<TABLE>
<CAPTION>
FOR THE 13 WEEKS ENDED:
-----------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
Net sales $ 529,573 $ 525,635
Cost of merchandise sold 390,344 385,197
Selling, general and administrative expenses 156,544 160,088
Interest expense, net 10,479 10,391
--------- ---------
Loss before reorganization items (27,794) (30,041)
Reorganization items (Note 5) 3,170 6,274
--------- ---------
Net loss $ (30,964) $ (36,315)
========= =========
Basic and diluted net loss per share $ (1.83) $ (2.14)
========= =========
Weighted average common and common
equivalent shares used in computing
basic and diluted per share amounts 16,903 16,936
========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
MAY 2, 1998 JANUARY 31, 1998
----------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 36,098 $ 21,561
Restricted cash (Note 3) 17,881 1,023
Accounts receivable 9,350 12,853
Merchandise inventories 499,528 419,682
Assets held for disposal, net 6,000 30,076
Prepaid expenses and other current assets 19,837 20,987
----------- -----------
Total current assets 588,694 506,182
----------- -----------
Property and equipment, net 359,761 369,316
Property under capital leases, net 65,965 67,342
Debt issuance costs 636 1,086
Other assets 5,130 5,194
----------- -----------
$ 1,020,186 $ 949,120
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 181,825 $ 149,659
Accrued expenses 50,687 60,360
Other accrued liabilities 55,169 53,542
Current maturities of long-term debt 9,798 9,936
Borrowings under DIP Facility 266,198 187,698
----------- -----------
Total current liabilities 563,677 461,195
----------- -----------
Long-term debt 10,452 10,525
Other long-term liabilities 31,267 31,037
Liabilities subject to compromise (Note 4) 728,316 729,039
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 shares 169 169
Additional paid-in capital 201,334 201,334
Deficit (512,383) (481,419)
Unearned compensation (502) (616)
Minimum pension liability adjustment (2,144) (2,144)
----------- -----------
(313,526) ( 282,676)
----------- -----------
$ 1,020,186 $ 949,120
=========== ===========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Outstanding
Common Stock Additional Minimum
------------ Paid-In Unearned Pension Stockholders'
Shares Amount Capital Deficit Compensation Liability Deficit
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 16,902,839 $ 169 $ 201,334 ($ 481,419) ($ 616) ($ 2,144) ($ 282,676)
Amortization of unearned
compensation 114 114
Net loss (30,964) (30,964)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, May 2, 1998 16,902,839 $ 169 $ 201,334 ($ 512,383) ($ 502) ($ 2,144) ($ 313,526)
=========== =========== =========== =========== =========== =========== ===========
</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 13 WEEKS ENDED:
-------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(30,964) $(36,315)
Adjustments to reconcile net loss to cash used
in operating activities:
Amortization of debt issuance costs 801 790
Depreciation and other amortization 12,584 13,838
Amortization of unearned compensation 114 261
Reorganization items 3,170 6,274
Working capital and other (26,805) (46,277)
-------- --------
Net cash used in operating activities
before reorganization items (41,100) (61,429)
Reorganization items
Reduction in liabilities subject to compromise (723) (2,015)
Reorganization items paid (3,419) (6,696)
-------- --------
Net cash used in operating activities (45,242) (70,140)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,725) (2,442)
-------- --------
Net cash used in investing activities (1,725) (2,442)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under DIP Facility 78,500 83,290
Increase in restricted cash (16,858) (2,510)
Repayment of long-term debt (138) (149)
-------- --------
Net cash provided by financing activities 61,504 80,631
-------- --------
Increase in cash and cash equivalents 14,537 8,049
Cash and cash equivalents, beginning of period 21,561 27,477
-------- --------
Cash and cash equivalents, end of period $ 36,098 $ 35,526
======== ========
</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 13 WEEKS ENDED:
-------------------------
MAY 2, 1998 MAY 3, 1997
----------- -----------
<S> <C> <C>
WORKING CAPITAL AND OTHER COMPRISED OF:
Accounts receivable $ 3,503 $ (1,883)
Merchandise inventories (79,846) (56,569)
Prepaid expenses and other current assets 1,150 (1,444)
Assets held for disposal, net 24,076 8,177
Refundable income taxes and deferred income taxes (362)
Accounts payable 32,166 25,718
Accrued expenses (9,673) (15,893)
other accrued liabilities 1,989 (2,513)
Other assets and long-term liabilities (170) (1,508)
-------- --------
$(26,805) $(46,277)
======== ========
</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" or "Bankruptcy Code") 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
thirteen weeks ended May 2, 1998 ("First Quarter 1998"), 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
<PAGE> 11
10-K for the fiscal year ended January 31, 1998. 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 January 30, 1999. 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.
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 were 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 September 1, 1998 and the period in which the Debtors can
solicit acceptances for the plan of reorganization through October 30,
1998. The Debtors have distributed a term sheet and drafts of their
proposed plan of reorganization and disclosure statement to the
professionals representing the Debtors' Creditor, Bank and Equity
Committees. The Debtors are negotiating the terms and timing of their
emergence from Chapter 11 with these Committees. At this time it is not
expected that such a plan would provide for recovery by equity security
holders.
On September 18, 1997, the New York Stock Exchange suspended trading in
the Company's Common Stock and on November 25, 1997, the Securities and
Exchange Commission delisted the Company's Common Stock. Subsequent to
September 18, 1997, the Company's Common Stock has been traded on the
"OTC Bulletin Board."
On March 25, 1998, the Bankruptcy Court approved the closing of 12
under-performing stores (the "Under-Performing Stores"). The Company
completed a liquidation sale at one of the locations and retained a
liquidator who conducted store closing sales at the other locations.
These sales were completed and the stores were closed by the end of May
1998. The net proceeds of these sales were distributed to the Company
for working capital purposes pursuant to agreement with BankBoston,
N.A. ("BBNA") as agent under the New DIP Facility (as defined below).
Under Chapter 11, 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 May 2, 1998, the Debtors had rejected
the leases for 32 locations, assumed 17 real estate leases (two of
which were for warehouses and the balance were for stores) and had
reached agreement with landlords to terminate an additional seven
leases without liability. Subsequent to assuming these leases, the
Company announced its plans to close the Under-Performing Stores,
including three locations for which leases had been assumed (the
"Previously Assumed Stores"). The claims of the landlords of the
Previously Assumed Stores are
11
<PAGE> 12
treated as administrative expenses under Chapter 11 subject to both the
landlords' obligation to mitigate damages and limitations on damages
agreed upon by the Company and each landlord. 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 January 31, 1998.
Prior to the closing of the New DIP Facility (as defined below), the
Registrant had a Debtor-In-Possession Revolving Credit and Guaranty
Agreement (the "Prior DIP Facility") with Chase, as agent. The Prior
DIP Facility provided for a revolving credit and letter of credit
facility in an aggregate principal amount not to exceed $450 million.
On May 15, 1998, the Registrant obtained a new $450 million senior secured
debtor-in-possession financing, pursuant to a revolving credit and guaranty
agreement (the "New DIP Facility") with BBNA. In addition, the Registrant
has received a commitment (the "Commitment") from BBNA to provide the
Registrant with separate exit financing (the "Exit Facility," and together
with the New DIP Facility, the "New Facilities"). The proceeds of the New
DIP Facility were used to repay in full the Company's outstanding
obligations under the Prior DIP Facility on May 15, 1998 and will be used
for the working capital and general corporate purposes of the Company. The
Exit Facility will be used to provide for the working capital and general
corporate purposes of the reorganized Company beyond the effective date
(the "Effective Date") of a plan of reorganization (the "Plan") as well as
to repay in full the outstanding obligations under the New DIP Facility.
The Commitment provides that the New DIP Facility will be replaced by
the Exit Facility on the Effective Date provided that the Plan is not
inconsistent with certain terms of the Commitment and is otherwise
reasonably satisfactory to BBNA and that all conditions precedent to
confirmation of the Plan have been met. Among other things, the Plan
must provide for repayment in full of the New DIP Facility, the Company
must have had a 12-month rolling earnings before interest, taxes,
depreciation, amortization and reorganization items ("EBITDAR") on the
closing date of the Exit Facility of not less than $60 million and the
Company's borrowing availability under the Exit Facility on the closing
date thereof must exceed certain specified minimum levels.
The New DIP Facility will terminate on the earlier of (i) the Effective
Date or (ii) 18 months after the closing date of the New DIP Facility.
The Exit Facility will terminate on May 15, 2002.
The Registrant's maximum borrowing under the New DIP Facility may not
exceed the lesser of (a) the sum of (i) 72% (77% for fiscal months of March
through December of each year provided that the Overadvance Amount shall
not increase the borrowing base by more than $30 million) of the cost value
of the Company's Eligible Inventory and, without duplication, Eligible FOB
Inventory (minus a 20% reserve), Eligible Letter of Credit Inventory and
Eligible In Transit Inventory, (ii) 80% of the Company's Eligible Accounts
Receivable and (iv) the lesser of (A) $45 million and (B) under certain
circumstances, 70% of the agreed upon value of the Company's leasehold
interests in real estate and (b) $450 million (the "New DIP Facility
Borrowing Base"). The Registrant's maximum borrowing under the Exit
Facility may not exceed the lesser of (a) the sum of (i) 75% (73% for the
fiscal months of January and February of each year) of the cost value of
the Company's Eligible Inventory and, without duplication, Eligible FOB
Inventory (minus a 20% reserve), Eligible Letter of Credit Inventory and
Eligible In Transit Inventory, (ii) 80% of the Company's Eligible Accounts
Receivable minus applicable Reserves (as such terms are defined in the New
DIP Facility) and (iii) the lesser of (A) $40 million and (B) under
12
<PAGE> 13
certain circumstances, 60% of the agreed upon value of the Company's
leasehold interests in real estate and (b) $450 million (the "Exit
Facility Borrowing Base").
The New Facilities have a sublimit of $150 million for the issuance of
letters of credit. The New Facilities also contain restrictive
covenants, including, among other things, limitations of the creation
of additional liens and indebtedness, capital expenditures, the sale of
assets, and the maintenance of minimum EBITDAR, the maintenance of
ratio of accounts payable to inventory levels, and a prohibition on the
payment of dividends.
Advances under the New Facilities will bear interest, at the
Registrant's option, at BBNA's Alternate Base Rate per annum or the
Eurodollar Applicable Margin (i.e., the fully reserved adjusted
Eurodollar Rate plus 2.25% or 2.75% during any period that the Company
is utilizing the Overadvance Rate) for periods of one, two and three
months. The Eurodollar Applicable Margin is subject to reduction by up
to 0.5% if the Company achieves certain specified EBITDAR levels.
Under the New Facilities, the Registrant will pay an unused line fee of
0.25% per annum on the unused portion thereof, a letter of credit fee
equal to 1.5% per annum of average outstanding letters of credit and
certain other fees. In connection with the receipt of the Commitment
and the closing of the New DIP Facility, the Company paid fees to BBNA
of approximately $5.6 million on May 15, 1998. The Company will also
pay BBNA an annual agency fee of $150,000.
Obligations of the Registrant under the New DIP Facility have been
granted (i) superpriority administrative claim status pursuant to
section 364 (c) (1) of the Bankruptcy Code, subject only to an
exclusion for certain administrative and professional fees and (ii)
secured perfected first priority security interests in liens upon all
assets of the Company. Obligations of the Company under the Exit
Facility will be granted secured perfected first priority security
interests in and liens upon all assets of the Company.
3. RESTRICTED CASH
As of May 2, 1998, the restricted cash balance included $16.9 million
of proceeds from the liquidation sales of the Under-Performing Stores
held in a segregated interest bearing account. These proceeds were
distributed to the Company for working capital purposes pursuant to
agreement with BBNA, as agent under the New DIP Facility. In addition,
$1 million was being held in a segregated account, pursuant to
stipulation, pending resolution of a motion filed in Bankruptcy Court
by a vendor of the Company.
13
<PAGE> 14
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>
May 2, 1998 January 31, 1998
----------- ----------------
<S> <C> <C>
Accounts payable $224,404 $224,185
Term Loan 187,469 187,469
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 167,936 167,936
Accrued expenses 75,300 75,288
Capital lease obligations 20,835 21,789
Construction loan 11,511 11,511
Industrial revenue bonds
and mortgage notes 3,716 3,716
-------- --------
Total $728,316 $729,039
======== ========
</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.
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 13 weeks ended May
2, 1998 and May 3, 1997:
<TABLE>
<CAPTION>
May 2, 1998 May 3, 1997
----------- -----------
<S> <C> <C>
Retention costs $ $2,630
Professional fees 2,831 2,551
Other 339 1,093
------ ------
Total provision for reorganization $3,170 $6,274
====== ======
</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 1997, 1996 and 1995. 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 1998 losses.
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<PAGE> 15
7. EARNINGS (LOSS) PER SHARE
Basic and diluted loss per share amounts are determined in accordance
with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." The adoption of SFAS No. 128
did not impact prior period earnings per share calculations. Stock
options to purchase common stock outstanding as of May 2, 1998 and May
3, 1997 were not included in the computation of diluted loss per share
since they would have resulted in an antidilutive effect.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income," which is
effective for financial statements for periods beginning after December
15, 1997. 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 has adopted this statement effective for First Quarter 1998.
For First Quarter 1998 and First Quarter 1997, there were no
differences between comprehensive income and net income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information," which is effective for the
Company's fiscal year ending January 30, 1999 ("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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective
beginning with Fiscal Year 1998. SFAS No. 132 standardizes the
disclosure requirements for pension and other postretirement benefits,
but does not change the existing measurement or recognition provisions
of previous standards. The Company is currently evaluating the effects
of this change on its financial statement disclosures.
15
<PAGE> 16
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.
RESULTS OF OPERATIONS
Results of operations expressed as a percentage of net sales were as follows for
the 13 weeks ended May 2, 1998 ("First Quarter 1998") and the 13 weeks ended May
3, 1997 ("First Quarter 1997"):
<TABLE>
<CAPTION>
May 2, 1998 May 3, 1997
----------- -----------
(dollars in thousands) $ % $ %
- ---------------------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Net sales 529,573 100.0 525,635 100.0
Cost of merchandise sold 390,344 73.7 385,197 73.3
Gross margin 139,229 26.3 140,438 26.7
Selling, general and
administrative expenses 156,544 29.6 160,088 30.5
Interest expense, net 10,479 2.0 10,391 2.0
Loss before reorganization items (27,794) (5.2) (30,041) (5.7)
Net loss (30,964) (5.8) (36,315) (6.9)
</TABLE>
Total sales for First Quarter 1998 were $529.6 million compared to $525.6
million for First Quarter 1997, an increase of approximately $4 million, or
0.7%. This increase was primarily due to a 4.5% increase in comparable store
sales, partially offset by the closing of 16 stores since the First Quarter of
1997. Further, unseasonably cold weather in the Northeast negatively impacted
the Company's sales of seasonal merchandise in First Quarter 1997.
In 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.
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. In First Quarter 1998, the Price Cut Program was
extended to selected items in domestics and toys. The Company continues to
evaluate the extension of the Price Cut Program to other product
16
<PAGE> 17
categories. The Company has seen increased sales in merchandise categories where
the Price Cut Program has been implemented.
Gross margin as a percentage of sales for First Quarter 1998 decreased by 0.4%
to 26.3% from 26.7% in First Quarter 1997. The decrease was primarily due to
lower overall initial markups due to the Price Cut Program, partially offset by
reduced promotional markdowns as compared to last year. The decrease was also
due to an increase in the reserve for inventory shortage.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
decreased to 29.6% in First Quarter 1998 compared to 30.5% in First Quarter 1997
primarily due to store closings and continued initiatives to control and reduce
SG&A. The Company continues to evaluate its operating procedures and is pursuing
additional reductions in SG&A through increased operating efficiencies at both
the corporate and store level.
Interest expense, net, for First Quarter 1998 increased by $0.1 million
primarily due to an increase in average revolving credit borrowings and an
increase in the related weighted average interest rates as compared to First
Quarter 1997. Average revolving credit borrowings were $223.2 million at a
weighted average interest rate of 7.2% in First Quarter 1998 compared to $194.9
million at 6.6% for First Quarter 1997. The weighted average interest rate of
the Term Loan was 6.5% in First Quarter 1998 compared to 6.4% in First Quarter
1997. As a percentage of sales, interest expense, net, for First Quarter 1998
and First Quarter 1997 was 2.0%.
The Company did not record a tax benefit in First Quarter 1998 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, were $3.2 million in First Quarter 1998 compared
to $6.3 million in First Quarter 1997.
FINANCIAL CONDITION
The Company's working capital as of May 2, 1998 decreased by $20.0 million from
January 31, 1998. Accounts payable increased by $32.2 million principally due to
seasonal increases in inventory of $79.8 million. Accrued expenses decreased by
$9.7 million primarily due to payments made against certain accruals established
at fiscal year-end 1997. Borrowings under the Prior DIP Facility increased $78.5
million primarily due to the seasonal increases in inventory not financed by
accounts payable, the net loss of $31.0 million for First Quarter 1998, the
decrease in accrued expenses, reorganization item payments of $3.4 million and
capital expenditures of $1.7 million.
Net cash used in operating activities for First Quarter 1998 was $45.2 million.
This use of cash for operating activities was primarily due to the Company's net
loss of $31.0 million, the $20.0 million decrease in working capital,
reorganization item payments of $3.4 million and capital expenditures of $1.7
million.
For First Quarter 1998, capital expenditures were $1.7 million compared to $2.4
million for First Quarter 1997. The Company's capital expenditures for fiscal
year 1998 are projected to be approximately $34 million to be used primarily for
management information systems (approximately $15 million), store remodeling
(approximately $10 million) and distribution center and store upgrades and
improvements (approximately $9 million).
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
17
<PAGE> 18
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. The Company's program to address the Year
2000 issue (the "Year 2000 Program") is currently underway and the Company has
identified significant systems requiring modification or replacement to ensure
Year 2000 compliance. In addition, the Company is initiating communication with
its key external suppliers of goods and services in order to assess their
compliance efforts and the Company's exposure to them.
The Company currently estimates expenditures for the Year 2000 Program to be
approximately $7 million for modification and remediation of existing software,
being expensed as incurred. The costs of the Year 2000 Program are based on
management's current best estimates, including the continued availability of
resources and third party modification plans. However, there can be no assurance
that the Company's systems or the systems of other companies on which the
Company's operations rely will be timely converted or that the lack of such
timely conversion would not have an adverse effect on the Company's operations.
Previous to the closing of the New DIP Facility, the Registrant had the Prior
DIP Facility with Chase, as agent. The Prior DIP Facility provided for a
revolving credit and letter of credit facility in an aggregate principal amount
not to exceed $450 million. As of May 2, 1998, the outstanding borrowings under
the Prior DIP Facility were $266.2 million and open letters of credit were $52.1
million.
The Prior DIP Facility provided that advances made (i) under the Tranche A
Facility (as defined in the Prior DIP Facility) were at an interest rate of
0.75% per annum in excess of Chase's Alternative Base Rate ("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 (as defined in the Prior DIP Facility) were at an interest rate of
0.25% per annum in excess of ABR, or, at the Registrant's option, at a rate of
1.0% per annum in excess of LIBOR.
On May 15, 1998, the Registrant obtained the New DIP Facility which provides for
an aggregate principal amount not to exceed $450 million from BBNA. In addition,
the Registrant has received the Commitment from BBNA to provide the Company with
the Exit Facility. The proceeds of the New DIP Facility were used to repay in
full the Company's outstanding obligations under the Prior DIP Facility on May
15, 1998 and will be used for the working capital and general corporate purposes
of the Company. The Exit Facility will be used to provide for the working
capital and general corporate purposes of the reorganized Company beyond the
Effective Date as well as to repay in full the New DIP Facility.
The Commitment provides that the New DIP Facility will be replaced by the Exit
Facility on the Effective Date provided that the Plan is not inconsistent with
certain terms of the Commitment and is otherwise reasonably satisfactory to BBNA
and that all conditions precedent to confirmation of the Plan have been met.
Among other things, the Plan must provide for repayment in full of the New DIP
Facility, the Company must have had a 12-month rolling EBITDAR on the closing
date of the Exit Facility of not less than $60 million and the Company's
borrowing availability under the Exit Facility on the closing date thereof must
exceed certain specified minimum levels.
The New DIP Facility will terminate on the earlier of (i) the Effective Date or
(ii) 18 months after the closing date of the New DIP Facility. The Exit Facility
will terminate on May 15, 2002.
The Registrant's maximum borrowing under the New DIP Facility may not exceed the
lesser of (a) the sum of (i) 72% (77% for fiscal months of March through
December of each year provided that the Overadvance Amount shall not increase
the borrowing base by more than $30 million) of the cost value of the Company's
Eligible Inventory and, without duplication, Eligible FOB Inventory (minus a
20% reserve), Eligible Letter of Credit Inventory and Eligible In Transit
Inventory, (ii) 80% of the Company's Eligible Accounts Receivable and (iv) the
lesser of (A) $45 million and (B) under certain
18
<PAGE> 19
circumstances, 70% of the agreed upon value of the Company's leasehold interests
in real estate and (b) $450 million (the "New DIP Facility Borrowing Base"). The
Registrant's maximum borrowing under the Exit Facility may not exceed the lesser
of (a) the sum of (i) 75% (73% for the fiscal months of January and February of
each year) of the cost value of the Company's Eligible Inventory and, without
duplication, Eligible FOB Inventory (minus a 20% reserve), Eligible Letter of
Credit Inventory and Eligible In Transit Inventory, (ii) 80% of the Company's
Eligible Accounts Receivable minus applicable Reserves (as such terms are
defined in the New DIP Facility) and (iii) the lesser of (A) $40 million and
(B) under certain circumstances, 60% of the agreed upon value of the Company's
leasehold interests in real estate and (b) $450 million (the "Exit Facility
Borrowing Base").
The New Facilities have a sublimit of $150 million for the issuance of letters
of credit. The New Facilities also contain restrictive covenants, including,
among other things, limitations of the creation of additional liens and
indebtedness, capital expenditures, the sale of assets, and the maintenance of
minimum EBITDAR, the maintenance of ratio of accounts payable to inventory
levels, and a prohibition on the payment of dividends.
Advances under the New Facilities will bear interest, at the Registrant's
option, at BBNA's Alternate Base Rate per annum or the Eurodollar Applicable
Margin (i.e., the fully reserved adjusted Eurodollar Rate plus 2.25% or 2.75%
during any period that the Company is utilizing the Overadvance Rate) for
periods of one, two and three months. The Eurodollar Applicable Margin is
subject to reduction by up to 0.5% if the Company achieves certain specified
EBITDAR levels.
Under the New Facilities, the Registrant will pay an unused line fee of 0.25%
per annum on the unused portion thereof, a letter of credit fee equal to 1.5%
per annum of average outstanding letters of credit and certain other fees. In
connection with the receipt of the Commitment and the closing of the New DIP
Facility, the Company paid fees to BBNA of approximately $5.6 million on May 15,
1998. The Company will also pay BBNA an annual agency fee of $150,000.
Obligations of the Company under the New DIP Facility have been granted (i)
superpriority administrative claim status pursuant to section 364 (c) (1) of the
Bankruptcy Code, subject only to an exclusion for certain administrative and
professional fees and (ii) secured perfected first priority security interests
in liens upon all assets of the Company. Obligations of the Company under the
Exit Facility will be granted secured perfected first priority security
interests in and liens upon all assets of the Company.
In connection with the New Facilities, the Bankruptcy Court ordered that for the
period from May 15, 1998 through the Effective Date, the Registrant's monthly
interest payments on the outstanding principal amounts of the term portion of
the pre-petition credit facility (the "Term Loan") and the real estate based
loan agreement with Chase (the "Real Estate Loan") be reduced to 4% with the
balance deferred and accrued. On the Effective Date, the Registrant is required
to pay the outstanding principal and deferred and accrued interest on the Term
Loan and the Real Estate Loan.
The Company believes that cash on hand, amounts available under the New DIP
Facility and funds from operations will enable the Company to meet its current
liquidity and capital expenditure requirements through emergence from Chapter
11. Until a plan of reorganization is approved, the Company's long-term
liquidity and the adequacy of its capital resources cannot be determined.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which is
19
<PAGE> 20
effective for financial statements for periods beginning after December 15,
1997. 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 has adopted this
statement effective for First Quarter 1998. For First Quarter 1998 and First
Quarter 1997, there were no differences between comprehensive income and net
income.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for the Company's fiscal
year ending January 30, 1999 ("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.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which is effective beginning with
Fiscal Year 1998. SFAS No. 132 standardizes the disclosure requirements for
pension and other postretirement benefits, but does not change the existing
measurement or recognition provisions of previous standards. The Company is
currently evaluating the effects of this change on its financial statement
disclosures.
FORWARD - LOOKING STATEMENTS
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 this 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" relating to the sufficiency of capital to
meet working capital and capital expenditure requirements 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 assumes no obligation to update or revise any
such forward-looking statements, even if experience or future events or changes
make it clear that any projected financial or operating results implied by such
forward-looking statements will not be realized.
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, results of operations and liquidity of the Company. The
Company may be adversely affected as competitors open additional stores in the
Company's market areas. The Company has working capital needs which are expected
to be funded largely through borrowings under the New DIP Facility. The New
Facilities contain restrictive covenants, including, among other things,
limitations on the creation of additional liens and indebtedness, capital
expenditures, the sale of assets and the maintenance of minimum EBITDAR, the
maintenance of ratio of accounts payable to 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."
20
<PAGE> 21
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.
27 Financial Data Schedule.
b) Reports on Form 8-K
-------------------
On May 28, 1998, the Registrant filed a current report on Form
8-K, for an event which occurred on May 15, 1998. The filing
reported on Item 2 and no financial statements were included
in such filing.
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: June 12, 1998 By: /s/ Warren D. Feldberg
---------------------- ---------------------------
Warren D. Feldberg
Chairman, Chief Executive Officer and
Director
Date: June 12, 1998 By: /s/ John G. Reen
---------------------- ----------------------
John G. Reen
Executive Vice President,
Chief Financial Officer and Director
22
<PAGE> 23
EXHIBIT INDEX
-------------
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
15 Letter in lieu of consent of Deloitte & Touche LLP re
unaudited interim financial information.
27 Financial Data Schedule.
23
<PAGE> 1
Exhibit 15
June 9, 1998
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 May 2, 1998 and May 3, 1997, as indicated in
our report dated June 9, 1998 which includes explanatory paragraphs relating to
the Company's reorganization proceedings and its ability to continue as a going
concern; 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 May 2, 1998, 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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 36,098
<SECURITIES> 0
<RECEIVABLES> 9,350
<ALLOWANCES> 0
<INVENTORY> 499,528
<CURRENT-ASSETS> 588,694
<PP&E> 647,849
<DEPRECIATION> (222,123)
<TOTAL-ASSETS> 1,020,186
<CURRENT-LIABILITIES> 563,677
<BONDS> 271,128
0
0
<COMMON> 169
<OTHER-SE> (313,695)
<TOTAL-LIABILITY-AND-EQUITY> 1,020,186
<SALES> 529,573
<TOTAL-REVENUES> 529,573
<CGS> 390,344
<TOTAL-COSTS> 390,344
<OTHER-EXPENSES> 159,714
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,479
<INCOME-PRETAX> (30,964)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,964)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,964)
<EPS-PRIMARY> (1.83)
<EPS-DILUTED> (1.83)
</TABLE>
