<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 OCTOBER 31, 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 November 27, 1998 was
16,902,839.
<PAGE> 2
THE CALDOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
ITEM 1 : CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Independent Accountants' Review Report 3
Consolidated Statements of Operations for the Thirteen and Thirty-nine
Weeks Ended October 31, 1998 and November 1, 1997 5
Consolidated Balance Sheets as of October 31, 1998 and January 31, 1998 6
Consolidated Statement of Stockholders' Deficit for the Thirty-nine Weeks
Ended October 31, 1998 7
Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended
October 31, 1998 and November 1, 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 23
</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
October 31, 1998 and the related consolidated statements of operations for the
thirty-nine and thirteen week periods ended October 31, 1998 and November 1,
1997, stockholders' deficit for the thirty-nine week period ended October 31,
1998, and cash flows for the thirty-nine week periods ended October 31, 1998 and
November 1, 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 its obligations and the
development and confirmation of a plan of reorganization. As discusssed in
Note 2 to the consolidated financial statements, attempts to achieve a plan of
reorganization with the Company's pre-petition senior secured creditors have
not resulted in agreement. Accordingly, the Bankruptcy Court has appointed a
mediator to facilitate negotiations between the parties as to a plan of
reorganization and various alternatives. The Debtors cannot presently predict
the outcome of the mediation. In the event that these efforts do not result in
a consensus, each party would retain its rights under law and the Bankruptcy
Code. 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
December 11, 1998
4
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1: Consolidated Financial Statements
THE CALDOR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED: THIRTY-NINE WEEKS ENDED:
OCTOBER 31, NOVEMBER 1, OCTOBER 31, NOVEMBER 1,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 510,925 $ 562,859 $ 1,612,979 $ 1,686,645
Cost of merchandise sold 372,464 411,090 1,187,279 1,233,288
Selling, general and administrative expenses 149,688 170,408 454,488 493,154
Loss on disposition of property and equipment 1,406 1,569
Interest expense, net 10,936 11,537 32,433 32,884
----------- ----------- ----------- -----------
Loss before reorganization items and income taxes (23,569) (30,176) (62,790) (72,681)
Reorganization items (Note 5) 3,955 4,615 11,807 16,449
----------- ----------- ----------- -----------
Loss before income taxes (27,524) (34,791) (74,597) (89,130)
Income tax provision (Note 6) 300 300 300 300
----------- ----------- ----------- -----------
Net loss $ (27,824) $ (35,091) $ (74,897) $ (89,430)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (1.65) $ (2.08) $ (4.43) $ (5.29)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares used in computing basic
and diluted per share amounts 16,903 16,903 16,903 16,914
=========== =========== =========== ===========
</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>
OCTOBER 31, 1998 JANUARY 31, 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,388 $ 21,561
Restricted cash (Note 3) 1,058 1,023
Accounts receivable 7,971 12,853
Merchandise inventories 566,015 419,682
Assets held for disposal, net 6,000 30,076
Prepaid expenses and other current assets 21,766 20,987
----------- -----------
Total current assets 626,198 506,182
----------- -----------
Property and equipment, net 354,902 369,316
Property under capital leases, net 63,258 67,342
Debt issuance costs 5,871 1,086
Other assets 4,992 5,194
----------- -----------
$ 1,055,221 $ 949,120
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 231,543 $ 149,659
Accrued expenses 47,043 60,360
Other accrued liabilities 49,970 53,542
Current maturities of long-term debt 9,523 9,936
Borrowings under DIP Facility 312,007 187,698
----------- -----------
Total current liabilities 650,086 461,195
----------- -----------
Long-term debt 10,299 10,525
Other long-term liabilities 32,496 31,037
Liabilities subject to compromise (Note 4) 719,567 729,039
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 (556,316) (481,419)
Unearned compensation (270) (616)
Minimum pension liability adjustment (2,144) (2,144)
----------- -----------
Total stockholders' deficit (357,227) (282,676)
----------- -----------
$ 1,055,221 $ 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 Additional Minimum
Common Stock 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 346 346
Net loss (74,897) (74,897)
------------ --------- -------------- ---------- --------------- ------------- ---------------
Balance, October 31, 1998 16,902,839 $ 169 $ 201,334 $(556,316) $ (270) $ (2,144) $ (357,227)
============ ========= ============== ========== =============== ============= ===============
</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 THIRTY-NINE WEEKS ENDED:
--------------------------------
OCTOBER 31, 1998 NOVEMBER 1, 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (74,897) $(89,430)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of debt issuance costs 1,670 2,928
Depreciation and other amortization 35,946 40,860
Loss on disposition of property and equipment 1,569
Amortization of unearned compensation 346 347
Reorganization items 11,807 16,449
Working capital and other (51,460) (81,054)
-------- --------
Net cash used in operating activities
before reorganization items (75,019) (109,900)
Reorganization items:
Reduction of liabilities subject to compromise (2,638) (10,865)
Reorganization items paid (19,351) (13,915)
-------- --------
Net cash used in operating activities (97,008) (134,680)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18,979) (13,698)
(Increase) Decrease in restricted cash (35) 4,248
-------- --------
Net cash used in investing activities (19,014) (9,450)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under DIP Facility 124,309 147,198
Debt issuance costs (5,821)
Repayment of short-term debt (413)
Repayment of long-term debt (226) (398)
-------- --------
Net cash provided by financing activities 117,849 146,800
-------- --------
Increase in cash and cash equivalents 1,827 2,670
Cash and cash equivalents, beginning of period 21,561 27,477
-------- --------
Cash and cash equivalents, end of period $ 23,388 $ 30,147
========= ========
</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 THIRTY-NINE WEEKS ENDED:
--------------------------------
OCTOBER 31, 1998 NOVEMBER 1, 1997
---------------- ----------------
<S> <C> <C>
WORKING CAPITAL AND OTHER COMPRISED OF:
Accounts receivable $ 4,882 $ (1,364)
Merchandise inventories (146,333) (166,214)
Prepaid expenses and other current assets (779) (7,601)
Assets held for disposal, net 24,076 8,177
Refundable income taxes 13,040
Accounts payable 81,884 89,890
Accrued expenses (13,317) (13,069)
Other accrued liabilities 2,716 (1,056)
Other assets and long-term liabilities (4,589) (2,857)
--------- ---------
$ (51,460) $ (81,054)
========= =========
</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, including resolution
of the uncertainties of the Chapter 11 case discussed in Note 2, 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 October 31, 1998 and the thirty-nine weeks ended
October 31, 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-K for the fiscal year ended January 31, 1998. Due
to the seasonal nature of the Company's sales, 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
10
<PAGE> 11
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 March 1, 1999 and the period in which the Debtors can solicit
acceptances for the plan of reorganization through April 30, 1999. The
Debtors had previously distributed a term sheet and drafts of their
proposed plan of reorganization and disclosure statement to the
professionals representing the Debtors' Official Unsecured Creditor and
Equity Committees and the non-statutory Term Loan Holders Committee. In
any event, recoveries for pre-petition unsecured creditors are unlikely
and are not expected for equity security holders. Attempts to achieve a
plan of reorganization with the Term Loan Holders Committee have not
resulted in agreement. Accordingly, the Bankruptcy Court has appointed a
mediator to facilitate discussions between the parties as to a plan of
reorganization and the various alternatives. The Debtors cannot presently
predict the outcome of the mediation. In the event that these efforts do
not result in a consensus, each party would retain its rights under law
and the Bankruptcy Code.
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.
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 October 31, 1998, the Debtors had rejected the leases for
41 locations, assumed 19 real estate leases (one of which was for a
warehouse and the balance were for stores, one of which was assumed and
assigned to a third party) and had reached agreement with landlords to
terminate an additional six 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 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
11
<PAGE> 12
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.
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 BankBoston, N.A.
("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 its prior $450
million debtor-in-possession financing facility (the "Prior DIP
Facility") and will be used for the working capital and general corporate
purposes of the Company. The Exit Facility is to 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 (EBITDAR for the 12-month
period ended November 28, 1998 was $57 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) November 15, 1999. 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 (iii) 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"). At October 31, 1998, the New DIP
Facility Borrowing Base was $450.0 million. 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 DIP Facility has, and the Commitment provides that the Exit
Facility will have, a sublimit of $150 million for the issuance of letters
of credit. The New DIP Facility contains, and the Commitment provides that
the Exit Facility will also contain, negative 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 DIP Facility, and the Commitment provides that
advances under the Exit Facility, 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
12
<PAGE> 13
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 DIP Facility, and pursuant to the Commitment under the Exit
Facility, 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 of approximately $5.8 million on May
15, 1998.
As of October 31, 1998, the outstanding borrowings under the New DIP
Facility were $312.0 million and open letters of credit were $46.7
million.
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 liens upon all assets of the Company. The Commitment provides
that 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.
The Company is dependent upon vendor credit support, amounts available
under the New DIP Facility, and cash flows from operations to meet its
current liquidity and capital expenditure requirements while in Chapter
11. Funds from operations are dependent upon the Company's attainment of
sales, gross profit and expense levels that are reasonably consistent
with its financial plan. Based on its operating results for the third
quarter and through November 28, 1998, it is unlikely that the Company
will achieve its EBITDAR plan of $75 million. Until a plan of
reorganization is approved, the Company's long term liquidity and the
adequecy of its capital resources cannot be determined.
3. RESTRICTED CASH
As of October 31, 1998, the restricted cash balance of $1.1 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.
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>
October 31, 1998 January 31, 1998
---------------- -----------------
<S> <C> <C>
Accounts payable $ 224,149 $ 224,185
Term Loan 187,469 187,469
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 161,102 167,936
Accrued expenses 75,502 75,288
Capital lease obligations 18,973 21,789
Construction loan 11,511 11,511
Industrial revenue bonds
and mortgage notes 3,716 3,716
---------- ---------
Total $ 719,567 $ 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 has either been rejected or the Company
anticipates rejecting. The decrease reflects the reversal of a liability
set up for a lease that was subsequently
13
<PAGE> 14
assigned to a third party and the payment of $2.6 million to settle an
administrative claim regarding the rejection of a previously assumed
lease. Capital lease obligations were reduced by normal amortization.
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
October 31, 1998 and November 1, 1997:
<TABLE>
<CAPTION>
October 31, November 1,
1998 1997
---- ----
<S> <C> <C>
Retention costs $ $ 7,014
Professional fees 6,754 6,146
Other (net of reversal of lease liability) 5,053 3,289
------- -------
Total provision for reorganization $11,807 $16,449
======= =======
</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.
The Company recorded a tax provision of $0.3 million for certain state
franchise and capital taxes in the thirteen weeks ended October 31, 1998
and November 1, 1997.
7. LOSS PER SHARE
Basic and diluted losses 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 October 31, 1998 and November 1,
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 June 1997, the Financial Accounting Standards Board (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 statement on its financial
statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which is effective for
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 statement on its
financial statement disclosures.
14
<PAGE> 15
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for the
accounting and reporting for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair
value of a derivative depends on the intended use of the derivative and
the resulting designation. This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company has
determined that this statement will not have an impact on its financial
statements or disclosures as the Company does not engage in any derivative
or hedging transactions.
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 October 31, 1998 ("Third Quarter 1998") and the 13 weeks
ended November 1, 1997 ("Third Quarter 1997"):
<TABLE>
<CAPTION>
October 31, 1998 November 1, 1997
------------------------------- --------------------------
(dollars in thousands) $ % $ %
- ------------------------------------- -------------- ----------- --------- --------
<S> <C> <C> <C> <C>
Net sales 510,925 100.0 562,859 100.0
Cost of merchandise sold 372,464 72.9 411,090 73.0
Gross margin 138,461 27.1 151,769 27.0
Selling, general and
administrative expenses 151,094 29.6 170,408 30.3
Interest expense, net 10,936 2.1 11,537 2.1
Loss before reorganization items and
income taxes (23,569) (4.6) (30,176) (5.4)
Net loss (27,824) (5.4) (35,091) (6.2)
</TABLE>
Total sales for Third Quarter 1998 were $510.9 million compared to $562.9
million for Third Quarter 1997, a decrease of $52.0 million, or 9.2%. This
decrease was primarily due to the closing of 12 stores since Third Quarter 1997,
as well as a 3.1% decrease in comparable store sales. The decrease in comparable
store sales was primarily attributable to a decline in the Company's sales of
apparel, in part due to an intensely competitive retail environment and
unseasonably warm weather in the Northeast.
Gross margin as a percentage of sales increased by 0.1% to 27.1% for Third
Quarter 1998 from 27.0% in Third Quarter 1997. The increase was primarily due to
lower markdowns, partially offset by a shift in sales mix to lower margin
products and higher inventory shortage.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
decreased to 29.6% in Third Quarter 1998 compared to 30.3% in Third Quarter 1997
primarily due to store closings and continued initiatives to control and reduce
SG&A. Reduced advertising and payroll related costs accounted for the majority
of the decrease. 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.
16
<PAGE> 17
Interest expense, net, for Third Quarter 1998 decreased by $0.6 million
primarily due to lower amortization of debt issuance costs and interest on
capital leases. This decrease was partly offset by an increase in average
revolving credit borrowings and an increase in the related average interest
rates as compared to Third Quarter 1997. Average revolving credit borrowings
were $252.5 million at a weighted average interest rate of 8.0% in Third Quarter
1998 compared to $227.3 million at 7.4% for Third Quarter 1997. The weighted
average interest rate of the Term Loan was 6.5% in Third Quarter 1998 and Third
Quarter 1997. As a percentage of sales, net interest expense for Third Quarter
1998 and Third Quarter 1997 was 2.1%.
The Company did not record a tax benefit in Third Quarter 1998 since the
utilization of the Company's loss carryforwards is dependent upon sufficient
future taxable income. Therefore, 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 both
Third Quarter 1998 and Third Quarter 1997.
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of professional fees, were $4.0 million in Third Quarter 1998 compared
to $4.6 million in Third Quarter 1997.
17
<PAGE> 18
Results of operations expressed as a percentage of net sales were as follows for
the 39 weeks ended October 31, 1998 ("Year-To-Date 1998") and the 39 weeks ended
November 1, 1997 ("Year-To-Date 1997"):
<TABLE>
<CAPTION>
October 31, 1998 November 1, 1997
---------------------------- -------------------------
(dollars in thousands) $ % $ %
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 1,612,979 100.0 1,686,645 100.0
Cost of merchandise sold 1,187,279 73.6 1,233,288 73.1
Gross margin 425,700 26.4 453,357 26.9
Selling, general and
administrative expenses 456,057 28.3 493,154 29.2
Interest expense, net 32,433 2.0 32,884 1.9
Loss before reorganization
items and income taxes (62,790) (3.9) (72,681) (4.3)
Net loss (74,897) (4.6) (89,430) (5.3)
</TABLE>
Total sales for Year-To-Date 1998 were $1,613.0 million compared to $1,686.6
million for Year-To-Date 1997, a decrease of $73.7 million, or 4.4%. This
decrease was primarily due to the closing of 16 stores since the first quarter
of 1997, partially offset by a 1.1% increase in comparable store sales. The
increase in comparable store sales was due to increased sales of electronics,
furniture and housewares, partly offset by a decline in apparel sales.
Gross margin as a percentage of sales for Year-To-Date 1998 decreased by 0.5% to
26.4% from 26.9% for Year-To-Date 1997. The decrease was primarily due to a
shift in sales mix to lower margin items and an increase in inventory shortage,
partially offset by reduced markdowns.
SG&A as a percentage of sales decreased to 28.3% for Year-To-Date 1998 compared
to 29.2% for Year-To-Date 1997 primarily due to store closings and continued
initiatives to control and reduce SG&A, particularly in the payroll and payroll
related areas. 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 Year-To-Date 1998 decreased by $0.5 million primarily
due to lower amortization of debt issuance costs and interest on capital leases.
This decrease was partly offset by an increase in average revolving credit
borrowings and an increase in the related average interest rates as compared to
Year-To-Date 1997. Average revolving credit borrowings were $239.8 million at a
weighted average interest rate of 7.8% for Year-To-Date 1998 compared to $210.3
million at 7.0% for Year-To-Date 1997. The weighted average interest rate of the
Term Loan was 6.5% for Year-To-Date 1998 and Year-To-Date 1997. As a percentage
of sales, net interest expense for Year-To-Date 1998 was 2.0% compared to 1.9%
for Year-To-Date 1997.
The Company did not record a tax benefit for Year-To-Date 1998 since the
utilization of the Company's loss carryforwards is dependent upon sufficient
future taxable income. Therefore, 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 both
Third Quarter 1998 and Third Quarter 1997.
Reorganization costs relating to the Chapter 11 proceedings were $11.8 million
for Year-To-Date 1998, consisting primarily of professional fees, compared to
$16.4 million for Year-To-Date 1997.
18
<PAGE> 19
FINANCIAL CONDITION
At October 31, 1998, unborrowed availability under the New DIP Facility was
$91.3 million. The Company's working capital as of October 31, 1998 decreased by
$68.9 million from January 31, 1998 to ($23.9) million. Accounts payable
increased by $81.9 million principally due to seasonal increases in inventory.
Accrued expenses decreased by $13.3 million primarily due to payments made
against certain accruals established at fiscal year-end 1997. Borrowings under
the DIP Facility increased $124.3 million primarily due to the net loss of $74.9
million for Year-To-Date 1998, the decrease in accrued expenses, reorganization
item payments of $19.4 million and capital expenditures of $19.0 million.
Net cash used in operating activities for Year-To-Date 1998 was $97.0 million.
This use of cash for operating activities was primarily due to the Company's net
loss of $74.9 million, the $146.3 million increase in inventory, the $13.3
million decrease in accrued expenses and reorganization item payments of $19.4
million, partially offset by liquidation of assets held for disposal of $24.1
million through closing sales for the Under-Performing Stores and the $81.9
million increase in accounts payable.
For Year-To-Date 1998, capital expenditures were $19.0 million compared to $13.7
million for Year-To-Date 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 external suppliers of goods and services 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 were designed to
accommodate only a two-digit date position which represents the year, as was
common in the marketplace. The Company's program for the Year 2000 issue (the
"Year 2000 Program") addresses risks with respect to its management information
systems and other business application systems, embedded systems, desktop
workstations and external suppliers of goods and services.
The Company has identified the management information systems and other business
application systems to be modified or replaced in connection with Year 2000
compliance efforts and is currently remediating or replacing these systems.
Remediation or replacement of critical systems is expected to be completed in
1999. In addition, the Company expects to complete its assessment of embedded
systems contained in its buildings, plant, equipment and other infrastructure by
early 1999 and remediation of critical embedded systems by the end of 1999.
The Company has completed its inventory of desktop workstations and the major
applications that run on them. The Company is in the process of upgrading this
equipment and expects to complete this process by the end of 1999. The
remediated business application systems have been tested, and preliminary
testing on the business application systems undergoing remediation is being
conducted.
The Company has completed its identification and prioritization of its external
suppliers of goods and services and has sent questionnaires to them to ascertain
their compliance efforts. The Company's program to determine the status of its
critical suppliers' compliance will include appropriate communication and
testing (the "External Business Partner Program"). The Company is in the process
of developing a contingency plan (the "Contingency Plan") designed to address
possible Year 2000 Program or third party failures. The preparation of the
Contingency Plan is expected to be completed by early 1999. The Contingency Plan
will be based in part on the results of the External Business Partner Program.
19
<PAGE> 20
The Company currently estimates total expenditures to be approximately $7
million for modification and remediation of existing software, of which
approximately $2.3 million had been incurred as of October 31, 1998. Year 2000
Program remediation costs are expensed as incurred and are funded through cash
from operations and borrowings under the New DIP Facility. Replacement of
software is included in the Company's capital expenditures. The budget for
replacement of such software is estimated to be $14 million in 1998, of which
$6.0 million had been incurred as of October 31, 1998. 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.
Although some business disruption in the retailing industry is likely as a
result of Year 2000 failures, the extent of such disruption is not known.
Failure by the Company's suppliers or other third parties to address the Year
2000 issue adequately could have a material adverse effect on the Company. To
address this risk, the Company has undertaken its External Business Partner
Program and is developing its Contingency Plan. However, there can be no
assurance that the Company's or third parties' systems will be timely converted
or that the lack of such timely conversion may not have an adverse effect on
the Company's operations.
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 and will
be used for the working capital and general corporate purposes of the Company.
The Exit Facility is to 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 (EBITDAR for the 12-month
period ended November 28, 1998 was $57 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) November 15, 1999. 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 (iii) 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"). At October 31, 1998, the New DIP
Facility Borrowing Base was $450.0 million. 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.
20
<PAGE> 21
The New DIP Facility has, and the Commitment provides that the Exit Facility
will have, a sublimit of $150 million for the issuance of letters of credit. The
New DIP Facility contains and the Commitment provides that the Exit Facility
will contain negative 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 DIP Facility, and the Commitment provides that advances
under the Exit Facility 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 DIP Facility, and pursuant to the Commitment under the Exit
Facility 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 of approximately $5.8 million on May 15, 1998.
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 liens upon all
assets of the Company. The Commitment provides that 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.
As of October 31, 1998, the outstanding borrowings under the New DIP Facility
were $312.0 million and open letters of credit were $46.7 million.
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 The Chase Manhattan Bank (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, with continued trade support, cash on hand, amounts
available under the New DIP Facility and funds from operations, the Company
will be able to meet its current liquidity and capital expenditure
requirements while in Chapter 11. Funds from operations are dependent upon the
Company's attainment of sales, gross profit, and expense levels that are
reasonably consistent with its financial plan. EBITDAR for the year-to-date
period through November 28, 1998 was $22 million, which was $3 million above
the comparable period in fiscal year 1997 but below the Company's plan of $33
million for the period. The Company's EBITDAR plan for fiscal year 1998 is $75
million. The Company's business is seasonal and $42 million of the Company's
annual EBITDAR is planned to be achieved in December and January. Given
uncertainties in the business and intense competitive pressures, the Company
cannot predict its results for the remainder of the fiscal year. However, based
on its operating results for the third quarter and through November 28, 1998,
it is unlikely that the Company will achieve its EBITDAR plan of $75 million.
Until a plan of reorganization is approved, the Company's long-term liquidity
and the adequacy of its capital resources cannot be determined. Although the
Company has referred to its plan in this Form 10-Q, the Company does not
believe it is obligated to provide or update such information, and the Company
may cease doing so at any time. The plan information was not examined, reviewed
or compiled by the Company's independent public accountants.
21
<PAGE> 22
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which is effective for 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 statement
on its financial statements.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which is effective for 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 statement on its financial statement disclosures.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes standards for the
accounting and reporting for derivative instruments and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
This statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company has determined that this statement will not
have an impact on its financial statements or disclosures as the Company does
not engage in any derivative or hedging transactions.
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 DIP
Facility contains, and the Commitment provides that the Exit Facility will
contain, negative 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."
22
<PAGE> 23
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
No reports on Form 8-K were filed for the quarter for which this
report is filed.
23
<PAGE> 24
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 14, 1998 By: /s/ Warren D. Feldberg
----------------------- --------------------------------
Warren D. Feldberg
Chairman, Chief Executive Officer and
Director
Date: December 14, 1998 By: /s/ John G. Reen
----------------------- ------------------------------------
John G. Reen
Executive Vice President,
Chief Financial Officer and Director
24
<PAGE> 25
EXHIBIT INDEX
Exhibit Number Description
- -------------- -----------
15 Letter in lieu of consent of Deloitte & Touche LLP re
unaudited interim financial information.
27 Financial Data Schedule.
25
<PAGE> 1
Exhibit 15
December 14, 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 October 31, 1998 and November 1, 1997, as
indicated in our report dated December 11, 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 October 31, 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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 23,388
<SECURITIES> 0
<RECEIVABLES> 7,971
<ALLOWANCES> 0
<INVENTORY> 566,015
<CURRENT-ASSETS> 626,198
<PP&E> 661,234
<DEPRECIATION> (243,074)
<TOTAL-ASSETS> 1,055,221
<CURRENT-LIABILITIES> 650,086
<BONDS> 269,113
0
0
<COMMON> 169
<OTHER-SE> (357,396)
<TOTAL-LIABILITY-AND-EQUITY> 1,055,221
<SALES> 1,612,979
<TOTAL-REVENUES> 1,612,979
<CGS> 1,187,279
<TOTAL-COSTS> 1,187,279
<OTHER-EXPENSES> 456,057
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,433
<INCOME-PRETAX> (74,597)
<INCOME-TAX> 300
<INCOME-CONTINUING> (74,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74,897)
<EPS-PRIMARY> (4.43)
<EPS-DILUTED> (4.43)
</TABLE>
