<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 AUGUST 1, 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 August 28, 1998 was
16,902,839.
<PAGE> 2
THE CALDOR CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1 : CONSOLIDATED FINANCIAL STATEMENTS
Independent Accountants' Review Report 3
Consolidated Statements of Operations for the Thirteen and Twenty-six
Weeks Ended August 1, 1998 and August 2, 1997 5
Consolidated Balance Sheets as of August 1, 1998 and January 31, 1998 6
Consolidated Statement of Stockholders' Deficit 7
Consolidated Statements of Cash Flows for the Twenty-six Weeks Ended
August 1, 1998 and August 2, 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 August
1, 1998 and the related consolidated statements of operations for the twenty-six
and thirteen week periods ended August 1, 1998 and August 2, 1997, stockholders'
deficit for the twenty-six week period ended August 1, 1998, and cash flows for
the twenty-six week periods ended August 1, 1998 and August 2, 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
September 14, 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>
THIRTEEN WEEKS ENDED: TWENTY-SIX WEEKS ENDED:
-------------------------- --------------------------
AUGUST 1, AUGUST 2, AUGUST 1, AUGUST 2,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 572,481 $ 598,151 $ 1,102,054 $ 1,123,786
Cost of merchandise sold 424,471 437,001 814,815 822,198
Selling, general and administrative expenses 148,256 162,658 304,800 322,746
Loss on disposition of property and equipment 163 163
Interest expense, net 11,018 10,956 21,497 21,347
----------- ----------- ----------- -----------
Loss before reorganization items (11,427) (12,464) (39,221) (42,505)
Reorganization items (Note 5) 4,682 5,560 7,852 11,834
----------- ----------- ----------- -----------
Net loss $ (16,109) $ (18,024) $ (47,073) $ (54,339)
=========== =========== =========== ===========
Basic and diluted net loss per share $ (0.95) $ (1.07) $ (2.78) $ (3.21)
=========== =========== =========== ===========
Weighted average common and common
equivalent shares used in computing basic
and diluted per share amounts 16,903 16,903 16,903 16,919
=========== =========== =========== ===========
</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>
AUGUST 1, 1998 JANUARY 31, 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,067 $ 21,561
Restricted cash (Note 3) 1,045 1,023
Accounts receivable 7,823 12,853
Merchandise inventories 425,700 419,682
Assets held for disposal, net 6,000 30,076
Prepaid expenses and other current assets 20,649 20,987
--------- ---------
Total current assets 484,284 506,182
--------- ---------
Property and equipment, net 356,857 369,316
Property under capital leases, net 64,601 67,342
Debt issuance costs 6,163 1,086
Other assets 5,057 5,194
--------- ---------
$ 916,962 $ 949,120
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 169,153 $ 149,659
Accrued expenses 49,374 60,360
Other accrued liabilities 46,734 53,542
Current maturities of long-term debt 9,661 9,936
Borrowings under DIP Facility 206,001 187,698
--------- ---------
Total current liabilities 480,923 461,195
--------- ---------
Long-term debt 10,376 10,525
Other long-term liabilities 32,099 31,037
Liabilities subject to compromise (Note 4) 723,082 729,039
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 (528,492) (481,419)
Unearned compensation (385) (616)
Minimum pension liability adjustment (2,144) (2,144)
--------- ---------
Total stockholders' deficit (329,518) (282,676)
--------- ---------
$ 916,962 $ 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 231 231
Net loss (47,073) (47,073)
---------- ----- --------- ---------- ------ -------- ----------
Balance, August 1, 1998 16,902,839 $ 169 $ 201,334 $ (528,492) $ (385) $ (2,144) $ (329,518)
========== ===== ========= ========== ====== ======== ==========
</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 TWENTY-SIX WEEKS ENDED:
-------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(47,073) $(54,339)
Adjustments to reconcile net loss to cash used in operating activities:
Amortization of debt issuance costs 1,319 1,824
Depreciation and other amortization 25,155 27,676
Loss on disposition of property and equipment 163
Amortization of unearned compensation 231 261
Reorganization items 7,852 11,834
Working capital and other 26,776 2,772
-------- --------
Net cash provided by (used in) operating activities
before reorganization items 14,423 (9,972)
Reorganization items:
Reduction of liabilities subject to compromise (1,723) (3,299)
Reorganization items paid (13,138) (10,482)
-------- --------
Net cash used in operating activities (438) (23,753)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (10,092) (7,766)
(Increase) Decrease in restricted cash (22) 522
-------- --------
Net cash used in investing activities (10,114) (7,244)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under DIP Facility 18,303 31,698
Debt issuance costs (5,821)
Repayment of short-term debt (275)
Repayment of long-term debt (149) (252)
-------- --------
Net cash provided by financing activities 12,058 31,446
-------- --------
Increase in cash and cash equivalents 1,506 449
Cash and cash equivalents, beginning of period 21,561 27,477
-------- --------
Cash and cash equivalents, end of period $ 23,067 $ 27,926
======== ========
</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 TWENTY-SIX WEEKS ENDED:
--------------------------------
AUGUST 1, 1998 AUGUST 2, 1997
-------------- --------------
<S> <C> <C>
WORKING CAPITAL AND OTHER COMPRISED OF:
Accounts receivable $ 5,030 $ 1,027
Merchandise inventories (6,018) (13,315)
Prepaid expenses and other current assets 338 (3,578)
Assets held for disposal, net 24,076 8,177
Refundable income taxes 13,040
Accounts payable 19,494 24,016
Accrued expenses (10,986) (18,925)
Other accrued liabilities (400) (3,995)
Other assets and long-term liabilities (4,758) (3,675)
-------- --------
$ 26,776 $ 2,772
======== ========
</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 August 1, 1998 ("Second Quarter 1998") and the
twenty-six weeks ended August 1, 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, 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 March 1, 1999 and the period in which the Debtors can solicit
acceptances for the plan of reorganization through April 30, 1999. The
Debtors have distributed a term sheet and drafts of their proposed plan
of reorganization and disclosure statement to the professionals
representing the Debtors' Official Creditor and Equity Committees and
the non-statutory Term Loan Holders Committee (the "Committees"). The
Debtors are negotiating the terms and timing of their emergence from
Chapter 11 with these Committees. 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 August 1, 1998, the Debtors had
rejected the leases for 37 locations, assumed 18 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.
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 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 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
(EBITDAR for the fiscal year ended January 31, 1998 was $53.7 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 August 1,
1998, the New DIP Facility Borrowing Base was $394.7 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
12
<PAGE> 13
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 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 August 1, 1998, the outstanding borrowings under the New DIP
Facility were $206.0 million and open letters of credit were $84.7
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 security interests in 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.
3. RESTRICTED CASH
As of August 1, 1998, the restricted cash balance of $1.0 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>
August 1, 1998 January 31, 1998
-------------- ----------------
<S> <C> <C>
Accounts payable $224,256 $224,185
Term Loan 187,469 187,469
Real Estate Loan 37,145 37,145
Rejected leases and other
miscellaneous claims 163,702 167,936
Accrued expenses 75,394 75,288
Capital lease obligations 19,889 21,789
Construction loan 11,511 11,511
Industrial revenue bonds
and mortgage notes 3,716 3,716
-------- --------
Total $723,082 $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. The decrease reflects
the reversal of a liability set up for a lease that was subsequently
assigned to a third party. 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 twenty-six weeks
ended August 1, 1998 and August 2, 1997:
<TABLE>
<CAPTION>
August 1, 1998 August 2, 1997
-------------- --------------
<S> <C> <C>
Retention costs $ $ 5,261
Professional fees 5,420 4,537
Other (net of reversal of lease liability) 2,432 2,036
------- -------
Total provision for reorganization $ 7,852 $11,834
======= =======
</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
14
<PAGE> 15
carryforward benefits and, therefore, has not recorded any tax benefits
related to fiscal 1998 losses.
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 August 1, 1998 and
August 2, 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.
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 August 1, 1998 ("Second Quarter 1998") and the 13 weeks ended
August 2, 1997 ("Second Quarter 1997"):
<TABLE>
<CAPTION>
August 1, 1998 August 2, 1997
----------------------- -----------------------
(dollars in thousands) $ % $ %
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 572,481 100.0 598,151 100.0
Cost of merchandise sold 424,471 74.1 437,001 73.1
Gross margin 148,010 25.9 161,150 26.9
Selling, general and
administrative expenses 148,256 25.9 162,658 27.2
Interest expense, net 11,018 1.9 10,956 1.8
Loss before reorganization items (11,427) (2.0) (12,464) (2.1)
Net loss (16,109) (2.8) (18,024) (3.0)
</TABLE>
Total sales for Second Quarter 1998 were $572.5 million compared to $598.2
million for Second Quarter 1997, a decrease of approximately $25.7 million, or
4.3%. This decrease was primarily due to the closing of 12 stores since Second
Quarter 1997, partially offset by a 2.0% increase in comparable store sales.
Gross margin as a percentage of sales decreased by 1.0% to 25.9% for Second
Quarter 1998 from 26.9% in Second Quarter 1997. The decrease was primarily due
to increased markdowns as compared to last year and an increase in inventory
shortage.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
decreased to 25.9% in Second Quarter 1998 compared to 27.2% in Second 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 Second 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 Second
Quarter 1997. Average revolving credit borrowings were
16
<PAGE> 17
$243.6 million at a weighted average interest rate of 8.0% in Second Quarter
1998 compared to $208.7 million at 7.2% for Second Quarter 1997. The weighted
average interest rate of the Term Loan was 6.5% in Second Quarter 1998 and
Second Quarter 1997. As a percentage of sales, interest expense, net, for
Second Quarter 1998 was 1.9% compared to 1.8% in Second Quarter 1997.
The Company did not record a tax benefit in Second 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.
Reorganization costs relating to the Chapter 11 proceedings, consisting
primarily of professional fees, were $4.7 million in Second Quarter 1998
compared to $5.6 million in Second Quarter 1997.
17
<PAGE> 18
Results of operations expressed as a percentage of net sales were as follows for
the 26 weeks ended August 1, 1998 ("Year-To-Date 1998") and the 26 weeks ended
August 2, 1997 ("Year-To-Date 1997"):
<TABLE>
<CAPTION>
August 1, 1998 August 2, 1997
------------------------- -------------------------
(dollars in thousands) $ % $ %
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 1,102,054 100.0 1,123,786 100.0
Cost of merchandise sold 814,815 73.9 822,198 73.2
Gross margin 287,239 26.1 301,588 26.8
Selling, general and
administrative expenses 304,800 27.7 322,746 28.7
Interest expense, net 21,497 2.0 21,347 1.9
Loss before reorganization items (39,221) (3.6) (42,505) (3.8)
Net loss (47,073) (4.3) (54,339) (4.8)
</TABLE>
Total sales for Year-To-Date 1998 were $1,102.1 million compared to $1,123.8
million for Year-To-Date 1997, a decrease of approximately $21.7 million, or
1.9%. This decrease was primarily due to the closing of 16 stores since the
first quarter of 1997, partially offset by a 3.1% increase in comparable store
sales.
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 the first quarter of 1998, the Price Cut
Program was extended to selected items in domestics and toys. 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 Year-To-Date 1998 decreased by 0.7% to
26.1% from 26.8% for Year-To-Date 1997. The decrease was primarily due to an
increase in inventory shortage and a shift in sales mix to lower margin items,
partially offset by reduced markdowns in the first quarter of 1998 as compared
to the first quarter of 1997.
Selling, general and administrative expenses ("SG&A") as a percentage of sales
decreased to 27.7% for Year-To-Date 1998 compared to 28.7% for Year-To-Date 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 Year-To-Date 1998 increased by $0.2 million primarily
due to an increase in average revolving credit borrowings and an increase in the
related weighted average interest rates as compared to Year-To-Date 1997.
Average revolving credit borrowings were $233.4 million at a weighted average
interest rate of 7.7% for Year-To-Date 1998 compared to $201.8 million at 6.9%
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,
interest expense, net, 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.
18
<PAGE> 19
Reorganization costs relating to the Chapter 11 proceedings were $7.9 million
for Year-To-Date 1998, consisting primarily of professional fees, compared to
$11.8 million for Year-To-Date 1997.
FINANCIAL CONDITION
The Company's working capital as of August 1, 1998 decreased by $41.6 million
from January 31, 1998. Accounts payable increased by $19.5 million principally
due to seasonal increases in inventory. Accrued expenses decreased by $11.0
million primarily due to payments made against certain accruals established at
fiscal year-end 1997. Borrowings under the DIP Facility increased $18.3 million
primarily due to the net loss of $47.1 million for Year-To-Date 1998, the
decrease in accrued expenses, reorganization item payments of $13.1 million and
capital expenditures of $10.1 million.
Net cash used in operating activities for Year-To-Date 1998 was $0.4 million.
This use of cash for operating activities was primarily due to the Company's net
loss of $47.1 million, the $11.0 million decrease in accrued expenses and
reorganization item payments of $13.1 million, partially offset by liquidation
of assets held for disposal of $24.1 million, through closing sales for the
Under-Performing Stores and the $19.5 million increase in accounts payable.
For Year-To-Date 1998, capital expenditures were $10.1 million compared to $7.8
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.
Desktop workstations and major applications that run on them are being
inventoried. The Company is in the process of upgrading this equipment and
expects to complete the process by the end of 1999. The Company is performing
preliminary testing on the business application systems being remediated.
The Company has identified and prioritized most of its external suppliers of
goods and services and has sent questionnaires to most of 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 Contingency Plan will be
based in part on the results of the External Business Partner Program and is
expected to be completed by the end of the 1998 fiscal year.
19
<PAGE> 20
The Company currently estimates total expenditures to be approximately $7
million for modification and remediation of existing software, of which $1.6
million had been incurred as of August 1, 1998. The Company estimates that 10%
of its management information systems budget for fiscal year 1998 will be
applied to the Year 2000 Program. 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. 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 (such as electrical,
telecommunication or transportation companies) 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 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 (EBITDAR for the fiscal
year ended January 31, 1998 was $53.7 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 August 1, 1998, the New DIP Facility
Borrowing Base was $394.7 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
20
<PAGE> 21
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 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 security interests
in 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 August 1, 1998, the outstanding borrowings under the New DIP Facility were
$206.0 million and open letters of credit were $84.7 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 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 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 statement on its financial statements.
21
<PAGE> 22
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 staements 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: September 15, 1998 By: /s/ Warren D. Feldberg
----------------------- ------------------------------------------
Warren D. Feldberg
Chairman, Chief Executive Officer and
Director
Date: September 15, 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
September 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 August 1, 1998 and August 2, 1997, as indicated
in our report dated September 14, 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 August 1, 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
<MULTIPLIER> 1,000<F1>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> AUG-01-1998
<CASH> 23,067
<SECURITIES> 0
<RECEIVABLES> 7,823
<ALLOWANCES> 0
<INVENTORY> 425,700
<CURRENT-ASSETS> 484,284
<PP&E> 655,793
<DEPRECIATION> (234,335)
<TOTAL-ASSETS> 916,962
<CURRENT-LIABILITIES> 480,923
<BONDS> 270,106
0
0
<COMMON> 169
<OTHER-SE> (329,687)
<TOTAL-LIABILITY-AND-EQUITY> 916,962
<SALES> 1,102,054
<TOTAL-REVENUES> 1,102,054
<CGS> 814,815
<TOTAL-COSTS> 814,815
<OTHER-EXPENSES> 312,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,497
<INCOME-PRETAX> (47,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,073)
<EPS-PRIMARY> (2.78)
<EPS-DILUTED> (2.78)
<FN>
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS.
</FN>
</TABLE>
