<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended November 1, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-69532
BRYLANE, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 35-1895382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
BRYLANE CAPITAL CORP.
(Exact name of co-registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4439747
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
463 Seventh Avenue
New York, NY 10018
(Address of principal executive offices)
Registrant's telephone number, including area code:
(212) 613-9500
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 the registrant's common stock outstanding: Not
Applicable.
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<PAGE>
BRYLANE, L.P.
BRYLANE CAPITAL CORP.
FORM 10-Q
For the Quarterly Period Ended
November 1, 1997
<TABLE>
<CAPTION>
INDEX Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
a) Report of Independent Accountants 3
b) Consolidated Balance Sheets
February 1, 1997 and November 1, 1997 (unaudited) 4
c) Consolidated Statements of Income (unaudited)
Thirteen weeks ended November 2, 1996 and November 1, 1997 and
thirty-nine weeks ended November 2, 1996 and November 1, 1997 5
d) Consolidated Statements of Cash Flows (unaudited)
Thirty-nine weeks ended November 2, 1996 and November 1, 1997 6
e) Consolidated Statements of Partnership Equity
February 3, 1996, February 1, 1997 and thirty-nine weeks
ended November 1, 1997 (unaudited) 7
f) Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
</TABLE>
Page 2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Representatives of
Brylane, L.P.
We have reviewed the accompanying consolidated balance sheet of Brylane, L.P. as
of November 1, 1997 and the related consolidated statements of income for the
thirteen and thirty-nine weeks then ended and the consolidated statement of cash
flows for the thirty-nine weeks then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review 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 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 review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Indianapolis, Indiana
November 17, 1997
Page 3
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM 1. - FINANCIAL STATEMENTS
- ------------------------------
BRYLANE, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
February 1, November 1,
1997 1997
ASSETS ------------ -----------
------ (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $ 3,285 $ 21,850
Accounts receivable, deferred billing (net of allowance for doubtful
accounts of $1,975 and $3,071, respectively)........................... 22,750 31,208
Accounts receivable, other............................................... 32,107 8,592
Inventories.............................................................. 168,821 208,301
Paper inventory.......................................................... 9,790 18,470
Catalog costs............................................................ 31,222 43,381
Other.................................................................... 6,252 5,281
---------- ----------
TOTAL CURRENT ASSETS................................................. 274,227 337,083
Property and equipment, net................................................ 75,970 76,478
Organization and deferred financing costs.................................. 11,114 4,974
Intangibles and other assets............................................... 343,243 331,393
Deferred offering costs.................................................... 680 -
---------- ----------
TOTAL ASSETS......................................................... $ 705,234 $ 749,928
========== ==========
LIABILITIES AND EQUITY
----------------------
CURRENT LIABILITIES:
Accounts payable......................................................... $ 93,928 $ 149,492
Accrued interest......................................................... 8,612 2,735
Accrued expenses......................................................... 45,356 65,555
Reserve for returns...................................................... 18,603 26,268
Short term debt.......................................................... - 20,000
Current portion of long-term debt........................................ 26,000 7,500
---------- -----------
TOTAL CURRENT LIABILITIES............................................ 192,499 271,550
Long-term debt............................................................. 401,362 342,229
Other long-term liabilities................................................ 6,010 8,336
---------- ----------
TOTAL LIABILITIES.................................................... 599,871 622,115
Convertible redeemable preferred stock of Brylane Inc...................... 1,500 1,500
Partnership equity:
General partner.......................................................... 25,625 25,625
Limited partners......................................................... 159,855 142,571
Reduction for predecessor cost - carryover basis......................... (152,067) (152,067)
Loans to management investors............................................ (2,490) (1,525)
Retained earnings........................................................ 72,940 111,709
---------- ----------
Total partnership equity........................................... 103,863 126,313
---------- ----------
TOTAL LIABILITIES AND EQUITY......................................... $ 705,234 $ 749,928
========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Page 4
<PAGE>
BRYLANE, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------- --------------------------
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . $ 158,384 $ 365,454 $ 467,009 $ 968,911
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,810 185,536 225,708 498,822
----------- ----------- ----------- ----------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,574 179,918 241,301 470,089
Operating expenses:
Catalog and advertising . . . . . . . . . . . . . . . . .. . . . . . . . 46,402 90,118 135,390 227,997
Fulfillment . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 10,677 31,193 29,057 87,608
Support services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,294 22,742 32,995 66,492
Intangibles and organization cost amortization . . . . . . . . . . . . . 1,411 2,684 4,229 8,150
----------- ----------- ----------- ----------
Total operating expenses . . . . . . . . . . . . . . . . .. . . . . . . . 69,784 146,737 201,671 390,247
----------- ----------- ----------- ----------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,790 33,181 39,630 79,842
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409 6,427 16,200 20,112
----------- ----------- ----------- ----------
Income before income taxes
and extraordinary charge. . . . . . . . . . . . . . . . .. . . . . . . . 7,381 26,754 23,430 59,730
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . 68 40 125 127
----------- ----------- ----------- ----------
Income before extraordinary charge. . . . . . . . . . . . .. . . . . . . . 7,313 26,714 23,305 59,603
Extraordinary charge related to early
retirement of debt. . . . . . . . . . . . . . . . . . . .. . . . . . . . -- -- -- 6,524
----------- ----------- ----------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,313 $ 26,714 $ 23,305 $ 53,079
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Page 5
<PAGE>
BRYLANE, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
-----------------------------
November 2, November 1,
1996 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................................$ 23,305 $ 53,079
Impact of other operating activities on cash flows:
Depreciation.................................................. 3,046 7,617
Non-recurring inventory charge................................ -- 3,315
Extraordinary charge related to early retirement of debt...... -- 6,524
Non-cash compensation expense................................. -- 523
Amortization:
Intangibles and organization costs.......................... 4,229 8,150
Deferred financing costs (included in interest expense)..... 1,102 965
Discount on notes (included in interest expense)............ 73 72
Changes in operating assets and liabilities:
Accounts receivable......................................... (5,735) (13,747)
Inventories................................................. (16,660) (42,795)
Catalog costs and paper inventory........................... 1,176 (20,839)
Accounts payable and accrued expenses....................... 16,605 75,763
Accrued interest............................................ (3,889) (5,877)
Other assets and liabilities................................ 1,104 12,805
--------- ---------
Net cash provided by operating activities......................... 24,356 85,555
--------- ---------
INVESTING ACTIVITIES:
Capital expenditures............................................ (3,159) (10,319)
Purchase price adjustment related to Chadwick's Acquisition..... -- 32,888
--------- ---------
Net cash provided by (used in) investing activities............... (3,159) 22,569
--------- ---------
FINANCING ACTIVITIES:
Payments on 1996 and 1997 bank credit facilities................ (10,121) (514,662)
Proceeds from issuance of 1997 Bank Credit Facilities........... -- 416,663
Borrowings on revolver.......................................... -- 50,000
Proceeds from initial public offering of Brylane Inc............ -- 96,000
Offering fees and expenses related to Brylane Inc............... -- (8,170)
Debt issuance fees and expenses................................. -- (1,394)
Tax distributions to partners................................... (7,963) (14,310)
Proceeds from the sale, net of repurchase, of partnership
interests, net of management notes............................ 77 --
Proceeds received from the repayment of management notes........ -- 965
Proceeds received from the exercise of stock options............ -- 349
Purchase of treasury stock...................................... -- (115,000)
--------- ---------
Net cash used in financing activities............................. (18,007) (89,559)
--------- ---------
Cash and cash equivalents, at beginning of year................... 7,469 3,285
--------- ---------
Cash and cash equivalents, at end of period.......................$ 10,659 $ 21,850
========== ==========
Supplemental disclosure of cash flow information:
Interest paid...................................................$ 19,285 $ 26,807
========== ==========
Conversion of note into shares of common stock..................$ -- $ 9,705
========== ==========
</TABLE>
Income taxes paid during each of the periods presented were not material.
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Page 6
<PAGE>
BRYLANE, L.P.
CONSOLIDATED STATEMENTS OF PARTNERSHIP EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Reduction for
Predecessor
General Partner Limited Partners Cost-
--------------------- ---------------------- Carryover
Units Amount Units Amount Basis
---------- --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C>
Balance, February 3, 1996.............................. 2,562,500 $25,625 10,340,000 $105,204 $($152,067)
Net income.......................................... - - - - -
Sale of units....................................... - - 2,573,945 51,441 -
Repurchase of units................................. - - (5,000) (60) -
Exchange of stock options........................... - - - 3,270 -
Tax distributions payable to partners............... - - - - -
---------- --------- ---------- --------- ----------
Balance, February 1, 1997.............................. 2,562,500 25,625 12,908,945 159,855 (152,067)
Net income.......................................... - - - - -
Proceeds from initial public offering............... - - - 96,000 -
Initial public offering expenses.................... - - - (8,850) -
Purchase of treasury stock.......................... - - - (115,000) -
Exchange of stock options........................... - - - 528 -
Repayment of management notes....................... - - - - -
Conversion of convertible note...................... - - - 9,705 -
Exercise of stock options........................... - - - 349 -
Distributions to partners........................... - - - (16) -
Tax distributions payable to partners............... - - - - -
---------- --------- ---------- --------- ----------
Balance November 1, 1997(unaudited)................... 2,562,500 $25,625 12,908,945 $142,571 ($152,067)
========== ========= ========== ======== ===========
<CAPTION>
Loans to
Managment Retained
Investors Earnings Total
----------- ----------- -------
<S> <C> <C> <C>
Balance, February 3, 1996.............................. $(2,515) $50,940 $27,187
Net income.......................................... - 26,952 26,952
Sale of units....................................... 25 - 51,466
Repurchase of units................................. - - (60)
Exchange of stock options........................... - - 3,270
Tax distributions payable to partners............... - (4,952) (4,952)
----------- ----------- --------
Balance, February 1, 1997.............................. (2,490) 72,940 103,863
Net income.......................................... - 53,079 53,079
Proceeds from initial public offering............... - - 96,000
Initial public offering expenses.................... - - (8,850)
Purchase of treasury stock.......................... - - (115,000)
Exchange of stock options........................... - - 528
Repayment of management notes....................... 965 - 965
Conversion of convertible note...................... - - 9,705
Exercise of stock options........................... - - 349
Distributions to partners........................... - - (16)
Tax distributions payable to partners............... - (14,310) (14,310)
----------- ----------- --------
Balance November 1, 1997(unaudited).................... ($1,525) $111,709 $126,313
=========== =========== ========
</TABLE>
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Page 7
<PAGE>
BRYLANE, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS:
Brylane, L.P., a Delaware limited partnership ("Brylane" or the "Partnership"
or the "Company") is a leading catalog retailer of value-priced apparel, with a
focused portfolio of catalogs that includes Lane Bryant, Roaman's, Jessica
London and KingSize serving the special size market, and Chadwick's of Boston,
Lerner, Bridgewater, Sue Brett, and Brett, serving the regular-size apparel
market. Brylane also markets certain of its catalogs under the "Sears" name to
customers of Sears, Roebuck and Co. under an exclusive licensing arrangement
with Sears Shop at Home Services, Inc.
Brylane's merchandising strategy is to provide value-priced, private label
and branded apparel with a consistent quality and fit, to concentrate on apparel
with limited fashion risk, and to offer a broader selection of sizes, styles and
colors than can be found at most retail stores and in other competing catalogs.
Each of Brylane's catalogs offers its customers basic, traditional and classic
apparel.
(2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
On February 26, 1997, in connection with the initial public offering of
Brylane Inc. ("Initial Public Offering"), Brylane, L.P. became a wholly-owned
subsidiary of Brylane Inc. pursuant to the First Amended and Restated
Incorporation and Exchange Agreement (the "Exchange Agreement"), whereby
certain affiliates of Freeman Spogli & Co. ("FS&Co."), certain affiliates of The
Limited, Inc. ("The Limited"), WearGuard Corporation ("WearGuard"), Leeway &
Co., and NYNEX exchanged their shares of common stock of VP Holding Corporation
or ownership interests in the Partnership, except for the TJX noteholder ("TJX
Noteholder"), for 14,926,778 shares of $.01 par value common stock ("Common
Stock") of Brylane Inc. (the "Exchange Transaction"). Additionally, pursuant to
their respective stock subscription agreements with VP Holding Corporation,
members of management and others exchanged their shares of common stock of VP
Holding Corporation for an aggregate of 544,667 shares of Common Stock of
Brylane Inc. In connection with the Exchange Transaction, Brylane, L.P. retained
all of its assets, operations and liabilities.
On February 26, 1997, Brylane Inc. offered 4,000,000 shares of Common Stock
to the public through its Initial Public Offering. Brylane Inc. is a registrant
pursuant to Section 12 of the Exchange Act and is thereby required to provide
continuous financial reporting to its stockholders. As discussed above, Brylane
Inc. does not maintain any separate assets, operations or liabilities, except
for assets and liabilities related to the income taxes of Brylane Inc., as all
activities are conducted within Brylane, L.P.
On October 20, 1997, Brylane Inc. completed the public offering of 5,000,000
shares of its Common Stock on behalf of certain stockholders (the "Secondary
Offering"). The Company did not receive any proceeds from the offering.
Concurrent therewith, Brylane Inc. repurchased from these same stockholders
2,500,000 shares of Common Stock at the offering price (the "Common Stock
Repurchase"). In connection with the repurchase, the Company amended its 1997
Bank Credit Facility and borrowed approximately $116.0 million thereunder (see
note 4).
The consolidated financial statements include the accounts of Brylane and its
wholly-owned subsidiaries and partnerships, including Brylane Capital Corp.,
B.L. Management Services, Inc., B.L. Catalog Distribution, Inc., B.L. Management
Services Partnership, B.L. Catalog Distribution Partnership, B.N.Y. Service
Corp., K.S. Management Services, Inc., C.O.B. Management Services, Inc. and
Chadwick's Tradename Sub, Inc. These entities are collectively referred to as
Brylane or the Partnership. The effect of transactions between the consolidated
entities has been eliminated. Each of the wholly-owned subsidiaries and
partnerships has guaranteed Brylane's 10% Senior Subordinated Notes due 2003
(the "Notes"). Separate financial statements of these subsidiary guarantors
have not been included as the subsidiaries guarantee the Notes on a full,
unconditional, and joint and several basis. Management believes that the
aggregate assets, liabilities, earnings, and equity of the subsidiary guarantors
are currently, both on an individual and a combined basis, inconsequential to
Brylane on a consolidated basis, and therefore, that information provided in
separate financial statements of the subsidiary guarantors is not deemed
material to the readers of the financial statements.
Page 8
<PAGE>
BRYLANE, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements included in this Form 10-Q related to
Brylane, L.P. and Brylane Capital Corp. differ in several respects from the
consolidated financial statements contained in the Form 10-Q of Brylane Inc.
(Commission File No. 33-86154). In particular, the consolidated balance sheet
of Brylane Inc. at November 1, 1997 includes deferred income taxes of $17.6
million as part of its total assets and income taxes payable of approximately
$5.9 million as part of its current liabilities. In addition, the consolidated
statement of income of Brylane Inc. for the thirty-nine weeks ended November 1,
1997 includes a provision for income taxes of approximately $22.6 million and an
extraordinary charge related to the early retirement of debt, net of tax, of
approximately $4.1 million, resulting in net income of approximately $33.0
million.
(3) ACQUISITION:
In December 1996, Brylane completed the acquisition of certain assets of the
Chadwick's of Boston catalog division ("Chadwick's") of Chadwick's, Inc., a
wholly-owned subsidiary of The TJX Companies ("TJX") (the "Chadwick's
Acquisition"). Chadwick's is a catalog business devoted to selling off-price
women's career, casual and social apparel. The Chadwick's Acquisition included
the purchase of inventory, property, plant and equipment, customer lists,
trademarks, goodwill and the assumption of certain liabilities relating to the
business by Brylane. In addition, the parties entered into a services agreement,
as well as an inventory purchase agreement pursuant to which TJX has committed
to purchase certain amounts of Chadwick's excess inventory through January 2000.
Brylane paid to TJX $189.8 million (which is net of purchase price
adjustments of $28.8 million received on May 16, 1997 and $4.1 million received
on October 14, 1997) and issued to TJX a $20.0 million Convertible Redeemable
Note due 2006 (approximately $9.7 million of which was converted by TJX into
shares of Common Stock sold by TJX in connection with the Secondary Offering and
Common Stock Repurchase of Brylane Inc.). In order to fund a portion of the cash
paid in connection with the Chadwick's Acquisition and to repay its existing
indebtedness under its 1993 bank credit facility, the Partnership entered into
the 1996 Bank Credit Facility. In addition, the Partnership received an
aggregate of $51.3 million in new equity from certain affiliates of FS&Co.,
Leeway & Co., NYNEX and WearGuard.
(4) LONG-TERM DEBT:
In connection with the Chadwick's Acquisition, the Partnership entered into a
Credit Agreement dated December 9, 1996 among Brylane, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), as administrative agent, Merrill Lynch
Capital Corporation ("Merrill Lynch"), as documentation agent, and the other
lenders party thereto, and guaranteed by each of the Company's subsidiaries (the
"1996 Bank Credit Facility"). The proceeds of the term loans of the 1996 Bank
Credit Facility were used to fund a portion of the cash paid upon the closing of
the Chadwick's Acquisition (including related fees and expenses) as well as to
repay Brylane's then existing indebtedness under its 1993 bank credit facility.
In connection with Brylane Inc.'s Initial Public Offering on February 26, 1997,
and the use of the net proceeds received therefrom and contributed by Brylane
Inc. to the Partnership, the Company repaid $89.3 million of its indebtedness
under the 1996 Bank Credit Facility. In addition, the Company made $10.0
million of prepayments on the 1996 Bank Credit Facility during the thirteen
weeks ended May 3, 1997.
On April 30, 1997, the Partnership entered into a credit agreement among
Brylane, Morgan Guaranty, as administrative agent, Merrill Lynch, as
documentation agent, and the lenders party thereto, and guaranteed by each of
the Company's subsidiaries (the "1997 Bank Credit Facility") which consisted of
(i) a $111.7 million four-year nine-month term loan (the "Tranche A Term Loan"),
(ii) a $70.0 million five-year and ten-month term loan (the "Tranche B Term
Loan", and collectively with the Tranche A Term Loan, the "Term Loans"), and
(iii) a $125.0 million four-year nine-month revolving credit facility (the
"Revolving Credit Facility") with a $75.0 million sublimit for letters of
credit. The proceeds of the Term Loans of the 1997 Bank Credit Facility were
used to repay Brylane's existing indebtedness under the 1996 Bank Credit
Facility. As a result of this transaction, the Company recorded an
extraordinary
Page 9
<PAGE>
BRYLANE, L.P.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
charge for previously capitalized fees associated with the 1996
Bank Credit Facility in its consolidated statement of income for the thirteen
weeks ended May 3, 1997.
The Company made $62.1 million of prepayments on the Tranche A Term Loan of
the 1997 Bank Credit Facility during the thirty-nine weeks ended November 1,
1997. In addition, the Company made $1.8 million of scheduled payments on the
Term Loans of the 1997 Bank Credit Facility during the thirty-nine weeks ended
November 1, 1997.
On October 20, 1997, the Partnership amended the 1997 Bank Credit Facility
among Brylane, Morgan Guaranty, as administrative agent, Merrill Lynch, as
documentation agent, and the lenders party thereto, and guaranteed by each of
the Company's subsidiaries (the "Amended 1997 Bank Credit Facility") which now
consists of (i) a $175.0 million five-year term loan (the "Term Loan") and (ii)
a $200.0 million (subject to a borrowing base limit) five-year revolving credit
facility (the "Revolving Credit Facility") with a $75.0 million sublimit for
letters of credit and a $15.0 million sublimit for swingline loans. The
proceeds of the Term Loan provided funds to repurchase 2.5 million shares of
Brylane Inc.'s Common Stock as well as to repay the Company's existing
indebtedness under the 1997 Bank Credit Facility.
The Revolving Credit Facility can be used for letters of credit and other
general corporate purposes, including working capital needs and permitted
acquisitions, and was also available to provide a portion of the funds necessary
to effect the Common Stock Repurchase of Brylane Inc. The Term Loan requires
scheduled quarterly principal payments over its term. In addition, Brylane is
obligated to make certain mandatory prepayments of the Term Loan and the
Revolving Credit Facility under certain circumstances. Borrowings under the
Term Loan and Revolving Credit Facility bear interest at one of two rates
selected by the Partnership: (i) a margin over the higher of (A) the Prime Rate
and (B) the federal funds rate plus 0.5% or (ii) a margin over LIBOR (as
defined) for specified interest periods. The margin for each rate may vary based
on the ratio of the Partnership's net debt to operating cash flow. The
borrowings under the Term Loan and the Revolving Credit Facility currently bear
interest at LIBOR plus 1.25%. The Term Loan begins amortizing on May 1, 1998;
therefore, no principal payments are scheduled for the remainder of fiscal 1997.
As of November 1, 1997, Brylane had $60.0 million of borrowings under the
Revolving Credit Facility and, after giving effect to the issuance of letters of
credit for $55.9 million which the Company intends to pay through funds
generated from operations, had additional capacity under the Revolving Credit
Facility of approximately $84.1 million.
(5) RECLASSIFICATIONS:
Certain reclassifications have been made to the consolidated statements of
cash flows for the thirty-nine weeks ended November 2, 1996 to conform with the
financial statement presentation adopted for the fiscal year ended February 1,
1997. Such reclassifications had no effect on previously reported net income.
(6) UNAUDITED INTERIM FINANCIAL STATEMENTS:
The financial statements as of and for the thirty-nine weeks ended November
2, 1996 and November 1, 1997 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
the financial statements should be read in conjunction with the financial
statement disclosures contained in Brylane, L.P.'s Form 10-K for the fiscal year
ended February 1, 1997. In the opinion of management, the accompanying financial
statements reflect all adjustments necessary (which are of a normal recurring
nature, unless separately disclosed) to present fairly the financial position
and results of operations and cash flows for the interim periods presented, but
are not necessarily indicative of the results of operations and cash flows for a
full fiscal year.
Page 10
<PAGE>
BRYLANE, L.P.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
As a result of the Chadwick's Acquisition and the application of purchase
accounting related thereto, the Company's gross margin for the thirty-nine weeks
ended November 1, 1997 reflects a non-recurring inventory charge of $3.3 million
related to the write-up of the Chadwick's inventory. In addition, as a result of
the formation of Brylane, L.P. and the related acquisition of the Lane Bryant,
Roaman's and Lerner catalog businesses by certain affiliates of FS&Co. and of
The Limited (the "Brylane Acquisition"), the acquisition by Brylane of the
KingSize catalog division of WearGuard Corporation (the "KingSize Acquisition"),
and the Chadwick's Acquisition and the application of purchase accounting
related thereto, the results of operations for the thirty-nine weeks ended
November 1, 1997 reflect amortization of intangible assets related to the
Brylane Acquisition, the KingSize Acquisition and the Chadwick's Acquisition of
$3.2 million, $1.0 million and $3.9 million, respectively.
The Company's results of operations in the future will continue to reflect the
amortization of intangible assets related to the Brylane Acquisition, the
KingSize Acquisition and the Chadwick's Acquisition of $4.2 million per year,
$1.4 million per year and $5.2 million per year, respectively, and step-up
depreciation associated with the write-up of certain fixed assets in connection
with the Brylane Acquisition of $0.4 million per year. As a result of the
Secondary Offering of Brylane Inc., the termination date of the trademark
agreement between The Limited and Brylane was accelerated to October 20, 2007.
The amortization of intangibles stated above reflects the acceleration of the
trademark amortization.
In connection with certain amendments to options previously granted under the
1993 Option Plan, the Company incurred non-cash compensation expense totaling
$3.1 million of which $2.4 million was expensed in the fourth quarter of fiscal
1996 and the remaining $0.7 million will be expensed equally throughout fiscal
1997.
This Form 10-Q contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933. Such statements are subject to a
number of risks and uncertainties, including among other things, competition,
risks associated with the Sears Agreement, the impact of increases in costs of
postage, paper and printing, control of the Company by FS&Co. and The Limited,
dependence on suppliers, risks generally associated with acquisitions, and risks
related to unionized employees. Actual results in the future could differ
materially from those described in the forward-looking statements as a result of
such risk factors. The Company undertakes no obligation to publicly release the
result of any revisions of these forward-looking statements that may be made to
reflect any future events or circumstances.
The following discussion should be read in conjunction with the financial
statements and related notes thereto which appear elsewhere in this Form 10-Q
and in conjunction with the Annual Report on Form 10-K for Brylane, L.P. as
filed with the Securities and Exchange Commission on May 2, 1997 (File No. 33-
69532).
Page 11
<PAGE>
RESULTS OF OPERATIONS
The following tables set forth certain operating data of Brylane, L.P. for
the periods indicated.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- ------------------------
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
---- ---- ---- ----
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales...................................... $ 158,384 $ 365,454 $ 467,009 $ 968,911
Gross profit................................... 82,574 179,918 241,301 470,089
Operating expenses:
Catalog and advertising................... 46,402 90,118 135,390 227,997
Fulfillment............................... 10,677 31,193 29,057 87,608
Support services.......................... 11,294 22,742 32,995 66,492
Amortization of acquisitions
intangibles and organization costs... 1,411 2,684 4,229 8,150
---------- ---------- ---------- ------------
Operating income............................... 12,790 33,181 39,630 79,842
Add back: Non-recurring inventory
charge(1)............................ -- -- -- 3,315
Add back: Amortization of acquisitions
intangibles and organization costs(2) 1,411 2,684 4,229 8,150
Add back: Non-cash compensation
expense(3)........................... -- 174 -- 523
---------- ---------- ---------- ------------
Operating income before acquisitions related
and non-recurring adjustments......... $ 14,201 $ 36,039 $ 43,859 $ 91,830
========== ========== ========== ============
</TABLE>
The following table sets forth certain operating data of Brylane, L.P.
expressed as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------- ----------------------
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0%
Gross profit................................... 52.1 49.2 51.7 48.5
Operating expenses:
Catalog and advertising................... 29.3 24.7 29.0 23.5
Fulfillment............................... 6.7 8.5 6.2 9.0
Support services.......................... 7.1 6.2 7.1 6.9
Amortization of acquisitions
intangibles and organization costs... 0.9 0.7 0.9 0.8
----- ----- ----- -----
Operating income............................... 8.1 9.1 8.5 8.3
Add back: Non-recurring inventory
charge(1)............................ -- -- -- 0.3
Add back: Amortization of acquisitions
intangibles and organization costs(2) 0.9 0.7 0.9 0.8
Add back: Non-cash compensation
expense(3)........................... -- 0.1 -- 0.1
----- ----- ----- -----
Operating income before acquisitions related
and non-recurring adjustments............ 9.0% 9.9% 9.4% 9.5%
===== ===== ===== =====
</TABLE>
Notes on page 14
Page 12
<PAGE>
The following table sets forth certain historical operating data of Brylane,
L.P. on an unaudited combined basis for the thirteen and thirty-nine weeks ended
November 2, 1996 to include net sales, cost of sales and operating expenses for
Chadwick's as if the Chadwick's Acquisition had occurred on February 4, 1996
(the first day of fiscal 1996). The unaudited combined information is included
for comparative purposes only and is not meant to be indicative of what the
consolidated statements of operations data would have been had the transaction
occurred at February 4, 1996.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
-------------------- -----------------------
Combined Combined
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
---- ---- ---- ----
(in thousands) (in thousands)
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales......................................... $303,803 $365,454 $837,329 $968,911
Gross profit...................................... 150,566 179,918 410,923 470,089
Operating expenses:
Catalog and advertising...................... 77,594 90,118 212,460 227,997
Fulfillment.................................. 22,742 31,193 65,974 87,608
Support services............................. 20,645 22,742 58,571 66,492
Amortization of acquisitions
intangibles and organization costs...... 2,734 2,684 8,198 8,150
-------- -------- -------- --------
Operating income.................................. 26,851 33,181 65,720 79,842
Add back: Non-recurring inventory
charge(1)............................... -- -- -- 3,315
Add back: Amortization of acquisitions
intangibles and organization costs(2)... 2,734 2,684 8,198 8,150
Add back: Non-cash compensation
expense(3).............................. -- 174 -- 523
-------- -------- -------- --------
Operating income before acquisitions related
and non-recurring adjustments............ $ 29,585 $ 36,039 $ 73,918 $ 91,830
======== ======== ======== ========
</TABLE>
The following table expresses the above operating data as a percentage of net
sales for the periods indicated.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
--------------------------- ---------------------------
Combined Combined
November 2, November 1, November 2, November 1,
1996 1997 1996 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales....................................... 100.0% 100.0% 100.0% 100.0%
Gross profit.................................... 49.6 49.2 49.1 48.5
Operating expenses:
Catalog and advertising.................... 25.6 24.7 25.4 23.5
Fulfillment................................ 7.5 8.5 7.9 9.0
Support services........................... 6.8 6.2 7.0 6.9
Amortization of acquisitions
intangibles and organization costs.... 0.9 0.7 1.0 0.8
----- ----- ----- -----
Operating income................................ 8.8 9.1 7.8 8.3
Add back: Non-recurring inventory
charge(1)............................. -- -- -- 0.3
Add back: Amortization of acquisitions
intangibles and organization costs(2). 0.9 0.7 1.0 0.8
Add back: Non-cash compensation
expense(3)............................ -- 0.1 -- 0.1
----- ----- ----- -----
Operating income before acquisitions related
and non-recurring adjustments............. 9.7% 9.9% 8.8% 9.5%
===== ===== ===== =====
</TABLE>
Notes on page 14
Page 13
<PAGE>
- --------------------
(1) The non-recurring inventory charge resulted from increasing inventory by
$4,972,000 for the Chadwick's Acquisition to reflect the fair market value of
the inventory at December 9, 1996, the closing date of the Chadwick's
Acquisition. The increase in inventory value related to the Chadwick's
Acquisition was amortized into cost of goods sold in the amount of $1,657,000 in
fiscal 1996 and $3,315,000 in the thirty-nine weeks ended November 1, 1997.
(2) Represents amortization of goodwill and other intangible assets related to
the Brylane Acquisition of $125,450,000 over a 30-year composite life and of
organizational costs of $300,000 over five years and subsequent to October 4,
1997, includes amortization of the remaining trademark of $7,578,000 over a ten-
year life. Subsequent to October 1, 1995, includes amortization related to the
KingSize Acquisition of goodwill of $50,762,000 over a 40-year life, of customer
file of $520,000 over an eight-year life, and of a noncompetition agreement of
$300,000 over a five-year life. Subsequent to December 9, 1996, includes
amortization related to the Chadwick's Acquisition of goodwill of $175,715,000
over a 40-year life, and of customer file of $4,020,000 over a five-year life.
(3) Represents non-cash compensation expense related to amendments to options
granted under the Brylane, L.P. 1993 Partnership Unit Option Plan.
THIRTEEN WEEKS ENDED NOVEMBER 1, 1997 COMPARED TO THIRTEEN WEEKS ENDED NOVEMBER
2, 1996
NET SALES:
Net sales as reported for the thirteen weeks ended November 1, 1997 increased
to $365.5 million from $158.4 million in the comparable period of fiscal 1996.
The increase in net sales came principally from the inclusion of the net sales
of the recently acquired Chadwick's of Boston catalog and also from the
Company's other catalog titles.
Net sales on a combined basis including Chadwick's for the thirteen weeks
ended November 2, 1996, increased 20.3% to $365.5 million from $303.8 million.
Such sales gain was due to an increase in circulation as well as an increase in
the average order size across all businesses as compared to the comparable
period in fiscal 1996.
GROSS PROFIT:
Gross profit for the thirteen weeks ended November 1, 1997 increased to $179.9
million (49.2% of net sales) from $82.6 million (52.1% of net sales) for the
same period of fiscal 1996. The lower gross profit margin as a percent of net
sales is due to the inclusion of the Chadwick's catalogs with lower initial
mark-ups on merchandise sold as compared to the Company's other catalog titles.
Gross profit on a combined basis including Chadwick's for the thirteen weeks
ended November 2, 1996, increased to $179.9 million (49.2% of net sales) from
$150.6 million (49.6% of net sales). The gross profit margin as a percent of
net sales decreased 0.4% due to higher planned pricing incentives.
CATALOG AND ADVERTISING EXPENSE:
Catalog and advertising expense is comprised of the costs to produce and
distribute catalogs, primarily paper, printing and catalog mailing costs, and
the cost of acquiring names of prospective customers. For the thirteen weeks
ended November 1, 1997, catalog and advertising expense increased to $90.1
million (24.7% of net sales) from $46.4 million (29.3% of net sales) for the
same period of fiscal 1996. The decrease on a percent of net sales basis was
primarily due to the inclusion of the Chadwick's catalog and its associated
catalog and advertising expense and net sales.
Catalog and advertising expense on a combined basis including Chadwick's for
the thirteen weeks ended November 2, 1996, decreased on a percent of net sales
basis to 24.7% ($90.1 million) in 1997 from 25.6% ($77.6 million) in 1996. This
decrease on a percent of net sales basis is primarily due to the renegotiation
of certain printing contracts.
Page 14
<PAGE>
FULFILLMENT EXPENSE:
Fulfillment expense includes distribution center, telemarketing, credit
services and customer service expenses, partially offset by net merchandise
postage income. For the thirteen weeks ended November 1, 1997, fulfillment
expense as reported increased to $31.2 million (8.5% of net sales) from $10.7
million (6.7% of net sales) for the same period in fiscal 1996. The increase on
a percent of net sales basis was primarily due to increased fulfillment costs
associated with the inclusion of Chadwick's.
Fulfillment expense on a combined basis including Chadwick's for the thirteen
weeks ended November 2, 1996, increased on a percent of net sales basis to 8.5%
($31.2 million) in 1997 from 7.5% ($22.7 million) in 1996. This increase on a
percent of net sales basis was primarily due to increased payroll in
distribution, telemarketing and other areas to meet increased customer demand
and to ensure a high level of customer service, as well as increased shipping
promotions.
SUPPORT SERVICES EXPENSE:
Support services expense includes staffing and other administrative overhead
costs associated with the operation of the business and the license fees
associated with the Company's agreements with Sears Shop At Home. Support
services expense as reported for the thirteen weeks ended November 1, 1997
increased to $22.8 million (6.2% of net sales) from $11.3 million (7.1% of net
sales) for the same period in fiscal 1996. The decrease on a percent of net
sales basis was primarily due to the inclusion of Chadwick's and its associated
overhead costs and net sales.
Support services expense on a combined basis including Chadwick's for the
thirteen weeks ended November 2, 1996, decreased as a percent of net sales to
6.2% ($22.8 million) in 1997 from 6.8% ($20.6 million) in 1996. This decrease in
support services expense as a percent of net sales is primarily due to expense
management as well as the leveraging resulting from strong sales performance.
AMORTIZATION EXPENSE:
Acquisition related intangibles and organization cost amortization expense in
the thirteen weeks ended November 1, 1997 included $1.1 million related to the
Brylane Acquisition, $0.3 million related to the KingSize Acquisition and $1.3
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense in the thirteen weeks ended November
2, 1996 included $1.1 million related to the Brylane Acquisition and $0.3
million related to the KingSize Acquisition.
OPERATING INCOME:
Operating income before acquisition-related and non-recurring adjustments for
the thirteen weeks ended November 1, 1997 increased to $36.0 million (9.9% of
net sales) from $14.2 million (9.0% of net sales) for the same period of fiscal
1996. As a percent of net sales, operating income increased primarily as a
result of the decrease in catalog and advertising and support services expenses,
partially offset by the increase in fulfillment expense, as described above.
Operating income before acquisition-related and non-recurring adjustments on
a combined basis including Chadwick's for the thirteen weeks ended November 2,
1996, increased to $36.0 million (9.9% of net sales) in 1997 from $29.6 million
(9.7% of net sales) in 1996. As a percent of net sales, operating income
increased primarily as a result of the decrease in catalog and advertising and
support services expenses, partially offset by the increase in fulfillment
expense, as discussed above.
Page 15
<PAGE>
INTEREST EXPENSE:
Interest expense, net, in the thirteen weeks ended November 1, 1997 increased
to $6.4 million (1.8% of net sales) from $5.4 million (3.4% of net sales) for
the same period of fiscal 1996 due to the increased borrowings of $210.0 million
incurred in connection with the Chadwick's Acquisition, offset by the prepayment
of debt from the proceeds of the Initial Public Offering of Brylane Inc. which
was contributed to the Partnership and other prepayments on the 1997 Bank Credit
Facility and lower interest rates on the term loans of the 1997 Bank Credit
Facility and the term loan of the Amended 1997 Bank Credit Facility.
THIRTY-NINE WEEKS ENDED NOVEMBER 1, 1997 COMPARED TO THIRTY-NINE WEEKS ENDED
NOVEMBER 2, 1996
NET SALES:
Net sales as reported for the thirty-nine weeks ended November 1,1997
increased to $968.9 million from $467.0 million in the comparable period of
fiscal 1996. The increase in net sales came principally from the inclusion of
the net sales of the recently acquired Chadwick's of Boston catalog and also
from the Company's other catalog titles.
Net sales on a combined basis including Chadwick's for the thirty-nine weeks
ended November 2, 1996, increased 15.7% to $968.9 million from $837.3 million.
Such sales gain was due, primarily, to an increase in circulation and in an
increase in the average order size across all businesses as compared to the
comparable period in fiscal 1996.
GROSS PROFIT:
Gross profit for the thirty-nine weeks ended November 1, 1997 increased to
$470.1 million (48.5% of net sales) from $241.3 million (51.7% of net sales) for
the same period of fiscal 1996. The lower gross profit margin as a percent of
net sales is due to the inclusion of the Chadwick's catalogs with lower initial
mark-ups on merchandise sold as compared to the Company's other catalog titles,
as well as to a non-recurring inventory charge of $3.3 million (0.3% of net
sales) relating to the step-up of the value of inventory in connection with the
Chadwick's Acquisition.
Gross profit on a combined basis including Chadwick's for the thirty-nine
weeks ended November 2, 1996 and eliminating the effects of the non-recurring
inventory charge in the thirty-nine weeks ended November 1, 1997, increased to
$473.4 million (48.9% of net sales) from $410.9 million (49.1% of net sales).
The gross profit margin as a percent of net sales decreased 0.2% due to higher
planned pricing incentives.
CATALOG AND ADVERTISING EXPENSE:
For the thirty-nine weeks ended November 1, 1997, catalog and advertising
expense increased to $228.0 million (23.5% of net sales) from $135.4 million
(29.0% of net sales) for the same period of fiscal 1996. The decrease on a
percent of net sales basis was primarily due to the inclusion of the Chadwick's
catalog and its associated catalog and advertising expense and net sales.
Catalog and advertising expense on a combined basis including Chadwick's for
the thirty-nine weeks ended November 2, 1996, decreased on a percent of net
sales basis to 23.5% ($228.0 million) in 1997 from 25.4% ($212.5 million) in
1996. This decrease on a percent of net sales basis is primarily due to the
renegotiation of certain printing contracts and an increase in the sales
productivity per catalog.
Page 16
<PAGE>
FULFILLMENT EXPENSE:
Fulfillment expense as reported in the thirty-nine weeks ended November 1,
1997 increased to $87.6 million (9.0% of net sales) from $29.1 million (6.2% of
net sales) for the same period in fiscal 1996. The increase on a percent of net
sales basis was primarily due to increased fulfillment costs associated with the
inclusion of Chadwick's.
Fulfillment expense on a combined basis including Chadwick's for the thirty-
nine weeks ended November 2, 1996, increased on a percent of net sales basis to
9.0% ($87.6 million) in 1997 from 7.9% ($66.0 million) in 1996. This increase on
a percent of net sales basis was primarily due to increased payroll in
distribution, telemarketing and other areas to meet increased customer demand
and to ensure a high level of customer service, as well as increased shipping
promotions.
SUPPORT SERVICES EXPENSE:
Support services expense as reported for the thirty-nine weeks ended November
1, 1997 increased to $66.5 million (6.9% of net sales) from $33.0 million (7.1%
of net sales) for the same period in fiscal 1996. The decrease on a percent of
net sales basis was primarily due to the inclusion of Chadwick's and its
associated overhead costs and net sales.
Support services expense on a combined basis including Chadwick's for the
thirty-nine weeks ended November 2, 1996, decreased as a percent of net sales
to 6.9% ($66.5 million) in 1997 from 7.0% ($58.6 million) in 1996.
AMORTIZATION EXPENSE:
Acquisition related intangibles and organization cost amortization expense in
the thirty-nine weeks ended November 1, 1997 included $3.2 million related to
the Brylane Acquisition, $1.0 million related to the KingSize Acquisition and
$3.9 million related to the Chadwick's Acquisition. Acquisition related
intangibles and organization cost amortization expense in the thirty-nine weeks
ended November 2, 1996 included $3.2 million related to the Brylane Acquisition
and $1.0 million related to the KingSize Acquisition.
OPERATING INCOME:
Operating income before acquisition-related and non-recurring adjustments in
the thirty-nine weeks ended November 1, 1997 increased to $91.8 million (9.5%
of net sales) from $43.9 million (9.4% of net sales) for the same period of
fiscal 1996. As a percent of net sales, operating income increased primarily as
a result of the decrease in catalog and advertising and support service
expenses, partially offset by the increase in fulfillment expense, as described
above.
Operating income before acquisition-related and non-recurring adjustments on
a combined basis including Chadwick's for the thirty-nine weeks ended November
2, 1996, increased to $91.8 million (9.5% of net sales) in 1997 from $73.9
million (8.8% of net sales) in 1996. As a percent of net sales, operating
income increased primarily as a result of the decrease in catalog and
advertising and support services expenses, partially offset by the increase in
fulfillment expense, as described above.
INTEREST EXPENSE:
Interest expense, net, in the thirty-nine weeks ended November 1, 1997
increased to $20.1 million (2.1% of net sales) from $16.2 million (3.5% of net
sales) for the same period of fiscal 1996 due to the increased borrowings of
$210.0 million incurred in connection with the Chadwick's Acquisition, offset by
the prepayment of debt from the proceeds of the Initial Public Offering of
Brylane Inc. which was contributed to the Partnership and other prepayments on
the 1997 Bank Credit Facility and lower interest rates on the term loans of the
1997 Bank Credit Facility and the term loan of the Amended 1997 Bank Credit
Facility.
Page 17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company has historically met its working capital needs, principally
building inventory to meet increased sales, and its capital expenditure
requirements primarily through funds generated from operations. The Company's
liquidity requirements have also included servicing the debt incurred to
finance various acquisitions and also includes servicing the debt incurred to
finance the Common Stock Repurchase of Brylane Inc.
Cash flow provided by operating activities increased to $71.2 million for the
thirty-nine weeks ended November 1, 1997, from $24.4 million for the thirty-nine
weeks ended November 2, 1996. This increase was due primarily to an increase
in net income, before non-cash related expenses, of $60.1 million for the
thirty-nine weeks ended November 1, 1997 compared to $31.8 million in the
thirty-nine weeks ended November 2, 1996. During the thirty-nine weeks ended
November 1, 1997, the Company used the proceeds from the Initial Public Offering
of Brylane Inc. to prepay a portion of its outstanding indebtedness by $89.3
million, and used cash from operations and the proceeds from a preliminary
purchase price adjustment to further reduce its outstanding indebtedness by
$73.9 million (which included prepayments of $10.0 million on the 1996 Bank
Credit Facility and $62.1 million on the 1997 Bank Credit Facility), as well as
to effect $10.3 million in capital expenditures as discussed further below. In
addition, in the thirty-nine weeks ended November 1, 1997, the Company borrowed
$50.0 million on its Revolving Credit Facility in order to satisfy its short-
term working capital needs all of which was repaid by November 1, 1997.
Capital expenditures were $10.3 million in the thirty-nine weeks ended
November 1, 1997 compared to $3.2 million in the same period in fiscal 1996. The
increase is primarily due to the capital expenditures related to Chadwick's
which was acquired in December 1996. The Company's capital expenditures for the
remainder of fiscal 1997 are estimated to be $2.2 million. Brylane plans to fund
its capital expenditures for the remainder of fiscal 1997 using cash generated
from operations.
In connection with the Chadwick's acquisition, in December 1996 the
Partnership entered into a $408 million credit facility (the "1996 Bank Credit
Facility"). The proceeds of the 1996 Bank Credit Facility were used to fund a
portion of the cash paid upon the closing of the Chadwick's Acquisition
(including related fees and expenses) as well as to repay Brylane's then
existing indebtedness under its 1993 bank credit facility. In connection with
Brylane Inc.'s Initial Public Offering on February 26, 1997, and the use of the
net proceeds received therefrom, the Company prepaid $89.3 million of its
indebtedness under the 1996 Bank Credit Facility. Subsequently, the Company made
an additional $10.0 million of prepayments on the 1996 Bank Credit Facility
prior to April 30, 1997.
On April 30, 1997, the Partnership entered into a credit agreement among
Brylane, Morgan Guaranty, as administrative agent, Merrill Lynch, as
documentation agent, and the lenders party thereto, and guaranteed by each of
the Company's subsidiaries (the "1997 Bank Credit Facility") which consisted of
(i) a $111.7 million four-year nine-month term loan (the "Tranche A Term Loan"),
(ii) a $70.0 million five-year and ten-month term loan (the "Tranche B Term
Loan", and collectively with the Tranche A Term Loan, the "Term Loans"), and
(iii) a $125.0 million four-year nine-month revolving credit facility with a
$75.0 million sublimit for letters of credit. The proceeds of the Term Loans of
the 1997 Bank Credit Facility were used to repay Brylane's existing indebtedness
under the 1996 Bank Credit Facility.
The Company prepaid $62.1 million on the Tranche A Term Loan of the 1997 Bank
Credit Facility during the twenty-six weeks ended August 2, 1997. In addition,
the Company made $1.8 million of scheduled payments on the Term Loans of the
1997 Bank Credit Facility during the twenty-six weeks ended August 2, 1997.
To finance the Common Stock Repurchase of Brylane Inc., on October 20, 1997,
the Partnership amended the 1997 Bank Credit Facility among Brylane, Morgan
Guaranty, as administrative agent, Merrill Lynch, as documentation agent, and
the lenders party thereto, and guaranteed by each of the Company's subsidiaries,
which now consists of (i) the $175.0 million five-year Term Loan and (ii) the
$200.0 million (subject to a borrowing base limit) five-year Revolving Credit
Facility with a $75.0 million sublimit for letters of credit and a $15.0 million
sublimit for swingline loans. The Term Loan provided
Page 18
<PAGE>
funds to repurchase 2.5 million shares of Brylane Inc.'s Common Stock as well as
to repay the Company's existing indebtedness under the 1997 Bank Credit
Facility.
The Revolving Credit Facility can be used for letters of credit and other
general corporate purposes, including working capital needs and permitted
acquisitions, and was also available to provide a portion of the funds necessary
to effect the Common Stock Repurchase of Brylane Inc. The Term Loan requires
scheduled quarterly principal payments over its term. In addition, Brylane is
obligated to make certain mandatory prepayments of the Term Loan and the
Revolving Credit Facility under certain circumstances. Borrowings under the
Term Loan and Revolving Credit Facility bear interest at one of two rates
selected by the Partnership: (i) a margin over the higher of (A) the Prime Rate
and (B) the federal funds rate plus 0.5% or (ii) a margin over LIBOR (as
defined) for specified interest periods. The margin for each rate may vary
based on the ratio of the Partnership's net debt to operating cash flow . The
borrowings under the Revolving Credit Facility and the Term Loan currently bear
interest at LIBOR plus 1.25%. The Term Loan begins amortizing on May 1, 1998;
therefore, no principal payments are scheduled for the remainder of fiscal 1997.
However, scheduled principal payments on the Term Loan of the Amended 1997 Bank
Credit Facility will aggregate approximately $10.0 million in fiscal 1998.
As of November 1, 1997, Brylane had $60.0 million of borrowings under the
Revolving Credit Facility and, after giving effect to the issuance of letters of
credit for $55.9 million which the Company intends to pay through funds
generated from operations, had additional capacity under the Revolving Credit
Facility of approximately $84.1 million.
In connection with the Brylane Acquisition, the Partnership issued $125.0
million aggregate principal amount of its senior subordinated notes (the "Senior
Subordinated Notes"). The Senior Subordinated Notes bear interest at 10% per
annum, payable semi-annually, and mature in 2003. The Amended 1997 Bank Credit
Facility, and the Indenture dated as of August 30, 1993 among Brylane and
Brylane Capital Corp., as Issuers, the subsidiaries of Brylane, as Guarantors,
and United States Trust Company of New York, as Trustee (as supplemented, the
"Indenture") pursuant to which the Senior Subordinated Notes were issued contain
covenants (the "Covenants") that, among other things, restrict the Partnership's
ability to incur debt, make distributions, incur liens, make capital
expenditures and make investments or acquisitions. Brylane's capital
expenditures through the third quarter of fiscal 1997 were in compliance with
the Covenants.
In connection with the Chadwick's Acquisition, Brylane, L.P. entered into an
Accounts Receivable Purchase Agreement dated as of December 9, 1996 with
Alliance Data Systems Corporation ("ADS") (as amended on January 27, 1997, the
"Receivables Purchase Agreement") pursuant to which ADS has agreed to purchase
from the Company eligible customer accounts receivable generated through
Chadwick's deferred billing programs. ADS' commitment to purchase receivables is
limited to $100.0 million outstanding at any time. As of November 1, 1997, ADS
had reached this commitment level. Consequently, Brylane's balance sheet at
November 1, 1997 contains approximately $19.0 million of receivables generated
through Chadwick's deferred billing programs. ADS purchases the receivables on a
limited recourse basis at a discount from face value. The Company pays
transaction costs, including a fee of $.03 per purchased account, and carrying
costs equal to, at the Company's election, LIBOR plus 95 basis points or the
lesser of (a) a defined prime rate plus 15 basis points and (b) the federal
funds rate plus 110 basis points. The receivables purchase facility has a three-
year term and is subject to early termination upon occurrence of certain events,
including chargebacks and customer default ratios above specified levels or an
uncured default by the Partnership under its Amended 1997 Bank Credit Facility.
While no assurances can be given in this regard, based on current and
projected operating results, Brylane believes that cash flow from operations
will provide adequate funds for ongoing operations, debt service on its
indebtedness (including scheduled prepayments under the Amended 1997 Bank Credit
Facility), and planned capital expenditures for the foreseeable future. In
addition, the Company will have availability under the Revolving Credit Facility
to finance seasonal capital needs.
Page 19
<PAGE>
PART II - OTHER INFORMATION
- ---------------------------
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits.
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by Brylane, L.P. during the
quarter ended November 1, 1997.
Page 20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
Dated : December 4, 1997 BRYLANE, L.P.
BRYLANE CAPITAL CORP.
By: /s/ Robert A. Pulciani
----------------------
Robert A. Pulciani
Authorized Representative of Brylane, L.P.
and Executive Vice
President, Chief Financial Officer and
Secretary of Brylane, L.P. and Brylane
Capital Corp.
(On behalf of the Registrants and as the
principal financial and accounting officer
of each of the Registrants)
Page 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000912276
<NAME> BRYLANE CAPITAL CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> AUG-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 21,850
<SECURITIES> 0
<RECEIVABLES> 34,279
<ALLOWANCES> 3,071
<INVENTORY> 208,301
<CURRENT-ASSETS> 337,083
<PP&E> 94,940
<DEPRECIATION> 18,462
<TOTAL-ASSETS> 749,928
<CURRENT-LIABILITIES> 271,550
<BONDS> 342,229
0
1,500
<COMMON> 0
<OTHER-SE> 126,313
<TOTAL-LIABILITY-AND-EQUITY> 749,928
<SALES> 365,454
<TOTAL-REVENUES> 365,454
<CGS> 185,536
<TOTAL-COSTS> 185,536
<OTHER-EXPENSES> 144,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,427
<INCOME-PRETAX> 26,754
<INCOME-TAX> 40
<INCOME-CONTINUING> 26,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,714
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
