<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BRYLANE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 5961 13-3794198
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
463 SEVENTH AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10018
(212) 613-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
ROBERT A. PULCIANI
BRYLANE INC.
463 SEVENTH AVENUE
21ST FLOOR
NEW YORK, NEW YORK 10018
(212) 613-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
THOMAS M. CLEARY, ESQ. GREGG A. NOEL, ESQ.
RONN S. DAVIDS, ESQ. DAVID J. GOLDSCHMIDT, ESQ.
RIORDAN & MCKINZIE 300 SOUTH GRAND SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
AVENUE, 29TH FLOOR LOS ANGELES, 300 SOUTH GRAND AVENUE, 34TH FLOOR LOS
CALIFORNIA 90071 ANGELES, CALIFORNIA 90071
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE(2)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value) 5,750,000 shares $41.50 $238,625,000 $72,311
</TABLE>
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- --------------------------------------------------------------------------------
(1)Includes 750,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2)Calculated pursuant to Rule 457.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be used
in connection with an underwritten public offering in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent underwritten
public offering outside the United States and Canada (the "International
Prospectus"). The two prospectuses are identical except for the front and back
cover pages and the "Underwriting" section. The form of U.S. Prospectus is
included herein and is followed by the alternate pages to be used in the
International Prospectus. Each of the alternate pages for the International
Prospectus included herein is labeled "International Prospectus--Alternate
Pages." Final forms of each Prospectus will be filed with the Securities and
Exchange Commission under Rule 424(b) under the Securities Act of 1933.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 16, 1997
PROSPECTUS
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
----------------
All the shares of Common Stock of Brylane Inc. offered hereby are being
offered by certain stockholders of the Company identified herein. Concurrently
with the consummation of the Offerings, the Company will repurchase from the
Selling Stockholders an aggregate of 2,500,000 shares of Common Stock at the
Price to Public set forth on this cover page. The consummation of each of (i)
the Offerings and (ii) the Common Stock Repurchase is contingent upon the
consummation of the other and the closing of an amendment to the Company's
existing bank credit facility. See "Principal and Selling Stockholders" and
"Common Stock Repurchase". Upon consummation of the Offerings and the Common
Stock Repurchase, FS&Co. and The Limited (each as defined) will own 25.0% and
14.7% of the Company's Common Stock, respectively. The Company will not receive
any proceeds from the sale of the Common Stock hereby.
Of the 5,000,000 shares (the "Shares") offered hereby, 4,000,000 Shares are
being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Offering") and 1,000,000 Shares are being offered in a concurrent
offering outside the United States and Canada by the International Managers
(the "International Offering" and, together with the U.S. Offering, the
"Offerings"). The initial public offering price and the aggregate underwriting
discount per share are identical for the Offerings. See "Underwriting".
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "BYL". On September 12, 1997, the last reported sale price of the Common
Stock as reported on the NYSE was $44.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) SELLING STOCKHOLDERS(2)
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<S> <C> <C> <C>
Per Share........................ $ $ $
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Total (3)........................ $ $ $
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</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses payable by the Company estimated to be $ .
(3) The Selling Stockholders have granted to the U.S. Underwriters and the
International Managers options, exercisable within 30 days after the date
of this Prospectus, to purchase up to an additional 600,000 and 150,000
shares of Common Stock, respectively, solely to cover over-allotments, if
any. If all such additional shares are purchased, the total Price to
Public, Underwriting Discount and Proceeds to the Selling Stockholders will
be $ , $ and $ , respectively. See "Underwriting".
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about October , 1997.
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
----------------
The date of this Prospectus is September , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF COMMON STOCK
TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
This document does not constitute an offer to sell or the solicitation of an
offer to buy securities in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of
securities in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by any person in, from or otherwise involving the
United Kingdom must be complied with. See "Underwriting".
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
(i) the term "Brylane" refers to Brylane, L.P., a Delaware limited partnership
and a wholly-owned subsidiary of Brylane Inc. (the "Partnership"), excluding
Chadwick's, (ii) the term "Chadwick's" refers to the Chadwick's of Boston
catalog division of The TJX Companies, Inc. ("TJX") acquired by Brylane in
December 1996, (iii) the term the "Company" refers to Brylane Inc., its
subsidiaries and their respective operations, including the Partnership, (iv)
the term "The Limited" refers to The Limited, Inc. and its subsidiaries and
affiliates, and (v) all information set forth in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. For purposes of
determining the amount of indebtedness to be incurred in connection with the
Common Stock Repurchase, the Company has assumed that such Common Stock will be
repurchased at the last reported sale price of the Common Stock on September
12, 1997 as set forth on the cover page of this Prospectus.
THE COMPANY
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.2 billion for the twelve
months ended August 2, 1997. The Company has established a focused portfolio of
profitable catalogs that target consumers of both special and regular size
apparel. Through its nationally recognized Lane Bryant and Roaman's catalogs,
Brylane is the leading catalog retailer of women's special size apparel (sizes
14 to 56) and, through its KingSize catalog, is a leading catalog retailer of
men's special size apparel (sizes XL to 9XL). Chadwick's of Boston, which
Brylane acquired in December 1996, is the nation's largest off-price women's
apparel catalog retailer, and offers a broad selection of high quality apparel
at prices typically 25% to 50% below the regular prices of department and
specialty retail stores. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's and men's classic
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
Additionally, Brylane has expanded its customer base by marketing 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.
("Sears").
As a result of the growth of its established catalogs, the acquisition of the
KingSize catalog and the introduction of new catalogs, Brylane's net sales have
increased from $424.5 million in fiscal 1992 to $642.0 million in fiscal 1996,
representing a compound annual growth rate of 10.9%. Due to the growth in its
core business, the introduction of new merchandise categories such as special
size apparel, gifts and men's apparel, and the successful execution of its
marketing strategies, Chadwick's net sales have increased from $295.5 million
in fiscal 1992 to $525.6 million in fiscal 1996, representing a compound annual
growth rate of 15.5%.
The Company's net sales for the twenty-six weeks ended August 2, 1997
increased 13.1% to $603.5 million from $533.5 million (on a pro forma basis) in
the comparable period of fiscal 1996. For the twenty-six weeks ended August 2,
1997, operating income (excluding non-recurring and extraordinary items)
increased 27.1% to $55.8 million from $43.9 million (on a pro forma basis
excluding non-recurring and extraordinary items) in the comparable period of
fiscal 1996. The Company's results for the twenty-six weeks ended August 2,
1997 have benefitted from favorable customer response and an increase in the
average order size across all of the Company's catalogs. In addition, in the
twenty-six weeks ended August 2, 1997, the Company used the proceeds from its
February 1997 initial public offering 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 (including $72.1 million in prepayments),
resulting in lower interest expense.
3
<PAGE>
The Company believes that Chadwick's represents a significant strategic
addition to the Company's catalog portfolio. Chadwick's of Boston is one of the
most well-recognized brand names in women's catalog apparel retailing. The
Company believes that the Chadwick's customer list is one of the largest and
most valuable in the women's apparel industry. Chadwick's targets middle to
upper middle income women between the ages of 25 and 55, who the Company
believes represent approximately one-third of the adult female population in
the United States, or approximately 33 million women. Chadwick's offers a broad
assortment of casual, career and social wear apparel at attractive prices. The
Company has begun to capitalize on several opportunities presented by the
acquisition of Chadwick's to enhance the revenue growth of its entire catalog
portfolio by sharing customer lists and merchandising and marketing expertise,
as well as to reduce its expenses by leveraging the Company's combined
purchasing power.
The Company's merchandising strategy across all of its catalog titles is to
(i) provide value-priced apparel with a consistent quality and fit,
(ii) concentrate on apparel with limited fashion risk, and (iii) offer a broad
selection of sizes, styles and colors. The Company believes that the effective
implementation of its merchandising strategy, together with its high level of
customer service, have contributed to the growth of its substantial and loyal
customer base. The Company's combined customer file has grown to over 22
million names as of June 30, 1997 (which includes 2.4 million names from the
Sears customer file and gives effect to the acquisition of Chadwick's), of
which approximately 10.4 million are active customers who have placed an order
in the preceding 12 months (including 1.1 million customers from the Sears
customer file). Over 40% of the Lane Bryant, Roaman's and Lerner active
customers placed an order three or more times during the 12 months ended June
30, 1997.
The Company has developed a successful business strategy which includes: (i)
operating a portfolio of market leading catalogs, (ii) offering an extensive
selection of quality, value-priced apparel, (iii) maintaining strong sourcing
capabilities and disciplined inventory control, (iv) maintaining highly
efficient telemarketing, fulfillment and distribution operations and (v)
emphasizing superior customer service. The Company believes that the execution
of its business strategy will enable it to continue to grow.
GROWTH STRATEGY
Catalog sales have been the fastest growing channel of retail apparel sales.
From 1995 to 1996, catalog women's apparel sales increased by approximately
7.6% to $8.2 billion, while overall retail women's apparel sales increased by
approximately 5.1% to $85.1 billion. The percentage of the U.S. adult
population that made a purchase through a catalog has increased to 57.2% in
1996 from 41.0% in 1993. The Company believes that catalog sales of apparel
will continue to increase because the busy lifestyles of today's women and men
demand the convenience and the time savings afforded by catalog shopping.
The Company's growth strategy is to increase its sales and profits by
capitalizing on the growing catalog industry and effectively executing its
business and merchandising strategies.
. Continuing to Realize Strategic Benefits from the Acquisition of Chadwick's
The Company believes that revenue growth can be enhanced through sharing
customer lists, utilizing merchandising and marketing expertise developed
at each company (including during the introduction of new merchandise
categories), and introducing private label credit cards to Chadwick's
customers. The Company has already begun to capitalize on opportunities to
leverage its combined purchasing power, particularly in the procurement of
paper and telecommunications services, merchandise sourcing, MIS processing
and development, and insurance.
. Expanding Merchandise Offerings
The Company intends to continue to refine and broaden its merchandise
offerings in order to satisfy the apparel needs of its customers, to
freshen the appeal of each catalog's assortment of merchandise, and
4
<PAGE>
to stimulate increased sales. For example, the Company recently introduced
or expanded offerings of women's career wear, men's apparel, special sizes,
tall and petite sizes, shoes, intimate apparel, non-apparel gift items and
jewelry in certain catalogs.
. Offering Promotional Incentives
The Company has implemented certain promotional programs in many of its
catalogs, including deferred billing payment programs and shipping and
handling incentives. These programs have resulted in a significant
improvement in net sales and average order size, particularly in the
Company's Chadwick's and Lerner catalogs. The Company is currently
expanding the use of these programs to its other catalogs.
. Refining Customer List Segmentation Techniques
An important element of the Company's marketing strategy is the improved
segmentation of its existing customer files. Brylane has recently installed
a modeling and scoring software program and Chadwick's is testing
increasingly sophisticated statistical circulation models to improve their
ability to predict customer purchase behavior based on a wide range of
variables. The Company believes that its ability to better predict customer
purchasing behavior maximizes the effectiveness of catalog mailings to
current and prospective customers.
. Expanding the Customer File
The Company plans to increase the number of names in its customer file
through cost effective prospecting programs, including cable television
advertising and the segmentation of the over 30 million name file of Sears,
Roebuck and Co. In addition, the Company will continue to rent, exchange or
purchase available customer lists and to access the lists of credit card
holders of The Limited's Lane Bryant and Lerner retail stores.
. Continuing to Develop Recent Catalog Additions
The Company believes that recent catalog additions such as Bridgewater
and Jessica London broaden the Company's catalog portfolio and provide
substantial opportunities for growth. As a result of these catalogs'
performance, the Company expects to increase their circulation
significantly.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce
new catalogs, such as Brett, which the Company intends to commence mailing
in October 1997. Brylane's female customers have demonstrated a propensity
to purchase the offerings of men's apparel included in inserts in Brylane's
catalogs. The Company may also selectively pursue strategic acquisitions
that either expand or complement the Company's existing business.
BACKGROUND AND HISTORY
In August 1993, the Partnership acquired the Lane Bryant, Roaman's and Lerner
catalog businesses (the "Predecessor") formerly owned and operated by The
Limited (the "Brylane Acquisition"). The Partnership was formed by affiliates
of Freeman Spogli & Co. Incorporated, a private investment firm ("FS&Co."), and
members of management, which collectively acquired a 60% aggregate interest in
the Partnership, and affiliates of The Limited, which received the remaining
40% interest. In October 1995, the Partnership acquired the KingSize catalog
division (the "KingSize Acquisition") of WearGuard Corporation ("WearGuard"),
which included the assignment to Brylane of WearGuard's license to distribute
the Sears Big & Tall catalog. In December 1996, the Partnership acquired the
Chadwick's of Boston catalog division of TJX (the "Chadwick's Acquisition"). In
February 1997, the Company completed its initial public offering of 4,000,000
shares of Common Stock at a price to the public of $24.00 per share (the
"Initial Public Offering").
5
<PAGE>
COMMON STOCK REPURCHASE
Concurrently with the Offerings, the Company intends to repurchase an
aggregate of 2,500,000 shares of Common Stock, at the Price to Public set forth
on the cover page of this Prospectus (the "Common Stock Repurchase"), from
certain affiliates of FS&Co., an affiliate of The Limited, the TJX Noteholder,
Leeway & Co. and NYNEX (collectively, the "Selling Stockholders"). In addition,
the holders of an aggregate of 222,053 shares of the Common Stock have the
right to participate in the Offerings and in the Common Stock Repurchase on a
pro rata basis. To the extent that such holders elect to participate, the
Selling Stockholders' participation in the Offerings and in the Common Stock
Repurchase will be reduced accordingly. The Company intends to finance the
Common Stock Repurchase (and related fees) through the incurrence of additional
long-term debt in the aggregate principal amount of approximately $111.9
million.
6
<PAGE>
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders:
U.S. Offering....................................... 4,000,000 shares
International Offering.............................. 1,000,000 shares
----------------
Total............................................. 5,000,000 shares
================
Common Stock to be outstanding after
the Offerings and the Common Stock
Repurchase (1)....................................... 17,333,152 shares
Use of proceeds....................................... The Company will not
receive any proceeds
from the Offerings.
New York Stock Exchange Symbol........................ BYL
</TABLE>
- --------
(1) Based on outstanding shares as of September 1, 1997 and after giving effect
to the Offerings and the repurchase by the Company of an aggregate of
2,500,000 shares of Common Stock pursuant to the Common Stock Repurchase
and, in connection therewith, the conversion by the TJX Noteholder of a
portion of the Convertible Note (as defined) into 357,107 shares of Common
Stock. See "Common Stock Repurchase". Does not include an aggregate of
1,347,762 shares of Common Stock issuable upon exercise of stock options
outstanding as of September 1, 1997, 75,000 shares of Common Stock issuable
upon conversion of the Series A Preferred Stock (as defined), or 370,166
shares of Common Stock issuable upon conversion of the remaining portion of
the Convertible Note. See "Certain Relationships and Related Transactions--
The Chadwick's Acquisition" and "Management--Option Plans".
----------------
Unless the context otherwise requires, (i) all references to a year or a
fiscal year of Brylane or the Company refer to the fiscal year that ends on the
Saturday closest to January 31 of the following calendar year (for example,
"fiscal 1996" or "1996" means the year ended February 1, 1997), and (ii) all
references to a year or a fiscal year of Chadwick's refer to the fiscal year
that ends on the last Saturday in January of the following calendar year (for
example, "fiscal 1995" or "1995" means the year ended January 27, 1996).
----------------
Lane Bryant(R), Roaman's(R), Lerner(R), Sue Brett(R), Chadwick's(R),
Chadwick's of Boston, Ltd.(R), KingSize(R), Hunters Run(R), David Benjamin(R),
Lasting Comfort(R), Venezia(R) and Forenza(R) are federally registered
trademarks which are owned or licensed by the Company. Bridgewater(TM), Jessica
London(TM), Brett(TM) and Peak Performance(TM) are common law trademarks which
are owned or licensed by the Company.
Sears(R) and Woman's View(R) are federally registered trademarks of, and
Smart Choice(TM), Classics(TM) and Big & Tall(TM) are common law trademarks
which are owned by, Sears, Roebuck and Co.
7
<PAGE>
SUMMARY FINANCIAL DATA
THE COMPANY
The following table presents summary historical financial data of the Company
for the periods indicated. The information below should be read in conjunction
with "Unaudited Pro Forma Financial Statements", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and the
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus. The statements of operations data for
the combination of historical fifty-two weeks ended January 29, 1994 have been
derived by summing, without adjustment, the audited financial statements of the
Predecessor for the twenty-six weeks ended July 31, 1993 and of the Partnership
for the twenty-six weeks ended January 29, 1994. The balance sheet data at
August 2, 1997 and the statements of operations data for the twenty-six weeks
ended August 3, 1996 and August 2, 1997 have been derived from the unaudited
consolidated financial statements of the Company.
<TABLE>
<CAPTION>
COMBINATION
OF
PREDECESSOR HISTORICAL COMPANY(1)
----------- ----------- ------------------------------------------------
TWENTY-SIX WEEKS
FISCAL YEAR FIFTY-TWO FISCAL YEAR ENDED ENDED
ENDED WEEKS ENDED ---------------------------- ------------------
JAN. 30, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1994 1995 1996(2) 1997 1996 1997
----------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales.............. $424,523 $489,866 $578,530 $601,055 $705,353 $308,625 $603,457
Cost of goods sold..... 212,103 246,754 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge(3).............. -- 11,487 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 212,420 231,625 287,699 302,072 357,124 158,727 290,171
Operating income....... 42,903 35,326 52,819 48,562 53,749 26,840 46,661
Interest expense, net.. -- 10,060 19,576 20,624 24,026 10,791 13,685
Income before income
taxes and extraordinary
charge................ 42,903 25,266 33,243 27,938 29,723 16,049 32,976
Extraordinary charge,
net of related
taxes(4).............. -- -- -- -- 2,456 -- 4,110
Net income............. 26,203 14,591 33,154 27,850 26,952 15,992 16,124
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA:
Income before income
taxes and extraordinary
charge................ $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Provision for income
taxes(5).............. 12,300 10,337 10,998 5,938 12,201
Extraordinary charge,
net of related
taxes(4).............. -- -- 1,547 -- 4,110
-------- -------- -------- -------- --------
Net income............. $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ========
OPERATING AND OTHER
DATA:
Gross profit (before
non-recurring
inventory charge) as a
percentage of net
sales................. 50.0% 49.6% 50.2% 50.4% 50.8% 51.4% 48.6%
Catalog and advertising
expense as a percent-
age of net sales...... 26.7% 26.1% 26.6% 29.0% 26.5% 28.8% 22.9%
EBITDA(6).............. $ 46,149 $ 51,991 $ 62,785 $ 57,488 $ 69,145 $ 31,808 $ 60,931
Number of catalogs
mailed................ 181,799 229,298 298,734 311,671 333,020 156,018 285,868
Names in customer
files(7).............. 6,561 7,340 8,905 10,158 21,995 10,982 22,727
Active customers(8).... 3,708 4,189 5,159 5,308 10,034 5,358 10,352
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 2, 1997
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ --
Working capital.............................................. 53,489
Total assets................................................. 689,127
Short-term debt.............................................. 20,000
Long-term debt (including current portion)................... 264,279
Stockholders' equity......................................... 225,041
</TABLE>
8
<PAGE>
- --------
(1) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(2) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect the
fair market value of the inventory at the respective acquisition dates as
more fully described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations". The increases in inventory value had
been fully amortized into cost of goods sold as of April 30, 1994 for the
Brylane Acquisition, as of February 3, 1996 for the KingSize Acquisition,
and as of August 2, 1997 for the Chadwick's Acquisition.
(4) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility (as defined) and 1996
Bank Credit Facility (as defined). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(5) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(6) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not to be
considered as an alternative to net income or any other indicator of
Brylane's operating performance which is presented in accordance with
generally accepted accounting principles above.
(7) This information includes the names contained in all of the Company's
customer files as of the last day of the preceding calendar quarter and
also includes names contained in the Sears customer file as of the same
date. The names in the customer files consist of customers who have placed
an order within the 48 months ending on the last day of the preceding
calendar quarter. Names contained in the Sears customer file have increased
from 92,000 at December 31, 1993 to 2.4 million at June 30, 1997.
(8) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at December
31, 1993 to 1.1 million at June 30, 1997.
9
<PAGE>
SUMMARY FINANCIAL DATA
CHADWICK'S
The following table presents summary historical financial data of Chadwick's
for the periods indicated. Due to different classifications within line items,
the Chadwick's line items are not directly comparable to those of Brylane. The
information below should be read in conjunction with "Unaudited Pro Forma
Financial Statements", "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and the combined financial statements of
Chadwick's and related notes thereto included elsewhere in this Prospectus. The
balance sheet data at October 26, 1996 and the income statement data for the
thirty-nine weeks ended October 28, 1995 and October 26, 1996 have been derived
from the unaudited combined financial statements of Chadwick's.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
------------------------------------------------ ------------------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1992 1993(1) 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............. $173,374 $295,532 $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales,
including buying and
order fulfillment..... 106,111 183,186 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 67,263 112,346 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and order
processing costs...... 55,656 90,366 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- -------- -------- --------
Income from operations. 11,607 21,980 23,604 5,457 26,448 17,570 34,409
Income before
extraordinary items
and cumulative effect
of accounting changes. 7,108 13,184 12,285 1,262 11,674 7,391 17,562
Net income(2).......... 7,108 13,184 12,665 1,070 8,336 7,391 17,562
OPERATING AND OTHER
DATA:
Gross profit as a
percentage of net
sales................. 38.8% 38.0% 36.5% 37.2% 40.1% 40.5% 44.3%
EBITDA(3).............. $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 22,625 $ 39,428
Number of catalogs
mailed................ 78,555 123,064 213,168 234,973 196,073 169,749 149,607
Names in customer
file(4)............... 3,601 5,151 7,501 9,421 10,248 10,020 10,693
Active customers(5).... 1,970 3,113 4,500 4,956 4,399 4,579 4,242
</TABLE>
<TABLE>
<CAPTION>
AT OCT. 26, 1996
----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ 464
Working capital............................................... 116,618
Total assets.................................................. 272,914
Long-term debt (including current portion)(6)................. 88,587
Net assets.................................................... 74,237
</TABLE>
- --------
(1) The fiscal year ended January 30, 1993 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3,338,000 in the fiscal year ended
January 27, 1996.
(3) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense. The
use of such information is intended only to supplement the conventional
income statement presentation, and is not to be considered as an
alternative to net income or any other indicator of Chadwick's operating
performance which is presented in accordance with generally accepted
accounting principles above.
(4) This information includes the names contained in Chadwick's customer file
as of the last day of the preceding calendar quarter. The names in the
customer file consist of customers who have placed an order within the 48
months ending on the last day of the preceding calendar quarter.
(5) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter.
(6) Includes loans and advances from TJX.
10
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The summary unaudited pro forma financial data for the Company set forth
below has been derived from the unaudited pro forma financial information
included elsewhere in this Prospectus and gives effect to the Common Stock
Repurchase and the incurrence of $111.9 million of additional indebtedness by
the Company in connection therewith, as if those transactions had occurred on
February 4, 1996 with respect to the statements of operations data and
operating and other data, and as of August 2, 1997 with respect to the balance
sheet. In addition, the summary unaudited pro forma financial data listed below
for the year ended February 1, 1997 and the twenty-six weeks ended August 3,
1996 gives effect to the Chadwick's Acquisition and the financing thereof
(including the issuance of the Convertible Note and borrowings under the 1996
Bank Credit Facility), and the Initial Public Offering and the use of the
proceeds received therefrom to repay borrowings under the 1996 Bank Credit
Facility, as if those transactions had occurred on February 4, 1996. The
summary unaudited pro forma financial data does not necessarily represent what
the Company's financial position and results of operations would have been if
these transactions had actually been completed as of the dates indicated, and
is not intended to project the Company's financial position or results of
operations for any future period. The following summary unaudited pro forma
financial data should be read in conjunction with the respective audited
financial statements of each of Brylane and Chadwick's.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR ENDED ------------------
FEB. 1, AUG. 3, AUG. 2,
1997(1) 1996 1997
----------------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales................................ $1,167,527 $533,525 $603,457
Gross profit............................. 564,011 260,148 290,171
Operating income......................... 87,118 38,454 46,661
Interest expense, net.................... 37,615 18,937 16,670
Income before income taxes and extraordi-
nary charge............................. 49,503 19,517 29,991
Income before extraordinary charge....... 31,187 12,295 18,894
Income per share before extraordinary
charge.................................. $ 1.75 $ 0.69 $ 1.06
Weighted average shares outstanding...... 17,790 17,789 17,859
OPERATING AND OTHER DATA:
Gross profit as a percentage of net
sales................................... 48.3% 48.8% 48.1%
Catalog and advertising expense as a per-
centage of net sales.................... 23.9% 25.3% 22.8%
EBITDA(2)................................ $ 112,761 $ 49,398 $ 60,933
Number of catalogs mailed................ 513,028 253,901 285,868
Names in customer files(3)............... 21,995 21,521 22,727
Active customers(4)...................... 10,034 9,648 10,352
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 2, 1997
-----------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................................... $ --
Working capital............................................... 57,517
Total assets.................................................. 689,890
Short-term debt............................................... 20,000
Long-term debt (including current portion).................... 366,351
Stockholders' equity.......................................... 123,732
</TABLE>
- --------
(1) Includes a 52-week period for Brylane and a 53-week period for Chadwick's.
(2) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not to be
considered as an alternative to net income or any other indicator of
Brylane's operating performance which is presented in accordance with
generally accepted accounting principles above.
(3) This information includes the names contained in all of the Company's
customer files as of the last day of the preceding calendar quarter and
also includes names contained in the Sears customer file as of the same
date. The names in the customer files consist of customers who have placed
an order within the 48 months ending on the last day of the preceding
calendar quarter. Names contained in the Sears customer file have increased
from 92,000 at December 31, 1993 to 2.4 million at June 30, 1997.
(4) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at December
31, 1993 to 1.1 million at June 30, 1997.
11
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby.
COMPETITION AND OTHER BUSINESS FACTORS
The retail apparel business is highly competitive. Each of Brylane's women's
catalogs compete in the sale of women's apparel with other catalog retailers,
department stores, discount stores and specialty retailers. In particular,
Lane Bryant, Roaman's and Woman's View compete in the sale of special size
women's apparel with the Lane Bryant retail stores operated by The Limited,
and Lerner and Smart Choice compete in the sale of women's sportswear and
other apparel with the Lerner retail stores operated by The Limited.
Chadwick's competes with many retail sellers of apparel, including T.J. Maxx
and Marshalls, each of which is owned by TJX. The Company's KingSize and
Big & Tall catalogs compete in the sale of special size men's apparel with
specialty retailers, department stores, other mail order companies and
discount stores. In addition, sales of clothing through home television
shopping networks or other electronic media could provide additional sources
of competition for the Company in the future. Some of the Company's
competitors may have greater financial resources than the Company. An increase
in the amount of competition faced by the Company could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Competition".
The Company's future performance will be subject to a number of other
factors beyond its control, including declines in discretionary consumer
spending or in demand for apparel generally, which could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, although the Company believes that its strategy of
providing a broad range of basic merchandise that is current, but not "leading
edge", limits fashion risk, it is still subject to risks associated with
changes in fashion preferences. Misjudgment by the Company as to fashion
trends or consumer preferences, or a downturn in discretionary consumer
spending, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company benefits from the name recognition and reputation generated by
the Lane Bryant retail stores and the Lerner retail stores which are operated
by The Limited. At present, The Limited operates over 800 Lane Bryant stores
and over 750 Lerner stores. The Limited is under no obligation to continue to
own or operate the Lane Bryant and Lerner stores, and there can be no
assurance that The Limited will not change the focus of such stores in a
manner that would be adverse to Brylane's catalog concepts bearing the same
trademarks, although The Limited has agreed that, during the term of the
Trademark Agreement (as defined herein), it will not disparage or diminish the
stature, image or quality of any of the trademarks subject to the Trademark
Agreement.
The Transaction Agreement pursuant to which affiliates of FS&Co. and The
Limited formed the Partnership (as amended, the "Transaction Agreement")
contains certain noncompetition and nonsolicitation provisions pursuant to
which The Limited agreed, in general, and subject to certain exceptions, not
to compete with Brylane's catalog business for special size women's apparel by
publishing similar catalogs, or to solicit any person who is an employee of
such business to terminate his or her relationship with Brylane. These
provisions terminate when the affiliates of FS&Co. no longer hold any direct
or indirect interest in the Company. If such provisions were to terminate, The
Limited could compete directly with Brylane in the retail catalog business for
special size women's apparel. There can be no assurance that such competition
would not have a material adverse effect on Brylane. See "Certain
Relationships and Related Transactions".
The Stockholders Agreement entered into at the closing of the Initial Public
Offering by and among the Company, affiliates of FS&Co., an affiliate of The
Limited, Leeway & Co., NYNEX, Chadwick's, Inc., a wholly-owned subsidiary of
TJX (the "TJX Noteholder"), and WearGuard (the "Stockholders Agreement")
provides, with certain exceptions, that the Company may not, without The
Limited's consent, for so long as The Limited holds, directly or indirectly,
at least 20% of the outstanding Common Stock of the Company, engage in any
12
<PAGE>
business that competes with the businesses conducted by The Limited as of
August 30, 1993, other than in the mail order business for women's special
size apparel, moderately priced fashion apparel and related accessories, and
for moderately priced regular size or special size men's apparel and related
accessories that are substantially similar to the products offered in the
Company's KingSize catalogs as of October 14, 1996. As a result of the
Offerings and the Common Stock Repurchase, The Limited will hold less than 20%
of the outstanding Common Stock of the Company; consequently, these
noncompetition provisions will no longer be applicable. See "Certain
Relationships and Related Transactions" and "Description of Capital Stock--
Stockholders Agreement".
RELATIONSHIP WITH THE LIMITED
In connection with the Brylane Acquisition, Brylane became a party to a
trademark license agreement with The Limited (as amended, the "Trademark
Agreement") pursuant to which the Company has use of the Lane Bryant(R),
Lerner(R) and certain other trademarks, on a royalty-free basis, until ten
years after completion of the Offerings and the Common Stock Repurchase,
subject to earlier termination as described in the paragraph that follows. The
Company has determined to use the Lane Bryant(R) and Lerner(R) trademarks in
its catalogs and in general advertising and promotional materials, and not as
labels or tags on any garments or other merchandise it distributes. The other
trademarks covered by the Trademark Agreement are used for certain of the
Company's apparel offerings, as well as other marketing and merchandising
activities.
The Trademark Agreement and each of the licenses granted thereunder will
terminate ten years after completion of the Offerings and the Common Stock
Repurchase, unless earlier terminated (i) by the Company with six months'
notice on or after August 20, 1998, (ii) by The Limited in the event of (x) a
breach by the Company of any of its material obligations under the Trademark
Agreement or (y) certain bankruptcy or insolvency events involving the
Company, or (iii) subject to certain extensions, (x) two years after any
competitor of The Limited acquires "control" of the Lane Bryant, Roaman's and
Lerner catalog businesses operated by the Company (the "Business"), or (y) two
or four years after the occurrence of certain mergers, consolidations or
business combinations. See "Certain Relationships and Related Transactions--
Additional Agreements--Trademark Agreement".
Unless renewed, upon a termination of the Trademark Agreement, the Company
would need to create new names and trademarks for the catalogs using the
licensed trademarks, as well as for the merchandise offerings that currently
utilize the licensed trademarks, and effect a transition of customer
recognition and acceptance of such new names and trademarks. While the Company
believes that the termination provisions of the Trademark Agreement would
afford it sufficient time to achieve this transition, no assurance can be
given that it would be successful or that the termination of the Trademark
Agreement would not have a material adverse effect on the Company's business,
financial condition or results of operations.
LEVERAGE AND CERTAIN RESTRICTIONS IMPOSED BY LENDERS
As of August 2, 1997, after giving effect to the Common Stock Repurchase and
the incurrence of additional long term debt of approximately $111.9 million in
connection therewith, the Company would have had total outstanding long-term
indebtedness (including current portion) of $366.4 million, as compared with
total stockholders' equity of $123.7 million. The Company will require
substantial cash to fund scheduled payments of principal and interest on its
outstanding indebtedness as well as any increased working capital
requirements. The Company will be restricted in its ability to incur debt,
make distributions (including cash dividends), incur liens, make capital
expenditures and make investments or acquisitions by the terms of both the
Amended 1997 Bank Credit Facility as well as the indenture (the "Indenture")
that currently governs the Company's Senior Subordinated Notes (the "Senior
Subordinated Notes"). As a result of these restrictions, the ability of the
Company to secure additional financing, if needed, is constrained, and the
Company may be prevented from engaging in transactions that might otherwise be
considered beneficial to the Company. See "Common Stock Repurchase",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Financing Arrangements".
13
<PAGE>
SEARS AGREEMENT
In March 1994, Brylane entered into an agreement with Sears which, as
amended, provides the Company with an exclusive license to distribute its
Woman's View, Smart Choice, Classics and Big & Tall catalogs to customers
selected by the Company from the more than 30 million name customer file of
Sears Roebuck and Co. (as amended, the "Sears Agreement"). The initial term of
the Sears Agreement expires on February 28, 1999 and automatically continues
for additional one-year terms thereafter; provided, that either of the parties
may terminate the Sears Agreement upon twelve months written notice prior to
the end of the initial term or any renewal thereof. In addition, upon the
default of either Sears or the Company, the Sears Agreement may be terminated
by the non-defaulting party either immediately or upon the payment of all sums
owed by such non-defaulting party under the Sears Agreement, depending on the
type of default. Events of default under the Sears Agreement include, among
others, (i) the material failure of the Company to comply with the operating
policies and procedures set forth in the Sears Agreement; (ii) the material
failure of the Company to actively follow any mutually agreed upon circulation
and mailing plan; (iii) any bankruptcy or insolvency proceedings being
commenced against either party; and (iv) the inability of either party to pay
debts as they come due.
A termination of the Sears Agreement could have a material adverse effect on
the Company's business, financial condition and results of operations. Upon
termination of the Sears Agreement, the Company will retain the names of all
customers who have purchased through the Sears catalogs covered by such
agreement and, at that point, the Company will be able to mail the Company's
other catalogs to these customers. However, no assurance can be given as to
the extent that the Company will be able to retain these individuals as
customers of the Company. See "Business--Sears Agreement".
IMPACT OF INCREASES IN COSTS OF POSTAGE, PAPER AND PRINTING
Increases in postal rates and paper and printing costs have a direct impact
on the cost of the production and mailing of the Company's catalogs and
promotional materials, as well as the Company's order fulfillment. Like others
in the catalog industry, the Company passes on a significant portion of the
costs of order fulfillment directly to its customers, but it does not directly
pass on the costs of preparing and mailing catalogs and other promotional
materials. The Company relies heavily on discounts from the basic postal rate
structure, such as discounts for bulk mailings and pre-sorting by zip code and
carrier routes. Brylane and Chadwick's historically have not entered into
long-term contracts for their paper purchases. Consequently, no assurances can
be given that the Company will not be subject to increases in paper costs or
to shortages in the supply of paper in the future. In addition, although the
Company currently has contracts for printing of its catalogs, the remaining
terms of these contracts range from one to five years, and no assurance can be
given that the Company's printing costs will not increase upon renegotiation
of these contracts. Significant increases in postal rates or in paper or
printing costs could have a material adverse effect on the Company's business,
financial condition and results of operations, particularly to the extent that
the Company is unable to pass on such increases directly to its customers or
to offset such increases by either raising prices or reducing other costs.
Brylane and Chadwick's each experienced an increase in postal rates in January
1995 and an increase in paper costs from the fall of 1994 through the fall of
1995. While Brylane and Chadwick's were able to partially mitigate these cost
increases, no assurances can be given that similar increases in postal rates
or in the Company's costs of paper will not occur in the future. In
particular, the Company believes that a postal rate increase within the next
twelve months is likely. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
CONTROL OF THE COMPANY
Upon completion of the Offerings and the Common Stock Repurchase, 25.0% of
the Company will be beneficially owned by affiliates of FS&Co., and 14.7% of
the Company will be beneficially owned by an affiliate of The Limited. By
virtue of its ownership of a large percentage of the outstanding Common Stock,
FS&Co. will remain in a position to exercise substantial influence over
actions that require the consent of stockholders. In addition, pursuant to the
terms of the Stockholders Agreement, FS&Co. will be able to nominate two
members of the Board of Directors of the Company, and The Limited will be able
to nominate one member. The number
14
<PAGE>
of directors that FS&Co. and The Limited may nominate declines with the
percentage of Common Stock held by each.
The Stockholders Agreement contains a number of provisions that could
prevent changes in the control or management of the Company. For example,
pursuant to the terms of the Stockholders Agreement, FS&Co. and The Limited
have agreed that they will, without the consent of the other, until one year
after the date on which the Offerings and the Common Stock Repurchase have
been consummated, vote or cause to be voted all shares of Common Stock
beneficially owned by them against, and, to the extent permitted by law, will
direct their nominees on the Board of Directors of the Company to vote
against, any consolidation, combination or merger of the Company or any sale
or other transfer of all or substantially all of the assets of the Company.
The Stockholders Agreement also prohibits FS&Co., The Limited, WearGuard and
the TJX Noteholder, and their respective affiliates, and Leeway & Co. and
NYNEX, from acquiring beneficial ownership of any additional shares of Common
Stock. See "Description of Capital Stock--Stockholders Agreement".
In addition, certain provisions of the Company's Certificate of
Incorporation and ByLaws and of the Delaware General Corporation Law, together
or separately, could have the effect of discouraging potential acquisition
proposals or delaying or preventing changes in the control or management of
the Company, and may limit the price that certain investors might be willing
to pay in the future for shares of the Common Stock. These provisions include
the ability to issue, without further stockholder approval, preferred stock
with rights and privileges which would be senior to the Common Stock. See
"Description of Capital Stock".
DEPENDENCE ON SUPPLIERS; FOREIGN SOURCING
Brylane's concentration on private label merchandise in its special size
catalogs, and the broad range of merchandise offered in its Chadwick's
catalogs, requires that the Company maintain good relationships with many
manufacturing sources and suppliers. Moreover, the number of available
manufacturers and suppliers for special size apparel is more limited when
compared with the number available for apparel generally. Although the Company
believes that it has established excellent relationships with its principal
manufacturing sources and suppliers, the Company does not have long-term
contracts, and its future success will depend in some measure upon its ability
to maintain such relationships. The inability of the Company to source quality
goods in a timely fashion at favorable prices could have a material adverse
effect on the Company's business, financial condition and results of
operations.
In fiscal 1996, Brylane and Chadwick's made approximately 25.1% and 37.6% of
their respective merchandise purchases from foreign suppliers. Although all of
the Company's foreign purchases are denominated in U.S. dollars, the Company
is subject to a number of risks which are beyond its control, including
currency and exchange risks, changes in duties, quotas or other import
restrictions, the imposition of taxes or other charges on imports, disruptions
or delays in shipments and transportation, political instability, and labor
disputes and strikes. There can be no assurance that the occurrence of any
destabilizing event abroad will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Private Label Purchasing and Vendor Relationships" and "Business--
Regulatory Matters".
RISKS GENERALLY ASSOCIATED WITH ACQUISITIONS
An element of the Company's growth strategy is to pursue strategic
acquisitions that either expand or complement the Company's business.
Acquisitions involve a number of special risks, including the diversion of
management's attention to the assimilation of the operations and the
assimilation and retention of the personnel of the acquired companies, and
potential adverse short-term effects on the Company's operating results. In
addition, the Company may require additional debt or equity financing for
future acquisitions, which may not be available on terms favorable to the
Company, if at all. The inability of the Company to successfully finance,
complete and integrate strategic acquisitions in a timely manner could have an
adverse impact on the Company's ability to effect a portion of its growth
strategy. See "Description of Certain Financing Arrangements".
15
<PAGE>
RISK OF DISASTER
The Company conducts its fulfillment operations from facilities located in
Indianapolis, Indiana and West Bridgewater, Massachusetts. If a disaster (such
as a tornado or fire) were to destroy or significantly damage either of these
facilities, the Company would need to obtain alternative facilities from which
to conduct its fulfillment operations and would need to replenish its
inventory, both of which would result in significantly increased operating
costs and significant delays in the fulfillment of customer orders. While the
Company maintains business interruption insurance, such increased costs or
delays would have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS RELATED TO UNIONIZED EMPLOYEES
At August 2, 1997, the Company had approximately 5,600 associates, including
approximately 1,200 associates of Chadwick's who were members of a labor
union. The Company's agreement with such labor union expires on December 31,
1997, and it is expected that the Company will commence negotiations for a new
agreement in the near future. If unionized associates were to engage in a
strike or other work stoppage or if additional associates were to become
unionized, the Company could experience a significant disruption of operations
and higher labor costs, all of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 1, 1997, and after giving effect to the consummation of the
Offerings and the Common Stock Repurchase (including the conversion by the TJX
Noteholder of approximately $9.8 million of the Convertible Note into 357,107
shares of Common Stock in connection therewith), the Company would have had
outstanding 17,333,152 shares of Common Stock. Of these shares, the 4,000,000
shares of Common Stock sold in the Initial Public Offering and the 5,000,000
shares of Common Stock to be sold in the Offerings, as well as 550,792
additional shares of Common Stock, will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act") unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 7,782,360
shares of Common Stock outstanding upon completion of the Common Stock
Repurchase will be "restricted securities" as that term is defined in Rule
144. Substantially all of such restricted shares are entitled to piggyback
registration rights as well as certain demand registration rights. In
addition, substantially all of such restricted shares may be eligible for
immediate public resale pursuant to Rule 144 (subject in certain circumstances
to the volume limitations contained therein) or Rule 701 of the Securities
Act. Further, options to purchase an aggregate of 85,649 additional shares of
Common Stock previously granted to employees of the Company and others were
exercisable as of September 1, 1997. The remaining options to purchase an
aggregate of 1,262,113 shares of Common Stock previously granted to employees
of the Company and others began to vest and become exercisable on September 6,
1997. The Company has caused the shares held by employees at the Company and
certain other individuals, or subject to options granted under the Company's
option plans to be registered under the Securities Act. Finally, 75,000 shares
of preferred stock currently held by certain executive officers of the Company
that were issued in connection with the Chadwick's Acquisition are restricted
securities and will be eligible for resale under Rule 144 (subject to
applicable volume limitations) in three equal annual installments beginning on
December 9, 1997. See "Shares Eligible for Future Sale", "Management--Stock
Subscription Plans" and "Management--Option Plans".
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. The Company has agreed not to sell any shares of its capital
stock (or any rights, options or warrants to purchase, or any securities
convertible or exchangeable into or exercisable for, capital stock), with
certain limited exceptions, for a period of 90 days following the date of the
Purchase Agreement (as defined), without the prior written consent of Merrill
Lynch on behalf of the Representatives (as defined). In addition, FS&Co., The
Limited, Leeway & Co., NYNEX, the TJX Noteholder and WearGuard, as well as the
executive officers and directors of the Company, have each agreed not to sell,
directly or indirectly, any of their shares, with certain limited exceptions,
for a period of 90 days following the date of the Purchase Agreement.
16
<PAGE>
The Company is unable to estimate the number of shares of Common Stock that
will be sold under Rule 144, Rule 701, under the employee stock plan
registration statement, or upon exercise of registration rights, since this
will depend in part on the market price for the Common Stock, the personal
circumstances of the Sellers, and other factors not susceptible of being known
in advance.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus Summary",
"The Company", "Common Stock Repurchase", "Capitalization", "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments and Outlook" and "--Liquidity and Capital Resources", and
"Business", as well as within the Prospectus generally. Such statements are
subject to a number of risks and uncertainties. Actual results in the future
could differ materially from those described in the forward-looking statements
as a result of the risk factors set forth above and the matters set forth in
the Prospectus generally. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that
may be made to reflect any future events or circumstances.
17
<PAGE>
THE COMPANY
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.2 billion for the twelve
months ended August 2, 1997. The Company has established a focused portfolio
of profitable catalogs that target consumers of both special and regular size
apparel. Through its nationally recognized Lane Bryant and Roaman's catalogs,
Brylane is the leading catalog retailer of women's special size apparel (sizes
14 to 56) and, through its KingSize catalog, is a leading catalog retailer of
men's special size apparel (sizes XL to 9XL). Chadwick's of Boston, which
Brylane acquired in December 1996, is the nation's largest off-price women's
apparel catalog retailer, and offers a broad selection of high quality apparel
at prices typically 25% to 50% below the regular prices of department and
specialty retail stores. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's and men's classic
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
Additionally, Brylane has expanded its customer base by marketing certain of
its catalogs under the "Sears" name to customers of Sears, Roebuck and Co.
under an exclusive licensing arrangement with Sears.
Brylane's catalog retail business dates back to the mailing of the first
Lane Bryant catalog in 1924 and the first Roaman's catalog during the 1940s.
Both Lane Bryant and Roaman's were acquired by The Limited in the early 1980s.
In 1985, the Lerner catalog business was launched to capitalize on the Lerner
name, which had developed as The Limited's Lerner retail store operations grew
to over 800 stores during the 1980s.
In 1993, The Limited decided to sell the Lane Bryant, Roaman's and Lerner
catalog businesses in an effort to increase its focus on the continued growth
of its various retail store operations. On August 30, 1993, affiliates of
FS&Co. and The Limited formed the Partnership to acquire these catalog
businesses. FS&Co., together with certain members of management, acquired a
60% aggregate interest in the Partnership, while The Limited retained the
remaining 40%. See "Certain Relationships and Related Transactions--The
Brylane Acquisition".
In October 1995, the Partnership acquired the KingSize catalog division of
WearGuard, a wholly-owned subsidiary of ARAMARK Corporation ("ARAMARK"). In
connection with the KingSize Acquisition, WearGuard assigned to Brylane its
license to distribute the Sears Big & Tall catalog, as well as its interest in
certain trademarks, including the KingSize(R) registered trademark. As
consideration for the sale of the KingSize catalog division, WearGuard
received a cash payment of $52.5 million and 350,000 newly issued limited
partnership units in the Partnership. See "Certain Relationships and Related
Transactions--The KingSize Acquisition".
On December 9, 1996, Brylane acquired the Chadwick's of Boston catalog
division of TJX (excluding substantially all accounts receivable). In
connection with the Chadwick's Acquisition, Brylane and TJX 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. As consideration for the sale of the
Chadwick's of Boston catalog division, affiliates of TJX received aggregate
cash payments of $222.8 million (subject to certain post-closing adjustments)
and a $20.0 million Convertible Subordinated Note due 2006 of the Partnership
(approximately $9.8 million of which will be converted into 357,107 shares of
Common Stock in connection with the Offerings and the Common Stock
Repurchase). In addition, on May 16, 1997, Brylane received from TJX a
preliminary cash purchase price adjustment of $28.8 million primarily related
to a change in the net book value of the assets acquired. 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, in
connection with the Chadwick's Acquisition, the Partnership received an
aggregate of approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard. See "Certain Relationships and
Related Transactions--The Chadwick's Acquisition" and "Description of Certain
Financing Arrangements".
18
<PAGE>
On February 26, 1997, in connection with the Initial Public Offering, the
Partnership became a wholly-owned subsidiary of Brylane Inc. pursuant to an
exchange transaction in which Brylane Inc. acquired, directly, and indirectly
through the acquisition of wholly-owned subsidiaries, a 100% ownership
interest in the Partnership in exchange for shares of the Common Stock of
Brylane Inc. (the "Incorporation Plan"). In connection with the Incorporation
Plan, the Partnership retained all of its assets, operations and liabilities.
See "Certain Relationships and Related Transactions--The Incorporation Plan".
The executive offices of the Company are located at 463 Seventh Avenue, 21st
Floor, New York, New York 10018, Telephone: (212) 613-9500.
COMMON STOCK REPURCHASE
Concurrently with the Offerings, the Company intends to repurchase an
aggregate of 2,500,000 shares of Common Stock from the Selling Stockholders at
the Price to Public set forth on the cover page of this Prospectus. The
consummation of each of (i) the Offerings and (ii) the Common Stock Repurchase
is contingent upon the consummation of the other and the closing of the
Amended 1997 Bank Credit Facility. In September 1997, the Selling Stockholders
informed the Company that they wished to sell a portion of their shares of
Common Stock. Subsequently, a special committee of the Board of Directors of
the Company determined that it would be in the Company's best interest to
purchase a portion of the shares that such entities desired to sell. The
Company expects the Common Stock Repurchase to be accretive to the Company's
future earnings per share, due to the fact that the reduction of the number of
shares outstanding is expected to more than offset the impact of the
additional interest expense to be incurred in connection with the Common Stock
Repurchase. See "Unaudited Pro Forma Financial Statements" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Recent Developments and Outlook". The Board also determined that the
indebtedness incurred to finance the Common Stock Repurchase could be repaid
from cash flow from operations. As of September 1, 1997, and after giving
effect to the Offerings and the Common Stock Repurchase (including the
conversion by the TJX Noteholder of approximately $9.8 million of the
Convertible Note into 357,107 shares of Common Stock in connection therewith),
FS&Co., The Limited, Leeway & Co., NYNEX, WearGuard and management of the
Company would have owned 25.0%, 14.7%, 1.5%, 1.5%, 2.0% and 2.9% of the
Company's Common Stock (22.6%, 13.2%, 1.3%, 1.3%, 2.0% and 2.8% if the over-
allotment option is exercised in full), respectively. See "Principal and
Selling Stockholders".
The Company intends to finance the Common Stock Repurchase through the
incurrence of additional long-term debt in the aggregate principal amount of
approximately $111.9 million. In order to effect such incurrence, the Company
intends to enter into the Amended 1997 Bank Credit Facility. See "Risk
Factors--Leverage and Certain Restrictions Imposed by Lenders", "Unaudited Pro
Forma Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Description of Certain Financing Arrangements".
USE OF PROCEEDS
All of the shares of Common Stock being offered hereby are being offered by
the Selling Stockholders. The Company will not receive any of the proceeds
from the sale of such shares.
19
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is listed and has been traded on the New York
Stock Exchange under the symbol "BYL" since the Initial Public Offering on
February 21, 1997. The following table sets forth, for the periods indicated,
the high and low sales prices of the Common Stock, as reported on the New York
Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1997:
First Quarter (beginning February 21, 1997)................... $29.375 $21.250
Second Quarter................................................ 39.500 26.500
Third Quarter (through September 12, 1997).................... 46.875 37.750
</TABLE>
On September 12, 1997, the last reported sale price of the Common Stock on
the New York Stock Exchange was $44.25 per share. As of September 12, 1997,
there were approximately 133 holders of the Company's Common Stock named as
holders of record by Chase Mellon Shareholder Services, LLC, the Company's
registrar and transfer agent.
Although the Partnership has made tax distributions to its partners, the
Company has never declared or paid a cash dividend on the Common Stock. The
Company anticipates that all of its earnings in the foreseeable future will be
used for the repayment of indebtedness and for the development and expansion
of its business and, therefore, does not anticipate paying dividends on the
Common Stock in the foreseeable future. The Partnership will be restricted in
its ability to make distributions that would enable the Company to pay
dividends on the Common Stock by the terms of both the Indenture and the
Amended 1997 Bank Credit Facility. See "Description of Certain Financing
Arrangements". At August 2, 1997, the Partnership could not have made any such
distribution to the Company by virtue of the restrictions that will be
contained in the Amended 1997 Bank Credit Facility. Any determination to pay
cash dividends in the future will be at the discretion of the Board of
Directors of the Company and will be dependent, among other things, upon the
Company's results of operations and financial condition, contractual
restrictions, and other factors deemed relevant at that time.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 2, 1997 and as adjusted to give effect to (i) the incurrence by the
Company of an additional $111.9 million of indebtedness in connection with the
Common Stock Repurchase, (ii) the use of such additional indebtedness to
effect the Common Stock Repurchase, and (iii) the conversion by the TJX
Noteholder of approximately $9.8 million of the Convertible Note into 357,107
shares of Common Stock in connection with the Offerings and the Common Stock
Repurchase. The sale of the shares offered hereby by the Selling Stockholders
will not affect the Company's capitalization. The table should be read in
conjunction with "Unaudited Pro Forma Financial Statements" of the Company and
the financial statements of the Company and Chadwick's and related notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AUGUST 2, 1997
-----------------------------
AS
HISTORICAL(1) ADJUSTED(2)
------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt.................................. $ 20,000 $ 20,000
Current portion of long-term debt................ 9,028 5,000
Long-term debt, net of current portion:
Bank Credit Facility........................... 110,841 226,761
Senior Subordinated Notes due 2003............. 124,410 124,410
Convertible Subordinated Note due 2006......... 20,000 10,180
--------- ---------
Total long-term debt......................... 255,251 361,351
--------- ---------
Total debt................................. 284,279 386,351
Series A Convertible Redeemable Preferred Stock.. 1,500 1,500
--------- ---------
Stockholders' equity:
Stockholders' equity, net...................... 288,044 187,239
Reduction for predecessor cost carryover
basis(3)...................................... (152,067) (152,067)
Retained earnings.............................. 89,064 88,560
--------- ---------
Total stockholders' equity................... 225,041 123,732
--------- ---------
Total capitalization......................... $ 510,820 $ 511,583
========= =========
</TABLE>
- --------
(1) Does not include an aggregate of 1,352,362 shares of Common Stock issuable
upon exercise of stock options at exercise prices ranging from $5.67 to
$36.00 per share, 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, or 727,273 shares of Common Stock
issuable upon conversion of the Convertible Note.
(2) Does not include an aggregate of 1,352,362 shares of Common Stock issuable
upon exercise of stock options at exercise prices ranging from $5.67 to
$36.00 per share, 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock, or 370,166 shares of Common Stock
issuable upon conversion of the remaining portion of the Convertible Note.
(3) The Limited's interest in Brylane has been reflected at The Limited's
historical basis (carryover basis), less an adjustment for the cash
distribution to The Limited in connection with the Brylane Acquisition,
resulting in a reduction in equity.
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements have been prepared by
combining the historical consolidated financial statements of the Company for
the fiscal year ended February 1, 1997 and for the twenty-six weeks ended
August 3, 1996 with the combined financial statements of Chadwick's for the
forty-five weeks ended December 7, 1996 and for the twenty-six weeks ended
July 27, 1996, respectively, and give effect to the transactions described in
the notes to these financial statements as if such transactions occurred on
February 4, 1996 (the first day of the latest full fiscal period presented)
for the statements of operations and on August 2, 1997 for the balance sheet.
The Company believes that the pro forma adjustments give appropriate effect
to the assumptions described in the notes to the unaudited pro forma financial
statements and that they are properly applied in the pro forma financial
statements, and provide a reasonable basis for presenting all of the
significant effects of (i) the Chadwick's Acquisition, (ii) the Initial Public
Offering and (iii) the costs related to the Offerings, the Common Stock
Repurchase and the incurrence of additional indebtedness in connection
therewith. The adjustments related to the Chadwick's Acquisition include (i)
the historical financial statements of Chadwick's and the financing thereof by
the Partnership for the twenty-six weeks ended August 3, 1996 and for the year
ended February 1, 1997 (the latter to the extent not already included in the
Company's historical statement of operations) and (ii) the allocation of the
purchase price for the acquisition as appropriate. The adjustments related to
the Initial Public Offering include (i) the effects of the Incorporation Plan
and (ii) the Initial Public Offering, including the application of the $89.3
million of net proceeds received therefrom to prepay borrowings under the 1996
Bank Credit Facility. The adjustments related to the Common Stock Repurchase
include (i) the effects of the incurrence of $111.9 million of additional
indebtedness pursuant to the Amended 1997 Bank Credit Facility, (ii) the use
of such additional indebtedness to effect the Common Stock Repurchase, and
(iii) the conversion by the TJX Noteholder of approximately $9.8 million of
the Convertible Note into 357,107 shares of Common Stock in connection with
the Offerings and the Common Stock Repurchase.
The unaudited pro forma financial statements have been prepared based on the
assumptions described in the notes thereto and include assumptions relating to
the interest rate on and the borrowings under the Amended 1997 Bank Credit
Facility, and the fees and expenses with respect thereto. These amounts are
assumed solely for the purpose of presenting the unaudited pro forma financial
statements set forth below.
The unaudited pro forma financial statements and summary table provided on
the next page should be read in conjunction with the respective financial
statements of the Company and Chadwick's and notes thereto included elsewhere
in this Prospectus. Certain reclassifications among line items have been made
to the Chadwick's historical income statement to conform with Brylane's
financial statement presentation. The unaudited pro forma statements of
operations and unaudited pro forma balance sheet are not necessarily
indicative of what the consolidated statements of operations and the
consolidated balance sheet actually would have been had the transactions
occurred at February 4, 1996 or August 2, 1997, respectively, nor do they
purport to indicate the results of future operations of the Company.
22
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THE COMPANY
--------------------------------------
FISCAL YEAR TWENTY-SIX WEEKS ENDED
ENDED -------------------------
FEB. 1, 1997 AUG. 3, 1996 AUG. 2, 1997
------------ ------------ ------------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C>
Net sales............................... $1,167,527 $ 533,525 $ 603,457
Cost of goods sold...................... 601,859 273,377 309,971
Non-recurring inventory charge.......... 1,657 -- 3,315
---------- ---------- ----------
Gross profit............................ 564,011 260,148 290,171
Operating expenses:
Catalog and advertising expense....... 279,582 134,867 137,879
Fulfillment expense................... 104,358 45,071 56,415
Support services expense.............. 82,026 36,292 43,750
Intangibles and organization cost am-
ortization........................... 10,927 5,464 5,466
---------- ---------- ----------
Total operating expenses............ 476,893 221,694 243,510
---------- ---------- ----------
Operating income........................ 87,118 38,454 46,661
Interest expense, net................... 37,615 18,937 16,670
---------- ---------- ----------
Income before income taxes and extraor-
dinary charge.......................... 49,503 19,517 29,991
Provision for income taxes.............. 18,316 7,222 11,097
---------- ---------- ----------
Income before extraordinary charge...... $ 31,187 $ 12,295 $ 18,894
========== ========== ==========
Income per share before extraordinary
charge................................. $ 1.75 $ 0.69 $ 1.06
Weighted average shares outstanding..... 17,789,788 17,789,060 17,858,870
</TABLE>
<TABLE>
<CAPTION>
AT AUG. 2, 1997
---------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ --
Working capital................................................. 57,517
Total assets.................................................... 689,890
Short-term debt................................................. 20,000
Long-term debt (including current portion)...................... 366,351
Stockholders' equity............................................ 123,732
</TABLE>
23
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------------------------------------
COMPANY CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA INITIAL COMMON PRO FORMA
FIFTY-TWO FORTY-FIVE CHADWICK'S AFTER PUBLIC STOCK FISCAL YEAR
WEEKS ENDED WEEKS ENDED ACQUISITION CHADWICK'S OFFERING REPURCHASE ENDED
FEB. 1, 1997 DEC. 7, 1996(1) ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTMENTS FEB. 1, 1997
------------ ---------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $705,353 $462,174 $ $1,167,527 $ $ $1,167,527
Cost of goods sold...... 346,572 254,045 1,242 (2) 601,859 601,859
Non-recurring inventory
charge................. 1,657 -- 1,657 1,657
-------- -------- -------- ---------- -------- ------- ----------
Gross profit............ 357,124 208,129 (1,242) 564,011 564,011
Operating expenses:
Catalog and advertising
expense................ 186,985 92,597 279,582 279,582
Fulfillment expense..... 55,450 45,768 3,140 (3) 104,358 104,358
Support services
expense................ 54,422 27,604 82,026 82,026
Intangibles and
organization cost
amortization........... 6,518 -- 4,409 (4) 10,927 10,927
-------- -------- -------- ---------- -------- ------- ----------
Total operating
expenses............... 303,375 165,969 7,549 476,893 476,893
-------- -------- -------- ---------- -------- ------- ----------
Operating income........ 53,749 42,160 (8,791) 87,118 87,118
Interest expense, net... 24,026 5,112 13,165 (5) 37,557 (6,709)(10) 7,623 (15) 37,615
(744)(6) (420)(11) 153 (16)
(5,112)(7) (589)(12)
1,110 (8)
-------- -------- -------- ---------- -------- ------- ----------
Income before income
taxes and extraordinary
charge................. 29,723 37,048 (17,210) 49,561 7,718 (7,776) 49,503
Provision for income
taxes.................. 315 12,355 (12,355)(9) 315 2,856 (13) (2,877)(13) 18,316
18,022 (14)
-------- -------- -------- ---------- -------- ------- ----------
Income before
extraordinary charge... $ 29,408 $ 24,693 $ (4,855) $ 49,246 $(13,160) $(4,899) $ 31,187
======== ======== ======== ========== ======== ======= ==========
Income per share before
extraordinary
charge(17)............. $ 1.75
Weighted average shares
outstanding(17)........ 17,789,788
<CAPTION>
TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
----------------------------------------------------------------------------------------------------
COMPANY CHADWICK'S
HISTORICAL HISTORICAL PRO FORMA INITIAL COMMON PRO FORMA
TWENTY-SIX TWENTY-SIX CHADWICK'S AFTER PUBLIC STOCK TWENTY-SIX
WEEKS ENDED WEEKS ENDED ACQUISITION CHADWICK'S OFFERING REPURCHASE WEEKS ENDED
AUG. 3, 1996 JULY 27, 1996(1) ADJUSTMENTS ACQUISITION ADJUSTMENTS ADJUSTMENTS AUG. 3, 1996
------------ ---------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $308,625 $224,900 $ $ 533,525 $ $ $ 533,525
Cost of goods sold ..... 149,898 122,269 1,210 (2) 273,377 273,377
-------- -------- -------- ---------- -------- ------- ----------
Gross profit............ 158,727 102,631 (1,210) 260,148 260,148
Operating expenses:
Catalog and advertising
expense................ 88,988 45,879 134,867 134,867
Fulfillment expense..... 18,380 24,853 1,838 (3) 45,071 45,071
Support services
expense................ 21,701 14,591 36,292 36,292
Intangibles and
organization cost
amortization........... 2,818 2,646 (4) 5,464 5,464
-------- -------- -------- ---------- -------- ------- ----------
Total operating
expenses............... 131,887 85,323 4,484 221,694 221,694
-------- -------- -------- ---------- -------- ------- ----------
Operating income........ 26,840 17,308 (5,694) 38,454 38,454
Interest expense, net... 10,791 2,795 7,899 (5) 18,910 (3,355)(10) 3,811 (15) 18,937
(447)(6) (210)(11) 76 (16)
(2,795)(7) (295)(12)
667 (8)
-------- -------- -------- ---------- -------- ------- ----------
Income before income
taxes and extraordinary
charge................. 16,049 14,513 (11,018) 19,544 3,860 (3,887) 19,517
Provision for income
taxes.................. 57 5,994 (5,994)(9) 57 1,428 (13) (1,438)(13) 7,222
7,175 (14)
-------- -------- -------- ---------- -------- ------- ----------
Income before extraordi-
nary charge ........... $ 15,992 $ 8,519 $ (5,024) $ 19,487 $ (4,743) $(2,449) $ 12,295
======== ======== ======== ========== ======== ======= ==========
Income per share before
extraordinary
charge(17)............. $ 0.69
Weighted average shares
outstanding(17)........ 17,789,060
</TABLE>
(notes begin on page 27)
24
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997
--------------------------------------------------------------
COMPANY
HISTORICAL
TWENTY-SIX INITIAL COMMON PRO FORMA
WEEKS ENDED PUBLIC STOCK TWENTY-SIX
AUG. 2, OFFERING REPURCHASE WEEKS
1997 ADJUSTMENTS ADJUSTMENTS AUG. 2, 1997
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $603,457 $ $ $ 603,457
Cost of goods sold ..... 309,971 309,971
Non-recurring inventory
charge................. 3,315 3,315
-------- ------ ------- ----------
Gross profit............ 290,171 290,171
Operating expenses:
Catalog and advertising
expense................ 137,879 137,879
Fulfillment expense..... 56,415 56,415
Support services
expense................ 43,750 43,750
Intangibles and
organization cost
amortization........... 5,466 5,466
-------- ------ ------- ----------
Total operating
expenses............... 243,510 243,510
-------- ------ ------- ----------
Operating income........ 46,661 46,661
Interest expense, net... 13,685 (572)(10) 3,811(15) 16,670
(35)(11) 76(16)
(295)(12)
-------- ------ ------- ----------
Income before income
taxes and extraordinary
charge................. 32,976 902 (3,887) 29,991
Provision for income
taxes.................. 12,742 334 (13) (1,438)(13) 11,097
(541)(14)
-------- ------ ------- ----------
Income before extraordi-
nary charge ........... $ 20,234 $1,109 $(2,449) $ 18,894
======== ====== ======= ==========
Income per share before
extraordinary
charge(17)............. $ 1.06
Weighted average shares
outstanding(17)........ 17,858,870
</TABLE>
(notes begin on page 27)
25
<PAGE>
THE COMPANY
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON
STOCK
HISTORICAL REPURCHASE PRO FORMA
AUGUST 2, 1997 ADJUSTMENTS AUGUST 2, 1997
-------------- ----------- --------------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents......... $ -- $ $ --
Accounts receivable deferred
billing (net).................... 7,503 7,503
Accounts receivable............... 9,401 9,401
Inventories....................... 188,543 188,543
Paper inventory................... 18,059 18,059
Catalog costs..................... 24,676 24,676
Other............................. 5,252 5,252
--------- --------- ---------
Total current assets............ 253,434 253,434
Property & equipment, net........... 76,338 76,338
Organization & deferred financing
costs.............................. 3,979 763 (18) 4,742
Intangibles & other assets.......... 337,825 337,825
Deferred income taxes............... 17,551 17,551
--------- --------- ---------
Total assets.................... $ 689,127 $ 763 $ 689,890
========= ========= =========
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................. $ 109,370 $ $ 109,370
Accrued interest.................. 6,223 6,223
Accrued expenses.................. 41,675 41,675
Income taxes payable.............. 2,364 2,364
Reserve for returns............... 11,285 11,285
Short-term debt................... 20,000 20,000
Current portion of long-term debt. 9,028 (4,028)(19) 5,000
--------- --------- ---------
Total current liabilities....... 199,945 (4,028) 195,917
--------- --------- ---------
Long-term debt...................... 255,251 115,920 (20) 361,351
(9,820)(12)
Other long-term liabilities......... 7,390 7,390
--------- --------- ---------
Total liabilities............... 462,586 102,072 564,658
Series A Convertible Redeemable
Preferred Stock.................... 1,500 1,500
Stockholders' equity:
Common stock, $.01 par value
40,000,000 shares authorized;
19,471,445 shares issued and
outstanding at August 2, 1997
(17,328,552 shares outstanding on
a pro forma basis)............... 195 3 (12) 198
Additional paid in capital, net of
loans to management investors.... 287,849 9,817 (12) 297,666
Reduction for predecessor cost-
carryover basis.................. (152,067) (152,067)
Treasury stock.................... -- (110,625)(20) (110,625)
Retained earnings................. 89,064 (504)(21) 88,560
--------- --------- ---------
Total stockholders' equity...... 225,041 (101,309) 123,732
--------- --------- ---------
Total liabilities &
stockholders' equity........... $ 689,127 $ 763 $ 689,890
========= ========= =========
</TABLE>
26
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Brylane acquired the assets of Chadwick's (excluding substantially all
accounts receivable) on December 9, 1996. The pro forma adjustments reflect
the results of operations of Chadwick's prior to the Chadwick's Acquisition
for the forty-five weeks ended December 7, 1996. Certain reclassifications
among line items have been made to the historical statement of operations to
conform with the Company's financial statement presentation. Such
reclassifications had no effect on previously reported net income.
(2) Reflects the removal of the change in the capitalized buying and
fulfillment center costs in order to conform Chadwick's accounting policies
with those of Brylane's.
(3) Includes the recognition of the costs related to the sale of the
deferred billing receivables to Alliance Data Systems Corporation. Calculated
using the average outstanding deferred billing receivables balance at the end
of the month for the corresponding period.
(4) Includes goodwill amortization on a straight-line basis of $179,485,000
over 40 years and amortization on a straight-line basis of the acquired
customer file of $4,020,000 over five years.
(5) Includes interest expense on the net increase in indebtedness of
$210,645,000 incurred to finance the Chadwick's Acquisition at 7.5% for the
year ended February 1, 1997 and the twenty-six weeks ended August 3, 1996. A
change of 1/4% in the interest rate payable on the outstanding balance under
the 1996 Bank Credit Facility would change annual interest expense by
approximately $527,000 before the effect of income taxes.
(6) In connection with the repayment of the 1993 Bank Credit Facility, a pro
rata portion of the deferred financing fees associated with the obligations
repaid were written off as a charge to operations. This expense was $2,456,000
($1,547,000 net of tax) with a related future tax benefit of $909,000. This
non-recurring charge has not been included in the pro forma as adjusted
statements of operations. The annual reduction of amortization expense
attributable to the write-off is $893,000.
(7) Reflects the elimination of interest expense related to the advances
from TJX.
(8) Represents amortization of deferred financing fees related to the 1996
Bank Credit Facility of $7,005,000 over the term of the debt.
(9) Reflects adjustments for federal and state income taxes as if Chadwick's
had been taxed as a Partnership during these periods.
(10) Includes a reduction of interest expense of $6,709,000, $3,355,000 and
$572,000 for the fifty-two weeks ended February 1, 1997, and the twenty-six
weeks ended August 3, 1996 and August 2, 1997, respectively, as a result of
the prepayment of $89,280,000 of indebtedness outstanding under the 1996 Bank
Credit Facility (assuming the average interest rate in effect during the
related period).
(11) In connection with the Initial Public Offering, a pro rata portion of
the deferred financing fees associated with the obligations to be repaid were
written off as a charge to operations. This expense was $2,100,000 ($1,323,000
net of tax) with a related future tax benefit of $777,000, which is realized
over the term of the underlying debt obligations for tax purposes. This non-
recurring charge has not been included in the pro forma statements of
operations. The annual reduction of amortization expense attributable to the
write-off is approximately $420,000.
(12) Reflects the conversion by the TJX Noteholder of a portion of the
Convertible Note into 357,107 shares of Common Stock in connection with the
Offerings and the Common Stock Repurchase and the related reduction of
interest expense.
(13) Reflects income taxes at a rate of 37.0% with respect to the Initial
Public Offering and the Common Stock Repurchase.
(14) Recognition of income tax expense since the Company is a C-corporation
and will pay income taxes directly, whereas the Partnership, under the
partnership form of doing business, passed through the tax effects of its
profits and losses to its partners. The tax provision has been computed using
an estimated effective rate of 37.0%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Certain Tax
Matters".
27
<PAGE>
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS--(CONTINUED)
(15) Reflects interest expense at a rate of 6.8125% on the increase of
$111,892,000 in indebtedness used to repurchase an aggregate of 2,500,000
shares of the Company's Common Stock. A change of 1/4% in the interest rate
payable on the outstanding balance under the Amended 1997 Bank Credit Facility
would change annual interest expense by approximately $280,000 before the
effect of income taxes.
(16) Represents amortization over the term of the debt of deferred financing
fees of $763,000 related to the replacement of the 1997 Bank Credit Facility
with the Amended 1997 Bank Credit Facility.
(17) Pro forma income per share has been calculated for all periods
presented assuming that 4,000,000 shares issued in connection with the Initial
Public Offering and 1,352,362 shares reserved for future issuance upon the
exercise of options outstanding under the Company's option plans as of August
2, 1997 were outstanding for all periods presented. The options considered as
Common Stock equivalents as determined using the treasury stock method were
386,923, 386,923 and 455,318 at February 1, 1997, August 3, 1996 and August 2,
1997, respectively. Had the current stock price of $39.00 been used the
options considered as common stock equivalents would have been 664,717 at
February 1, 1997 and August 3, 1996, and 673,862 at August 2, 1997.
Weighted average shares used to calculate net income per share for the year
ended February 1, 1997 are 19,932,681 shares prior to the Common Stock
Repurchase and 17,789,788 shares after the Common Stock Repurchase. For the
twenty-six weeks ended August 3, 1996, weighted average shares are 19,931,953
shares prior to the Common Stock Repurchase and 17,789,060 shares after the
Common Stock Repurchase, and for the twenty-six weeks ended August 2, 1997,
weighted average shares are 20,001,763 shares prior to the Common Stock
Repurchase and 17,858,870 shares after the Common Stock Repurchase.
(18) Represents payment and capitalization of fees associated with the
Amended 1997 Bank Credit Facility.
(19) Reflects the reclassification of debt from current to long-term based
on the repayment schedule contained in the Amended 1997 Bank Credit Facility.
(20) Represents borrowings under the Amended 1997 Bank Credit Facility that
will be used to finance the repurchase of an aggregate of 2,500,000 shares of
Common Stock by the Company with the associated reduction to stockholder's
equity for the treasury stock.
(21) Reflects the charge associated with the payment of fees and expenses
related to the Offerings, net of tax.
28
<PAGE>
SELECTED FINANCIAL DATA
THE COMPANY
The following table presents certain historical financial data of the
Company for the periods indicated. The balance sheet data at January 30, 1993,
July 31, 1993, January 29, 1994, January 28, 1995, February 3, 1996, and
February 1, 1997 and the statements of operations data for the fiscal years
ended January 30, 1993, January 28, 1995, February 3, 1996, and February 1,
1997 and for the twenty-six weeks ended July 31, 1993 and January 29, 1994,
have been derived from the combined and consolidated financial statements of
the Company. The statements of operations data for the combination of the
historical fifty-two weeks ended January 29, 1994 have been derived by
summing, without adjustment, the audited financial statements of the
Predecessor for the twenty-six weeks ended July 31, 1993 and of the
Partnership for the twenty-six weeks ended January 29, 1994. The balance sheet
data at August 3, 1996 and August 2, 1997 and the statements of operations
data for the twenty-six weeks ended August 3, 1996 and August 2, 1997 have
been derived from the unaudited consolidated financial statements of the
Company. The information below should be read in conjunction with "Unaudited
Pro Forma Financial Statements", "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and the combined and
consolidated financial statements of the Company and related notes thereto
included elsewhere in this Prospectus. In the opinion of the Company's
management, the unaudited financial statements were prepared on the same basis
as the audited financial statements and include all adjustments, consisting of
normal recurring adjustments, necessary to present fairly the information set
forth herein. The statements of operations data for the twenty-six weeks ended
August 2, 1997 may not be indicative of results to be expected for the full
year.
<TABLE>
<CAPTION>
COMBINATION OF
PREDECESSOR PARTNERSHIP HISTORICAL THE COMPANY(1)
---------------------- ----------- -------------- --------------------------------------------
TWENTY-SIX WEEKS
FISCAL TWENTY-SIX TWENTY-SIX FIFTY-TWO FISCAL YEAR ENDED ENDED
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED -------------------------- -----------------
JAN. 30, JULY 31, JAN. 29, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1993 1994 1994 1995 1996(2) 1997 1996 1997
---------- ----------- ----------- -------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER UNIT/SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERA-
TIONS DATA:
Net sales.............. $424,523 $242,086 $247,780 $489,866 $578,530 $601,055 $705,353 $308,625 $603,457
Cost of goods sold..... 212,103 122,530 124,224 246,754 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge(3)............. -- -- 11,487 11,487 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- -------- -------- -------- -------- --------
Gross profit........... 212,420 119,556 112,069 231,625 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and advertis-
ing expense.......... 113,432 61,165 66,860 128,025 153,830 174,446 186,985 88,988 137,879
Fulfillment expense... 33,199 18,335 21,477 39,812 41,656 37,333 55,450 18,380 56,415
Support services ex-
pense................ 22,886 12,964 13,377 26,341 35,152 37,024 54,422 21,701 43,750
Intangibles and
organization cost
amortization......... -- -- 2,121 2,121 4,242 4,707 6,518 2,818 5,466
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating ex-
penses.............. 169,517 92,464 103,835 196,299 234,880 253,510 303,375 131,887 243,510
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating income....... 42,903 27,092 8,234 35,326 52,819 48,562 53,749 26,840 46,661
Interest expense, net.. -- -- 10,060 10,060 19,576 20,624 24,026 10,791 13,685
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary charge.. 42,903 27,092 (1,826) 25,266 33,243 27,938 29,723 16,049 32,976
Provision for income
taxes(4).............. 16,700 10,600 75 10,675 89 88 315 57 12,742
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary charge.. 26,203 16,492 (1,901) 14,591 33,154 27,850 29,408 15,992 20,234
Extraordinary charge,
net of related tax-
es(5)................. -- -- -- -- -- -- 2,456 -- 4,110
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ 26,203 $ 16,492 $ (1,901) $ 14,591 $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
======== ======== ======== ======== ======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS
OF OPERATIONS DATA:
Income (loss) before
income taxes and ex-
traordinary charge.... $ (1,826) $ 25,266 $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Provision for income
taxes(6).............. (676) 9,924 12,300 10,337 10,998 5,938 12,201
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary charge.. (1,150) 15,342 20,943 17,601 18,725 10,111 20,775
Extraordinary charge,
net of related taxes.. -- -- -- -- 1,547 -- 4,110
-------- -------- -------- -------- -------- -------- --------
Net income (loss)...... $ (1,150) $ 15,342 $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ======== ======== ========
Earnings per unit/share
before extraordinary
charge................ $ 1.34 $ 1.40 $ 0.75 $ 1.07
Earnings per
unit/share............ $ 1.34 $ 1.29 $ 0.75 $ 0.86
Weighted average
units/shares outstand-
ing................... 13,107 13,366 13,420 19,452
</TABLE>
29
<PAGE>
SELECTED FINANCIAL DATA--(CONTINUED)
THE COMPANY
<TABLE>
<CAPTION>
COMBINATION OF
PREDECESSOR PARTNERSHIP HISTORICAL THE COMPANY(1)
---------------------- ----------- -------------- ------------------------------------------------
TWENTY-SIX WEEKS
FISCAL TWENTY-SIX TWENTY-SIX FIFTY-TWO FISCAL YEAR ENDED ENDED
YEAR ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED ---------------------------- ------------------
JAN. 30, JULY 31, JAN. 29, JAN. 29, JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1993 1993 1994 1994 1995 1996(2) 1997 1996 1997
---------- ----------- ----------- -------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING AND OTHER
DATA:
Gross profit (before
non-recurring inventory
charge) as a percentage
of net sales........... 50.0% 49.4% 49.9% 49.6% 50.2% 50.4% 50.8% 51.4% 48.6%
Catalog and advertising
expense as a percentage
of net sales........... 26.7% 25.3% 27.0% 26.1% 26.6% 29.0% 26.5% 28.8% 22.9%
EBITDA(7)............... $46,149 $28,566 $23,425 $51,991 $ 62,785 $ 57,488 $ 69,145 $ 31,808 $ 60,931
Number of catalogs
mailed................. 181,799 106,448 122,850 229,298 298,734 311,671 333,020 156,018 285,868
Names in customer
files(8)............... 6,561 6,834 7,340 8,905 10,158 21,995 10,982 22,727
Active customers(9)..... 3,708 3,826 4,189 5,159 5,308 10,034 5,358 10,352
BALANCE SHEET DATA (END
OF PERIOD):
Cash and cash equiva-
lents.................. -- -- $10,043 $ 28,495 $ 7,469 $ 3,285 $ 19,881 --
Working capital......... $23,112 $27,544 27,380 42,074 41,635 81,728 52,534 $ 53,489
Total assets............ 89,132 95,882 255,051 286,491 327,903 705,234 337,576 689,127
Short-term debt......... -- -- -- -- -- -- -- 20,000
Long-term debt
(including current
portion)............... -- -- 229,070 214,168 226,740 427,362 220,041 264,279
Partnership/Stockholder's
equity (deficit)....... 39,619 42,789 (31,333) 1,777 27,187 103,863 40,770 225,041
</TABLE>
- -------
(1) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(2) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect
the fair market value of the inventory at the respective acquisition dates
as more fully described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The increases in inventory
value had been fully amortized into cost of goods sold as of April 30,
1994 for the Brylane Acquisition, as of February 3, 1996 for the KingSize
Acquisition, and as of August 2, 1997 for the Chadwick's Acquisition.
(4) Represents provision for income taxes as a corporate division of The
Limited during the fiscal year ended January 30, 1993 and the twenty-six
weeks ended July 31, 1993, and as a partnership for the twenty-six weeks
ended January 29, 1994, the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997 and the twenty-six weeks ended
August 3, 1996, and as a corporation for the twenty-six weeks ended August
2, 1997.
(5) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility. See "Management's Discussion and Analysis of Results of
Operations and Financial Condition".
(6) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(7) EBITDA represents earnings before taking into consideration interest
expense, income tax expense, depreciation and amortization expense, non-
recurring inventory charges, extraordinary charge related to the write-off
of deferred financing fees, and non-cash compensation expense related to
the 1993 Option Plan. The use of such information is intended only to
supplement the conventional income statement presentation, and is not to
be considered as an alternative to net income or any other indicator of
Brylane's operating performance which is presented in accordance with
generally accepted accounting principles above.
(8) This information includes the names contained in all of the Company's
customer files as of the last day of the preceding calendar quarter and
also includes names contained in the Sears customer file as of the same
date. The names in the customer files consist of customers who have placed
an order within the preceding 48 months ending on the last day of the
preceding calendar quarter. Names contained in the Sears customer file
have increased from 92,000 at December 31, 1993 to 2.4 million at June 30,
1997.
(9) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter. Active customers
contained in the Sears customer file have increased from 92,000 at
December 31, 1993 to 1.1 million at June 30, 1997.
30
<PAGE>
SELECTED FINANCIAL DATA
CHADWICK'S
The following table presents certain historical financial data of Chadwick's
for the five-year period ended January 27, 1996. The information related to
the income statement data for the years ended January 29, 1994, January 28,
1995, and January 27, 1996, and the balance sheet data as of January 28, 1995
and January 27, 1996, are derived from audited combined financial statements
of Chadwick's. The income statement data for the thirty-nine weeks ended
October 28, 1995 and October 26, 1996, and for the years ended January 25,
1992 and January 30, 1993, and the balance sheet data as of January 25, 1992,
January 30, 1993, January 29, 1994, October 28, 1995 and October 26, 1996, is
derived from unaudited combined financial statements of Chadwick's. Due to
different classifications within line items, the Chadwick's line items are not
directly comparable to those of Brylane. The information below should be read
in conjunction with "Unaudited Pro Forma Financial Statements", "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
the combined financial statements of Chadwick's and related notes thereto
included elsewhere in this Prospectus. In the opinion of Chadwick's
management, the unaudited financial statements were prepared on the same basis
as the audited financial statements and included all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the information
set forth herein. The results of operations for the thirty-nine weeks ended
October 26, 1996 may not be indicative of results to be expected for the full
year.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
------------------------------------------------ ------------------
JAN. 25, JAN. 30, JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1992 1993(1) 1994 1995 1996 1995 1996
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $173,374 $295,532 $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales, including
buying and order
fulfillment costs...... 106,111 183,186 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 67,263 112,346 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and
order processing costs. 55,656 90,366 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- -------- -------- --------
Income from operations.. 11,607 21,980 23,604 5,457 26,448 17,570 34,409
Interest expense (in-
come), net............. (213) (33) 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
changes................ 11,820 22,013 20,226 1,517 19,528 12,359 29,917
Provision for income
taxes.................. 4,712 8,829 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary items and
cumulative effect of
accounting changes..... $ 7,108 $ 13,184 $ 12,285 $ 1,262 $ 11,674 $ 7,391 $ 17,562
======== ======== ======== ======== ======== ======== ========
Net income(2)........... $ 7,108 $ 13,184 $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
======== ======== ======== ======== ======== ======== ========
OPERATING AND OTHER
DATA:
Gross profit as a per-
centage of net sales... 38.8% 38.0% 36.5% 37.2% 40.1% 40.5% 44.3%
EBITDA(3)............... $ 13,580 $ 25,116 $ 28,109 $ 11,156 $ 33,160 $ 22,625 $ 39,428
Number of catalogs
mailed................. 78,555 123,064 213,168 234,973 196,073 169,749 149,607
Names in customer
file(4)................ 3,601 5,151 7,501 9,421 10,248 10,020 10,693
Active customers(5)..... 1,970 3,113 4,500 4,956 4,399 4,579 4,242
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 9,228 $ 20,777 $ 52,368 $ 44,409 $ 77,843 $102,401 $116,618
Total assets............ 70,673 121,094 156,095 177,625 199,215 243,213 272,914
Long-term debt (includ-
ing current por-
tion)(6)............... 7,580 22,152 52,154 47,391 70,769 99,404 88,587
Net assets.............. 21,420 34,604 47,269 48,339 56,675 55,730 74,237
</TABLE>
- -------
(1) The fiscal year ended January 30, 1993 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in the
fiscal year ended January 28, 1995 and $3,338,000 in the fiscal year ended
January 27, 1996.
(3) EBITDA represents earnings before taking into consideration interest
expense, income tax expense and depreciation and amortization expense. The
use of such information is intended only to supplement the conventional
income statement presentation, and is not to be considered as an
alternative to net income or any other indicator of Chadwick's operating
performance which is presented in accordance with generally accepted
accounting principles above.
(4) This information includes the names contained in Chadwick's customer file
as of the last day of the preceding calendar quarter. The names in the
customer file consist of customers who have placed an order within the 48
months ending on the last day of the preceding calendar quarter.
(5) Represents customers who have placed an order within the 12 months ending
on the last day of the preceding calendar quarter.
(6) Includes loans and advances from TJX.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
"Selected Financial Data", the "Unaudited Pro Forma Financial Statements" and
the respective financial statements of the Company and Chadwick's and related
notes thereto included elsewhere in this Prospectus. Both the Company and
Chadwick's use a 53/52 week fiscal year for financial reporting purposes.
As a result of the Chadwick's Acquisition and the application of purchase
accounting related thereto, the Company's results of operations for fiscal
1996 and the twenty-six weeks ended August 2, 1997 reflect a non-recurring
inventory charge of $1.7 million and $3.3 million, respectively, related to
the write-up of Chadwick's inventory of $5.0 million. The subsequent
amortization of such write-up into cost of goods sold reduced the Company's
gross margin in fiscal 1996 and the twenty-six weeks ended August 2, 1997. In
addition, the Company's results will reflect additional amortization expense
associated with the write-up of certain intangible assets related to the
Chadwick's Acquisition of $5.3 million per year. Furthermore, Brylane entered
into an agreement whereby a third party has committed to purchase certain
accounts receivable generated by Chadwick's deferred billing programs.
Consequently, since the Chadwick's Acquisition, accounts receivable related to
the Chadwick's catalog have been significantly lower than in Chadwick's
historical periods, and the Company's operating expenses have increased due to
costs associated with the sale of such receivables. See "Certain Relationships
and Related Transactions--Additional Agreements--Accounts Receivable Purchase
Agreement".
In addition to the amortization expense related to the Chadwick's
Acquisition described above, the Company's results will reflect the
amortization of intangible assets related to the Brylane Acquisition of
$4.2 million per year, step-up depreciation associated with the write-up of
certain fixed assets in connection with the Brylane Acquisition of $0.4
million per year, and the amortization of intangible assets related to the
KingSize Acquisition of $1.4 million per year. See "Selected Financial Data".
In connection with certain amendments to options previously granted under
the 1993 Option Plan, the Company incurred non-cash compensation expense
totalling $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.
The Company used the net proceeds received from the Initial Public Offering
to prepay approximately $89.3 million of borrowings outstanding under the term
loans of the 1996 Bank Credit Facility, which resulted in an extraordinary
charge of approximately $1.3 million, net of taxes, related to the write off
of deferred financing costs. Subsequent thereto, 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 Company replaced the 1996 Bank
Credit Facility with the 1997 Bank Credit Facility (which resulted in lower
interest expense, and an extraordinary charge of approximately $2.8 million,
net of taxes, related to the write off of deferred financing costs), and made
$2.1 million of prepayments on the 1997 Bank Credit Facility. On May 2, 1997,
the Company used an additional $10.0 million of excess cash to prepay
indebtedness outstanding under the 1997 Bank Credit Facility. Subsequent to
May 3, 1997, the Company used the $28.8 million in cash received from TJX in
connection with the preliminary purchase price adjustment, as well as cash
generated from operations, to prepay an additional $50.0 million in
indebtedness outstanding under the 1997 Bank Credit Facility. See "--Liquidity
and Capital Resources".
As a result of the Incorporation Plan, Brylane Inc. became subject to the
payment of federal and state income taxes. Previously, income tax expense was
not recorded on the books and records of Brylane, L.P.; however, payments
approximating such taxes were distributed to all of Brylane, L.P.'s partners
based upon the tax liabilities with respect to the income allocated to certain
of Brylane, L.P.'s partners. See "--Liquidity and Capital Resources" and "--
Certain Tax Matters".
32
<PAGE>
To finance the Common Stock Repurchase, the Company will enter into an
amendment to its 1997 Bank Credit Facility (the "Amended 1997 Bank Credit
Facility") and borrow approximately $111.9 million thereunder, resulting in
long-term debt (including current portion) of approximately $366.4 million.
See "Unaudited Pro Forma Financial Statements". Borrowings under the Amended
1997 Bank Credit Facility will bear interest at LIBOR plus 1.25%. The Amended
1997 Bank Credit Facility will continue to contain financial and operating
covenants including, among other provisions, requirements that the Company
maintain certain financial ratios and satisfy certain financial tests,
restrictions on the ability to incur indebtedness, and limitations on the
amount of the Company's capital expenditures and common stock dividends. See
"--Liquidity and Capital Resources" and "Description of Certain Financing
Arrangements".
RESULTS OF OPERATIONS--BRYLANE
The following tables set forth certain operating data of the Company for the
periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
FISCAL YEAR ENDED ENDED
-------------------------- -----------------
JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1995 1996(1) 1997(2) 1996 1997(2)
-------- -------- -------- -------- --------
(UNAUDITED)
STATEMENTS OF OPERATIONS DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $578,530 $601,055 $705,353 $308,625 $603,457
Gross profit before non-recurring
inventory charge................. 290,313 302,641 358,781 158,727 293,486
Non-recurring inventory charge.... 2,614 569 1,657 -- 3,315
-------- -------- -------- -------- --------
Gross profit...................... 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and advertising expense.. 153,830 174,446 186,985 88,988 137,879
Fulfillment expense.............. 41,656 37,333 55,450 18,380 56,415
Support services expense......... 35,152 37,024 54,422 21,701 43,750
Amortization of acquisitions
intangibles and organization
costs........................... 4,242 4,707 6,518 2,818 5,466
-------- -------- -------- -------- --------
Operating income.................. 52,819 48,562 53,749 26,840 46,661
Add back: Non-recurring inventory
charge(3)....................... 2,614 569 1,657 -- 3,315
Add back: Amortization of
acquisition intangibles and
organization costs(4)........... 4,242 4,707 6,518 2,818 5,466
Add back: Non-cash compensation
expense(5)...................... -- -- 2,400 -- 349
-------- -------- -------- -------- --------
Operating income before
acquisition related adjustments.. $ 59,675 $ 53,838 $ 64,324 $ 29,658 $ 55,791
======== ======== ======== ======== ========
SUPPLEMENTAL STATEMENTS OF
OPERATIONS DATA:
Operating income................. $ 52,819 $ 48,562 $ 53,749 $ 26,840 $ 46,661
Interest expense, net............ 19,576 20,624 24,026 10,791 13,685
-------- -------- -------- -------- --------
Income before income taxes and
extraordinary charge............ 33,243 27,938 29,723 16,049 32,976
Provision for income taxes(6).... 12,300 10,337 10,998 5,938 12,201
-------- -------- -------- -------- --------
Income before extraordinary
charge.......................... $ 20,943 $ 17,601 $ 18,725 $ 10,111 $ 20,775
Extraordinary charge, net of tax-
es(7)........................... -- -- 1,547 -- 4,110
-------- -------- -------- -------- --------
Net income ...................... $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ======== ======== ======== ========
</TABLE>
33
<PAGE>
The following table expresses the operating data on the prior page as a
percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-
FISCAL YEAR ENDED SIX WEEKS ENDED
------------------------ ---------------
JAN. 28, FEB. 3, FEB. 1, AUG. 3, AUG. 2,
1995 1996(1) 1997(2) 1996 1997
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit before non-recurring
inventory charge..................... 50.2 50.4 50.8 51.4 48.6
Non-recurring inventory charge........ 0.5 0.1 0.2 0.0 0.5
----- ----- ----- ----- -----
Gross profit.......................... 49.7 50.3 50.6 51.4 48.1
Operating expenses:
Catalog and advertising expense...... 26.6 29.0 26.5 28.8 22.9
Fulfillment expense.................. 7.2 6.2 7.9 6.0 9.4
Support services expense............. 6.1 6.2 7.7 7.0 7.2
Amortization of acquisitions
intangibles and organization costs.. 0.7 0.8 0.9 0.9 0.9
----- ----- ----- ----- -----
Operating income...................... 9.1 8.1 7.6 8.7 7.7
Add back: Non-recurring inventory
charge(3)........................... 0.5 0.1 0.2 -- 0.5
Add back: Amortization of acquisition
intangibles and organization
costs(4)............................ 0.7 0.8 0.9 0.9 0.9
Add back: Non-cash compensation
expense(5).......................... -- -- 0.4 -- 0.1
----- ----- ----- ----- -----
Operating income before acquisition
related adjustments.................. 10.3% 9.0% 9.1% 9.6% 9.2%
===== ===== ===== ===== =====
</TABLE>
- --------
(1) The fiscal year ended February 3, 1996 was a 53-week period. All other
fiscal years shown are 52-week periods.
(2) The Company's financial statements include the results of Chadwick's on a
consolidated basis from December 9, 1996, the closing date of the
Chadwick's Acquisition.
(3) The non-recurring inventory charges resulted from increasing inventory by
$14,101,000 for the Brylane Acquisition, by $569,000 for the KingSize
Acquisition and by $4,972,000 for the Chadwick's Acquisition to reflect
the fair market value of the inventory at August 1, 1993, the effective
date of the Brylane Acquisition, at October 1, 1995, the effective date of
the KingSize Acquisition, and at December 9, 1996 the effective date of
the Chadwick's Acquisition respectively. The increases in inventory value
had been fully amortized into cost of goods sold as of April 30, 1994 for
the Brylane Acquisition, as of February 3, 1996 for the KingSize
Acquisition, and as of August 2, 1997 for the Chadwick's Acquisition.
(4) 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 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 $179,485,000 over a
40-year life, and a customer file of $4,020,000 over a five-year life.
(5) Represents non-cash compensation expense related to amendments to options
granted under the Brylane, L.P. 1993 Partnership Unit Option Plan.
(6) Amounts reflect adjustments for federal and state income taxes as if the
Partnership had been taxed as a C-corporation during these periods.
(7) Consists of deferred financing fees written-off in connection with the
repayment of the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility.
34
<PAGE>
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996
The following table sets forth certain historical operating data of Brylane
and Chadwick's on an unaudited combined basis for the twenty-six weeks ended
August 3, 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>
TWENTY-SIX
WEEKS ENDED
-----------------
AUG. 3, AUG. 2,
1996 1997
-------- --------
<S> <C> <C>
Net sales.............................................. $533,526 $603,457
Gross profit before non-recurring inventory charge..... 260,357 293,486
Non-recurring inventory charge......................... -- 3,315
-------- --------
Gross profit........................................... 260,357 290,171
Operating expenses:
Catalog and advertising............................... 134,866 137,879
Fulfillment........................................... 43,232 56,415
Support services...................................... 37,926 43,750
Amortization of acquisition intangibles and
organization cost.................................... 5,464 5,466
-------- --------
Operating income....................................... 38,869 46,661
Add back: Non-recurring inventory charge(1)........... -- 3,315
Add back: Amortization of acquisition intangibles and
organization costs(2)................................ 5,464 5,466
Add back: Non-cash compensation expense(3)............ -- 349
-------- --------
Operating income before acquisition related and non-
recurring adjustments................................. $ 44,333 $ 55,791
======== ========
</TABLE>
The following table expresses the above operating data as a percentage of
net sales for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
---------------
AUG. 3, AUG. 2,
1996 1997
------- -------
<S> <C> <C>
Net sales................................................ 100.0% 100.0%
Gross profit before non-recurring inventory charge....... 48.8 48.6
Non-recurring inventory charge........................... -- 0.5
----- -----
Gross profit............................................. 48.8 48.1
Operating expenses:
Catalog and advertising................................. 25.3 22.9
Fulfillment............................................. 8.1 9.4
Support services........................................ 7.1 7.2
Amortization of acquisitions intangibles and
organization cost...................................... 1.0 0.9
----- -----
Operating income......................................... 7.3 7.7
Add back: Non-recurring inventory charges(1)............ -- 0.5
Add back: Amortization of acquisitions intangibles and
organization costs(2).................................. 1.0 0.9
Add back: Non-cash compensation expense(3).............. -- 0.1
----- -----
Operating income before acquisition related and non-
recurring adjustments................................... 8.3% 9.2%
===== =====
</TABLE>
(footnotes on following page)
35
<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 twenty-six weeks ended
August 2, 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 organization costs of $300,000 over five years and, 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
$179,485,000 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.
TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED
AUGUST 3, 1996
NET SALES. Net sales as reported for the twenty-six weeks ended August 2,
1997 increased to $603.5 million from $308.6 million in the comparable period
of fiscal 1996. The increase in net sales came principally from the inclusion
of the net sales from Chadwick's and also from the Company's other catalogs.
Net sales on a combined basis including Chadwick's for the twenty-six weeks
ended August 3, 1996 increased 13.1% to $603.5 million from $533.5 million.
The sales gain was due primarily to an increase in circulation and in an
increase in the average order size across all catalogs.
GROSS PROFIT. Gross profit for the twenty-six weeks ended August 2, 1997
increased to $290.2 million (48.1% of net sales) from $158.7 million (51.4% of
net sales) for the same period of fiscal 1996. The lower gross profit as a
percent of net sales is due to the inclusion of the Chadwick's catalogs which
have lower mark-ups on merchandise sold as compared to the Company's other
catalog titles and to a non-recurring inventory charge of $3.3 million (0.5%
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 twenty-six
weeks ended August 3, 1996 and eliminating the effects of the non-recurring
inventory charge in the twenty-six weeks ended August 2, 1997 increased to
$293.5 million (48.6% of net sales) from $260.4 million (48.8% of net sales).
The gross profit as a percent of net sales decreased 0.2 percentage points due
to higher planned markdowns and a change in the mailing date of a Fall catalog
with higher gross profit margins from July of last year to August of this
year.
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 twenty-six weeks ended August 2, 1997, catalog
and advertising expense increased to $137.9 million (22.9% of net sales) from
$89.0 million (28.8% 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 twenty-six weeks ended August 3, 1996 decreased on a percent of net sales
basis to 22.9% ($137.9 million) in 1997 from 25.3% ($134.9 million) in 1996.
This decrease on a percent of net sales basis was primarily due to the
renegotiation of certain printing contracts, reduced paper costs and an
increase in the sales productivity per catalog.
36
<PAGE>
FULFILLMENT EXPENSE. Fulfillment expense includes distribution center,
telemarketing, credit services and customer service expenses, partially offset
by net merchandise postage revenue. Fulfillment expense as reported for the
twenty-six weeks ended August 2, 1997 increased to $56.4 million (9.4% of net
sales) from $18.4 million (6.0% of net sales) for the same period in fiscal
1996. The increase on a percent of net sales basis was primarily due to the
acquisition of Chadwick's, which incurs higher fulfillment costs.
Fulfillment expense on a combined basis including Chadwick's for the twenty-
six weeks ended August 3, 1996 increased on a percent of net sales basis to
9.4% ($56.4 million) in 1997 from 8.1% ($43.2 million) in 1996. This increase
on a percent of net sales basis was primarily due to increased payroll in the
distribution center, telemarketing and other areas to meet increased customer
demand and to ensure a high level of customer service.
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 twenty-six
weeks ended August 2, 1997 increased to $43.8 million (7.2% of net sales) from
$21.7 million (7.0% of net sales) for the same period in fiscal 1996. The
increase 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
twenty-six weeks ended August 3, 1996 increased as a percent of net sales to
7.2% ($43.8 million) in 1997 from 7.1% ($37.9 million) in 1996. This slight
increase in support services expense as a percent of net sales was primarily
due to an increase in incentive compensation due to the strong performance of
the business during the Spring selling season and an increase in staffing to
support the growth of the business.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense for the twenty-six weeks ended August 2, 1997 included
$2.1 million related to the Brylane Acquisition, $0.7 million related to the
KingSize Acquisition and $2.6 million related to the Chadwick's Acquisition.
Acquisition related intangibles and organization cost amortization expense for
the twenty-six weeks ended August 3, 1996 included $2.1 million related to the
Brylane Acquisition and $0.7 million related to the KingSize Acquisition.
OPERATING INCOME. Operating income before acquisition related and non-
recurring adjustments for the twenty-six weeks ended August 2, 1997 increased
to $55.8 million (9.2% of net sales) from $29.7 million (9.6% of net sales)
for the same period of fiscal 1996. As a percent of net sales, operating
income decreased primarily as a result of the increase in fulfillment and
support service expenses partially offset by the decrease in catalog and
advertising expense, as described above.
Operating income before acquisition related and non-recurring adjustments,
on a combined basis including Chadwick's for the twenty-six weeks ended August
3, 1996 increased to $55.8 million (9.2% of net sales) in 1997 from $44.3
million (8.3% 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 expense, partially offset by the increase in fulfillment and
support services expense, as described above.
INTEREST EXPENSE. Interest expense, net, in the twenty-six weeks ended
August 2, 1997 increased to $13.7 million (2.3% of net sales) from $10.8
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 and other prepayments on the 1997 Bank Credit
Facility (as defined) and lower interest rates on the term loans of the 1997
Bank Credit Facility.
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY CHARGE. Income as reported
before income taxes and extraordinary charge increased to $33.0 million
($1.70 per share) for the twenty-six weeks ended August 2, 1997 from $16.0
million ($1.20 per share) for the same period of fiscal 1996. This increase
was due to the inclusion of Chadwick's.
37
<PAGE>
INCOME TAXES. Income taxes for the twenty-six weeks ended August 2, 1997
were $12.7 million or 38.5% of income before extraordinary charge. Income
taxes on supplemental income before extraordinary charge were $12.2 million or
37.0%. The difference between the effective income tax rate as reported and
the effective tax rate on supplemental net income relates primarily to the
allocation of loss to the Partnership for the period prior to the Initial
Public Offering. The difference between the effective tax rate on supplemental
net income of 37% and the federal statutory rate of 35% relates primarily to
state income taxes, net of federal tax benefit.
EXTRAORDINARY CHARGE. An extraordinary charge of $4.1 million ($0.21 per
share), net of tax, was recorded in the twenty-six weeks ended August 2, 1997
as a result of the early retirement of the debt outstanding under the 1996
Bank Credit Facility.
NET INCOME. After giving effect to the extraordinary charge, net income
increased to $16.1 million ($0.83 per share) for the twenty-six weeks ended
August 2, 1997 from $16.0 million ($1.19 per share) for the comparable period
of fiscal 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES. Net sales for the fifty-two weeks ended February 1, 1997
increased 17.4% to $705.4 million from $601.1 million for the fifty-three
weeks ended February 3, 1996. The increase in net sales was primarily due to
the acquisition of Chadwick's in December 1996. Excluding sales from
Chadwick's, net sales increased by 6.8% to $642.0 million for fiscal 1996 from
$601.1 million in fiscal 1995 primarily due to the acquisition of the KingSize
and Big & Tall catalogs, as well as increased sales from the Lerner catalog.
Excluding both net sales of $11.8 million related to Brylane's fifty-third
week of fiscal 1995 as well as sales from Chadwick's, net sales increased by
8.9% to $642.0 million for fiscal 1996 from $589.3 million in fiscal 1995.
GROSS PROFIT. Gross profit in fiscal 1996 improved to $357.1 million (50.6%
of net sales) from $302.1 million (50.3% of net sales) for fiscal 1995. The
gross profit for fiscal 1996 and 1995 includes the effect of non-recurring
charges of $1.7 million and $0.6 million, respectively, related to the step-up
of the value of inventory in connection with the Chadwick's Acquisition and
the KingSize Acquisition, respectively. Excluding the non-recurring inventory
charges, gross profit for fiscal 1996 improved to $358.8 million (50.8% of net
sales) from $302.6 million (50.4% of net sales) for fiscal 1995. The increase
in gross profit as a percent of net sales was primarily due to higher initial
mark-ups resulting from improved merchandise sourcing.
CATALOG AND ADVERTISING EXPENSE. For fiscal 1996, catalog and advertising
expense increased to $187.0 million (26.5% of net sales) from $174.4 million
(29.0% of net sales) for fiscal 1995. The decrease in catalog and advertising
expense as a percent of net sales in fiscal 1996 was due to a decrease in
catalog production costs per catalog produced, an increase in the sales
productivity per catalog, and the addition of the Chadwick's catalog with
lower overall advertising costs for the eight week period ended February 1,
1997.
FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1996 increased to $55.5
million (7.9% of net sales) from $37.3 million (6.2% of net sales) for fiscal
1995. As a percent of net sales, fulfillment expense was higher due to
increased shipping promotions used to stimulate sales.
SUPPORT SERVICES EXPENSE. Support services expense for fiscal 1996 increased
to $54.4 million (7.7% of net sales) from $37.0 million (6.2% of net sales)
for fiscal 1995. The increase in support services expense as a percent of net
sales was due to an increase in staffing to support the growth of the business
and to an increase in the license fee paid to Sears, partially offset by an
increase in licensing revenue received from third parties.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense in fiscal 1996 included $4.2 million related to the
Brylane Acquisition, $1.4 million related to the KingSize Acquisition and $0.9
million related to the Chadwick's Acquisition. Acquisition related intangibles
and organization cost amortization expense in fiscal 1995 included $4.2
million related to the Brylane Acquisition and $0.5 million related to the
KingSize Acquisition.
38
<PAGE>
OPERATING INCOME. Operating income before acquisition related amortization,
extraordinary charge and non-cash compensation expense in fiscal 1996
increased to $64.7 million (9.2% of net sales) from $54.2 million (9.0% of net
sales) for fiscal 1995. As a percent of net sales, operating income increased
as a result of the decrease in catalog and advertising expense as discussed
above and an increase in gross profit, partially offset by an increase in
fulfillment and support services expenses.
INTEREST EXPENSE. Interest expense, net, in fiscal 1996 increased to $24.0
million (3.4% of net sales) from $20.6 million (3.4% of net sales) for fiscal
1995 due to the effects of the borrowings of $35.0 million incurred in
connection with the KingSize Acquisition on October 16, 1995 and since
December 9, 1996, the effect of the increase in indebtedness for the financing
of the Chadwick's Acquisition, partially offset by slightly lower interest
rates on the term loans of the 1993 Bank Credit Facility.
INCOME TAXES. With respect to federal and state income taxes, the
Partnership is a limited partnership and therefore has generally not been
subject to income tax on its earnings. The Partnership's income taxes, which
represent federal and state income taxes on the Partnership's subsidiaries
which are C-Corporations, were $0.3 million and $0.1 million for fiscal 1996
and 1995, respectively. Upon consummation of the Incorporation Plan, the
Partnership became a wholly-owned subsidiary of the Company and, therefore,
the Partnership's earnings have since that time been attributable to the
Company and are subject to federal and state income taxes for future periods
due to the C-Corporation status of the Company. If income taxes had been
recorded as if Brylane was a C-Corporation during these periods, income taxes
would have been $11.0 million for fiscal 1996 and $10.3 million for fiscal
1995.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-Corporation, Brylane's net income would have decreased $0.4 million to
$17.2 million for fiscal 1996 from $17.6 million for fiscal 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES. Net sales for the fifty-three weeks ended February 3, 1996
increased 3.9% to $601.1 million from $578.5 million in the fifty-two weeks
ended January 28, 1995. The increase in net sales was primarily due to the
inclusion of additional sales resulting from the KingSize Acquisition, as well
as the additional week of net sales, and was partially offset by the
discontinuance of certain direct sell advertising programs in the fall of
1995. Excluding net sales associated with the KingSize Acquisition, the fifty-
third week and certain discontinued direct sell advertising programs,
Brylane's net sales increased 1.2% to $571.2 million in fiscal 1995 from
$564.5 million in fiscal 1994. The increase in net sales was primarily due to
slightly increased catalog circulation and essentially flat catalog
productivity.
GROSS PROFIT. Gross profit in fiscal 1995 improved to $302.1 million (50.3%
of net sales) from $287.7 million (49.7% of net sales) in fiscal 1994. The
gross profit for fiscal 1995 and 1994 includes the effect of non-recurring
charges of $0.6 million and $2.6 million, respectively, related to the step-up
of the value of inventory in connection with the KingSize Acquisition and the
Brylane Acquisition, respectively. Excluding the non-recurring inventory
charges, gross profit increased to $302.6 million (50.4% of net sales) in
fiscal 1995 from $290.3 million (50.2% of net sales) in fiscal 1994. The
increase in gross profit, excluding these charges, as a percent of net sales
was primarily due to higher initial markups and lower losses on overstock
inventory, partially offset by slightly higher promotional markdowns in fiscal
1995 versus fiscal 1994.
CATALOG AND ADVERTISING EXPENSE. Catalog and advertising expense in fiscal
1995 increased to $174.4 million (29.0% of net sales) from $153.8 million
(26.6% of net sales) in fiscal 1994. The increase in catalog and advertising
expense as a percent of net sales is primarily due to higher per catalog
production costs during fiscal 1995 resulting from increased paper prices and
postage rates as discussed below.
Effective January 1, 1995, the United States Postal Service (the "USPS")
increased postage rates by approximately 14% to 19%. In addition, Brylane
experienced increases in its paper costs since the second half of 1994, and
paper costs continued to rise during fiscal 1995. In response to these
increased costs, Brylane took
39
<PAGE>
steps designed to mitigate their impact, including limiting catalog
circulation increases by focusing on Brylane's more responsive customers, and
reducing the trim size and page count and changing the paper grade of certain
of its catalogs. However, Brylane was unable to fully offset these increased
paper and postage costs during fiscal 1995.
FULFILLMENT EXPENSE. Fulfillment expense in fiscal 1995 decreased to $37.3
million (6.2% of net sales) from $41.7 million (7.2% of net sales) in fiscal
1994. As a percent of net sales, fulfillment expense improved primarily due to
an increase in net merchandise postage revenue, improved telemarketing costs
and reduced credit card processing fees resulting from an amendment to
Brylane's Credit Card Agreement with World Financial Network National Bank
("World Financial"). Net merchandise postage revenue increased in fiscal 1995
primarily due to an increase in the shipping and handling rates charged to
customers, as well as the full year impact of the elimination of Brylane's
policy of refunding to customers the postage costs they incur in connection
with merchandise returns and exchanges. These changes were implemented in the
third quarter of fiscal 1994 in an effort to offset the increase in outgoing
postage expense resulting from the January 1, 1995 postage rate increase.
Improved telemarketing costs resulted from more efficient management of
payroll costs, which was facilitated by the installation of a new telephone
switch in fiscal 1994 and a reduction in the rate charged by Brylane's long
distance telephone service provider. Finally, Brylane experienced fewer
customer service adjustments for non-delivery of packages shipped via the USPS
as a result of policy changes made by Brylane in the customer service area.
SUPPORT SERVICES EXPENSE. Support services expense in fiscal 1995 increased
to $37.0 million (6.2% of net sales) from $35.2 million (6.1% of net sales) in
fiscal 1994. The increase in support services expense as a percent of net
sales is primarily due to higher expenses for staffing in the merchandising,
management information systems and human resources areas that were necessary
to support the growth of the business.
AMORTIZATION EXPENSE. Acquisition related intangibles and organization cost
amortization expense in fiscal 1995 included $4.2 million related to the
Brylane Acquisition and $0.5 million related to the KingSize Acquisition.
Acquisition related intangibles and organization cost amortization expense in
fiscal 1994 included $4.2 million related to the Brylane Acquisition.
OPERATING INCOME. Operating income before giving effect to amortization and
non-recurring inventory charges associated with the Brylane Acquisition and
KingSize Acquisition decreased to $54.2 million (9.0% of net sales) in fiscal
1995 from $60.0 million (10.4% of net sales) in fiscal 1994 as a result of the
increase in operating expenses as discussed above, partially offset by the
increase in gross profit margin.
INTEREST EXPENSE. Interest expense, net, in fiscal 1995 increased to $20.6
million (3.4% of net sales) from $19.6 million (3.4% of net sales) in fiscal
1994 due to increased borrowings of $35.0 million incurred in connection with
the KingSize Acquisition, higher interest rates during fiscal 1995, and
increased letters of credit under the revolving credit facility.
INCOME TAXES. The Partnership's income taxes, which represent federal and
state income taxes on the Partnership's subsidiaries which are C-corporations,
were $0.1 million and $0.1 million for fiscal 1995 and 1994, respectively.
Upon the consummation of the Incorporation Plan, the Partnership became a
wholly-owned subsidiary of the Company and, therefore, the Partnership's
earnings have since that time been attributable to the Company and are subject
to federal and state income taxes for future periods due to the C-corporation
status of the Company. If income taxes had been recorded as if Brylane was a
C-corporation during these periods, income taxes would have been $10.3 million
in fiscal 1995 and $12.3 million in fiscal 1994.
SUPPLEMENTAL NET INCOME. If income taxes had been recorded as if Brylane was
a C-corporation, Brylane's net income would have decreased $3.3 million to
$17.6 million in fiscal 1995 from $20.9 million in fiscal 1994.
40
<PAGE>
RESULTS OF OPERATIONS--CHADWICK'S
The following tables set forth certain operating data of Chadwick's for the
periods indicated.
<TABLE>
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
---------------------------- ------------------
JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................... $424,276 $432,660 $465,598 $355,671 $370,319
Cost of sales, including
buying and order fulfillment
costs....................... 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- --------
Gross profit................. 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative expenses,
including catalog and order
processing costs............ 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- --------
Income from operations....... 23,604 5,457 26,448 17,570 34,409
Interest expense (income),
net......................... 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- --------
Income before income taxes,
extraordinary items and
cumulative effect of
accounting changes.......... 20,226 1,517 19,528 12,359 29,917
Provision for income taxes... 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- --------
Income before extraordinary
items and cumulative effect
of accounting changes....... $ 12,285 $ 1,262 $ 11,674 $ 7,391 $ 17,562
======== ======== ======== ======== ========
Net income(1)................ $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
======== ======== ======== ======== ========
The following table sets forth certain operating data of Chadwick's
expressed as a percentage of net sales for the periods indicated.
<CAPTION>
THIRTY-NINE
FISCAL YEAR ENDED WEEKS ENDED
---------------------------- ------------------
JAN. 29, JAN. 28, JAN. 27, OCT. 28, OCT. 26,
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, including buy-
ing and order fulfillment
costs....................... 63.5 62.8 59.9 59.5 55.7
-------- -------- -------- -------- --------
Gross margin............... 36.5 37.2 40.1 40.5 44.3
Selling, general and adminis-
trative expenses, including
catalog and order processing
costs....................... 31.0 35.9 34.4 35.6 35.0
-------- -------- -------- -------- --------
Income from operations..... 5.6 1.3 5.7 4.9 9.3
Interest expense, net........ 0.8 0.9 1.5 1.5 1.2
-------- -------- -------- -------- --------
Income before income taxes,
extraordinary items and
cumulative effect of
accounting changes.......... 4.8% 0.4% 4.2% 3.4% 8.1%
======== ======== ======== ======== ========
</TABLE>
- --------
(1) Net income includes a credit of $380,000 for the cumulative effect of
accounting changes in the fiscal year ended January 29, 1994 and includes
extraordinary charges for the early retirement of debt of $192,000 in
fiscal year ended January 28, 1995 and $3,338,000 in fiscal year ended
January 27, 1996.
THIRTY-NINE WEEKS ENDED OCTOBER 26, 1996 COMPARED WITH THIRTY-NINE WEEKS ENDED
OCTOBER 28, 1995
Net sales for the thirty-nine weeks ended October 26, 1996 increased 4.1% to
$370.3 million from $355.7 million in the comparable period of the prior year.
Sales increased due to a significant increase in average order size, partially
offset by a 11.9% decrease in the number of catalogs mailed from 169.7 million
catalogs in the 1995 period to 149.6 million catalogs in the comparable period
of 1996. The improvements in operations
41
<PAGE>
and inventory management that began in the second quarter of 1995, as well as
the expansion of the deferred billing program, contributed to the increase in
average order size and net sales in the thirty-nine weeks of 1996.
Cost of sales, including buying and order fulfillment costs, as a percentage
of net sales decreased to 55.7% in the thirty-nine weeks ended October 26,
1996 from 59.5% in the thirty-nine weeks ended October 28, 1995. The
improvement reflects improved merchandise sourcing and a reduction in
fulfillment center labor and shipping costs as a percentage of net sales. In
addition, results for the thirty-nine weeks ended October 28, 1995 did not
fully reflect the benefit of operating improvements initiated during that
year.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales declined to 35.0% for the
thirty-nine weeks ended October 26, 1996 from 35.6% in the comparable period
of the prior year. This improvement was primarily due to an increase in sales
per catalog.
Interest expense declined to $4.5 million for the thirty-nine weeks ended
October 26, 1996 from $5.2 million for the thirty-nine weeks ended October 28,
1995 as a result of reduced rates on intercompany indebtedness owed to TJX and
lower overall borrowings.
Net income was $17.6 million for the thirty-nine weeks ended October 26,
1996 compared to $7.4 million in the comparable period of the prior year.
FISCAL 1995 COMPARED WITH FISCAL 1994 AND FISCAL 1994 COMPARED WITH FISCAL
1993
Net sales for fiscal 1995 totalled $465.6 million on circulation of 196.1
million catalogs versus net sales of $432.7 million on circulation of 235.0
million catalogs in fiscal 1994. The increase in net sales of 7.6%, despite a
decrease in circulation of 16.6%, is attributable to a number of factors,
including improvements in inventory management and order fulfillment, which
allowed Chadwick's to satisfy and ship customer orders on a more timely and
efficient basis, expansion of Chadwick's deferred billing program, and
improvement in overall levels of customer service. These factors combined to
significantly increase the Company's net sales per catalog mailed in fiscal
1995.
Net sales of $432.7 million in fiscal 1994 increased 2.0% over net sales of
$424.3 million in fiscal 1993 while circulation increased 10.2% to 235.0
million catalogs in 1994 from 213.2 million catalogs in fiscal 1993. Sales
were negatively impacted in fiscal 1994 due to Chadwick's poor performance in
fulfilling customer orders, resulting in customer dissatisfaction and loss of
sales. This operational problem, along with higher catalog circulation to
prospective customers in fiscal 1994, were factors contributing to the
decrease in the net sales per catalog in fiscal 1994.
Cost of sales, including buying and order fulfillment costs, as a percentage
of net sales was 59.9%, 62.8% and 63.5% in fiscal 1995, 1994 and 1993,
respectively. The improvement in the percentage in fiscal 1995 from fiscal
1994 reflects an increase in shipping and handling income, less excess
inventory to liquidate and improved fulfillment center labor productivity. The
improvement in this percentage in fiscal 1994 from fiscal 1993 is primarily
due to savings in shipping costs.
Selling, general and administrative expenses, including catalog and order
processing costs, as a percentage of net sales were 34.4%, 35.9% and 31.0% in
fiscal 1995, 1994 and 1993, respectively. These expenses as a percentage of
net sales decreased in fiscal 1995 as a result of improved sales per catalog,
partially offset by an increase in paper and postage costs per catalog mailed
and increased order processing expenses. Catalog production costs decreased
due to lower circulation, which was partially offset by increases in paper and
postage costs. Total selling, general and administrative expenses as a
percentage of net sales increased in fiscal 1994 as a result of a decrease in
catalog productivity and an increase in order processing costs.
Interest expense was $6.9 million, $3.9 million and $3.4 million in fiscal
1995, 1994 and 1993, respectively. The increase in interest expense in fiscal
1995 is due to increased short-term borrowings from TJX and higher
42
<PAGE>
short-term interest rates. The increased borrowings during fiscal 1995 are
primarily the result of additional working capital requirements associated
with the expansion of Chadwick's deferred billing program.
Chadwick's effective income tax rate was 40.2%, 16.8% and 39.3% in fiscal
1995, 1994 and 1993, respectively. The low level of pretax income in fiscal
1994 along with certain tax benefits in that year resulted in a lower
effective income tax rate. The difference between the federal statutory income
tax rate and the effective income tax rate is primarily attributable to the
effective state income tax rate.
Chadwick's recorded an extraordinary charge for the early retirement of debt
in both fiscal 1995 and fiscal 1994. The after-tax extraordinary charge of
$3.3 million in fiscal 1995 was due to the early prepayment of a $45.0 million
loan secured by a mortgage on Chadwick's offices and fulfillment center. The
charge of $192,000 in fiscal 1994 was incurred when Chadwick's retired its
outstanding $5.4 million mortgage, in connection with the $45.0 million
financing described above. Net income in fiscal 1993 was impacted by the
cumulative effect of accounting changes for postretirement medical costs and
for accounting for income taxes, resulting in an increase in net income of
$380,000. After giving effect to these items, Chadwick's net income was $8.3
million, $1.1 million and $12.7 million in fiscal 1995, 1994 and 1993,
respectively.
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 will also include servicing the debt to be
incurred to finance the Common Stock Repurchase.
Cash flow provided by operating activities increased to $30.7 million for
the twenty-six weeks ended August 2, 1997, from $25.2 million for the twenty-
six weeks ended August 3, 1996. This increase was due to an increase in net
income, before non-cash related expenses, of $37.8 million for the twenty-six
weeks ended August 2, 1997 compared to $21.7 million in the twenty-six weeks
ended August 3, 1996. During the twenty-six weeks ended August 2, 1997, the
Company used the proceeds from its Initial Public Offering 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 $7.3 million
in capital expenditures as discussed further below. In addition, in July 1997
the Company borrowed $20.0 million on its Revolving Credit Facility in order
to satisfy its short-term working capital needs.
The Company's capital expenditures were $3.9 million, $7.3 million and $5.3
million for fiscal 1996, 1995 and 1994, respectively. Capital expenditures
were $7.3 million in the twenty-six weeks ended August 2, 1997 compared to
$2.1 million in the same period in fiscal 1996. The Company's capital
expenditures for the remainder of fiscal 1997 are estimated to be $5.2
million. Brylane plans to fund its capital expenditures for 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
the Initial Public Offering, and the use of the net proceeds received
therefrom, the Company repaid $89.3 million in indebtedness under its 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 Trust Company of New York, as administrative agent
("Morgan Guaranty"), Merrill Lynch Capital Corporation, as documentation agent
("Merrill Lynch Capital"), and the other lenders party thereto, and guaranteed
by each of the Company's subsidiaries (the "1997 Bank Credit Facility") which
consists of (i) a $111.7 million four-year
43
<PAGE>
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 thirteen weeks ended August
2, 1997. As a result, as of August 2, 1997, the remaining balance of the Term
Loans was $119.9 million. In addition, as of August 2, 1997, Brylane had $20.0
million of borrowings under the revolving credit facility of the 1997 Bank
Credit Facility and, after giving effect to the issuance of letters of credit
for $53.2 million which the Company intends to pay through funds generated
from operations, had additional capacity under the revolving credit facility
of approximately $51.8 million.
To finance the Common Stock Repurchase, the Company expects to enter into
the Amended 1997 Bank Credit Facility. The Amended 1997 Bank Credit Facility
will be comprised of (i) a $175.0 million five-year amortizing Term Loan, and
(ii) a $200.0 million (subject to a borrowing base limit) five-year revolving
credit facility with a $75.0 million sublimit for letters of credit (the
"Revolving Credit Facility"). The proceeds of the term loan would be available
to provide a portion of the funds necessary to effect the Common Stock
Repurchase, as well as to repay Brylane's existing indebtedness under its 1997
Bank Credit Facility. The Revolving Credit Facility could be used for general
corporate purposes, including working capital needs, letters of credit and
permitted acquisitions, and would be available to provide a portion of the
funds necessary to effect the Common Stock Repurchase. In addition, the
Company contemplates that the Amended 1997 Bank Credit Facility will include a
$15.0 million "Swingline Facility" (borrowings under which, while outstanding,
would reduce availability under the Revolving Credit Facility). In connection
with the Common Stock Repurchase, the Company expects to borrow approximately
$111.9 million, and borrowings under the Amended 1997 Bank Credit Facility
would be approximately $251.8 million. See "Unaudited Pro Forma Financial
Statements". The Amended 1997 Bank Credit Facility would contain the same rate
schedule as the current 1997 Bank Credit Facility, and would continue to
contain financial and operating covenants including, among other provisions,
requirements that the Company maintain certain financial ratios and satisfy
certain financial tests, restrictions on the ability to incur indebtedness,
and limitations on the amount of the Company's capital expenditures and common
stock dividends.
After giving effect to the Common Stock Repurchase and the incurrence of
additional indebtedness in connection therewith, scheduled principal payments
on the term loan of the Amended 1997 Bank Credit Facility, as proposed, will
aggregate approximately $10.0 million in fiscal 1998. There will be no
scheduled principal payments in fiscal 1997 on the term loan of the Amended
1997 Bank Credit Facility. See "Unaudited Pro Forma Financial Statements" and
"Description of Certain Financing Arrangements--Bank Credit Facility".
In connection with the Brylane Acquisition, the Partnership issued $125.0
million aggregate principal amount of its Senior Subordinated Notes. The
Senior Subordinated Notes bear interest at 10% per annum, payable semi-
annually, and mature in 2003. The 1997 Bank Credit Facility and the Indenture
contain covenants (the "Covenants"), and the Amended 1997 Bank Credit Facility
will contain 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. See "Description of Certain
Financing Arrangements". Brylane's capital expenditures through the second
quarter of fiscal 1997 were in compliance with the Covenants. See "--Certain
Tax Matters" and "Description of Certain Financing Arrangements--Senior
Subordinated Notes".
In connection with the Chadwick's Acquisition, Brylane entered into an
Accounts Receivables 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. ADS will purchase the
receivables on a limited recourse basis at a discount from face value. The
Company will pay
44
<PAGE>
transaction costs including a fee of $0.03 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 1997 Bank Credit
Facility. See "Certain Relationships and Related Transactions--Additional
Agreements--Accounts Receivable Purchase Agreement".
Based on current and projected operating results and giving effect to the
increase in its total indebtedness discussed above, the Company 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 of the Amended 1997 Bank Credit Facility to finance
seasonal working capital needs.
SEASONALITY
The Company has two annual six-month selling seasons, Spring/Summer and
Fall/Winter. The Company is not dependent on the year-end holiday season for a
disproportionate share of its business. The Company's sales and operating
results are more influenced throughout the year by the timing of the mailing
of its catalogs and by its merchandising strategies than by seasonal
fluctuations. Because the Company offers different products in each season,
trends that are manifested in one selling season may not be carried over into
the next season.
The following tables set forth certain unaudited quarterly data of Brylane
and Chadwick's for the periods shown (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------ ----------------------------------- -----------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND
QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR.(1) QTR. QTR.
BRYLANE -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $143,195 $150,784 $141,226 $165,850 $150,680 $157,945 $158,384 $238,344 $328,801 $274,656
Operating income(2)..... 11,186 17,891 7,962 16,799 11,682 17,976 14,201 20,465 28,996 26,795
Operating margin........ 7.8% 11.9% 5.6% 10.1% 7.8% 11.4% 9.0% 8.6% 8.8% 9.8%
CHADWICK'S
Net sales............... $116,611 $ 87,602 $151,458 $109,927 $131,996 $ 92,904 $145,419
Operating income........ 5,080 (1,237) 13,727 8,878 12,865 4,444 17,100
Operating margin........ 4.4% (1.4)% 9.1% 8.1% 9.7% 4.8% 11.7%
</TABLE>
- --------
(1) The Company's statement of operations data for this quarter includes the
results of Chadwick's on a consolidated basis from December 9, 1996, the
closing date of the Chadwick's Acquisition.
(2) Before acquisition related adjustments.
INFLATION AND FOREIGN CURRENCY EXPOSURE
The results of operations for the periods discussed have not been
significantly affected by inflation. Foreign purchase orders are all
denominated in U.S. dollars and, therefore, foreign currency fluctuations are
not material to the Company's operating results.
CERTAIN TAX MATTERS
DEPRECIATION AND AMORTIZATION. FS&Co. and The Limited have treated the
Brylane Acquisition for federal income tax purposes as a purchase by the
Partnership of a proportionate part of the assets of Brylane
45
<PAGE>
(approximately 57% of each asset) and as a contribution by certain affiliates
of The Limited of the remaining portion of such assets. See "Certain
Relationships and Related Transactions". FS&Co. and The Limited have allocated
a substantial portion of the purchase price paid for the purchased portion of
the assets to intangible assets which are being amortized for federal income
tax purposes over a 15-year period.
The Partnership has elected under Section 754 of the Internal Revenue Code
of 1986, as amended (the "Code"), for its 1996 tax year to increase the tax
basis of its assets by approximately $47.4 million to reflect the federal tax
gain that The Limited and its affiliates recognized in connection with its
contribution to the Company of its partnership interest in the Partnership
pursuant to the Incorporation Plan. A substantial portion of this adjustment
in tax basis will be allocated to intangible assets, which will be amortized
for federal income tax purposes over 15 years. This adjustment to tax basis
does not require a comparable basis adjustment in the Company's financial
statements, but the future tax benefit that the Company will recognize through
the amortization thereof for tax purposes has been included in a deferred tax
asset of approximately $17.6 million.
TAX DISTRIBUTION. To the extent that the partners of the Partnership, other
than The Limited, Leeway & Co., NYNEX and WearGuard, recognized taxable income
resulting from the allocation of income of the Partnership prior to the
Initial Public Offering, pursuant to the Partnership Agreement, such partners
received a distribution to cover their federal and state tax liabilities
attributable thereto. Since such a distribution was paid, The Limited, Leeway
& Co., NYNEX and WearGuard also received a proportionate distribution to cover
their respective tax liabilities on their respective share of the same amount
of Partnership income. During fiscal 1996, the Partnership made advances to
its partners totaling $9.9 million with respect to their tax liabilities.
These advances approximate the tax payments the Partnership would be required
to make if it were a tax-paying corporation, rather than a partnership.
Subsequent to the Initial Public Offering, the Company will file tax returns
on a consolidated basis, and as such, Brylane, L.P. will continue to make tax
distributions to its general partner, VGP Corporation, a Delaware corporation
("VGP"), and to its limited partner, VLP Corporation, a Delaware corporation
("VLP"), both of which are wholly-owned subsidiaries of VP Holding
Corporation, a Delaware corporation and wholly-owned subsidiary of the Company
("VP Holding").
ADOPTION OF ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", which is effective for periods ending after December 15, 1997. SFAS
No. 128 simplifies the computational guidelines for earnings per share
calculations, and revises the disclosure requirements. The Company has not yet
determined the effects that the change in the computational guidelines will
have on their primary and fully diluted earnings on a per share basis.
46
<PAGE>
BUSINESS
GENERAL
The Company is the nation's leading specialty catalog retailer of value-
priced apparel, with pro forma net sales of over $1.2 billion for the twelve
months ended August 2, 1997. The Company has established a focused portfolio
of profitable catalogs that target consumers of both special and regular size
apparel. Through its nationally recognized Lane Bryant and Roaman's catalogs,
Brylane is the leading catalog retailer of women's special size apparel (sizes
14 to 56) and, through its KingSize catalog, is a leading catalog retailer of
men's special size apparel (sizes XL to 9XL). Chadwick's of Boston, which
Brylane acquired in December 1996, is the nation's largest off-price women's
apparel catalog retailer, and offers a broad selection of high quality apparel
at prices typically 25% to 50% below the regular prices of department and
specialty retail stores. The Company's Lerner catalog has a strong and growing
presence in the women's regular size apparel market. In addition, the Company
has recently introduced and continues to develop several new catalog concepts.
For example, the Company successfully launched the Sue Brett (mature regular
size women's apparel), Bridgewater (regular size women's and men's classic
apparel) and Jessica London (off-price special size women's apparel) catalogs,
and is also testing a catalog called Brett (regular size men's apparel).
Additionally, Brylane has expanded its customer base by marketing certain of
its catalogs under the "Sears" name to customers of Sears, Roebuck and Co.
under an exclusive licensing arrangement with Sears.
As a result of the growth of its established catalogs, the acquisition of
the KingSize catalog and the introduction of new catalog concepts, Brylane's
net sales have increased from $424.5 million in fiscal 1992 to $642.0 million
in fiscal 1996, representing a compound annual growth rate of 10.9%. Due to
the growth in its core business, the introduction of new merchandise
categories such as special size apparel, gifts and men's apparel, and the
successful execution of its marketing strategies, Chadwick's net sales have
increased from $295.5 million in fiscal 1992 to $525.6 million in fiscal 1996,
representing a compound annual growth rate of 15.5%.
As a result of the growth of its established catalogs, as well as the
introduction of certain new catalogs, the Company's net sales for the twenty-
six weeks ended August 2, 1997 increased 13.1% to $603.5 million from $533.5
million (on a pro forma basis) in the comparable period of fiscal 1996. For
the twenty-six weeks ended August 2, 1997, pro forma operating income
(excluding non-recurring and extraordinary items) increased 27.1% to $55.8
million from $43.9 million (on a pro forma basis excluding non-recurring and
extraordinary items) in the comparable period of fiscal 1996. The Company's
results for the twenty-six weeks ended August 2, 1997 have benefited from
favorable customer response and an increase in the average order size across
all of the Company's catalogs. In addition, in the twenty-six weeks ended
August 2, 1997, the Company used the proceeds from its Initial Public Offering
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
(including $72.1 million in prepayments), resulting in lower interest expense.
The Company believes that Chadwick's represents a significant strategic
addition to the Company's catalog portfolio. Chadwick's of Boston is one of
the most well-recognized brand names in women's catalog apparel retailing. The
Company believes that Chadwick's customer list is one of the largest and most
valuable in the women's apparel industry. Chadwick's targets middle to upper
middle income women between the ages of 25 and 55, who the Company believes
represent approximately one-third of the adult female population in the United
States, or approximately 33 million women. Chadwick's offers a broad
assortment of casual, career and social wear apparel at attractive prices. The
Company has begun to capitalize on several opportunities presented by the
Chadwick's Acquisition to enhance the revenue growth of its entire catalog
portfolio by sharing customer lists and merchandising and marketing expertise,
as well as to reduce its expenses by leveraging the Company's combined
purchasing power.
The Company's merchandising strategy across all of its catalog titles is to
(i) provide value-priced apparel with a consistent quality and fit,
(ii) concentrate on apparel with limited fashion risk, and (iii) offer a broad
selection of sizes, styles and colors. The Company believes that the effective
implementation of its merchandising strategy, together with its high level of
customer service, have contributed to the growth of its
47
<PAGE>
substantial and loyal customer base. The Company's combined customer file has
grown to over 22 million names as of June 30, 1997 (which includes 2.4 million
names from the Sears customer file and gives effect to the acquisition of
Chadwick's), of which approximately 10.4 million are active customers who have
placed an order in the preceding 12 months (including 1.1 million customers
from the Sears customer file). Over 40% of the Lane Bryant, Roaman's and
Lerner active customers placed an order three or more times during the
12 months ended June 30, 1997.
BUSINESS STRATEGY
The Company has successfully developed and executed its business strategy,
which has placed the Company in a favorable position for future growth. The
fundamentals of this strategy include the following:
. Operate a Portfolio of Market Leading Catalogs
The Company operates a portfolio of catalogs, most of which are the
leaders in their respective markets. By focusing on delivering high quality
merchandise at value prices, the Company intends to maintain Chadwick's
position as the largest off-price women's apparel catalog, Lane Bryant and
Roaman's positions as the largest catalogs of special size women's apparel,
and KingSize's position as a leading catalog of special size men's apparel.
In addition, the Company plans to continue its development of Lerner and
Sue Brett as growing catalogs in the regular size women's apparel market.
. Offer an Extensive Selection of Quality, Value-Priced Apparel
The Company offers an extensive selection of quality, value-priced
apparel. By concentrating on apparel with limited fashion risk, the Company
is able to offer a substantially greater number of sizes, styles and colors
than its competitors. The Lane Bryant, Roaman's and KingSize catalogs offer
extensive selections of merchandise size 26 and over for women and size 3XL
and over for men, in many cases offering three to four times more stock
keeping units ("SKUs") than Brylane's competitors. Such sizes generated
approximately 45% of Lane Bryant and Roaman's net sales of women's special
size apparel and approximately 60% of KingSize's net sales of men's special
size apparel in 1996. The Chadwick's catalog offers a broad selection of
high quality branded and private label apparel in a large array of colors
and sizes at prices typically 25% to 50% below the regular prices of
department and specialty retail stores.
. Maintain Strong Sourcing Capabilities and Disciplined Inventory Control
The Company has established excellent, long-standing relationships with a
number of apparel manufacturers and suppliers, both domestically and
internationally. The Company believes these relationships are a major
reason that it is able to offer merchandise of high quality and consistent
fit at an excellent value. The Company's disciplined inventory control
systems are designed to maintain inventory levels that provide optimum in-
stock positions, while maximizing inventory turnover rates and minimizing
the amount of unsold merchandise at the end of each season.
. Maintain Highly Efficient Telemarketing, Fulfillment and Distribution
Operations
The Company focuses on providing superior customer service through a well
trained telemarketing staff and services its customers through two state-
of-the-art fulfillment centers. In order to manage the high number of SKUs
required to provide the broad selection of merchandise offered in its
catalogs, the Company has developed highly sophisticated and efficient
order fulfillment and inventory management methods. Chadwick's is currently
installing a new state-of-the-art order entry system that will provide its
telemarketing representatives with on-line customer and merchandise
information that will enable Chadwick's to increase its cross-selling
efforts and improve its customer service.
. Emphasize Superior Customer Service
The Company emphasizes superior customer service and provides toll-free
telephone service for orders and other customer needs. The Company's
telephone operators are trained to provide friendly service, and the
Company offers an unconditional guarantee of its merchandise. Brylane's
management information systems provide Brylane's operators and customer
service representatives with real-time customer information, allowing them
to better serve its customers.
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Catalog sales have been the fastest growing channel of retail apparel sales.
From 1995 to 1996, catalog women's apparel sales increased by approximately
7.6% to $8.2 billion, while overall retail women's apparel sales increased by
approximately 5.1% to $85.1 billion. The percentage of the U.S. adult
population that made a purchase through a catalog has increased to 57.2% in
1996 from 41.0% in 1993. The Company believes that catalog sales of apparel
will continue to increase because the busy lifestyles of today's women and men
demand the convenience and the time savings afforded by catalog shopping.
The Company believes that the special size customer is underserved by other
catalog retailers and by specialty and department stores, which carry a more
limited selection of merchandise than that offered in Brylane's catalogs. From
1995 to 1996, women's special size apparel sales increased by 6.0% and big and
tall men's apparel sales increased by 19.7%. The Company believes that the
special size customer base will continue to increase as the general population
continues to age and as average body weight continues to increase.
Additionally, the Company believes that catalog shopping is particularly well
suited to special size customers, who the Company believes prefer the
convenience of shopping from home. Management estimates that approximately
30 million or 35% of U.S. women wear special size clothing (sizes 14 or
larger) and that approximately 9 million or 10% of U.S. men wear special size
clothing (sizes 2XL or larger). Typical retail stores and catalogs which sell
special sizes carry a more limited selection of merchandise above sizes 26 for
women and 3XL for men when compared with the selection of merchandise offered
in Brylane's catalogs.
GROWTH STRATEGY
The Company's growth strategy is to increase its sales and profits by
capitalizing on the growing catalog industry and effectively executing its
business and merchandising strategies.
. Continuing to Realize Strategic Benefits from the Acquisition of Chadwick's
The Company believes that revenue growth can be enhanced through sharing
customer lists, utilizing merchandising and marketing expertise developed
at each company (including during the introduction of new merchandise
categories), and introducing private label credit cards to Chadwick's
customers. The Company has already begun to capitalize on opportunities to
leverage its combined purchasing power, particularly in the procurement of
paper and telecommunications services, merchandise sourcing, MIS processing
and development, and insurance.
. Expanding Merchandise Offerings
The Company intends to continue to refine and broaden its merchandise
offerings in order to satisfy the apparel needs of its customers, to
freshen the appeal of each catalog's assortment of merchandise, and to
stimulate increased sales. For example, the Company recently introduced or
expanded offerings of women's career wear, men's apparel, special sizes,
tall and petite sizes, shoes, intimate apparel, non-apparel gift items and
jewelry in certain catalogs.
. Offering Promotional Incentives
The Company has implemented certain promotional programs in many of its
catalogs, including deferred billing payment programs and shipping and
handling incentives. These programs have resulted in a significant
improvement in net sales and average order size, particularly in the
Company's Chadwick's and Lerner catalogs. The Company is currently
expanding the use of these programs to its other catalogs.
. Refining Customer List Segmentation Techniques
An important element of the Company's marketing strategy is the improved
segmentation of its existing customer files. Brylane has recently installed
a modeling and scoring software program and Chadwick's is testing
increasingly sophisticated statistical circulation models to improve their
ability to predict customer purchase behavior based on a wide range of
variables. The Company believes that its ability to better predict customer
purchasing behavior maximizes the effectiveness of catalog mailings to
current and prospective customers.
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. Expanding the Customer File
The Company plans to increase the number of names in its customer file
through cost effective prospecting programs, including cable television
advertising and the segmentation of the over 30 million name file of Sears,
Roebuck and Co. In addition, the Company will continue to rent, exchange or
purchase available customer lists and to access the lists of credit card
holders of The Limited's Lane Bryant and Lerner retail stores.
. Continuing to Develop Recent Catalog Additions
The Company believes that recent catalog additions such as Bridgewater
and Jessica London broaden the Company's catalog portfolio and provide
substantial opportunities for growth. As a result of these catalogs'
performance, the Company expects to increase their circulation
significantly.
. Introducing or Acquiring New Catalogs
The Company intends to continue to evaluate opportunities to introduce
new catalogs, such as Brett, which the Company intends to commence mailing
in October 1997. Brylane's female customers have demonstrated a propensity
to purchase the offerings of men's apparel included in inserts in Brylane's
catalogs. The Company may also selectively pursue strategic acquisitions
that either expand or complement the Company's existing business.
CUSTOMERS
The Company has a substantial and loyal customer base. As of June 30, 1997,
the Company's combined customer file contained over 22 million names
(including 2.4 million names from the Sears customer file and giving effect to
the acquisition of Chadwick's), of which approximately 10.4 million are active
customers (including 1.1 million customers from the Sears catalog customer
file). Over 40% of the Lane Bryant, Roaman's and Lerner active customers
placed an order three or more times during the 12 months ended June 30, 1997.
The Company defines a customer as someone who has placed an order with any of
the Company's catalogs, within the last 48 months, and an active customer as
one who has placed at least one order within the last 12 months. Certain of
the Company's customers purchase from more than one of the Company's catalogs
and are therefore considered to be a separate customer of each such catalog.
The following table presents the Company's unaudited combined pro forma net
sales for fiscal 1996 for each of the Company's catalog concepts (dollars in
millions).
<TABLE>
<CAPTION>
CATALOG AMOUNT PERCENT
------- ------ -------
<S> <C> <C>
Chadwick's(1)................................................. $526 45.0%
Lane Bryant and Roaman's...................................... 409 35.1
Lerner........................................................ 105 9.0
Sears Catalogs(2)............................................. 87 7.4
KingSize...................................................... 28 2.4
Sue Brett..................................................... 13 1.1
------ -----
$1,168 100.0%
====== =====
</TABLE>
- --------
(1) Including Bridgewater.
(2) Including Big & Tall.
CHADWICK'S. The Chadwick's catalog targets women between the ages of 25 and
55 who wear regular size apparel (sizes 4 to 20) and seek high quality
merchandise at prices well below those offered by department and specialty
stores. In addition, Chadwick's has expanded its merchandise offerings to
target women who wear petite and special size apparel (sizes 2 to 26). Brylane
believes that the median age of the Chadwick's customer is 42, and that the
typical customer has an income level equal to or above the national average.
As of June 30,
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1997, the Chadwick's customer files contained 11.0 million customer names, of
which 4.6 million names are active customers. The average order by a
Chadwick's customer during fiscal 1996 was approximately $99.
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's catalogs target
value-conscious women who wear special sizes (sizes 14 to 56). The Company
believes that the median age of its women's special size customer segment is
51, and that the typical customer has an income level somewhat below that of
the national average. As of June 30, 1997, the Lane Bryant and Roaman's
customer files contained 4.2 million and 2.0 million customer names,
respectively, of which 2.2 million and 1.0 million names are active customers
of Lane Bryant and Roaman's, respectively. The average order by a Lane Bryant
or Roaman's customer during fiscal 1996 was approximately $74 and $73,
respectively.
LERNER. The Lerner catalog targets younger, value conscious women age 25 and
up who wear sizes 4 to 18 and purchase at budget to moderate prices. The
Company believes that the median age of the Lerner customer is 38, and that
the average Lerner customer has an income level approximately equal to the
national average. As of June 30, 1997, the Lerner customer file contained 2.5
million customer names, of which 1.1 million are active customers. The average
order by a Lerner customer during fiscal 1996 was approximately $74.
SEARS CATALOGS. Through its licensing agreement with Sears, the Company has
expanded its customer base by offering Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize merchandise through its Sears versions of these catalogs to
selected individuals from the over 30 million name customer file of Sears,
Roebuck and Co. who are not existing customers of the Company. The Company
believes that the median age and income level of its Sears customer is close
to that of the average customer of the Company's comparable catalogs. As of
June 30, 1997, the Sears catalogs customer file contained 2.4 million customer
names, of which 1.1 million are active customers. The average order by a Sears
customer during fiscal 1996 was approximately $72 for women's apparel and $100
for men's apparel. See "--Sears Agreement".
KINGSIZE. The KingSize catalog targets value-conscious men who wear special
sizes (sizes XL to 9XL). The Company believes that the median age of its men's
special size customer segment is 52, and that the typical KingSize customer
has an income level above the national average. As of June 30, 1997, the
KingSize customer file contained 344,000 customer names, of which 169,000 are
active customers. The average order by a KingSize customer during fiscal 1996
was approximately $97.
SUE BRETT. The Sue Brett catalog targets mature regular size women who wear
sizes 8 to 24. The Company believes that the median age of the Sue Brett
customer is 45, and that the average Sue Brett customer has an income level
somewhat above the national average. As of June 30, 1997, the Sue Brett
customer file contained 337,000 customer names, of which 212,000 are active
customers. The average order by a Sue Brett customer during fiscal 1996 was
approximately $67.
MERCHANDISING
As a result of its targeted merchandising strategies, the Company has
succeeded in developing distinct identities for each of its catalogs. The
Company's merchandising strategy across all of its catalog titles is (i) to
provide value-priced apparel with a consistent quality and fit, (ii) to
concentrate on apparel with limited fashion risk, and (iii) to offer a broad
selection of sizes, styles and colors. The Company intends to continue to
refine and broaden its merchandise offerings in order to satisfy the apparel
needs of its customers, to freshen the appeal of each catalog's assortment of
merchandise and to stimulate increased sales.
CHADWICK'S. The Company believes that Chadwick's is unique in its ability to
offer value across its merchandise lines, which feature a wide array of
colors, styles and sizes designed to satisfy its customers' wardrobe needs for
career, casual and social wear. Chadwick's offers merchandise which includes
both basic styles and current fashion. Chadwick's offers 54,800 SKUs, in sizes
2 to 26. The average price point per item sold by Chadwick's in fiscal 1996
was approximately $27. Chadwick's offers nationally recognized brand names,
including Pierre Cardin, Herman Geist, JG Hook and Blassport. The private
label brand names featured in the
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Chadwick's catalog include, among others, Savannah (which Brylane uses under
license from TJX), Fads, Stephanie Andrews and JL Plum. See "Certain
Relationships and Related Transactions--The Chadwick's Acquisition".
Chadwick's has successfully introduced a number of complementary merchandise
categories to its customers. These categories, which have been tested and
offered on a limited basis, include men's apparel, children's apparel, women's
special size apparel, accessories, gifts and cosmetics. Since Chadwick's began
offering complementary merchandise categories in 1992, net sales of these
products have grown to represent 22% of Chadwick's net sales in 1996.
LANE BRYANT AND ROAMAN'S. The Lane Bryant and Roaman's special size catalogs
focus primarily on contemporary, traditional and basic women's apparel and
also include a limited offering of certain fashion-oriented items. While both
the Lane Bryant and Roaman's catalogs offer the same merchandise
classifications, the Lane Bryant catalog offers greater style selections in
certain classifications, especially in basic apparel items. Both catalogs
offer extensive selections of merchandise over size 26, in many cases offering
three to four times more SKUs than its competitors. Approximately 45% of Lane
Bryant and Roaman's net sales are in sizes 26 or larger. Lane Bryant and
Roaman's catalogs offer 90,600 and 53,400 SKUs, respectively, in sizes 14 to
56. The average price point per item sold by both Lane Bryant and Roaman's in
fiscal 1996 was approximately $22.
Each of the special size women's catalogs offers a broad mix of apparel. In
1996, sportswear, intimate apparel and dresses accounted for approximately
51%, 22% and 12% of Lane Bryant and Roaman's net sales, respectively.
Footwear, outerwear and accessories accounted for the balance of such net
sales.
Lane Bryant and Roaman's catalogs feature private label brand names which
have higher gross profit margins than national brand merchandise. Private
label brand names used on merchandise included in the Lane Bryant and Roaman's
catalogs include, among others, Hunters Run, Venezia, Lasting Comfort and
Forenza, which Brylane uses under license from The Limited, and the Roaman's
private label brand name, which is owned by the Company. See "Certain
Relationships and Related Transactions--Additional Agreements--Trademark
Agreement".
LERNER. The Lerner catalog offers a broad selection of quality contemporary,
traditional and basic women's apparel in sizes 4 to 18. Compared to
Chadwick's, the Lerner catalog targets a younger customer and offers slightly
more fashion forward merchandise. Recently, the Company has made significant
changes to the merchandise offerings contained in its Lerner catalog,
including the addition of an increased number of career wear selections and
additional sizes. The average price point per item sold by Lerner in fiscal
1996 was approximately $23.
In 1996, sportswear, dresses and outerwear accounted for approximately 66%,
22% and 6% of Lerner net sales, respectively. Footwear, accessories and
intimate apparel accounted for the balance of such net sales.
Consistent with the Company's other catalogs, the Lerner catalog places
great emphasis on its product sourcing strategy to enable the Company to offer
quality, value-priced, private label merchandise. The private label brand
names featured on merchandise included in the Lerner catalog include, among
others, David Benjamin and Forenza, which Brylane uses under license from The
Limited, as well as certain other private label brand names which are owned by
certain of Brylane's vendors. See "Certain Relationships and Related
Transactions--Additional Agreements--Trademark Agreement".
SEARS CATALOGS. The merchandise offered in the Sears catalogs is the same as
that offered in the comparable Company catalog: Women's View (Lane Bryant and
Roaman's); Smart Choice (Lerner); Classics (Sue Brett); and Big & Tall
(KingSize). This allows the Company to fill the orders generated by these
catalogs with minimal incremental inventory risk. See "--Sears Agreement".
KINGSIZE. The KingSize catalog offers a broad selection of quality
contemporary, traditional and basic men's apparel in sizes XL to 9XL. Although
the KingSize catalog also offers some fashion-oriented items, most
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<PAGE>
of the merchandise in the KingSize catalog has limited fashion risk. The
Company believes that KingSize offers a broader selection of sizes and styles
than most specialty and department stores and competing catalogs.
Approximately 60% of KingSize's sales (including Big & Tall) are in sizes 3XL
or larger. The average price point per item sold by KingSize in fiscal 1996
was approximately $29. In addition, the Company has been testing a catalog
format that is targeted at the regular size men's apparel segment, and expects
to mail its first stand-alone Brett catalog in October 1997.
In 1996, sportswear, underwear and outerwear accounted for approximately
67%, 11% and 10% of KingSize net sales (including sales from the Company's
Sears Big & Tall catalogs), respectively. Footwear and accessories accounted
for the balance of such net sales.
The KingSize catalog features private label brand names which have higher
gross profit margins than national brand merchandise. Private label brand
names used on merchandise included in the KingSize catalog are KingSize and
Peak Performance, both of which are owned by the Company.
SUE BRETT. The Sue Brett catalog offers quality contemporary, traditional
and basic women's merchandise in sizes 8 to 24. The Company has established a
separate merchandising team that has increased the overall percentage of
unique merchandise contained in this catalog, and has expanded the selection
of merchandise to include, among other things, shoes and jewelry. The average
price point per item sold by Sue Brett in fiscal 1996 was approximately $25.
In 1996, sportswear, dresses and footwear accounted for approximately 64%,
27% and 6% of Sue Brett net sales, respectively. Intimate apparel, outerwear
and accessories accounted for the balance of such net sales.
MARKETING
There are several important elements to the Company's marketing strategy.
PROMOTIONAL STRATEGIES. The Company has implemented highly effective
promotional incentives in many of its catalogs. Promotional incentives include
deferred billing, free delivery for new customers, free express delivery for
orders of a certain size, "buy one, get one free" strategies, pricing
discounts when purchasing an additional item, and discount offers. Brylane
also uses promotions based on its private label credit cards, such as credit
limit increases to stimulate additional sales from existing customers and to
promote customer loyalty. Recently, the Company has significantly increased
the use of deferred billing programs, under which merchandise purchased is not
billed to the customer's credit card until 90 to 120 days after the applicable
catalog is mailed. Deferred billing programs have resulted in a significant
increase in net sales and average order size, particularly in the Company's
Chadwick's and Lerner catalogs. The Company is currently expanding the use of
these programs to its other catalogs.
PRIVATE LABEL CREDIT CARDS. The Company views the use of credit as an
important marketing tool with existing and new customers, and believes that it
provides the Company with a competitive advantage over the catalog retailers
that do not employ similar programs. Approximately 91.3% of Brylane's fiscal
1996 sales (including sales from Brylane's Sears catalogs) were paid for using
credit cards. The Company estimates that in fiscal 1996, credit purchases per
order of Brylane's women's apparel were on average $78 or 47.8% greater than
those made with cash. In addition, approximately 63.7% of Brylane's fiscal
1996 sales (excluding sales from Brylane's Sears catalogs) from the Lane
Bryant, Roaman's, Lerner, Sue Brett and KingSize catalogs were paid for using
Brylane's private label credit cards. The Company estimates that Brylane's
private label credit card customers spend approximately 50% more than its
customers who use bank cards and approximately 73% more than its customers who
pay with cash. Through private label cards, the total amount of credit
available to Brylane's customers who hold third party cards can be increased,
and credit may be made available to certain of its customers who may not
qualify for third party cards, but are eligible for the generally lower credit
limits available under the private label cards. The Company believes that
there is a significant opportunity to increase
53
<PAGE>
Chadwick's sales through the introduction of a Chadwick's private label credit
card, which it began testing in July 1997.
Brylane's on-line computer system enables its telephone sales
representatives to immediately identify which new customers have been pre-
approved to receive private label credit cards. The Company believes that this
access to instantaneous credit for first time buyers helps establish them as
repeat customers. Brylane also uses promotional inserts in credit statement
mailings to its customers.
For catalogs distributed under the Sears Agreement, customers can use the
Sears credit card (but not Brylane's private label cards). The Sears credit
card is administered by an affiliate of Sears, which assumes all risks
associated with the collection of those credit card receivables.
The Company offers its customers the Lane Bryant, Roaman's, Lerner, Sue
Brett and KingSize private label credit cards pursuant to the Credit Card
Processing Agreement between Brylane and World Financial (as amended, the
"Credit Card Agreement"). The Lane Bryant and Lerner private label credit
cards are also issued to customers of the Lane Bryant and Lerner retail
stores, and Lane Bryant and Lerner cardholders can use them either for catalog
or store purchases. Under the Credit Card Agreement, World Financial
determines the credit worthiness of a particular customer based on a standard
credit rating system and generally assumes all risks associated with the
collection of receivables generated by credit card sales without recourse to
the Company. In July 1995, Brylane entered into an amendment to the Credit
Card Agreement that provided, among other things, for a reduced transaction
fee payable by Brylane and an extension of the earliest date at which the
Credit Card Agreement can be voluntarily terminated to July 2006. See "Certain
Relationships and Related Transactions--Additional Agreements--Credit Card
Agreement".
LIST MANAGEMENT. An important element of the Company's marketing strategy is
the improved segmentation of its existing customer files. The Company
currently employs customer file segmentation analyses based on the recency,
frequency and monetary value of past purchases to create catalog circulation
strategies that are designed to increase customer response rates and average
sales per catalog. Brylane has recently installed and is currently testing a
modeling and scoring software program that uses more sophisticated multi-
variable regression analyses to create its predictive purchasing models. This
program employs up to 75 different variables including, among others,
geography, size, products purchased, credit availability, payment type and
proximity to certain retail stores. The Company believes that the development
and refinement of Brylane's predictive purchasing models will allow Brylane to
better target its catalog mailings and more effectively utilize its customer
file. In addition, Chadwick's is testing increasingly sophisticated
statistical circulation models to improve its ability to predict customer
purchase behavior based on a wide range of variables. The Company believes
that its ability to better predict customer purchasing behavior maximizes the
effectiveness of its catalog mailings to current and prospective customers.
CUSTOMER ACQUISITION. The Company's prospect acquisition programs are
designed to attract new customers in a cost effective manner. The Company
utilizes various sources to acquire new names, including list rentals or
purchases from competitors and related catalog concepts; access to lists of
credit card holders of The Limited's Lane Bryant and Lerner retail stores;
licensing arrangements; magazine solicitations; cable television advertising;
promotional inserts; friends' name cards inserted in mailed catalogs; and
reactivation of previous customers of the Company. The Company has recently
implemented a program of cable television advertising to solicit catalog
requests for its KingSize catalog, as well as tests of similar programs for
its Lane Bryant and Roaman's catalogs. Based on the successful results of the
KingSize program and the test results of the Lane Bryant and Roaman's
commercials, the Company has increased significantly its use of cable
television advertising as part of its efforts to solicit catalog requests and
to acquire new customers. In conjunction with Sears, the Company has been
improving the segmentation of the over 30 million name Sears, Roebuck and Co.
customer file to increase its success rate with prospects.
CUSTOMER SERVICE AND TELEMARKETING. Providing superior service to customers
is a key element of the Company's marketing strategy, and is supported by the
Company's toll-free telephone service for orders and
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<PAGE>
other customer needs, an emphasis on customer service and friendliness in
training for its telephone sales representatives, and an unconditional
guarantee of its merchandise at any time. The Company's return policy provides
that if a customer is not satisfied with a purchase for any reason, the
merchandise can be returned to the Company for a refund or exchange. The
return rate for Brylane (which includes exchanges) for fiscal 1994, 1995 and
1996 was 24.2%, 22.6% and 22.6% respectively, of shipped sales. The return
rate for Chadwick's (which includes exchanges) for fiscal 1994, 1995 and 1996
was 26.5%, 25.0% and 27.8%, respectively, of shipped sales.
The Company's telemarketing operations are conducted at Indianapolis,
Indiana, Greenwood, Indiana, San Antonio, Texas and West Bridgewater,
Massachusetts. The Company's telemarketing operations are open 24 hours a day,
seven days a week, and currently have an aggregate of approximately 1,700
telemarketing/customer service stations. In fiscal 1996, these facilities
processed approximately 29 million calls. The number of associates manning
these stations varies greatly during the hours of each day of each selling
season, based on anticipated call volume.
The Company trains its telephone sales representatives to determine the
correct size for its special size customers. The proper fit for all customers
is ensured by the Company's merchandising emphasis on consistent sizing and
fit across its product lines. Brylane's computerized database provides the
sales representatives with on-line information about previous customer orders,
which allows the sales representatives to personalize each transaction.
Brylane's computerized database also includes an inventory control system,
which allows Brylane's telephone sales representatives to inform customers
immediately about merchandise availability and estimated delivery dates for
back-ordered merchandise. As part of its efforts in this area, Brylane's sales
representatives are trained to describe current sale items or other promotions
to customers. Brylane's promotional selling efforts resulted in an additional
$24.0 million in net sales during fiscal 1996 and $14.1 million for the
twenty-six weeks ended August 2, 1997.
The telephone switches at Brylane's three facilities enable it to
efficiently balance its incoming telephone calls during periods of heavy
telephone volume. In 1994, Brylane installed a telephone switch at its
Indianapolis telemarketing center, which enabled it to significantly increase
its telephone volume capacity and to reduce costs by providing more accurate
and timely information to management. Brylane has the ability to reroute calls
between each catalog's telemarketing groups and Brylane's three telemarketing
centers during periods of heavy activity. In addition, in June 1996, Brylane
renegotiated its agreement with its long-distance telephone service provider
to, among other things, reduce the rates charged to Brylane for its long-
distance telephone service.
Chadwick's is installing a new state-of-the-art order entry system that
provides its customer service representatives with on-line catalog information
and data on customer orders and past purchases. This additional information is
expected to increase the ability of Chadwick's sales representatives to
personalize transactions, market additional products that complement the
purchases being made by the customer and recommend alternatives for items that
are either unavailable or on back order. Chadwick's new system utilizes
"universal agents" that receive both telephone orders and customer service
calls, and which the Company believes will lead to an increase in
productivity. Chadwick's also expects that this new system will permit it to
process orders more efficiently.
FULFILLMENT, DELIVERY AND CATALOG PRODUCTION
Through its fulfillment, delivery and catalog production methods, the
Company works to maintain its position as a low-cost operator in the catalog
industry.
FULFILLMENT CENTERS. The Company's commitment to customer service is
supported by its 750,000 square foot Indianapolis, Indiana fulfillment center,
which supports its Brylane catalogs, and its 700,000 square foot West
Bridgewater, Massachusetts facilities, which support its Chadwick's catalogs.
Designed to process and ship customer orders rapidly and in a cost effective
manner, each fulfillment center utilizes high speed conveyor belts, laser beam
bar code scanning and tilt tray sorters. The Indianapolis facility processed
approximately 17.5 million shipments in fiscal 1996. In the fall of 1994,
Brylane developed and implemented "one-pass picking", a highly
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sophisticated and efficient method for gathering the merchandise needed to
fill customer orders, at its Indianapolis fulfillment center. Brylane believes
that it is currently the only catalog retailer that employs "one-pass
picking". In September 1995, Brylane completed an $8.0 million enhancement of
the package sorting and shipping capabilities of the Indianapolis fulfillment
center, including the addition of a second high speed tilt tray sorter. These
enhancements to the fulfillment center approximately doubled Brylane's
shipping and receiving capabilities. In addition, Brylane recently completed a
$2.7 million project to replace the original tilt tray sorter, which
replacement became operational in the fourth quarter of 1996. The West
Bridgewater facility processed over 12.5 million shipments in 1996 and has the
capacity to process approximately 40% more shipments before any capital
expansion of the center will be required.
DELIVERY. The Company minimizes order delivery costs through careful
management of its shipping techniques. For example, third and fourth class
mailing costs, which accounted for approximately 81.9% of Brylane's orders
shipped from the Indianapolis facility in fiscal 1996, are managed to obtain
the benefits of various mailing rate discount programs offered by the USPS.
The Company sorts packages by zip code, prints the zip bar codes and
automatically calculates the weight of each parcel to be shipped to determine
if discounted bulk rate postage may be available. The Company believes that
the volume of its mailings provides it with a competitive advantage over
smaller catalog retailers who cannot take full advantage of this rate
structure. The Company also reduces order shipping costs by sorting and
sending packages by truck to up to 21 USPS drop points around the country,
where the packages enter the USPS system for delivery to customers. In
addition to third class and fourth class mail delivery, the Company offers
United Parcel Service ("UPS") delivery and UPS Express Delivery.
CATALOG PRODUCTION. The Company closely manages the catalog production
process to control printing and mailing costs while maintaining attractive and
effective catalog presentations. The Company has contracts with various
printers which cover its production requirements and afford protection against
certain cost increases. The Company also employs bulk sorting and drop
shipping of catalogs to take maximum advantage of available USPS rate
discounts.
PRIVATE LABEL PURCHASING AND VENDOR RELATIONSHIPS
Brylane emphasizes private label merchandise, which accounted for
approximately 85.8% of Brylane's net sales in fiscal 1996. Brylane's private
label apparel and accessories produce higher gross profit margins than the
national brand merchandise found in its catalogs. The emphasis on private
label merchandise also affords Brylane greater control over the manufacturing
process, allowing it to achieve its objective of consistency of quality and
fit in the various merchandise categories offered, and enabling it to offer a
greater number of sizes, styles and colors than its competitors. The Company
believes this approach both increases customer loyalty and confidence in
making a purchase and reduces merchandise returns. While Chadwick's also
benefits from private label merchandise offerings, it offers a significantly
larger percentage of nationally recognized brand name merchandise. Chadwick's
private label merchandise accounted for approximately 54.2% of Chadwick's net
sales in fiscal 1996. The Company's private label merchandise is sourced from
a diverse group of established vendors who work directly with the Company's
buyers and are provided with rigorous design specifications and quality
control procedures. The Company is the major customer of and has long-standing
relationships with many of its private label and national brand vendors,
resulting in close and cooperative working relationships and enabling the
Company to obtain merchandise at favorable prices. Brylane's 10 largest
vendors accounted for 24.1% of purchased merchandise in fiscal 1996. No single
supplier, however, accounted for more than 5.1% of merchandise purchased by
Brylane in fiscal 1996. Chadwick's 10 largest vendors accounted for 48.2% of
purchased merchandise in fiscal 1996. No single supplier, however, accounted
for more than 7.6% of merchandise purchased by Chadwick's in fiscal 1996.
During fiscal 1996, Brylane and Chadwick's made approximately 25.1% and 37.6%
of their respective merchandise purchases from foreign suppliers.
To ensure the distinct merchandising focus of its catalogs, the Company
conducts purchasing separately for its Chadwick's, Lane Bryant, Roaman's,
Lerner, Sue Brett and KingSize catalogs and, within each catalog, has
dedicated buyers for specific product lines. The Company's merchandising staff
actively monitors the apparel
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markets and offerings by other catalog and retail stores in an effort to
ensure that the Company's offerings are competitive in design and price. To
improve purchasing efficiency, the Company also relies on "pre-mailing"
programs (i.e., limited catalog distribution prior to the start of a selling
season) to test customer acceptance of new product offerings.
INVENTORY MANAGEMENT
The Company's inventory management systems are designed to maintain
inventory levels that provide optimum in-stock positions, while maximizing
inventory turnover rates and minimizing the amount of unsold merchandise at
the end of each season. The Company maintains higher inventory levels for
basic apparel items which are not generally fashion sensitive. Inventory
levels for items with greater fashion risk are maintained at lower levels,
with the goal of selling all such merchandise prior to the end of a season.
The Company's disciplined inventory control systems enable it to maintain
minimum inventory levels, which the Company is able to replenish quickly as a
result of its close relationships with its domestic suppliers. These lower
levels of inventory enable the Company to avoid excessive markdowns and to
reduce its losses on overstocks at the end of each selling season. When
overstocks do occur, Brylane is generally successful in selling the goods
through relationships it has established with merchandise brokers (who then
resell such merchandise to retailers) and with discount retailers. Chadwick's
historically has been successful in selling its overstock through its twice-
yearly, end-of-season clearance catalogs, through its retail outlet stores
located in Nashua, New Hampshire and Brockton, Massachusetts, and to TJX and
other third parties. In addition, in connection with the Chadwick's
Acquisition, the Partnership has entered into an inventory purchase agreement
with TJX pursuant to which TJX has committed to purchase certain amounts of
Chadwick's excess inventory through January 2000. See "Certain Relationships
and Related Transactions-- The Chadwick's Acquisition".
Despite its careful inventory management, the Company experiences out-of-
stock and back order inventory conditions, both of which are common in catalog
retailing. As a result, the Company experiences some order cancellations.
During fiscal 1994, 1995 and 1996, cancellations were 4.9%, 5.1% and 5.0%,
respectively, of the total dollar value of orders received for the Brylane
catalogs and 3.9%, 5.1% and 5.4% of the total dollar value of orders received
for the Chadwick's catalogs.
MANAGEMENT INFORMATION SYSTEMS
Brylane's management information systems provide support to all segments of
its operations, including merchandising, marketing, telemarketing,
fulfillment, customer service, financial reporting and inventory management.
Chadwick's management information systems are currently supported by TJX's
mainframe computer. In connection with the Chadwick's Acquisition, Brylane
entered into a services agreement with TJX whereby TJX agreed to provide
services relating to the Chadwick's business for approximately three years.
During this period, the Company will evaluate alternative sources for these
services, including having Chadwick's perform certain of the functions itself,
and transferring certain of the functions to Brylane. See "Certain
Relationships and Related Transactions--The Chadwick's Acquisition".
Brylane's management information systems are supported by an IBM mainframe
computer that processes up to 77 million transactions per month. This computer
is connected to approximately 1,900 terminals between Brylane's three
telemarketing facilities and its New York and Hingham, Massachusetts offices.
See "--Properties".
SEARS AGREEMENT
In March 1994, Brylane entered into an exclusive licensing agreement with
Sears (as amended, the "Sears Agreement") to produce special size women's
apparel catalogs (Woman's View), based on Brylane's Lane Bryant and Roaman's
catalogs, for distribution to customers of Sears, Roebuck and Co. Brylane has
also been mailing catalogs based on Brylane's Lerner catalog (Smart Choice)
since the first quarter of 1994, and the Sue Brett catalog (Classics) since
the third quarter of 1994, to these customers. In October 1995, in connection
with the KingSize Acquisition, Brylane and Sears expanded the Sears Agreement
to include an exclusive license to
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produce and distribute the Sears Big & Tall catalog, based on Brylane's
KingSize catalog, to customers of Sears, Roebuck and Co. The Woman's View,
Smart Choice, Classics and Big & Tall catalogs are currently being mailed to
individuals who are not existing customers of Brylane and that are included in
the more than 30 million name customer file of Sears, Roebuck and Co.
As amended, the initial term of the Sears Agreement continues through
February 28, 1999. The Sears Agreement can be renewed by the parties for
additional one year terms thereafter; provided, that either of the parties may
terminate the agreement upon twelve months' notice prior to the end of the
initial term or any renewal thereof. Under the Sears Agreement, the catalogs
mailed are substantially similar to Brylane's comparable catalogs, but have a
Sears logo and a different name. The merchandise is identical to that
contained in Brylane's comparable catalogs, which allows Brylane to fill
incremental customer orders by increasing the amount of merchandise that it
purchases, rather than increasing the number of different kinds of merchandise
categories that it keeps in inventory. This approach limits Brylane's
incremental inventory risk. Customers' calls are answered by telemarketing
representatives using the Sears Shop at Home name for the women's and men's
apparel catalogs, and customers can pay for their purchases using a Sears
credit card or various bank credit cards. Brylane performs all merchandising,
fulfillment, telemarketing, and management information functions through its
existing facilities. In the event that the Sears Agreement terminates, Brylane
will retain the names of all customers who have purchased through the Sears
catalog covered by such agreement and, at that point, Brylane will be able to
mail Brylane's other catalogs to these customers.
COMPETITION
The retail apparel business is highly competitive. Lane Bryant, Roaman's and
Woman's View compete in the sale of special size women's apparel primarily
with other mail order companies, department stores and specialty retailers,
including the Lane Bryant retail stores operated by The Limited, Catherines
Stores and United Retail Group (which is 20.5% owned by The Limited).
Brylane's principal competitors in the mail order retailing of special size
women's apparel include J.C. Penney (general catalog and Liz Baker), Arizona
Mail Order (Old Pueblo and Regalia), Hanover Direct (Silhouettes) and Spiegel
(For You). Chadwick's, Lerner and Smart Choice compete in the sale of value-
priced women's fashion sportswear with many other mail order companies,
specialty retailers, discount stores and department stores, including the
Lerner retail stores operated by The Limited and T.J. Maxx and Marshalls, each
of which is owned by TJX. KingSize and Big & Tall compete in the sale of
special size men's apparel with specialty retailers (including Casual Male and
Repp Stores), department stores, other mail order companies (including J.C.
Penney's Big & Tall catalog and Phoenix's Big & Tall catalog) and discount
stores. In addition, sales of clothing through home television shopping
networks or other electronic media could provide additional sources of
competition for the Company. The Company does not believe that it has any
significant competition in the special size or off-price segment of the
women's apparel catalog retail market. However, there can be no assurance that
other retailers of apparel will not decide to enter the Company's markets.
The Company competes on the basis of its extensive merchandise selection,
product quality and price, credit extension and customer service. The Company
believes that its long-standing relationships with many of its customers,
reputation for quality merchandise, extensive customer files and low-cost,
efficient infrastructure allow it to compete effectively in all of its other
market segments. See "Risk Factors--Competition and Other Business Factors".
The Transaction Agreement contains certain noncompetition and
nonsolicitation provisions, subject to certain exceptions, binding upon The
Limited which terminate when affiliates of FS&Co. no longer hold an interest
in the Company. If such provisions were to terminate, The Limited could
compete directly with Brylane in the retail catalog business for special size
women's apparel. In addition, the Stockholders Agreement generally provides,
with certain exceptions, that the Company may not, without The Limited's
consent, for so long as the Limited Stockholder holds, directly or indirectly,
at least 20% of the outstanding Common Stock of Brylane Inc., engage in any
business that competes with the businesses conducted by The Limited or its
affiliates as of August 30, 1993, other than in the mail order business for
women's special size apparel, moderately priced fashion
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apparel and related accessories, and for moderately priced regular size or
special size men's apparel and related accessories that are substantially
similar to the products offered in the Company's KingSize catalogs as of
October 14, 1996. As a result of the Offerings and the Common Stock
Repurchase, The Limited will hold less than 20% of the outstanding Common
Stock of the Company; consequently, these noncompetition provisions will no
longer be applicable. See "Risk Factors--Competition and Other Business
Factors" and "Certain Relationships and Related Transactions--Additional
Agreements--Noncompetition Agreements".
TRADEMARKS, TRADE NAMES AND LICENSES
The Company is the owner in the United States of the Roaman's, Sue Brett,
KingSize, Chadwick's, Chadwick's of Boston, Ltd., Bridgewater, Jessica London
and Brett trademarks, as well as certain other trademarks which it uses as
private label brand names. Brylane uses the Lane Bryant and Lerner registered
trademarks, as well as certain other trademarks used as private label brand
names, under a royalty-free license from The Limited. See "Certain
Relationships and Related Transactions--Additional Agreements--Trademark
Agreement". Brylane uses the Woman's View, Smart Choice and Big & Tall
trademarks pursuant to the licensing arrangements contained in the Sears
Agreement. See "--Sears Agreement". In addition, the Company also licenses
certain other marks from TJX and other third parties. While certain of these
licensed names are important to the Company's business, management does not
believe that the loss of any of the marks licensed from TJX would have a
material adverse effect upon the Company's business, financial condition and
results of operations.
The Company uses the Lane Bryant, Lerner, Roaman's, Woman's View, Smart
Choice, Big & Tall, Chadwick's, Chadwick's of Boston, Ltd., Bridgewater,
Jessica London and Brett trademarks, and the Classics name, only on the covers
of its catalogs and in general advertising and promotional materials, and not
as labels or tags on any garments or other merchandise it distributes. The
Company's other owned and licensed trademarks, including Sue Brett, KingSize,
Peak Performance, Hunters Run, David Benjamin, Lasting Comfort, Venezia,
Forenza, Savannah, Fads, JL Plum and Stephanie Andrews, are used for certain
of the Company's apparel offerings, as well as in other marketing and
merchandising activities. Such trademarks are important to the operations of
the Company. See "Risk Factors--Relationship with The Limited" and "Certain
Relationships and Related Transactions--The Chadwick's Acquisition".
ASSOCIATES
The Company's skilled and dedicated associates are a key resource. At August
2, 1997, the Company employed (directly or indirectly through its
subsidiaries) approximately 5,600 individuals, including part-time and full-
time associates. During peak sales periods, the Company hires approximately
650 additional part-time and temporary associates. Approximately 1,200 of
Chadwick's associates are covered under one of TJX's collective bargaining
agreements with the Union of Needletrades, Industrial and Textile Employees.
This agreement expires on December 31, 1997, and it is expected that the
Company will commence negotiations for a new agreement in the near future. The
Company considers its labor relations and overall employee relations to be
good.
PROPERTIES
The principal executive offices of the Company are located in New York, New
York in approximately 90,000 square feet of leased office space. The Company
owns its 750,000 square foot fulfillment and telemarketing center located on
approximately 26 acres of land in Indianapolis, Indiana. Recently, the Company
leased an additional 125,000 square feet of warehouse space in Plainfield,
Indiana. The Company also leases approximately 73,000 square feet in San
Antonio, Texas, and approximately 13,400 square feet in Greenwood, Indiana,
for telemarketing operations related to the Brylane catalogs. The executive
offices of the Company's KingSize operations are located in Hingham,
Massachusetts in approximately 8,000 square feet of leased office space. In
addition, the executive offices, telemarketing center, warehouse and
fulfillment center of the Company's Chadwick's operations are located in a
Company-owned facility in West Bridgewater, Massachusetts that
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contains approximately 580,000 square feet of space. The Company leases an
additional 126,000 square foot facility in West Bridgewater, Massachusetts for
returns processing and customer service related to Chadwick's. The Company
also leases from TJX approximately 11,000 square feet and 12,500 square feet
of retail space for Chadwick's outlet stores in Brockton, Massachusetts and
Nashua, New Hampshire, respectively, and has an arrangement with TJX whereby
it has access to use a 7,500 square foot buying office located in New York,
New York. See "Certain Relationships and Related Transactions--The Chadwick's
Acquisition". The Company believes that its existing facilities are adequate
to meet its current needs, and will provide capacity sufficient to handle its
anticipated growth for the next several years.
REGULATORY MATTERS
The Company currently collects sales and use tax on merchandise sales in the
states of Indiana, Maryland, Massachusetts, New York and Texas, because the
Partnership has physical presence in those states, and in the state of Florida
because of a written agreement with that state which is effective through
September 1997. Prior to June 30, 1996, the Partnership collected applicable
sales and use taxes in approximately 41 states, regardless of whether the
Partnership was otherwise required to collect such taxes in those states,
generally pursuant to a Multistate Sales Tax Agreement, dated as of January 1,
1988, among the Partnership, the Multistate Tax Commission and a consortium of
35 states represented by the Multistate Tax Commission which governed the
Brylane business when it was acquired by the Partnership. In March 1996, the
Partnership advised the Multistate Tax Commission, based on advice received
from legal counsel, that it was not extending the Multistate Sales Tax
Agreement beyond its expiration date of June 30, 1996. Based upon present law,
the Company believes that it is not generally required to collect and remit
sales and use taxes on merchandise sold in states in which it does not have a
physical presence, absent the Multistate Sales Tax Agreement. It is possible
that there may be a judicial decision or that Congress may pass legislation in
the future permitting states in which the Company does not have such a
physical presence to require it to collect and remit sales and use taxes with
respect to sales in such states. Accordingly, there can be no assurance that
the Company will not have an obligation to collect and remit sales and use
taxes in states in addition to those states in which it is presently required
to collect and remit such taxes.
The Company's business, and the direct mail industry in general, is subject
to regulation by a variety of state and federal laws and regulations related
to, among other things, advertising, offering and extending credit, imports
and sales tax. Legislation has been proposed in the past designed to impose a
ceiling on the rates charged in connection with the extension of credit
through credit cards. It is impossible to predict whether such legislation
will be enacted and, if enacted, what form it will take. However, any such
legislation could have an adverse impact on the Company's credit card
financing arrangements. The Company's imported products are subject to United
States customs duties, and some of the Company's imported products are subject
to import quotas when imported from particular countries. In the ordinary
course of its business, the Company may from time to time be subject to claims
for duties, and the Company's imported products may be subject to other import
restrictions. United States customs duties currently are between 0% and 48%
(with an average rate of 18.0%) of appraised value on certain items of
inventory. During fiscal 1996, Brylane and Chadwick's made approximately 25.1%
and 37.6% of their respective merchandise purchases from foreign suppliers.
See "Risk Factors--Dependence on Suppliers; Foreign Sourcing".
LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business. The
Company does not believe that unfavorable outcomes in such litigation would
have a material adverse effect on its business, financial condition and
results of operations.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE BRYLANE ACQUISITION
On August 30, 1993, affiliates of FS & Co. (the "FS Parties") and certain
affiliates of The Limited entered into a partnership agreement (the
"Partnership Agreement") and formed Brylane, L.P., which acquired
substantially all of the assets and liabilities of the Business and acquired a
license to use certain related trademarks. See "--Additional Agreements--
Trademark Agreement". The execution of the Partnership Agreement and the
closing of the Brylane Acquisition occurred contemporaneously with the closing
of the financing thereof, on August 30, 1993 (the "Closing Date"); however,
for accounting purposes, the Brylane Acquisition was recorded as of August 1,
1993.
The aggregate purchase price for the Brylane Acquisition was $335.0 million.
Pursuant to the terms of the Transaction Agreement, the FS Parties and certain
members of management contributed an aggregate of $75.0 million to the capital
of the Partnership, for a 60% aggregate interest in the Partnership, including
approximately $2.4 million in promissory notes received from members of
management of the Partnership in connection with their purchase of shares of
stock of VP Holding. See "Management--Stock Subscription Plan". Certain
affiliates of The Limited contributed substantially all of the assets and
liabilities of the Business to the Partnership in return for a cash
distribution of $285.0 million and a 40% aggregate limited partnership
interest in the Partnership.
Equity contributions to the Partnership totalled $125.0 million (including
the equity interest retained by The Limited). The Partnership's initial debt
consisted of $125.0 million principal amount of its Senior Subordinated Notes
and a $110.0 million term loan under its then existing bank credit facility
(the "1993 Bank Credit Facility").
THE KINGSIZE ACQUISITION
On October 16, 1995, Brylane acquired the KingSize catalog division of
WearGuard (the "KingSize Acquisition"). For accounting purposes, the KingSize
Acquisition was recorded using an effective date of October 1, 1995. As
consideration for the sale of its KingSize catalog division, WearGuard
received a cash payment of $52.5 million and 350,000 newly-issued limited
partnership units in Brylane. In order to fund a portion of the purchase
price, the Company amended its then existing bank credit facility to provide
for an additional $35.0 million term loan. In connection with the KingSize
Acquisition, WearGuard assigned to Brylane its license to distribute the Sears
Big & Tall catalog, as well as its interest in certain trademarks, including
the KingSize(R) registered trademark. In addition, the Partnership Agreement
was amended to admit WearGuard as a new limited partner of Brylane.
In connection with the KingSize Acquisition, Brylane formed K.S. Management
Services, Inc. ("K.S. Management"), which entered into a services agreement
with Brylane pursuant to which K.S. Management provides services to Brylane,
including the provision of the services of certain senior personnel who
perform management services for Brylane with respect to its KingSize catalog.
K.S. Management holds the leasehold on the Company's office space in Hingham,
Massachusetts, owns certain furniture and fixtures related thereto, and
operates with approximately 20 employees.
K.S. Management has also guaranteed the obligations of the Partnership under
the new Bank Credit Facility and the obligations of the Partnership and
Brylane's wholly-owned subsidiary, Brylane Capital Corp., under the Indenture
for Brylane's Senior Subordinated Notes.
THE CHADWICK'S ACQUISITION
On December 9, 1996, Brylane purchased the assets (excluding substantially
all of the accounts receivable) of Chadwick's, Inc., a Massachusetts
corporation and a wholly-owned subsidiary of TJX ("Chadwick's, Inc."
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or the "TJX Noteholder"), used in the Chadwick's of Boston catalog business
(the "Chadwick's Acquisition"). The aggregate purchase price for the
Chadwick's Acquisition was $242.8 million, which consisted of a cash payment
of $192.1 million to the TJX Noteholder, a cash payment of $30.7 million to
CDM Corp., a Nevada corporation and a wholly-owned subsidiary of Chadwick's,
Inc. which held certain trademarks purchased by Brylane ("CDM"), and the
issuance by the Partnership to the TJX Noteholder of a Convertible
Subordinated Note due 2006 in the original principal amount of $20,000,000
(and bearing interest at an initial rate of 6%) (the "Partnership Note"). See
"Description of Certain Financing Arrangements--Convertible Subordinated
Note". The cash portion of the purchase price is subject to certain post-
closing adjustments. On May 16, 1997, Brylane received from TJX a preliminary
cash purchase price adjustment of $28.8 million primarily related to a change
in the net book value of the assets acquired. 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. Also, in connection with the
Chadwick's Acquisition, the Partnership received an aggregate of approximately
$51.3 million in new equity from certain affiliates of FS&Co., Leeway & Co.,
NYNEX and WearGuard. In connection with the Chadwick's Acquisition, TJX
assigned to Brylane its interest in certain trademarks, including the
Chadwick's(R) and Chadwick's of Boston(R) registered trademarks. Brylane also
purchased all of the outstanding stock of Chadwick's Tradename Sub, Inc.
("Tradename Sub"), which was formed by TJX to hold certain non-exclusive
licensing rights to certain trademarks purchased by Brylane.
In connection with the Chadwick's Acquisition, Brylane entered into a
services agreement with TJX whereby TJX agreed to provide services relating to
the Chadwick's business for approximately three years. In addition, Brylane
entered into an inventory purchase agreement with TJX pursuant to which TJX
has committed to purchase certain amounts of Chadwick's excess inventory
through January 29, 2000.
In connection with the Chadwick's Acquisition, in December 1996, Dhananjaya
K. Rao and Carol Meyrowitz each purchased 37,500 shares of Series A
Convertible Redeemable Preferred Stock of VP Holding (the "VP Holding
Preferred Stock"), for a purchase price of $750,000, each which shares were
exchanged for Series A Preferred Stock of the Company in connection with the
Incorporation Plan. Such Series A Preferred Stock may not be transferred for
three years from their date of purchase and thereafter may be transferred only
after first offering such shares to VP Holding or the Company, as applicable,
and are subject to certain other rights and obligations. See "Description of
Capital Stock--Preferred Stock".
Also in connection with the Chadwick's Acquisition, Brylane formed C.O.B.
Management Services, Inc., a Delaware corporation ("C.O.B. Management"), which
assumed Chadwick's, Inc.'s obligations relating to Chadwick's New York buying
office. C.O.B. Management also employs approximately 80 employees of the
Company's Chadwick's division who work out of the New York buying office
during part of each week.
Both C.O.B. Management and Tradename Sub will guarantee the obligations of
Brylane under the Amended 1997 Bank Credit Facility and have guaranteed the
obligations of Brylane and Brylane Capital Corp. under the Indenture for
Brylane's Senior Subordinated Notes.
THE INCORPORATION PLAN
In connection with the Initial Public Offering, the Company, certain
affiliates of FS&Co., The Limited, Lane Bryant Direct Holding, Inc., a
Delaware corporation and an affiliate of The Limited ("Lane Bryant Direct"),
WearGuard, Leeway & Co., NYNEX and the TJX Noteholder entered into an
agreement which resulted in the Company acquiring, directly, and indirectly
through the acquisition of wholly-owned subsidiaries, a 100% ownership
interest in the Partnership in exchange for shares of Common Stock. One share
of Common Stock was issued for each partnership unit of the Partnership or
share of common stock of VP Holding (which held general and limited
partnership interests in the Partnership) and one share of Series A Preferred
Stock of the Company was issued for each share of VP Holding Preferred Stock.
In addition, the Partnership Note was replaced with a substantially similar
note issued by the Company and the Partnership, as co-obligors (the
"Convertible Note"), and all options to purchase partnership units held by
members of management and others
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were converted into options to purchase Common Stock with an identical
exercise price and substantially similar terms. Approximately $9.8 million of
the Convertible Note will be converted into 357,107 shares of Common Stock in
connection with the Offerings and the Common Stock Repurchase. Upon completion
of the Incorporation Plan, the Partnership retained title to all of its assets
and remained liable for all of its obligations, including all of the
liabilities and encumbrances related to the Senior Subordinated Notes and the
1996 Bank Credit Facility.
ADDITIONAL AGREEMENTS
TRADEMARK AGREEMENT. In connection with the Brylane Acquisition, the
Partnership became a party to the Trademark Agreement with The Limited and
certain of its affiliates (the "Licensors"), pursuant to which the Licensors
granted to the Partnership an exclusive, royalty-free license (the "License")
to use certain trademarks and trade names (collectively, the "Trademarks") in
connection with the Business for a period of up to 20 years. The Partnership
may assign the Trademark Agreement and the License without the consent of The
Limited (i) to the purchaser of all or substantially all of the assets of the
Business or (ii) to any corporation which is a successor to the Partnership or
any successor thereto. The Trademark Agreement will terminate on the earliest
to occur of the following: (i) ten years after the consummation of the
Offerings and the Common Stock Repurchase, (ii) two years after any person
which competes with any retail or catalog business conducted by The Limited or
its affiliates as of August 20, 1993 acquires control of the Business, and
(iii) if the Company is party to a business combination voted against by The
Limited or any of its affiliates, (A) two years after such event (or ten years
after such event if The Limited has sold either of its Lane Bryant or Lerner
retail businesses prior to such event with respect to the Trademarks used in
the businesses sold by The Limited) if the other party in such combination
competes with The Limited or any of its affiliates or (B) four years after
such event (or ten years after such event if The Limited has sold either of
its Lane Bryant or Lerner retail businesses prior to such event with respect
to the Trademarks used in the businesses sold by The Limited) in any other
circumstance. The Trademark Agreement may also be terminated (a) by
The Limited (i) upon 30 days' notice upon a material breach of the Trademark
Agreement by Brylane which breach remains uncured or (ii) upon the bankruptcy
or insolvency of Brylane, and (b) by the Company, upon six months' notice on
or after August 20, 1998. See "Risk Factors--Relationship with The Limited".
Under the Trademark Agreement (x) a person shall be deemed to have acquired
"control" of the Business if (1) a designee or representative of such person
serves on the Board of Representatives (or similar body) of the Partnership,
any successor to the Partnership or any entity controlling the Partnership or
such a successor (including the Company) for a period of 60 days, (2) such
person possesses, directly or indirectly, the power to direct or cause the
direction of the management or policies of the Business, whether through the
ownership of voting securities, by contract or otherwise, or (3) such person
possesses a direct or indirect contractual right to receive material non-
public information concerning any of the Trademarks or the use thereof from
the Partnership, any successor to the Partnership or any entity controlling
the Partnership or such a successor (including the Company) and (y) for
purposes of calculating sales of stock in the Company or the ownership
percentage in the Company of any FS Fund (as defined) or The Limited and their
affiliates, a sale of stock or other equity interests in any affiliate of any
FS Fund or the Limited Stockholder which, directly or indirectly, owns stock
in the Company or other entity holding the Business or any direct or indirect
parent of the Company or any such entity (any such affiliate, an "Equity
Owner"), shall constitute a sale of a corresponding percentage of stock in the
Company or other entity holding the Business owned, directly or indirectly, by
any FS Fund, the Limited Stockholder or any such Equity Owner, as the case may
be. This provision does not apply to sales of equity interests in (i) The
Limited, (ii) any general or limited partner of the FS Funds, or (iii) the FS
Funds.
In addition to the Trademark Agreement, the Partnership became a party to an
Electronic Media Trademark License Agreement pursuant to which the Licensors
granted to the Partnership a non-exclusive right, permission and privilege to
use the Trademarks in connection with the promotion, distribution and sale of
special size women's apparel, moderately priced fashion apparel and related
accessories through television and other electronic media, subject to prior
reasonable determination by The Limited that any proposed electronic marketing
activity would not disparage or diminish the stature, image or quality of such
Trademarks or cause confusion or deception among Lerner or Lane Bryant retail
customers.
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CREDIT CARD AGREEMENT. In connection with the Brylane Acquisition, Brylane
entered into the Credit Card Agreement (as amended on July 1, 1995) with World
Financial, a joint venture 60% owned by partnerships controlled by, and
affiliates of, Welsh Carson Anderson & Stowe and 40% owned by The Limited,
pursuant to which World Financial provides credit to customers of Brylane,
issues credit cards to these customers bearing the Lerner(R), Lane Bryant(R) ,
Roaman's(R), Sue Brett(R) and KingSize(R) trademarks, and processes credit
card transactions for a fee equal to a percentage of the sale amount generated
by such transactions (exclusive of shipping, handling and taxes). The balance
of such amount is remitted to Brylane within two business days of its
incurrence. The fee payable to World Financial under this arrangement is
currently set at 2.4% of net sales generated using these credit cards. In the
event of a legislated or judicial reduction in the annual percentage rate that
may be charged by World Financial to cardholders, Brylane and World Financial
have agreed to negotiate in good faith an increase in the fee. In addition, in
the event that the aggregate amount of receivables generated through the use
of the credit cards exceeds $525 million, the fee shall be adjusted to
reimburse World Financial for its borrowing costs with respect to such
receivables in excess of $525 million. Furthermore, the fee may be adjusted
every six months based on the average finance charges per cardholder
statement. However, the fee may not exceed 2.5% (subject to certain
exceptions). Aggregate fees paid to World Financial by Brylane under the
Credit Card Agreement during fiscal 1996 were $10.0 million. Under the Credit
Card Agreement, World Financial determines the creditworthiness of a
particular customer based on standards consistent with past practice and
generally assumes all risks associated with the collection of receivables
generated by credit card sales without recourse to the Company. In the event
that the Credit Card Agreement should terminate as described below, however,
Brylane would be obligated to repurchase from World Financial certain then-
outstanding Lerner and Lane Bryant mail order account balances, and all
Roaman's, Sue Brett and KingSize account balances, at the face amount thereof
(subject to certain exceptions).
Pursuant to the terms of the Credit Card Agreement, Brylane is obligated to
use its best efforts to promote the use of credit cards in the Business and to
acquire new cardholders through, among other things, "instant credit", pre-
approved solicitations and applications inserted into catalogs. World
Financial has the right to review and approve any credit marketing materials
used in these promotional activities prior to their use, which approval shall
not be unreasonably withheld. The cost of these credit solicitation activities
are shared equally by Brylane and World Financial. In addition, the Credit
Card Agreement requires World Financial to provide without charge to Brylane a
list of all Lerner and Lane Bryant retail cardholders on no more than one
occasion per month. Brylane is authorized to use the lists for the purpose of
increasing its catalog mailing lists.
The Credit Card Agreement will remain in effect until terminated (i) by
either party on not less than twelve months' notice delivered on or after July
1, 2005, (ii) by either party upon a breach by the other party of any of its
material obligations under the Credit Card Agreement, (iii) by World Financial
on not less than twelve months' notice if any competitor of The Limited or any
of its affiliates acquires "control" of Brylane (as defined in the Credit Card
Agreement), or (iv) automatically upon certain bankruptcy events involving
Brylane. See "Risk Factors--Relationship with The Limited".
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT. In connection with the Chadwick's
Acquisition, Brylane entered into the Receivables Purchase Agreement pursuant
to which ADS has agreed to purchase from time to time, at the request of
Brylane, eligible customer accounts receivable generated through Chadwick's
deferred billing programs in amounts up to $100 million outstanding at any
time. ADS will purchase the receivables on a limited recourse basis at a
discount from face value. Brylane will pay transaction costs including a fee
of $.03 per purchased account, and carrying costs equal to, at the
Partnership'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. In addition, Brylane will pay a commitment fee and a fee on
the unused portion of the commitment from time to time. The Receivables
Purchase Agreement specifies a commitment period through December 31, 1999,
subject to earlier termination (on a prospective basis only) by the purchaser
under certain specified circumstances (including (i) that bad debt experience
in prior programs exceeded 7.5%, (ii) that Brylane fails to maintain a
specified minimum net worth or (iii) that Brylane fails to comply with the
financial covenants contained in the new Bank Credit Facility (as it may be
modified or amended from time to time)). In connection with the
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Receivables Purchase Agreement, Brylane also entered into a service agreement
with ADS pursuant to which it has agreed to act as servicing agent to process
the purchased accounts and submit them for acceptance by the credit card
issuers on the applicable deferred billing dates offered to Chadwick's
customers. All payments by the credit card issuers will be made directly to a
bank account owned by ADS. ADS can terminate Brylane's appointment as
servicing agent at any time with or without cause. The Company will account
for the Receivables Purchase Agreement in accordance with Statement of
Financial Accounting Standards No. 125 "Accounting For Transfer and Servicing
of Financial Assets and Extinguishments of Liabilities".
NONCOMPETITION AGREEMENTS. The Stockholders Agreement provides, with certain
exceptions, that so long as The Limited holds, directly or indirectly, a 20%
equity interest in the Company, the Company may not, without The Limited's
consent, engage in any business that competes with businesses conducted by The
Limited or its affiliates as of August 30, 1993, other than in the mail order
business for women's special size apparel, moderately priced fashion apparel
and related accessories, and for moderately priced regular size or special
size men's apparel and related accessories that are substantially similar to
the products offered in the Company's KingSize catalogs as of October 14,
1996, at price points substantially similar or lower than those for the
comparable products offered by the Company's KingSize catalogs as of the date
of the Stockholders Agreement. As a result of the Offerings and the Common
Stock Repurchase, The Limited will hold less than 20% of the outstanding
Common Stock of the Company; consequently, these noncompetition provisions
will no longer be applicable. In addition, The Limited agreed in the
Transaction Agreement, for so long as the FS Parties hold any direct or
indirect interest in the Partnership or any successor corporation, to certain
noncompetition and nonsolicitation provisions in favor of the Partnership. The
noncompetition and nonsolicitation provisions contained in the Transaction
Agreement also provide certain customary exceptions. In connection with the
KingSize Acquisition, Brylane, ARAMARK and WearGuard entered into a
Noncompetition Agreement, whereby ARAMARK and WearGuard have agreed to certain
noncompetition and nonsolicitation provisions (with certain customary
exceptions) in favor of Brylane that will remain in effect until the later of
(a) October 16, 2000 or (b) the date upon which WearGuard (and its affiliates)
has disposed of its entire interest in the Partnership. In addition, pursuant
to that certain Asset Purchase Agreement dated October 18, 1996 by and among
TJX, Chadwick's, Inc. and Brylane (the "Chadwick's Purchase Agreement"), TJX
agreed, for a period of five years, to not own or conduct (with an exception
for passive ownership of less than 10% of a company) any business that sells
merchandise through printed women's or men's apparel catalogs which are
substantially similar to the "Chadwick's of Boston" catalog. TJX is permitted,
however, to (i) sell merchandise through the Internet and other electronic
media, (ii) use print advertising for apparel and merchandise sold through
stores and electronic media even if such items may be purchased by mail or
telephone, and (iii) print catalogs in which less than 10% of the merchandise
is men's or women's apparel. Also, TJX may acquire a company that conducts a
competitive business if such competitive business accounts for less than 25%
of such acquired company's annual revenues and TJX uses its commercially
reasonable efforts to, within one to two years of such acquisition, divest
itself of any competitive business which accounts for more than 5% of the
annual revenues of such acquired company. See "Description of Capital Stock--
Stockholders Agreement".
OTHER TRANSACTIONS
In connection with the Chadwick's Acquisition, Brylane paid to an affiliate
of FS&Co. $2.5 million in fees as compensation for certain financial advisory
services. Brylane believes that the fees paid to these affiliates of FS&Co.
are comparable to the consideration which could reasonably have been
negotiated in an arm's length transaction with an unaffiliated third party.
Affiliates of FS&Co. will provide financial advisory services to Brylane
without compensation other than reimbursement for their out-of-pocket
expenses.
In connection with the Brylane Acquisition, certain affiliates of FS&Co.
agreed to loan, on demand, an aggregate of $1.0 million to VP Holding, which
obligations were evidenced by loan agreements entered into between such
affiliates of FS&Co., on the one hand, and each of VP Holding and VGP, on the
other hand, as well as the forms of no-interest demand promissory notes made
by such affiliates of FS&Co. in favor of VP Holding. Pursuant to the terms of
the loan agreements, VP Holding then contributed these demand notes to the
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capital of VGP in connection with the satisfaction of certain minimum net
worth requirements related to the treatment of the Partnership as a
partnership for federal income tax purposes. As a result of the Initial Public
Offering, these loan agreements and demand notes have been terminated, and
Brylane Inc. has entered into a similar loan agreement with VP Holding and VGP
and issued a similar no-interest demand promissory note in the principal
amount of $1.0 million to VP Holding. Pursuant to such loan agreement, VP
Holding has contributed such demand note to VGP in order to maintain the
minimum net worth of the Partnership as discussed above.
In connection with the formation of the Company and the exchange of
partnership units of the Partnership and shares of VP Holding common stock for
shares of Common Stock of the Company as contemplated by the Incorporation
Plan, the Company has paid an aggregate of $180,000 and $90,000 in fees on
behalf of affiliates of FS&Co. and of The Limited, respectively, in connection
with certain filings made by such entities pursuant to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976.
For a description of certain other related party transactions, see Note (14)
"Related Party Transactions" of the Brylane Inc. Notes to Financial Statements
on page F-19 hereof, and Note A. "Related Party Transactions" of the
Chadwick's, Inc. Notes to Combined Financial Statements on page F-26 hereof.
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MANAGEMENT
EXECUTIVE OFFICERS AND MEMBERS OF THE BOARD OF DIRECTORS
The following individuals are the current executive officers of Brylane
Inc., the Partnership or its subsidiaries (including B.L. Management and K.S.
Management, each of which provides management services to Brylane) and the
current members of the Board of Directors of the Company (the "Board"):
<TABLE>
<CAPTION>
NAME AGE* POSITION
---- ---- --------
<S> <C> <C>
Peter J. Canzone (3)............ 67 President, Chief Executive Officer,
Chairman of the Board and Director
William C. Johnson (2)(3)....... 57 Vice Chairman of the Board and Director
Sheila R. Garelik............... 52 President-Brylane
Robert A. Pulciani.............. 56 Executive Vice President, Chief Financial
Officer, Secretary and Treasurer
Richard L. Bennett.............. 65 Senior Vice President-Human Resources
Jessie Bourneuf................. 48 President-KingSize
William G. Brosius.............. 61 Senior Vice President-Operations/Customer
Service
Bruce G. Clark.................. 52 Senior Vice President-Telemarketing
Kevin Doyle..................... 43 Vice President/General Manager-Roaman's
Kevin McGrain................... 42 Vice President/General Manager-Sears
Business
Carol Meyrowitz................. 43 Executive Vice President-Chadwick's
Merchandising
Loida Noriega-Wilson............ 41 Vice President/General Manager-Lerner
Dhananjaya K. Rao............... 48 President and Chief Executive Officer-
Chadwick's
Jules Silbert................... 69 Senior Vice President-Marketing/New
Business Development
Arlene Silverman................ 48 Senior Vice President/General Manager-Lane
Bryant
Mark J. Doran................... 33 Director
Samuel P. Fried (1)............. 46 Director
William K. Gerber............... 43 Director
John M. Roth (1)(3)............. 38 Director
Ronald P. Spogli (1)............ 49 Director
Peter M. Starrett (1)(2)(3)..... 49 Director
</TABLE>
- --------
* As of September 1, 1997.
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Strategic Planning Committee
Mr. Canzone has been Chief Executive Officer of Brylane and its predecessor
since 1978 and also served as President of Brylane and its predecessor from
1978 until July 1996. Mr. Canzone became a member of the Board and President
of Brylane Inc. in connection with the Company's formation and was elected
Chairman of the Board in June 1995. Between 1969 and 1978, Mr. Canzone was
employed by Lane Bryant in a variety of merchandising positions.
Mr. Johnson became a member of the Board in connection with the Company's
formation and was elected Vice Chairman of the Board in June 1995. From March
1990 until December 1994, Mr. Johnson served as Chief Executive Officer of
Grolier Incorporated. Prior to joining Grolier Incorporated, from 1982 to
1989, Mr. Johnson served as Chairman of the Board and Chief Executive Officer
of Fingerhut Corporation.
Ms. Garelik has been President of Brylane since July 1996. Ms. Garelik
served as Executive Vice President/President-Lane Bryant from the Brylane
Acquisition until July 1996, and served as Executive Vice
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President/General Manager of Roaman's from 1989 until the Brylane Acquisition.
Between 1969 and 1989, Ms. Garelik was employed by Brylane's predecessor in a
variety of merchandising positions.
Mr. Pulciani has been Executive Vice President, Chief Financial Officer and
Secretary of Brylane and its predecessor since May 1993. Mr. Pulciani became
the Treasurer of Brylane in connection with the Company's formation.
Mr. Pulciani joined Brylane in 1988, and served as Senior Vice President and
Chief Financial Officer from May 1988 to May 1993. Prior to joining Brylane,
Mr. Pulciani was Vice President and Controller of Carson Pirie Scott.
Mr. Bennett has been Senior Vice President-Human Resources of Brylane and
its predecessor since March 1986. Mr. Bennett joined Brylane in 1983, and
served as Vice President-Human Resources from 1983 to March 1986. Prior to
joining Brylane, Mr. Bennett was with Dayton Hudson from 1975 to 1983 as
Director of Employee Relations/Personnel.
Ms. Bourneuf has been President of the Company's KingSize business since the
KingSize Acquisition in October 1995. Prior to joining Brylane, Ms. Bourneuf
served as President of the KingSize Catalog Division of WearGuard since 1989.
From 1981 to 1989, Ms. Bourneuf served as Senior Vice President of Marketing
of WearGuard, and from 1978 to 1980, Ms. Bourneuf served as Marketing Director
of Talbots.
Mr. Brosius has been Senior Vice President-Operations/Customer Service of
Brylane and its predecessor since October 1987. Mr. Brosius joined Brylane in
1969, and served as Vice President-Fulfillment from 1979 to October 1987.
Mr. Clark has been Senior Vice President-Telemarketing of Brylane and its
predecessor since May 1988. Mr. Clark also served as Senior Vice President-
MIS/Telemarketing from May 1988 to April 1997. Mr. Clark joined Brylane in
1983, and served as Vice President-MIS/Telemarketing from 1983 to May 1988.
Prior to joining Brylane, Mr. Clark was a Partner with Arthur Andersen & Co.
Mr. Doyle has been Vice President/General Manager-Roaman's since November
1996. Mr. Doyle joined Brylane in 1975 and served as Control Buyer, Assistant
Buyer, Associate Buyer, Buyer and Senior Buyer over a period of 14 years. Mr.
Doyle also served as Merchandise Director of Lane Bryant from August 1989
until September 1993 and served as General Merchandise Manager of Roaman's
from September 1993 to November 1996.
Mr. McGrain was appointed Vice President/General Manager of the Company's
Sears Business in August 1995. Mr. McGrain joined Brylane in September 1988
and was Vice President-Controller of Lerner from May 1992 to August 1995.
Ms. Meyrowitz has been Executive Vice President-Merchandising of the
Company's Chadwick's business since the Chadwick's Acquisition in December
1996. From May 1996 to December 1996, Ms. Meyrowitz served as Executive Vice
President-Merchandising of Chadwick's, Inc. From March 1991 to May 1996, Ms.
Meyrowitz served as Senior Vice President and General Merchandise Manager of
Chadwick's, Inc. Previously, Ms. Meyrowitz was General Merchandise Manager at
Chadwick's from March 1990 to March 1991, and Vice President and Senior
Merchandise Manager from January 1989 to March 1990. Prior to that, Ms.
Meyrowitz was Vice President and Divisional Merchandise Manager of the Hit or
Miss Division of TJX from 1986 to 1989, and she was a Buyer at the Hit or Miss
Division from 1983 to 1986.
Ms. Noriega-Wilson joined Brylane in April 1995 as Vice President/General
Manager-Lerner. Prior to joining Brylane, Ms. Noriega-Wilson served as Vice
President of Merchandising of Montgomery Ward Direct from February 1993 to
February 1995. From September 1992 to January 1993, Ms. Noriega-Wilson served
as Vice President of Merchandising for Clegg Industries, an independent
private investment group. From 1988 to July 1992, Ms. Noriega-Wilson served as
Vice President of Merchandising & Marketing of Together Limited in London,
England. Prior to that, Ms. Noriega-Wilson was with Spiegel for 10 years,
where she served as Divisional Merchandise Manager from 1986 to 1988.
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Mr. Rao has been President and Chief Executive Officer of the Company's
Chadwick's business since the Chadwick's Acquisition in December 1996. From
May 1996 to December 1996, Mr. Rao served as President and Chief Executive
Officer of Chadwick's, Inc. From January 1995 to May 1996, Mr. Rao served as
Senior Vice President, Operations and Marketing of Chadwick's, Inc.
Previously, Mr. Rao worked at the T.J. Maxx Division of TJX from 1978 until
1995. His management positions during such time included Senior Vice President
of Distribution and Financial Planning and Analysis from November 1994 to
January 1995, Senior Vice President of Distribution, Merchandise Planning and
Inventory Management from 1991 to 1994, Senior Vice President and Director of
Distribution from 1989 to 1991 and Vice President and Director of Distribution
from 1981 to 1989.
Mr. Silbert has been Senior Vice President-Marketing/New Business
Development of Brylane since July 1995. From December 1993 to July 1995, Mr.
Silbert served as Vice President-New Business Development of Brylane. Prior to
joining Brylane, Mr. Silbert was President of The Silbert Group, Inc., an
independent management consulting firm, since April 1982. From 1978 to April
1982, Mr. Silbert served as the President of the retail stores division of the
Lane Bryant Company. From 1970 to 1978, Mr. Silbert served as the President of
the catalog retail division of the Lane Bryant Company.
Ms. Silverman has been Senior Vice President/General Manager-Lane Bryant
since August 1996 and previously served as Senior Vice President/General
Manager-Roaman's from February 1995 to August 1996. Ms. Silverman joined
Brylane in 1973, and served as Division Merchandise Manager from May 1989 to
May 1991, and served as Vice President of Roaman's from May 1991 to February
1995.
Mr. Doran became a member of the Board in January 1995 and is one of the
FS&Co. nominees to the Board. Mr. Doran joined FS&Co. in 1988. Previously, Mr.
Doran was employed in the high yield bond department of Kidder Peabody & Co.
Incorporated. Mr. Doran is also a director of EnviroSource, Inc.
Mr. Fried became a member of the Board in connection with the Company's
formation and is one of The Limited nominees to the Board. Mr. Fried has been
Vice President and General Counsel of The Limited since joining The Limited in
November 1991. Mr. Fried became Vice President, Secretary and General Counsel
of Intimate Brands, Inc., a subsidiary of The Limited, in May 1995, and Vice
President of Ambercrombie & Fitch Co. in June 1996. Prior to joining The
Limited, from February 1987 to October 1991, Mr. Fried served as Vice
President, Secretary and General Counsel of Exide Corporation.
Mr. Gerber became a member of the Board in connection with the Company's
formation and is one of The Limited nominees to the Board. Mr. Gerber has been
Vice President of Finance of The Limited since July 1993, Vice President of
Intimate Brands, Inc. since May 1995, and Vice President of Ambercrombie &
Fitch Co. since June 1996. From August 1987 to June 1993, Mr. Gerber was Vice
President and Corporate Controller of The Limited. Mr. Gerber joined The
Limited in 1983 and held various financial positions at The Limited Stores
division of The Limited between 1983 and 1987.
Mr. Roth became a member of the Board in connection with the Company's
formation and is one of the FS&Co. nominees to the Board. Mr. Roth joined
FS&Co. in March 1988 and became a general partner in March 1993. Mr. Roth is
also a director of EnviroSource, Inc.
Mr. Spogli is a founding partner of FS&Co., a private investment firm that
was founded in 1983. Mr. Spogli became a member of the Board in connection
with the Company's formation and is one of the FS&Co. nominees to the Board.
Mr. Spogli is the Chairman of the Board and a Director of EnviroSource, Inc.
Mr. Spogli also serves on the Board of Directors of Buttrey Food and Drug
Stores Company.
Mr. Starrett became a member of the Board in May 1997. Mr. Starrett is
President of Warner Bros. Studio Stores Worldwide and has been employed by
Warner Bros. since May 1990. Before joining Warner Bros., Mr. Starrett was
President and Chief Executive Officer of Plymouth Lamston Stores Corporation
from July 1988 to April 1990. Prior to that, Mr. Starrett served as Chairman
and Chief Executive Officer of the Specialty Store
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Division of Federated Department Stores from 1986 to 1988. Mr. Starrett is
also a director of Petco Animal Supplies, Inc.
The executive officers of the Company have an average of approximately 14
years of experience in the catalog retail apparel business.
The Board currently consists of three nominees of FS&Co., two nominees of
The Limited, the Chief Executive Officer of Brylane and two additional persons
elected by the nominees of the Board. The Stockholders Agreement provides
that, during its term, FS&Co. and The Limited are each entitled to nominate a
specified number of directors. However, the number of directors that each of
FS&Co. and The Limited may nominate declines with the percentage of Common
Stock held by each of them. Upon completion of the Offerings and the Common
Stock Repurchase, FS&Co. will be able to nominate two members of the Board,
and The Limited will be able to nominate one member. However, each of the
current members of the Board previously nominated by FS&Co. and by The Limited
intends to continue to serve until at least the Company's next annual meeting
of stockholders. See "Description of Capital Stock--Stockholders Agreement".
William C. Johnson and Peter Starrett serve as independent directors on the
Board and on the Audit Committee.
Each member of the Board is elected to hold office until his respective
successor is elected and qualified. Officers serve at the discretion of the
Board. The Board has a Compensation Committee, which administers the Company's
stock, option and other compensation plans, an Audit Committee, which reviews
the results and scope of the audit and other services provided by the
Company's independent auditors, and a Strategic Planning Committee, which
addresses long-term strategic planning issues.
The members of the Board, other than Mr. Starrett, do not receive
compensation for services on the Board but are reimbursed for their out-of-
pocket expenses in serving on the Board. No member of the Board receives
compensation for services on any committee of the Board. On May 22, 1997, Mr.
Starrett was granted an option to purchase 2,000 shares of Common Stock, at a
price of $29.875 per share, as well as an additional option to purchase 3,347
shares of Common Stock, at a price of $25.40 per share, pursuant to the
Brylane 1996 Option Plan (as defined). In addition, Mr. Johnson has previously
purchased shares of Common Stock and has previously been granted options under
both the Brylane 1996 Performance Option Plan and the Brylane 1996 Option
Plan. See "--Compensation Committee Interlocks and Insider Participation".
There are no family relationships between any officers or members of the
Board.
EXECUTIVE COMPENSATION
The officers of Brylane Inc. are not compensated by Brylane Inc. for their
services to Brylane Inc. Officers of Brylane Inc. who are also officers of the
Partnership or its subsidiaries receive compensation from the Partnership or
these subsidiaries for their services to the Partnership. The following table
sets forth all compensation awarded to, earned by or paid to the Chief
Executive Officer and the other four most highly compensated executive
officers (the "Named Executive Officers") for their services to the
Partnership for (i) the 1996 fiscal year, (ii) the 1995 fiscal year, and (iii)
the 1994 fiscal year.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION(3)
---------------
ANNUAL COMPENSATION OPTIONS TO
NAME AND --------------------- PURCHASE COMMON ALL OTHER
PRINCIPAL POSITION PERIOD SALARY(1) BONUS(1)(2) STOCK(4) COMPENSATION(5)
------------------ ----------- --------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Peter J. Canzone........ Fiscal 1996 $552,750 $421,464 24,000(6) $118,358
President, Chief Execu- 250,000(7)
tive Officer
and Chairman of the Fiscal 1995 520,500 196,602 20,000(6) 106,393
Board
Fiscal 1994 491,000 361,427 -- 111,933
Sheila R. Garelik....... Fiscal 1996 364,542 244,484 18,000(6) 69,009
President of Brylane 43,750(7)
Fiscal 1995 318,500 155,043 10,000(6) 65,125
Fiscal 1994 297,750 204,128 -- 65,961
Robert A. Pulciani...... Fiscal 1996 286,583 185,059 12,000(6) 55,166
Executive Vice 36,459(7)
President,
Chief Financial Fiscal 1995 266,750 85,383 6,000(6) 52,767
Officer,
Secretary and Treasurer Fiscal 1994 250,500 155,982 -- 55,204
Jules Silbert........... Fiscal 1996 282,833 165,898 6,000(6) 47,380
Senior Vice President- 20,000(7)
Marketing/New Business Fiscal 1995 270,000 77,335 6,000(6) 41,749
Development
Fiscal 1994 222,083 109,424 -- 4,843
Bruce G. Clark.......... Fiscal 1996 219,083 115,662 5,000(6) 41,349
Senior Vice President- 34,375(7)
Telemarketing Fiscal 1995 205,750 53,877 5,500(6) 38,569
Fiscal 1994 193,250 98,480 -- 40,087
</TABLE>
- --------
(1) Included in the aggregate of salary and bonus is an amount of compensation
that was deferred at the election of each Named Executive Officer. For
fiscal 1996, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $97,421, $115,581, $67,310, $66,949 and
$152,256, respectively, of their aggregate salary and bonus for such
period. For fiscal 1995, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $71,710, $46,818, $52,100, $40,626 and
$111,911, respectively, of their aggregate salary and bonus for such
period. For fiscal 1994, Messrs. Canzone, Pulciani, Silbert and Clark, and
Ms. Garelik, elected to defer $85,243, $40,648, $12,109, $39,405 and
$86,959, respectively, of their aggregate salary and bonus for such
period.
(2) Bonuses were earned during the six-month seasons ended July 30, 1994,
January 28, 1995, July 29, 1995, February 3, 1996, August 3, 1996 and
February 1, 1997, but were not paid until August 1994, February 1995,
August 1995, February 1996, August 1996 and February 1997, respectively.
See "--Performance Bonus Program" for a discussion of Brylane's bonus
program in which the above-named individuals are entitled to participate.
(3) For each of the periods set forth in the table above, no Named Executive
Officer received aggregate Other Annual Compensation in excess of the
lesser of $50,000 or 10% of the total of such officer's salary and bonus,
nor did any such Named Executive Officer receive any restricted stock
award, stock appreciation right or payment under any long-term incentive
plan.
(4) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(5) In fiscal 1996, fiscal 1995 and fiscal 1994, these amounts consist of
approximately $5,000, $5,000 and $5,000, respectively, under a
supplemental medical benefits plan (except for Mr. Silbert who was not
eligible to receive any benefits under such plan during the periods
shown), with the balance consisting of
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deferred compensation in the form of a matching contribution by the
Partnership under the Deferred Compensation Plan, a cash contribution by
the Partnership under the Retirement Plan, and a contribution by the
Partnership under the Supplemental Retirement Plan, where applicable. See
"--Deferred Compensation Plan" and "--Retirement Plans". In 1996, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $58,453,
$28,299, $26,924, $20,085 and $36,542, respectively, under the Deferred
Compensation Plan; (ii) $10,119, $10,119, $8,619, $10,119 and $10,119,
respectively, under the Retirement Plan (which was not paid until April
1997); and (iii) $44,786, $11,748, $11,837, $6,145 and $17,348,
respectively, under the Supplemental Retirement Plan. In 1995, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $43,026,
$21,128, $20,840, $15,578 and $28,413, respectively, under the Deferred
Compensation Plan; (ii) $10,164, $10,164, $8,664, $10,164 and $10,164,
respectively, under the Retirement Plan (which was not paid until May
1996); and (iii) $48,203, $16,475, $12,245, $7,827 and $21,548,
respectively, under the Supplemental Retirement Plan. In 1994, Messrs.
Canzone, Pulciani, Silbert and Clark, and Ms. Garelik, earned (i) $51,146,
$24,389, $4,843, $17,504 and $30,113, respectively, under the Deferred
Compensation Plan; (ii) $10,182, $10,182, $0, $10,182 and $10,182,
respectively, under the Retirement Plan (which was not paid until May
1995); and (iii) $45,605, $15,633, $0, $7,401 and $20,666, respectively,
under the Supplemental Retirement Plan. Mr. Silbert was not eligible to
participate in the Retirement Plan or the Supplemental Retirement Plan in
fiscal 1994. Mr. Silbert became eligible to participate in the Deferred
Compensation Plan on January 1, 1995.
(6) These options were granted to the Named Executive Officers in 1995 and
1996 pursuant to the Partnership's 1995 Partnership Unit Option Plan.
Pursuant to the Incorporation Plan, an option to purchase one share of
Common Stock was issued in substitution for each outstanding option to
purchase one partnership unit. See "--Option Plans" and "Certain
Relationships and Related Transactions--The Incorporation Plan".
(7) These options were granted to the Named Executive Officers in 1993 (or in
the case of Mr. Silbert, in 1994) pursuant to the Partnership's 1993
Performance Partnership Unit Option Plan. In connection with the
Chadwick's Acquisition, the Partnership amended the options which were
previously granted to the Named Executive Officers in 1993 (or in the case
of Mr. Silbert, in 1994) pursuant to the Partnership's 1993 Performance
Partnership Unit Option Plan. See "--Option Plans--Brylane 1996
Performance Option Plan". Pursuant to the Incorporation Plan, an option to
purchase one share of Common Stock was issued in substitution for each
outstanding option to purchase one partnership unit. See "--Option Plans"
and "Certain Relationships and Related Transactions--The Incorporation
Plan".
EMPLOYMENT AGREEMENTS
B.L. Management Services, Inc., an indirect, wholly-owned subsidiary of the
Company ("B.L. Management"), has entered into employment agreements with each
of Messrs. Canzone, Pulciani, Silbert and McGrain, and Mmes. Garelik, Noriega-
Wilson and Silverman, which agreements commenced on May 1, 1996. These
agreements provide for annual salaries for each of these individuals which
currently are $580,000, $315,000, $305,000, $185,000, $402,000, $222,000 and
$240,000, respectively. In addition, the Partnership has entered into
comparable employment agreements with each of Messrs. Bennett, Brosius and
Clark which provide for annual salaries which currently are $220,000, $220,000
and $220,000, respectively. Each of the employment agreements entered into by
B.L. Management and the Partnership will expire on or about April 30, 1998,
but will be automatically renewed for one-year terms thereafter, unless notice
is given as specified in such employment agreements. On July 15, 1996, B.L.
Management entered into an amendment to the employment agreement with Ms.
Garelik which reflects Ms. Garelik's promotion to President of the Partnership
and her corresponding increased compensation and bonus plan participation. In
the event that the employment of any of these individuals is terminated
without "cause" or the individual resigns for "good reason" (as such terms are
defined in the employment agreements), Brylane will be required to pay such
individual's base salary (reduced by any salary earned from other sources) for
the greater of (i) the remainder of the term of the applicable employment
agreement or (ii) nine months (or six months in the case of one executive).
The employment agreements also provide for (i) the payment of one year's
salary upon termination of employment by reason of death or disability (less
any amounts paid to such individuals under any disability plans), and (ii)
with respect to the termination of any of
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these individuals other than for "cause", the payment of a pro rata portion of
any bonuses or incentive compensation payable with respect to any period
commencing prior to the date of such individual's termination. In addition,
the employment agreements provide that each executive will not compete with
Brylane for a period of twelve months after termination (subject to certain
exceptions), unless the executive terminates his or her employment for "good
reason".
The Partnership has entered into employment agreements with each of Mr. Rao
and Ms. Meyrowitz, which agreements commenced on December 9, 1996 and will
continue for a three-year term. These agreements provide for annual salaries
of $375,000 for Mr. Rao and $350,000 for Ms. Meyrowitz and for participation
in Chadwick's performance bonus programs. Upon termination of these employment
agreements, the Partnership has agreed, subject to certain conditions, to
enter into new employment agreements on terms substantially similar to those
contained in the employment agreements described above for B.L. Management.
Prior to this time, in the event the employment of either of these individuals
is terminated without "cause" or if the individual resigns for "good reason"
(as such terms are defined in the employment agreements) the Partnership will
be required to pay such individual's base salary (reduced by compensation from
other employment after the first 12 months of the period) for the longer of
(i) one year or (ii) the remainder of the term of the applicable employment
agreement, continue certain benefits, and make prorated bonus payments. The
Rao and Meyrowitz employment agreements also provide for the payment of an
amount equal to two times such individual's annual base salary, along with
certain additional benefits, in the event such individual's employment
terminates under certain circumstances for the two year period following a
"change of control" (as defined). Upon a change of control, whether or not an
individual's employment terminates, the agreements provide for the immediate,
lump sum payment of certain bonus amounts. In addition, these employment
agreements provide that, subject to certain exceptions, such executives will
not compete with the Partnership for a period of 12 months after termination
of employment by the Company under certain circumstances.
STOCK SUBSCRIPTION PLANS
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Stock Subscription Plan (the "Brylane Subscription Plan"), which in
part acts as a successor to a stock subscription plan (as amended, the
"Subscription Plan") adopted by VP Holding in connection with the Brylane
Acquisition. Participants in the Brylane Subscription Plan are all of the
members of management of Brylane other than the Named Executive Officers,
Messrs. Johnson, Bennett and Brosius, and Mmes. Bourneuf and Noriega-Wilson.
In addition, the Company has adopted the Brylane Inc. 1996 Senior Management
Stock Subscription Plan (the "Senior Management Plan", and collectively with
the Brylane Subscription Plan, the "Stock Subscription Plans"), which in part
acts as a successor to the Subscription Plan with respect to the shares of VP
Holding purchased by the Named Executive Officers, Messrs. Johnson, Bennett
and Brosius, and Mmes. Bourneuf and Noriega-Wilson (collectively, the "Senior
Management Investors"). The Company has reserved 653,000 shares of Common
Stock for issuance under the Stock Subscription Plans collectively, of which
145,000 shares remain available for issuance. Until May 27, 1998, the Company
may be required to repurchase Mr. Johnson's Common Stock at the greater of
$10.00 per share or fair market value in the event of Mr. Johnson's death or
disability.
Pursuant to the Stock Subscription Plans, the following individuals
purchased the number of shares of Common Stock set forth after their names at
a purchase price of $10.00 per share: Mr. Canzone, 100,000; Ms. Garelik,
40,000; Mr. Pulciani, 25,000; Mr. Doyle, 5,000; Mr. Johnson, 30,000; Mr.
McGrain, 15,000; Mr. Silbert, 20,000; Ms. Silverman, 15,000; Mr. Bennett,
22,500; Mr. Brosius, 22,500; and Mr. Clark, 25,000. For these individuals,
$500,000, $200,000, $125,000, $50,000, $0, $150,000, $100,000, $75,000,
$112,500, $112,500 and $125,000 of their purchase price, respectively, was
financed through the delivery of promissory notes on the terms described
below. Pursuant to the Stock Subscription Plans, Ms. Bourneuf and Ms. Noriega-
Wilson purchased 7,500 and 15,000 shares of Common Stock, respectively, at a
purchase price of $15.00 per share, for which $0 and $112,500 of their
respective purchase prices were financed through the delivery of promissory
notes on the terms described below. Participants who chose not to pay the
entire purchase price of their subscription in cash could elect to pay up to
50% of such purchase price through the delivery of a five-year,
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full recourse promissory note, bearing interest at the rate of interest
designated by Morgan Guaranty as the prime rate at the time of purchase (which
at the time of the Brylane Acquisition was approximately 6%). In a few
instances, the portion of the purchase price paid by promissory note was
greater than 50% of the total purchase price. Accrued interest on the
promissory notes is payable quarterly, and the principal balance of, including
all accrued and unpaid interest on, the promissory notes is payable in full at
maturity. The shares of Common Stock purchased by such individuals who
partially financed their purchases in this manner have been pledged to the
Company in order to secure repayment of the notes. As of August 2, 1997, of
the aggregate purchase price of approximately $5.2 million paid for the shares
of Common Stock purchased by such individuals (net of repurchases), promissory
notes in the aggregate amount of approximately $2.5 million have been
delivered.
OPTION PLANS
Brylane 1996 Performance Option Plan
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Performance Stock Option Plan (the "Brylane 1996 Performance Option
Plan"), which acts as the successor to the Partnership's 1993 Performance
Partnership Unit Option Plan (as amended, the "1993 Option Plan") which was
adopted in connection with the Brylane Acquisition. An aggregate of 779,584
shares of Common Stock have been reserved for issuance under the Brylane 1996
Performance Option Plan. As amended, substantially all options become
exercisable in full (i) on August 30, 1998, upon the determination by the
Board (or a committee thereof) that the Company has achieved an aggregate
targeted earnings before interest, income taxes, depreciation and amortization
of $323.0 million for the four and one-half year period ending January 31,
1998, or (ii) on August 30, 2002. As amended, all options granted under the
Brylane 1996 Performance Option Plan terminate 10 years from the date of grant
of the options under the 1993 Option Plan, if not sooner due to termination of
employment.
Messrs. Canzone, Pulciani, Doyle, Johnson, McGrain, Silbert, Bennett,
Brosius and Clark, and Mmes. Bourneuf, Garelik, Silverman and Noriega-Wilson
have been granted the right to purchase 250,000, 36,459, 3,750, 20,000,
11,250, 20,000, 31,250, 31,250, 34,375, 25,000, 43,750, 11,250 and 15,000
shares of Common Stock, respectively, at a price of $15.00 per share.
As of September 1, 1997, options for the purchase of 644,584 shares of
Common Stock at a purchase price of $15.00 per share were outstanding under
the Brylane 1996 Performance Option Plan, and options for the purchase of
135,000 shares remained available for issuance.
As of September 1, 1997, no options were exercisable under the Brylane 1996
Performance Option Plan.
Brylane 1996 Option Plan
In connection with the Incorporation Plan, the Company adopted the Brylane
Inc. 1996 Stock Option Plan (the "Brylane 1996 Option Plan"), which acts as
the successor to the Partnership's 1995 Partnership Unit Option Plan (as
amended, the "1995 Option Plan") which was adopted in connection with the
Brylane Acquisition. As amended, an aggregate of 1,700,000 shares of Common
Stock have been reserved for issuance under the Brylane 1996 Option Plan.
Other than as described below, all options become exercisable in three equal
annual installments on the first, second and third anniversaries of the date
of original grant (including, if relevant, the date of grant of the options
under the 1995 Option Plan). As amended, all options granted under the Brylane
1996 Option Plan terminate seven to ten years from the date of original grant
(including, if relevant, the date of grant of the options under the 1995
Option Plan), if not sooner due to termination of employment.
Messrs. Canzone, Johnson, Pulciani, Silbert, Doyle, McGrain, Bennett,
Brosius and Clark, Mmes. Bourneuf, Garelik, Noriega-Wilson and Silverman have
been granted the right to purchase 20,000, 25,000, 6,000, 6,000, 1,000, 3,000,
5,000, 5,000, 5,500, 4,000, 10,000, 4,000 and 4,000 shares of Common Stock,
respectively, at a price of $15.00 per share and a term of seven years.
Messrs. Canzone, Pulciani, Silbert, Doyle, McGrain, Bennett, Brosius and
Clark, and Mmes. Garelik, Bourneuf, Noriega-Wilson and Silverman have been
granted
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the right to purchase 24,000, 12,000, 6,000, 2,000, 4,000, 6,000, 6,000,
5,000, 18,000, 4,000, 6,000 and 6,000 shares of Common Stock, respectively, at
a price of $19.00 per share and a term of seven years. Messrs. Canzone,
Pulciani, Silbert, Doyle, McGrain, Bennett, Brosius, Clark, Johnson and Rao,
and Mmes. Garelik, Bourneuf, Noriega-Wilson, Silverman and Meyrowitz have been
granted the right to purchase 25,000, 15,000, 3,000, 4,000, 3,000, 3,000,
5,000, 2,500, 10,000, 17,000, 17,000, 3,000, 5,000, 6,000 and 15,000 shares of
Common Stock, respectively, at a price of $36.00 per share and a term of seven
years. In addition, Mr. Rao and Ms. Meyrowitz have each been granted the right
to purchase 25,000 shares of Common Stock at a price of $20.00 per share,
which options expire on December 9, 2006. In addition, in connection with the
Chadwick's Acquisition, Mr. Rao and Ms. Meyrowitz were granted options to
purchase 2,269 and 1,861 shares of Common Stock, respectively, at a price of
$9.92 per share, in exchange for certain of their options to purchase TJX
common stock. Such options vest in full on September 20, 1997 and expire on
September 20, 2004. Finally, also in connection with the Chadwick's
Acquisition, Mr. Rao and Ms. Meyrowitz were granted options to purchase 6,033
and 4,536 shares of Common Stock, respectively, at a price of $5.67 per unit,
in exchange for certain of their options to purchase TJX common stock. Such
options vest in equal 50% increments on September 6, 1997 and September 6,
1998, and expire on September 6, 2005. On May 22, 1997, Mr. Starrett was
granted an option to purchase 2,000 shares of Common Stock, at a price of
$29.875 per share and a term of seven years, as well as an additional option
to purchase 3,347 shares of Common Stock, at a price of $25.40 per share,
which option vests in full on May 22, 1998 and expires on May 22, 2004.
As of September 1, 1997, options for the purchase of 125,417 shares of
Common Stock at a purchase price of $15.00 per share, options for the purchase
of 140,733 shares of Common Stock at a purchase price of $19.00 per share,
options for the purchase of 118,375 shares of Common Stock at a purchase price
of $20.00 per share, options for the purchase of 2,000 shares of Common Stock
at a purchase price of $29.875 per share, options for the purchase of 3,347
shares of Common Stock at a purchase price of $25.40 per share, substitute
options (issued in connection with the Chadwick's Acquisition) for the
purchase of 13,950 shares of Common Stock at a purchase price of $9.92 per
share, options for the purchase of 257,550 shares of Common Stock at a
purchase price of $36.00 per share, and substitute options (issued in
connection with the Chadwick's Acquisition) for the purchase of 41,806 shares
of Common Stock at a purchase price of $5.67 per share, were outstanding under
the Brylane 1996 Option Plan, and options for the purchase of 992,222 shares
remained available for issuance.
As of September 1, 1997, options to purchase an aggregate of 4,600 shares of
Common Stock had been exercised under the Brylane 1996 Option Plan.
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The following table sets forth information concerning options granted to the
Named Executive Officers of the Company during fiscal 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR FOR OPTION TERM(3)
GRANTED IN FISCAL BASE PRICE EXPIRATION ---------------------
NAME (#)(1)(2) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter J. Canzone........ 24,000 16.78 19.00(4) 7/15/03(6) 186,960 433,200
250,000 40.35 15.00(5) 8/30/03(7) 3,285,000 5,995,000
Sheila R. Garelik....... 18,000 12.59 19.00(4) 7/15/03(6) 140,220 324,900
43,750 7.06 15.00(5) 8/30/03(7) 574,875 1,049,125
Robert A. Pulciani...... 12,000 8.39 19.00(4) 7/15/03(6) 93,480 216,600
36,459 5.88 15.00(5) 8/30/03(7) 479,071 874,287
Jules Silbert........... 6,000 4.20 19.00(4) 7/15/03(6) 46,740 108,300
20,000 3.23 15.00(5) 2/18/04(7) 262,800 479,600
Bruce G. Clark.......... 5,000 3.50 19.00(4) 7/15/03(6) 38,950 90,250
34,375 5.55 15.00(5) 8/30/03(7) 451,688 824,313
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the
1993 Option Plan or the 1995 Option Plan, as the case may be, have been
terminated and replaced by the options to purchase shares of Common Stock
of Brylane Inc. set forth in the table above with substantially similar
terms.
(2) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant. It is calculated assuming that the stock
price on the date of grant appreciates at the indicated annual rate
compounded annually for the entire term of the option, and that the option
is exercised and sold on the last day of its term for the appreciated
stock price. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
(4) The exercise price per share of these options was equal to the fair market
value of the Common Stock on the date of grant.
(5) The original exercise price of these options was $10.00 per share, which
was equal to the fair market value of the Common Stock on the original
date of grant. These options were amended in connection with the
Chadwick's Acquisition to, among other things, increase the exercise price
from $10.00 per share to $15.00 per share. The fair market value of the
Common Stock on the date of such amendment was $20.00 per share.
(6) These options were granted under the Brylane 1996 Option Plan and will
terminate seven years from the date of grant of the options issued to the
Named Executive Officers under the 1995 Option Plan (if not sooner due to
termination of employment). These options become exercisable in three
equal installments on the first, second and third anniversaries of the
date of grant of the options issued to the Named Executive Officers under
the 1995 Option Plan. See "--Option Plans".
(7) These options were granted under the Brylane 1996 Performance Option Plan
and will terminate 10 years from the date of grant of the options issued
to the Named Executive Officers under the 1993 Option Plan (if not sooner
due to termination of employment). These options are being reported as
option grants in the last fiscal year due to an amendment in connection
with the Chadwick's Acquisition of the options previously granted to the
Named Executive Officers in 1993 (or in the case of Mr. Silbert, in 1994)
under the 1993 Option Plan. As amended, these options will become
exercisable in full (i) on August 30, 1998, upon the Company's achievement
of certain performance targets, or (ii) on August 30, 2002. See "--Option
Plans".
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The following table sets forth information concerning the number and value
of securities underlying unexercised options held by each of the Named
Executive Officers as of February 1, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT FEBRUARY 1, 1997 FEBRUARY 1, 1997
SHARES ACQUIRED VALUE (#)(1)(2) ($)(3)
ON EXERCISE REALIZED --------------------------- -------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- --------------------------- -------------------------
<S> <C> <C> <C> <C>
Peter J. Canzone........ -- -- 6,667/287,333 60,003/2,489,997
Sheila R. Garelik....... -- -- 3,333/68,417 29,997/543,753
Robert A. Pulciani...... -- -- 2,000/52,459 18,000/424,131
Jules Silbert........... -- -- 2,000/30,000 18,000/246,000
Bruce G. Clark.......... -- -- 1,833/43,042 16,497/367,378
</TABLE>
- --------
(1) Pursuant to the Incorporation Plan, the options to purchase partnership
units previously issued to the Named Executive Officers pursuant to the
1993 Option Plan and the 1995 Option Plan have been terminated and
replaced by the options to purchase shares of Common Stock of Brylane Inc.
set forth in the table above with substantially similar terms under the
Brylane 1996 Performance Option Plan and the Brylane 1996 Option Plan,
respectively.
(2) Does not include options to purchase 25,000, 15,000, 3,000, 2,500 and
17,000 shares of Common Stock, at a purchase price of $36.00 per share,
that were granted to Messrs. Canzone, Pulciani, Silbert, Clark and Mme.
Garelik, respectively, in July 1997 pursuant to the Brylane 1996 Option
Plan.
(3) These values are calculated using the Initial Public Offering price of
$24.00 per share, less the exercise price of the options.
RETIREMENT PLANS
All of the Company's employees over 21 years of age are eligible to
participate in the Brylane, L.P. Savings and Retirement Plan (the "Retirement
Plan") after one year of employment. The Retirement Plan allows eligible
employees to make pre-tax contributions up to the lesser of $9,500 or 10% of
their compensation. All amounts contributed by employees are immediately fully
vested. The Company matches 100% of employee contributions to the Retirement
Plan up to a maximum employer contribution of 3% of the employee's
compensation. In addition, the Company makes additional contributions to the
Retirement Plan equal to 4% of each participant's compensation up to the
Social Security taxable wage base for the year (which was $62,700 for 1996)
and equal to 7% of each participant's total compensation which exceeds that
amount. An additional 1% of compensation is contributed by the Company on
behalf of those participants who have completed at least five years of
service. The Company's contributions begin to vest after three years of
service, at which time such contributions are 20% vested. Thereafter, the
contributions vest at a rate of 20% each year so that the Company's
contributions are fully vested after seven years of service. Notwithstanding
the foregoing, the Company's contributions fully vest when the employee
reaches age 65, dies or becomes disabled while employed by the Company.
Benefits under the Retirement Plan are paid in the form of a lump sum
distribution following termination of employment. In certain circumstances,
participants may be entitled to receive a distribution prior to termination of
employment. Participants may borrow from the Retirement Plan up to 50% of
their vested funds.
In addition to the Retirement Plan, the Company maintains the Brylane, L.P.
Supplemental Retirement Plan for certain highly compensated employees (the
"Supplemental Retirement Plan"). The Supplemental Retirement Plan allows an
eligible employee to receive the contributions which the employee would
otherwise receive under the Retirement Plan, except for certain limitations
imposed by the Internal Revenue Code of 1986, as amended. An individual will
receive such a contribution only if he or she is employed by the Company on
the last day of the year. Gains and losses are credited to such employee
account at a rate of 7 3/4%, compounded annually.
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Vesting of contributions to the Supplemental Retirement Plan occurs at the
same rate as the Company's contributions to the Retirement Plan. The nonvested
portion of any account is forfeited upon termination of employment. Benefits
under the Supplemental Retirement Plan are paid in the same manner as under
the Retirement Plan. The benefits under the Supplemental Retirement Plan are
not funded, consisting of unsecured liabilities payable by the Company out of
its general assets.
DEFERRED COMPENSATION PLAN
The Company has adopted the Brylane, L.P. Deferred Compensation Plan for
eligible employees (the "Deferred Compensation Plan"). The Deferred
Compensation Plan credits participants' accounts with amounts of compensation,
up to 90% of compensation, which they defer voluntarily pursuant to elections
made prior to the period with respect to which such compensation is earned
("Deferrals"). The Deferrals will not be subject to federal income tax at the
time of the Deferral. Each participant's Deferrals are fully vested at all
times. Further, the Company may cause matching contributions to be credited to
certain participants' accounts at its discretion. Matching contributions
credited to the participants' accounts vest in the same manner as under the
Retirement Plan. A participant's account is payable at such time and in the
same manner as under the Retirement Plan.
Participation in the Deferred Compensation Plan is at the discretion of the
Board. Participants' accounts in the Deferred Compensation Plan will be
credited with interest at a rate specified by a committee of members of the
Board (currently the greater of LIBOR plus 2.0% or 7 3/4%). The benefits under
the Deferred Compensation Plan are not funded, consisting of unsecured
liabilities payable by the Company out of its general assets. Participants may
elect to have benefits paid in the form of lump-sum distributions or over a
period of time. Since December 1993, the Company has made pay-outs in the
approximate aggregate amount of $306,000 to certain former employees and one
former executive officer under the Deferred Compensation Plan.
PERFORMANCE BONUS PROGRAM
The Company (and its subsidiaries) have a semi-annual performance bonus
program based upon goals relating to the Company's operating profit. Such
goals are established at the beginning of each six-month season based upon a
review by the Board of management's operating budget for that season. Each
participant in such program may receive a bonus based on a certain percentage
of half of his or her annual salary, with the actual bonus amount to be based
upon the extent to which the operating profit goals for that season are met or
exceeded.
CHADWICK'S MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Management Incentive Plan (the "Chadwick's MIP"). The Chadwick's
MIP is intended to provide key officers and associates of the Company's
Chadwick's division with cash incentive opportunities based on annual
performance goals. The Chadwick's MIP is administered by the Company's
Compensation Committee, which has full authority to grant awards, including
selecting the relevant performance criteria thereunder, adjusting performance
criteria or award amounts in certain circumstances, and amending the terms of
such plan. At the beginning of each fiscal year, the Compensation Committee
determines a range of performance goals from minimum to target to maximum, and
for each participant determines the relative weights of these performance
goals and the award amounts payable upon attainment of the goals.
CHADWICK'S LONG RANGE MANAGEMENT INCENTIVE PLAN
In connection with the Chadwick's Acquisition, Brylane adopted the
Chadwick's Long Range Management Incentive Plan (the "Chadwick's LRMIP"). The
Chadwick's LRMIP is administered by the Compensation Committee, which has full
authority to grant awards, including selecting the relevant performance
criteria thereunder, adjusting the performance criteria or award amounts in
certain circumstances, and amending the terms of such plan. Awards under the
Chadwick's LRMIP are generally made annually for each successive rolling
three-year cycle. At the time of award, the Compensation Committee determines
a range of performance
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goals for the three-year award cycle, from minimum to target to maximum, and
for each participant determines the relative weights of these performance
goals and the award amounts payable upon attainment of the goals.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a Compensation Committee of its Board of Directors which
currently consists of Ronald P. Spogli, John M. Roth and Samuel P. Fried
(except that, when determining the compensation of "named executive officers"
(as defined in Section 162(m) of the Internal Revenue Code), the Compensation
Committee consists of Messrs. Fried and Starrett). Messrs. Spogli and Roth are
two of the three FS&Co. nominees to the Board, and Mr. Fried is one of the two
nominees of The Limited to the Board. See "Certain Relationships and Related
Transactions" for information regarding the interests of FS&Co. and of The
Limited in certain transactions and arrangements involving the Company. In May
1994, in connection with his election to the Board of Representatives of the
Partnership, Mr. Johnson purchased 30,000 shares of VP Holding common stock
and was granted an option to purchase 20,000 partnership units in the
Partnership under the 1993 Option Plan. In September 1995, Mr. Johnson was
granted an option to purchase 25,000 partnership units in the Partnership
under the 1995 Option Plan. Also in September 1995, the Company agreed to pay
to Mr. Johnson an annual consulting fee of $75,000. In connection with the
Incorporation Plan, these securities have been exchanged for 30,000 shares of
Company Common Stock, an option to purchase 20,000 shares of Company Common
Stock, and an option to purchase 25,000 shares of Company Common Stock,
respectively. In addition, on July 24, 1997, Mr. Johnson was granted an option
to purchase 10,000 shares of Common Stock, at a price of $36.00 per share,
pursuant to the Brylane 1996 Option Plan. On May 22, 1997, Mr. Starrett was
granted an option to purchase 2,000 shares of Common Stock, at a price of
$29.875 per share, as well as an additional option to purchase 3,347 shares of
Common Stock, at a purchase price of $25.40 per share, pursuant to the Brylane
1996 Option Plan. See "--Stock Subscription Plans" and "--Option Plans".
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information, as of September 1, 1997,
regarding the beneficial ownership of the Company's Common Stock and Series A
Preferred Stock, (i) immediately prior to the Offerings, and (ii) as adjusted
to reflect (x) the sale of an aggregate of 5,000,000 shares of Common Stock by
the Selling Stockholders pursuant to the Offerings, and (y) the repurchase by
the Company of an aggregate of 2,500,000 shares of Common Stock from the
Selling Stockholders pursuant to the Common Stock Repurchase (including the
conversion by the TJX Noteholder of approximately $9.8 million of the
Convertible Note into 357,107 shares of Common Stock in connection therewith),
by (a) each stockholder who is known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (b) the Selling
Stockholders, (c) each of the Named Executive Officers, (d) each director and
(e) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERINGS OWNED AFTER OFFERINGS
NAME AND ADDRESS AND COMMON STOCK SHARES OFFERED AND COMMON STOCK
OF BENEFICIAL OWNER (1) REPURCHASE (2) IN THE OFFERINGS SHARES TO REPURCHASE (1)(3)(4)
- ----------------------- ------------------------------- ---------------- BE ---------------------
NUMBER PERCENT NUMBER REPURCHASED NUMBER PERCENT
-------------- ------------ ---------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Freeman Spogli & Co.
Incorporated(5)(6)..... 8,527,000 43.8% 2,791,295 1,395,647 4,340,058 25.0%
The Limited, Inc.(7).... 5,000,000 25.7 1,636,739 818,370 2,544,891 14.7
Leeway & Co.(8)......... 500,000 2.6 163,674 81,837 254,489 1.5
NYNEX(9)................ 500,000 2.6 163,674 81,837 254,489 1.5
TJX Noteholder.......... 727,273(10) 3.6 238,071 119,036 370,166(11) 2.1
Peter J. Canzone........ 121,432(12) * -- -- 121,432(12) *
Sheila R. Garelik....... 53,100(13) * -- -- 53,100(13) *
Robert A. Pulciani...... 33,100(14) * -- -- 33,100(14) *
Jules Silbert........... 28,082(15) * -- -- 28,082(15) *
Bruce G. Clark.......... 30,540(16) * -- -- 30,540(16) *
Ronald P. Spogli(6)..... -- -- -- -- -- --
John M. Roth(6)......... -- -- -- -- -- --
Mark J. Doran(6)........ -- -- -- -- -- --
Samuel P. Fried......... -- -- -- -- -- --
William K. Gerber....... -- -- -- -- -- --
William C. Johnson...... 46,666(17) * -- -- 46,666(17) *
Peter M. Starrett....... 4,000 * -- -- 4,000 *
All directors and
executive officers of
Brylane as a group (21
persons)............... 9,003,679(18) 46.0% 2,791,295 1,395,647 4,816,737(19) 27.6%
</TABLE>
- --------
* Less than 1%.
(1) The persons and entities named in this table have sole voting power and
investment power with respect to all shares of Common Stock or Series A
Preferred Stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in this table
and these notes.
(2) Mr. Rao and Ms. Meyrowitz each own 50%, or 37,500 shares, of the Series A
Preferred Stock.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) The Company has reserved for issuance, to officers, key employees, certain
members of the Board and consultants of the Company (or its subsidiaries),
options to purchase up to 2,479,584 shares of Company Common Stock. See
"Management--Option Plans".
(5) The shares shown as beneficially owned by FS&Co. are held of record as
follows: 4,093,690 shares owned by FS Equity Partners II, L.P. ("FSEPII");
4,273,129 shares owned by FS Equity Partners III, L.P. ("FSEP III"); and
160,181 shares owned by FS Equity Partners International, L.P. ("FSEP
International"). FS&Co. is the sole general partner of FSEPII. FS Capital
Partners, L.P. ("FS Capital"), an affiliate of FS&Co., is the sole general
partner of FSEPIII. FS Holdings, Inc. ("FSHI") is the sole general partner
of FS Capital. The sole general partner of FSEP International is FS&Co.
International, L.P. ("FS&Co. International"). The sole general partner of
FS&Co. International is FS International Holdings Limited ("FS
International Holdings"), an affiliate of FS&Co. As the general partners
of FSEPII, FS Capital (which is the general partner of FSEPIII), and
FS&Co. International (which is the general partner of FSEP International),
respectively, FS&Co., FSHI and FS International Holdings have the sole
power to vote and dispose of the shares of the Company held by each of
FSEPII, FSEPIII and FSEP International, respectively.
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(6) Messrs. Spogli and Roth, each of whom is a member of the Board, and Mr.
Bradford M. Freeman, Mr. J. Frederick Simmons and Mr. William M. Wardlaw
are general partners of FS&Co., and Messrs. Spogli, Roth, Freeman, Simmons
and Wardlaw and Mr. Charles P. Rullman are the sole directors, officers
and shareholders of FSHI and FS International Holdings, and as such may be
deemed to be the beneficial owners of the shares indicated as beneficially
owned by FS&Co. Mr. Doran, a member of the Board, is affiliated with
FS&Co., FS&Co. International and FS Capital, and as such may be deemed to
be the beneficial owner of the shares indicated as beneficially owned by
FS&Co. The business address of FS&Co. and its general partners, FSHI and
its sole directors, officers and shareholders, FS Capital, FSEP II and
FSEP III is 11100 Santa Monica Boulevard, Suite 1900, Los Angeles,
California 90025. The business address of FS International Holdings,
FS&Co. International and FSEP International is c/o Paget-Brown & Company,
Ltd., West Winds Building, Third Floor, P.O. Box 1111, Grand Cayman,
George Town, Cayman Islands, B.W.I. The business address of Mr. Doran is
599 Lexington Avenue, 18th Floor, New York, New York 10022.
(7) All shares shown as beneficially owned by The Limited are held of record
by M&P Distributing Co. The business address of The Limited is 3 Limited
Parkway, Columbus, Ohio 43230.
(8) The shares shown as beneficially owned by Leeway & Co. are held of record
by Leeway & Co., a Massachusetts partnership, as nominee for the Long Term
Investment Trust, a trust governed by the laws of the State of New York
("Leeway & Co."). The business address of Leeway & Co. is One Oak Way,
Berkeley Heights, New Jersey 07922.
(9) The shares shown as beneficially owned by NYNEX are held of record by
NYNEX Asset Management Company, the investment adviser for NYNEX Master
Trust, a trust governed by the laws of the State of New York ("NYNEX").
The business address of NYNEX is 200 Park Avenue, New York, New York
10020.
(10) The shares shown as beneficially owned by the TJX Noteholder are issuable
upon exercise in full of the Convertible Note, which is held of record by
Chadwick's, Inc., a wholly-owned subsidiary of TJX. The business address
of Chadwick's, Inc. is 770 Cochituate Road, Framingham, Massachusetts
01701.
(11) The shares will be issuable upon conversion of the remaining portion of
the Convertible Note.
(12) Includes 21,332 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997.
(13) Includes 12,666 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997 and 500 shares of Common
Stock held by son.
(14) Includes 8,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997.
(15) Includes 6,000 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997 and 1,041 shares of
Common Stock held by wife.
(16) Includes 5,332 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997.
(17) Includes 16,666 shares of Common Stock issuable with respect to options
exercisable within 60 days of September 1, 1997.
(18) Includes 8,527,000 shares of Common Stock beneficially owned by
affiliates of FS&Co. and 107,070 shares of Common Stock issuable with
respect to options exercisable within 60 days of September 1, 1997.
(19) Includes 4,340,058 shares of Common Stock beneficially owned by
affiliates of FS&Co. and 107,070 shares of Common Stock issuable with
respect to options exercisable within 60 days of September 1, 1997.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
RESTRICTED SECURITIES
As of September 1, 1997, and after giving effect to the consummation of the
Offerings and the Common Stock Repurchase (including the conversion by the TJX
Noteholder of approximately $9.8 million of the Convertible Note into 357,107
shares of Common Stock in connection therewith), the Company would have had
outstanding 17,333,152 shares of Common Stock. Of these shares, the 4,000,000
shares of Common Stock sold in the Initial Public Offering and the 5,000,000
shares of Common Stock to be sold in the Offerings, as well as 550,792
additional shares of Common Stock, will be freely tradeable without
restriction or further registration under the Securities Act unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act. The remaining 7,782,360 shares outstanding upon completion of
the Common Stock Repurchase will be "restricted securities" as that term is
defined under Rule 144. Substantially all of such restricted shares are
entitled to piggyback registration rights as well as certain demand
registration rights. See "--Registration Rights". In addition, substantially
all of such restricted shares may be eligible for immediate public resale
pursuant to Rule 144 (subject in certain circumstances to the volume
limitations contained therein) or Rule 701 of the Securities Act. Further,
options to purchase an aggregate of 85,649 additional shares of Common Stock
previously granted to employees of the Company and others were exercisable as
of September 1, 1997. The remaining options to purchase an aggregate of
1,262,113 shares of Common Stock previously granted to employees of the
Company and others began to vest and become exercisable on September 6, 1997.
The Company has caused the shares of Common Stock held by employees of the
Company and certain other individuals or subject to options granted under the
Company's option plans to be registered under the Securities Act. See
"Management--Stock Subscription Plans" and "Management--Option Plans".
The 75,000 shares of Series A Preferred Stock issued to Mr. Rao and Ms.
Meyrowitz are (and the 75,000 shares of Common Stock issuable upon conversion
of the Series A Preferred Stock will be) restricted securities and will be
eligible for resale under Rule 144 (subject to applicable volume limitations)
in three equal annual installments beginning on December 9, 1997.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the
Company or any affiliate of the Company, the acquiror or subsequent holder
thereof is entitled to sell, within any three-month period, a number of shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock (173,332 shares immediately after the Common Stock Repurchase) or
(ii) the average weekly trading volume in the Common Stock during the four
calendar weeks preceding such sale, subject to the filing of a Form 144 with
respect to such sale and certain other limitations and restrictions. In
addition, if two years have elapsed since the later of the date of acquisition
of restricted shares from the Company or from any affiliate of the Company,
and the acquiror or any subsequent holder thereof is not deemed to have been
an affiliate of the Company at any time during the 90 days preceding a sale,
such person would be entitled to sell such shares under Rule 144(k) without
regard to the above-described requirements.
The Commission has recently proposed revisions to the holding periods and
volume limitations contained in Rule 144. The adoption of amendments effecting
such proposed revisions may result in resales of restricted securities sooner
than would be the case under Rules 144 and 144(k) as currently in effect.
However, there can be no assurance of when, if ever, such amendments will be
proposed or adopted.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. The Company has agreed not to sell any shares of its capital
stock (or any rights, options or warrants to purchase, or any securities
convertible or exchangeable into or exercisable for, capital stock), with
certain limited exceptions, for a period of 90 days following the date of the
Purchase Agreement, without the prior written consent of Merrill Lynch on
behalf of the Representatives. In addition, FS&Co., The Limited, Leeway & Co.,
NYNEX, the TJX Noteholder and WearGuard, as well as the executive officers and
directors of the Company, have each agreed not to sell, directly or
indirectly, any of their shares, with certain limited exceptions, for a period
of 90 days following the date of the Purchase Agreement.
The Company is unable to estimate the number of shares of Common Stock that
will be sold under Rule 144, Rule 701, under the employee stock plan
registration statements, or upon exercise of registration rights,
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<PAGE>
since this will depend in part on the market price for the Common Stock, the
personal circumstances of the sellers, and other factors not susceptible of
being known in advance.
REGISTRATION RIGHTS
The Company, the FS Stockholders, the Limited Stockholder, the TJX
Noteholder, Leeway & Co., NYNEX and WearGuard have entered into a Registration
Rights Agreement (the "Registration Rights Agreement") pursuant to which each
of the affiliates of FS&Co. holding Common Stock (the "FS Stockholders") or
the affiliates of The Limited holding Common Stock (the "Limited
Stockholder"), on behalf of itself or any of its affiliates, holding stock of
the Company, individually or in the aggregate, representing not less than 10%
of the total number of shares of the Common Stock then outstanding, or not
less than $15.0 million in fair market value as determined by the Board (or
such lesser number as constitutes all shares of Common Stock then held by such
stockholder, provided that such number represents not less than 3% of the
total number of shares of Common Stock then outstanding), will after the
Offerings, in the case of the FS Stockholders, be able to require the Company
to file one additional registration statement registering its Common Stock
and, in the case of the Limited Stockholder, be able to require the Company to
file two registration statements registering its Common Stock; provided, that
the Company shall not be obligated to effect more than two such demand
registrations (including the demand registration pursuant to which the
Offerings are being made) during any eighteen-month period. After receiving
notice of such a registration request, the TJX Noteholder, Leeway & Co.,
NYNEX, WearGuard and the Holder (as defined) that did not make the demand
registration may each request that its shares also be included in such a
demand registration, and the Company shall be obligated to include such
shares. Unless the Holder making such demand registration shall consent, no
other party, including the Company, shall be permitted to offer securities
under any such demand registration, except that in the case of a demand
registration by the FS Stockholders, the FS Stockholders may include the
registrable securities of Leeway & Co. and NYNEX prior to and in preference of
any securities of the Company and any other stockholder, and except that in
the case of a demand registration requested by the FS Stockholders or a demand
registration requested by the Limited Stockholder in which shares of the FS
Stockholders are included, each of Leeway & Co. and NYNEX may, at its option,
include up to a percentage of its shares equal to the percentage of the
FS Stockholders' shares that are being sold in such demand registration. In
addition, the Registration Rights Agreement also entitles the FS Stockholders
and the Limited Stockholder and their respective affiliates, the
TJX Noteholder, Leeway & Co., NYNEX and WearGuard to include Common Stock in
any public offering of shares of Common Stock by the Company (other than
pursuant to a registration statement on Form S-4 or Form S-8 of the Securities
Act or a registration statement filed in connection with an exchange offer or
offering of securities solely to the Company's existing securityholders, and
subject to certain limitations on the number of shares included in such
registration, as determined by the underwriters of such offering, if any).
Finally, each of WearGuard, the TJX Noteholder, Leeway & Co. and NYNEX (or any
affiliate of any of them that owns Common Stock) is able to require the
Company to file one registration statement (which may be on Form S-3 if
available for use by the Company) registering its Common Stock. After
receiving notice of such registration request, the FS Stockholders and the
Limited Stockholder and their respective affiliates may each request that its
shares be included in such demand registration. Unless the Holder making such
demand registration consents in writing, no other party, including the
Company, shall be permitted to offer securities under such Holder's demand
registration. WearGuard's demand right will terminate as soon as WearGuard is
eligible to sell its shares without restriction as to amount and manner of
sale under Rule 144 of the Securities Act. The demand right of each of the TJX
Noteholder, Leeway & Co. and NYNEX shall terminate on February 26, 2000. Other
than as described above with respect to the demand registration right of each
of WearGuard, the TJX Noteholder, Leeway & Co. and NYNEX, these registration
rights continue indefinitely until their exercise. Subject to certain
limitations, the Company is required to bear all costs of any registration,
other than underwriting fees, discounts or commissions and any out-of-pocket
expenses of the Holders, if any. Following completion of the Offerings and the
Common Stock Repurchase, all of the remaining 7,565,980 shares of Common Stock
owned collectively by the FS Stockholders, The Limited Stockholder, Leeway &
Co., NYNEX and WearGuard, as well as any shares of Common Stock held by the
TJX Noteholder as a result of a conversion (in whole or part) of the remaining
portion of the Convertible Note, will be subject to the Registration Rights
Agreement. See "Principal and Selling Stockholders".
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SHARES OF COMMON STOCK SUBJECT TO OPTIONS
The Company has granted to certain executive officers and directors options
to purchase an aggregate of 1,347,762 shares of Common Stock (as of September
1, 1997). As of September 1, 1997, an aggregate of 85,649 of such options were
currently exercisable; while an aggregate of 13,950 of such options are not
exercisable prior to September 20, 1997; an aggregate of 82,500 of such
options are not exercisable prior to September 21, 1997; an aggregate of
118,375 of such options are not exercisable prior to December 9, 1997; an
aggregate of 2,666 of such options are not exercisable prior to March 25,
1998; an aggregate of 5,347 of such options are not exercisable prior to May
22, 1998; an aggregate of 93,067 of such options are not exercisable prior to
July 15, 1998; an aggregate of 257,550 of such options are not exercisable
prior to July 24, 1998; and the remaining 644,584 of such options are not
exercisable prior to August 30, 2000. The Company has, with respect to the
Brylane 1996 Option Plan and to the Brylane 1996 Performance Option Plan,
caused the shares of Common Stock to be received upon exercise of the options
granted under each such plan to be registered under the Securities Act on a
registration statement on Form S-8. See "Management--Option Plans".
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to its Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on October 31, 1994 (as amended, the
"Certificate"), the Company is currently authorized to issue capital stock
consisting of 40,000,000 shares of Common Stock, par value $0.01 per share,
and 1,000,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock"), of which 75,000 shares have been designated as Series A
Convertible Redeemable Preferred Stock, $.01 par value per share, which is
convertible into shares of Common Stock (the "Series A Preferred Stock").
The following summary description of the capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to
the Certificate, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and Delaware corporate law.
COMMON STOCK
Holders of Common Stock are entitled to cast one vote per share on all
matters and, except as described below, a majority vote is required for all
actions taken by holders of Common Stock. Holders of Common Stock are entitled
to receive such dividends as may be declared by the Board of Directors out of
legally available funds. In the event of a liquidation, dissolution or
winding-up of the Company, the holders of Common Stock are entitled to share
ratably in any distribution of the Company's assets, after payment of all
debts and other liabilities and the liquidation preference of the Series A
Preferred Stock. However, the primary assets of the Company are its ownership
of all of the outstanding common stock of VP Holding which indirectly owns
100% of the interests in the Partnership through its wholly-owned
subsidiaries, VGP and VLP. In the event of a liquidation, dissolution or
winding-up of the Company, certain creditors of the Partnership (pursuant to
the terms of the Amended Bank Credit Facility and the Indenture) will have
priority over the Company with respect to the distribution of the assets of
the Partnership. The holders of Common Stock have no preemptive or other
subscription or conversion rights. All outstanding shares of Common Stock are
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Certificate provides that the Board of Directors has the authority,
without further action of stockholders, to issue up to 1,000,000 shares of
Preferred Stock in one or more series. The Board is authorized to determine
the rights, preferences, privileges and restrictions granted to and imposed
upon any series or class of the Preferred Stock upon issuance and to fix the
number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The New York Stock Exchange, upon which the
Company's Common Stock is listed, imposes some restrictions on the issuance of
preferred stock with certain terms deemed by the New York Stock Exchange to be
adverse to holders of Common Stock. Nonetheless, the rights and privileges
afforded by the Certificate could adversely affect the voting power and other
rights of holders of Common Stock, and the authority of the Board of Directors
to issue Preferred Stock without further stockholder approval, under certain
circumstances, could have the effect of delaying, deferring or preventing a
change in control of the Company. As of the date of this Prospectus, the Board
of Directors of the Company has authorized one series of Preferred Stock.
75,000 shares of Preferred Stock have been designated by the Board as the
Series A Preferred Stock, and have been issued to Mr. Rao and Ms. Meyrowitz.
On December 9, 1999, "vested shares" (as defined in the Company's certificate
of designation for the Series A Preferred Stock (the "Certificate of
Designation")) of the Series A Preferred Stock will, at the option of the
holders thereof, either be redeemed by the Company for $20.00 per share
(subject to adjustment for stock splits, dividends or reclassifications) or
converted into one share of Common Stock (subject to adjustment for stock
splits, dividends or reclassifications). The shares of Series A Preferred
Stock will "vest" in equal annual installments on December 9 of each of 1997,
1998 and 1999, as long as Mr. Rao or Ms. Meyrowitz, as applicable, remain
employed by Brylane (subject to certain accelerating events). The Company may
at any time redeem "unvested shares" (as defined in the Company's Certificate
of Designation) for $20.00 per share. In the event of a "change of control"
(as defined in the Company's Certificate of Designation) each vested share at
the option of one holder may be redeemed for $20.00 per share or converted
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<PAGE>
into one share of Common Stock, while unvested shares must be redeemed for
$20.00 per share. Holders of the shares of the Series A Preferred Stock have
(i) no right to receive dividends, (ii) no voting or approval rights other
than as required by Delaware law, and (iii) a liquidation preference of $20.00
per share. There are no plans, agreements or understandings for the issuance
of any other shares of Preferred Stock.
STOCKHOLDER ACTION AND SPECIAL MEETINGS
The Certificate states that special meetings of the stockholders of the
Company may only be called by the Board of Directors, the Chairman of the
Board of Directors, or stockholders owning at least 50% of the Common Stock,
and that at any special meeting of the stockholders of the Company no business
may be transacted and no corporate action may be taken other than that stated
in the notice of meeting.
STOCKHOLDERS AGREEMENT
The Company, the FS Stockholders, the Limited Stockholder, WearGuard, the
TJX Noteholder, NYNEX and Leeway & Co. have previously entered into the
Stockholders Agreement. The Stockholders Agreement provides that, during its
term, the FS Stockholders will be entitled to nominate three members of the
Company's Board of Directors, and the Limited Stockholder will be entitled to
nominate two members of the Company's Board of Directors. However, the number
of directors that each of the Limited Stockholder and the FS Stockholders may
nominate declines with the percentage of Common Stock held by each of them,
and upon completion of the Offerings and the Common Stock Repurchase, FS&Co.
will only be able to nominate two members of the Board of Directors of the
Company, and The Limited will only be able to nominate one member. However,
each of the current members of the Board previously nominated by FS&Co. and by
The Limited intends to continue to serve until at least the Company's next
annual meeting of stockholders. In the Stockholders Agreement, FS&Co., The
Limited, Leeway & Co., NYNEX, the TJX Noteholder and WearGuard have agreed
that, without the consent of (i) the other (in the case of FS&Co. or The
Limited), or (ii) both FS&Co. and The Limited (in the case of Leeway & Co.,
NYNEX or WearGuard), until one year after the date on which the Offerings and
the Common Stock Repurchase have been consummated, they will vote or cause to
be voted all shares of Common Stock beneficially owned by them against, and
FS&Co. and The Limited, to the extent permitted by law, will direct their
nominees on the Board of Directors of the Company to vote against, any
consolidation, combination or merger of the Company or any sale or other
transfer of all or substantially all of the assets of the Company. The
Stockholders Agreement also prohibits the FS Stockholders, the Limited
Stockholder, the TJX Noteholder and WearGuard, and their respective
affiliates, and Leeway & Co. and NYNEX, from directly or indirectly
authorizing or making a tender or exchange offer for, or purchasing or
otherwise acquiring, beneficial ownership of any additional shares of Common
Stock. Rights under the Stockholders Agreement will not be assignable except
to an affiliate of the transferring stockholder (or, in the case of Leeway &
Co., to a successor trust or plan).
The Stockholders Agreement contains provisions whereby the Company and
FS&Co. have agreed, for so long as The Limited holds, directly or indirectly,
at least 20% of the outstanding Common Stock of the Company, that none of the
Company, the FS Stockholders or any of their respective affiliates shall
(subject to certain exceptions) (i) directly or indirectly, engage anywhere in
the world in any activities that compete with any business conducted by The
Limited or any of its affiliates as such businesses were conducted on August
30, 1993 (other than in the mail order business for women's special size
apparel, moderately priced fashion apparel and related accessories, and for
certain moderately priced regular size or special size men's apparel and
related accessories) or (ii) without the prior written approval of The
Limited, directly or indirectly solicit any person who is an employee of The
Limited or any affiliate of The Limited at any time to terminate his or her
relationship with The Limited or any affiliate of The Limited. The
noncompetition and nonsolicitation provisions contained in the Stockholders
Agreement provides certain customary exceptions. As a result of the Offerings
and the Common Stock Repurchase, The Limited will hold less than 20% of the
outstanding Common Stock of the Company; consequently, these noncompetition
provisions will no longer be applicable.
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The Stockholders Agreement contains provisions whereby (i) the FS
Stockholders, if they find a third-party buyer for all of their shares or if
they are required to sell all of their shares for any reason, may request that
each of WearGuard, Leeway & Co. and NYNEX shall sell all of its shares on
substantially the same terms and conditions as apply to the FS Stockholders'
sale and (ii) if the FS Stockholders or any of their affiliates proposes to
transfer all or any part of their shares to a third party, each of WearGuard,
Leeway & Co. and NYNEX will have the right to transfer, on the same terms and
conditions as the transfer of shares by the FS Stockholders or any of their
affiliates, a percentage of its shares equal to the percentage of the
transferring FS Stockholder's (direct or indirect) total number of shares to
be transferred pursuant to such transfer. The rights and obligations of each
of the FS Stockholders, WearGuard, Leeway & Co. and NYNEX described in this
paragraph will not apply in the case of any sale (i) pursuant to a
registration statement under the Securities Act or (ii) into the public market
pursuant to Rule 144 of the Securities Act of 1933.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the "business combination" statute of the Delaware
General Corporation Law (Section 203). In general, such statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with any "interested stockholder" for a period of three years after the date
of the transaction in which the person became an "interested stockholder",
unless (i) such transaction is approved by the board of directors prior to the
date the interested stockholder obtains such status, (ii) upon consummation of
such transaction, the "interested stockholder" beneficially owned at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) the "business
combination" is approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at least 66 2/3%
of the outstanding voting stock which is not owned by the "interested
stockholder". A "business combination" includes mergers, asset sales and other
transactions resulting in financial benefit to the "interested stockholder".
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) beneficially 15% or more of
a corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
OTHER LIMITATIONS ON CONTROL CHANGES
The Indenture and the Convertible Note contain, and the Amended 1997 Bank
Credit Facility will contain, provisions with respect to a change of control
of the Partnership and the Company. See "Description of Certain Financing
Arrangements".
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
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DESCRIPTION OF CERTAIN FINANCING ARRANGEMENTS
Set forth below is a summary of certain financing instruments to which the
Partnership or the Company is a party. The summary does not purport to be
complete and is qualified in its entirety by reference to such agreements,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part.
BANK CREDIT FACILITY
The Partnership expects to receive a Commitment Letter from J.P. Morgan
Securities Inc. ("J.P. Morgan"), Morgan Guaranty and Merrill Lynch Capital
(together with Morgan Guaranty, the "Agents") pursuant to which the Agents
each have agreed to provide one-half of an amended and restated $375.0 million
bank credit facility (the "Amended 1997 Bank Credit Facility"). No assurance
can be given, however, that the Amended 1997 Bank Credit Facility contemplated
by the Commitment Letter will in fact be obtained by the Partnership or that
the terms thereof will not vary from those described below. The Amended 1997
Bank Credit Facility would comprise (i) a $175.0 million five-year amortizing
Term Loan, and (ii) a $200.0 million (subject to a borrowing base limit) five-
year Revolving Credit Facility with a $75.0 million sublimit for letters of
credit. The proceeds of the Term Loan would be available to provide a portion
of the funds necessary to effect the Common Stock Repurchase, as well as to
repay Brylane's existing indebtedness under its 1997 Bank Credit Facility. The
Revolving Credit Facility could be used for general corporate purposes,
including working capital needs, letters of credit and permitted acquisitions
(as defined in the Amended 1997 Bank Credit Facility), and would be available
to provide a portion of the funds necessary to effect the Common Stock
Repurchase. In addition, the Commitment Letter contemplates a $15.0 million
"Swingline Facility" (borrowings under which, while outstanding, would reduce
availability under the Revolving Credit Facility).
Borrowings under the Term Loan and the Revolving Credit Facility will bear
interest at one of two rates to be selected by the Partnership: (i) a margin
over the higher of (A) Morgan Guaranty's prime rate and (B) the federal funds
rate plus 0.5% (the "Base Rate") or (ii) a margin over LIBOR (as defined) for
specified interest periods. The margin for each rate varies based on the
Partnership's net debt to operating cash flow ratio. The Term Loan will
initially bear interest at LIBOR plus 1.25%. Borrowings under the Swingline
Facility will bear interest at the Base Rate plus the applicable margin.
The Partnership will be required to pay fees on the unutilized portion of
the Revolving Credit Facility and for letters of credit. In addition, the
Partnership will pay a fee in connection with the consummation of the Amended
1997 Bank Credit Facility and paid certain customary agency fees to the agents
thereunder.
The Term Loan will begin to amortize on a quarterly basis beginning with the
Partnership's 1998 fiscal year, and will have scheduled amortization of $10.0
million, $20.0 million, $40.0 million, $70.0 million, and $35.0 million,
respectively, for the Partnership's 1998 to 2002 fiscal years. In addition to
the scheduled amortization, additional principal prepayments of the Term Loan
are required to be made with the proceeds of certain asset sales, certain debt
and equity issuances and annual excess cash flow (as defined). The portion of
such proceeds that must be applied to prepayments is linked in certain cases
to the Partnership's debt coverage ratio (as defined).
The obligations of the Partnership under the Amended 1997 Bank Credit
Facility will be secured by (i) security interests in the intangible assets of
the Partnership, including its licenses, trademarks, mailing and customer
lists and contract rights (including the Partnership's rights under the
Transaction Agreement, the Chadwick's Purchase Agreement and the Trademark
Agreement, but excluding accounts receivable), (ii) pledges of the stock of
Capital Corp. (as defined) and each of the Partnership's subsidiaries and
subsidiary partnerships, and (iii) first mortgages on the Partnership's
Indianapolis, Indiana and West Bridgewater, Massachusetts fulfillment centers.
The Company and each of the Partnership's subsidiaries and the subsidiary
partnerships will guarantee the obligations of the Partnership under the
Amended 1997 Bank Credit Facility.
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The Amended 1997 Bank Credit Facility will contain certain financial
covenants which require the Partnership to meet financial ratios and tests
including (i) a maximum debt to cash flow ratio, (ii) a minimum fixed charge
coverage ratio and (iii) a minimum net worth test, each on terms to be
negotiated. For purposes of these covenants, (i) the debt coverage ratio will
equal debt divided by operating cash flow, (ii) operating cash flow will equal
net income (excluding extraordinary or non-recurring gains or losses) plus
depreciation and amortization plus income taxes deducted in determining net
income and interest expense, (iii) the minimum fixed charge coverage ratio
will equal Adjusted EBITDA (as defined) plus rental expense, divided by the
sum of rental expense and interest expense (excluding any portion of interest
expense representing amortization of financing costs paid in a previous
period), and (iv) the Partnership's net worth and its net income will be
adjusted to exclude the effect on net income of initial write-ups of
inventory.
In addition, the Amended 1997 Bank Credit Facility will contain covenants
customarily found in credit agreements including, among other things,
limitations on indebtedness, liens, Asset Sales (as defined), partnership
distributions and other restricted payments (including cash dividends),
mergers and certain acquisitions, investments, transactions with affiliates,
capital expenditures, the prepayment or amendment of certain indebtedness, the
granting of certain negative pledges and the amendment of material agreements.
The Amended 1997 Bank Credit Facility will also contain customary events of
default, including certain changes of control (as defined) of the Partnership
and its parent entities.
SENIOR SUBORDINATED NOTES
On August 30, 1993, the Partnership and Brylane Capital Corp., as co-issuer
("Capital Corp.", and collectively with the Partnership, the "Issuers"),
issued $125.0 million aggregate principal amount of Senior Subordinated Notes
pursuant to an indenture dated as of August 30, 1993 (as amended, the
"Indenture") among the Issuers, the Partnership's subsidiaries (the
"Guarantors"), and United States Trust Company of New York, as trustee (the
"Trustee"). Interest on the Senior Subordinated Notes is payable semi-annually
on September 1 and March 1 of each year beginning on March 1, 1994 at a rate
of 10% per annum. The Senior Subordinated Notes mature on September 1, 2003
and are unconditionally guaranteed by the Guarantors on a senior subordinated
basis.
At any time on or after September 1, 1998, the Senior Subordinated Notes may
be redeemed, at the option of the Issuers, in whole or in part, at 105.00% of
the principal amount thereof, plus accrued interest to the redemption date,
reducing to 100% of the principal amount thereof, plus accrued interest to the
date of redemption on or after September 1, 2002. In addition, upon a Change
of Control (as defined) prior to September 1, 1998, the Senior Subordinated
Notes may be redeemed, at the option of the Issuers, in whole or in part, at
any time within 180 days after such Change of Control, at a redemption price
equal to the principal amount thereof, together with accrued and unpaid
interest, if any, to the redemption date plus the Applicable Premium (as
defined).
The Issuers are required to make an offer to redeem the Senior Subordinated
Notes at 101% of principal amount thereof, plus accrued and unpaid interest to
the date of redemption (i) to the extent that Excess Proceeds of Asset Sales
(net cash proceeds not applied to repay Senior Indebtedness or reinvested in
the Issuer's business) exceed $10 million, or (ii) if there is a Change in
Control (as defined). The offer to redeem resulting from Asset Sales is
limited to the net proceeds from such Asset Sales and is subject to (i) the
prior claims of secured creditors to the extent of the lien of such creditors
on the assets sold, (ii) the prior claims of the lenders under the Bank Credit
Facility and (iii) the acceptance of the offer by the holders of the Senior
Subordinated Notes. Failure of the Issuers to purchase the Senior Subordinated
Notes of any holder who accepts the Issuers' offer would constitute an Event
of Default (as defined).
The Senior Subordinated Notes are subordinated in right of payment and
subject, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness (as defined). The guarantees will be subordinated to the
guarantees by the Guarantors of the Partnership's obligations under the
Amended 1997 Bank Credit Facility, as well as to all future guarantees by the
Guarantors of Senior Indebtedness.
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The Indenture contains certain restrictive covenants, including, but not
limited to, covenants with respect to the following matters: (i) limitation on
Indebtedness; (ii) limitation on Restricted Payments (including cash
dividends); (iii) limitation on transactions with affiliates; (iv) limitation
on Liens with respect to pari passu or subordinated indebtedness;
(v) limitation on issuances of guarantees of and pledges for Indebtedness;
(vi) limitation on sale of assets; (vii) limitation on sales of equity
interests in subsidiaries; and (viii) restrictions on consolidation, merger
and sale of assets of the Issuers.
CONVERTIBLE SUBORDINATED NOTE
As part of the consideration for the Chadwick's Acquisition, the Partnership
issued to the TJX Noteholder the Partnership Note which, as converted into the
Convertible Note in connection with the Incorporation Plan into a joint
obligation of the Partnership and the Company, is convertible at any time, in
whole or in part, at the option of the TJX Noteholder into a total of 727,273
shares of Common Stock (370,166 shares of Common Stock after giving effect to
its partial conversion in connection with the Offerings and the Common Stock
Repurchase) at a conversion price of $27.50 per share (subject to adjustment
for stock splits and similar events). The Convertible Note pays interest
quarterly at an initial rate of 6% per annum. The Convertible Note is
redeemable at the Company's option at any time after December 15, 2001 at an
initial redemption price of 104% and reducing to 100.8%, together in each case
with accrued interest through the date of redemption. In addition, (i) the
Convertible Note will be redeemable after December 15, 1999 and prior to
December 15, 2001, if the Common Stock has traded for a period of 20
consecutive trading days at a premium of at least 25% to the then applicable
Conversion Price, at a redemption price commencing at 104.2% and reducing to
103.6%, and (ii) after a Change of Control, the Convertible Note will be
redeemable for 90 days at the Company's option at a price commencing at 108%
in 1996, and reducing to 100.8%, together in each case with accrued interest
through the date of redemption. The Convertible Note is subject to repurchase
by the Company at the option of the TJX Noteholder upon a Change of Control
(as defined in the Senior Subordinated Notes) or certain leveraged
recapitalizations (as defined) at a purchase price in cash in an amount equal
to 101% of principal amount then outstanding, plus accrued and unpaid
interest.
The Convertible Note ranks pari passu with the Senior Subordinated Notes but
are subordinated in right of payment and subject, as set forth therein, to the
prior payment in full of all Senior Indebtedness (as defined). The Convertible
Note contains customary events of default for subordinated indebtedness
(including cross acceleration to other indebtedness of the Company).
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UNDERWRITING
The underwriters named below (the "U.S. Underwriters"), acting through their
respective representatives, Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch"), Lazard Freres & Co. LLC, Montgomery Securities and J.P.
Morgan Securities Inc. (the "U.S. Representatives" and, together with the
International Representatives, the "Representatives"), have severally agreed,
subject to the terms and conditions contained in a purchase agreement relating
to the Common Stock (the "U.S. Purchase Agreement") and concurrently with the
sale of 1,000,000 shares of Common Stock to certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters"), to purchase from the Selling
Stockholders the number of shares of Common Stock set forth opposite their
respective names below. Under certain circumstances, the commitments of non-
defaulting U.S. Underwriters or International Managers may be increased.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated .............................................
Lazard Freres & Co. LLC ...........................................
Montgomery Securities..............................................
J.P. Morgan Securities Inc. .......................................
---------
Total......................................................... 4,000,000
=========
</TABLE>
The Selling Stockholders have also entered into a purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") with the International Managers. Subject
to the terms and conditions set forth in the International Purchase Agreement,
and concurrently with the sale of 4,000,000 shares of Common Stock to the U.S.
Underwriters, the Selling Stockholders have severally agreed to sell to the
International Managers, and the International Managers have severally agreed
to purchase, an aggregate of 1,000,000 shares of Common Stock. The public
offering price per share of the Common Stock and the underwriting discount per
share of the Common Stock are identical under the U.S. Purchase Agreement and
the International Purchase Agreement.
In the U.S. Purchase Agreement and the International Purchase Agreement, the
several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such Purchase Agreement are purchased.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, sales may be made between the U.S. Underwriters and the
International Managers of such number of shares of Common Stock as may be
mutually agreed. The price of any share of Common Stock so sold shall
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be the public offering price, less an amount not greater than the selling
concession. Under the terms of the Intersyndicate Agreement, the U.S.
Underwriters and any dealer to whom they sell shares of Common Stock will not
offer to sell or sell shares of Common Stock to persons who are non-United
States or non-Canadian persons or to persons they believe intend to resell to
non-United States or non-Canadian persons, and the International Managers and
any dealer to whom they sell shares of Common Stock will not offer to sell or
sell shares of Common Stock to United States or Canadian persons or to persons
they believe intend to resell to United States or Canadian persons, except, in
each case for transactions pursuant to the Intersyndicate Agreement.
The U.S. Representatives have advised the Company that the U.S. Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
dealers (who may include U.S. Underwriters) at such price less a concession
not in excess of $ per share of Common Stock. The U.S. Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share on sales to certain other dealers. After the public offering, the
initial offering price, the concession and discount may be changed.
The Selling Stockholders have granted to the U.S. Underwriters an option
exercisable for a period of 30 days after the date of this Prospectus to
purchase up to an additional 600,000 shares of Common Stock to cover over-
allotments, if any, at the public offering price less the underwriting
discount. If the U.S. Underwriters exercise this option, each such Underwriter
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of shares of Common
Stock to be purchased by it shown in the foregoing table bears to the
4,000,000 shares of Common Stock initially offered hereby.
In the Purchase Agreements, the Company and the Selling Stockholders have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
The Company has agreed not to sell any shares of its capital stock (or any
rights, options or warrants to purchase, or any securities convertible or
exchangeable into or exercisable for, capital stock), with certain limited
exceptions, for a period of 90 days following the date of the Purchase
Agreement, without the prior written consent of Merrill Lynch on behalf of the
Representatives. In addition, FS&Co., The Limited, Leeway & Co., NYNEX, the
TJX Noteholder and WearGuard, as well as the executive officers and directors
of the Company, have each agreed not to sell, directly or indirectly, any of
their shares, with certain limited exceptions, for a period of 90 days
following the date of the Purchase Agreement.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
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In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
The Company has been advised by Merrill Lynch that an affiliate of Merrill
Lynch owns a limited partnership interest in FSEP III of approximately 1%.
Merrill Lynch acted as agent in the placement of limited partnership interests
for the aforementioned partnership, which is an investor in the Company. In
addition, Merrill Lynch has provided and may in the future provide financial
advisory and financing services to both FS&Co. and its affiliates and to the
Company.
Certain of the Underwriters engage in transactions with and perform services
for the Company in the ordinary course of business. In February 1997, Merrill
Lynch, Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. acted as co-
managers in connection with the Initial Public Offering and received
underwriting discounts and commissions in connection therewith. In addition,
in August 1993, each of them acted as placement agents in connection with the
offering of the Senior Subordinated Notes by the Partnership and Brylane
Capital Corp., a wholly-owned subsidiary of the Partnership, and received
underwriting discounts and commissions in connection therewith.
From time to time, in the ordinary course of their respective businesses,
affiliates of J.P. Morgan Securities Inc. have engaged, and may in the future
engage, in commercial banking and investment banking transactions with the
Company. In particular, Morgan Guaranty, an affiliate of J.P. Morgan, was the
agent bank under the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility. In addition, in connection with the 1997 Bank Credit Facility,
Morgan Guaranty acted as administrative agent and Merrill Lynch Capital, an
affiliate of Merrill Lynch, acted as documentation agent, for which each
received customary fees. Morgan Guaranty, J.P. Morgan and Merrill Lynch
Capital will act as co-agents in connection with the Amended 1997 Bank Credit
Facility. In addition, Morgan Guaranty is the agent bank under a revolving
commitment facility for each of The Limited and World Financial.
Brylane paid to Lazard Freres & Co. LLC a fee and reimbursement of expenses
for investment banking services performed by it in connection with the Brylane
Acquisition. From time to time, Lazard Freres & Co. LLC performs investment
banking services for The Limited and its subsidiaries, and in connection
therewith receives customary fees.
Brylane paid to Merrill Lynch and Lazard Freres & Co. LLC fees for
investment banking services performed by them in connection with the
Chadwick's Acquisition.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES PURCHASERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by
a holder that, for United States Federal income tax purposes, is not a "United
States person" (as defined below) (a "Non-United States Holder"). This
discussion is based upon the United States Federal tax laws now in effect,
which are subject to change, possibly retroactively. This discussion does not
consider any specific facts or circumstances that may apply to a particular
Non-United States Holder in light of their individual circumstances.
Prospective investors are urged to consult their tax advisors regarding the
United States Federal tax consequences of acquiring, holding, and disposing of
Common Stock, as well as any tax consequences that may arise under the laws of
any foreign state, local, or other tax jurisdiction.
For purposes of this discussion, a "United States person" means (i) a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in the United States or under the laws of
the United States or of any political subdivision thereof, (iii) an estate
whose income is includible in gross income for United States Federal income
tax purposes regardless of its source, or (iv) a trust whose administration is
subject to the primary supervision of a United States court and which has one
or more United States fiduciaries who have the authority to control all
substantial decisions of the trusts.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business
within the United States by the Non-United States Holder, in which case the
dividend will be subject to the United States Federal income tax on net income
that applies to United States persons generally (and, with respect to
corporate holders and under certain circumstances, the branch profits tax).
The withholding tax will apply to amounts distributed to a Non-United States
Holder without regard to whether such amounts are less than, equal to, or in
excess of, current and accumulated earnings and profits of the Company.
However, to the extent that an amount distributed to a Non-United States
Holder exceeds the current and accumulated profits of the Company, such holder
may obtain a refund of excess amounts withheld by filing an appropriate claim
therefor with the IRS. Non-United States Holders should consult any applicable
income tax treaties, which may provide for a lower rate of withholding or
other rules different from those described above. A Non-United States Holder
may be required to satisfy certain certification requirements in order to
claim treaty benefits or otherwise claim a reduction of or exemption from
withholding under the foregoing rules. The rules applicable to the
requirements for claiming treaty benefits are currently under review and the
Department of the Treasury has issued proposed regulations which are supposed
to be effective on December 31, 1997, but these proposed regulations have not
yet been finalized.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a non-resident alien individual
and holds the Common Stock as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met or (iii) the Company is a "United States real property
holding corporation" for United States Federal income tax purposes. The
Company does not believe that it has been, currently is, or will be, a United
States real property holding corporation. Gain that is effectively connected
with the conduct of a trade or business within the United States by the Non-
United States Holder will be subject to the United States Federal income tax
on net income that applies to United States persons generally (and, with
respect to corporate holders and under certain circumstances, the branch
profits tax) but will not be subject to withholding. Non-United States Holders
should consult applicable treaties which may provide for different rules.
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FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax
purposes) of the United States on the date of death will be included in such
individual's estate for United States Federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for the Company and certain Selling Stockholders by Riordan &
McKinzie, a Professional Law Corporation, Los Angeles, California. Certain
legal matters relating to the Offerings will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California. Certain principals and employees of Riordan & McKinzie are
partners in certain partnerships which are limited partners of FSEP II and
FSEP III, respectively.
EXPERTS
The consolidated balance sheets of Brylane Inc. as of February 3, 1996 and
February 1, 1997, and the consolidated statements of operations, cash flows
and partnership equity for each of the three fiscal years ended January 28,
1995, February 3, 1996 and February 1, 1997, appended hereto as part of this
Prospectus, have been audited by Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing, as set forth in their report dated April 12, 1997, which report is
also appended hereto.
The combined balance sheets of Chadwick's, Inc. as of January 28, 1995 and
January 27, 1996, and the combined statements of income and net assets, and
cash flows for the years ended January 29, 1994, January 28, 1995 and January
27, 1996, included in this Prospectus, have been included herein in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The balance sheets of the KingSize division of WearGuard Corporation as of
October 1, 1994 and September 30, 1995 and the statements of revenues,
expenses and net assets and cash flows for each of the years then ended,
appended hereto as part of this Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm
as experts in accounting and auditing, as set forth in their report dated
December 7, 1995, which report is also appended hereto.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. Such
reports and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, 13th Floor, New York, New York 10048; and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such information can also be obtained by mail at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Such material can be inspected and copied at the
offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005, on which the Common Stock is listed. The Commission also maintains a
site on the World Wide Web, the address of which is http://www.sec.gov, which
site contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
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This Prospectus constitutes a part of a Registration Statement on Form S-1
filed by the Company with the Commission under the Securities Act. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information contained in the Registration Statement and
the exhibits and schedules thereto, and reference is hereby made to the
Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of any documents filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is
made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
96
<PAGE>
BRYLANE INC. / CHADWICK'S, INC. / KINGSIZE DIVISION
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BRYLANE INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets as of February 3, 1996, February 1, 1997 and
August 2, 1997 (unaudited).............................................. F-3
Consolidated Statements of Income for the fiscal years ended January 28,
1995, February 3, 1996 and February 1, 1997, and the twenty-six weeks
ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited) ........ F-4
Consolidated Statements of Cash Flows for the fiscal years ended January
28, 1995, February 3, 1996 and February 1, 1997, and the twenty-six
weeks ended August 3, 1996 (unaudited) and August 2, 1997 (unaudited) .. F-5
Consolidated Statements of Partnership/Stockholders' Equity for the
fiscal years ended January 28, 1995, February 3, 1996 and February 1,
1997, and the twenty-six weeks ended August 2, 1997 (unaudited) ........ F-6
Notes to Consolidated Financial Statements............................... F-7
CHADWICK'S, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-21
Combined Statements of Income and Net Assets for the fiscal years ended
January 29, 1994, January 28, 1995 and January 27, 1996; and the thirty-
nine weeks ended October 28, 1995 (unaudited) and October 26, 1996
(unaudited)............................................................. F-22
Combined Balance Sheets as of January 28, 1995 and January 27, 1996; and
October 26, 1996 (unaudited)............................................ F-23
Combined Statements of Cash Flows for the fiscal years ended January 29,
1994, January 28, 1995 and January 27, 1996; and the thirty-nine weeks
ended October 28, 1995 (unaudited) and October 26, 1996 (unaudited)..... F-24
Notes to Combined Financial Statements................................... F-25
KINGSIZE DIVISION FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-31
Balance Sheets as of October 1, 1994 and September 30, 1995.............. F-32
Statements of Revenues, Expenses and Net Assets for the years ended
October 1, 1994 and September 30, 1995.................................. F-33
Statements of Cash Flows for the years ended October 1, 1994 and
September 30, 1995...................................................... F-34
Notes to the Financial Statements........................................ F-35
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Brylane Inc.
We have audited the accompanying consolidated balance sheet of Brylane Inc.
(the "Company"), including Brylane, L.P., a limited partnership, as of
February 3, 1996 and February 1, 1997, and the related consolidated statements
of income, partnership equity, and cash flows of the Company for the years
ended January 28, 1995, February 3, 1996 and February 1, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements of the Company
referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of February 3, 1996 and February 1, 1997,
and the consolidated results of operations and cash flows for the years ended
January 28, 1995, February 3, 1996 and February 1, 1997, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
April 12, 1997
F-2
<PAGE>
BRYLANE INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
FEBRUARY 3, FEBRUARY 1, AUGUST 2, AUGUST 2, 1997
1996 1997 1997 (NOTE 17)
----------- ----------- --------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents... $ 7,469 $ 3,285 $ -- $ --
Accounts receivable, trade
(net)...................... 2,387 22,750 7,503 7,503
Accounts receivable, other.. -- 32,107 9,401 9,401
Inventories................. 76,627 168,821 188,543 188,543
Paper inventory............. 16,102 9,790 18,059 18,059
Catalog costs............... 18,131 31,222 24,676 24,676
Other....................... 4,559 6,252 5,252 5,252
--------- --------- --------- ---------
Total current assets...... 125,275 274,227 253,434 253,434
Property and equipment, net... 28,223 75,970 76,338 76,338
Organization and deferred
financing costs.............. 8,228 11,114 3,979 4,742
Intangibles and other assets.. 166,177 343,243 337,825 337,825
Deferred income taxes......... -- -- 17,551 17,551
Deferred offering costs....... -- 680 -- --
--------- --------- --------- ---------
Total assets.............. $ 327,903 $ 705,234 $ 689,127 $ 689,890
========= ========= ========= =========
LIABILITIES AND EQUITY
----------------------
Current liabilities:
Accounts payable............ $ 47,131 $ 93,928 $ 109,370 $ 109,370
Accrued interest............ 6,366 8,612 6,223 6,223
Accrued expenses............ 12,231 45,356 41,675 41,675
Income taxes payable........ -- -- 2,364 2,364
Reserve for returns......... 4,192 18,603 11,285 11,285
Short-term debt............. -- -- 20,000 20,000
Current portion of long-term
debt....................... 13,720 26,000 9,028 5,000
--------- --------- --------- ---------
Total current liabilities. 83,640 192,499 199,945 195,917
Long-term debt................ 213,020 401,362 255,251 361,351
Other long-term liabilities... 4,056 6,010 7,390 7,390
--------- --------- --------- ---------
Total liabilities......... 300,716 599,871 462,586 564,658
Series A Convertible
Redeemable Preferred Stock... -- 1,500 1,500 1,500
Partnership/stockholders'
equity:
General partner, 2,562,500
units...................... 25,625 25,625 -- --
Limited partners, 10,340,000
units at February 3, 1996
and 12,908,945 units at
February 1, 1997........... 105,204 159,855 -- --
Common Stock, $.01 par value
40,000,000 shares
authorized; 19,471,445
shares issued
and outstanding............ -- -- 195 198
Additional paid in capital.. -- -- 290,339 300,156
Reduction for predecessor
cost--carryover basis...... (152,067) (152,067) (152,067) (152,067)
Treasury stock.............. -- -- -- (110,625)
Loans to management
investors.................. (2,515) (2,490) (2,490) (2,490)
Retained earnings........... 50,940 72,940 89,064 88,560
--------- --------- --------- ---------
Total
partnership/stockholders'
equity................... 27,187 103,863 225,041 123,732
--------- --------- --------- ---------
Total liabilities and
equity................... $ 327,903 $ 705,234 $ 689,127 $ 689,890
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
TWENTY-
FISCAL YEARS ENDED SIX WEEKS ENDED
----------------------------------- ---------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 1, AUGUST 3, AUGUST 2,
1995 1996 1997 1996 1997
----------- ----------- ----------- ---------- ----------
(53 WEEKS) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales............... $578,530 $ 601,055 $ 705,353 $ 308,625 $ 603,457
Cost of goods sold...... 288,217 298,414 346,572 149,898 309,971
Non-recurring inventory
charge................. 2,614 569 1,657 -- 3,315
-------- ---------- ---------- ---------- ----------
Gross margin............ 287,699 302,072 357,124 158,727 290,171
Operating expenses:
Catalog and
advertising.......... 153,830 174,446 186,985 88,988 137,879
Fulfillment........... 41,656 37,333 55,450 18,380 56,415
Support services...... 35,152 37,024 54,422 21,701 43,750
Intangibles and
organization cost
amortization......... 4,242 4,707 6,518 2,818 5,466
-------- ---------- ---------- ---------- ----------
Total operating
expenses............... 234,880 253,510 303,375 131,887 243,510
Operating income........ 52,819 48,562 53,749 26,840 46,661
Interest expense, net... 19,576 20,624 24,026 10,791 13,685
Income before income
taxes and extraordinary
charge................. 33,243 27,938 29,723 16,049 32,976
Provision for income
taxes.................. 89 88 315 57 12,742
-------- ---------- ---------- ---------- ----------
Income before
extraordinary charge... -- -- 29,408 15,992 20,234
Extraordinary charge
related to early
retirement of debt, net
of tax................. -- -- 2,456 -- 4,110
-------- ---------- ---------- ---------- ----------
Net income.............. $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
======== ========== ========== ========== ==========
Primary earnings per
share:
Income per share be-
fore extraordinary
charge............... $ 1.19 $ 1.04
Extraordinary charge
per share............ -- 0.21
---------- ----------
Net income per share.... $ 1.19 $ 0.83
========== ==========
Weighted average shares
outstanding............ 13,419,588 19,452,313
Supplemental data
(Unaudited) (Note 4):
Historical income
before provision for
income taxes and
extraordinary charge.. $ 33,243 $ 27,938 $ 29,723 $ 16,049 $ 32,976
Supplemental provision
for income taxes..... 12,300 10,337 10,998 5,938 12,201
-------- ---------- ---------- ---------- ----------
Supplemental income be-
fore extraordinary
charge................. 20,943 17,601 18,725 10,111 20,775
Extraordinary charge
related to early
retirement of debt, net
of tax................. -- -- 1,547 -- 4,110
-------- ---------- ---------- ---------- ----------
Supplemental net
income............... $ 20,943 $ 17,601 $ 17,178 $ 10,111 $ 16,665
======== ========== ========== ========== ==========
Supplemental earnings
per share (Note 4)... $ 1.34 $ 1.29 $ 0.75 $ 0.86
========== ========== ========== ==========
Supplemental weighted
average shares
outstanding (Note 4). 13,106,640 13,366,236 13,419,588 19,452,313
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED TWENTY-SIX WEEKS ENDED
----------------------------------- ----------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 1, AUGUST 3, AUGUST 2,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ------------
(53 WEEKS) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income............. $ 33,154 $ 27,850 $ 26,952 $ 15,992 $ 16,124
Impact of other
operating activities
on cash flows:
Depreciation........... 3,110 3,650 4,821 2,148 5,143
Non-recurring inventory
charge................ 2,614 569 1,657 -- 3,315
Extraordinary charge
related to early
retirement of debt.... -- -- 2,456 -- 6,524
Non-cash compensation
expense............... -- -- 2,400 -- 349
Imputed interest....... -- 185 -- -- --
Amortization:
Intangibles and
organization costs... 4,242 4,707 6,518 2,818 5,466
Deferred financing
costs (included in
interest expense).... 1,469 1,469 1,603 734 784
Discount on notes
(included in interest
expense)............. 96 97 97 48 48
Changes in operating
assets and
liabilities:
Accounts receivable... (598) (549) (15,137) 515 9,148
Inventories........... (14,195) (4,019) (32,064) (7,858) (23,037)
Catalog costs and
paper inventory...... (2,928) (8,933) (2,492) 5,795 (1,723)
Accounts payable and
accrued expenses..... 12,429 479 15,262 4,703 11,347
Accrued interest...... (725) 831 2,246 (733) (2,389)
Income taxes payable.. -- -- -- -- 2,364
Other assets and
liabilities.......... 332 7,226 (2,296) 1,064 (2,728)
-------- -------- --------- ---------- ------------
Net cash provided by
operating activities... 39,002 33,562 13,023 25,226 30,735
-------- -------- --------- ---------- ------------
Investing activities:
Purchase price
adjustment related to
Chadwick's
Acquisition........... -- -- -- -- 28,805
Cash payment in
connection with the
Chadwick's
Acquisition, net of
cash acquired......... -- -- (222,951) -- --
Cash payments in
connection with the
KingSize Acquisition,
net of cash acquired.. -- (51,975) -- -- --
Acquisition related
fees and expenses paid
at closing............ -- (1,278) (6,215) -- --
Capital expenditures... (5,287) (7,290) (3,932) (2,056) (7,322)
-------- -------- --------- ---------- ------------
Net cash used in
investing activities... (5,287) (60,543) (233,098) (2,056) 21,483
-------- -------- --------- ---------- ------------
Financing activities:
Payment on bank credit
facility.............. (15,000) (22,524) (102,476) (6,748) (344,793)
Proceeds from the
issuance of long-term
debt.................. -- 35,000 283,000 -- 181,663
Borrowings on revolver. 20,000
Proceeds from initial
public offering....... -- -- -- -- 96,000
Offering fees and
expenses.............. -- -- -- -- (8,170)
Payments on term loan.. -- -- (5,000) -- --
Proceeds from borrowing
under term loan....... -- -- 5,000 -- --
Equity contributions
from partners......... -- -- 51,329 -- --
Proceeds from issuance
of preferred stock.... -- -- 1,500 -- --
Tax distributions to
partners.............. -- (6,562) (9,854) (4,087) --
Debt issuance fees and
expenses.............. -- -- (7,005) -- (203)
Deferred offering
costs................. (642) -- (680) -- --
Proceeds from the sale,
net of repurchase of
partnership interests. 387 41 77 77 --
-------- -------- --------- ---------- ------------
Net cash (used in)
provided by financing
activities............. (15,255) 5,955 215,891 (10,758) (55,503)
-------- -------- --------- ---------- ------------
Cash and cash
equivalents, at
beginning of period.... 10,035 28,495 7,469 7,469 3,285
-------- -------- --------- ---------- ------------
Cash and cash
equivalents, at end of
period................. $ 28,495 $ 7,469 $ 3,285 $ 19,881 $ 0
======== ======== ========= ========== ============
Supplemental disclosure of
cash flow information:
The amounts of interest
and income taxes paid
during each of the
periods presented were
not material except as
follows:
Interest paid during
the periods ended.... $ 20,127 $ 19,328 $ 20,581 $ 11,049 $ 16,848
======== ======== ========= ========== ============
Income taxes paid..... -- $ 7,966
========== ============
Supplemental disclosure
of noncash financing
activity:
Purchase price for
KingSize acquisition,
net of acquisition
costs................. $ 57,750
Cash portion of
purchase price........ 52,500
--------
Partnership units
issued for purchase... $ 5,250
========
Purchase price for
Chadwick's
acquisition, net of
acquisition costs..... $ 242,954
Cash portion of
purchase price........ 222,954
---------
Convertible note....... $ 20,000
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
BRYLANE INC.
CONSOLIDATED STATEMENTS OF PARTNERSHIP/STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
REDUCTION FOR
GENERAL AND PREDECESSOR
LIMITED PARTNERS COMMON STOCK ADDITIONAL COST LOANS TO
---------------------- ----------------- PAID IN CARRYOVER MANAGEMENT RETAINED
UNITS AMOUNT SHARES AMOUNT CAPITAL BASIS INVESTORS EARNINGS TOTAL
----------- --------- ---------- ------ ---------- ------------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
28, 1995........ 12,547,500 $ 125,475 -- -- -- $(152,067) $(2,453) $30,822 $ 1,777
Net income....... -- -- -- -- -- -- -- 27,850 27,850
Sale of units.... 365,000 5,475 -- -- -- -- (112) -- 5,363
Repurchase of
units........... (10,000) (121) -- -- -- -- 50 -- (71)
Tax distributions
payable to part-
ners............ -- -- -- -- -- -- -- (7,732) (7,732)
----------- --------- ---------- ---- -------- --------- ------- ------- --------
Balance, February
3, 1996......... 12,902,500 130,829 -- -- -- (152,067) (2,515) 50,940 27,187
Net income....... -- -- -- -- -- -- -- 26,952 26,952
Sale of units.... 2,573,945 51,441 -- -- -- -- 25 -- 51,466
Repurchase of
units........... (5,000) (60) -- -- -- -- -- -- (60)
Exchange of stock
options......... -- 3,270 -- -- -- -- -- -- 3,270
Tax distributions
payable to part-
ners............ -- -- -- -- -- -- -- (4,952) (4,952)
----------- --------- ---------- ---- -------- --------- ------- ------- --------
Balance, February
1, 1997......... 15,471,445 185,480 -- -- -- (152,067) (2,490) 72,940 103,863
Net income....... -- -- -- -- -- -- -- 16,124 16,124
Proceeds from
initial Public
Offering........ -- -- 4,000,000 $ 40 $ 95,960 -- -- -- 96,000
Initial Public
Offering
expenses........ -- -- -- -- (8,850) -- -- -- (8,850)
Exchange of part-
nership units
for common
stock........... (15,471,445) (185,480) 15,471,445 155 185,325 -- -- -- --
Recognition of
deferred tax as-
set............. -- -- -- -- 17,551 -- -- -- 17,551
Exchange of stock
options......... -- -- -- -- 353 -- -- -- 353
----------- --------- ---------- ---- -------- --------- ------- ------- --------
Balance, August
2, 1997
(unaudited)..... 0 $ 0 19,471,445 $195 $290,339 $(152,067) $(2,490) $89,064 $225,041
=========== ========= ========== ==== ======== ========= ======= ======= ======== ===
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
(1) NATURE OF OPERATIONS:
Brylane is a leading catalog retailer of special size women's apparel,
regular size women's apparel and special size men's apparel. The women's
catalogs market apparel in the budget and low to moderate price range and the
men's catalogs market apparel in the moderate price range. Brylane services
the special size customer through its Lane Bryant, Roaman's, Jessica London
and KingSize (men's) catalogs, and the regular size woman's customer through
its Chadwick's, Lerner, Sue Brett and Bridgewater catalogs. Brylane also
markets apparel to these same customer segments through four catalogs which it
distributes under licensing arrangements with Sears Shop at Home Services,
Inc. ("Sears").
Brylane's merchandising strategy is to provide valued-priced, private label
apparel with a consistent quality and fit, to concentrate on apparel with
limited fashion risk, and to offer a broader selection of sizes and styles in
special size apparel than can be found at most retail stores and in other
competing catalogs. Each of Brylane's catalogs offers its customers
contemporary, traditional and basic apparel.
(2) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
Brylane Acquisition
In August 1993, certain affiliates of FS&Co. and of The Limited formed
Brylane, L.P. ("Brylane"), a Delaware limited partnership, and acquired the
Lane Bryant, Roaman's and Lerner catalog businesses (the "Brylane
Acquisition") formerly conducted by certain direct and indirect subsidiaries
of The Limited ("Predecessor"). The aggregate purchase price was $335 million.
The Brylane Acquisition closed on August 30, 1993. For accounting purposes,
the transaction was accounted for on the effective date of August 1, 1993.
In connection with the Brylane Acquisition certain affiliates of FS&Co. and
certain management investors contributed $75 million to the capital of Brylane
for a 60% aggregate interest. Certain affiliates of The Limited contributed
substantially all assets and liabilities of the catalog business to Brylane
and received cash of $285 million and a 40% aggregate interest in Brylane with
an assigned value of $50 million.
The Brylane Acquisition has been accounted for utilizing the purchase method
of accounting. The continuing interest of certain affiliates of The Limited in
Brylane was reflected at The Limited's historical basis (carryover basis) in
accordance with Emerging Issues Task Force (EITF) Issue No. 88-16. For the
proportionate interests of the affiliates of FS&Co. and members of management
who invested in the transaction, the purchase price was allocated to the
assets and liabilities of Brylane at their estimated fair values as determined
based on management's estimates. Partners' capital and the basis of the
transferred assets have been reduced for predecessor cost carryover basis.
Initial Public Offering
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."), The Limited, Inc. ("The
Limited"), M&P Distributing Company, 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.
F-7
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
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 as all activities are conducted within Brylane, L.P. The
historical financial statements presented herein for periods prior to February
26, 1997 are for Brylane, L.P. and are included to satisfy Brylane Inc.'s
continuous reporting requirement. This presentation is consistent with that of
Brylane Inc.'s Form S-1 Registration Statement regarding the Initial Public
Offering which contained the historical financial statements of Brylane, L.P.
through the thirty-nine weeks ended November 2, 1996. The Company's unaudited
consolidated financial statement information included herein for the period
February 26, 1997 through August 2, 1997 and the pro forma balance sheet
information at August 2, 1997 relate to Brylane Inc.
Basis of Financial Statement Presentation
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. Accounts between the consolidated
entities have 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.
Effective July 6, 1996, KingSize Catalog Sales, L.P., and KingSize Catalog
Sales, Inc. were merged into Brylane. All of the assets and liabilities of
these entities were transferred to Brylane, which continues to run the
KingSize Big & Tall catalog business.
(3) ACQUISITIONS:
In October 1995, KingSize Catalog Sales, L.P., an Indiana limited
partnership and an indirect wholly-owned entity of Brylane ("KingSize
Partnership"), completed the acquisition of the assets of the KingSize
division of WearGuard Corporation ("WearGuard"), a wholly-owned subsidiary of
ARAMARK Corporation (the "KingSize Acquisition"). The business acquired is a
catalog business devoted to big and tall men's apparel, footwear and related
accessories. Brylane paid to WearGuard $52.5 million in cash and issued to
WearGuard 350,000 newly issued limited partnership units in Brylane. Brylane
financed the cash portion of the purchase price out of available funds as well
as additional borrowings under its 1993 bank credit facility. Brylane acquired
the inventory, contracts, customer lists, goodwill, accounts receivable and
certain equipment relating to the operation of the business, and the
assumption of certain liabilities. In addition, the parties entered into a
Noncompetition Agreement.
For accounting purposes, the KingSize Acquisition has been recorded using
the purchase method of accounting on the effective date of October 1, 1995.
Brylane's financial statements include the results of KingSize on a
consolidated basis from the effective date of the acquisition. The purchase
price, including acquisition costs of $1.4 million, has been allocated to the
assets and liabilities of KingSize at their estimated fair values. The fair
values of assets and liabilities have been determined based on management's
estimates. The allocation of the purchase price is as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $10,737
Property and equipment........................................... 331
Intangibles and other assets..................................... 51,903
Liabilities assumed.............................................. (3,821)
-------
$59,150
=======
</TABLE>
F-8
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
In December 1996, Brylane, L.P. 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 $222.8 million (subject to certain post-closing
adjustments) and issued to TJX (the "TJX Noteholder") a $20.0 million
Convertible Redeemable Note due 2006. 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 approximately $51.3 million in new equity from certain affiliates
of FS&Co., Leeway & Co., NYNEX and WearGuard.
For accounting purposes, the Chadwick's Acquisition has been recorded using
the purchase method of accounting, Brylane's financial statements include the
results of Chadwick's on a consolidated basis from the closing date of the
acquisition. The purchase price, reflecting preliminary adjustments of $28.8
million, and including acquisition costs of $7.1 million, has been allocated
to the assets and liabilities of Chadwick's at their estimated fair values.
The preliminary purchase price adjustment is recorded in accounts receivable
other. The fair values of assets and liabilities have been determined based on
management's estimates. The allocation of the purchase price is as follows (in
thousands):
<TABLE>
<S> <C>
Current assets.................................................. $ 89,990
Property and equipment.......................................... 45,805
Intangibles and other assets.................................... 183,506
Liabilities assumed............................................. (98,067)
--------
$221,234
========
</TABLE>
The following unaudited pro forma results of operations for the years ended
February 3, 1996 and February 1, 1997 assume that the KingSize Acquisition and
the Chadwick's Acquisition occurred as of January 29, 1995. In preparing the
pro forma information, certain adjustments related to the KingSize Acquisition
have been made for (i) the amortization of goodwill and other intangible
assets created in the KingSize Acquisition; (ii) the interest expense related
to the borrowings which were used to finance a portion of the purchase price;
(iii) the non-recurring charge related to the valuation of the acquired
inventory; and (iv) the administrative overhead and goodwill amortization
related to KingSize as a division of WearGuard. Certain adjustments related to
the Chadwick's Acquisition have been made for (i) the amortization of goodwill
and other intangible assets created in the Chadwick's Acquisition; (ii) the
interest expense on the net increase in indebtedness which was used to finance
a portion of the purchase price; (iii) the sale of deferred billing
receivables to Alliance Data Systems Corporation; (iv) the non-recurring
charge related to the valuation of the acquired inventory; (v) the
amortization of deferred financing fees related to the 1996 Bank Credit
Facility and the write-off and reduction of amortization expense related to
the repayment of the 1993 bank credit facility; and (vi) the elimination of
interest expense and federal and state taxes related to Chadwick's as a
division of TJX.
The pro forma information is provided for informational purposes only. It is
based on historical information and does not purport to be indicative of the
results that actually would have occurred had the KingSize and
F-9
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Chadwick's Acquisitions been made as of the indicated dates or of results
which may occur in the future (in thousands):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------
FEBRUARY 3, 1996 FEBRUARY 1, 1997
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Net Sales..................................... $1,090,318 $1,167,527
Operating Income.............................. 70,625 87,118
Net Income.................................... 30,894 49,246
</TABLE>
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fiscal Year
Brylane's fiscal year ends on the Saturday closest to January 31 and
consists of 52 or 53 weeks. Brylane's fiscal years ended January 28, 1995 and
February 1, 1997 consisted of 52 weeks, and the fiscal year ended February 3,
1996 consisted of 53 weeks. The fiscal year is designated in the notes to the
financial statements by the calendar year in which the fiscal year commences.
Cash Equivalents
Brylane considers investments with initial maturities of three months or
less to be cash equivalents.
Accounts Receivable
Brylane, L.P. sells eligible accounts receivable generated through
Chadwick's deferred billing programs to Alliance Data Systems Corporation
("ADS") (See note (13) "Related Party Transactions"). All sales are accounted
for in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities" which was effective for transactions occurring
after December 13, 1996. Costs associated with these transactions are included
in operations. Deferred billing accounts receivable balances retained by the
Company are net of an allowance for doubtful accounts of $0 and $1,975,000 at
February 3, 1996 and February 1, 1997.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average cost basis under a standard costing system
or using the retail method of accounting, except for inventories attributable
to the initial investment in KingSize and Chadwick's which were recorded at
estimated fair value. A non-recurring inventory charge representing the
estimated fair value in excess of its original historical cost, as of the date
of the KingSize Acquisition, was fully amortized in fiscal 1995 ($569,000). A
non-recurring inventory charge representing the estimated fair value, as of
the date of the Chadwick's Acquisition, of inventory in excess of its original
historical cost was amortized partly during the fiscal year ended February 1,
1997 ($1.7 million) with the remainder to be amortized in the Spring/Summer
season of fiscal 1997 ($3.3 million).
Catalog Costs
Catalog costs primarily consist of catalog production and mailing costs that
have not yet been fully amortized. Catalog costs are amortized over the
expected revenue stream, which is approximately three months from the date
catalogs are mailed as determined based on management's estimates.
F-10
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging principally
from 10-30 years for buildings and improvements, the lesser of 10 years or the
life of the lease for leasehold improvements and 3-10 years for other property
and equipment. The cost and related accumulated depreciation or amortization
of assets sold or retired are removed from the accounts, with any resulting
gain or loss included in net income. Repairs and maintenance are charged to
expense as incurred; renewals and betterments which extend service lives are
capitalized.
Organization and Deferred Financing Costs
Organization costs amounting to $300,000 relate to the formation of Brylane
and its wholly-owned subsidiaries and partnerships. Such costs are amortized
over five years using the straight-line method. Accumulated amortization of
organization costs at February 3, 1996, and February 1, 1997 was $150,000, and
$210,000, respectively. Original deferred financing costs of $11.8 million
incurred in connection with the Brylane Acquisition were capitalized and
amortized over the term of the related debt using the effective interest
method. In connection with the repayment of the 1993 bank credit facility, a
pro rata portion of the deferred financing fees of $2.5 million associated
with the obligations to be repaid were written off as a charge to operations.
The remaining balance of $9.3 million will continue to be amortized over the
remaining life of the related obligations. Deferred financing costs of $7.0
million incurred in connection with the 1996 Bank Credit Facility were
capitalized and are amortized over the term of the related debt using the
effective interest method. Accumulated amortization of deferred financing
costs at February 3, 1996, and February 1, 1997 was $3.7 million, and $5.3
million, respectively.
Intangible Assets
Intangible assets associated with the Brylane Acquisition include trademarks
of $8.8 million, customer lists of $2.2 million and goodwill of $114.5
million. Such intangibles are amortized over a 30-year composite life using
the straight-line method. Accumulated amortization of intangible assets was
$10.5 million, and $14.6 million at February 3, 1996, and February 1, 1997,
respectively. Intangible assets associated with the KingSize Acquisition
include customer lists of $520,000, a noncompetition agreement of $300,000,
and goodwill of $50.8 million. Amortization is computed using the straight-
line method over a life of eight years for the customer lists, five years for
the noncompetition agreement, and 40 years for goodwill. Accumulated
amortization was $465,000 and $1.9 million, at February 3, 1996 and February
1, 1997, respectively. Intangible assets associated with the Chadwick's
Acquisition include customer lists of $4.0 million and goodwill of $179.5
million. Amortization is computed using the straight-line method over a life
of five years for the customer lists and 40 years for goodwill. Accumulated
amortization was $882,000 at February 1, 1997.
Brylane's policy is to periodically review the value assigned to goodwill to
determine if it has been permanently impaired by adverse conditions which
might affect Brylane. Such reviews include an analysis of current results and
take into consideration the discounted value of projected operating cash flow
(earnings before interest, taxes and depreciation and amortization).
Income Taxes
Under the partnership form of doing business, the tax effects of profits and
losses of the Partnership are incurred by the partners. Brylane makes cash
advances and annual distributions to partners in amounts sufficient for the
partners to pay income taxes on their ratable share of taxable income. As a
result, the provision for income taxes for the years ended January 28, 1995,
February 3, 1996, and February 1, 1997 represents federal, state and local
income taxes relating only to taxable income of the C-corporations included in
the consolidated financial statements.
F-11
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Supplemental Net Income and Earnings per Share:
Supplemental net income of Brylane Inc. represents the results of operations
adjusted to reflect a provision for income tax on historical income before
income taxes, which gives effect to the change in the consolidated entities
tax status to a C-corporation subsequent to the public sale of its Common
Stock. The difference between the proforma income tax rates utilized and the
federal statutory rate of 35% relates primarily to state income taxes, net of
federal tax benefit.
Supplemental earnings per share of Brylane Inc. represents supplemental net
income divided by the weighted average partnership units outstanding prior to
the Initial Public Offering and the weighted average common stock and
equivalent units outstanding thereafter. In accordance with Securities and
Exchange Commission rules, options granted in the one year prior to the filing
of the registration statement related to the initial public offering are
included as outstanding for all periods presented using the treasury stock
method assuming the offering price of $24 per share.
Revenue Recognition
Sales are recorded at the time of shipment. The Company provides a reserve
for estimated merchandise returns, based on its prior customer returns
experience.
Partnership Unit Option Plan
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Awards of Stock-Based Compensation to
Employees", which is effective for fiscal years beginning after December 15,
1995. SFAS No. 123 provides alternative accounting treatment to Accounting
Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to
Employees" with respect to stock-based compensation and requires certain
additional disclosures. Brylane adopted the disclosure requirements of SFAS
No. 123 in the first quarter of 1996, but has elected to continue to measure
compensation costs following present accounting rules under APB Opinion No. 25
(See note (8) "Partnership Unit Option Plans").
Reclassifications
Certain reclassifications have been made to the 1995 balance sheets, and the
1994 and 1995 statements of income and cash flows to conform with the 1996
financial statement presentation. Such reclassifications had no effect on
previously reported net income.
(5) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist
of (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1,
1996 1997
----------- -----------
<S> <C> <C>
Land, buildings and improvements.............. $14,997 $47,621
Furniture, fixtures and equipment............. 19,359 38,472
Leasehold improvements........................ 2,120 2,396
------- -------
36,476 88,489
Accumulated depreciation and amortization..... 8,253 12,519
------- -------
Property and equipment, net................... $28,223 $75,970
======= =======
</TABLE>
(6) LONG-TERM DEBT:
In order to finance the Brylane Acquisition, Brylane secured financing
through proceeds from a bank credit facility ("1993 bank credit facility") and
the sale of the Notes. In connection with the Chadwick's Acquisition,
F-12
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Brylane repaid the 1993 bank credit facility and entered into a 1996 Bank
Credit Facility ("Bank Credit Facility"). The Bank Credit Facility and Notes
are fully and unconditionally guaranteed, jointly and severally, by each of
Brylane's wholly-owned subsidiaries: Brylane Capital Corp., B.L. Management
Services, Inc., B.L. Catalog Distribution, Inc., B.N.Y. Service Corp., K.S.
Management Services, Inc., C.O.B. Management Services, Inc., Chadwick's
Tradename Sub, Inc., and by each of Brylane's wholly-owned general
partnerships, B.L. Management Services Partnership and B.L. Catalog
Distribution Partnership (collectively, "Subsidiary Guarantors").
<TABLE>
<CAPTION>
FEBRUARY 3, FEBRUARY 1, AUGUST 2,
1996 1997 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
1993 bank credit facility term loan (the
"Term Loans") bearing interest at the
rate of LIBOR plus 2.0% adjusted to the
current rate at intervals of one to six
months based on Brylane's operating cash
flow to net debt ratio. At February 3,
1996 and November 2, 1996, the margin was
2.0%. Various maturities through October
2000..................................... $102,476 $ 0 $ 0
1993 bank credit facility revolving loan
maximum borrowing of $40,000, sublimit
for letters of credit of 30,000.......... 0 0 0
1996 Bank Credit Facility ("Tranche A Term
Loan"), bearing interest at the rate of
(i) a margin over the higher of prime
rate or federal funds rate plus 0.5% or
(ii) a margin over LIBOR. At February 1,
1997, the rate was LIBOR plus 2.0%:
Various maturities through 2001.......... 0 213,000 0
1996 Bank Credit Facility Tranche B Term
Loan; ("Tranche B Term Loan") bearing
interest at (i) a margin over the higher
of prime rate or federal funds rate plus
0.5% or (ii) a margin over LIBOR. At
February 1, 1997 the rate was LIBOR plus
2.5%. Various maturities through February
2003..................................... 0 70,000 0
1996 Bank Credit Facility revolving loan
("Revolving Credit Facility"), maximum
borrowings of $125,000, sublimit for
letters of credit $75,000................ 0 0 0
1997 Bank Credit Facility ("Tranche A Term
Loan"), bearing interest at the rate of
(i) a margin over the higher of prime
rate or federal funds rate plus 0.5% or
(ii) a margin over LIBOR. At August 2,
1997, the rate was LIBOR plus .875%.
Various maturities through 2001.......... 0 0 50,119
1997 Bank Credit Facility Tranche B Term
Loan: ("Tranche B Term Loan"), bearing
interest at (i) a margin over the higher
of prime rate or federal funds rate plus
0.5% or (ii) a margin over LIBOR. At
August 2, 1997 the rate was LIBOR plus
1.625%. Various maturities through
February 2003............................ 0 0 69,750
Convertible subordinated note, bearing
interest at the rate of 6% per annum,
maturing December 9, 2006................ 0 20,000 20,000
Senior subordinated notes, bearing
interest at the rate of 10.0% per annum,
maturing September 1, 2003............... 125,000 125,000 125,000
-------- -------- --------
227,476 428,000 264,869
Unamortized discount on senior
subordinated notes....................... (736) (638) (590)
-------- -------- --------
226,740 427,362 264,279
Less current portion...................... (13,720) (26,000) (9,028)
-------- -------- --------
$213,020 $401,362 $255,251
======== ======== ========
</TABLE>
F-13
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
In addition to scheduled maturities on the Tranche A and Tranche B Term
Loan, Brylane is obligated to make certain mandatory prepayments of the loans
and the Revolving Credit Facility under certain circumstances. Such a
mandatory prepayment of the Tranche A and Tranche B Term Loans is based on
Brylane's excess cash flow, as defined. The terms of the Partnership Agreement
may under certain conditions require and the terms of the Tranche A and
Tranche B Term Loan will allow, until the fourth anniversary of the closing of
the Brylane Acquisition, each such scheduled or mandatory principal payment to
be placed into an escrow account rather than being applied to reduce the
principal amount of the Tranche A and Tranche B Term Loans.
At February 3, 1996 and February 1, 1997, interest terms available to
Brylane, for borrowing similar to the Term Loans and the Tranche A and B Term
Loans, were similar to those presently provided under the Bank Credit
Facility. Accordingly, the principal amount outstanding of the Term Loans and
the Tranche A and B Term Loans approximated the fair value at February 3, 1996
and February 1, 1997.
Based on quoted market prices at February 3, 1996 and February 1, 1997 the
fair market value of the Notes was approximately $111.9 million and $130.3
million, respectively. The change in fair market value is primarily
attributable to changes in bond ratings and market interest rates.
The 1993 bank credit facility contained certain financial covenants which
required Brylane to meet financial ratios and tests, including a minimum net
worth test, a minimum fixed charge coverage ratio and a minimum cash flow to
net debt ratio. At February 3, 1996, Brylane was in compliance with the
required covenants. In addition, the 1993 bank credit facility contained
covenants customarily found in credit agreements of such type including, among
other things, limitations on indebtedness, liens, asset sales, distributions
and other restricted payments, acquisitions, mergers, investments, capital
expenditures and prepayment or amendment of certain indebtedness. The 1993
bank credit facility contained customary events of default, including certain
changes of control of Brylane.
The Bank Credit Facility contains certain financial covenants which require
Brylane to meet financial ratios and tests, including a maximum debt to cash
flow ratio, a minimum fixed charge coverage ratio, and a minimum net worth
test. At February 1, 1997, Brylane was in compliance with the required
covenants. In addition, the Bank Credit Facility contains covenants
customarily found in credit agreements including, among other things,
limitations on indebtedness, liens, Asset Sales (as defined), partnership
distributions and other restricted payments, mergers and certain acquisitions,
investments, transactions with affiliates, capital expenditures, the
prepayment or amendment of certain indebtedness, the granting of certain
negative pledges and the amendment of material agreements. The Bank Credit
Facility also contains customary events of default, including certain changes
of control of the Partnership.
The obligations of Brylane under the Bank Credit Facility are collateralized
by the intangible assets of Brylane.
As of February 3, 1996 and February 1, 1997, Brylane had no borrowings under
the Revolving Credit Facility and, after giving effect to the issuance of
letters of credit for $17.2 million and $47.9 million, respectively, had
additional capacity under the Revolving Credit Facility of approximately $22.8
million and $77.1 million, respectively. As of February 3, 1996 and February
1, 1997 the aggregate principal balance outstanding under the Term Loans and
the Tranche A and B Term Loans was $102.5 million and $283.0 million,
respectively.
At August 2, 1997, Brylane had $20.0 million in borrowings under the
Revolving Credit Facility and, after giving effect to the issuance of letters
of credit for $53.2 million, had additional capacity under the Revolving
Credit Facility of approximately $51.8 million. As of August 2, 1997, the
aggregate principal balance outstanding under the Term Loans and the Tranche A
and B Term Loans was $139.9 million.
F-14
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
At August 2, 1997, annual maturities of long-term debt by fiscal year are as
follows (in thousands):
<TABLE>
<S> <C>
1997............................................................. $ 3,587
1998............................................................. 10,881
1999............................................................. 12,116
2000............................................................. 13,351
2001............................................................. 14,684
Thereafter....................................................... 210,250
--------
Total Debt....................................................... $264,869
========
</TABLE>
(7) OPERATING LEASES:
Brylane leases office, outlet store and warehouse space and equipment under
leasing arrangements classified as operating leases which expire at various
times through fiscal 2003. Rent expense under these leases was $5.6 million,
$5.8 million and $6.6 million in the fiscal years ended January 28, 1995,
February 3, 1996 and February 1, 1997.
Future minimum lease payments required under these leases at February 1,
1997, are as follows (in thousands):
<TABLE>
<S> <C>
1997.............................................................. $ 6,149
1998.............................................................. 5,348
1999.............................................................. 3,856
2000.............................................................. 1,754
2001.............................................................. 1,447
Thereafter........................................................ 686
-------
$19,240
=======
</TABLE>
(8) PARTNERSHIP UNIT OPTION PLANS:
1993 Option Plan
In connection with the Brylane Acquisition, Brylane adopted its 1993
Performance Partnership Unit Option Plan (the "1993 Option Plan") whereby
officers, key employees, certain members of the Board of Representatives of
the Partnership and consultants of Brylane (or its Subsidiaries) may be
granted the right to purchase an aggregate of up to 779,584 partnership units
in Brylane. The options were issued at fair market value at the date of the
grant based on the capital contributed by FS&Co. and The Limited.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized an amendment to the existing option agreement
that revised the performance criteria for the vesting of the options, and
changed the outside vesting date of the options from August 30, 2008 to August
30, 2002 and reduced the term from 16 to 10 years. In addition, the exercise
price of the options outstanding under the 1993 Option Plan was increased from
$10.00 per partnership unit to $15.00 per partnership unit. In accordance with
APB Opinion No. 25, the options were deemed to have a new measurement date.
Based on the new measurement date, the Partnership incurred non-cash
compensation expense of $2.4 million in the fourth quarter of 1996 and expects
to incur an additional $0.7 million in fiscal 1997. All options become
exercisable on the fifth or ninth
F-15
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
anniversary of the Brylane Acquisition and terminate 10 years from date of
grant (if not sooner due to termination of employment).
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Outstanding at beginning of year...................... 615,209 622,709
Granted............................................... 15,000 669,584
Cancelled............................................. (7,500) (647,709)
------- --------
Outstanding at end of year............................ 622,709 644,584
======= ========
Options exercisable at year-end....................... -- --
Weighted-average fair value of options granted during
the year............................................. $ 9.71 $ 9.99
</TABLE>
1995 Option Plan:
On July 15, 1995, Brylane adopted its 1995 Partnership Unit Option Plan (the
"1995 Option Plan") whereby officers, key employees, certain members of the
Board of Representatives of the Partnership and consultants of Brylane (or its
Subsidiaries) may be granted the right to purchase an aggregate of up to
500,000 partnership units in Brylane.
In connection with the Chadwick's Acquisition, the Board of Representatives
of the Partnership authorized amendments to increase the number of partnership
units which may be issued from 500,000 to 1,700,000 and permit the Board or
Compensation Committee to grant options with a term of up to 10 years.
Additionally, Chadwick's employees were granted substitute options in exchange
for options previously granted by TJX. The term, exercise price and vesting
criteria of the replacement options were determined to preserve the economic
value of the options being exchanged. The granting of the options resulted in
an adjustment to the Chadwick's Acquisition purchase price of $0.9 million for
the related compensation expense.
A summary of the Partnership's 1995 Option Plan as of February 3, 1996 and
February 1, 1997, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1995 1996
---------------------- ----------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
UNITS EXERCISE PRICE UNITS EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year...................... -- 123,750 $15.00
Granted.................... 123,750 $15.00 340,854 17.04
Cancelled.................. -- --
------- -------
Outstanding at end of year. 123,750 15.00 464,604 16.50
Options exercisable at
year-end.................. -- 41,250
Weighted-average fair value
of options granted during
the year.................. $ 5.81 $ 9.69
</TABLE>
F-16
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
The following table summarizes information about the 1995 Option Plan at
February 1, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES AT FEBRUARY 1, 1997 CONTRACTUAL LIFE EXERCISE PRICE
--------------- ------------------- ---------------- --------------
<S> <C> <C> <C>
$ 5 to 10 63,604 8.6 years $ 6.72
$11 to 15 127,750 5.6 years 15.00
$16 to 20 273,250 8.0 years 19.48
-------
$ 5 to 20 464,604 7.4 years 16.50
</TABLE>
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
-------------------------------------------------------------------------------
NUMBER WEIGHTED-
RANGE OF EXERCISABLE AVERAGE
EXERCISE PRICES AT FEBRUARY 1, 1997 EXERCISE PRICE
--------------- ------------------- --------------
<S> <C> <C>
$ 5 to 10 -- --
$11 to 15 41,250 $15.00
$16 to 20 -- --
------ ------
41,250 $15.00
====== ======
</TABLE>
Pro Forma Disclosures Under Statement of Financial Accounting Standards No.
123:
Pro forma information regarding net income as required by SFAS No. 123 has
been determined as if the Company accounted for its stock options under the
fair value approach. The fair value of each option is estimated on the date of
grant using the Black--Scholes model with the following assumptions for 1995:
expected volatility of 31.2%, risk--free interest rate of 5.99% and an
expected life of five years. The weighted average assumptions applied in 1996
are as follows: expected volatility of 31.2%, weighted average risk-free
interest rate of 6.04%, and weighted average expected life of 5.25 years.
Had compensation costs been determined based on the fair value method of
SFAS No. 123, the Company's net income would have been adjusted to the pro
forma amounts indicated below. For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the options
vesting period (in thousands).
<TABLE>
<CAPTION>
FEBRUARY 3, 1996 FEBRUARY 1, 1997
---------------- ----------------
<S> <C> <C>
Net income, as reported................. $27,850 $26,952
Net income, pro forma................... $27,658 $28,351
</TABLE>
(9) STOCK SUBSCRIPTION PLAN:
Brylane has a stock subscription plan (the "Subscription Plan") whereby
officers, certain key employees and a member of the Board of Representatives
may purchase interests in an entity that indirectly owns interests in the
Partnership. Pursuant to the Subscription Plan, this entity acquires
additional interests in the Partnership using the proceeds received in
connection with such purchases. The portion of the purchase price received in
the form of promissory notes is recorded as a reduction of partnership equity.
The price at which the units are purchased is set at fair value at the date of
issuance as determined by the Company from analyses and outside purchases.
F-17
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Activity under the Stock Subscription Plan for fiscal 1994, fiscal 1995 and
fiscal 1996 follows:
<TABLE>
<CAPTION>
AVERAGE
PRICE
NUMBER PER
OF UNITS UNIT
-------- -------
<S> <C> <C>
Units outstanding, January 29, 1994..................... 453,000 $10.00
Activity during 1994:
Issued................................................ 60,000 10.00
Repurchased........................................... (12,500) 10.00
------- ------
Units outstanding, January 28, 1995..................... 500,500 10.00
Activity during 1995:
Issued................................................ 15,000 15.00
Repurchased........................................... (10,000) 12.10
------- ------
Units outstanding, February 3, 1996..................... 505,500 10.15
Activity during 1996:
Issued................................................ 7,500 15.00
Repurchased........................................... (5,000) 12.10
------- ------
Units outstanding, February 1, 1997..................... 508,000 $10.22
======= ======
</TABLE>
(10) RETIREMENT PLAN:
Effective August 30, 1993, Brylane adopted the Brylane, L.P. Savings and
Retirement Plan (the "Retirement Plan"). All of the Company's employees who
have attained twenty-one years of age and have completed one year of service
are eligible to participate in the Retirement Plan. Eligible employees can
contribute up to the lesser of $9,500 or ten percent of their compensation to
the Retirement Plan on a pre-tax basis. Brylane will match up to three percent
of the participants' eligible compensation. Brylane is required to make
additional contributions to the Retirement Plan equal to four percent of each
participant's compensation up to the Social Security taxable wage base and
equal to seven percent of each participant's compensation which exceeds that
amount. An additional one percent of eligible compensation is contributed on
behalf of those participants who have completed at least five years of
service. The Company's contributions begin to vest after three years of
service, at which time such contributions are 20% vested. Thereafter, the
contributions vest at a rate of 20% each year so that Brylane's contributions
are fully vested after seven years of service. Brylane's cost under these
plans was $3.1 million, $2.9 million and $3.6 million in the years ended
January 28, 1995, February 3, 1996 and February 1, 1997, respectively.
As a result of the Chadwick's Acquisition, the Company participates in a
multi-employer plan that provides defined benefits to its union employees.
Expense for this plan for the eight-weeks ended February 1, 1997 amounted to
$252,750.
(11) INCOME TAXES:
Brylane Inc. accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Pursuant to SFAS No. 109, deferred tax assets and liabilities result
from differences between financial reporting and tax basis of assets and
liabilities, measured using enacted tax rates and laws in effect when the
differences reverse. Upon consummation of the Initial Public Offering and
execution of the Exchange Agreement, Brylane Inc. recorded a deferred income
tax benefit of $17.6 million. The deferred tax asset represents the estimated
future tax benefits to Brylane Inc., determined at current rates, arising from
temporary differences associated with the difference between the book and tax
basis of the partners' investment in Brylane, L.P.
F-18
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
During the twenty-six weeks ended August 2, 1997, income tax expense was
$10.3 million.
(12) CONVERTIBLE REDEEMABLE PREFERRED STOCK:
In connection with the Chadwick's Acquisition, certain members of Chadwick's
management purchased 75,000 shares of VP Holding Corporation Series A
Convertible Redeemable Preferred Stock for a purchase price of $1.5 million.
The shares of VP Holding Corporation Series A Convertible Redeemable Preferred
Stock vest in three equal annual installments beginning one year from the date
of purchase and may not be transferred or redeemed at the option of the holder
for three years from their date of purchase; thereafter, they may be
transferred only after first offering such shares to VP Holding Corporation.
The redemption price has been set at $20 per share (as appropriately adjusted
for stock dividends, reclassifications or splits).
(13) PARTNERSHIP EQUITY:
The general partner of Brylane is an affiliate of FS&Co. Profits of the
Partnership will be allocated first, 100% to the general partner in an amount
equal to the excess of cumulative allocated losses over allocated profits;
second, to each partner in proportion to cumulative allocated losses over
profits; and the balance in proportion to percentage interest.
Losses will be allocated first, to each partner in proportion to cumulative
allocated profits over losses; second, to each partner in proportion to the
sum of capital contributions and cumulative allocated profits over losses; and
the balance 100% to the general partner.
(14) RELATED PARTY TRANSACTIONS:
On August 30, 1993 (amended July 1, 1995), Brylane entered into a Credit
Card Agreement with World Financial Network National Bank ("World Financial")
a wholly-owned subsidiary of Alliance Data Systems Corporation ("ADS"), a
joint venture 60% owned by affiliates of Welsh Carson Anderson & Stowe and 40%
owned by The Limited, Inc., pursuant to which World Financial provides credit
to customers of Brylane, issues five proprietary credit cards and processes
credit card transactions for a fee. The total expense amounted to
$10.7 million, $10.3 million and $10.0 million in the years ended January 28,
1995, February 3, 1996 and February 1, 1997. In addition, the Brylane, L.P.
sold accounts receivable to ADS and incurred processing fees of $142,000 in
fiscal 1996.
Certain affiliates of The Limited granted Brylane the use of certain
trademarks for a specified period, as defined in a trademark license
agreement.
In connection with the Chadwick's Acquisition, Brylane paid FS Management
Co. and FS&Co. Management L.P., both of which are affiliated with FS&Co., an
aggregate of $2.5 million in fees as compensation for services in structuring
and arranging financing. Such fees are included in intangibles and other
assets.
(15) COMMITMENTS AND CONTINGENCIES:
Brylane is involved in various legal proceedings that are incidental to the
conduct of its business. Although the amount of any liability with respect to
these proceedings cannot be determined, in the opinion of management, any such
liability will not have a material adverse effect on the financial position or
results of operations of Brylane.
(16) SUBSEQUENT EVENTS:
Initial Public Offering
On February 26, 1997, pursuant to the First Amended and Restated
Incorporation and Exchange Agreement (the "Exchange Agreement"), certain
affiliates of FS&Co., The Limited, M&P Distributing Company, 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, for 14,926,778 shares of Common Stock in Brylane Inc., a newly
formed corporation, and the TJX Noteholder exchanged the $20.0 million
F-19
<PAGE>
BRYLANE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(ALL INFORMATION FOR THE TWENTY-SIX WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3,
1996 IS UNAUDITED)
Convertible Note due 2006 of the Partnership for a similar security in
Brylane, L.P. and Brylane Inc. Additionally, pursuant to their respective
stock subscription agreements with VP Holding Corporation, certain 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.
On February 26, 1997, Brylane Inc. offered 4,000,000 shares of common stock
to the public at an initial public offering price of $24.00 per share. Net
proceeds, after underwriting discounts and related fees, of $89.3 million were
used to repay obligations outstanding under the Tranche A Term Loan of the
Bank Credit Facility resulting in a write-off of $2.1 million of deferred
financing costs in the first quarter of fiscal 1997.
Prior to the Initial Public Offering and subsequent to the execution of the
Exchange Transaction, the equity of Brylane Inc. was as follows (in
thousands):
<TABLE>
<S> <C>
Common stock, $.01 par value, 40,000,000 shares authorized,
15,471,445 shares issued and outstanding.................... $ 155
Additional paid in capital................................... 204,375
Reduction for predecessor cost carryover basis............... (152,067)
Loans to management investors................................ (2,490)
Retained earnings............................................ 72,940
---------
$ 122,913
=========
</TABLE>
The additional paid in capital of Brylane Inc. at February 1, 1997 reflects
the establishment of a deferred tax asset of $19.1 million, representing the
tax effect at current tax rates of temporary differences between assets and
liabilities for financial and tax reporting purposes. This difference is
attributable to the step-up in the tax basis of the Partnership's assets at
the closing of the Brylane Acquisition and upon the contribution to Brylane
Inc. by The Limited of its interests in the Partnership at the closing of the
Initial Public Offering, and represents estimated future tax benefits to
Brylane Inc. arising from those assets. Brylane, L.P. did not record deferred
taxes since its partners incurred the tax effects of its profits and losses.
Lease Agreements
In April 1997, Brylane renewed the lease for its New York office. The
renewed lease commenced its term on April 15, 1997, and expires on March 31,
2012. Annual payments required by this lease are $1.5 million for the period
April 15, 1997 through April 14, 2002 and $1.6 million for the period April
15, 2002 through March 31, 2012.
Bank Credit Facility
On April 30, 1997, Brylane, L.P. entered into its 1997 Bank Credit Facility
which resulted in the write-off of approximately $4.4 million in deferred
financing costs. This item was treated as an extraordinary charge during
Spring/Summer season of fiscal 1997. The proceeds from 1997 Bank Credit
Facility were used to repay 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.
Sale of Common Stock by Certain Stockholders and Common Stock Repurchase
In September 1997, certain stockholders initiated an offering to sell
5,000,000 shares of their Common Stock in the Company. Concurrent with the
consummation of that offering, the Company will repurchase from the same
stockholders an additional 2,500,000 shares. The Company anticipates amending
or replacing its 1997 Bank Credit Facility to provide additional financing of
up to $175.0 million to fund the repurchase of those shares.
The pro forma balance sheet information at August 2, 1997 reflects the
$111.9 million in additional borrowings as if such borrowings had occurred at
that date.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's, Inc.:
We have audited the accompanying combined balance sheets of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the related
combined statements of income and net assets, and cash flows for each of the
three fiscal years in the period ended January 27, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the combined
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 27, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996
F-21
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF INCOME AND NET ASSETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER 28, OCTOBER 26,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $424,276 $432,660 $465,598 $355,671 $370,319
-------- -------- -------- -------- --------
Cost of sales, including
buying and order
fulfillment costs...... 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- --------
Gross profit.......... 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and order
processing costs....... 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- --------
Income from
operations........... 23,604 5,457 26,448 17,570 34,409
Interest expense, net... 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- --------
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
changes................ 20,226 1,517 19,528 12,359 29,917
Provision for income
taxes.................. 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- --------
Income before
extraordinary items and
cumulative effect of
accounting changes..... 12,285 1,262 11,674 7,391 17,562
Extraordinary charge,
net of income taxes.... -- (192) (3,338) -- --
Cumulative effect of
accounting changes, net
of income taxes........ 380 -- -- -- --
-------- -------- -------- -------- --------
Net income.............. 12,665 1,070 8,336 7,391 17,562
Net assets at beginning
of period.............. 34,604 47,269 48,339 48,339 56,675
-------- -------- -------- -------- --------
Net assets at end of
period................. $ 47,269 $ 48,339 $ 56,675 $ 55,730 $ 74,237
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
CHADWICK'S, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27, OCTOBER 26,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 1,420 $ 1,406 $ 464
Accounts receivable, net of allowance for
doubtful accounts of $479, $2,582 and
$2,062, respectively.................... 10,056 41,444 99,873
Current deferred taxes and income taxes
recoverable............................. 9,534 2,624 1,844
Merchandise inventories.................. 93,993 82,612 106,469
Prepaid expenses, including catalog
costs................................... 9,499 18,829 15,636
-------- -------- --------
Total current assets................... 124,502 146,915 224,286
Property at cost:
Land and buildings....................... 29,586 30,563 30,881
Leasehold improvements................... 4,232 5,873 6,092
Furniture, fixtures and equipment........ 38,193 41,458 42,199
-------- -------- --------
72,011 77,894 79,172
Less accumulated depreciation and
amortization............................ 18,888 25,594 30,544
-------- -------- --------
53,123 52,300 48,628
-------- -------- --------
Total assets........................... $177,625 $199,215 $272,914
======== ======== ========
LIABILITIES AND NET ASSETS
--------------------------
Current liabilities:
Accounts payable......................... $ 41,961 $ 36,889 $ 46,817
Accrued expenses and other current
liabilities............................. 38,132 32,183 60,388
Current deferred taxes and income taxes
payable................................. -- -- 463
-------- -------- --------
Total current liabilities.............. 80,093 69,072 107,668
Long-term debt............................. 45,000 -- --
Loans and advances from TJX................ 2,391 70,769 88,587
Deferred income taxes...................... 1,802 2,699 2,422
Commitments (see Note B)
Net assets............................. 48,339 56,675 74,237
-------- -------- --------
Total liabilities and net assets....... $177,625 $199,215 $272,914
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER 28, OCTOBER 26,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
Adjustments to recon-
cile net income to net
cash provided from
(used in) operating
activities:
Extraordinary charge. -- 192 3,338 -- --
Depreciation and
amortization........ 4,505 5,699 6,712 5,055 5,018
Other................ (380) -- 297 (2) (68)
Changes in assets and
liabilities:
(Increase) in
accounts receivable. (2) (4,645) (31,388) (76,663) (58,429)
(Increase) decrease
in federal and state
income taxes
recoverable and
current deferred
income taxes........ (3,206) (3,310) 9,258 9,534 780
(Increase) decrease
in merchandise
inventories......... (14,995) (7,187) 11,381 5,842 (23,857)
(Increase) decrease
in prepaid expenses. (4,020) (1,159) (9,330) (6,136) 3,193
(Increase) in other
assets.............. -- -- -- (453) --
Increase (decrease)
in accounts payable. (10,407) 13,503 (5,072) (9,884) 9,928
Increase (decrease)
in accrued expenses
and other current
liabilities......... 1,973 11,134 (5,949) 10,304 28,205
Increase in federal
and state income
taxes payable and
current deferred
income taxes........ -- -- -- 5,458 463
Increase (decrease)
in deferred income
taxes............... 1,133 621 897 306 (277)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............. (12,734) 15,918 (11,520) (49,248) (17,482)
-------- -------- -------- -------- --------
Cash flows from invest-
ing activities:
Property additions..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Net cash (used in) in-
vesting activities..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Cash flows from financ-
ing activities:
Proceeds from
borrowings of long-
term debt............. -- 45,000 -- -- --
Principal payments on
long-term debt........ (19) (32) -- -- --
Prepayment of long-term
debt.................. -- (5,774) (50,534) -- --
Increase (decrease) in
borrowings from TJX,
net................... 30,036 (44,317) 68,378 52,013 17,818
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............. 30,017 (5,123) 17,844 52,013 17,818
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 1,080 209 (14) (1,053) (942)
-------- -------- -------- -------- --------
Cash and cash
equivalents at
beginning of year...... 131 1,211 1,420 1,420 1,406
-------- -------- -------- -------- --------
Cash and cash equiva-
lents at end of period. $ 1,211 $ 1,420 $ 1,406 $ 367 $ 464
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION: Chadwick's, Inc. (the "Company"), which holds the
assets of the Chadwick's of Boston catalog, is a wholly-owned subsidiary of
The TJX Companies, Inc. ("TJX"). These combined financial statements include
the operating results of the Chadwick's of Boston catalog and its related
trademark subsidiary.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DESCRIPTION OF BUSINESS: The Company is an off-price catalog operator which
sells primarily women's career, casual and social apparel through its
Chadwick's of Boston catalog.
FISCAL YEAR: The Company's fiscal year ends on the last Saturday in January.
The fiscal years ended January 29, 1994, January 28, 1995 and January 27, 1996
each included 52 weeks.
REVENUE RECOGNITION: The Company recognizes sales and the related cost of
sales at the time the merchandise is shipped to customers. The Company allows
for merchandise returns at the customer's discretion, and provides an
allowance for returns based on projected merchandise returns. The Company
offers a deferred billing program under which the Company does not charge the
credit card of a customer who requests the program and purchases merchandise
on credit until approximately 90 to 120 days after the mailing of the catalog
from which the merchandise is purchased. An allowance for doubtful accounts is
established as deferred billing sales are recorded based upon projected future
credit losses.
MERCHANDISE LIQUIDATIONS: The Company writes down the value of merchandise
identified for liquidation to its net realizable value and reflects the
transaction net in cost of sales. The Company received $29.7 million, $21.9
million and $20.2 million, for the fiscal years ended January 1994, 1995 and
1996, respectively, with respect to liquidated merchandise.
CASH AND CASH EQUIVALENTS: The Company generally considers highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents. The Company's investments are primarily time deposits with
major banks. Fair value of cash equivalents approximates carrying value.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or
market. The Company primarily uses the retail method for valuing inventories
on the first-in first-out basis.
PREPAID CATALOG EXPENSES: Catalog costs are capitalized as incurred and
amortized over the period the catalog generates revenue which generally does
not exceed four months. Prepaid catalog expenses were $7.9 million and $16.7
million as of January 28, 1995 and January 27, 1996, respectively.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, the Company
provides for depreciation and amortization of property principally by the use
of the straight-line method over the estimated useful lives of the assets.
Leasehold costs and improvements are generally amortized over the lease term
or their estimated useful life, whichever is shorter. Maintenance and repairs
are charged to expense as incurred. Upon retirement or sale, the cost of
disposed assets and the related depreciation are eliminated and any gain or
loss is included in net income.
F-25
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NEW ACCOUNTING STANDARDS: During 1995, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of" and FASB Statement No.
123, "Accounting for Stock Based Compensation." The Company will implement the
new standards in its fiscal year ending January 25, 1997 and it expects that
the impact of implementation will be immaterial. The Company plans to adopt
the disclosure only provisions of FASB Statement No. 123.
ACCOUNTING CHANGES: Effective January 31, 1993, TJX adopted Statement of
Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company recorded its share
of a one-time implementation charge of $79,000, net of taxes of $51,000, as a
cumulative effect of accounting change.
In addition, effective January 31, 1993, TJX also implemented Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
The amount applicable to the Company resulted in an after-tax gain of $459,000
which was also recorded as a cumulative effect of accounting change.
INTERIM FINANCIAL INFORMATION: The combined financial statements for the
thirty-nine weeks ended October 28, 1995 and October 26, 1996 are unaudited
but include all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim period.
A. RELATED PARTY TRANSACTIONS
TJX loans funds to the Company on an as needed basis. The Company pays
interest to TJX on its intercompany balance, net of its cash balance, on a
monthly basis. At the beginning of a fiscal year, the intercompany balance is
determined to be long-term and interest is charged on that balance at a rate
determined annually by TJX. The long-term intercompany balance was $16.7
million for the fiscal year ended January 29, 1994, $46.7 million for the
fiscal year ended January 28, 1995 and $2.4 million for the fiscal year ended
January 27, 1996. The long-term interest rate was 9.0%, 8.0% and 8.5%, in the
fiscal years ended January of 1994, 1995 and 1996, respectively.
In addition to the above, interest is charged or credited to the Company
each month on the difference between its long-term intercompany balance and
the intercompany balance, net of cash at the end of the month. Interest income
on this portion of the intercompany balance which represents funds invested
with TJX is credited at a rate which approximates TJX's short-term investment
rate. Interest expense on this portion of the intercompany balance which
represents borrowings from TJX is charged at a rate which approximates TJX's
short-term borrowing rate. During the past three years, the maximum amounts
the Company has borrowed from TJX on a short-term basis (based on month end
borrowing levels) were $66.2 million in the fiscal year ended January 29,
1994, $18.6 million in the fiscal year ended January 28, 1995 and $116.0
million in the fiscal year ended January 27, 1996. The average short-term
interest rate on its borrowings was approximately 4%, 5% and 7% in the fiscal
years ended January of 1994, 1995 and 1996, respectively.
TJX provides certain services to the Company, primarily data processing and
payroll processing. The Company pays a charge which it believes approximates
the costs incurred by TJX. The Company paid $2.6 million, $3.3 million and
$4.4 million in the fiscal years ended January of 1994, 1995 and 1996,
respectively, for these services. The Company also participates in numerous
benefit plans and insurance plans of TJX and is charged its share of the costs
incurred in connection with the plans.
Additionally, the Company pays a charge to TJX for administrative support,
including financial, treasury, general legal, tax, audit and human resources.
The Company pays an annual fee equal to 0.1% of its budgeted sales for these
services. The Company paid $409,000, $504,000 and $461,000 for the fiscal
years ended January of 1994, 1995 and 1996, respectively.
F-26
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Management believes that the Company's historical financial statements
reflect its historical costs of doing business.
The Company also enters into several transactions with other operating
divisions of TJX. In the fiscal years ended January of 1994, 1995 and 1996,
TJX purchased liquidated merchandise from the Company of $24.2 million, $14.4
million, and $10.6 million, respectively. Accounts receivable as of January
28, 1995 and January 27, 1996 includes $2.5 million and $1.2 million,
respectively due from TJX with respect to liquidated merchandise. Also, the
Company leased certain buying, warehouse and distribution space and two outlet
locations from TJX for which the Company paid $206,000, $251,000 and $289,000
in the fiscal years ended January of 1994, 1995 and 1996, respectively.
B. COMMITMENTS AND CONTINGENCIES
The Company is committed for a limited number of leases, primarily for the
rental of real estate. The real estate leases range up to five years and have
variable renewal options. In addition, the Company is generally required to
pay insurance, real estate taxes and other operating expenses. The following
is a schedule of future minimum lease payments for the Company as of January
27, 1996:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY, OPERATING LEASES
--------------------------- ----------------
<S> <C>
1997........................................................ $ 497,000
1998........................................................ 523,000
1999........................................................ 135,000
2000........................................................ 66,000
2001........................................................ 66,000
Later years................................................. 44,000
----------
Total minimum lease payments................................ $1,331,000
==========
</TABLE>
Rental expense under operating leases amounted to $1,174,000, $996,000 and
$1,147,000 for the fiscal years ended January of 1994, 1995 and 1996,
respectively.
The Company had outstanding letters of credit in the amount of $19.1 million
as of January 27, 1996. The letters of credit are issued for the purchase of
inventory.
C. INCOME TAXES
The Company is included in the consolidated federal income tax return of TJX
and, where applicable, is consolidated for state reporting purposes. The
current income tax provision charged to the Company by TJX is based on the
cost or benefits the Company provides in the consolidated tax returns. The
deferred tax provision is computed based upon the differences between the tax
basis of the Company's assets and liabilities and the reported amounts in the
financial statements. The Company believes the income tax provision is
representative of the Company's tax provision as if it was a stand-alone
company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
------------------------------
1994 1995 1996
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................... $ 5,947 $ 336 $ 1,793
State...................................... 1,959 (162) 542
Deferred:
Federal.................................... 41 62 4,212
State...................................... (6) 19 1,307
--------- -------- ---------
Provision for income taxes................... $ 7,941 $ 255 $ 7,854
========= ======== =========
</TABLE>
F-27
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a net deferred tax (asset) liability as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JANUARY 27,
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory.............................. $ 3,712 $ 5,825 $ 3,371
Reserve for customer returns........... 3,622 3,419 3,632
All other.............................. 4,072 2,825 3,000
------- ------- -------
Total deferred tax assets................ 11,406 12,069 10,003
------- ------- -------
Deferred tax liabilities:
Property and equipment................. 2,419 3,071 3,074
Capitalized catalog costs.............. 3,434 3,091 6,924
Other.................................. 770 1,204 821
------- ------- -------
Total deferred tax liabilities........... 6,623 7,366 10,819
------- ------- -------
Net deferred tax (asset) liability....... $(4,783) $(4,703) $ 816
======= ======= =======
</TABLE>
The following is a reconciliation of the federal statutory income tax rate
to the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JANUARY,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 35% 35% 35%
Permanent differences, primarily charitable contributions
of inventory.............................................. (2) (12) (1)
State income taxes, net of federal benefit................. 6 (6) 6
--- --- ---
Effective income tax rate.................................... 39% 17% 40%
=== === ===
</TABLE>
D. PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company participates in TJX's non-contributory defined benefit
retirement plan. The TJX plan covers the majority of full-time employees who
have attained 21 years of age and have completed one year of service. Benefits
are based on compensation earned in each year of service. TJX also has an
unfunded supplemental retirement plan which covers certain key employees of
the Company and provides additional retirement benefits based on average
compensation. Pension expenses paid by the Company to TJX amounted to
$101,000, $195,000 and $256,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
TJX does not segregate plan assets or liabilities by participating
subsidiary company, and as a result, the following tables reflect the periodic
pension cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............ $ 3,375 $ 4,554 $ 3,920
Interest cost on pro-
jected benefit obliga-
tion................... 5,995 6,526 6,915
Actual return on assets. (12,188) 4,545 (15,215)
Net amortization and de-
ferrals................ 5,760 (11,600) 9,384
-------- -------- --------
Net periodic pension
cost................... $ 2,942 $ 4,025 $ 5,004
======== ======== ========
</TABLE>
F-28
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested bene-
fits of $71,592 and $81,296........................... $77,256 $91,606
------- -------
Projected benefit obligation........................... 82,297 97,891
Plan assets at fair market value....................... 66,454 71,792
------- -------
Projected benefit obligation in excess of plan assets.. 15,843 26,099
Unrecognized net gain (loss) from past experience dif-
ferent from that assumed and effects of changes in as-
sumptions............................................. (1,897) (7,563)
Prior service cost not yet recognized in net periodic
pension cost.......................................... (1,127) (1,035)
Unrecognized net asset (obligation) as of initial date
of application of SFAS No. 87......................... (568) (745)
------- -------
Accrued pension cost................................... $12,251 $16,756
======= =======
Weighted average discount rate......................... 8.25% 7.00%
Rate of increase on future compensation levels......... 4.50% 4.00%
Expected long-term rate of return on assets............ 9.50% 9.00%
</TABLE>
The Company also participates in TJX's 401(k) plans which match a portion of
employee contributions. The Company's match for employee contributions was
$158,000, $191,000 and $186,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
The TJX postretirement benefit plan is unfunded and provides limited
postretirement medical and life insurance benefits to associates who
participate in TJX's retirement plan and who retire at age 55 or older with 10
years or more of service. The postretirement expense paid by the Company was
$28,000, $75,000 and $81,000 in the fiscal years ended January of 1994, 1995
and 1996, respectively.
TJX does not segregate plan liabilities by participating subsidiary company,
and as a result, the following tables reflect the periodic postretirement
benefit cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 476 $ 952 $ 757
Interest cost on accumulated benefit obligation...... 820 963 1,046
Net amortization..................................... -- 88 --
-------- -------- --------
Net periodic postretirement benefit cost............. $ 1,296 $ 2,003 $ 1,803
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement obligation:
Retired associates................................... $ 6,394 $ 6,731
Fully eligible active associates..................... 712 1,146
Other active associates.............................. 5,168 7,861
------- -------
Accumulated postretirement obligations................. 12,274 15,738
Unrecognized net gain (loss) due to change in assump-
tions................................................. (149) (2,676)
------- -------
Accrued postretirement benefits........................ $12,125 $13,062
======= =======
Discount rate.......................................... 8.25% 7.00%
Medical inflation rate................................. 5.00% 5.00%
</TABLE>
F-29
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits................... $ 2,314 $ 3,727
Reserve for customer returns......................... 8,266 8,780
Customer prepayments................................. 13,495 8,372
All other............................................ 14,057 11,304
------- -------
Accrued expenses and other current liabilities....... $38,132 $32,183
======= =======
</TABLE>
F. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's cash payments for interest expense and income taxes are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
---------------------------
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest expense............................... $ 3,378 $ 3,657 $ 7,247
Income taxes................................... 11,196 3,204 3,078
</TABLE>
G. DEBT
During the fiscal year ended January 28, 1995, the Company secured a 10-year
$45 million real estate mortgage on its fulfillment center (guaranteed by
TJX), at 8.73% annual interest. The proceeds were used to prepay the $5.4
million outstanding mortgage on the facility, with the balance of the proceeds
used to repay advances from TJX. The early retirement of the $5.4 million
mortgage resulted in an after-tax extraordinary charge of $192,000 ($325,000
pre-tax) in the fiscal year ended January 28, 1995. In the fiscal year ended
January 27, 1996, the Company prepaid its $45 million real estate mortgage on
the fulfillment center in connection with TJX's purchase of Marshalls and
incurred an extraordinary after-tax charge of $3.3 million ($5.6 million pre-
tax) on the early retirement of this debt.
Information relating to the Company's borrowings from TJX is described in
Note A.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Representatives of Brylane, L.P.
We have audited the accompanying balance sheets of the KingSize division
(the Division) of WearGuard Corporation as of October 1, 1994 and September
30, 1995, and the related statements of revenues, expenses and net assets and
cash flows for each of the years then ended. These financial statements are
the responsibility of the Division's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that out audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the KingSize division of
WearGuard Corporation as of October 1, 1994 and September 30, 1995, and the
results of its operations and cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
December 7, 1995
F-31
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
ASSETS
------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................. $ 508 $ 525
Accounts receivable, net.............................. 94 158
Inventories........................................... 8,296 8,075
Prepaid catalog costs................................. 1,194 1,391
Intercompany account with WearGuard................... 902 2,794
Other prepaid expenses................................ 189 19
------- -------
Total current assets................................ 11,183 12,962
------- -------
Property and equipment, net............................. 685 678
Intangible assets, net.................................. 3,229 3,085
------- -------
Total assets........................................ $15,097 $16,725
======= =======
<CAPTION>
LIABILITIES AND NET ASSETS
--------------------------
<S> <C> <C>
Current liabilities:
Cash overdraft........................................ $ 632 $ 129
Accounts payable...................................... 6,153 2,797
Accrued expenses...................................... 969 852
Reserve for returns................................... 414 323
------- -------
Total liabilities................................... 8,168 4,101
------- -------
Net assets.............................................. 6,929 12,624
------- -------
Total liabilities and net assets.................... $15,097 $16,725
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
STATEMENTS OF REVENUES, EXPENSES AND NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales.............................................. $27,404 $38,396
Cost of goods sold..................................... 13,252 18,030
------- -------
Gross margin....................................... 14,152 20,366
Operating expenses:
Catalog and advertising.............................. 4,663 7,902
Fulfillment.......................................... 2,712 3,125
Support services..................................... 1,349 1,900
Administrative overhead allocation from WearGuard.... 1,270 1,600
Intangibles amortization............................. 144 144
------- -------
Total operating expenses........................... 10,138 14,671
Earnings before income taxes........................... 4,014 5,695
Net assets, beginning of year.......................... 2,915 6,929
------- -------
Nets assets, end of year............................. $ 6,929 $12,624
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Earnings before income taxes........................ $4,014 $5,695
Adjustments to reconcile earnings before income
taxes to net cash provided by operating activities:
Depreciation...................................... 120 141
Amortization...................................... 144 144
Reserve for returns............................... 279 (91)
Change in operating assets and liabilities:
Accounts receivable............................. 10 (64)
Inventories..................................... (3,405) 221
Prepaid catalog costs........................... (573) (197)
Other prepaid expenses.......................... (105) 170
Accounts payable................................ 4,968 (3,356)
Accrued expenses................................ 210 (117)
------ ------
Total adjustments................................. 1,648 (3,149)
------ ------
Net cash provided by operating activities......... 5,662 2,546
------ ------
Cash flows from investing activities:
Additions to property and equipment................. (94) (134)
------ ------
Net cash used in investing activities............. (94) (134)
Cash flows from financing activities:
Net intercompany account with WearGuard............. (5,037) (1,892)
Decrease in cash overdraft.......................... (127) (503)
------ ------
Net cash used in financing activities............. (5,164) (2,395)
------ ------
Net increase in cash and cash equivalents......... 404 17
Cash and cash equivalents, beginning of year.......... 104 508
------ ------
Cash and cash equivalents, end of year............ $ 508 $ 525
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
(1) BUSINESS OPERATIONS AND BASIS OF PRESENTATION:
KingSize (the Division) is a division of WearGuard Corporation (WearGuard),
a wholly-owned subsidiary of Aramark Corporation (Aramark). The Division is a
catalog business devoted to big and tall men's apparel, footwear and related
accessories.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Division's fiscal year ends on the Saturday closest to September 30.
Cash and Cash Equivalents
The Division considers investments with initial maturities of three months
or less to be cash equivalents.
Inventories
Merchandise inventories are stated at the lower of cost or market,
principally valued on the average-cost basis.
Prepaid Catalog Costs
Catalog costs primarily consist of mailed and unmailed catalog production
and mailing costs that have not been fully amortized over the expected revenue
stream, which is approximately three months from the date catalogs are mailed.
Advertising Costs
The cost of advertising is generally expensed when incurred. Advertising
expense was approximately $1,367,000 in 1994 and $728,000 in 1995.
Property and Equipment
Additions to property and equipment are recorded at cost. Depreciation and
amortization of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives of ten years for
leasehold improvements and three to ten years for other property and
equipment. Repairs and maintenance are charged to expense as incurred;
renewals and betterments which extend service lives are capitalized.
The cost of assets sold or retired and the related amounts of accumulated
depreciation are eliminated from the accounts in the year of sale or
retirement, with any gain or loss reflected in income.
Intangible Assets
Intangible assets consist of goodwill, customer list and other intangibles
which are amortized over an estimated composite life of 25 years. Accumulated
amortization at October 1, 1994 and September 30, 1995 was approximately
$371,000 and $515,000, respectively.
F-35
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
Sales are recorded at the time of shipment. The Division provides a reserve
for the estimated merchandise returns, based on its prior customer returns
experience.
Income Taxes
The Division is included in the federal and state income tax returns of
Aramark. The Division is not charged for income taxes by WearGuard or Aramark.
Therefore, no provision for income taxes has been included in the statements
of revenues, expenses and net assets.
(3) RELATED-PARTY TRANSACTIONS:
The Division's cash receipts are transferred to WearGuard, and cash
disbursements are made by WearGuard on behalf of the Division. The balance of
the intercompany account with WearGuard is the net of these cash transfers and
disbursements as well as administrative and occupancy cost allocations to the
Division from WearGuard. The Division does not charge WearGuard interest on
the intercompany balance, and WearGuard does not charge the Division interest
on the Division's net assets.
The Division shares certain administrative overhead and occupancy costs
with WearGuard and WearGuard's other division. These costs are allocated among
the Division, WearGuard and WearGuard's other division without a premium.
Allocation of these costs to the Division is based on its estimated usage of
administrative services or square footage.
WearGuard participates in Aramark's self-insurance program for general
liability and workers' compensation. Premiums allocated by WearGuard to the
Division for general liability and workers' compensation are based on the
Division's estimated payroll as a percentage of WearGuard's total payroll.
Costs allocated to the Division were approximately $112,000 in 1994 and
$110,000 in 1995.
The Division is included in WearGuard's medical, dental, life and
accidental death and dismemberment insurance policies and is charged for
premiums related to its employees. Premiums charged to the Division were
approximately $156,000 in 1994 and $227,000 in 1995.
(4) PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Property and equipment consist
of:
<TABLE>
<CAPTION>
OCTOBER 1, SEPTEMBER 30,
1994 1995
---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Furniture, fixtures and equipment................... $899 $1,033
Leasehold improvements.............................. 46 46
---- ------
945 1,079
Accumulated depreciation and amortization........... 260 401
---- ------
Property and equipment, net..................... $685 $ 678
==== ======
</TABLE>
F-36
<PAGE>
KINGSIZE DIVISION OF WEARGUARD CORPORATION
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
(5) LEASES:
The Division operates a retail store which sells merchandise that is no
longer sold through its catalogs. The Division leases the related space under
an operating lease that expires on August 31, 1997. Future minimum lease
obligations are as follows:
<TABLE>
<S> <C>
1996................................................................. $34,500
1997................................................................. 31,625
-------
$66,125
=======
</TABLE>
Rent expense was approximately $31,750 in 1994 and $34,500 in 1995.
(6) BENEFIT PLANS:
The Division participates in the WearGuard 401(k) Super Saver Plan (the
Plan). All employees who have attained 18 years of age and have completed one
year or 1,000 hours of service are eligible for the Plan. Employees can
contribute up to 15% of their salaries to the Plan on a pre-tax basis, subject
to Internal Revenue Service limitations. The Division will match up to 6% of
the participants' plan contribution based on years of plan participation for
each employee. The Division's costs under the Plan were approximately $49,000
in 1994 and $54,000 in 1995.
(7) INCOME TAXES:
The Division is included in the federal and state income tax returns of
Aramark. There was no provision for federal and state income taxes allocated
to the Division during fiscal years 1994 and 1995. There were no outstanding
income taxes payable to WearGuard and Aramark at October 1, 1994 and
September 30, 1995.
(8) COMMITMENTS AND CONTINGENCIES:
The Division is involved in various legal proceedings that are incidental
to the conduct of its business. In the opinion of management, any liability
with respect to these proceedings will not be material.
(9) SUBSEQUENT EVENT:
In October 1995, KingSize Catalog Sales, L.P., an indirect wholly owned
entity of Brylane, L.P. (Brylane), completed the acquisition of the assets of
the Division (the Acquisition).
The Acquisition was accounted for under the purchase method of accounting.
In connection with the Acquisition, Brylane paid to WearGuard $52.5 million in
cash and issued to WearGuard 350,000 limited partnership units in Brylane in
return for the assets, net of the assumption of certain liabilities, relating
to the Division.
F-37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
The Company............................................................... 18
Common Stock Repurchase................................................... 19
Use of Proceeds........................................................... 19
Price Range of Common Stock and Dividend Policy........................... 20
Capitalization............................................................ 21
Unaudited Pro Forma Financial Statements.................................. 22
Selected Financial Data................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 47
Certain Relationships and Related Transactions............................ 61
Management................................................................ 67
Principal and Selling Stockholders........................................ 80
Shares Eligible for Future Sale........................................... 82
Description of Capital Stock.............................................. 85
Description of Certain Financing Arrangements............................. 88
Underwriting.............................................................. 91
Certain United States Federal Tax Consequences to Non-United States
Purchasers............................................................... 94
Legal Matters............................................................. 95
Experts................................................................... 95
Available Information..................................................... 95
Index to Historical Financial Statements.................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
MONTGOMERY SECURITIES
J.P. MORGAN & CO.
SEPTEMBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER 16, 1997
PROSPECTUS
5,000,000 SHARES
LOGO
LOGO OF
COMMON STOCK
-----------
All the shares of Common Stock of Brylane Inc. offered hereby are being
offered by certain stockholders of the Company identified herein. Concurrently
with the consummation of the Offerings, the Company will repurchase from the
Selling Stockholders an aggregate of 2,500,000 shares of Common Stock at the
Price to Public set forth on this cover page. The consummation of each of (i)
the Offerings and (ii) the Common Stock Repurchase is contingent upon the
consummation of the other and the closing of an amendment to the Company's
existing bank credit facility. See "Principal and Selling Stockholders" and
"Common Stock Repurchase". Upon consummation of the Offerings and the Common
Stock Repurchase, FS&Co. and The Limited (each as defined) will own 25.0% and
14.7% of the Company's Common Stock respectively. The Company will not receive
any proceeds from the sale of the Common Stock hereby.
Of the 5,000,000 shares (the "Shares") offered hereby, 1,000,000 Shares are
being offered outside the United States and Canada by the International
Managers (the "International Offering") and 4,000,000 Shares are being offered
in a concurrent offering in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering" and, together with the International
Offering, the "Offerings"). The initial public offering price and the aggregate
underwriting discount per share are identical for the Offerings. See
"Underwriting".
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "BYL". On September 12, 1997, the last reported sale price of the Common
Stock as reported on the NYSE was $44.25 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................ $ $ $
- -------------------------------------------------------------------------------
Total (3)........................ $ $ $
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) Before deducting expenses payable the Company estimated to be $ .
(3) The Selling Stockholders have granted to the U.S. Underwriters and the
International Managers options, exercisable within 30 days after the date
of this Prospectus, to purchase up to an additional 600,000 and 150,000
shares of Common Stock, respectively, to cover over-allotments, if any. If
all such additional shares are purchased, the total Price to Public,
Underwriting Discount and Proceeds to the Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting".
-----------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about October , 1997.
-----------
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
MONTGOMERY SECURITIES
J.P. MORGAN SECURITIES LTD.
-----------
The date of this Prospectus is September , 1997.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
UNDERWRITING
The underwriters named below (the "International Managers"), acting through
their respective representatives, Merrill Lynch International, Lazard Capital
Markets, Montgomery Securities and J.P. Morgan Securities Ltd. (the
"International Representatives" and, together with the U.S. Representatives,
the "Representatives"), have severally agreed, subject to the terms and
conditions contained in a purchase agreement relating to the Common Stock (the
"International Purchase Agreement") and concurrently with the sale of
4,000,000 shares of Common Stock to certain underwriters in the United States
and Canada (the "U.S. Underwriters" and, together with the International
Managers, the "Underwriters"), to purchase from the Selling Stockholders the
number of shares of Common Stock set forth opposite their respective names
below. Under certain circumstances, the commitments of non-defaulting
International Managers or U.S. Underwriters may be increased.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International .......................................
Lazard Capital Markets.............................................
Montgomery Securities..............................................
J.P. Morgan Securities Ltd. .......................................
---------
Total......................................................... 1,000,000
=========
</TABLE>
The Selling Stockholders have also entered into a purchase agreement (the
"U.S. Purchase Agreement" and, together with the International Purchase
Agreement, the "Purchase Agreements") with the U.S. Underwriters. Subject to
the terms and conditions set forth in the U.S. Purchase Agreement, and
concurrently with the sale of 1,000,000 shares of Common Stock to the
International Managers, the Selling Stockholders have severally agreed to sell
to the U.S. Underwriters, and the U.S. Underwriters have severally agreed to
purchase, an aggregate of 4,000,000 shares of Common Stock. The public
offering price per share of Common Stock and the underwriting discount per
share of Common Stock are identical under the International Purchase Agreement
and the U.S. Purchase Agreement.
In the International Purchase Agreement and the U.S. Purchase Agreement, the
several International Managers and the several U.S. Underwriters,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the shares of Common Stock being sold pursuant to
each such Purchase Agreement if any of such shares of Common Stock being sold
pursuant to each such Purchase Agreement are purchased.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, sales may be made between the U.S. Underwriters and the
International Managers of such number
of shares of Common Stock as may be mutually agreed. The price of any share of
Common Stock so sold shall be the public offering price, less an amount not
greater than the selling concession. Under the terms of the
91
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they
sell shares of Common Stock will not offer to sell or sell shares of Common
Stock to persons who are non-United States or non-Canadian persons or to
persons they believe intend to resell to non-United States or non-Canadian
persons, and the International Managers and any dealer to whom they sell
shares of Common Stock will not offer to sell or sell shares of Common Stock
to United States or Canadian persons or to persons they believe intend to
resell to United States or Canadian persons, except, in each case for
transactions pursuant to the Intersyndicate Agreement.
The International Representatives have advised the Company that the
International Managers propose initially to offer the shares of Common Stock
to the public at the offering price set forth on the cover page of this
Prospectus and to certain dealers (who may include International Managers) at
such price less a concession not in excess of $ per share of Common Stock.
The International Managers may allow, and such dealers may reallow, a discount
not in excess of $ per share on sales to certain other dealers. After the
Offerings, the offering price, the concession and discount may be changed.
The Selling Stockholders have granted to the International Managers an
option exercisable for a period of 30 days after the date of this Prospectus
to purchase up to an additional 150,000 shares of Common Stock to cover over-
allotments, if any, at the public offering price less the underwriting
discount. If the International Managers exercise this option, each
International Manager will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the foregoing
table bears to the 1,000,000 shares of Common Stock initially offered hereby.
Each International Manager has represented and agreed that (i) it has not
offered or sold, and will not for a period of six months following
consummation of the Offerings offer or sell any shares of Common Stock offered
hereby, to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances that do not constitute an offer to the public in
the United Kingdom for the purposes of the Public Offers of Securities
Regulations 1995, (ii) it has complied with and will comply with all
applicable provisions of the Public Offers of Securities Regulations 1995 and
the Financial Services Act 1986 with respect to anything done by it in
relation to the shares of Common Stock offered hereby in, from, or otherwise
involving the United Kingdom and (iii) it has only issued or passed on and
will only issue or pass on in the United Kingdom any document received by it
in connection with the issue or sale of the shares of Common Stock offered
hereby to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, as amended, or is a person to whom the document may otherwise lawfully
be issued or passed on.
In the Purchase Agreements, the Company and the Selling Stockholders have
agreed to indemnify the several Underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
The Company has agreed not to sell any shares of its capital stock (or any
rights, options or warrants to purchase, or any securities convertible or
exchangeable into or exercisable for, capital stock), with certain limited
exceptions, for a period of 90 days following the date of the Purchase
Agreement, without the prior written consent of Merrill Lynch on behalf of the
Representatives. In addition, FS&Co., The Limited, Leeway & Co., NYNEX, the
TJX Noteholder and WearGuard, as well as the executive officers and directors
of the Company, have each agreed not to sell, directly or indirectly, any of
their shares, with certain limited exceptions, for a period of 90 days
following the date of the Purchase Agreement.
Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Representatives are permitted to engage in certain transactions
that stabilize the price of the Common Stock. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the price
of the Common Stock.
92
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
If the Underwriters create a short position in the Common Stock in
connection with the Offerings, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives
may reduce that short position by purchasing Common Stock in the open market.
The Representatives may also elect to reduce any short position by exercising
all or part of the over-allotment options described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions on
that such transactions, once commenced, will not be discontinued without
notice.
The Company has been advised by Merrill Lynch that an affiliate of Merrill
Lynch owns a limited partnership interest in FSEP III of approximately 1%.
Merrill Lynch acted as agent in the placement of limited partnership interests
for the aforementioned partnership, which is an investor in the Company. In
addition, Merrill Lynch has provided and may in the future provide financial
advisory and financing services to both FS&Co. and its affiliates and to the
Company.
Certain of the Underwriters engage in transactions with and perform services
for the Company in the ordinary course of business. In February 1997, Merrill
Lynch, Lazard Freres & Co. LLC and J.P. Morgan Securities Inc. acted as co-
managers in connection with the Initial Public Offering and received
underwriting discounts and commissions in connection therewith. In addition,
in August 1993, each of them acted as placement agents in connection with the
offering of the Senior Subordinated Notes by the Partnership and Brylane
Capital Corp., a wholly-owned subsidiary of the Partnership, and received
underwriting discounts and commissions in connection therewith.
From time to time, in the ordinary course of their respective businesses,
affiliates of J.P. Morgan Securities Inc. have engaged, and may in the future
engage, in commercial banking and investment banking transactions with the
Company. In particular, Morgan Guaranty, an affiliate of J.P. Morgan, was the
agent bank under the Company's 1993 Bank Credit Facility and 1996 Bank Credit
Facility. In addition, in connection with the 1997 Bank Credit Facility,
Morgan Guaranty acted as administrative agent and Merrill Lynch Capital, an
affiliate of Merrill Lynch, acted as documentation agent, for which each
received customary fees. Morgan Guaranty, J.P. Morgan and Merrill Lynch
Capital will act as co-agents in connection with the Amended 1997 Bank Credit
Facility. In addition, Morgan Guaranty is the agent bank under a revolving
commitment facility for each of The Limited and World Financial.
Brylane paid to Lazard Freres & Co. LLC a fee and reimbursement of expenses
for investment banking services performed by it in connection with the Brylane
Acquisition. From time to time, Lazard Freres & Co. LLC performs investment
banking services for The Limited and its subsidiaries, and in connection
therewith receives customary fees.
Brylane paid to Merrill Lynch and Lazard Freres & Co. LLC fees for
investment banking services performed by them in connection with the
Chadwick's Acquisition.
93
<PAGE>
(INTERNATIONAL PROSPECTUS--ALTERNATE PAGE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 12
The Company............................................................... 18
Common Stock Repurchase................................................... 19
Use of Proceeds........................................................... 19
Price Range of Common and Dividend Policy................................. 20
Capitalization............................................................ 21
Unaudited Pro Forma Financial Statements.................................. 22
Selected Financial Data................................................... 29
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 47
Certain Relationships and Related Transactions............................ 61
Management................................................................ 67
Principal and Selling Stockholders........................................ 80
Shares Eligible for Future Sale........................................... 82
Description of Capital Stock.............................................. 85
Description of Certain Financing Arrangements............................. 88
Underwriting.............................................................. 91
Certain United States Federal Tax Consequences to Non-United States
Purchasers............................................................... 94
Legal Matters............................................................. 95
Experts................................................................... 95
Available Information..................................................... 95
Index to Historical Financial Statements.................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[LOGO OF BRYLANE]
COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH INTERNATIONAL
LAZARD CAPITAL MARKETS
MONTGOMERY SECURITIES
J.P. MORGAN SECURITIES LTD.
SEPTEMBER , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Commission and
the NASD filing fee.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -------
<S> <C>
SEC registration fee............................................. $72,311
NASD filing fee.................................................. 24,363
Blue sky fees and expenses....................................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Transfer agent and registrar fees................................ *
Miscellaneous.................................................... *
-------
Total.......................................................... $ *
=======
</TABLE>
- --------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Brylane Inc. (the "Company") is a Delaware corporation. Article VI of the
Company's Bylaws provides that the Company may indemnify its officers and
Directors to the full extent permitted by law. Section 145 of the General
Corporation Law of the State of Delaware (the "GCL") provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred in connection with such
action, suit or proceeding provided that such director or officer acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, provided that such director or officer had no cause to believe his
or her conduct was unlawful.
Subsection (b) of Section 145 of the GCL empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses actually and reasonably incurred
in connection with the defense or settlement of such action or suit provided
that such director or officer acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director or officer shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action was brought shall determine that
despite the adjudication of liability such director or officer is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to in subsections (a) and (b) or in the defense of
any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees)
II-1
<PAGE>
actually and reasonably incurred by him or her in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that the
corporation shall have power to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him or her or incurred by him or her in any such capacity or arising out of
his or her status as such whether or not the corporation would have the power
to indemnify him or her against such liabilities under Section 145.
Article Tenth of the Company's Certificate of Incorporation currently
provides that each Director shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability (i) for any breach of the Director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL, or (iv) for any transaction from
which the Director derived an improper benefit.
The Company and the Partnership, as the Company's wholly-owned subsidiary,
has entered into indemnity agreements (the "Indemnity Agreements") by and
between the Company and the Partnership, on the one hand, and each of the
directors of the Company, on the other hand. The Indemnity Agreements
generally indemnify the directors of the Company against liabilities arising
out of their service in their capacities as directors or agents of the
Company, or in their capacities as Representatives or agents of the
Partnership, as the case may be. In addition, the Company is currently
evaluating whether it will obtain director and officer insurance.
In addition, B.L. Management and B.L. Distribution have previously entered
into separate indemnity agreements with Mr. Pulciani in his capacity as the
sole director of each of B.L. Management and B.L. Distribution. Such indemnity
agreements generally indemnify Mr. Pulciani against liabilities arising out of
his service in his capacity as a director or agent of B.L. Management or B.L.
Distribution.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On August 30, 1993, pursuant to the terms of the Transaction Agreement and
the Partnership Agreement, the FS Parties contributed an aggregate of $75.0
million to the capital of the Partnership (of which $2.4 million consisted of
promissory notes received from members of the management of the Partnership or
its subsidiaries in connection with their purchase of shares of stock of VP
Holding. See "Management--Stock Subscription Plan"). In exchange for such
contribution, VGP became the sole general partner of the Partnership owning a
20.5% interest in the profits and losses of the Partnership and VLP became a
limited partner of the Partnership owning a 39.5% interest in the profits and
losses of the Partnership. At the same time, certain affiliates of The Limited
contributed substantially all of the assets and liabilities of the Business to
the Partnership in return for a cash distribution from the Partnership to the
parent entities (and successors by merger) of certain of such affiliates of
$285.0 million and the issuance to Lane Bryant Direct, Inc., an affiliate of
The Limited ("Lane Bryant"), of a limited partnership interest in the
Partnership representing a 40% interest in the profits and losses of the
Partnership. The issuances of the partnership interests described above were
exempt from registration under Section 4(2) of the Securities Act.
In connection with the Brylane Acquisition, on August 30, 1993, The Limited
received a warrant entitling it to purchase up to 1,250,000 partnership units
in the Partnership, at a purchase price of $10.00 per unit, if the Partnership
achieves certain operating performance goals (the "Limited Warrant"). The
initial issuance of the Limited Warrant to The Limited was exempt from
registration under Section 4(2) of the Securities Act.
In order to finance a substantial portion of the consideration paid in the
Brylane Acquisition, on August 30, 1993, the Partnership and Capital Corp.
(collectively, the "Issuers") issued $125.0 million aggregate principal amount
of 10% Senior Subordinated Notes, due 2003, Series A (the "Original Notes"),
pursuant to an offering memorandum dated August 20, 1993. The initial
purchasers of the Original Notes were Merrill Lynch & Co., Donaldson, Lufkin &
Jenrette Securities Corporation, Lazard Freres & Co., and J.P. Morgan
Securities Inc. (the
II-2
<PAGE>
"Initial Purchasers"), who acted as the placement agents of the offering. The
aggregate offering price was $124,030,000 and the Initial Purchasers' discount
was $3,437,500. The issuance of the Original Notes were exempt from
registration under Section 4(2) of the Securities Act. In addition, the
Initial Purchasers represented to the Issuers that they would resell the
Original Notes only to (i) "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act) in compliance with Rule 144A, (ii) to a
limited number of institutional "accredited investors" (as defined in Rule
501(A)(1), (2), (3) or (7) under the Securities Act), and (iii) pursuant to
offers and sales that occur outside the United States within the meaning of
Regulation S under the Securities Act.
On November 26, 1993, the Issuers opened an offer to exchange, upon the
terms and conditions contained in a Registration Statement on Form S-4
previously filed with the Commission, all of the $125.0 million principal
amount outstanding of the Original Notes, for 10% Senior Subordinated Notes
due 2003, Series B (the "New Notes"), which were registered under the
Securities Act. The exchange offer was made to satisfy the Issuers'
obligations under a Registration Rights Agreement to register the Original
Notes under the Securities Act, and the Issuers did not receive any proceeds
from such exchange offer. The Issuers closed the exchange offer on December
27, 1993.
In connection with the initial capitalization of VP Holding, FSEP II was
issued 4,093,690 shares of common stock of VP Holding at a purchase price of
$10.00 per share. At the same time, FSEP III was issued 2,933,310 shares of
the common stock of VP Holding at a purchase price of $10.00 per share. The
issuance of such shares was exempt from registration under Section 4(2) of the
Securities Act. Subsequent to the Brylane Acquisition, FSEP III transferred
102,170 shares of its common stock of VP Holding to an affiliate, FSEP
International. On August 30, 1993, VP Holding issued 20,000 shares of common
stock to Peter J. Sodini at a purchase price of $10.00 per share. The issuance
of shares to Mr. Sodini was exempt under Section 4(2) of the Securities Act.
In connection with the Brylane Acquisition, VP Holding, an affiliate of
FS&Co., adopted a Stock Subscription Plan (the "Subscription Plan") pursuant
to which an aggregate of 485,500 shares (net of repurchases) of the common
stock of VP Holding were issued, at a purchase price of $10.00 per share, and
22,500 shares were issued, at a purchase price of $15.00 per share, to certain
members of management and of the Board of Representatives and certain other
key employees of the Partnership (or its subsidiaries). Of the aggregate
508,000 shares issued to management and employees pursuant to the Subscription
Plan (the "Management Shares"), 453,000 shares were issued at the time of the
Brylane Acquisition on August 30, 1993. Of the aggregate purchase price of
$4.5 million paid for such shares, promissory notes in the aggregate amount of
approximately $2.4 million were delivered under the Subscription Plan.
Subsequent to the Brylane Acquisition, an additional 52,500 shares were issued
to management and employees pursuant to the terms of the Subscription Plan. Of
the aggregate purchase price of $637,500 paid for such shares, promissory
notes in the aggregate amount of $262,500 were delivered under the
Subscription Plan. The issuances of shares of common stock of VP Holding
pursuant to the Subscription Plan described above were each exempt from
registration under Section 4(2) of the Securities Act or Rule 701 promulgated
under the Securities Act. Subsequent to the Brylane Acquisition and in
connection with his election to the Board of Representatives of the
Partnership, VP Holding issued 30,000 shares of common stock to William C.
Johnson at a purchase price of $10.00 per share, pursuant to the Stock
Subscription Plan. The issuance of shares to Mr. Johnson was exempt under
Section 4(2) of the Securities Act.
Pursuant to the terms of the Partnership Agreement, each time that
Management Shares were issued under the Subscription Plan subsequent to the
date of the Brylane Acquisition, VLP was issued a corresponding number of
partnership units at the same purchase price as such Management Shares. Such
issuances of partnership units to VLP were exempt under Section 4(2) of the
Securities Act.
In connection with the KingSize Acquisition, on October 16, 1995, WearGuard
received 350,000 limited partnership units in partial payment of the purchase
price of the KingSize business. The issuance of the limited partnership units
was exempt from registration under Section 4(2) of the Securities Act.
II-3
<PAGE>
Pursuant to a letter agreement dated October 5, 1995 between ARAMARK and
Jessie Bourneuf, Ms. Bourneuf was to receive 16,667 partnership units on or
about October 16, 1996. In accordance therewith, on October 16, 1996,
WearGuard transferred 16,667 partnership units to VP Holding, and VP Holding
issued 16,667 shares of VP Holding common stock to Ms. Bourneuf. Such issuance
of shares of VP Holding common stock was exempt from registration under
Section 4(2) of the Securities Act.
In connection with the Chadwick's Acquisition, on December 9, 1996,
(i) FSEP III purchased 1,441,989 shares of common stock of VP Holding at a
purchase price of $20.00 per share; (ii) FSEP International purchased 58,011
shares of common stock of VP Holding at a purchase price of $20.00 per share;
(iii) Mr. Rao and Ms. Meyrowitz each purchased 37,500 shares of VP Holding
Preferred Stock at a purchase price of $20.00 per share; (iv) VLP purchased
1,500,000 partnership units of the Partnership at a purchase price of $20.00
per unit; (v) Leeway & Co. purchased 500,000 partnership units of the
Partnership at a purchase price of $20.00 per unit; (vi) NYNEX purchased
500,000 partnership units of the Partnership at a purchase price of $20.00 per
unit; and (vii) in partial payment of the Chadwick's Acquisition purchase
price, the Partnership issued the Partnership Note to the TJX Noteholder. The
issuance of VP Holding common stock to each of FSEP III and FSEP
International, the issuance of VP Holding Preferred Stock to each of Mr. Rao
and Ms. Meyrowitz, the issuance of partnership units to each of VLP,
Leeway & Co. and NYNEX, and the issuance of the Partnership Note to the TJX
Noteholder were each exempt from registration under Section 4(2) of the
Securities Act.
Pursuant to the terms of the Incorporation Plan, and in connection with the
closing of the Initial Public Offering, (i) Lane Bryant Direct received
5,000,000 shares of Common Stock in exchange for its 32.3% interest in the
Partnership; (ii) WearGuard received 399,778 shares of Common Stock in
exchange for its 2.6% interest in the Partnership; (iii) Leeway & Co. received
500,000 shares of Common Stock in exchange for its 3.2% interest in the
Partnership; (iv) NYNEX received 500,000 shares of Common Stock in exchange
for its 3.2% interest in the Partnership; (v) the TJX Noteholder received from
the Company the Convertible Note which is convertible into shares of Common
Stock; (vi) FSEP II received 4,093,690 shares of Common Stock in exchange for
its 4,093,690 shares of common stock of VP Holding; (vii) FSEP III received
4,273,129 shares of Common Stock in exchange for its 4,273,129 shares of
common stock of VP Holding; (viii) FS International received 160,181 shares of
Common Stock in exchange for its 160,181 shares of common stock of VP Holding;
(ix) the officer and director holders of 508,000 of the shares of common stock
of VP Holding received 508,000 shares of Common Stock pursuant to the Brylane
Subscription Plan or the Senior Management Plan; (x) Mr. Sodini received
20,000 shares of Common Stock in exchange for his 20,000 shares of common
stock of VP Holding; (xi) Ms. Bourneuf received 16,667 shares of Common Stock
in exchange for her 16,667 shares of common stock of VP Holding; and
(xii) Mr. Rao and Ms. Meyrowitz each received 37,500 shares of Series A
Preferred Stock in exchange for his or her 37,500 shares of VP Holding
Preferred Stock. Since each of the holders of the shares of common stock and
preferred stock of VP Holding, the interests in the Partnership and the
Partnership Note agreed at the time of their respective original acquisitions
of their shares or partnership interests or Partnership Note to exchange their
shares, partnership interests or Partnership Note for shares of Common Stock
or the Convertible Note which is convertible into shares of Common Stock, as
the case may be, in connection with the transactions contemplated by the
Incorporation Plan, the Company believes that none of the foregoing
transactions involved a "sale" within the meaning of the Securities Act. Such
exchanges would also be exempt from the registration provisions of the
Securities Act by virtue of Section 4(2) of the Securities Act.
II-4
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1++++++ Form of Underwriting Agreement.
2.1tttt First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FSEP II, FSEP III,
FSEP International, Lane Bryant Direct, The Limited, WearGuard,
Leeway & Co., NYNEX, Chadwick's, Inc. ("Chadwick's") and the
Company.
3.1+ Certificate of Limited Partnership of the Partnership.
3.2+ Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") dated as of August 30, 1993 (with forms
of Registration Rights Agreement (Newco) and Stockholders
Agreement (Newco) attached as exhibits thereto).
Certificate of Incorporation of Brylane Capital Corp. ("Brylane
3.3+ Capital").
3.4+ Bylaws of Brylane Capital.
3.5+++ Amendment No. 1 to Partnership Agreement dated as of November
22, 1993.
3.6* Amendment No. 2 to Partnership Agreement dated as of January 28,
1994.
3.7** Amendment No. 3 to Partnership Agreement dated as of March 16,
1994.
3.8ttt Amendment No. 4 to Partnership Agreement dated October 14, 1994.
3.9tt Amendment No. 5 to Partnership Agreement dated September 22,
1995.
3.10tt Amendment No. 6 to Partnership Agreement dated October 16, 1995.
3.11tttt Amendment No. 7 to Partnership Agreement dated October 14, 1996.
3.12tttt Amendment No. 8 to the Partnership Agreement dated December 5,
1996.
3.13++ Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 1997.
3.14*** Certificate of Incorporation of the Company.
3.15*** Bylaws of the Company.
3.16tttt Certificate of Amendment of Certificate of Incorporation of VP
Holding, as filed with the Office of the Secretary of State of
Delaware on December 5, 1996.
3.17tttt Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of VP Holding as filed with the
Office of the Secretary of State of Delaware on December 6,
1996.
3.18tttttt Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of the Company filed with the Office
of the Secretary of the State of Delaware on February 14, 1997.
4.1+ Purchase Agreement dated August 20, 1993 among the Partnership,
Brylane Capital, VGP Corporation and each of the Initial
Purchasers named therein.
4.2+ Registration Rights Agreement made and entered into the 30th day
of August, 1993 among the Partnership, Brylane Capital and the
Initial Purchasers.
4.3+ Indenture dated as of August 30, 1993 among the Partnership and
Brylane Capital, as Issuers, B.L. Management, B.L. Distribution,
B.L. Management Partnership and B.L. Distribution Partnership,
as Guarantors, and United States Trust Company of New York, as
Trustee (the "Indenture").
4.4+ Form of Old Note (included at page 37 of the Indenture).
4.5+ Form of New Note (included at page 42 of the Indenture, as
amended at page 2 of the First Supplemental Indenture).
4.6+ Form of Guarantee by B.L. Management, B.L. Distribution, B.L.
Management Partnership and B.L. Distribution Partnership
(included at page 57 and in Article Fourteen of the Indenture).
Form of Intercompany Note (included as Exhibit A to the
4.7+ Indenture).
4.8+++ First Supplemental Indenture dated as of November 22, 1993 by
and among the Partnership and Brylane Capital, as Issuers, and
United States Trust Company of New York, as Trustee (the "First
Supplemental Indenture").
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.9* Second Supplemental Indenture dated as of January 28, 1994 among
the Partnership, Brylane Capital, B.N.Y. Service Corp. and United
States Trust Company of New York, as Trustee.
4.10tt Third Supplemental Indenture dated as of October 16, 1995 by and
among the Partnership, Brylane Capital, KingSize Catalog Sales,
L.P., K.S. Management, KingSize Catalog Sales, Inc. and United
States Trust Company of New York, as Trustee.
4.11tttt Fourth Supplemental Indenture dated as of December 9, 1996 by and
among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
4.12++ Registration Rights Agreement dated as of February 26, 1997 by
and among the Company, FSEP II, FSEP III, FSEP International, M&P
Distribution Company, The Limited, WearGuard, Chadwick's, Leeway
& Co. and NYNEX.
4.13++ Stockholders Agreement dated as of February 26, 1997 by and among
the Company, FSEP II, FSEP III, FSEP International, M&P
Distribution Company, The Limited, WearGuard, Chadwick's, Leeway
& Co. and NYNEX.
5.1++++++ Opinion of Riordan & McKinzie, a Professional Law Corporation.
10.1+ Transaction Agreement dated as of July 13, 1993 among VGP
Corporation, VLP Corporation and the Transferors referred to
therein (the "Transaction Agreement").
10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30,
1993.
10.3+ Addendum to Transaction Agreement dated August 30, 1993 executed
by the Partnership.
10.4+ Credit Card Processing Agreement (the "Credit Card Agreement")
made as of the 30th day of August, 1993 between World Financial
Network National Bank ("World Financial") and the Partnership.
10.5 ttt Amendment No. 1 to Credit Card Agreement dated as of July 1, 1995
** between World Financial and the Partnership.
10.6+ Trademark License Agreement (the "Trademark License Agreement" )
made as of the 20th day of August, 1993 among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc.
(collectively, the "Licensors"), Lane Bryant Direct, Inc. and
Lerner Direct, Inc. (collectively, the "Licensees").
10.7tttt Amendment No. 1 to Trademark License Agreement entered into as of
the 9th day of December, 1996 by and among Lanco, Inc., Lernco,
Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct
Holding, Inc. and the Partnership.
10.8+ Electronic Media Trademark License Agreement made as of the 20th
day of August, 1993 among the Licensors and the Licensees.
10.9+ Agreement to be Bound by the Trademark License Agreement and the
Electronic Media Trademark License Agreement executed by the
Partnership.
10.10+ Service Agreement made as of the 30th day of August, 1993 between
B.L. Management and the Partnership.
10.11+ Catalog Production Agreement made and entered into as of the 30th
day of August, 1993 between B.L. Distribution Partnership and
B.L. Management Partnership.
10.12+ Catalog Production, Distribution, License and Administrative
Services Agreement made and entered into as of the 30th day of
August, 1993 between the Partnership and B.L. Distribution
Partnership.
10.13++++ Credit Agreement dated as of April 30, 1997 (the "Credit
Agreement") among the Partnership, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), as Administrative Agent, and Merrill
Lynch Capital Corporation ("Merrill Lynch"), as Documentation
Agent.
10.14++++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.15++++ Pledge Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Pledgors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.16++++ Form of Tranche A Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.17++++ Form of Tranche B Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.18++++ Guarantee Agreement dated as of April 30, 1997 among the
Guarantors (as defined therein), Morgan Guaranty, as
Administrative Agent, and the Issuing Banks (as defined in the
Credit Agreement).
10.19++++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores,
Inc., Lane Bryant, Inc., M&P Distributing Co. and Morgan Guaranty,
as Security Agent.
10.20**** Loan Agreement made as of August 30, 1993 by and between FSEP II,
VP Holding and VGP.
10.21**** No Interest Demand Promissory Note made by FSEP II in favor of VP
Holding.
10.22**** Loan Agreement made as of August 30, 1993 by and between FSEP III,
VP Holding and VGP.
10.23**** No Interest Demand Promissory Note made by FSEP III in favor of VP
Holding.
10.24+ Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.25+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.26+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.27+ 1993 Employee Stock Subscription Plan of VP Holding Corporation
(the "Subscription Plan").
10.28*** Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.29+ Stock Subscription Agreement made and entered into as of August
30, 1993 by and between VP Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.30+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, Jules
Silbert, Jessie Bourneuf, Loida Noriega-Wilson, Richard L.
Bennett, William G. Brosius and Bruce G. Clark who purchased
common stock of VP Holding under the Subscription Plan with cash
and, in certain cases, promissory note (with forms of Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.31+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle
and certain other management investors who purchased common stock
of VP Holding under the Subscription Plan with cash and, in
certain cases, promissory note (with forms of Secured Promissory
Note and Stock Pledge Agreement attached as exhibits thereto).
10.32*** Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert.
10.33*** Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.34+ 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.35+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Jules Silbert, Jessie Bourneuf, Loida
Noriega-Wilson, Richard L. Bennett, William G. Brosius and Bruce
G. Clark under the 1993 Option Plan.
10.36+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Arlene Silverman, Kevin
McGrain, Kevin Doyle and certain other participants under the 1993
Option Plan.
10.37*** Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.38tttt Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan.
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
10.39t 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.40t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Peter J. Canzone, William C.
Johnson, Sheila R. Garelik, Robert A. Pulciani, Jules Silbert,
Jessie Bourneuf, Loida Noriega-Wilson, Arlene Silverman, Richard
L. Bennett, William G. Brosius and Bruce G. Clark under the 1995
Option Plan.
10.41t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995 Option Plan.
10.42tttt Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.43tttt Form of Stock Subscription Agreement entered into by and between
the Company and nine management investors who were issued Common
Stock of the Company under the Senior Management Plan.
10.44tttt Form of Stock Subscription Agreement entered into by and between
the Company and William C. Johnson under the Senior Management
Plan.
10.45tttt Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.46tttt Form of Stock Subscription Agreement entered into by and between
the Company and certain management employees who were issued
Common Stock of the Company under the Brylane Subscription Plan.
10.47tttt Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan").
10.48tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996
Performance Option Plan.
10.49tttt Form of Stock Option Agreement entered into by and between the
Company and William C. Johnson under the Brylane 1996 Performance
Option Plan.
10.50tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan").
10.51tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996 Option
Plan.
10.52t License Agreement effective as of March 1, 1994 by and between the
* Partnership and Sears Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.53t License Agreement effective as of August 1, 1994 by and between
* WearGuard and Sears (with Exhibits E and F attached thereto).
10.54t First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.55tttt License Amendment made as of July 23, 1996 between the Partnership
*** and Sears.
10.56tt Asset Purchase Agreement dated September 22, 1995 by and among the
Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.57tt Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.58t Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.59tt Letter Amendment to the Purchase Agreement dated October 16, 1995
by and between the Partnership and WearGuard.
10.60tt Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.61tt Transition Services Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.62tt Noncompetition Agreement dated as of October 16, 1995 by and among
the Partnership, KingSize Partnership, ARAMARK and WearGuard.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ------------
<C> <S>
10.63tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Peter J. Canzone, Robert A.
Pulciani, Jules Silbert, Loida Noriega-Wilson and Kevin McGrain.
10.64tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Sheila R. Garelik and Arlene
Silverman.
10.65tttt Form of Employment Agreement dated as of May 1, 1996 between the
Partnership and each of Richard L. Bennett, Bruce G. Clark and
William G. Brosius.
10.66tttt Amendment No. 1 to Employment Agreement dated as of July 15,
1996 between B.L. Management and Sheila R. Garelik.
10.67tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.68tttt Amendment Number One to the Asset Purchase Agreement made as of
the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.69tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.70tttt Services Agreement dated as of December 9, 1996 between TJX and
the Partnership.
10.71ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.72tttt Inventory Purchase Agreement effective as of December 9, 1996 by
*** and between the Partnership and TJX.
10.73tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao.
10.74tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz.
10.75tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Dhananjaya
K. Rao.
10.76tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Carol
Meyrowitz.
10.77tttt Form of Brylane Inc. Stock Subscription Agreement for Preferred
Stock made as of December 9, 1996 by and between Brylane Inc.
and each of Dhananjaya K. Rao and Carol Meyrowitz.
10.78tttt Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of Chadwick's
(with Brylane Inc. and Brylane, L.P. Convertible Subordinated
Note Due 2006 made by the Company and the Partnership in favor
of Chadwick's filed as an exhibit thereto).
10.79tttt Unit Subscription Agreement entered into as of December 5, 1996
by and among the Partnership, VP Holding, FSEP II, FSEP III,
FSEP International, VGP Corporation, VLP Corporation, WearGuard,
Leeway and NYNEX.
10.80tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
11.1ttttttt Brylane, L.P.--Computation of Net Income Per Common Share.
21.1++ Subsidiaries of Brylane.
23.1++++++ Consent of Riordan & McKinzie (to be included in Exhibit 5.1).
23.2ttttttt Consent of Coopers & Lybrand L.L.P. regarding Brylane, L.P.
23.3ttttttt Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4ttttttt Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
24.1ttttttt Powers of Attorney (included on signature pages hereto).
27.1ttttttt Financial Data Schedule.
</TABLE>
II-9
<PAGE>
- --------
+ Filed as an exhibit to the Partnership's Registration Statement on Form
S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated
by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 9, 1993
and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's Registration
Statement on Form S-4 (Registration No. 33-69532) on November 23, 1993
and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual Report
on Form 10-K for the fiscal year ended January 29, 1994 and incorporated
by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994 and incorporated by
reference herein.
**** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995
and incorporated by reference herein.
t Filed on December 12, 1995 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended October 28, 1995
("1995 Third Quarter Form 10-Q") and incorporated by reference herein.
tt Filed on December 30, 1995 as an exhibit to the Partnership's Amendment
of Current Report on Form 8-K/A (File No. 33-69532) and incorporated by
reference herein.
ttt Filed on May 3, 1996 as an exhibit to the Partnership's Annual Report on
Form 10-K for the fiscal year ended February 3, 1996 ("1995 Form 10-K")
and incorporated by reference herein.
tttt Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996
and incorporated by reference herein.
ttttt Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997
and incorporated by reference herein.
tttttt Filed as an exhibit to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997
and incorporated by reference herein.
ttttttt Filed herewith.
* Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter Form
10-Q (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
** Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of an order granting confidential
treatment with respect thereto.
*** Certain portions of this exhibit have been omitted from the copies filed
as part of Amendment No. 2 to this Registration Statement on Form S-1
and are the subject an order granting confidential treatment with
respect thereto.
++ Filed on May 2, 1997 as an exhibit to the Company's Annual Report on 10-
K for the fiscal year ended February 1, 1997 and incorporated by
reference herein.
++++ Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report
on 10-Q for the quarterly period ended May 3, 1997 and incorporated by
reference herein.
++++++ To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
The following schedule is filed as part of this Registration Statement:
Schedule II--Chadwick's Inc.--Valuation and Qualifying Accounts.
All other schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or
because the information required is included in the financial statements and
notes thereto.
II-10
<PAGE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
3. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on the 16th day of September 1997.
BRYLANE INC.
By: /s/ Robert A. Pulciani
___________________________________
Robert A. Pulciani
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter J. Canzone, Robert A. Pulciani and John
M. Roth, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, as well
as any registration statement (or amendment thereto) related to this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Peter J. Canzone President, Chief Executive September 16, 1997
____________________________________ Officer and Director
Peter J. Canzone (Principal Executive
Officer)
/s/ Robert A. Pulciani Executive Vice President, September 16, 1997
____________________________________ Chief Financial Officer,
Robert A. Pulciani Secretary and Treasurer
(Principal Financial and
Accounting Officer)
/s/ Ronald P. Spogli Director September 16, 1997
____________________________________
Ronald P. Spogli
/s/ John M. Roth Director September 16, 1997
____________________________________
John M. Roth
/s/ Mark J. Doran Director September 16, 1997
____________________________________
Mark J. Doran
</TABLE>
II-12
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Samuel P. Fried Director September 16, 1997
____________________________________
Samuel P. Fried
/s/ William K. Gerber Director September 16, 1997
____________________________________
William K. Gerber
/s/ William C. Johnson Director September 16, 1997
____________________________________
William C. Johnson
/s/ Peter M. Starrett Director September 16, 1997
____________________________________
Peter M. Starrett
</TABLE>
II-13
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's, Inc.:
In connection with our audits of the combined financial statements of
Chadwick's, Inc. and subsidiaries as of January 28, 1995 and January 27, 1996,
and for each of the three years in the period ended January 27, 1996, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996
S-1
<PAGE>
CHADWICK'S, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Fiscal Year ended
January 27, 1996..... $ 479 $ 2,717 $ (614) $ 2,682
Fiscal Year ended
January 28, 1995..... $ 0 $ 479 $ 0 $ 479
Fiscal Year ended
January 29, 1994..... $ 0 $ 0 $ 0 $ 0
Reserve for Inventory
Liquidations:
Fiscal Year ended
January 27, 1996..... $14,945 $ 34,696 $ (39,978) $ 9,663
Fiscal Year ended
January 28, 1995..... $12,148 $ 39,144 $ (36,347) $14,945
Fiscal Year ended
January 29, 1994..... $ 7,624 $ 34,668 $ (30,144) $12,148
Reserve for Customer
Returns:
Fiscal Year ended
January 27, 1996..... $ 8,266 $157,920 $(157,406) $ 8,780
Fiscal Year ended
January 28, 1995..... $ 8,756 $210,779 $(211,269) $ 8,266
Fiscal Year ended
January 29, 1994..... $ 9,116 $220,897 $(221,257) $ 8,756
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1++++++ Form of Underwriting Agreement.
2.1tttt First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FSEP II, FSEP III,
FSEP International, Lane Bryant Direct, The Limited, WearGuard,
Leeway & Co., NYNEX, Chadwick's, Inc. ("Chadwick's") and the
Company.
3.1+ Certificate of Limited Partnership of the Partnership.
3.2+ Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement") dated as of August 30, 1993 (with forms
of Registration Rights Agreement (Newco) and Stockholders
Agreement (Newco) attached as exhibits thereto).
3.3+ Certificate of Incorporation of Brylane Capital Corp. ("Brylane
Capital").
3.4+ Bylaws of Brylane Capital.
3.5+++ Amendment No. 1 to Partnership Agreement dated as of November
22, 1993.
3.6* Amendment No. 2 to Partnership Agreement dated as of January 28,
1994.
3.7** Amendment No. 3 to Partnership Agreement dated as of March 16,
1994.
3.8ttt Amendment No. 4 to Partnership Agreement dated October 14, 1994.
3.9tt Amendment No. 5 to Partnership Agreement dated September 22,
1995.
3.10tt Amendment No. 6 to Partnership Agreement dated October 16, 1995.
3.11tttt Amendment No. 7 to Partnership Agreement dated October 14, 1996.
3.12tttt Amendment No. 8 to the Partnership Agreement dated December 5,
1996.
3.13++ Amended and Restated Agreement of Limited Partnership of the
Partnership dated as of February 26, 1997.
3.14*** Certificate of Incorporation of the Company.
3.15*** Bylaws of the Company.
3.16tttt Certificate of Amendment of Certificate of Incorporation of VP
Holding, as filed with the Office of the Secretary of State of
Delaware on December 5, 1996.
3.17tttt Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of VP Holding as filed with the
Office of the Secretary of State of Delaware on December 6,
1996.
3.18tttttt Form of Certificate of Designation of the Series A Convertible
Redeemable Preferred Stock of the Company filed with the Office
of the Secretary of the State of Delaware on February 14, 1997.
4.1+ Purchase Agreement dated August 20, 1993 among the Partnership,
Brylane Capital, VGP Corporation and each of the Initial
Purchasers named therein.
4.2+ Registration Rights Agreement made and entered into the 30th day
of August, 1993 among the Partnership, Brylane Capital and the
Initial Purchasers.
4.3+ Indenture dated as of August 30, 1993 among the Partnership and
Brylane Capital, as Issuers, B.L. Management, B.L. Distribution,
B.L. Management Partnership and B.L. Distribution Partnership,
as Guarantors, and United States Trust Company of New York, as
Trustee (the "Indenture").
4.4+ Form of Old Note (included at page 37 of the Indenture).
4.5+ Form of New Note (included at page 42 of the Indenture, as
amended at page 2 of the First Supplemental Indenture).
4.6+ Form of Guarantee by B.L. Management, B.L. Distribution, B.L.
Management Partnership and B.L. Distribution Partnership
(included at page 57 and in Article Fourteen of the Indenture).
4.7+ Form of Intercompany Note (included as Exhibit A to the
Indenture).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.8+++ First Supplemental Indenture dated as of November 22, 1993 by and
among the Partnership and Brylane Capital, as Issuers, and United
States Trust Company of New York, as Trustee (the "First
Supplemental Indenture").
4.9* Second Supplemental Indenture dated as of January 28, 1994 among
the Partnership, Brylane Capital, B.N.Y. Service Corp. and United
States Trust Company of New York, as Trustee.
4.10tt Third Supplemental Indenture dated as of October 16, 1995 by and
among the Partnership, Brylane Capital, KingSize Catalog Sales,
L.P., K.S. Management, KingSize Catalog Sales, Inc. and United
States Trust Company of New York, as Trustee.
4.11tttt Fourth Supplemental Indenture dated as of December 9, 1996 by and
among the Partnership, Brylane Capital, C.O.B. Management
Services, Inc., Chadwick's Tradename Sub, Inc. and United States
Trust Company of New York, as Trustee.
4.12++ Registration Rights Agreement dated as of February 26, 1997 by
and among the Company, FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, Chadwick's, Leeway
& Co. and NYNEX.
4.13++ Stockholders Agreement dated as of February 26, 1997 by and among
the Company, FSEP II, FSEP III, FSEP International, M&P
Distributing Company, The Limited, WearGuard, Chadwick's, Leeway
& Co. and NYNEX.
5.1++++++ Opinion of Riordan & McKinzie, a Professional Law Corporation.
10.1+ Transaction Agreement dated as of July 13, 1993 among VGP
Corporation, VLP Corporation and the Transferors referred to
therein (the "Transaction Agreement").
10.2+ Amendment No. 1 to Transaction Agreement dated as of August 30,
1993.
10.3+ Addendum to Transaction Agreement dated August 30, 1993 executed
by the Partnership.
10.4+ Credit Card Processing Agreement (the "Credit Card Agreement")
made as of the 30th day of August, 1993 between World Financial
Network National Bank ("World Financial") and the Partnership.
10.5ttt Amendment No. 1 to Credit Card Agreement dated as of July 1, 1995
** between World Financial and the Partnership.
10.6+ Trademark License Agreement (the "Trademark License Agreement" )
made as of the 20th day of August, 1993 among Lanco, Inc.,
Lernco, Inc., Limited Stores, Inc., Lane Bryant, Inc.
(collectively, the "Licensors"), Lane Bryant Direct, Inc. and
Lerner Direct, Inc. (collectively, the "Licensees").
10.7tttt Amendment No. 1 to Trademark License Agreement entered into as of
the 9th day of December, 1996 by and among Lanco, Inc., Lernco,
Inc., Limited Stores, Inc., Lane Bryant, Inc., Lane Bryant Direct
Holding, Inc. and the Partnership.
10.8+ Electronic Media Trademark License Agreement made as of the 20th
day of August, 1993 among the Licensors and the Licensees.
10.9+ Agreement to be Bound by the Trademark License Agreement and the
Electronic Media Trademark License Agreement executed by the
Partnership.
10.10+ Service Agreement made as of the 30th day of August, 1993 between
B.L. Management and the Partnership.
10.11+ Catalog Production Agreement made and entered into as of the 30th
day of August, 1993 between B.L. Distribution Partnership and
B.L. Management Partnership.
10.12+ Catalog Production, Distribution, License and Administrative
Services Agreement made and entered into as of the 30th day of
August, 1993 between the Partnership and B.L. Distribution
Partnership.
10.13++++ Credit Agreement dated as of April 30, 1997 (the "Credit
Agreement") among the Partnership, the Lenders listed on the
signature pages thereof, Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), as Administrative Agent, and Merrill
Lynch Capital Corporation ("Merrill Lynch"), as Documentation
Agent.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.14++++ Security Agreement dated as of April 30, 1997 among the
Partnership, the Subsidiary Grantors (as defined therein), and
Morgan Guaranty, as Security Agent.
10.15++++ Pledge Agreement dated as of April 30, 1997 among the Partnership,
the Subsidiary Pledgors (as defined therein), and Morgan Guaranty,
as Security Agent.
10.16++++ Form of Tranche A Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.17++++ Form of Tranche B Term Notes dated April 30, 1997 executed by the
Partnership in favor of each of the various Lenders which are
signatories to the Credit Agreement.
10.18++++ Guarantee Agreement dated as of April 30, 1997 among the
Guarantors (as defined therein), Morgan Guaranty, as
Administrative Agent for the Lenders and for the Issuing Banks (as
defined in the Credit Agreement).
10.19++++ Trademark Collateral Agreement dated as of April 30, 1997 among
Lanco, Inc., Lernco, Inc., Limited Stores, Inc., Lerner Stores,
Inc., Lane Bryant, Inc., M&P Distributing Co. and Morgan Guaranty,
as Security Agent.
10.20tttt Loan Agreement made as of August 30, 1993 by and between FSEP II,
VP Holding and VGP.
10.21tttt No Interest Demand Promissory Note made by FSEP II in favor of VP
Holding.
10.22tttt Loan Agreement made as of August 30, 1993 by and between FSEP III,
VP Holding and VGP.
10.23tttt No Interest Demand Promissory Note made by FSEP III in favor of VP
Holding.
10.24tttt Form of Indemnity Agreement made by and between the Partnership
and each of the members of the Board of Representatives of the
Partnership.
10.25+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Management and Robert A. Pulciani.
10.26+ Indemnity Agreement dated as of September, 1993 made by and
between B.L. Distribution and Robert A. Pulciani.
10.27+ 1993 Employee Stock Subscription Plan of VP Holding Corporation
(the "Subscription Plan").
10.28*** Amendment No. 1 to the Subscription Plan dated February 18, 1994.
10.29+ Stock Subscription Agreement made and entered into as of August
30, 1993 by and between VP Holding and Peter Canzone (with Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.30+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Sheila R. Garelik, Robert A. Pulciani, Jules
Silbert, Jessie Bourneuf, Loida Noriega-Wilson, Richard L.
Bennett, William G. Brosius and Bruce G. Clark who purchased
common stock of VP Holding under the Subscription Plan with cash
and, in certain cases, promissory note (with forms of Secured
Promissory Note and Stock Pledge Agreement attached as exhibits
thereto).
10.31+ Form of Stock Subscription Agreement made by and between VP
Holding and each of Arlene Silverman, Kevin McGrain, Kevin Doyle
and certain other management investors who purchased common stock
of VP Holding under the Subscription Plan with cash and, in
certain cases, promissory note (with forms of Secured Promissory
Note and Stock Pledge Agreement attached as exhibits thereto).
10.32*** Addendum dated February 18, 1994 to Stock Subscription Agreement
between VP Holding and Jules Silbert.
10.33*** Stock Subscription Agreement made and entered into as of May 27,
1994 by and between VP Holding and William C. Johnson.
10.34+ 1993 Performance Partnership Unit Option Plan of the Partnership
(the "1993 Option Plan").
10.35+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Peter J. Canzone, Sheila R.
Garelik, Robert A. Pulciani, Jules Silbert, Jessie Bourneuf, Loida
Noriega-Wilson, Richard L. Bennett, William G. Brosius and Bruce
G. Clark under the 1993 Option Plan.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.36+ Form of Performance Partnership Unit Option Agreement by and
between the Partnership and each of Arlene Silverman, Kevin
McGrain, Kevin Doyle and certain other participants under the 1993
Option Plan.
10.37*** Performance Partnership Unit Option Agreement entered into as of
May 27, 1994 by and between the Partnership and William C.
Johnson.
10.38tttt Form of Amendment to Performance Partnership Unit Option Agreement
under the 1993 Option Plan.
10.39 t 1995 Partnership Unit Option Plan of the Partnership (the "1995
Option Plan").
10.40t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Peter J. Canzone, William C.
Johnson, Sheila R. Garelik, Robert A. Pulciani, Jules Silbert,
Jessie Bourneuf, Loida Noriega-Wilson, Arlene Silverman, Richard
L. Bennett, William G. Brosius and Bruce G. Clark under the 1995
Option Plan.
10.41t Form of Partnership Unit Option Agreement entered into by and
between the Partnership and each of Kevin McGrain, Kevin Doyle and
certain other participants under the 1995 Option Plan.
10.42tttt Brylane Inc. 1996 Senior Management Stock Subscription Plan (the
"Senior Management Plan").
10.43tttt Form of Stock Subscription Agreement entered into by and between
the Company and nine management investors who were issued Common
Stock of the Company under the Senior Management Plan.
10.44tttt Form of Stock Subscription Agreement entered into by and between
the Company and William C. Johnson under the Senior Management
Plan.
10.45tttt Brylane Inc. 1996 Stock Subscription Plan (the "Brylane
Subscription Plan").
10.46tttt Form of Stock Subscription Agreement entered into by and between
the Company and certain management employees who were issued
Common Stock of the Company under the Brylane Subscription Plan.
10.47tttt Brylane Inc. 1996 Performance Stock Option Plan (the "Brylane 1996
Performance Option Plan").
10.48tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996
Performance Option Plan.
10.49tttt Form of Stock Option Agreement entered into by and between the
Company and William C. Johnson under the Brylane 1996 Performance
Option Plan.
10.50tttt Brylane Inc. 1996 Stock Option Plan (the "Brylane 1996 Option
Plan").
10.51tttt Form of Stock Option Agreement entered into by and between the
Company and certain participants under the Brylane 1996 Option
Plan.
10.52t License Agreement effective as of March 1, 1994 by and between the
* Partnership and Sears Shop At Home Services, Inc. ("Sears") (with
Exhibits E and F attached thereto).
10.53t License Agreement effective as of August 1, 1994 by and between
* WearGuard and Sears (with Exhibits E and F attached thereto).
10.54t First Amendment to License Agreement effective as of August 1,
1995 by and between Sears and WearGuard.
10.55tttt License Amendment made as of July 23, 1996 between the Partnership
*** and Sears.
10.56tt Asset Purchase Agreement dated September 22, 1995 by and among the
Partnership, WearGuard and ARAMARK Corporation ("ARAMARK"), as
guarantor.
10.57tt Letter Amendment to the Purchase Agreement dated September 22,
1995 by and between the Partnership and WearGuard.
10.58t Consent to Assignment dated October 10, 1995 between and among
Sears, WearGuard and KingSize Catalog Sales, L.P. ("KingSize
Partnership").
10.59tt Letter Amendment to the Purchase Agreement dated October 16, 1995
by and between the Partnership and WearGuard.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.60tt Assignment of Purchase Agreement dated October 16, 1995 by and
among the Partnership, KingSize Partnership and K.S. Management.
10.61tt Transition Services Agreement dated as of October 16, 1995 by
and among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.62tt Noncompetition Agreement dated as of October 16, 1995 by and
among the Partnership, KingSize Partnership, ARAMARK and
WearGuard.
10.63tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Peter J. Canzone, Robert A.
Pulciani, Jules Silbert, Loida Noriega-Wilson and Kevin McGrain.
10.64tttt Form of Employment Agreement dated as of May 1, 1996 between
B.L. Management and each of Sheila R. Garelik and Arlene
Silverman.
10.65tttt Form of Employment Agreement dated as of May 1, 1996 between the
Partnership and each of Richard L. Bennett, Bruce G. Clark and
William G. Brosius.
10.66tttt Amendment No. 1 to Employment Agreement dated as of July 15,
1996 between B.L. Management and Sheila R. Garelik.
10.67tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among TJX, Chadwick's and the Partnership.
10.68tttt Amendment Number One to the Asset Purchase Agreement made as of
the 9th day of December, 1996 among TJX, Chadwick's and the
Partnership.
10.69tttt Asset Purchase Agreement dated as of October 18, 1996 by and
among CDM Corp. and the Partnership.
10.70tttt Services Agreement dated as of December 9, 1996 between TJX and
the Partnership.
10.71ttttt Amendment to Services Agreement dated as of December 9, 1996
between TJX and the Partnership.
10.72tttt Inventory Purchase Agreement effective as of December 9, 1996 by
*** and between the Partnership and TJX.
10.73tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Dhananjaya K. Rao.
10.74tttt Employment Agreement dated as of December 9, 1996 between the
Partnership and Carol Meyrowitz.
10.75tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Dhananjaya
K. Rao.
10.76tttt VP Holding Stock Subscription Agreement for Preferred Stock made
as of December 9, 1996 by and between VP Holding and Carol
Meyrowitz.
10.77tttt Form of Brylane Inc. Stock Subscription Agreement for Preferred
Stock made as of December 9, 1996 by and between Brylane Inc.
and each of Dhananjaya K. Rao and Carol Meyrowitz.
10.78tttt Brylane, L.P. Convertible Subordinated Note Due 2006 dated
December 9, 1996 made by the Partnership in favor of Chadwick's
(with Brylane Inc. and Brylane, L.P. Convertible Subordinated
Note Due 2006 made by the Company and the Partnership in favor
of Chadwick's filed as an exhibit thereto).
10.79tttt Unit Subscription Agreement entered into as of December 5, 1996
by and among the Partnership, VP Holding, FSEP II, FSEP III,
FSEP International, VGP Corporation, VLP Corporation, WearGuard,
Leeway and NYNEX.
10.80tttt Accounts Receivable Purchase Agreement dated as of December 9,
1996 between the Partnership and Alliance Data Systems
Corporation.
11.1ttttttt Brylane, L.P.--Computation of Earnings Per Common Share.
21.1++ Subsidiaries of Brylane.
23.1++++++ Consent of Riordan & McKinzie (to be included in Exhibit 5.1).
23.2ttttttt Consent of Coopers & Lybrand L.L.P. regarding Brylane, L.P.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.3ttttttt Consent of Coopers & Lybrand L.L.P. regarding Chadwick's, Inc.
23.4ttttttt Consent of Coopers & Lybrand L.L.P. regarding KingSize Division.
24.1ttttttt Powers of Attorney (included on signature pages hereto).
27.1ttttttt Financial Data Schedule.
</TABLE>
- --------
+ Filed as an exhibit to the Partnership's Registration Statement on Form
S-4 (Registration No. 33-69532) on September 29, 1993 and incorporated
by reference herein.
++ Filed as an exhibit to Amendment No. 1 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 9, 1993 and incorporated by reference herein.
+++ Filed as an exhibit to Amendment No. 2 to the Partnership's
Registration Statement on Form S-4 (Registration No. 33-69532) on
November 23, 1993 and incorporated by reference herein.
* Filed on April 25, 1994 as an exhibit to the Partnership's Annual
Report on Form 10-K for the fiscal year ended January 29, 1994 and
incorporated by reference herein.
** Filed on June 8, 1994 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended April 30, 1994 and
incorporated by reference herein.
*** Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-86154) on November 9, 1994 and incorporated by
reference herein.
**** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 11, 1995
and incorporated by reference herein.
t Filed on December 12, 1995 as an exhibit to the Partnership's Quarterly
Report on Form 10-Q for the quarterly period ended October 28, 1995
("1995 Third Quarter Form 10-Q") and incorporated by reference herein.
tt Filed on December 30, 1995 as an exhibit to the Partnership's Amendment
of Current Report on Form 8-K/A (File No. 33-69532) and incorporated by
reference herein.
ttt Filed on May 3, 1996 as an exhibit to the Partnership's Annual Report on
Form 10-K for the fiscal year ended February 3, 1996 ("1995 Form 10-K")
and incorporated by reference herein.
tttt Filed as an exhibit to Amendment No. 2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996
and incorporated by reference herein.
ttttt Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on January 29, 1997
and incorporated by reference herein.
tttttt Filed as an exhibit to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 33-86154) on February 19, 1997
and incorporated by reference herein.
ttttttt Filed herewith.
* Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Third Quarter
Form 10-Q (as defined herein) and are the subject of an order granting
confidential treatment with respect thereto.
** Certain portions of this exhibit have been omitted from the copies
incorporated by reference from the Partnership's 1995 Form 10-K (as
defined herein) and are the subject of an order granting confidential
treatment with respect thereto.
*** Certain portions of this exhibit have been omitted from the copies
filed as part of Amendment No. 2 to this Registration Statement on Form
S-1 and are the subject of an order granting confidential treatment
with respect thereto.
++ Filed on May 2, 1997 as an exhibit to the Company's Annual Report on
10-K for the fiscal year ended February 1, 1997 and incorporated by
reference herein.
++++ Filed on June 17, 1997 as an exhibit to the Company's Quarterly Report
on 10-Q for the quarterly period ended May 3, 1997 and incorporated by
reference herein.
++++++ To be filed by amendment.
<PAGE>
EXHIBIT 11.1
BRYLANE INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
TWENTY-SIX
FISCAL YEAR ENDED WEEKS ENDED
--------------------- ---------------------
FEBRUARY FEBRUARY AUGUST 3, AUGUST 2,
3, 1996 1, 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding................ 12,658,144 12,979,313 12,903,585 18,996,995
Add net shares issuable pursuant to
stock option plans less shares as-
sumed repurchased at the assumed
initial public offering price..... 448,497 386,923 516,003 455,318
---------- ---------- ---------- ----------
Number of shares for computation of
primary earnings per share........ 13,106,640 13,366,236 13,419,588 19,452,313
========== ========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333- ) of our report dated April 12, 1997, on our audits of the
consolidated financial statements of Brylane Inc. We also consent to the
reference to our Firm under the caption, "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 16, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Brylane Inc. Registration Statement on
Form S-1 (File No. 333- ) of our reports dated May 14, 1996, on our audits of
the combined financial statements of Chadwick's, Inc. We also consent to the
reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
September 16, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 (File
No. 333- ) of our report dated December 7, 1995, on our audits of the
financial statements of the KingSize division of WearGuard Corporation. We
also consent to the reference to our Firm under the caption, "Experts."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
September 16, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> MAY-04-1997
<PERIOD-END> AUG-02-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,835
<ALLOWANCES> 1,931
<INVENTORY> 188,543
<CURRENT-ASSETS> 253,434
<PP&E> 141,983
<DEPRECIATION> 65,645
<TOTAL-ASSETS> 689,127
<CURRENT-LIABILITIES> 199,945
<BONDS> 255,251
0
1,500
<COMMON> 195
<OTHER-SE> 224,846
<TOTAL-LIABILITY-AND-EQUITY> 689,127
<SALES> 274,656
<TOTAL-REVENUES> 274,656
<CGS> 144,239
<TOTAL-COSTS> 144,239
<OTHER-EXPENSES> 104,625
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,157
<INCOME-PRETAX> 16,901
<INCOME-TAX> 6,253
<INCOME-CONTINUING> 10,648
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,648
<EPS-PRIMARY> .53
<EPS-DILUTED> .52
</TABLE>
