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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year-ended February 3, 2001.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 0-26229
BARNEYS NEW YORK, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-4040818
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
575 Fifth Avenue
New York, New York 10017 10017
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 339-7300
Securities registered pursuant to Section 12(b) Name of Each Exchange
of the Act: on Which Registered
Title of Each Class
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
[Cover page 1 of 2 pages]
1
Aggregate market value of the voting stock (which consists solely of shares of
Common Stock) held by non-affiliates of the registrant as of April 25, 2001:
There is no public trading market for the registrant's Common Stock.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [x] No [_]
On April 25, 2001, the registrant had outstanding 13,903,227 shares of Common
Stock, par value $0.01 per share, which is the registrant's only class of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, in connection with the Annual Meeting of Stockholders
of the registrant to be held on June 20, 2001 are incorporated by
reference into Part III of this report.
[Cover page 2 of 2 pages]
2
TABLE OF CONTENTS
Page
ITEM 1. BUSINESS..........................................................................................3
ITEM 2. PROPERTIES........................................................................................6
ITEM 3. LEGAL PROCEEDINGS.................................................................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............................................8
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.........................10
ITEM 6. SELECTED FINANCIAL DATA..........................................................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..............................................................13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK......................................................................................22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......................................................23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................................................23
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...............................................24
ITEM 11. EXECUTIVE COMPENSATION...........................................................................24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...................................................................................24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................................24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K......................................................................................25
i
PART I
ITEM 1. BUSINESS
GENERAL
Barneys New York, Inc., a Delaware corporation ("Holdings"),
is the parent company of Barney's, Inc., a New York corporation ("Barneys"),
which together with its subsidiaries (collectively, the "Company"), is a leading
upscale retailer of men's, women's and children's apparel and accessories, and
items for the home. Creative merchandising, store design and displays,
advertising campaigns and publicity events develop the image of Barneys as a
fashion leader. The Company is engaged in three distribution channels which
encompass its various product offerings: the full-price stores, the outlet
stores and the warehouse sale events (see "RETAILING STRATEGY" below). In
addition, the Company is involved in licensing arrangements pursuant to which
the "Barneys New York" trade name is licensed for use in Asia (see "LICENSING
ARRANGEMENTS" below).
Barneys product assortment and price points can generally be
categorized within the luxury market and appeal typically to a more
fashion-conscious and sophisticated customer. Its merchandising philosophy
stresses a variety of fashion viewpoints, and includes established and new
designers, as well as branded and private label goods. Merchandise is sourced
from a variety of domestic and foreign vendors, with a significant portion of
the product being manufactured in Europe (primarily Italy). The Company's
vendors include major designers such as Giorgio Armani, Prada, Jil Sander, Donna
Karan, Comme des Garcons, Robert Clergerie and Ermenegildo Zegna. Major branded
goods include Oxxford and Hickey Freeman, and major cosmetics lines include, but
are not limited to Chanel, Francois Nars and Kiehls.
Barneys was founded by Barney Pressman in 1923 under the name
Barney's Clothes, Inc. Until its emergence from bankruptcy in January 1999,
Barneys was owned by the Pressman Family, certain affiliates of the Pressman
Family and certain trusts of which members of the Pressman Family were the
beneficiaries. Pursuant to the Plan of Reorganization for Barneys and certain of
its affiliates (the "Plan") as confirmed by the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court"), Holdings was
formed and all the equity interests in Barneys were transferred to Holdings,
making Barneys a wholly-owned subsidiary of Holdings. For further information
concerning the bankruptcy reorganization of the Company, refer to Note 12 to the
Consolidated Financial Statements included herein.
RETAILING STRATEGY
During Fiscal 2000, the Company's sales were derived as
follows: 85% from full-price stores (77% from three flagship stores, and 8% from
five regional stores), 9% from outlet stores and 6% from warehouse sale events.
These three distribution channels are discussed in more detail below.
Full-price Stores
The Company operates eight full-price stores as follows: i)
three large flagship stores in prime retail locations in New York, Beverly Hills
and Chicago; flagship stores in New York and Beverly Hills include restaurants
managed by third party contractors, and ii) five smaller regional stores in the
following locations: New York City, NY (2 stores), Manhasset, NY, Seattle, WA
and Chestnut Hill, MA.
The three large flagship stores establish and promote the
Barneys New York image as a pre-eminent retailer of men's and women's fashion.
These stores provide customers with a wide range of high quality products,
including apparel, accessories, cosmetics and items for the home, catering to
affluent, fashion-conscious men and women. The five smaller regional stores,
which provide a limited selection of the assortments offered in the flagship
stores, aim to serve similar customers in smaller urban markets.
3
Outlet Stores
The Company operates twelve outlet stores across the country.
The outlet stores leverage the Barneys New York brand to reach a wider audience
by providing a lower priced version of the sophistication, style and quality of
the retail experience provided in the full-price stores. These stores, which
typically operate with a low cost structure, also provide a clearance vehicle
for residual merchandise from the full-price stores.
The outlet stores, which sell designer, branded and private
label apparel and accessories, cater to budget-minded yet fashion-conscious men
and women. They are located in high-end outlet centers and serve a high number
of destination shoppers and tourists.
Warehouse Sale Events
The Company operates four warehouse sale events annually, one
each spring and fall season in New York City, New York and Santa Monica,
California. The warehouse sale events provide another vehicle for liquidation of
end of season residual merchandise, as well as a low cost extension of the
Barneys New York brand to a wider audience. The events attract a wide range of
shoppers, mostly bargain hunters who value quality and fashion.
LICENSING ARRANGEMENTS
BNY Licensing Corp. ("BNY Licensing"), a wholly-owned
subsidiary of Barneys, is party to licensing arrangements pursuant to which (i)
two retail stores are operated in Japan and a single in-store department is
operated in Singapore under the name "BARNEYS NEW YORK," each by an affiliate of
Isetan Company Ltd. ("Isetan"), and (ii) Barneys Asia Co. LLC, which is 70%
owned by BNY Licensing and 30% owned by an affiliate of Isetan (and which was
formed in connection with the bankruptcy reorganization of the Company discussed
in Note 12 to the Consolidated Financial Statements), has the exclusive right to
sublicense the BARNEYS NEW YORK trademark throughout Asia (excluding Japan).
Licensing agreements governing these arrangements were entered into in
connection with Barneys' emergence from bankruptcy.
TRADEMARKS AND SERVICE MARKS
The Company owns its principal trademarks and service marks
worldwide, including the "Barneys New York" and "Barneys" marks. In addition to
these marks, the Company owns other important trademarks and service marks used
in its business. The Company's trademarks and service marks are registered in
the United States and internationally. The term of these registrations is
generally ten years, and they are renewable for additional ten-year periods
indefinitely, so long as the marks are still in use at the time of renewal. The
Company is not aware of any claims of infringement or other challenges to its
right to register or use its marks in the United States.
SEASONALITY
The specialty retail industry is seasonal in nature, with a
high proportion of sales and operating income generated in the November and
December holiday season. As a result, the Company's operating results are
significantly affected by the holiday selling season. Seasonality also affects
working capital requirements, cash flow and borrowings as inventories build in
September and peak in October in anticipation of the holiday selling season. The
Company's dependence on the holiday selling season for sales and income is less
than that of many retailers, because of the significant sales and income
generated by the warehouse sale events held in February and August.
COMPETITION
The retail industry, in general, and the specialty retail
store business, in particular, are intensely competitive. Generally, the
Company's full-price stores compete with both specialty stores and department
stores, while the Company's outlet stores and warehouse sale events compete with
certain categories of off-price and discount stores, in the geographic areas in
which they operate. In addition, Barneys faces increasing competition from
several of its significant vendors (e.g., Giorgio Armani, Prada, Gucci and
Helmut Lang) which have entered or expanded their presence with their own
4
dedicated stores. Several department store, specialty store, and vendor store
competitors also offer mail order catalog shopping. The internet is beginning to
permit the development of sales venues run by existing competitor stores or by
new ventures that will also compete with the Company. Some of the retailers with
which the Company competes have substantially greater financial resources than
the Company and may have various other competitive advantages over the Company.
The trend toward vertical integration of designer resources
poses additional competitive risk for the Company (e.g., Neiman Marcus' purchase
of an interest in the Kate Spade accessories business, LVMH's stable of designer
vendors sold through its Duty Free Shops and Galleria stores as well as
individual designer boutiques). Competition is strong not only for retail
customers, but also for vendor resources. In the Company's luxury retail
business, exclusivity of merchandise brands is very valuable, and retail stores
compete for exclusive distribution arrangements with key designer vendors.
MERCHANDISING
In Fiscal 2000, the Company's top 10 vendor brands accounted
for approximately 25% of total Company sales. The two top vendor brands each
accounted for approximately 8% and 6%, respectively, of total Company sales. All
of these brands are also sold by competitor retailers in certain markets; six of
the ten vendors also have their own dedicated retail stores. Exclusivity of
distribution of designer brands is a valuable resource in the luxury retail
business. The Company faces risk to its business if certain designer vendors
withdraw Barneys from their distribution, or, conversely, if they provide
distribution to competitors. Management does not expect that the trend toward
vertical integration discussed above or the withdrawal from Barneys of the
distribution of certain designer vendors will have a material impact on the
operations of the Company. If certain vendors were to withdraw distribution from
Barneys, the Company might, in the short term, have difficulty identifying
comparable sources of supply. However, management believes that alternative
supply sources do exist to fulfill the Company's requirements in the event of
such a disruption.
EMPLOYEES
At February 3, 2001, the Company employed approximately 1,400
people. The Company's staffing requirements fluctuate during the year as a
result of the seasonality of the retail apparel industry, adding approximately
100 employees during the holiday selling season. Approximately 550 of the
Company's employees are represented by unions and the Company believes that
overall its relationship with its employees and the unions is good. During its
more than fifty-year relationship with unions representing its employees, the
Company has never been subjected to a strike.
CAPITAL EXPENDITURES
The Company's capital expenditure plan is designed to allocate
funds to projects that are necessary to support the Company's strategic plan.
Under the terms of its $120,000,000 revolving credit facility, capital
expenditures are limited, subject to certain adjustments, to $7,750,000 in each
of fiscal years 2001 and 2002. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
5
CERTAIN TAX MATTERS
Federal and State Income Taxes
Pursuant to the Plan, Holdings acquired 100% of Barneys'
stock. Holdings made a Section 338(g) election (the "Election") with respect to
the acquisition under applicable provisions of the Internal Revenue Code
("IRC"). The tax effects of making the Election resulted in Barneys and each of
its subsidiaries generally being treated, for federal income tax purposes, as
having sold its assets at the time the Plan was consummated and thereafter, as a
new corporation which purchased the same assets as of the beginning of the
following day. As a result, Barneys incurred a gain at the time of the deemed
sale in an amount equal to the difference between the fair market value of its
assets and its collective tax basis of the assets at the time of the sale.
The Company used existing net operating loss carryforwards to
reduce the gain incurred as a result of this sale. Nevertheless, the Company was
subject to alternative minimum tax. Furthermore, immediately after the sale, as
a result of the IRC Section 338(g) election, Barneys was stripped of any
remaining tax attributes, including any unutilized net operating loss
carryforwards and any unutilized tax credits. See Note 10 to the Consolidated
Financial Statements.
LIMITED POST - CHAPTER 11 CASE OPERATING HISTORY
The Company's emergence from Chapter 11 reorganization
occurred on January 28, 1999, and consequently the Company's subsequent
operating history is limited. Financial statements for future periods will not
be comparable to the historical financial statements included herein, for
periods prior to January 28, 1999, for the reasons discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
FORWARD LOOKING INFORMATION
This Annual Report contains "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward looking statements are based on management's expectations, estimates,
projections and assumptions. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "estimates," and variations of such words and similar
expressions are intended to identify such forward looking statements which
include, but are not limited to, projections of revenues, earnings and cash
flows. These forward looking statements are subject to risks and uncertainties
which could cause the Company's actual results or performance to differ
materially from those expressed or implied in such statements. These risks and
uncertainties include, but are not limited to, the following: general economic
and business conditions, both nationally and in those areas in which the Company
operates; demographic changes; prospects for the retail industry; competition;
changes in business strategy or development plans; the loss of management and
key personnel; the availability of capital to fund the expansion of the
Company's business; changes in consumer preferences or fashion trends; adverse
weather conditions, particularly during peak selling seasons; and changes in the
Company's relationships with designers, vendors and other suppliers.
ITEM 2. PROPERTIES
The Company's principal facilities include corporate offices,
a central alterations facility, a distribution center and three flagship stores.
Prior to the Company's emergence from bankruptcy, Barneys formed three
subsidiaries (each, a "Lease Subsidiary"), each of which acts as lessee and
sublessor for one of the flagship stores. On January 28, 1999, pursuant to the
Plan, (i) the fee interest in the properties on which the New York and the
Chicago flagship stores are located, and the leasehold interest in the property
on which the Beverly Hills flagship store is located, were transferred to an
affiliate of Isetan, (ii) such affiliate, as lessor, entered into amended and
restated leases with each of the tenants in each of the properties, and (iii)
each of such tenants assigned the leasehold interest in the related property to
one of the Lease Subsidiaries, which in turn entered into a sublease with
Barneys, in the case of the New York and Beverly Hills stores, and with Barneys
America, Inc., a subsidiary of Barneys, in the case of the Chicago store. The
lease for the New York store is for a term of twenty years, with four options to
renew of ten years each. The lease for the Chicago store is for a term of ten
6
years, with three options to renew of ten years each. The lease for the Beverly
Hills store is for a term of twenty years, with three options to renew of ten
years each. The leases for the flagship stores are all triple-net leases. In the
case of the Beverly Hills flagship store, Barneys is also responsible for the
rent payable pursuant to the existing ground lease.
The Company's facilities are located at the following
locations:
Corporate Offices Regional Stores
----------------- ---------------
New York, NY New York, NY (World Financial Center)
New York, NY (18th Street)
Central Alterations Facility Manhasset, NY
---------------------------- Chestnut Hill, MA
Seattle, WA
New York, NY
Distribution Center
-------------------
Outlet Stores
Lyndhurst, NJ -------------
Harriman, NY
Flagship Stores Cabazon, CA
--------------- Camarillo, CA
Clinton, CT
New York, NY Riverhead, NY
Beverly Hills, CA Wrentham, MA
Chicago, IL Waikele, HI
Carlsbad, CA
Warehouse Sale Event Location Napa Valley, CA
----------------------------- Orlando, FL
Allen, TX
New York, NY Leesburg, VA
The Company also leases certain other facilities for its
semi-annual Beverly Hills warehouse sale event. The Company believes that all of
its facilities are suitable and adequate for the current and anticipated conduct
of its operations.
ITEM 3. LEGAL PROCEEDINGS
Barneys and certain of its subsidiaries commenced proceedings
under Chapter 11 of title 11, United States Code (the "Bankruptcy Code") on
January 10, 1996 (the "Filing Date"), and emerged therefrom on January 28, 1999
(the "Effective Date"). In addition, Holdings and its subsidiaries are involved
in various legal proceedings which are routine and incidental to the conduct of
their business. Management believes that none of these proceedings, if
determined adversely to Holdings or any of its subsidiaries, would have a
material adverse effect on the financial condition or results of operations of
such entities.
On or about August, 1996, Barneys commenced an action against
Circle Management Ltd. and Giuseppe Luongo for misappropriation of monies, an
accounting and avoidance of certain post-petition transfers. Barneys alleged
that Circle Management and Mr. Luongo, operators of the prior restaurant at the
Company's Madison Avenue flagship store known as Mad 61, had not remitted monies
from the operation of the restaurant which belonged to Barneys. Barneys sought
unspecified monetary damages.
Defendants had answered the complaint and had asserted
counterclaims. The counterclaims alleged breach of contract, breach of agency,
libel and the making of false and fraudulent statements about the defendants.
Defendants alleged that Barneys did not reimburse them for the operating
expenses of the Mad 61 restaurant and that Barneys made libelous, false and
fraudulent statements about the financial condition of defendants. They sought
7
monetary damages of not less than $1,000,000. This litigation was settled during
the year, pursuant to an order of the United States Bankruptcy Court, on terms
which maximized the liability of the Company at $15,000.
Administrative Claims
As a result of the bankruptcy, the Company is subject to
various Administrative Claims filed by various claimants throughout the
bankruptcy case. In connection with the Plan, the Company was required to
establish a Disputed Administrative Claims Cash Reserve ("Cash Reserve") while
the Administrative Claims are negotiated and settled. The initial total amount
of the Cash Reserve was $4.6 million, of which approximately $0.2 million
remains as of February 3, 2001. The Company has reserved in its financial
statements the amount it deems will be necessary to settle these claims,
however, there can be no assurances that the results of the settlement of these
Administrative Claims will be on terms that will not exceed the amount reserved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in June to elect officers for the
ensuing year. Interim elections are held as required. Except as otherwise
indicated, each executive officer has held his current position for the past
five years.
Age at
Name Position, Office February 3, 2001
---- ---------------- ----------------
Howard Socol -- Director and Chairman, President and Chief Executive 55
Officer (since January 2001).
Judy Collinson -- Executive Vice President/Womenswear(since May 1998). 49
Tom Kalenderian -- Executive Vice President/Menswear (since July 1997). 43
Marc H. Perlowitz -- Executive Vice President, General Counsel and Human 46
Resources, Secretary (since October 1997).
Karl Hermanns -- Executive Vice President (since February 2000). 36
Michael Celestino -- Executive Vice President (since February 2000). 45
Steven M. Feldman -- Executive Vice President and Chief Financial Officer 37
(since March 2000).
David New -- Executive Vice President - Creative Services (since 44
March 2000).
Vincent Phelan -- Senior Vice President - Treasurer (since March 2000). 35
Set forth below are the names, positions and business
backgrounds of all of the executive officers of Holdings.
8
Howard Socol became Chairman, President and Chief Executive
Officer of Holdings on January 8, 2001. Mr. Socol was the Chief Executive
Officer of J. Crew Group, Inc., a retailer of women's and men's apparel, shoes
and accessories, from February 1998 through January 1999. From 1969 to 1997, Mr.
Socol served in various management positions at Burdine's, a division of
Federated Department Stores, Inc., becoming President in 1981 and Chairman and
Chief Executive Officer in 1984, a position he held until his retirement in
1997.
Judy Collinson started with Barneys in 1989 as an Accessories
Buyer. Prior to her current position, she had been responsible for Accessories
and Private Label Collections. She was promoted to Executive Vice President and
General Merchandising Manager for all women's merchandising in May 1998. Ms.
Collinson is also responsible for women's shoes and cosmetics.
Tom Kalenderian has been at Barneys for 21 years. His
responsibilities have increased over time until he was promoted to Executive
Vice President and General Merchandising Manager for all men's merchandising in
July 1997. Mr. Kalenderian is responsible for developing and implementing
menswear strategy and manages many of the key vendor relationships for the
menswear, children's and gifts for the home businesses.
Marc H. Perlowitz joined Barneys in September 1985. He was
promoted to Executive Vice President, General Counsel and Human Resources of
Barneys in October 1997. Mr. Perlowitz' responsibilities include direct
responsibility for all legal matters of Barneys and its affiliates. He is
responsible for Human Resources which includes compensation, benefits, labor
relations, training, recruiting, employee policies and procedures and Company
communications. He is also responsible for real estate, facilities and risk
management.
Karl Hermanns has been with Barneys for almost five years and
previously was responsible for Financial and Strategic Planning. During his
tenure, he has assumed other responsibilities and is currently responsible for
Marketing, Merchandise Planning, Inventory Control, Distribution, Management
Information Systems, Imports and the Company's Central Alterations department.
Mr. Hermanns was promoted to Executive Vice President in February 2000. Prior to
joining Barneys, Mr. Hermanns spent 10 years with Ernst & Young LLP in their
audit and consulting practices.
Michael Celestino has been with Barneys for nine years and has
served in a number of store operations capacities during that period. Mr.
Celestino is currently responsible for all store operations including full-price
stores, outlet stores and the Company's warehouse sale events. He was promoted
to Executive Vice President in February 2000.
Steven M. Feldman has been with Barneys since May 1996 when he
joined as Controller. He was promoted to Vice President in December 1997 and to
Senior Vice President in May 1999. Additionally, in May 1999, Mr. Feldman was
appointed as Chief Financial Officer. Prior to joining Barneys, Mr. Feldman was
a Senior Manager at Ernst & Young LLP principally serving retail engagements.
Mr. Feldman was promoted to Executive Vice President in March 2000.
David New has been with Barneys since 1992 when he joined as
Men's Display Manager of the Seventeenth Street store in New York City. Mr.
New's responsibilities have increased over time and in March of 2000 he was
promoted to Executive Vice President, Creative Services. In that capacity, Mr.
New is responsible for Store Design, Display, Advertising and Publicity.
Vincent Phelan has been with Barneys since August 1995 when he
joined as Director of Finance. Prior to joining Barneys, Mr. Phelan was the
Deputy Director of Finance at the United States Tennis Association, Inc. in
White Plains, NY from January 1993 to July 1995. Mr. Phelan is a certified
public accountant and was responsible for reconciling all claims filed in
connection with the Chapter 11 filing. Mr. Phelan was promoted to Vice President
- - Treasurer in January 1999 and Senior Vice President in March 2000. Mr. Phelan
is responsible for financial planning and analysis, cash management, banking
relations, and taxes.
None of the executive officers listed herein is related to any
director or executive officer.
9
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market Information
There is no current public trading market for Holdings Common
Stock. An aggregate of 787,724 shares of Holdings Common Stock (exclusive of
options to purchase 792,234 shares granted to Mr. Socol and subject to
stockholder approval) are issuable upon exercise of outstanding options and
warrants. In addition, Holdings' Series A Preferred Stock, par value $0.01 per
share (the "Preferred Stock"), under certain circumstances, is convertible into
162,500 shares of Holdings Common Stock. The Company does not presently intend
to apply to list the Holdings Common Stock on any national securities exchange
or The Nasdaq Stock Market. The Company believes that all of the shares of
Holdings Common Stock held by Bay Harbour Management L.C. ("Bay Harbour"),
Whippoorwill Associates, Inc. ("Whippoorwill") and Isetan could be sold pursuant
to Rule 144 of the Securities Act of 1933, as amended (the "Securities Act").
Resales under Rule 144 are subject to limitations relating to current public
information, volume and manner of sales. Pursuant to a Registration Rights
Agreement, Holdings has agreed to register under the Securities Act all shares
of Holdings Common Stock held by Bay Harbour, Whippoorwill and, pursuant to
piggyback registration rights, Isetan. See "Security Ownership of Certain
Beneficial Owners and Management," in the Proxy Statement, which is incorporated
herein by reference and which sets forth the number of shares of Holdings Common
Stock owned by each of Bay Harbour, Whippoorwill and Isetan.
Holders
The number of record holders of Holdings Common Stock as of
April 25, 2001 is 983.
Dividends
Each share of Holdings Common Stock will be entitled to
participate equally in any dividend declared by the Board of Directors and paid
by Holdings. The guarantee by Holdings of the Company's new working capital
facility prohibits Holdings from declaring dividends on shares of its capital
stock, with the exception of dividends payable to the holders of the Preferred
Stock. The Company has no present intention to declare dividends on the Holdings
Common Stock.
Significant Stockholders
Bay Harbour and Whippoorwill collectively beneficially own
approximately 77% of the outstanding shares of Holdings Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management" in the Proxy
Statement which is incorporated herein by reference. Accordingly, they may be in
a position to control the outcome of actions requiring stockholder approval,
including the election of directors. This concentration of ownership could also
facilitate or hinder a negotiated change of control of Holdings and,
consequently, have an impact upon the value of Holdings Common Stock. Further,
the possibility that either Bay Harbour or Whippoorwill may determine to sell
all or a large portion of their shares of Holdings Common Stock in a short
period of time may adversely affect the market price of Holdings Common Stock.
In addition, Bay Harbour and Whippoorwill have entered into a stockholders'
agreement with respect to their ownership in, and the voting of the capital
stock of, Holdings. See "Certain Relationships and Related Transactions.
10
29
ITEM 6. SELECTED FINANCIAL DATA
Selected Historical Financial Data
The following table presents selected historical financial
data as of and for the year ended February 3, 2001 ("Fiscal 2000"), Fiscal 1999,
the six months ended January 30, 1999 and each of the three fiscal years in the
period ended August 1, 1998. The selected historical data should be read in
conjunction with the financial statements and the related notes and other
information contained elsewhere in this Form 10-K, including information set
forth herein under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In conjunction with its emergence from Chapter 11, the Company
changed its fiscal year-end to the Saturday closest to January 31. Previously,
the fiscal year-end fell on the Saturday closest to July 31. A January fiscal
year-end is in line with retail industry practice as it coincides with the end
of the fall/holiday season. Unless otherwise specified, all historical
information prior to August 1, 1998 reflects the July fiscal year-end. The Fall
1998 Stub Period represents the six month transition period to the new fiscal
year.
The historical financial data as of and for each of the three
fiscal years in the period ended August 1, 1998, each of the two fiscal years in
the period ended February 3, 2001, and for the six months ended January 30, 1999
are derived from financial statements audited by Ernst & Young LLP, independent
auditors. Information for the twelve months ended January 30, 1999 and the six
months ended January 28, 1998 is derived from management's internal financial
statements.
11
Successor Company Predecessor Company1
--------------------- ---------------------------------------------
Twelve
Fiscal Fiscal months Six Six Fiscal Fiscal Fiscal
year year ended months months year year year
Ended ended January Ended Ended ended ended ended
February January 30, January January August 1, August 2, August 3,
3, 2001 29, 2000 1999(2)(3) 30, 1999(3) 28, 1998 1998 1997 1996
------------------------------------------------------------------------------------------
($ in thousands)
Income Statement Data
Net sales4 $404,321 $365,577 $340,863 $181,657 $183,760 $342,967 $361,496 $ 366,424
Operating income (loss) 12,879 7,985 8,183 10,301 10,177 8,061 (15,030) (29,415)
Net income (loss)2 610 (5,346) (24,160) 277,576 (4,123) (19,953) (94,973) (71,869)
Balance Sheet Data:
Working capital $ 55,751 $ 48,547 $ 41,064 $ 41,064 $(20,216) $(32,249) $(19,443) $ 19,596
(deficiency)
Total assets 323,859 324,482 343,954 343,954 212,637 217,043 216,246 264,828
Long-term debt 89,315 105,915 118,533 118,533 - - - -
Redeemable preferred stock 500 500 500 500 - - - -
Selected Operating Data
Comparable store net sales
increase (decrease) 9.7% 9.0% 4.3% 1.0% 1.0% 9.3% (1.0%) 4.5%
Number of stores
Full-price stores 8 7 7 7 7 7 10 13
Outlet stores 10 9 13 13 13 13 10 7
------------------------------------------------------------------------------------------
Total stores 18 16 20 20 20 20 20 20
- -------------------
1 Effective January 1999, the Company changed its fiscal year to coincide
with the Saturday closest to the end of January.
2 For comparison purposes the twelve months ended January 30, 1999
(unaudited) was prepared using management's internal financial
statements for the six months ended August 1, 1998 (unaudited) and the
audited financial statements for the Fall 1998 Stub Period. The income
statement data excludes the effects of the extraordinary item
($285,905) recorded in the Fall 1998 Stub Period.
3 The income statement data presented above reflects the results of
operations for the Predecessor Company. The Plan became effective on
January 28, 1999 and the results of operations for the Successor
Company for the two-day period are immaterial and are not shown
separately. The balance sheet data presented as of January 30, 1999 is
that of the Successor Company.
4 Net sales excludes bulk sales of merchandise to jobbers in order to
enhance comparability of data presented.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
The Company was profitable in Fiscal 2000. Sales for the year
increased 10.6% to $404.3 million fueled by a comparable store sales increase of
9.7%. Selling, general and administrative expenses declined as a percentage of
sales to approximately 40% from approximately 42% in the prior year. The
combination of the above increased earnings before interest, taxes, depreciation
and amortization ("EBITDA") to $30.9 million in Fiscal 2000 from $25.4 million
in the prior year.
The table which follows includes a percentage reconciliation
of net sales to EBITDA and also includes net income (loss) as a percentage of
sales for Fiscal 2000 (53 weeks), Fiscal 1999 (52 weeks), the twelve months
ended January 30, 1999 (unaudited), the six months ended January 30, 1999 and
January 31, 1998 (unaudited) and Fiscal 1998 (52 weeks). The Company believes
EBITDA is a useful statistic since it eliminates both the cost of the capital
structure and non-cash charges (which can vary dramatically by company) from the
operating results of the Company. However, EBITDA should be considered in
addition to, not as a substitute for, operating income, net income (loss), cash
flow and other measures of financial performance and liquidity reported in
accordance with accounting principles generally accepted in the United States.
While the table below excludes a reconciliation of EBITDA to net income (loss),
the narratives that follow contain a discussion of interest expense,
depreciation and amortization, and reorganization costs for the periods
presented, as necessary.
Successor Company | Predecessor Company
---------------------|---------------------------------------------
| Twelve Six Six
| months Months Months
Fiscal Fiscal | Ended Ended Ended Fiscal
2000 1999 | 1/30/99 1/30/99 1/31/98 1998
---------------------|---------------------------------------------
Net sales 100.0% 100.0% | 100.0% 100.0% 100.0% 100.0%
Cost of sales 53.6 52.7 | 53.4 52.6 51.1 52.5
---------------------|---------------------------------------------
Gross profit 46.4 47.3 | 46.6 47.4 48.9 47.5
|
Selling, general and administrative |
expenses (including occupancy 40.0 41.6 | 42.6 40.3 42.5 43.7
expenses)(1) |
Other (income) expense, net (1.2) (1.2) | (1.1) (1.1) (1.8) (1.4)
|
---------------------|---------------------------------------------
Earnings before Interest, Taxes, |
Depreciation and Amortization (EBITDA) 7.6 6.9 | 5.1 8.2 8.2 5.2
Net income (loss)(2) 0.2% (1.5)%| (7.0)% 152.0% (2.2)% (5.8)%
=====================|=============================================
- ---------------------------
1 Selling, general and administrative expenses in 2000 include the benefit of a
$1.5 million reversal of a Predecessor Company liability favorably settled in
the current year. Excluding such amount, the category as a percent of sales
would have been 40.3%.
2 Net income for the six months ended January 30, 1999 includes the effect of an
extraordinary gain on discharge of debt of $285.9 million. Net income for the
twelve months ended January 30, 1999 excludes the effect of the aforementioned
extraordinary gain for comparability purposes.
13
REORGANIZATION PERIOD
Prior to the Effective Date, the Company's financial results
were impacted as a result of its filing for reorganization under Chapter 11 of
the Bankruptcy Code on the Filing Date. After the Filing Date, the Company
devoted a significant amount of time to analyzing its cost structure to develop
cost-reduction initiatives to improve the overall financial condition and
operating results of the Company. During the reorganization period, the Company
incurred significant reorganization costs principally related to the closure of
under-performing stores, professional fees for legal, accounting and business
advisory services, payroll and related costs including termination costs and a
key employee retention program, and other reorganization costs.
On the Effective Date, the Company restructured its
capitalization in accordance with the Plan. The application of "fresh start"
reporting provisions of the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7") as of the Effective Date included
adjustments to record assets and liabilities at their fair market values. Also
on the Effective Date, certain of the settlements contained in the Plan and the
value of the cash and securities distributed by the Company in settlement of the
claims resulted in an extraordinary gain of $285.9 million. Further, the Company
recognized reorganization value in excess of amounts allocable to identifiable
assets ("Excess Reorganization Value") of $177.8 million. This excess
reorganization value is being amortized by the straight-line method over 20
years.
In January 1999, the Company entered into a $120,000,000
revolving credit facility (the "Credit Agreement") with Citicorp USA, Inc.,
General Electric Capital Corporation, BNY Financial Corporation, and National
City Commercial Finance, Inc. that matures on January 28, 2003. The proceeds
from this facility were used to repay borrowings under the debtor in possession
credit agreement with BankBoston N.A., to pay certain claims, to pay
professional fees and to provide working capital to the Company as it emerged
from its Chapter 11 proceeding pursuant to the Plan.
The balance sheet information at January 30, 1999 included
under "Selected Historical Financial Information" reflects the Plan and the
application of the principles of "fresh start" reporting in accordance with the
provisions of SOP 90-7. Accordingly, such financial information is not
comparable to the Company's historical financial information prior to the
Effective Date.
For further information regarding the reorganization period,
the Plan, and Fresh-start reporting, see Note 12 to the Consolidated Financial
Statements.
Fiscal 2000 Compared to Fiscal 1999
Net Sales for Fiscal 2000 (including $2.5 million related to
new stores) were $404.3 million compared to $366.8 million in Fiscal 1999, an
increase of 10.2%. Fiscal 2000 included 53 weeks; after adjusting for the impact
of the 53rd week in Fiscal 2000, sales increased 8.7%. Exclusive of bulk sales
of merchandise to jobbers ("Bulk Sales") of $1.2 million in Fiscal 1999, sales
to the Company's core consumers through its stores increased 9.1%. Net sales for
Fiscal 2000 and Fiscal 1999 also includes $0.2 million and $4.9 million,
respectively, generated from stores closed under the Company's store closing
program, completed in March 2000. Comparable store sales increased approximately
9.7% in Fiscal 2000 principally due to a comparable store increase of 12.3% in
the full-price and outlet stores offset by reduced sales in the Company's
warehouse sale events attributed, in part, to an abbreviated selling period for
certain of the events. Though sales trends weakened in the fourth quarter, the
Company's sales for the year generally benefited from a strong economy, a strong
flow of new receipts into the stores, increased advertising and marketing
efforts, strong trends in certain merchandise classifications including men's
casual and designer sportswear and women's ready-to-wear and jewelry, as well as
the continuing efforts to initiate markdowns in a timely fashion.
Gross profit on sales increased 8.1% to $187.6 million in
Fiscal 2000 from $173.5 million in Fiscal 1999, primarily due to the increased
sales volume. As a percentage of net sales, gross profit was 46.4% in Fiscal
2000 compared to 47.3% in the prior year. The decline from the prior year
principally relates to the effect of increased markdowns and inventory reserves
in light of the softening sales trends.
14
Selling, general and administrative expenses, including
occupancy expenses, increased 6.0% in Fiscal 2000 to $161.5 million from $152.4
million in Fiscal 1999. This increase was principally driven by higher personnel
costs of $5.4 million associated in part with annual wage increases; higher
energy costs including a $0.7 million increase in utilities; and increases in
certain expenses, such as commission costs, third party credit card fees and
customer loyalty program expenses associated with the increased sales volume. In
addition, advertising costs increased $2.9 million from the year ago period to
1.6% of sales in Fiscal 2000 from 1.0% in Fiscal 1999 as part of the Company's
continuing efforts to both drive sales and strengthen its brand equity. These
increases were partially offset by a $1.5 million reversal of a Predecessor
Company liability favorably settled in the current year. As a percent of sales,
selling, general and administrative expenses declined to 40.0% in Fiscal 2000
from 41.6% in the prior year principally due to tighter management and
leveraging of expenses against the approximate 10% increase in sales.
Depreciation and amortization expense increased 3.4% in Fiscal
2000 to $18.0 million from $17.4 million in the prior year. This increase was
primarily due to higher depreciation on new assets placed in service.
Interest expense, net decreased 9.6% in Fiscal 2000 to $11.7
million from $13.0 million a year ago. Interest associated with borrowings under
the Company's credit facility declined principally as a result of lower average
borrowings. Average borrowings under the credit facility for Fiscal 2000 and
Fiscal 1999 were $44.4 million and $62.9 million, respectively, and the
effective interest rate on this portion of the Company's outstanding debt was
12.2% and 11.2%, respectively, in the comparable periods.
The Company's net income for Fiscal 2000 was $0.6 million
compared to a loss of $5.3 million in Fiscal 1999. Basic and diluted net income
per common share for Fiscal 2000 was $0.04 per common share compared to a $0.42
loss per common share in Fiscal 1999.
Fiscal 1999 Compared to the Twelve Months Ended January 30, 1999
Fiscal 1999 represents the first full year of operation for
the Company subsequent to its emergence from Bankruptcy on the Effective Date.
The primary settlements in the Plan impacting comparability and the 1999
operating results are those reached with Isetan and the Equipment Lessors. These
settlements are more fully described in Note 12 to the Consolidated Financial
Statements. In accordance with the Isetan settlement and the amended flagship
leases, rent expense for these properties increased to approximately $15.8
million in 1999 compared to approximately $9.2 million in the prior twelve month
period. In accordance with the Equipment Lessors settlement, the Company became
the owner of the Equipment underlying the related leases eliminating
approximately $5.5 million in rental payments in 1999. Both of these items are
included in selling, general and administrative expenses, therefore, the net
impact was an approximate $1.1 million increase to this expense caption.
Additional factors impacting comparability was the closure of four outlet stores
in Fiscal 1999, which contributed to a $2.6 million decline in year over year
sales and the closure of the Costa Mesa, California full-price store in July
1998 generating a year over year sales decline of approximately $2.9 million.
In addition to the above, at the time of its emergence from
bankruptcy, the Company changed its fiscal year-end to the Saturday closest to
January 31. Therefore, the financial information for the twelve months ended
January 30, 1999 includes the audited Fall 1998 stub period combined with the
unaudited internal financial results for the six months ended August 1, 1998,
which period also coincided with the end of Fiscal 1998 and therefore also
subject to year-end adjustments as part of the Fiscal 1998 annual audit. These
"year-end" adjustments affect the comparability of operating results.
Net Sales for Fiscal 1999 were $366.8 million compared to
$344.8 million last year, an increase of 6.4%. Bulk sales of merchandise to
jobbers ("Bulk Sales") was $1.2 million in Fiscal 1999 compared to $3.9 million
in the prior 12 month period. Exclusive of these sales, sales to the Company's
core consumers through its stores increased 7.3%. Net sales for Fiscal 1999 also
includes $4.9 million generated from stores closed under the Company's store
closing program, completed in March 2000. Comparable store sales increased
approximately 9.0% in Fiscal 1999 principally due to a comparable store increase
of 9.2% in the full-price stores. The Company's sales benefited from a strong
economy as well as a strong flow of new receipts into the stores, the
introduction of new vendor resources, strong trends in certain merchandise
classifications including men's tailored clothing and women's accessories, as
15
well as the implementation of a strategy to initiate markdowns in a more timely
fashion to maximize inventory turn.
Gross profit on sales increased 7.9% to $173.5 million in
Fiscal 1999 from $160.9 million for the twelve months ended January 30, 1999,
primarily due to the increased sales volume. Principally as a result of reduced
volume, markdowns on Bulk Sales declined approximately $1.8 million in the
current year. As a percentage of net sales, gross profit was 47.3% in Fiscal
1999 compared to 46.6% in the prior twelve months. The effect of the increased
markdowns in Fiscal 1999 were more than offset by approximately $1.6 million of
foreign exchange gains realized on settlement of foreign denominated merchandise
purchases. In addition, the year ago period included an expense of approximately
$0.7 million, principally to reserve for aged vendor chargebacks. Such expense
was substantially reduced in the current year.
Selling, general and administrative expenses, including
occupancy expenses, increased 3.8% in Fiscal 1999 to $152.4 million from $146.9
million in the prior twelve months. Selling, general and administrative expenses
declined to 41.6% of sales in Fiscal 1999 from 42.6% in the prior twelve months
principally due to tighter management and leveraging of expenses.
Selling, general and administrative expenses in the twelve
months ended January 30, 1999 were impacted by year-end adjustments made to
certain employee benefit costs. The most significant items impacted were pension
expense which increased approximately $.8 million, and medical costs which
increased approximately $.6 million. These increases were partially offset by a
$1.1 million reduction in union pension expense as a result of a non-recurring
charge recorded in the prior twelve month period, approximating $.9 million, to
effectuate the withdrawal from one of the union-sponsored multi employer pension
plans. There was no comparable charge in Fiscal 1999. Further, increases in
costs such as legal fees, due in part to incremental services provided as a
public registrant as well as renegotiations of several union contracts, and
commission expense and credit card fees, in connection with the aforementioned
sales growth, and occupancy costs in line with contractual inflationary
increases, were offset in part by the non-recurring costs related to prior store
closures.
As a direct consequence of the Plan of Reorganization becoming
effective, occupancy expense for the Company's three flagship stores in New
York, Beverly Hills and Chicago for Fiscal 1999 as compared to the prior twelve
months increased more than $6.5 million due to increased rent expense in
accordance with the renegotiated leases for these properties. This increase in
occupancy costs, however, was substantially offset by the elimination of expense
associated with certain equipment previously leased by the Predecessor Company,
again as a direct consequence of the Plan of Reorganization becoming effective.
Depreciation and amortization expense increased 84.2% in
Fiscal 1999 to $17.4 million from $9.5 million in the prior twelve months. This
increase was primarily due to the amortization of the excess reorganization
value.
Interest expense increased 16.3% in Fiscal 1999 to $13.0
million from $11.1 million in the prior twelve months. Interest associated with
borrowings under the Company's credit facility declined significantly from the
interest expense associated with the borrowings of the Predecessor Company under
the debtor in possession credit agreement due to a lower effective interest
rate, driven by a reduction in the portion of interest expense associated with
the amortization of related bank fees, as well as lower average borrowings. This
reduction was offset by approximately $6.4 million of interest expense
associated with the new notes issued pursuant to the Plan of Reorganization.
Average borrowings under the Revolving Credit Facility for
Fiscal 1999 and under the Predecessor Company's debtor in possession credit
agreement for the twelve months ended January 30, 1999 were $62.9 million and
$75.5 million, respectively, and the effective interest rate on this portion of
the Company's outstanding debt was 11.2% in Fiscal 1999 compared to 13.6% in the
comparable period of the prior year.
There were no reorganization costs incurred subsequent to the
Plan of Reorganization becoming effective.
16
The Company's net loss for Fiscal 1999 was $5.3 million which
cannot be meaningfully compared to the prior twelve month period as a result of
the fresh start adjustments recorded in that period. Basic and diluted net loss
per common share for Fiscal 1999 was $0.42 per common share. Earnings per common
share of the Predecessor Company has not been included herein as the computation
would not provide meaningful results as the capital structure of the Successor
Company is not comparable to that of the Predecessor Company.
Six Months Ended January 30, 1999 Compared to the Six Months Ended January 31,
1998
The emergence from Chapter 11 proceedings effective January
28, 1999 as well the implementation of the store closing program announced in
1997 are the primary factors affecting comparability of operating results. The
store closings in 1998 were as follows: the 17th Street flagship store in
mid-August 1997; the Connecticut full-price store in January 1998; and the Costa
Mesa, California full-price store in July 1998. In the six months ended January
31, 1998, the Company opened new outlet stores in Hawaii, Massachusetts and
California.
In addition to the above, the six months ended January 30,
1999 represented an abbreviated reporting period of the Predecessor Company
whereas the six months ended January 31, 1998 coincided with the end of the
second quarter of the Predecessor Company. As a result, there are certain
"year-end" adjustments in the six months ended January 30, 1999, discussed
below, which affect the comparability of operating results with the same periods
in Fiscal 1998.
Until its emergence from bankruptcy in January 1999, Barneys
was owned by the Pressman Family, certain affiliates of the Pressman Family and
certain trusts of which members of the Pressman Family were the beneficiaries.
In prior years, the Company had entered into various transactions and agreements
with Pressman-family controlled entities, including Preen Realty Inc. ("Preen")
and certain of its subsidiaries. Preen and certain of its subsidiaries were
shareholders of the Predecessor Company and were primarily engaged in the
operation of real estate properties, certain of which were leased to the
Company. The type of property leased included store, warehouse and office space.
Prior to the Filing Date through the Effective Date, the Company incurred
certain normal operating costs, principally personnel costs, on behalf of Preen.
This situation arose as both entities shared the same corporate office space and
certain employees (including officers) of the Company were providing services to
Preen. After the Filing Date, the Company also incurred and paid reorganization
costs, including legal, accounting and business advisory services, on behalf of
Preen which was also operating as a debtor in possession pursuant to the
Bankruptcy Code. While the Company routinely allocated to Preen a share of both
the normal operating costs and reorganization costs incurred on its behalf, it
was unclear (because of the bankruptcy) whether Preen would have the ability to
repay such amounts in the future. Accordingly, at the time of such charges
reserves were provided in the operating results of the Predecessor Company. In
December 1998, principally in connection with the approval of the Plan and the
settlements included therein, collectibility issues of certain amounts due from
Preen were resolved. Accordingly, the Company was able to reduce its affiliate
receivable reserve by approximately $1.9 million, principally representing cash
payments from Preen in satisfaction of a portion of the outstanding receivable
balance. This reserve reversal reduced selling, general and administrative
expenses and reorganization costs by approximately $0.5 million and $1.4
million, respectively, in the six months ended January 30, 1999.
Net Sales for the six months ended January 30, 1999 were
$182.6 million compared to $183.8 million a year ago, a decrease of 0.7%. This
decrease is primarily attributable to the three full-price store closings since
July 1997. Included in net sales for the six months ended January 31, 1998 is
$5.8 million generated from stores closed under the Company's store closing
program, completed in July 1998. Comparable store sales increased approximately
1%, principally due to an increase at full-price stores offset by weakness in
both the outlet and warehouse sale event locations.
Gross profit on sales decreased 3.7% to $86.6 million for the
six months ended January 30, 1999 from $89.9 million for the six months ended
January 31, 1998, primarily due to lower revenues as a result of the store
closings. As a percentage of net sales, gross profit was 47.4% for the six
months ended January 30, 1999 compared to 48.9% in the year ago period. The
decrease resulted primarily from increased promotional markdowns in the outlet
and warehouse sale event locations, markdowns associated with the bulk sale of
merchandise to jobbers and non-recurrence of favorable variances on foreign
currency denominated purchases in the year ago period.
17
Selling, general and administrative expenses, including
occupancy expenses, declined 5.7% in the six month period ended January 30, 1999
to $73.6 million from $78.1 million in the prior year. This decrease was due in
part to reductions in personnel and occupancy costs of $1.9 million related to
the store closings and corporate headcount reductions as well as continuing
improvements from the Company's cost-reduction initiatives.
In addition to the above, in the six months ended January 30,
1999 "year-end" adjustments were made to certain employee benefit costs. The
most significant items impacted were pension expense, which in the six months
ended January 30, 1999 was recorded at the actual amount of the contribution as
compared to an estimated contribution in the six months ended January 30, 1998
and medical costs. Medical costs were significantly below the prior year due
principally to savings from a carrier change, which reduced annual premiums
approximately $1.0 million, and to an extent, positive trends in this cost.
Combined savings in these two areas alone exceeded $1.5 million. These savings
were partially offset in the six months ended January 30, 1999 by an approximate
$.9 million charge to effectuate the withdrawal from one of the union-sponsored
multi-employer pension plans. There was no comparable charge in the six months
ended January 30, 1998.
There was no royalty income in the six months ended January
30, 1999, compared to $1.7 million in the prior year. The six months ended
January 31, 1998 includes $1.3 million received by the Company in consideration
for terminating a license agreement at the request of the third party licensee,
during the year.
Interest expense decreased 14.7% in the six months ended
January 30, 1999 to $4.8 million from $5.6 million a year ago. Higher interest
expense associated with the Company's short-term borrowings was offset by a
significant reduction in the portion of interest expense associated with the
amortization of related bank fees. The fee to extend the Revolving Credit and
Guaranty Agreement with BankBoston, N.A. and other lenders party thereto (the
"DIP Credit Agreement") to February 1, 1999 from August 1, 1998 was minimal in
relation to the original DIP Credit Agreement fees. Average borrowings for the
26 week periods ended January 30, 1999 and January 31, 1998 were $82.0 million
and $67.0 million, respectively, and the effective interest rate on the
Company's outstanding debt was 10.0% in the six months ended January 30, 1999
compared to 16.5% in the prior year.
Reorganization costs increased 59.3% to $13.8 million in the
six months ended January 30, 1999 from $8.7 million in the year ago period. This
increase is mainly attributable to costs triggered in connection with the
negotiation and consummation of the Plan as well as higher employee separation
costs. Included in these amounts for the respective periods are professional
fees of $3.6 million (including $2.4 million for professionals retained by the
Plan Investors) and $5.1 million, respectively. Professional fees include legal
fees which increased to $3.4 million in the current period from $3.3 million in
the year ago period; accounting and tax fees which declined to $(0.3) million in
the current period from $0.4 million in the year ago period; and investment
advisory fees which declined to $0.6 million in the current period from $1.3
million in the year ago period. In the current year, substantially all of the
professional fees discussed above were reduced by settlements reached with the
various professional services firms with respect to fees held back but not paid
throughout the bankruptcy case and, as discussed above, the cash payment from
Preen reimbursing certain reorganization costs. In the case of the accounting
and tax fees, the settlement and reimbursement reduced the expenses for the six
months ended January 30, 1999 below zero. Additionally, investment advisory fees
declined principally due to a reduction in fees negotiated with the firm
providing services to the debtors since the firm representing the official
committee of unsecured creditors was assuming a larger role in the bankruptcy
resolution process. In addition, Reorganization costs include provisions of $1.0
million and $1.3 million for a key employee retention program, other payroll and
related costs of $4.3 million and $1.0 million which include separation costs of
$3.0 million covering 11 individuals (inclusive of employees of Meridian
Ventures, Inc.) and $0.5 million covering 6 individuals, respectively and other
miscellaneous costs (including principally administrative costs of the
bankruptcy, public relations costs and costs attributed to closed stores) of
$4.9 million and $1.3 million. The increase in other miscellaneous costs is
principally attributed to the remaining fee due Dickson Concepts of $3.5 million
in connection with the termination of the Dickson Concepts proposed purchase
agreement.
The Company recognized a gain of $285.9 million principally
related to settlements pursuant to the Plan and debt discharged in the Company's
emergence from Chapter 11 reorganization in January 1999.
18
LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
Cash Provided by (Used in) Operations and Working Capital. For
the reporting periods below, net cash provided by (used in) operations was as
follows ($ in thousands):
Twelve
Months Six Months Six Months
Fiscal Fiscal Ended Ended Ended Fiscal
Year Year Jan. 30, Jan. 30, Jan. 31, Year
2000 1999 1999 1999 1998 1998
------------ ------------- ------------ ------------- ------------- ------------
Net income (loss) $ 610 $ (5,346) $261,746 $277,576 $ (4,123) $(19,953)
Depreciation and amortization 19,107 18,456 11,328 5,259 7,364 13,433
Other non-cash charges 2,999 4,307 (289,324) (290,768) (115) 1,329
Changes in current assets and liabilities 326 (2,412) (10,435) (10,317) (5,135) (5,253)
------------ ------------- ------------ ------------- ------------- ------------
Net cash provided by (used in)
operating activities $ 23,042 $ 15,005 $(26,685) $(18,250) $ (2,009) $(10,444)
============ ============= ============ ============= ============= ============
In the periods presented, the Company's primary source of
liquidity has been borrowings under various credit facilities (see description
of the various credit facilities in the following section). However, continued
operating improvements and enhanced credit support from the vendor community
have lessened the Company's dependence on this source of liquidity.
Prior to the Effective Date the Company's inability to
generate sufficient cash from operations and, accordingly, its need to provide
liquidity through credit facility borrowings were primarily due to: the lack of
full credit support from the vendor community, due to the chapter 11
reorganization, which necessitated certain prepayment of merchandise vendors;
and the growth of the Company's private label credit card portfolio, which was
financed by the Company's credit facilities.
Due to the items described above, prior to the Effective Date,
the Company had a working capital deficiency after the first post chapter 11
fiscal year-end through the emergence from chapter 11 on January 28, 1999. The
Company's working capital position at each year-end or period is as follows ($
in thousands):
At At At | At At At
Feb. 3, 2001 Jan. 29, 2000 Jan. 30, 1999 | Jan. 28, 1999 Jan. 31, 1998 August 1, 1998
------------ ------------- ------------- | ------------- ------------- --------------
Working capital |
(deficiency) $55,751 $48,547 $41,064 | $(40,316) $(20,216) $(32,249)
============== ============== ==============| =============== ============== ==============
Working capital (deficiency) for all periods above are
inclusive of the amount then outstanding on the credit facilities that existed
at the time, except for February 3, 2001 and January 30, 1999, where the amounts
then outstanding on the credit facility of $32,232,000, and $49,177,000,
respectively, are classified as long term. The classifications are based on the
terms of the credit facilities that existed at the time.
For the reporting periods below, net cash (used in) provided
by financing activities was as follows:
($ in thousands) Fiscal Fiscal | Twelve Months Six Months Six Months Fiscal
Year Year | Ended Ended Ended Year
2000 1999 | Jan. 30, 1999 Jan. 30, 1999 Jan. 31, 1998 1998
-------------- ---------------| -------------- --------------- -------------- ---------------
Net cash (used in) |
provided by |
financing activities $(9,750) $(7,911) | $36,051 $26,902 $2,175 $11,324
============== ===============|============== =============== ============== ===============
Net cash used in financing activities for Fiscal 2000 and
Fiscal 1999 includes approximately $7 million and $5 million, respectively, from
the exercise of stock options and warrants principally by Bay Harbour and
Whippoorwill.
19
Capital Expenditures. The Company incurred approximately
$8,500,000 for Capital Expenditures for Fiscal 2000. Of the total capital
expenditures, $6,065,000 represented leasehold improvements, $1,646,000 was
spent on furniture, fixtures and equipment and $789,000 was spent on management
information systems.
A significant portion of the amount spent pertained to
building out and reconfiguring existing retail space and new store openings.
Included in Fiscal 2000 are costs associated with the reconfiguration of certain
space at the New York flagship store in connection with the planned relocation
of the existing restaurant and cosmetics businesses, as well as the expansion of
the main floor women's accessories business. In addition, the Company began
implementing a project to replace all the point of sale registers in its retail
facilities. This project is expected to be completed in the third quarter of
fiscal 2001. Notwithstanding this project, significant additional capital
expenditures will be required for the Company to upgrade its management
information systems.
Credit Facilities. On January 28, 1999, the Company entered
into a four year Credit Agreement with several financial institutions led by
Citicorp USA, Inc. The Credit Agreement provides a $120,000,000 revolving credit
facility with a $40,000,000 sublimit for the issuance of letters of credit. The
proceeds from this facility were used to refinance the debtor-in-possession
credit agreement with BankBoston N.A., to pay certain claims pursuant to the
chapter 11 plan of reorganization, to pay professional fees, to fund working
capital in the ordinary course of business and for other general corporate
purposes not prohibited thereunder. Obligations under the Credit Agreement are
secured by a first priority and perfected lien on substantially all unencumbered
assets of the Company.
Revolving credit availability is calculated as a percentage of
eligible inventory (including undrawn letters of credit) and Barneys New York
credit card receivables plus $20,000,000 in Trademark availability (such amount
subject to a downward adjustment as defined). The amount of Trademark
availability at the end of February 2, 2002 will be $10,000,000. Interest rates
on the Credit Agreement are either the Base Rate (as defined) plus 1.25% or
LIBOR plus 2.25%, subject to adjustment after the first year. The Credit
Agreement also provides for a fee of 1.25% to 1.75% per annum on the daily
average letter of credit amounts outstanding and a commitment fee of 0.375% on
the unused portion of the facility.
The Credit Agreement contains various financial covenants
principally relating to net worth, leverage, earnings and capital expenditures
as outlined below. With the exception of the capital expenditures covenant,
which is a covenant measured on an annual basis, the remaining covenants
discussed herein are required to be measured on a quarterly basis. During the
fiscal year-ending February 2, 2002, the Credit Agreement covenants do not allow
for any material deviation from the Company's business plan for such year. As of
February 3, 2001, the Company was in compliance with each of the covenants
contained in the Credit Agreement.
Minimum consolidated net worth. Shall not be less than
$140,000,000 through 2000 and $150,000,000 through 2002.
Leverage ratio. On a consolidated basis, as determined as of
the last day of each fiscal quarter for the twelve-month period ending on such
day, shall not be greater than 7.0 at February 3, 2001; 4.5 at the end of 2000;
3.5 at the end of 2001; and 3.0 at the end of 2002.
Minimum consolidated EBITDA. As of the last day of each fiscal
quarter for the trailing twelve-month period ending on such day, EBITDA shall
not be less than certain minimum amounts, subject to escalation during the
fiscal year. The minimum amount at the end of Fiscal 1999 is $20,000,000;
$25,000,000 at the close of Fiscal 2000; $30,000,000 at the close of Fiscal
2001; and $35,000,000 at the close of Fiscal 2002.
Capital Expenditures. The Company's total capital expenditures
for Fiscal 2000 were capped at $7,500,000 with gradual increases throughout the
term of the agreement, and are subject to upward adjustment and, if certain
conditions are met, may be eligible for carryover to a future period. For Fiscal
2001, the cap on capital expenditures is $7,750,000 subject to upward
adjustments.
At February 3, 2001, the Company had approximately $38,788,000
of availability under the Credit Agreement, after consideration of $32,232,000
of revolving loans and $25,731,000 of letters of credit outstanding.
20
Effective March 2001, the Company and the lenders under the
Revolving Credit Facility entered into an amendment reducing the earnings before
interest, taxes, depreciation and amortization ("EBITDA") covenant for the
second and third quarters of Fiscal 2001 each by $5 million to $25 million.
Effective June 1999 and March 2000, the Company and the
lenders under the Revolving Credit Facility entered into amendments thereto
adjusting the definition of earnings before interest, taxes, depreciation and
amortization ("EBITDA") to allow for the inclusion of up to $3 million of cash
equity contributed to the Company during the fiscal year ended January 29, 2000
and the succeeding two fiscal years as part of EBITDA, as defined.
Management believes that it will be in compliance with the
financial covenants contained in the Credit Agreement for the fiscal year ending
February 2, 2002. However, any material deviations from the Company's forecasts
could require the Company to seek additional waivers or amendments of covenants,
alternative sources of financing or to reduce expenditures. There can be no
assurance that such waivers, amendments or alternative financing could be
obtained, or if obtained, would be on terms acceptable to the Company.
During fiscal year 1996 through January 28, 1999, the
Company's working capital was provided by various credit facilities in effect
during the period. Credit facilities that existed at the Filing Date were
ultimately not repaid in full, but settled as part of the Plan. During the
Chapter 11 period, the Company entered into two debtor-in-possession credit
facilities, the first of which was repaid in full pursuant to a refinancing on
July 16, 1997 and the second which was repaid in full pursuant to the Credit
Agreement dated January 28, 1999.
Seasonality
The Company's business is seasonal, with higher sales and
earnings occurring in the quarters ending in October and January of each year.
These two quarters, which include the holiday selling season, coincide with the
Company's fall selling season. Additionally, net sales and cash flow are
favorably impacted in the quarters ending in April and October by the seasonal
warehouse sale events in New York and Santa Monica.
The following table sets forth sales and net income (loss) for
Fiscal 2000 and Fiscal 1999. This quarterly financial data is unaudited but
gives effect to all adjustments necessary, in the opinion of management of the
Company, to present fairly this information. In addition, EBITDA is presented in
accordance with the definition above.
2000 - Quarter Ended 1999 - Quarter Ended
----------------------------------------------------------------------------------------
($ in thousands) 4/29/00 7/29/00 10/28/00 2/3/01 5/1/99 7/31/99 10/30/99 1/29/00
----------------------------------------------------------------------------------------
Net Sales $96,611 $84,252 $110,228 $113,230 $85,841 $77,923 $ 100,988 $ 102,050
As % of period 23% 21% 28% 28% 23% 21% 28% 28%
EBITDA $ 6,473 $ 3,714 $ 10,865 $ 9,854 $ 3,664 $ 605 $ 9,935 $ 11,221
Net Income (loss) (934) (3,589) 3,283 1,850 (3,791) (6,983) 2,151 3,277
========================================================================================
Six months ended
January 30, 1999 1998 - Quarter Ended
--------------------- ------------------------------------------
($ in thousands) 10/31/98 1/30/99 11/1/97 1/31/98 5/2/98 8/1/98
--------------------- ------------------------------------------
Net Sales $91,640 $90,975 $95,890 $87,870 $90,277 $71,898
As % of period 50% 50% 28% 25% 26% 21%
EBITDA $ 7,380 $ 7,592 $ 7,813 $ 7,201 $ 3,463 $ (781)
Net Income (loss) 94 277,482 (2,438) (1,685) (4,792) (11,039)
===================== ==========================================
21
Inflation
Inflation over the past few years has not had a significant
impact on the Company's sales or profitability.
Economic Climate Risk
As a luxury goods retailer, the Company is subject to economic
risk conditioned upon the general health and stability of the United States
economy. A downturn in the stock market could cause the Company's business to
soften, especially in the New York area.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk Assessment
Market risks relating to the Company's operations result
primarily from changes in interest rates and foreign exchange rates. To address
some of these risks the Company enters into various hedging transactions as
described below. The Company does not use financial instruments for trading
purposes and is not a party to any leveraged derivatives.
Foreign Currency Risk
The Company periodically enters into foreign exchange forward
contracts and option contracts to hedge some of its foreign exchange exposure.
The Company's objective in managing the exposure to changes in foreign currency
exchange is to reduce earnings and cash flow volatility associated with foreign
exchange rate changes to allow management to focus its attention on its core
business issues and challenges. The Company uses such contracts to hedge
exposure to changes in foreign currency exchange rates, primarily in Western
Europe, associated with purchases denominated in foreign currency. The principal
currencies hedged are the Euro, Italian lira, German mark, British pound, and
the French franc. A uniform 10% weakening as of January 29, 2000 in the value of
the dollar relative to the currencies in which the purchases are denominated
would have resulted in a $8.7 million decrease in gross profit for fiscal
year-ended February 3, 2001. Comparatively, the result of a uniform 10%
weakening as of January 31, 1999 in the value of the dollar relative to the
currencies in which the purchases are denominated would have resulted in a $7.7
million decrease in gross profit for Fiscal 2000.
This calculation assumes that each exchange rate would change
in the same direction relative to the United States dollar. In addition to the
direct effects in exchange rates, which are a changed dollar value of the
resulting purchases, changes in exchange rates also affect the volume of
purchases or the foreign currency purchase price as competitor's prices become
more or less attractive.
Interest Rate Risk
The Company's earnings are affected by changes in short-term
interest rates as a result of its revolving credit agreement. If short-term
interest rates averaged 2% more in Fiscal 2000, the Company's interest expense
would have increased, and income before taxes would decrease by $0.9 million.
Comparatively, if short-term interest rates averaged 2% more in Fiscal 1999, the
Company's interest expense would have increased, and loss before taxes would
have increased by $2.1 million. In the event of a change of such magnitude,
management would likely take actions to mitigate its exposure to the change.
However, due to uncertainty of the specific actions that would be taken and
their possible effects, the sensitivity analysis assumes no changes in the
Company's financial structure.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data listed below are included in the
report on the page indicated.
Index
Report of Independent Auditors....................................................................... F-1
Audited Consolidated Financial Statements:
Consolidated Balance Sheets as of February 3, 2001, January 29, 2000,
and January 30, 1999............................................................................ F-2
Consolidated Statements of Operations for fiscal years-ended February 3, 2001,
January 29, 2000, the six months ended January 30, 1999, and fiscal year 1998................... F-3
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for fiscal years-ended February 3, 2001, January 29, 2000,
the six months ended January 30, 1999 and fiscal year 1998...................................... F-4
Consolidated Statements of Cash Flows for fiscal years-ended February 3, 2001,
January 29, 2000, the six months ended January 30, 1999, and fiscal year 1998................... F-5
Notes to Consolidated Financial Statements........................................................... F-6
Schedule II - Valuation and Qualifying Accounts...................................................... F-37
All other schedules are omitted either because they are not applicable or the
required information is disclosed in the Consolidated financial statements or
notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the
section entitled "Election of Directors" in the definitive proxy statement
involving the election of directors in connection with the Annual Meeting of
Stockholders of Holdings to be held on June 20, 2001 (the "Proxy Statement"),
which section (other than the Compensation Committee Report and the Audit
Committee Report) is incorporated herein by reference. The Proxy Statement will
be filed with the Securities and Exchange Commission not later than 120 days
after February 3, 2001, pursuant to Regulation 14A of the Securities Exchange
Act of 1934, as amended.
The information required with respect to executive officers is
set forth in Part I of this report under the heading "Executive Officers of the
Registrant," pursuant to Instruction 3 to paragraph (b) of Item 401 of
Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the
section entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and the Audit Committee Report) is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information to be set forth in the
section entitled "Voting Rights" and "Security Ownership of Management" in the
Proxy Statement, which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the
section entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and the Audit Committee Report) is
incorporated herein by reference.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this
report entitled "List of Financial Statements and Financial Statement Schedules."
(3) Exhibits:
Exhibit Name of Exhibit
2.1 Second Amended Joint Plan of Reorganization for Barney's, Inc. ("Barneys") and certain
of its affiliates proposed by Whippoorwill Associates, Inc. ("Whippoorwill"), Bay
Harbour Management L.C. ("Bay Harbour") and the Official Committee of Unsecured
Creditors dated November 13, 1998 (the "Plan of Reorganization") (1)
2.2 Supplement to the Plan of Reorganization dated December 8, 1998 (1)
2.3 Second Supplement to the Plan of Reorganization dated December 16, 1998 (1)
3.1 Certificate of Incorporation of Barneys New York, Inc. ("Holdings"), filed with the Secretary
of State of the State of Delaware on November 16, 1998 (1)
3.2 Certificate of Designation for Series A Preferred Stock of Holdings filed with the Secretary
of State of the State of Delaware on December 24, 1998 (1)
3.3 By-laws of Holdings (1)
4.1 Specimen of Holdings' Common Stock Certificate (1)
10.1 Credit Agreement, among Barneys, Barneys (CA) Lease Corp., Barneys (NY) Lease Corp., Basco
All-American Sportswear Corp., BNY Licensing Corp. and Barneys America (Chicago) Lease Corp.,
as Borrowers, the lenders party thereto, Citicorp USA, Inc. ("CUSA"), as Administrative Agent
for such lenders, and General Electric Capital Corporation, as Documentation Agent (the
"Credit Agreement"), dated as of January 28, 1999 (1)
10.2 First Amendment to the Credit Agreement dated as of March 23, 1999 (1)
10.3 Second Amendment to the Credit Agreement dated as of June 2, 1999 (2)
10.4 Third Amendment to the Credit Agreement dated as of November 30, 1999 (3)
10.5 Fourth Amendment to the Credit Agreement dated as of March 17, 2000 (5)
10.6 Fifth Amendment to the Credit Agreement dated as of March 30, 2001 (7)
10.7 Guarantee by Holdings in favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.8 Security Agreement by Holdings in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.9 Pledge Agreement by Holdings in favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.10 Pledge Agreement by Barneys in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.11 Security Agreement by Barneys in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.12 Trademark Security Agreement by Barneys and BNY Licensing Corp. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
25
10.13 Cash Collateral Pledge Agreement by Barneys in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.14 Pledge Agreement by Barneys America, Inc. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.15 Security Agreement by Barneys America, Inc. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.16 Security Agreement by PFP Fashions Inc. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.17 Security Agreement by Barneys (CA) Lease Corp. in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.18 Security Agreement by Barneys (NY) Lease Corp. in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.19 Security Agreement by Basco All-American Sportswear Corp. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.20 Security Agreement by Barneys America (Chicago) Lease Corp. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.21 Security Agreement by BNY Licensing Corp. in favor of CUSA as Administrative Agent dated as of
January 28, 1999 (1)
10.22 Subordinated Note issued by Barneys and payable to Isetan of America, Inc. ("Isetan") dated
January 28, 1999 (the "Isetan Note") (1)
10.23 Guarantee by Holdings of the Isetan Note dated January 28, 1999 (1)
10.24 Subordinated Note issued by Barneys and payable to Bi-Equipment Lessors LLC, dated January 28,
1999 (the "Bi-Equipment Lessors Note") (1)
10.25 Guarantee by Holdings of the Bi-Equipment Lessors Note dated as of January 28, 1999 (1)
10.26 Security Agreement by Barneys in favor of Bi-Equipment Lessors LLC dated as of January 28,
1999 (1)
10.27 License Agreement among Barneys, BNY Licensing Corp. and Barneys Japan Co. Ltd. dated as of
January 28, 1999 (1)
10.28 Stock Option Plan for Non-Employee Directors effective as of March 11, 1999. (1)
10.29 Employee Stock Option Plan (6)
10.30 Registration Rights Agreement by and among Holdings and the Holders party thereto dated
as of January 28, 1999 (the "Registration Rights Agreement) (1)
10.31 Amendment No.1 dated as of February 1, 2000, to the Registration Rights Agreement (3)
10.32 Letter Agreement, dated January 28, 1999, among Bay Harbour, Whippoorwill, Isetan and Holdings
(4)
10.33 Employment Agreement between Holdings and Howard Socol effective as of January 8, 2001 (7)
10.34 Registration Rights Agreement between Holdings and Howard Socol dated as of January 8, 2001 (7)
26
Exhibit Name of Exhibit
21 Subsidiaries of the registrant (7)
23 Consent of Independent Auditors (7)
(1) Incorporated by reference to Barneys' Registration Statement on Form 10
(the "Form 10") filed with the Securities and Exchange Commission (the
"Commission") on June 1, 1999.
(2) Incorporated by reference to Barneys' Quarterly Report on Form 10-Q for
the quarter ended May 1, 1999.
(3) Incorporated by reference to Amendment No. 2 to the Form 10 filed with
the Commission on February 15, 2000.
(4) Incorporated by reference to Amendment No. 1 to the Form 10 filed with
the Commission on October 13, 1999.
(5) Incorporated by reference to Amendment No. 3 to the Form 10 filed with
the Commission on April 21, 2000.
(6) Incorporated by reference to Exhibit A to the Proxy Statement of the
Company for its annual meeting of Stockholders held on June 27, 2000.
(7) Filed herewith.
(b) - Reports on Form 8-K - On January 10, 2001 the Company
filed a report under Item 5, Other Events, on Form 8-K, incorporating
by reference the Company's press release announcing the appointment of
Howard Socol as President, Chairman and Chief Executive Officer.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BARNEYS NEW YORK, INC.
(Registrant)
By: /s/ Steven M. Feldman
-----------------------------------
Name: Steven M. Feldman
Title: Executive Vice President and
Chief Financial Officer
Date: May 1, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Name Date
/s/ Shelley F. Greenhaus May 1, 2001
- -------------------------------
Shelley F. Greenhaus
Director
/s/John Halpern May 1, 2001
- -------------------------------
John Halpern
Director
/s/Yasuo Okamoto May 1, 2001
- ---------------------------
Yasuo Okamoto
Director
/s/Allen I. Questrom May 1, 2001
- -------------------------------
Allen I. Questrom
Director
/s/Howard Socol May 1, 2001
- -------------------------------
Howard Socol
Chairman, President, Chief
Executive Officer and Director
/s/Carl Spielvogel May 1, 2001
- -------------------------------
Carl Spielvogel
Director
28
/s/David A. Strumwasser May 1, 2001
- -------------------------------
David A. Strumwasser
Director
/s/Robert J. Tarr, Jr. May 1, 2001
- -------------------------------
Robert J. Tarr, Jr.
Director
/s/Douglas P. Teitelbaum May 1, 2001
- -------------------------------
Douglas P. Teitelbaum
Director
/s/Steven A. Van Dyke May 1, 2001
- -------------------------------
Steven A. Van Dyke
Director
/s/Shelby S. Werner May 1, 2001
- -------------------------------
Shelby S. Werner
Director
/s/Steven M. Feldman May 1, 2001
- -------------------------------
Steven M. Feldman
Executive Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
29
Annual Report on Form 10-K
Item 14(a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year-ended February 3, 2001
Barneys New York, Inc.
New York, New York
Form 10-K--Item 14(a) (1) and (2)
BARNEYS NEW YORK, INC. AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of Barneys New York, Inc. and
subsidiaries, and Barney's, Inc. and subsidiaries, included in the Annual Report
on Form 10-K of the Company for the year ended February 3, 2001, are
incorporated by reference in Item 8:
Consolidated Balance Sheets--February 3, 2001, January 29, 2000 and January 30,
1999
Consolidated Statements of Operations--
Year ended February 3, 2001, January 29, 2000, six months ended January
30, 1999, and the fiscal year ended August 1, 1998
Consolidated Statements of Changes in Stockholders' Equity (Deficit) -- Year
ended February 3, 2001, January 29, 2000, six months ended January 30,
1999, and the fiscal year ended August 1, 1998
Consolidated Statements of Cash Flows
Year ended February 3, 2001, January 29, 2000, six months ended January
30, 1999 and the fiscal year ended August 1, 1998
Notes to Financial Statements
The following consolidated financial statement schedule of Barneys New York,
Inc. and subsidiaries, and Barney's, Inc. and subsidiaries, is included in Item
14(d):
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Barneys New York, Inc.
We have audited the accompanying consolidated balance sheets of Barneys New
York, Inc. and subsidiaries as of February 3, 2001, January 29, 2000 and January
30, 1999, and the related consolidated statements of operations, cash flows, and
changes in stockholder's equity (deficit) for the fiscal year-ended February 3,
2001 and January 29, 2000 (Successor Company), and the six months ended January
30, 1999 and the fiscal year ended August 1, 1998 (Predecessor Company). Our
audits also included the financial statement schedule listed in the index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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.
As more fully described in Note 12 to the consolidated financial statements,
effective January 28, 1999, the Company emerged from protection under Chapter 11
of the U.S. Bankruptcy Code pursuant to a Reorganization Plan which was
confirmed by the Bankruptcy Court on December 21, 1998. Accordingly, the
accompanying January 30, 1999 balance sheet was prepared in conformity with
AICPA Statement of Position 90-7 "Financial Reporting for Entities in
Reorganization Under the Bankruptcy Code," for the Successor Company as a new
entity with assets, liabilities and a capital structure having carrying values
not comparable with prior periods as described in Note 12.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Barneys New York,
Inc. and subsidiaries as of February 3, 2001, January 29, 2000 and January 30,
1999, and the consolidated results of their operations and their cash flows for
the fiscal years ended February 3, 2001, January 29, 2000 and the six months
ended January 30, 1999 and for the fiscal year ended August 1, 1998, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
April 5, 2001
F-1
Barneys New York, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
February 3, January 29, January 30,
2001 2000 1999
----------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 17,369 $ 10,333 $ 6,824
Restricted cash 200 2,443 5,082
Receivables, less allowances of $4,328, $3,599, and $4,356 27,731 28,134 27,841
Inventories 61,232 58,689 65,551
Other current assets 9,194 6,454 6,347
----------------------------------------------------
Total current assets 115,726 106,053 111,645
Fixed assets at cost, less accumulated depreciation
and amortization of $17,585, $8,406 and $0 48,170 48,974 51,356
Excess reorganization value, less accumulated
amortization of $17,581, $8,840 and $0 158,230 166,970 177,767
Other assets 1,733 2,485 3,186
----------------------------------------------------
$ 323,859 $ 324,482 $ 343,954
====================================================
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 24,615 $ 15,760 $ 15,996
Accrued expenses 35,360 41,746 54,585
----------------------------------------------------
Total current liabilities 59,975 57,506 70,581
Long-term debt 89,315 105,915 118,533
Other long-term liabilities 12,276 6,565 -
Series A Redeemable Preferred Stock - Aggregate
liquidation preference $2,000 500 500 500
Commitments and contingencies
Shareholders' equity:
Common stock -- $.01 par value; authorized
25,000,000 shares -- issued 13,903,227 shares
13,076,266 shares and 12,500,000 shares 139 131 125
Additional paid-in capital 166,390 159,211 154,215
Retained deficit (4,736) (5,346) -
----------------------------------------------------
Total shareholders' equity 161,793 153,996 154,340
----------------------------------------------------
$ 323,859 $ 324,482 $ 343,954
====================================================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-2
Barneys New York, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
Successor Company | Predecessor Company
| Six months Fiscal
Fiscal Year Ended | Ended Year Ended
February 3, January 29, | January 30, August 1,
2001 2000 | 1999 1998
----------------------------|-------------------------------
Net sales $ 404,321 $ 366,802 |$ 182,615 $ 345,935
Cost of sales 216,725 193,287 | 96,042 181,723
----------------------------|-------------------------------
|
Gross profit 187,596 173,515 | 86,573 164,212
|
Expenses: |
Selling, general and administrative (including |
occupancy expense of $29,120, $30,524, $11,728, |
and $25,453) 161,523 152,445 | 73,634 151,191
Depreciation and amortization 18,027 17,440 | 4,671 9,635
Royalty income and foreign exchange gains - - | - (1,653)
Other - net (4,833) (4,355)| (2,033) (3,022)
----------------------------|-------------------------------
Income before interest and financing costs, |
reorganization costs, income taxes |
and extraordinary item 12,879 7,985 | 10,301 8,061
|
Interest and financing costs (excludes contractual |
interest of $0, $0, $11,012, and $22,024) 11,723 12,968 | 4,758 11,967
----------------------------|-------------------------------
Income (loss) before reorganization costs, |
income taxes and extraordinary item 1,156 (4,983)| 5,543 (3,906)
|
Reorganization costs - - | 13,834 15,970
----------------------------|-------------------------------
Income (loss) before income taxes and extraordinary |
item 1,156 (4,983)| (8,291) (19,876)
|
Income taxes 546 363 | 38 77
----------------------------|-------------------------------
|
Income (loss) before extraordinary item 610 (5,346)| (8,329) (19,953)
|
Extraordinary item - gain on debt discharge - - | 285,905 -
----------------------------|-------------------------------
|
Net income (loss) $ 610 $ (5,346) |$ 277,576 $ (19,953)
============================|===============================
Basic and diluted earnings per share $ 0.04 $ (0.42)
============================
Weighted average number of common shares 13,627 12,596
============================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements
F-3
Barneys New York, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
(In thousands)
Common Preferred
Stock Issued Stock Issued Additional Retained
-------------------------------------------- Paid-in Earnings
Shares Amount Shares Amount Capital (Deficit) Total
---------------------------------------------------------------------------------------
Predecessor Company
Balances at August 2, 1997 9 $ 171 328 $ 32,770 $ 38,950 $ (519,572) $ (447,681)
Net Loss - - - (19,953) (19,953)
---------------------------------------------------------------------------------------
Balances at August 1, 1998 9 171 328 32,770 38,950 (539,525) (467,634)
Net income for the six months
ended January 30, 1999 - - - 277,576 277,576
Contribution of Capital (Notes
8 and 12) - - - 12,000 12,000
Elimination of Predecessor
Company Equity (9) (171) (328) (32,770) (38,950) 249,949 178,058
Issuance of Successor
Company stock and warrants 12,500 125 - - 154,215 - 154,340
---------------------------------------------------------------------------------------
Successor Company
Balances at January 30, 1999 12,500 125 - - 154,215 - 154,340
Net loss for Fiscal 1999 - - - - - (5,346) (5,346)
Exercise of Stock Options and
Warrants 576 6 - - 4,996 - 5,002
---------------------------------------------------------------------------------------
Balances at January 29, 2000 13,076 131 - - 159,211 (5,346) 153,996
Net income for Fiscal 2000 - - - - - 610 610
Exercise of Stock Options and
Warrants 827 8 - - 7,179 - 7,187
---------------------------------------------------------------------------------------
Balances at February 3, 2001 13,903 $ 139 - $ - $ 166,390 $ (4,736) $ 161,793
=======================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-4
Barneys New York, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Successor Company | Predecessor Company
| Six Months Fiscal
Fiscal Year Ended | Ended Year Ended
February 3, January 29, | January 30, August 1,
2001 2000 | 1999 1998
-------------------------------|---------------------------------
Cash flows from operating activities: |
Net income (loss) $ 610 $ (5,346)| $ 277,576 $ (19,953)
Adjustments to reconcile net income (loss) to net cash |
provided (used) in operating activities: |
Reorganization items: |
Extraordinary gain on debt discharge - - | (285,905) -
Real estate losses and asset write-offs, net - - | - 29
Depreciation and amortization 19,107 18,456 | 4,671 9,635
Amortization of DIP financing costs - - | 588 3,798
Deferred rent 2,999 3,202 | (252) (368)
Deferred compensation - 1,670 | - -
Deferred taxes - (565)| - -
Receivables provision - - | (1,888) 1,043
Real estate losses and asset write-offs, net - - | - 4
Other - - | - 92
Decrease (increase) in: |
Receivables 403 1,427 | (6,759) (5,316)
Inventories (2,543) 7,112 | 2,032 (7,749)
Other current assets (31) 947 | (622) 1,673
Long-term assets 19 - | (2,723) 529
Increase (decrease) in: |
Accounts payable and accrued expenses 2,478 (11,898)| (4,968) 6,139
-------------------------------|---------------------------------
Net cash provided (used) in operating |
activities 23,042 15,005 | (18,250) (10,444)
-------------------------------|---------------------------------
|
Cash flows from investing activities: |
Fixed asset additions (8,499) (6,224)| (2,112) (3,047)
Contributions from landlords - - | - 203
Restricted cash 2,243 2,639 | (5,082) -
Net repayments from affiliates - - | 1,888 -
-------------------------------|---------------------------------
Net cash used in investing activities (6,256) (3,585)| (5,306) (2,844)
-------------------------------|---------------------------------
|
Cash flows from financing activities: |
Proceeds from debt 423,745 381,198 | 265,383 385,834
Repayments of debt (440,682) (394,111)| (278,724) (374,510)
Proceeds from exercise of stock options and warrants 7,187 5,002 | - -
Proceeds from subscription rights offering - - | 62,607 -
Cash distributions pursuant to the Plan - - | (22,364) -
-------------------------------|---------------------------------
Net cash (used) provided in financing |
activities (9,750) (7,911)| 26,902 11,324
-------------------------------|---------------------------------
|
Net increase (decrease) in cash and cash equivalents 7,036 3,509 | 3,346 (1,964)
Cash and cash equivalents - beginning of period 10,333 6,824 | 3,478 5,442
-------------------------------|---------------------------------
Cash and cash equivalents - end of period $ 17,369 $ 10,333 | $ 6,824 $ 3,478
===============================|=================================
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-5
Notes to Consolidated Financial Statements
1. Organization and Basis of Presentation:
Barneys New York, Inc. ("Holdings") and Subsidiaries (collectively the
"Company") is a retailer of men's and women's apparel and accessories and items
for the home. The Company operates 20 stores throughout the United States,
including its three flagship stores in New York, Beverly Hills and Chicago which
are leased from an affiliate of Isetan Co. Ltd. ("Isetan"), a minority
stockholder of Holdings. The Company has also entered into licensing
arrangements, pursuant to which the Barneys New York trade name is licensed for
use in Asia.
The consolidated financial statements of the Company during the
bankruptcy proceedings (the "Predecessor Company financial statements") are
presented in accordance with American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"). Pursuant to guidance provided by SOP
90-7, the Company adopted fresh start reporting as of January 28, 1999 (the
"Effective Date") upon its emergence from bankruptcy.
Under fresh start reporting, a new reporting entity is deemed to be
created and the recorded amounts of assets and liabilities are adjusted to
reflect their estimated fair values at the Effective Date. Black lines have been
drawn to separate the Successor Company's financial information from that of the
Predecessor Company to signify that they are different reporting entities and
such financial information has not been prepared on the same basis. The
operating results of the Successor Company for the intervening period from
January 28, 1999 to January 30, 1999 were immaterial and therefore included in
the operations of the Predecessor Company.
The Company changed its fiscal year-end to the Saturday closest to
January 31 to coincide with its emergence from bankruptcy and to be more
comparable with industry practices. References in these financial statements to
"2000", "1999" and "1998" are for the 53 weeks ended February 3, 2001 and the 52
weeks ended January 29, 2000 and August 1, 1998, respectively.
As used herein, Successor Company refers to Barneys New York, Inc. and
subsidiaries from the Effective Date to February 3, 2001 and Predecessor Company
refers to Barney's, Inc. and subsidiaries prior to the Effective Date.
2. Summary of Significant Accounting Policies:
(a) Principles of Consolidation -
The consolidated financial statements include the accounts of the
Predecessor or Successor Company and its wholly-owned and majority-owned
subsidiaries in which the Company has a controlling financial interest and
exercises control over their operations. Intercompany investments and
transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents -
All highly liquid investments with a remaining maturity of three months
or less at the date of acquisition are classified as cash equivalents. The
carrying value approximates their fair value.
(c) Accounts Receivable and Finance Charges -
The Company provides credit to its customers and performs on-going
credit reviews of its customers. Concentration of credit risk is limited because
of the large number of customers. Finance charge income recorded in Fiscal 2000
and 1999 approximated $4,462,000 and $4,216,000, respectively. Finance charge
income recorded in the six months ended January 30, 1999 and in Fiscal 1998
approximated $1,978,000 and $3,280,000 respectively, and is included in
other-net in the statement of operations.
F-6
Notes to Consolidated Financial Statements (continued)
(d) Inventories -
Merchandise inventories are stated at the lower of FIFO (first-in,
first-out) cost or market, as determined by the retail inventory method.
Merchandise is purchased from many different vendors based throughout the world.
In certain instances, the Company has formal and informal arrangements with
vendors covering the supply of goods. While no vendor supplies the Company with
more than 10% of its inventory, if certain vendors were to suspend shipments,
the Company might, in the short term, have difficulty identifying comparable
sources of supply. However, management believes that alternative supply sources
do exist to fulfill the Company's requirements should a supply disruption occur
with any major vendor.
(e) Fixed Assets -
Pursuant to SOP 90-7, property and equipment were restated at
approximate fair market value at January 30, 1999. Fixed assets acquired after
January 30, 1999 are recorded at cost. Depreciation is computed using the
straight-line method. Fully depreciated assets are written off against
accumulated depreciation. Furniture, fixtures and equipment are depreciated over
their useful lives. Leasehold improvements are amortized over the shorter of the
useful life or the lease term.
(f) Excess Reorganization Value -
Excess reorganization value represents the adjustment of the Company's
balance sheet for reorganization value in excess of amounts allocable to
identifiable assets. Excess reorganization value is being amortized using the
straight-line method over 20 years.
(g) Earnings per Common Share ("EPS") -
Basic EPS is computed as net income (loss) available to common
stockholders divided by the weighted average number of common shares
outstanding. Diluted EPS reflects the incremental increase in common shares
outstanding assuming the exercise of stock options and warrants that would have
had a dilutive effect on earnings per common share. Options and warrants to
acquire an aggregate of 787,724 and 1,810,547 shares of common stock (issued
pursuant to the Company's stock option plans and other outstanding options and
warrants, all of which are discussed in Notes 9(b) and 12(b)) were not included
in the computation of diluted EPS for Fiscal 2000 and Fiscal 1999, respectively,
as including them would have been anti-dilutive. Net income (loss) attributed to
common stockholders is not materially affected by the 1% dividend on the 5,000
issued and outstanding shares of preferred stock. EPS of the Predecessor Company
has not been included herein as the computation would not provide meaningful
results as the capital structure of the Successor Company is not comparable to
that of the Predecessor Company.
(h) Impairment of Assets -
The Company records impairment losses on long-lived assets (including
excess reorganization value) when events and circumstances indicate that the
assets might be impaired. For purposes of evaluating the recoverability of
long-lived assets, the recoverability test is performed using undiscounted net
cash flows of the individual stores and consolidated undiscounted net cash flows
for long-lived assets, not identifiable to individual stores. An impairment loss
recognized will be measured as the amount by which the carrying amount of the
asset exceeds the fair value of the asset. If quoted market prices are not
available, the estimate of fair value will be based on the best information
available under the circumstances, such as prices for similar assets or the
present value of estimated expected future cash flows.
F-7
Notes to Consolidated Financial Statements (continued)
(i) Foreign Exchange Contracts -
The Company enters into certain foreign currency hedging instruments
(forward and option contracts), from time to time, to reduce the risk associated
with currency movement related to committed inventory purchases denominated in
foreign currency. Gains and losses that offset the movement in the underlying
transactions are recognized as part of such transactions.
As of February 3, 2001, the Company had outstanding forward foreign
currency contracts with a notional value approximating $12,322,000 maturing in
Fiscal 2001. Utilizing quotes from external sources, the fair value of these
contracts is approximately $12,404,000 at February 3, 2001.
The notional and estimated fair value of the individual currencies is
detailed below:
Foreign Currency Notional Amount Estimated Fair Value
Italian Lira $ 9,877,000 $ 9,940,000
German Marc 635,000 625,000
British Pound 768,000 749,000
French Franc 774,000 819,000
Euro 267,000 281,000
(j) Revenue Recognition -
Sales, recognized at the point of sale, consist of sales of
merchandise, net of returns. Net sales in the Statement of Operations include
bulk sales of merchandise to jobbers and an estimate for merchandise returns,
where a right of return exists, in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists." Bulk sales of merchandise to jobbers
were $0, $1,225,000, $958,000, $2,968,000 in Fiscal 2000, Fiscal 1999, the six
months ended January 30, 1999 and Fiscal 1998, respectively.
(k) Advertising Expenses -
The Company expenses advertising costs upon first showing. Advertising
expenses were approximately $6,558,000, $3,646,000, $2,041,000, and $3,324,000
in Fiscal 2000, 1999, the six months ended January 30, 1999, and Fiscal 1998,
respectively.
(l) Income Taxes -
The Company records income tax expense using the liability method.
Under this method, deferred tax assets and liabilities are estimated for the
future tax effects attributable to temporary differences between the financial
statement and tax basis of assets and liabilities.
(m) Estimates -
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.
F-8
Notes to Consolidated Financial Statements (continued)
3. Fixed Assets:
Fixed assets consist of the following:
February 3, January 29, January 30, Useful Life
($ in thousands) 2001 2000 1999 (In Years)
---------- ---------- --------- ---------
Furniture, fixtures and equipment $ 29,365 $ 27,233 $ 46,145 3 to 7
Leasehold improvements 36,390 30,147 5,211 2 to 14
---------- ---------- --------- ---------
Total 65,755 57,380 51,356
Accumulated depreciation and
amortization (17,585) (8,406) -
---------- ---------- ---------
Net fixed assets $ 48,170 $ 48,974 $ 51,356
========== ========== =========
4. Debt - Successor Company:
(a) Revolving Credit Facility -
In January 1999, the Company entered into a $120,000,000 revolving
credit facility with a $40,000,000 sublimit for the issuance of letters of
credit (the "Credit Agreement") with Citicorp USA, Inc., General Electric
Capital Corporation, BNY Financial Corporation, and National City Commercial
Finance, Inc. maturing on January 28, 2003. The proceeds from this Credit
Agreement were used to repay borrowings under the debtor in possession credit
agreement, to pay certain claims, to pay professional fees and to provide
working capital to the Company as it emerged from its Chapter 11 proceeding
pursuant to the Plan (as hereafter defined). At February 3, 2001, there were
outstanding loans of approximately $32,232,000 and $16,048,000 was committed
under unexpired letters of credit. Additionally, as collateral for performance
on certain leases and as credit guarantees, Barneys is contingently liable under
standby letters of credit in the amount of approximately $9,683,000. At January
29, 2000 there were outstanding loans of approximately $49,177,000 under this
credit agreement.
Revolving credit availability is calculated as a percentage of eligible
inventory (including undrawn documentary letters of credit) and a percentage of
the Barneys private label credit card receivables plus $13,750,000 (such amount
subject to a downward adjustment as defined). Interest rates on borrowings under
the Credit Agreement are the Base Rate (as defined), which approximates Prime
plus 1.25% or LIBOR plus 2.25%, subject to adjustment after the first year. The
interest rate at February 3, 2001 was 8.75%.
The Credit Agreement contains various financial covenants principally
relating to net worth, leverage, earnings and capital expenditures. The Company
believes that it will be in compliance with the financial covenants contained in
the Credit Agreement for the fiscal year ending February 2, 2002. However, any
material deviations from the Company's forecasts could require the Company to
seek additional waivers or amendments of covenants, alternative sources of
financing or to reduce expenditures. There can be no assurance that such
waivers, amendments or alternative financing could be obtained, or if obtained,
would be on terms acceptable to the Company.
Obligations under the Credit Agreement are secured by a first priority
and perfected lien on all unencumbered property of the Company. The Credit
Agreement provides for a fee of 1.25% to 1.75% per annum on the daily average
letter of credit amounts outstanding and a commitment fee of 0.375% on the
unused portion of the Credit Agreement.
F-9
Notes to Consolidated Financial Statements (continued)
In connection with the origination of the Credit Agreement, the Company
incurred fees of $2,825,000 that are being amortized over the life of the Credit
Agreement as interest and financing costs. These fees were principally paid in
December 1998 and January 1999 and are included in Other assets at February 3,
2001.
(b) $22,500,000 Subordinated Note -
Barneys originally issued this note to Isetan, who sold this note in
Fiscal 2000 to an unrelated third party (See Note 12 to consolidated financial
statements). This note bears interest at the stated rate of 10% per annum
payable semi-annually, and matures on January 29, 2004. The first four interest
payments which payments commenced on August 15, 1999, were to be paid in cash
unless a majority of independent directors of the Company determined, with
respect to those first four interest payments due, that it is in the best
interests of Barneys to defer those payments and add them to the outstanding
principal amount. No interest payments were deferred in Fiscal 1999 or Fiscal
2000.
The fair value of this note was estimated to be approximately
$20,648,000 at January 30, 1999. This amount was not necessarily representative
of the amount that could be realized or settled. The difference between the face
amount and the fair market value was recorded as a debt discount and is being
amortized using the effective interest method. The fair market value was based
upon a valuation from an investment banking firm utilizing discounted cash flows
and comparable company methodology. After amortization of the debt discount,
this note was recorded at $21,294,000 and $20,949,000 at February 3, 2001 and
January 29, 2000, respectively.
(c) Equipment Lessors Notes -
Barneys issued subordinated promissory notes (the "Equipment Lessors
Notes") in an aggregate principal amount of $35,788,865 (See Note 12 to
consolidated financial statements ). Such promissory notes bear interest at the
stated rate of 11 1/2% per annum payable semi-annually, mature on January 29,
2004, and are secured by a first priority lien on the equipment that was the
subject of each of the respective equipment leases. The first interest payments
were made on February 15, 1999.
The estimated fair value of the Equipment Lessors Notes approximates
face value as estimated by an investment banking firm utilizing discounted cash
flows and comparable company methodology.
Whippoorwill, one of the Successor Company's principal shareholders
after the Effective Date, owns an approximate 25% beneficial interest in the
holder of one of the Equipment Lessor Notes with an aggregate principal amount
of $34.2 million.
(d) Other -
During Fiscal 2000 and Fiscal 1999, the Successor Company paid interest
of approximately $12,100,000 and $8,200,000, respectively.
F-10
Notes to Consolidated Financial Statements (continued)
5. Commitments and Contingencies:
(a) Leases -
The Company leases real property and equipment under agreements that
expire at various dates. Certain leases contain renewal provisions and generally
require the Company to pay utilities, insurance, taxes and other operating
expenses. In addition, certain real estate leases provide for escalation rentals
based upon increases in lessor's costs or provide for additional rent contingent
upon the Company increasing its sales.
At February 3, 2001, total minimum rentals at contractual rates are as
follows for the respective fiscal years:
Third
Parties Isetan Total
----------------------------------------------
(In thousands)
2001 $ 8,538 $ 12,720 $ 21,258
2002 8,194 12,960 21,154
2003 7,327 28,200 35,527
2004 7,472 15,000 22,472
2005 7,097 15,000 22,097
Thereafter 129,579 184,995 314,574
----------------------------------------------
Total minimum rentals $ 168,207 $ 268,875 $ 437,082
==============================================
Total rent expense in Fiscal 2000, Fiscal 1999, the six months ended
January 30,1999 and Fiscal 1998, was $29,464,000, $30,886,000, $14,632,000 and
$31,696,000, respectively, which included percentage rent of $135,000, $86,000,
$57,000 and $319,000 in each of the respective periods.
(b) Litigation -
The Company is party to certain other litigation and asserted claims
and is aware of other potential claims. Management believes that pending
litigation in the aggregate will not have a material effect on the Company's
future financial position, cash flows or results of operations.
6. Income Taxes:
Pursuant to the Plan, Holdings made a Section 338(g) election (the
"Election") with respect to the acquisition under applicable provisions of the
Internal Revenue Code ("IRC"). The tax effects of making the Election resulted
in Barneys and each of its subsidiaries being treated, for federal income tax
purposes as having sold its assets to a new corporation which purchased the same
assets as of the beginning of the following day. The Company used existing net
operating loss carryfowards to reduce any gain incurred as a result of the sale.
The Company was, however, subject to alternative minimum tax ("AMT") and such
liability was recorded as a "fresh-start" adjustment.
For Fiscal 2000, Fiscal 1999, the six months ended January 30, 1999 and
Fiscal 1998, the Company recorded a provision for income taxes of approximately
$546,000, $363,000, $38,000, and $77,000, respectively, which principally
relates to state and local income and franchise taxes. The Company continues to
be subject to AMT. The AMT credit carryforward can be carried forward
indefinitely while the net operating loss carryforwards expire in 2020. In the
comparable periods, the Company paid capital, franchise and income taxes, net of
refunds, of approximately $542,000, $80,000, $19,000 and $18,000, respectively.
F-11
Notes to Consolidated Financial Statements (continued)
Deferred tax assets and liabilities reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. On
the Effective Date, the significant differences of the Predecessor Company
related to deferred credits, net operating loss carryforwards and its reserve
for affiliate receivables.
The components of the Successor Company's deferred tax assets and
liabilities are as follows (in thousands):
Deferred tax assets:
February 3, January 29,
2001 2000
-------------- ---------------
Inventory $ 2,713 $ 972
Compensation - 739
Provision for doubtful accounts 342 360
Tax credit and loss carryforward 2,436 1,326
Other 637 343
-------------- ---------------
Gross deferred tax assets 6,128 3,740
Less: Valuation Allowance (2,862) (2,686)
-------------- ---------------
Deferred tax assets 3,266 1,054
Deferred tax liabilities:
Depreciation & Amortization 3,197 489
-------------- ---------------
Net deferred tax asset $ 69 $ 565
============== ===============
As of January 28, 1999 the components of the Predecessor Company
deferred taxes were as follows (in thousands):
January 28,
1999
-----------
Current deferred tax assets $ 17,953
Noncurrent deferred tax assets 181,584
-----------
Total deferred tax assets 199,537
Less: Valuation allowance (199,537)
-----------
Net deferred tax asset $ -
===========
As of January 30, 1999, as a result of the Election, the remaining tax
attributes associated with the Predecessor Company's deferred tax amounts are no
longer available.
For Fiscal 2000, Fiscal 1999, the six months ended January 28, 1999 and
Fiscal 1998, income taxes reported differ from the amounts that would result
from applying statutory tax rates, as net operating loss carryforwards which
arose in such periods provided no tax benefit since their future utilization was
uncertain. Accordingly, the Successor Company recorded a valuation allowance of
$2,862,000 and $2,686,000 in Fiscal 2000 and 1999, respectively. In addition,
the Predecessor Company increased its valuation allowance by approximately
$5,667,000 and $7,321,000, in the remaining respective periods.
For the six months ended January 30, 1999, no income taxes were
reported in conjunction with the gain on discharge of debt as such amounts are
excluded from taxable income under IRC Section 108.
F-12
Notes to Consolidated Financial Statements (continued)
7. Related Party Transactions:
(a) Flagship store leases - Isetan -
Subsidiaries of Holdings lease the Madison Avenue, Beverly Hills and
Chicago stores from Isetan. The lease for the New York store is for a term of
twenty years, with four options to renew of ten years each. The lease for the
Chicago store is for a term of ten years, with three options to renew of ten
years each. The lease for the Beverly Hills store is for a term of twenty years,
with three options to renew of ten years each. The leases for the flagship
stores are all triple-net leases. In the case of the Beverly Hills flagship
store, Barneys is also responsible for the rent payable pursuant to the existing
ground lease.
Pursuant to the terms of these leases, the Company is required to pay
base rent, as defined, and all operating expenses. Total rent expense (excluding
operating expenses) related to these leases was approximately $15,635,000 and
$15,767,000 in Fiscal 2000 and Fiscal 1999, respectively, $4,611,000 in the six
months ended January 30, 1999 and $9,223,000 in Fiscal 1998.
(b) Licensing arrangements -
Pursuant to the terms of the trademark license agreement between BNY
Licensing and an affiliate of Isetan (as more fully discussed in Note 12(d) to
the consolidated financial statements), the Company is entitled to receive a
minimum royalty over the term of this agreement ranging from 42,405,000 to
61,195,106 Japanese Yen ($367,000 to $529,000 at the February 2, 2001 conversion
rate of 115.6 Japanese yen to one United States dollar) a year. The minimum
royalty revenue is recognized monthly as the license fee accrues. The Company
recognized approximately $330,000 and $240,000 in royalty income for Fiscal 2000
and Fiscal 1999, respectively.
8. Stockholders' Equity:
Holdings' Certificate of Incorporation (the "Charter") provides that
the total number of all classes of stock which Holdings will have authority to
issue is 35,000,000 shares, of which 25,000,000 will be Holdings Common Stock,
and 10,000,000 shares will be preferred stock (of which 20,000 shares have been
issued (see (c) below), both having a par value of $0.01 per share. The rights
and preferences of preferred stock are established by the Company's Board of
Directors upon issuance. Holdings is prohibited by its Charter from issuing any
class or series of non-voting securities.
(a) Holdings Common Stock -
Each share of Holdings Common Stock entitles its holder to one vote.
The holders of record of Holdings Common Stock will be entitled to participate
equally in any dividend declared by the Board of Directors of Holdings. Each
share of Holdings Common Stock is entitled to share ratably in the net worth of
Holdings upon dissolution. So long as any shares of Preferred Stock are
outstanding, no dividends on Holdings Common Stock may be paid until all accrued
and unpaid dividends on the Preferred Stock have been paid.
(b) Unsecured Creditors Warrants -
Pursuant to the Company's plan of reorganization, holders of certain
allowed general unsecured claims were issued warrants (the "Unsecured Creditors
Warrants") to purchase an aggregate of up to 1,013,514 shares of Holdings Common
Stock at an exercise price of $8.68 per share. See note 12 to Consolidated
Financial Statements. The Unsecured Creditors Warrants became exercisable on the
Effective Date and expired on May 30, 2000. Holders of 826,961 warrants
exercised their rights to acquire an equivalent amount of Holdings common stock.
Aggregate proceeds to the Company were approximately $7,200,000.
F-13
Notes to Consolidated Financial Statements (continued)
(c) Preferred Stock -
The 20,000 shares of Series A Preferred Stock have an aggregate
liquidation preference of $2,000,000 (the "Liquidation Preference"), plus any
accrued and unpaid dividends thereon (whether or not declared). Dividends on the
Preferred Stock are cumulative (compounding annually) from the Effective Date
and are payable when and as declared by the Board of Directors of Holdings, at
the rate of 1% per annum on the Liquidation Preference. No dividends shall be
payable on any shares of Holdings Common Stock until all accrued and unpaid
dividends on the Preferred Stock have been paid.
In accordance with SAB No. 64, Redeemable Preferred Stock, the Company
recorded the two separate issuances of redeemable preferred stock at their
respective fair values. The 5,000 shares originally issued to Bay Harbour were
valued at $500,000. The remaining 15,000 shares were issued to the Barneys
Employees Stock Plan Trust (the "Trust"). The shares contributed to the Trust
will be issued to existing employees of Barneys as incentive compensation in
connection with future services to be rendered to the Company. Since the 15,000
shares issued to the Trust have not yet been issued to existing employees, they
are not considered as issued or outstanding. When such shares are issued to the
employees, the Company will record compensation expense based on the fair value
of the shares at such time. Any difference between the fair value at that time
and the ultimate redemption value will be accreted as a dividend over the period
up through the date on which they must be redeemed.
The shares of Preferred Stock will not be redeemable prior to the sixth
anniversary of the Effective Date. On or after the sixth anniversary of the
Effective Date, the Preferred Stock will be redeemable at the option of Holdings
for cash, in whole or in part, at an aggregate redemption price equal to the
Liquidation Preference, plus any accrued and unpaid dividends thereon. In
addition, Holdings will be required to redeem the Preferred Stock in whole on
the tenth anniversary of the Effective Date at an aggregate redemption price
equal to the Liquidation Preference, plus any accrued and unpaid dividends
thereon.
The shares of Preferred Stock will be convertible, in whole or in part,
at the option of the holders thereof, any time on or after the earlier of the
fifth anniversary of the Effective Date and the consummation of a rights
offering by Holdings (which offering meets certain conditions), into 162,500
shares of Holdings Common Stock. Any accrued and unpaid dividends on the
Preferred Stock will be cancelled upon conversion. Conversion rights will be
adjusted to provide antidilution protection for stock splits, stock
combinations, mergers or other capital reorganization of Holdings. In addition,
upon a sale of Holdings, Holdings' right to redeem the Preferred Stock and the
holders' right to convert the Preferred Stock will be accelerated. The Preferred
Stock has one vote per share and votes together with the Holdings Common Stock
on all matters other than the election of directors.
(d) Predecessor Company -
(i) Series A-1 Convertible Preferred Stock
In a prior year, Barneys America authorized and issued 120,000 Series
A-1 Convertible Preferred Stock (Series A-1) to Isetan of America Inc. for an
aggregate purchase price of $12,000,000. Such amount was recorded by the Company
as Minority interest at August 1, 1998. Pursuant to the Plan, Isetan contributed
this investment to Barneys. In accordance with the Plan, a component of the
various settlements reached with Isetan included the contribution of this
investment to Barneys.
(ii) Other preferred stock
The Predecessor Company was authorized to issue 400,000 shares of
preferred stock with a par value of $100 per share. Each share of preferred
stock was entitled to one vote and dividends were non-cumulative. Each share
also had a liquidation preference of $100 plus declared dividends. There were
327,695 shares outstanding prior to the Effective Date and no dividends were in
arrears. This preferred stock was owned directly or indirectly by members of the
Pressman Family. Pursuant to one of the settlements contained in the Plan, there
was a cash payment of $50,000 to certain members of the Pressman Family on
account of the existing preferred (and common) stock held by such members of the
Pressman Family.
F-14
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans:
(a) Employees Stock Plan -
Pursuant to the plan of reorganization, Holdings established the
Barneys Employees Stock Plan effective January 28, 1999 for all eligible
employees and 15,000 shares of new Holdings Preferred Stock were contributed to
the Barneys Employees Stock Plan Trust. This Preferred Stock will be issued to
existing employees of Barneys as incentive compensation in connection with
future services to be rendered to the Company. Since the 15,000 shares issued to
the Trust have not yet been issued to existing employees, they are not
considered as issued or outstanding. When such shares are issued to the
employees, the Company will record compensation expense based on the fair value
of the shares at such time. Any difference between the fair value at that time
and the ultimate redemption value will be accreted as a dividend over the period
up through the date on which they must be redeemed. This Plan is a profit
sharing plan covering all eligible employees other than those covered by a
collective bargaining agreement. Contributions under this plan are at the
discretion of the Company.
(b) Stock options -
The Company has a stock option plan that provides for the granting of
stock options to officers and key employees for purchase of the Company's common
shares. This plan is administered by the compensation committee of the Board of
Directors, whose members are not eligible for grants under this plan. These
options expire ten years from the date of grant and vest 20% on the date of
grant with the remainder vesting ratably over the next four years. The option
price is determined by the compensation committee, but cannot be less than 100%
of the fair market value of the stock (as defined) at the date the option is
granted. During Fiscal 2000, plan participants were granted options to purchase
455,000 shares of Holdings Common Stock at an exercise price of $10.25 per
share. The weighted average fair value of these options, estimated at the date
of grant using the Black Scholes option-pricing model was $2.23. The fair value
was estimated at the date of grant using the following weighted average
assumptions: risk-free interest rate of 6.66%; dividend yield of 0%; stock price
at date of grant $7.50 and weighted average expected life of the option of 10
years. As the Company's stock is not actively traded, expected volatility was
considered not applicable for purposes of this calculation. Subsequent to these
grants, there were 199,000 shares available for future grant under this option
plan. There were 91,000 options exercisable at February 3, 2001.
Pursuant to his agreement with the Company, Mr. Socol was granted
options to purchase 792,234 shares of Holdings Common Stock at an exercise price
of $9.625 per share, which are to vest over the term of his employment. This
grant is subject to stockholder approval. The weighted average fair value of
these options, estimated at the date of grant using the Black Scholes
option-pricing model was $0.95. The fair value was estimated at the date of
grant using the following weighted average assumptions: risk-free interest rate
of 5.18%; dividend yield of 0%; stock price at date of grant $8.00 and weighted
average expected life of the option of 6 years. As the Company's stock is not
actively traded, expected volatility was considered not applicable for purposes
of this calculation.
In addition to the above, in Fiscal 1999, the Company adopted a stock
option plan that provides for the granting of non-qualified stock options to
non-employee members of the Company's Board of Directors. Each Eligible Director
(as defined in the option plan) is granted an option to purchase 5,000 shares of
Holdings Common Stock upon their initial appointment to the Board of Directors,
exercisable at the fair market value of Holdings Common Stock at the date of
grant. These options expire ten years from the date of grant and vest 50% on the
date of grant with the remainder on the first anniversary therefrom. At the
discretion of the Board of Directors, additional options may be granted to
Eligible Directors on the date of the annual stockholders' meeting that takes
place after the initial grant. On March 11, 1999, each of the non-employee
directors was granted an option to purchase 5,000 shares of Holdings Common
Stock at an exercise price of $8.68 per share. The weighted average fair value
of these options, estimated at the date of grant using the Black-Scholes
option-pricing model, was $3.84. The fair value was estimated at the date of
grant using the following weighted-average assumptions: risk-free interest rate
of 5.84%; dividend yield of 0%; stock price at date of grant of $8.68 and a
weighted-average expected life of the option of 10 years. As the Company's stock
is not actively traded, expected volatility was considered not applicable for
purposes of this calculation. As options to purchase an aggregate of 45,000
shares of Holding Common Stock were granted on March 11, 1999, subsequent to
F-15
Notes to Consolidated Financial Statements (continued)
these grants, there were 255,000 shares available for future grant under this
option plan. There were 45,000 options exercisable at February 3, 2001.
Pursuant to his agreement with the Company, in a prior year, Mr.
Questrom was granted options to purchase up to 15% of the outstanding shares of
the Company's common stock, which were to vest over the term of his employment.
Effective with Mr. Questrom's resignation in September 2000, these options were
terminated. The weighted average fair value of these options, estimated at the
date of grant using the Black Scholes option-pricing model was $3.37. The fair
value was estimated at the date of grant using the following weighted average
assumptions: risk-free interest rate of 6.14%; dividend yield of 0%; stock price
at date of grant $8.68 and weighted average expected life of the option of 8
years. As the Company's stock is not actively traded, expected volatility was
considered not applicable for purposes of this calculation.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") and related
Interpretations in accounting for its employee stock options. Under APB No. 25,
no compensation expense is recognized because the exercise price of the stock
options equals the assumed market price of the underlying stock on the date of
grant.
Pro-forma net income and earnings per share disclosures, as required by
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation", are computed as if the Company recorded compensation expense
based on the fair value for stock-based awards or grants. The following
pro-forma information includes the effects of both the options discussed above.
Fiscal Fiscal
2000 1999
----------------------- ------------------------
Net income (loss)
As reported $ 610 $ (5,346)
Pro-forma 979 (6,108)
Basic EPS
As reported $ 0.04 $ (0.42)
Pro-forma 0.07 (0.48)
(c) Union Plan -
Pursuant to agreements with unions, the Company is required to make
periodic pension contributions to union-sponsored multiemployer plans which
provide for defined benefits for all union members employed by the Company.
Union pension expense aggregated $768,000 and $722,000 in Fiscal 2000 and 1999,
respectively, $1,329,000 in the six months ended January 30, 1999, and
$1,014,000 in Fiscal 1998.
With Court approval, the Predecessor Company elected to withdraw from
one of the union-sponsored multi-employer plans. Accordingly, Union pension
expense in the six months ended January 30, 1999 includes a charge of
approximately $862,000 to effectuate the withdrawal.
The value of the remaining plans unfunded vested liabilities allocable
to the Company, and for which it may be liable upon withdrawal is estimated to
be $1,365,000 at January 30, 1999. The Company, at present, has no intentions of
withdrawing from this plan.
(d) Money Purchase Plan -
The Company's Money Purchase Plan is a noncontributory defined
contribution plan covering substantially all nonunion employees fulfilling
minimum age and service requirements. Prior to its amendment in Fiscal 2000,
this Plan provided for contributions of 5% of compensation (as defined) not to
exceed the maximum allowable as a deduction for income tax purposes. Pursuant to
the amendment, the amount of the Company's contribution was reduced to 3% of a
participant's eligible compensation subject to a cap. Money Purchase Plan
expense was $1,054,000 and $1,320,000 in Fiscal 2000 and Fiscal 1999,
F-16
Notes to Consolidated Financial Statements (continued)
respectively, $295,000 in the six months ended January 30, 1999 and $1,023,000
in Fiscal 1998.
(e) 401(k) Plan -
The Company has a 401(k) defined contribution plan for the benefit of
its eligible employees who elect to participate. Employer contributions are made
to the plan in amounts equal to 50% of employee contributions, less than or
equal to 6% of their salary, as defined. During Fiscal 2000, this Plan was
amended to include a profit sharing feature whereby the Company could make an
additional discretionary contribution of up to 3% of a participant's eligible
compensation subject to a cap. Plan expense aggregated $928,000, $582,000,
$292,000 and $596,000 in Fiscal 2000, Fiscal 1999, the six months ended January
30, 1999 and Fiscal 1998, respectively.
10. Other
Allen Questrom, a member of the Board of Directors and former Chairman,
President and Chief Executive Officer of the Company is also a member of the
board of Polo Ralph Lauren Corporation. During Fiscal 2000, Fiscal 1999, the six
months ended January 30, 1999, and Fiscal 1998, the Company or Predecessor
Company purchased at retail approximately $2,758,000, $2,682,000, $1,012,000 and
$1,814,000, respectively, of products from Polo Ralph Lauren Corporation.
Bay Harbour and Whippoorwill are parties to a Stockholders Agreement,
dated as of November 13, 1998 (the "Stockholders Agreement"), which sets forth
their agreement with respect to certain matters relating to the shares of
Holdings Common Stock held by them. Pursuant to the Stockholders Agreement, each
of Bay Harbour and Whippoorwill have agreed to (i) restrict the transferability
of such shares prior to January 28, 2000, (ii) grant rights of first offer as
well as tag along rights in the event of a transfer of shares, (iii) grant the
right to participate in an acquisition of additional shares of Holdings Common
Stock by one of them, and (iv) give the other a right of first refusal to
purchase shares of Holdings Common Stock which one of them has requested
Holdings to register pursuant to the Registration Rights Agreement entered into
on the Effective Date. In addition, Bay Harbour and Whippoorwill have agreed to
take all actions necessary to elect three designees of each, one designee of
Isetan, the chief executive officer of Holdings, and three independent
directors, to the Board of Directors of Holdings. The Stockholders Agreement
also generally prohibits each of Bay Harbour and Whippoorwill from voting the
shares of Holdings Common Stock held by it in favor of amending Holdings'
Certificate of Incorporation or Bylaws or a sale of the Company without the
consent of the other.
On the Effective Date, pursuant to the plan of reorganization, Messrs.
Greenhaus and Strumwasser and Ms. Werner, who are principals and officers of
Whippoorwill (which is a stockholder of Holdings), and Messrs. Teitelbaum and
Van Dyke, who are principals of Bay Harbour (which is a stockholder of
Holdings), and Mr. Halpern, became members of the board of directors of
Holdings.
Holdings guaranteed the obligations of Barneys and its subsidiaries
under the $22,500,000 Subordinated Note, the Equipment Lessors Notes, the New
Isetan Leases and the new Licensing Arrangements.
Approximately 38% of the Company's employees are covered under
collective bargaining agreements.
The Company is adopting in the first quarter of Fiscal 2001, Financial
Accounting Standards Board Statement No. 133 - Accounting for Derivatives
Instruments and Hedging Activities. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded for each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. The adoption of SFAS No. 133 will
not have a material impact on the consolidated financial position, results of
operations and cash flows of the Company.
F-17
Notes to Consolidated Financial Statements (continued)
11. Quarterly Financial Data (Unaudited)
(in thousands, except per share amounts)
2000 - Quarter Ended
-------------------------------------------------
4/29/00 7/29/00 10/28/00 2/3/01
------- ------- -------- ------
Net sales $96,611 $ 84,252 $ 110,228 $ 113,230
Gross profit 44,569 40,856 51,688 50,483
Net (loss) income (934) (3,589) 3,283 1,850
Basic and diluted EPS (0.07) (0.26) 0.24 0.13
1999 - Quarter Ended
-------------------------------------------------
5/1/99 7/31/99 10/30/99 1/29/00
------ ------- -------- -------
Net sales $ 85,841 $ 77,923 $100,988 $ 102,050
Gross profit 40,066 36,175 47,382 49,892
Net (loss) income (3,791) (6,983) 2,151 3,277
Basic and diluted EPS (0.30) (0.56) 0.17 0.25
12. Predecessor Company - Including the Reorganization and Affiliate
Transactions:
(a) Plan of Reorganization -
On January 10, 1996 (the "Filing Date"), Barney's, Inc. ("Barneys") and
certain subsidiaries of Barneys (collectively the "Barneys Debtors") and an
affiliate, Preen Realty, Inc. ("Preen") and certain subsidiaries of Preen
(collectively the "Preen Debtors") (together the Barneys Debtors and Preen
Debtors referred to as the "Debtors") filed voluntary petitions under Chapter 11
of the United States Bankruptcy Code (the "Bankruptcy Code"). Pursuant to an
order of the Court (as hereafter defined), the individual Chapter 11 cases of
the Debtors were consolidated for procedural purposes only and were jointly
administered by the United States Bankruptcy Court for the Southern District of
New York (the "Court"). Subsequent to the Filing Date, the Debtors operated
their businesses as debtors in possession subject to the jurisdiction and
supervision of the Court.
Prior to the Filing Date, and to a lesser extent thereafter, the
Predecessor Company engaged in numerous transactions with Preen and certain of
its subsidiaries as discussed further below. Preen is owned by various trusts
established for the benefit of certain Pressman Family members and, prior to the
Effective Date, Preen also owned approximately 55% of the outstanding common
stock of Barneys. Preen was previously engaged in the ownership and operation of
real estate properties, including certain buildings used in connection with the
Predecessor Company's retail and back office operations. Additionally, Preen
leased commercial and retail space to third parties and operated a parking lot
used by Barneys employees.
In the Chapter 11 cases, substantially all liabilities as of the
Filing Date were subject to compromise under a plan of reorganization pursuant
to the provisions of the Bankruptcy Code. Under the Bankruptcy Code, the Barneys
Debtors assumed or rejected real estate leases, employment contracts, personal
property leases, service contracts and other unexpired executory pre-petition
contracts, subject to Court approval. Parties affected by the rejections filed
claims with the Court in accordance with the reorganization process.
On January 28, 1999 (the "Effective Date"), the Company emerged from
reorganization proceedings (the "Reorganization") under the Bankruptcy Code
pursuant to a Second Amended Joint Plan of Reorganization, dated November 13,
1998, as supplemented and as confirmed on December 21, 1998 by the Bankruptcy
Court (the "Plan"). Consequently, the Company has applied the reorganization and
fresh-start reporting adjustments to the consolidated balance sheet as of
January 30, 1999, the closest fiscal month end to the Effective Date.
F-18
Notes to Consolidated Financial Statements (continued)
Pursuant to the Plan, Holdings was formed and, on the Effective Date,
all of the outstanding capital stock of Barneys was transferred to Holdings by
the holders thereof. In addition, prior to the Effective Date, Barneys formed
three subsidiaries (two of which, Barneys (CA) Lease Corp. and Barneys (NY)
Lease Corp., are direct, wholly-owned subsidiaries of Barneys, and one of which,
Barneys America (Chicago) Lease Corp., is a direct, wholly-owned subsidiary of
Barneys America, Inc., which is a direct, wholly-owned subsidiary of Barneys and
which was in existence since before the Filing Date), each of which acts as a
lessee and sublessor for one of the flagship stores. BNY Licensing Corp. ("BNY
Licensing"), a wholly-owned subsidiary of Barneys, is party to certain licensing
arrangements. Barneys Asia Co. LLC is 70% owned by BNY Licensing and 30% owned
by an affiliate of Isetan Company Ltd. ("Isetan"), and was formed prior to the
Effective Date pursuant to the Plan. Since the Company has a controlling
interest in this affiliated Company, this subsidiary is included in the
consolidated financial statements of the Company.
The Plan was primarily an equity conversion plan, pursuant to which all
of the Allowed Claims (as hereafter defined) against Barneys and certain of its
affiliates (including Preen and its affiliates), were converted into Equity
Interests in Holdings. The Plan, which also included the issuance of options and
warrants, was premised on three primary settlements among the Debtors and each
of Isetan, the Pressman Family and the Equipment Lessors. The result of the
settlements was that all litigation among the Debtors, Isetan, the Equipment
Lessors and the Pressman Family was settled. The Plan also provided for the
infusion of at least $62,500,000 in new equity (see Rights Offering below),
which when combined with the new credit facility, enabled the Debtors to exit
Chapter 11 with sufficient capital to support the new business plan and provide
the necessary liquidity for future operations.
The official committee of unsecured creditors and the Plan Investors
(as hereafter defined) proposed the Plan. The Plan Investors were creditors of
the Debtors and held approximately $149,600,000 in claims against the Debtors,
representing approximately 47.9% of the estimated $312,500,000 million in
Allowed General Unsecured Claims (the "Allowed Claims"). The estimated percent
recovery for the Allowed Claims approximated 18% and was determined based on the
assumed value of the shares and warrants issued to the holders of the Allowed
Claims. The Plan Investors would own the majority of the equity interests in
Holdings and Isetan, the Pressman Family and the other general unsecured
creditors would own the remaining minority equity interests. The percentage of
Holdings Common Stock owned by the holders of allowed General Unsecured Claims
was dependant on the extent to which such holders participated in the Rights
Offering.
At the Effective Date, the percentage ownership of Holdings was
approximately allocated as follows: 69.7% to the Plan Investors; 21.5% to the
general unsecured creditors; 7.3% to Isetan and 1.5% to the Pressman Family.
A brief summary of the primary settlements is discussed below and a
more detailed discussion is included in (b), (c), and (d) below.
Isetan Settlement - Isetan had asserted numerous claims against the
Company totaling approximately $365 million plus undetermined amounts for, among
other things, breach of contract, unpaid interest and legal fees, and fraud in
the inducement. The totality of these claims, as discussed below, was settled
pursuant to the Plan.
Prior to the Filing Date, as discussed below, the Predecessor Company
entered into various agreements with Isetan to, among other things, (i) exploit
the "Barneys New York" trademark in the United States and Asia, (ii) expand its
United States business through the acquisition of real estate properties and
development of major stores in New York, Beverly Hills and Chicago, (iii)
establish Barneys America to develop a series of smaller, leased stores in other
cities across the United States, (iv) jointly design, develop and produce
product, (v) develop the Barneys New York brand and/or other designer wholesale
businesses, and (vi) open Barneys New York stores in Japan and throughout the
Pacific Rim area. Isetan agreed to contribute up to 95% of the development costs
of the three major stores in the United States and to operate the stores in
Asia, subject to the terms of various agreements. The Company agreed to
contribute (i) its knowledge and skills in the United States specialty retailing
business and the application of these skills and knowledge to the acquisition of
real estate properties and development of stores both within and outside of the
United States, (ii) certain use in Asia of the "Barneys New York" trade name and
associated goodwill value, and (iii) the remaining 5% of the development costs
of the three major stores. During the Company's bankruptcy proceedings, the
Company and certain of its affiliates and Isetan and certain of its affiliates
were engaged in litigation as discussed below.
F-19
Notes to Consolidated Financial Statements (continued)
The Company and Preen commenced a lawsuit on January 11, 1996 against
Isetan, Isetan of America Inc., and parties involved in the leasing of its three
flagship stores, Newireen Associates (Madison Avenue), Calireen Realty Corp.
(Beverly Hills) and Rush Oak Limited Partnership (Chicago). The lawsuit arose
out of various transactions involving one or more of the plaintiffs and one or
more of the defendants and sought, among other relief: (i) a declaration that
certain agreements relating to the Company's Madison Avenue, Beverly Hills and
Chicago stores should not be treated as leases and should be recharacterized,
(ii) damages in the approximate amount of $50,000,000 and (iii) restructuring of
the relationship between the Company and its affiliates, on one hand, and Isetan
and its affiliates on the other, to reflect the true economic interest of the
parties and to convert the interests of Isetan and its affiliates into equity.
In submitting their answer to the complaint, Isetan asserted certain
counterclaims against Barneys, Preen, certain of their respective subsidiaries
and Reen Japan Corp., an affiliate, and sought, among other relief, damages
against Barneys and Preen in an amount not less than $180,000,000 and a
declaration that the above agreements for the Madison Avenue, Beverly Hills and
Chicago stores should be considered leases.
In September 1996, BNY Licensing provided Isetan and Japan Company with
notice of the termination of the License Agreement by reason of breaches of such
agreement, which termination was to be effective September 23, 1996. BNY
Licensing also advised Isetan and Japan Company that they were liable under the
License Agreement and Services Agreement for the payments under such agreements
(including the present value of the unpaid minimum royalties). As the occurrence
of an event of default under the License Agreement constituted an event of
default pursuant to the Services Agreement, the Company simultaneously provided
Isetan and Japan Company with a notice of termination of the Services Agreement,
also to be effective September 23, 1996. Barneys and BNY Licensing also filed a
demand for arbitration with the American Arbitration Association, which
arbitration was to be held in New York City, pursuant to which proceeding such
parties sought an award providing for, among other relief, the following: (i) a
declaration that the License Agreement and the Services Agreement have
terminated in accordance with their respective terms, (ii) payment by Japan
Company and Isetan of the royalties due (including the present value of the
minimum royalties) together with damages by reason of the breaches of the
License Agreement and the Services Agreement, and (iii) compliance by Japan
Company and Isetan with all the "Effect of Termination" provisions contained in
the License Agreement and the Services Agreement. The Company and BNY Licensing
also commenced litigation on September 19, 1996 against Isetan and Japan Company
seeking, among other things, to avoid certain unperfected liens on royalties and
fees payable (which were collaterally assigned as security) and to recover from
such parties, payments of royalties and fees.
As discussed below in the Isetan Settlement, the License Agreement and
Services Agreement between the Company and Isetan were terminated. Accordingly,
the Deferred Credits of $162,446,000 which recognition was, in part, contingent
on the payment of amounts due pursuant to these agreements were determined to be
no longer collectible and were reversed into income as a component of the
extraordinary gain on discharge of debt. See (g) and (l) below for additional
discussion.
The Debtors combined owed prepetition liabilities to Isetan in excess
of $260,000,000. Of that total, approximately $51,000,000 was recorded by the
Barneys Debtors. On the Effective Date, any and all of the claims of Isetan
against the Debtors, the Barneys Affiliates, and Reen Japan (collectively, the
"Affiliated Parties") including but not limited to those claims asserted in
adversary proceedings were resolved and compromised and Isetan exchanged its
claims against and equity interests in the Affiliated Parties pursuant to the
following settlements:
1) All litigation between the Debtors and Isetan was settled and
dismissed with prejudice;
2) Isetan was named sole owner of the real estate encompassing
the Flagship Stores and the Company entered into modified
long-term leases for such stores; Accordingly, the net book
value of those leasehold interests approximating $97 million
at the Effective Date were eliminated from the Predecessor
Company's books.
3) A cash payment to Isetan of approximately $23,275,000, which
included a payment of $3,122,000 on account of deferred rent
payments arising after the Filing Date;
4) Contribution of Isetan's minority interest in Barneys America
to Barneys (See Note 8 (d) to the consolidated financial
statements);
5) Issuance to Isetan of a $22,500,000 subordinated note;
6) Assignment to Isetan of 90% of the minimum royalty stream
arising from the new license agreement;
F-20
Notes to Consolidated Financial Statements (continued)
7) Issuance to Isetan of 7.3% of the common stock of Holdings;
and
8) Issuance to Isetan of a three-year warrant to purchase 2.25%
of the new common stock of Holdings at an aggregate exercise
price of $14.68 per share.
Pressman Family Settlement - The Pressman Family had asserted claims
against the Debtors in excess of $23 million in the aggregate, as well as equity
interests in various Debtors.
Prior to the Effective Date, members of the Pressman Family, entities
controlled by the Pressman Family and certain trusts of which members of the
Pressman Family were the beneficiaries, owned Barneys.
The Barneys Debtors had recorded prepetition liabilities to members of
the Pressman Family or Pressman controlled entities in excess of $2,500,000. On
the Effective Date, any and all of the claims and equity interests of the
Pressman Family were resolved and compromised and the Pressman Family, in
accordance with the Plan, exchanged their claims against and equity interests in
the Debtors for the following consideration:
1) 1.5% of the stock in Holdings;
2) A $50,000 cash payment in consideration for the 327,695 shares
of preferred stock that was held by the Pressman Family at the
Filing Date;
3) Consulting agreements with Holdings for each of Phyllis,
Robert, Eugene and Holly Pressman;
4) The exchange of mutual general releases by the Pressman
Family, the Company and the Plan proponents; and 5) The
dismissal of the Isetan litigation as well as the exchange of
general releases by Isetan and the Pressman Family.
Pursuant to the consulting agreements, each of which terminated on the
first anniversary of the Effective Date, each of Phyllis Pressman, Robert
Pressman, Gene Pressman and Holly Pressman have agreed to make himself or
herself available to Barneys (up to 60% of full-time for Phyllis Pressman, and
80% of full time for each of Robert, Gene and Holly Pressman) to furnish
consulting services to Barneys, its subsidiaries and affiliates with respect to
their business and potential business opportunities. The aggregate compensation
payable under the consulting agreements ranged from $410,000 to $1,400,000,
payable in four equal semi-annual installments, commencing with the Effective
Date. The Company entered into these consulting agreements to ensure that each
of Phyllis Pressman, Robert Pressman, Gene Pressman and Holly Pressman, each of
whom had been part of senior management of Barneys until the Effective Date,
would be available to the Company on an as-needed basis from and after the
Effective Date. The Company was also required to pay Nanelle Associates, an
entity controlled by members of the Pressman Family, in respect of its claims in
the bankruptcy case, $400,000, payable in four equal semi-annual installments
commencing on the Effective Date. Nanelle held the license agreement for the
Kilgour, French & Stanbury brand of apparel sold in the Company's stores and the
payment to Nanelle settled approximately $739,000 in claims filed by Nanelle
against the Company.
Equipment Lessors Settlement - The Equipment Lessors had asserted in
the aggregate over $60 million in secured, unsecured and administrative claims
against the Debtors.
Prior to the Filing Date, the Company had utilized a significant amount
of equipment pursuant to arrangements with several equipment-leasing companies.
See Note 8 to the Consolidated Financial Statements. The nature of the equipment
included furniture and fixtures and certain equipment used in the operations of
the business. The majority of this equipment was located in the Flagship stores.
The Predecessor Company made monthly payments pursuant to these financing
arrangements. On the Effective Date, there were remaining payments due at the
contractual rates specified in the agreements, exclusive of the amount to
purchase the assets, of approximately $2,800,000.
On the Effective Date, the Equipment Lessors received cash payments
totaling $2,114,000 on account of deferred rent payments arising after the
Filing Date, retained the security deposits deposited with them in connection
with the related leases and transferred all right, title, and interest in the
equipment subject to these leases to the Company. In exchange therefore, the
Company issued subordinated promissory notes to such lessors in an aggregate
principal amount of $35,789,000.
F-21
Notes to Consolidated Financial Statements (continued)
The following is a more detailed discussion of the equity and debt
issued and other settlements reached pursuant of the Plan that became effective
on the Effective Date.
(b) Equity -
Pursuant to the Plan, the following equity was issued:
Common Stock Issued In Exchange for Claims. The equity in Barneys was
exchanged for shares of common stock in a new company created under the Plan,
Barneys New York, Inc. ("Holdings Common Stock"), and certain allowed general
unsecured claims and claims held by Isetan against Barneys and certain of its
affiliates exchanged for, among other things, shares of Holdings Common Stock
and warrants (as defined below).
Rights Offering. Shares of Holdings Common Stock were issued to certain
holders of allowed general unsecured claims pursuant to the exercise by them of
rights to subscribe for shares of Holdings Common Stock ("Subscription Rights")
which were issued in accordance with the Plan and exercised prior to
consummation of the Plan. The $62.5 million offering of Subscription Rights was
guaranteed by Bay Harbour Management L.C. ("Bay Harbour") and Whippoorwill
Associates, Inc. ("Whippoorwill", and, together with Bay Harbour, the "Plan
Investors") on behalf of their discretionary and/or managed accounts to the
extent the other holders of allowed general unsecured claims did not elect to
participate in the offering. Bay Harbour and Whippoorwill agreed to guarantee
the offering of Subscription Rights pursuant to the Amended and Restated Stock
Purchase Agreement dated as of November 13, 1998 among Barneys, Bay Harbour,
Whippoorwill and the Official Committee of Unsecured Creditors of Barneys (the
"Stock Purchase Agreement"). Prior to the Effective Date, the Plan Investors
were the two largest creditors of Barneys. On the Effective Date, pursuant to
the Plan, the Plan Investors became the two largest holders of Holdings Common
Stock. The offering of Subscription Rights was made to enable the Company to
emerge from bankruptcy with sufficient capital to support its new business plan
and provide the necessary liquidity for its future operations. Pursuant to the
offering, Subscription Rights to purchase an aggregate of 7,200,461 shares of
Holdings Common Stock at a purchase price of $8.68 per share were issued. In
order to ensure that the Company received the maximum amount of funds possible
pursuant to the offering, the offering was guaranteed by the Plan Investors. In
the offering, the Plan Investors purchased an aggregate of 6,707,531 shares of
Holdings Common Stock for an aggregate price of approximately $58.2 million and
holders of general unsecured claims purchased an aggregate of 492,930 shares of
Holdings Common stock for an aggregate price of approximately $4.4 million,
generating combined proceeds from the Rights Offering of $62.2 million.
Option. Pursuant to the Stock Purchase Agreement, the Plan Investors
were granted an option to purchase, at an aggregate exercise price of $5.0
million, a total of 576,122 shares of Holdings Common Stock. Pursuant to the
option, each of the Plan Investors has the right to purchase the greater of (i)
288,061 shares of Holdings Common Stock, and (ii) 576,122 shares of Holdings
Common Stock, less the number of shares purchased by the other Plan Investor.
This option was exercised prior to its expiration date of November 15, 1999. No
claims were satisfied through the issuance of these options. These options were
issued to the Plan Investors in exchange for their guarantee of the offering of
Subscription Rights. Holdings estimated equity value of $153,500,000 determined
by Peter J. Solomon Company Limited ("PJSC"), which firm was retained by the
official committee of unsecured creditors to determine the reorganization value
of Holdings, excluded any value related to these options.
Isetan Warrant. Isetan was issued a warrant (the "Isetan Warrant") to
purchase 287,724 shares of Holdings Common Stock at an exercise price of $14.68
per share. This warrant expires on January 29, 2002. In preparing its analysis
of reorganization value, the investment banking firm retained by the creditors
committee did not consider the exercise of the Isetan Warrant based upon its
considerable exercise premium over the total reorganization value. Accordingly,
the Company did not assign a fair market value to this warrant.
Unsecured Creditors Warrants. Holders of certain allowed general
unsecured claims were issued warrants to purchase an aggregate of up to
1,013,514 shares of Holdings Common Stock at an exercise price of $8.68 per
share. These warrants expired on May 30, 2000. The investment banking firm
retained by the creditors committee computed the theoretical value of the
Unsecured Creditor Warrants using a variant of a standard computation
methodology for the valuation of warrants. Based on (i) an assumed trading price
equal to a common equity value for Holdings of approximately $153,500,000; (ii)
distribution of 12,500,000 shares of Holdings common stock and (iii) an
estimated trading volatility of between 55% and 65% (based on historical trading
volatilities of publicly traded companies that are comparable to Holdings), the
F-22
Notes to Consolidated Financial Statements (continued)
aggregate value was determined to be in a range from $5,180,000 to $5,550,000
with a midpoint of $5,360,000. The Company utilized the midpoint to value the
Unsecured Creditor Warrants. The warrants were issued to all general unsecured
creditors in settlement of their allowed claim amounts, other than holders of
general unsecured claims whose claims were for less than $2,300 and holders of
general unsecured claims of greater than $2,300 who elected to receive cash in
settlement of their claims.
Preferred Stock. Holdings issued 15,000 shares of Series A Preferred
Stock, par value $0.01 per share (the "Preferred Stock"), to the Barneys
Employees Stock Plan Trust (the "Trust"), which was established for the benefit
of employees of the Company. In addition, Holdings issued 5,000 shares of
Preferred Stock for an aggregate purchase price of $500,000 in government
securities to Bay Harbour, which it resold to a third party under a prearranged
agreement.
In settlement of the approximately $320,000,000 in general unsecured
claims (which does not include the Isetan, Pressman Family, and Equipment
Lessors' claims which were settled separately and holders of general unsecured
claims whose claims were for less than $2,300 and holders of general unsecured
claims of greater than $2,300 who elected to receive cash in settlement of their
claims), the Company issued 4,198,916 common shares and 1,103,514 warrants to
acquire additional common shares at a purchase price of $8.68. The allocation of
the shares and warrants was based on the total available shares and warrants
divided by the total dollar value of the claims, multiplied by the amount of
each individual vendor claim. The Plan Investors, as the two largest creditors
of Barneys, received approximately 48% of each of the shares and warrants that
were issued.
(c) Indebtedness -
Pursuant to the Plan, the following debt securities were issued:
Isetan. Barneys issued a subordinated promissory note in the principal
amount of $22,500,000 to Isetan. This note, which was sold by Isetan in July
2000 to an unrelated third party, bears interest at the rate of 10% per annum
payable semi-annually, and matures on January 29, 2004.
Equipment Lessors. Barneys issued the Equipment Lessors Notes in an
aggregate principal amount of $35,788,865. Such promissory notes bear interest
at the rate of 11-1/2% per annum payable semi-annually, mature on January 29,
2004, and are secured by a first priority lien on the equipment that was the
subject of each of the respective equipment leases.
(d) Other Settlements -
Pursuant to the Plan, and in addition to the other settlements reached
with Isetan and the Pressman Family as discussed above, the following occurred:
Licensing. BNY Licensing, a wholly-owned subsidiary of Barneys, is
party to licensing arrangements pursuant to which (i) two retail stores are
operated in Japan and a single in-store department is operated in Singapore
under the name "BARNEYS NEW YORK", each by an affiliate of Isetan, and (ii)
Barneys Asia Co. LLC, which is 70% owned by BNY Licensing and 30% owned by an
affiliate of Isetan (and which was formed in connection with the Reorganization
discussed above), has the exclusive right to sublicense the BARNEYS NEW YORK
trademark throughout Asia (excluding Japan). In satisfaction of amounts
outstanding pursuant to the BNY Licensing Yen loan payable to Isetan, valued at
$49,129,000 at the Filing Date, Isetan received an absolute assignment of 90% of
the annual minimum royalties pursuant to item (i) above.
Pursuant to the trademark license agreement between BNY Licensing and
Barneys Japan Company ("Barneys Japan") (an affiliate of Isetan), a
royalty-bearing, exclusive right and license has been granted to Barneys Japan
to operate retail store locations in Japan and a royalty-bearing, non-exclusive
right and license to operate a department within a retail store in Singapore,
under the trademark and trade names "BARNEYS NEW YORK" (the "Trademark License
Agreement"). In addition, Barneys Japan has been granted a license to make, sell
and distribute certain products bearing the trademark "BARNEYS NEW YORK" and to
use "BARNEYS NEW YORK" as part of its corporate name. The Trademark License
Agreement expires on December 31, 2015; however, Barneys Japan may renew the
F-23
Notes to Consolidated Financial Statements (continued)
agreement for up to three additional ten year terms provided certain conditions
are met. Under the terms of the agreement, Barneys Japan pays BNY Licensing or
its assignee a minimum royalty of 2.50% of a minimum net sales figure set forth
in the agreement (the "Minimum Royalty") and an additional royalty of 2.50% of
net sales in excess of the minimum net sales and sales generated from the
expansion of Barneys Japan store base (beyond three stores) and business
methods.
Pursuant to the license agreement between BNY Licensing and Barneys
Asia Co., BNY Licensing has granted to Barneys Asia, a royalty-free, exclusive
right and license to sublicense the right to operate retail store locations and
departments with retail stores in Taiwan, Korea, Singapore, Thailand, Malaysia,
Hong Kong, Indonesia, India, China and the Philippines, and a non-exclusive
right and license to sublicense the same activities in Singapore, under the
trademark and trade name "BARNEYS NEW YORK". In addition, Barneys Asia has been
granted a license to sublicense the right to make, sell and distribute certain
products bearing the trademark "BARNEYS NEW YORK". Further, Barneys Asia has
been granted a license to use "BARNEYS NEW YORK" as part of its corporate name.
All sublicenses granted by Barneys Asia under this agreement must be
royalty-bearing. The Barneys Asia License Agreement expires on December 31,
2015; however, Barneys Asia may renew the agreement for up to three additional
ten year terms.
Intercompany Claims. On the Effective Date, substantially all
intercompany claims against the Debtors were either released and cancelled by
means of contribution, distribution or otherwise, or were offset against any
mutual intercompany claims with any remaining amount released and discharged
with no further consideration.
Administrative Claims. As a result of the bankruptcy, the Company is
subject to various Administrative Claims filed by various claimants throughout
the bankruptcy case. In connection with the Plan, the Company was required to
establish a disputed Administrative Claims Cash Reserve while the Administrative
Claims are negotiated and settled. The total amount of the cash reserve was
$4,600,000 and was included in restricted cash at January 30, 1999. At the time,
the Company reserved approximately $2,000,000 in its financial statements which
was the amount it believed was necessary to settle these claims.
(e) Extraordinary Gain on Discharge of Debt -
The value of cash and securities required to be distributed under the
Plan was less than the value of the allowed claims on and interests in the
Predecessor Company; accordingly, the Predecessor Company recorded an
extraordinary gain of $285,905,000 related to the discharge of prepetition
liabilities and certain of the settlements pursuant to the Plan in the six
months ended January 30, 1999. Payments, distributions associated with the
prepetition claims and obligations and provisions for settlements are reflected
in the January 30, 1999 balance sheet. The Consolidated Financial Statements at
January 30, 1999 give effect to the issuance of all common stock and notes in
accordance with the Plan.
The extraordinary gain recorded by the Predecessor Company was
determined as follows:
(in thousands)
Liabilities subject to compromise at the effective date $ 369,747
Settlements pursuant to the Plan 61,881
Cash distributions pursuant to the Plan (22,264)
Issuance of new debt (22,500)
Assumption of prepetition liabilities (9,119)
Value of new common stock ($60,580), subscription rights ($25,900)
and warrants ($5,360) issued to prepetition creditors (91,840)
-----------------
Extraordinary gain on debt discharge $ 285,905
=================
Settlements pursuant to the Plan includes the elimination of the
$162,446,000 of Deferred Credits (discussed in (l) below); offset by the
$97,029,000 write-off of the net book value of the leasehold interests
transferred to Isetan; the $871,000 write-off of security deposits retained by
the Equipment Lessors and the remaining accrual of $2,665,000 pertaining to the
F-24
Notes to Consolidated Financial Statements (continued)
final three payments due the Pressman Family pursuant to their consulting
agreements.
Cash distributions pursuant to the plan includes:
1) $20,153,000 paid to Isetan pursuant to its settlement. This
amount excludes the $3,122,000 payment for deferred rent which
arose after the Filing Date and was recorded as an accrued
expense of the Predecessor Company;
2) $1,156,000 principally paid to Banks holding prepetition debt
as a result of cash residing in accounts at the related banks
which was to be applied against outstanding borrowings at the
Filing Date; and
3) $955,000 paid to members of the Pressman Family principally in
connection with their consulting agreements.
The $60,580,000 of new common stock, exclusive of the value of stock
acquired through the Rights Offering, issued to prepetition creditors was
allocated (as a percentage of the total shares issued or subscribed to of
12,500,000) as follows:
1) The Plan Investors received 16.1% or 2,009,036 shares;
2) the other unsecured creditors received 17.5% or 2,189,702
shares:
3) Isetan received 7.3% or 913,061 shares; and
4) the Pressman Family received 1.5% or 187,500 shares.
The prepetition liabilities of the Predecessor Company assumed by the
Successor Company related principally to claims settled pursuant to the Plan and
to a reserve for disputed claims pending resolution; such amounts were to be
paid (or resolved) after the Effective Date and were related to the following:
1) Convenience class claims - Represented (a) an allowed general
unsecured claim equal to $2,300 or less or (b) an allowed
general unsecured claim of a creditor that has irrevocably
elected to reduce their claim to $2,300. These claims were
settled by the issuance of $0.40 in cash for every $1.00 in
claim.
2) Vendor reclamation claims - Represented claims that arose out
of the limited right of a vendor to reclaim goods when the
buyer was insolvent upon receipt of the goods, and the vendor
was unaware of the insolvency.
3) Priority Tax Claims - Represented claims that arose from
claims of a governmental unit specified in the U.S. Bankruptcy
Code (the "Code") relating to; a tax measured by income or
gross receipts; a property tax; a tax required to be withheld
or collected; an employment tax on a wage, salary or
commission; an excise tax; and a customs duty arising out of
the importation of merchandise.
4) Executory Contract Claims - Represented claims arising from a
contractual relationship, which contract the debtor assumed at
the Effective Date and was, therefore, required to cure any
default under the contract.
5) Priority Non-tax Claims - Represented claims specified
pursuant to the Code, which in the case of the Debtors,
related to claims filed by the service providers of certain
employee benefit plans of the Company.
(f) Restructuring Programs -
As a result of continuing efforts to improve Predecessor Company
profitability, during the third quarter of 1997, management of the Predecessor
Company approved a plan to close six stores and reduce personnel (the "1997
Restructuring Program"). The store closings and personnel reductions were
expected to result in headcount reductions in excess of 300 employees. Sales and
operating results (without corporate overhead allocations) respectively relating
to the stores closed were $7,954,000 and $(527,000) for 1998. Included in these
results are depreciation and amortization charges of $425,000 for 1998.
In 1997, the Predecessor Company recorded $52,510,000 of reorganization
costs resulting from the aforementioned decisions. $38,767,000 of the costs
represented the unamortized value of the leasehold improvements, furniture,
fixtures and equipment attributable to the stores at each of their respective
closing dates, net of management's immaterial estimates for proceeds to be
F-25
Notes to Consolidated Financial Statements (continued)
received on disposal of certain of these assets or the estimated value of
certain assets (notably fixtures) to be re-used in other stores. The Company
continued to depreciate the assets through the store-closing date, which
coincided with the last day of operations of each of the stores. A majority of
this charge related to the unamortized value of leasehold improvements which
were abandoned after the stores closed. $15,038,000 of the costs represented the
estimated cost of claims (the "lease rejection claims") which could have been
filed against the Predecessor Company by the landlords of the stores in
connection with rejection of the store leases and $2,519,000 related to employee
termination costs covering an estimated 300 employees in both the stores and
administrative offices. In accordance with SOP 90-7, prepetition liabilities,
including claims that become known after a petition is filed, should be reported
on the basis of the expected amount of the allowed claims. When a lease is
rejected pursuant to a bankruptcy proceeding, the calculation to determine the
value of the lessor's claim against the lessee is governed by, and was
calculated in accordance with, the Bankruptcy Code. Accordingly, at the time the
decision was made to close the stores, the Company was able to calculate the
Lease Rejection Claims, and it believed that an accrual was appropriate in
accordance with both FASB Statement No. 5, "Accounting for Contingencies" and
SOP 90-7 and included such amount in the charge. Offsetting these costs in 1997
was a $3,814,000 reversal of accrued rent previously recorded to straight-line
rent over the lease term. In 1998 and the six months ended January 30, 1999, the
Predecessor Company recorded additional employee termination costs of $1,881,000
and $3,139,000, respectively, either as a result of continuing efforts to
improve Predecessor Company profitability or to fulfill certain contractual
obligations pursuant to employee separations. The employee termination costs in
1998 and the six months ended January 30, 1999 covered 13 individuals and 11
individuals, respectively, all of whom were principally administrative
employees.
Pursuant to the 1997 Restructuring Program, the Predecessor Company
closed five regional mall stores, three in July 1997, and one each in January
1998 and July 1998 and the original flagship store on 17th Street in New York
City in August 1997. After the closings of the four stores between July and
August 1997, and the related charges against the reserve for the disposition of
fixed assets, the remaining reserve (exclusive of amounts provided for lease
rejection costs) was not significant to the total amount provided in Fiscal
1997.
At the time of the recording of the charge relating to the 1997
Restructuring Program, the Company wrote down the related fixed assets by
$38,767,000. A rollforward of the remaining restructuring charges related to
this program and any additional charges taken in subsequent periods is provided
below.
Non-Cash
Lease Rejection
Claims Severance
----------------------- ---------------------
Balance August 2, 1997 15,638 1,921
Additions - 1,881
Payments - (2,614)
----------------------- ---------------------
Balance August 1, 1998 15,638 1,188
Additions - 3,099
Payments - (830)
Adjustments (15,638) -
----------------------- ---------------------
Balance January 30, 1999 $ - $ 3,457
======================= =====================
The Lease rejection claims were treated as general unsecured claims and
resolved pursuant to the Plan.
In the six months ended January 30, 1999, and in each of Fiscal 1998,
1997 and 1996, the Predecessor Company reduced its headcount as part of the
ongoing reorganization efforts, including the 1997 Restructuring Program, by 28
associates, 137 associates, 143 associates and 37 associates, respectively. As
of January 30, 1999, the severance related reserves provided in 1998 and 1997
have been utilized as intended. At January 30, 1999, the Successor Company had a
severance reserve of approximately $3.5 million related to future on-going
severance commitments for previously terminated employees, which was
substantially utilized as intended by February 3, 2001.
F-26
Notes to Consolidated Financial Statements (continued)
At January 30, 1999, the Company had recorded a fresh-start adjustment
for the closure of certain outlet stores. As of March 2000, the related stores
have been closed and the reserve was substantially utilized as intended. This
adjustment was reflected in the Successor Company balance sheet at January 30,
1999.
(g) Fresh Start Reporting -
As indicated in Note 1, the Company adopted fresh-start reporting as of
January 28, 1999. The use of fresh start reporting is appropriate because
holders of the existing voting shares of the Predecessor Company received less
than 50% of the voting shares of the Successor Company and the reorganization
value of the assets of the emerging entity, immediately before the date of
confirmation of the Plan, was less than the total of all post-petition
liabilities and allowed claims. Prior to the Effective Date, the majority of
common shares of the Predecessor Company were owned by the Pressman Family,
certain affiliates of the Pressman Family and certain trusts of which members of
the Pressman Family were the beneficiaries. On the Effective Date, the Pressman
Family was issued an aggregate of 1.5% of the outstanding shares of Holdings
Common Stock. After the Effective Date, the majority of Common Shares of
Holdings were owned by the Plan Investors. In adopting fresh start reporting,
the Company was required to determine its enterprise value, which represents the
fair value of the entity before considering its liabilities.
The official committee of unsecured creditors retained and was advised
by PJSC with respect to the value of Holdings. PJSC undertook its valuation
analysis for the purpose of determining the value available to distribute to
creditors pursuant to the Plan and to analyze the relative recoveries to
creditors thereunder. The analysis was based on the financial projections
provided by the Predecessor Company's management as well as current market
conditions and statistical data. The values were as of an assumed Effective Date
of January 30, 1999 and were based upon information available to and analyses
undertaken by PJSC in October 1998.
PJSC used discounted cash flow, comparable publicly traded company
multiple and comparable merger and acquisition transaction multiple analyses to
arrive at total reorganization value. These valuation techniques reflect the
levels at which comparable public companies trade and have been acquired as well
as the intrinsic value of future cash flow projections in the Company's business
plan. The valuation was also based on a number of additional assumptions,
including a successful reorganization of the business and finances in a timely
manner, the achievement of the forecasts reflected in the financial projections,
the amount of available cash at emergence, the availability of certain tax
attributes, the continuation of current market conditions through the Effective
Date and the Plan becoming effective.
In performing their analysis, PJSC used a number of significant
assumptions when determining the value of Holdings. For their discounted cash
flow analysis, they used a discount range of 16% to 18% and a multiple of 8.0
times trailing twelve months earnings before interest, taxes depreciation and
amortization ("EBITDA"). These assumptions led to a range in values between
$302,000,000 to $353,000,000.
For the comparable publicly traded company analysis, PJSC used a range
of trailing twelve months EBITDA of 7.7 times to 10.4 times. This was indicative
of some of Barneys' competitors during the relevant time period. PJSC then took
the multiple and multiplied it by a control premium to factor in the estimated
premium that would be required to gain control of a publicly traded company.
This premium was estimated at 30%. Using the above premium and the trailing
twelve months EBITDA of the Predecessor Company of $25,000,000, the range in
values based on comparable company transactions fell between $211,000,000 to
$299,000,000.
The last valuation method employed by PJSC was using comparable merger
and acquisition transaction multiple analyses. For this method, PJSC looked at
the most recent transactions involving comparable retailers. PJSC used the time
frame of July 1996 to July 1998 and analyzed eleven comparable transactions.
Based on this review, they came up with a range of multiples from 7.9 times
EBITDA to 13.3 times EBITDA. Using the aforementioned $25,000,000 trailing
twelve months EBITDA, PJSC determined a range of values for comparable companies
from $197,000,000 to $332,000,000.
Based upon the foregoing assumptions and the three valuation methods,
the pro-forma organizational structure, and advice from PJSC, the going concern
value for Holdings post-reorganization was determined to be $285,000,000 (the
"Total Reorganization Value") as of the Effective Date. This value was the
approximate midpoint of values derived from three valuation methods. Based on
the established Total Reorganization Value for Holdings, and assumed total debt
F-27
Notes to Consolidated Financial Statements (continued)
of approximately $129,500,000 and $2,000,000 in new preferred stock upon
emergence, the Plan Investors and the official committee of unsecured creditors
employed an assumed common equity value for Holdings of approximately
$153,500,000 which was subject to adjustment after giving effect to the exercise
of warrants and options. The Total Reorganization Value of the Debtors' business
assumed a projected average exit financing facility revolver balance for the 12
months subsequent to the Effective Date equal to $71,200,000 and included cash
of $3,500,000 upon emergence.
The adjustments to reflect the provisions of the Plan and the adoption
of fresh start reporting, including the adjustments to record assets and
liabilities at their fair market values, have been reflected in the following
balance sheet reconciliation as of January 30, 1999 as fresh start adjustments.
In addition, the Successor Company's balance sheet was further adjusted to
eliminate existing equity and to reflect the aforementioned $285,000,000 Total
Reorganization Value, which includes the establishment of $177,767,000 of
reorganization value in excess of amounts allocable to net identifiable assets
("Excess Reorganization Value"). In accordance with SOP 90-7, the Company
allocated the $285,000,000 reorganization value (or capitalization) as follows:
first to the long-term debt issued (outstanding) as discussed below; then to the
pre-petition liabilities of the Predecessor Company assumed by the Successor
Company or paid on the Effective Date approximating $10,275,000 and the
remainder of $154,340,000 was attributed to the new equity of Holdings issued in
satisfaction of the remaining unsecured claims of the Predecessor Company. The
Excess Reorganization Value is being amortized using the straight-line method
over a 20-year useful life.
The Successor Company established a 20-year useful life after
considering the financial health of the emerging entity, the principal
investors, the luxury goods sector of the specialty retail industry, and the
strength of the Barneys New York trademark. Additionally, but to a lesser
extent, the Successor Company considered the terms of the renegotiated leases
with Isetan for the three flagship stores in New York, California and Chicago.
The base terms of two of the three leases, including the lease for the Madison
Avenue store, is 20 years. If the Successor Company exercises all renewal
options, the lease terms could range from a minimum of 40 years to a high of 60
years.
The reorganization value was allocated to the net assets of the
Predecessor Company as part of fresh-start accounting. The Reorganization column
on the following page reflects the effects of transactions or settlements
arising pursuant to the Plan as Reorganization adjustments. In addition, the
Company also recorded fresh-start adjustments. In accordance with SOP 90-7, the
Company included in this column the adjustments required to eliminate the
Predecessor Company's equity; to record the reported assets and liabilities at
their fair market value; to establish certain liabilities pursuant to Accounting
Principles Bulletin Opinion 16, "Accounting for Business Combinations" ("APB No.
16"); and to reflect the $285,000,000 Total Reorganization Value.
Reconciliation of the Predecessor Company balance sheet as of January
30, 1999 to that of the Successor Company showing the adjustments thereto to
give effect to the discharge of prepetition debt and fresh-start reporting
appears on the following page.
F-28
Notes to Consolidated Financial Statements (continued)
Predecessor Reorgani- Fresh-start Successor
(in thousands) Company zation Adjustments Company
---------------- ---------------- ---------------- -------------
Assets
Cash and restricted cash $ 10,192 $ 1,714 $ - $ 11,906
Receivables 28,866 - (1,025) 27,841
Inventories 66,951 - (1,400) 65,551
Other current assets 6,180 500 (333) 6,347
---------------- ---------------- ---------------- -------------
Total current assets 112,189 2,214 (2,758) 111,645
Fixed assets 112,080 (61,240) 516 51,356
Excess reorganization value - - 177,767 177,767
Other assets 2,357 829 - 3,186
---------------- ---------------- ---------------- -------------
Total assets $226,626 $(58,197) $ 175,525 $ 343,954
================ ================ ================ =============
Liabilities and shareholders' equity (deficit)
Debtor in possession credit agreement $ 83,389 $ (83,389) $ - $ -
Accounts payable 15,996 - - 15,996
Accrued expenses 48,731 641 5,213 54,585
Subscription Rights offering liability 4,386 (4,386) - -
---------------- ---------------- ---------------- -------------
Total current liabilities 152,502 (87,134) 5,213 70,581
Long-term debt - 120,385 (1,852) 118,533
Other long-term liabilities 5,894 - (5,894) -
Liabilities subject to compromise 369,747 (369,747) - -
Deferred credits and minority interest 174,446 (174,446) - -
Redeemable Preferred Stock - 500 - 500
Shareholders' equity (deficit)
Preferred stock 32,770 - (32,770) -
Common stock 171 125 (171) 125
Additional paid-in capital 38,950 154,215 (38,950) 154,215
Accumulated deficit (547,854) 297,905 249,949 -
---------------- ---------------- ---------------- -------------
Total shareholders' equity (deficit) (475,963) 452,245 178,058 154,340
---------------- ---------------- ---------------- -------------
Total liabilities and shareholders' equity
(deficit) $226,626 $(58,197) $175,525 $ 343,954
================ ================ ================ =============
The balance sheet captions impacted and the nature of the more
significant reorganization adjustments are discussed in further detail below:
Cash and Restricted Cash ("Cash"). The $58,221,000 proceeds from the
Rights Offering received from the Plan Investors in January and borrowings
pursuant to the Credit Agreement (approximately $62,100,000), combined
aggregating $120,321,000, were used to: repay $83,389,000 outstanding under the
debtor in possession credit agreement; pay Isetan $23,275,000 (including a
$3,122,000 administrative claim payment for unpaid rent, hereinafter referred to
as the Isetan Administrative Claim Payment) on account of its allowed claims
(the "Isetan Payments"); to establish the restricted cash amount of $5,082,000
(which includes the $4,600,000 administrative claim reserve); pay $2,626,000 for
professional fees (the "Professional Fee Payment"); pay $2,114,000 as an allowed
F-29
Notes to Consolidated Financial Statements (continued)
administrative claim payment to the Equipment Lessors (the "Equipment Lessors
Payment"); pay Dickson Concepts $3,500,000 in connection with the termination of
an asset purchase agreement (the "Dickson Payment"); pay $1,600,000 in bank fees
in connection with the Credit Agreement (the "Bank Payment"); pay $1,156,000 to
holders of certain general unsecured claims; and pay $955,000 to members of the
Pressman Family in connection with their consulting agreements. The net amount
of the above transactions increased cash and restricted cash by $1,714,000 to
$11,906,000. Such amount was then allocated between restricted and
non-restricted cash. The primary component of the restricted cash pertains to
the Administrative Claim reserve of $4,600,000 as discussed in (d) above.
Other current assets. Other current assets increased as a result of
Holdings' issuance of 5,000 shares of preferred stock for an aggregate purchase
price of $500,000 in government securities.
Fixed Assets. The adjustment to fixed assets arose pursuant to the
Isetan and Equipment Lessors Settlements. Pursuant to the Isetan settlement,
Isetan received outright ownership of the leasehold improvements in the three
flagship stores. Accordingly, the Company reduced its fixed assets by
$97,029,000. Such amount was included in Settlements pursuant to the Plan in the
calculation of the extraordinary gain on discharge of debt as discussed in (e)
above. Pursuant to the Equipment Lessors settlement, certain lessors of
equipment to the Company transferred all right, title and interest in such
equipment to the Company. The Company issued the Equipment Lessors Notes in an
aggregate principal amount of $35,789,000 with a corresponding increase to fixed
assets.
Other Assets. Other assets increased principally as a result of the
Bank Payment discussed above offset by the write-off of $871,000 in long-term
security deposits compromised in connection with the Equipment Lessors
settlement pursuant to the Plan. The $871,000 was included in Settlements
pursuant to the Plan in the calculation of the extraordinary gain on discharge
of debt discussed in (e) above.
Accrued Expenses. Accrued expenses were impacted principally by the
disbursement of cash for the Professional Fee Payment ($2,626,000), the
administrative claim payments of Isetan and the Equipment Lessors ($5,236,000),
and the Dickson Payment ($3,500,000) all of which aggregate $11,362,000
principally offset by the assumption of pre-petition liabilities aggregating
$9,119,000 to be paid subsequent to the emergence from bankruptcy and the
recording of $2,665,000 related to the remaining payments due pursuant to the
consulting agreements with certain members of the Pressman Family.
Subscription Rights Offering Liability. In December 1998, the
Predecessor Company received $4,386,000 in cash from certain general unsecured
creditors in connection with the Subscription Rights offering. The cash was
recorded as Restricted cash on the Balance sheet. On the Effective Date, these
cash proceeds were aggregated with the $58,221,000 cash proceeds discussed in
cash and restricted cash above, and were used to consummate the provisions of
the Plan and the related equity in Holdings was issued. The aggregate cash
received from the Subscription Rights offering was combined with the proceeds
from the new credit facility to pay the obligations discussed in further detail
in cash and restricted cash above.
Long-term Debt. Long-term debt adjustment consists of $62,096,000
outstanding pursuant to the Credit Facility, $35,789,000 outstanding pursuant to
the Equipment Lessor Notes, and $22,500,000 issued pursuant to the Isetan Note.
Liabilities Subject to Compromise. Such amounts were settled pursuant
to the Plan. The Predecessor Company recognized an extraordinary gain on debt
discharge of $285,905,000.
Deferred Credits and Minority Interest. In a prior year, the
Predecessor Company had recorded deferred credits of $162,446,000 relating to
the cash sale to an affiliate of participation rights in future payments to be
received pursuant to the License Agreement and Services Agreement (collectively
the "Agreements") with Isetan discussed in (l) below. Pursuant to the Isetan
settlements in the Plan, the Agreements were terminated and the amounts due
pursuant to these agreements were no longer deemed collectible. Accordingly, the
$162,446,000 was included in Settlements pursuant to the Plan in the calculation
of the extraordinary gain on discharge of debt discussed in (e) above.
F-30
Notes to Consolidated Financial Statements (continued)
Additionally, in a prior year, Barneys America issued preferred stock
to Isetan of America, Inc. for an aggregate purchase price of $12,000,000. Such
amount was recorded as minority interest. Pursuant to the Isetan settlements in
the Plan, Isetan's investment in Barneys America was contributed to Barneys and
accordingly was treated as a contribution of capital.
Redeemable Preferred Stock. 20,000 shares of New Preferred Stock, with
an aggregate liquidation preference of $2,000,000, were issued pursuant to the
Plan. Holdings issued 5,000 shares for an aggregate purchase price of $500,000
in government securities to Bay Harbour, which it resold to a third party, and
15,000 shares were issued to the Barneys Employees Stock Plan Trust (the
"Trust"). The shares contributed to the Trust will be issued to existing
employees of Barneys as incentive compensation in connection with future
services to be rendered to the Company. Since the 15,000 shares issued to the
Trust have not yet been issued to existing employees, they are not considered as
issued or outstanding. Accordingly, the Reorganization adjustment pertains
solely to the aforementioned 5,000 shares.
Common Stock and Additional Paid-in-Capital. The adjustments reflect
principally the issuance of Holdings common stock pursuant to the Plan. In the
aggregate, 12,500,000 shares of Holdings common stock were issued either in
settlement of Allowed Claims or in connection with the Rights offering. These
shares equate to a par value of $125,000 that is the reorganization adjustment
to the Common stock.
On the Effective Date, the Plan Investors received or acquired
approximately 8,717,000 shares with an aggregate value of $107,631,000; the
general unsecured creditors received or acquired approximately 2,683,000 shares
with an aggregate value of $33,128,000; Isetan received approximately 913,000
shares with an aggregate value of $11,273,000; and the Pressman Family received
approximately 187,000 shares with an aggregate value of $2,308,000.
Accumulated Deficit. Accumulated deficit of the Predecessor Company was
reduced by both the extraordinary gain on discharge of prepetition debt and the
contribution of Capital related to the Isetan minority interest in Barneys
America, all of which are discussed above.
The balance sheet captions impacted and the nature of the more
significant Fresh-start adjustments are discussed in further detail below:
Receivables. Concurrent with the emergence from bankruptcy, management
of the Successor Company elected to modify the treatment of special order sales
of merchandise. This adjustment reflects a reduction of the receivable balance
recorded by the Predecessor Company in connection with these sales. See related
discussion below in Accrued expenses.
Inventory. Concurrent with the emergence from bankruptcy, management of
the Successor Company approved a plan to close certain outlet stores and
discontinue certain private label cosmetic lines. In accordance with APB No.16,
a $1,400,000 inventory valuation reserve was recorded to reduce the acquired
assets to fair market value.
Fixed Assets. Prior to the emergence from Bankruptcy, the Company
retained a third party asset appraisal service to value all the fixed assets of
the Company (including those acquired pursuant to the Equipment Lessors
Settlement). The fixed asset adjustment includes a $2,716,000 fair market value
adjustment required to value the fixed assets of the Successor Company at the
appraised amount and a $2,200,000 write down of the fixed assets in the outlet
stores to be closed.
Excess Reorganization Value and Shareholders' Equity (Deficit). The
adjustments reflect the elimination of the Predecessor Company's old stock,
accumulated deficit (after taking into account the impact of the Reorganization
adjustments discussed above and the fresh start revaluation), and the adjustment
to reflect the Successor Company's total reorganization value of $285,000,000.
F-31
Excess reorganization value was determined as follows:
Total Reorganization Value $ 285,000,000
Normal operating liabilities* 61,462,000
Other adjustments - net* (2,508,000)
-----------------------
Total Liabilities and equity 343,954,000
Less: Tangible Assets* (166,187,000)
-----------------------
Excess Reorganization Value $ 177,767,000
=======================
*Normal operating liabilities is net of the $9,119,000 of prepetition
liabilities assumed by the Successor Company. Such amounts will be paid for or
settled by the Successor Company. Other adjustments - net includes the
$1,852,000 fair market value adjustment to the Isetan debt; $1,156,000
principally paid in settlement of prepetition bank debt; and $500,000 which
represented the fair market value of the preferred stock issued and outstanding.
Tangible Assets includes total Current assets, Fixed and Other assets of the
Successor Company.
Accrued Expenses. Principally includes individually immaterial accruals
recorded in accordance with both SOP 90-7 and APB No. 16, principally related to
professional fees, severance, taxes, registration fees as well the establishment
of a liability to customers for deposits on special orders (see Receivables
discussion above). The total of such accruals, aggregating $5,213,000, is
included in the allocation of the total reorganization value of the Company.
Long-term debt. This adjustment represents the difference between the
principal amount of the Isetan Note of $22,500,000 and the fair market value of
the Isetan Note of $20,648,000 (see Note 4 (b)).
Other Long Term Liabilities. Other long-term liabilities of the
Predecessor Company represented amounts recorded in accordance with FASB 13
"Accounting for Leases" ("FAS No. 13") pertaining to both contractual rent
escalations and landlord contributions for build-outs. A fair market value was
not assigned to these liabilities since, in accordance with APB No.16, the
existing leases are treated as new leases of the Successor Company. This
requires the Successor Company to amortize the remaining scheduled lease
commitments over the remaining lease periods on a straight-line basis beginning
with the Effective Date. The $5,894,000 write-down to fair market value of the
Other long-term liabilities is included in the allocation of the total
reorganization value of the Company.
(h) Debtor in Possession Credit Agreement - Interest Paid
From January 11, 1996 through the Effective Date, Barneys had debtor in
possession revolving credit facilities (the "DIP Facility"). Pursuant to such
facilities, the Company paid interest of $4,095,000, and $5,614,000 during the
six months ended January 30, 1999 and Fiscal 1998, respectively.
(i) Rent Expense - Flagship Stores and Equipment Leases
On January 10, 1996, the Predecessor Company ceased accruing stated
rent expense (both base rent and percentage rent) to Isetan and its affiliated
companies for the Madison Avenue, Beverly Hills and Chicago stores and to
substantially all of its equipment lessors as a result of disputes on the
characterization of these obligations. These matters were resolved as part of
the Plan.
F-32
Notes to Consolidated Financial Statements (continued)
During the bankruptcy, in accordance with interim stipulations, orders
of the Court and the debtor-in-possession credit agreements the Predecessor
Company made "on account" cash payments to Isetan and the equipment lessors at
rates substantially below the contractual amounts. The amount of these payments,
included in Selling, general and administrative expenses are detailed below
along with the corresponding contractual amount for each of the periods
reported.
Isetan Occupancy Costs Equipment Lessor Costs
Recorded Contractual Recorded Contractual
-------- ----------- -------- -----------
(In thousands)
Six months ended
January 30, 1999 $ 4,611 $ 10,248 $ 2,687 $ 7,750
Fiscal 1998 9,223 22,510 5,642 15,500
Fiscal 1997 9,297 22,164 6,427 15,500
January 11, 1996 to
August 2, 1996 6,231 11,929 3,300 8,900
The recorded equipment lessor costs in the six months ended January 30,
1999 and Fiscal 1998 exclude amounts recorded as reorganization costs related to
closed stores.
(j) Reorganization Costs
The effects of transactions occurring as a result of the Barneys
Debtors' Chapter 11 filings and reorganization efforts have been segregated from
ordinary operations and are comprised of the following:
Six Months
ended
January 30, Fiscal Year
1999 1998
--------------------------------
(in thousands)
Professional fees $ 3,637 $ 7,381
Asset write-offs, net - 29
Payroll and related costs 5,274 4,565
Other 4,923 3,995
--------------------------------
Total reorganization costs $ 13,834 $ 15,970
================================
During the six months ended January 30, 1999, the Company paid
Reorganization costs of $12,511,000, net of amounts received from an affiliate
(see (k) below). During Fiscal 1998, the Company paid Reorganization costs of
$18,105,000.
Professional fees -- principally relate to legal, accounting and
business advisory services provided to the Predecessor Company and the unsecured
creditors committee to the Predecessor Company from the Filing Date to the
Effective Date. Substantially all of these fees were expensed as incurred, in
accordance with the provisions of SOP 90-7.
Asset write-offs -- each of the stores closed by the Predecessor
Company was fully operational until the established closing date. As such, the
Predecessor Company continued to depreciate the related store assets up to such
date. Accordingly, the amount provided by the Predecessor Company for asset
write-offs, net included the unamortized value of the leasehold improvements,
furniture, fixtures and equipment attributable to the store at the respective
stores closing date, net of an estimated recovery for future use or disposition
of the related assets. A majority of the assets written off related to
unamortized leasehold improvements which were abandoned.
Payroll and related costs -- principally represent costs associated
with the Bankruptcy Court approved key employee retention and bonus program,
severance costs attributable to either employee headcount reductions or
contractual obligations of the Predecessor Company, and certain other fees
earned by certain individuals retained by the Predecessor Company, for their
F-33
Notes to Consolidated Financial Statements (continued)
expertise in bankruptcy related matters. For the six months ended January 30,
1999 and for Fiscal 1998, the severance included in payroll related costs and
the related employees severed were $3,139,000 and 11 (managerial and support
employees, inclusive of employees of Meridian Ventures, Inc.) and $1,881,000 and
13 (managerial employees), respectively. See (f) above for actual employees
severed and utilization of reserves.
Other costs -- the six months ended January 30, 1999 and Fiscal 1998
includes $3,500,000 and $1,500,000, respectively, paid to Dickson Concepts
(International) Limited in connection with the termination of an asset purchase
agreement and the consummation of the Plan.
In addition to the above, other costs includes costs incurred by the
Predecessor Company related to its reorganization, including but not limited to
ancillary costs associated with the decision to close certain stores,
administrative costs of the bankruptcy such as for trustee fees and public
relations costs.
Accrued expenses at January 30, 1999 includes fees payable to
professionals pertaining to court approved "holdbacks" or fees not awarded,
during the bankruptcy of approximately $6,900,000. Substantially all of these
fees were paid in 1999.
(k) Affiliate companies and other related parties -
The Predecessor Company entered into various transactions and
agreements with affiliate companies and other related parties. The affiliates
were or had been primarily engaged in the operation of real estate properties,
Barneys New York credit card operations, and certain leased departments. The
following information summarizes the activity between the Predecessor Company
and balances due to or from these related parties at January 30, 1999 and for
the six months ended January 30, 1999 and the fiscal year 1998, respectively.
Unless otherwise indicated below, all revenues and expenses recognized by the
Predecessor Company pursuant to the arrangements discussed below are included in
selling, general and administrative expenses in the respective periods.
Substantially all of the agreements and transactions described below had either
ceased or been terminated prior to November 1997.
The Predecessor Company leased various retail, office and parking lot
properties principally from subsidiaries of Preen but also from companies owned
by certain members of the Pressman Family. Included was (1) office and office
related premises; (2) properties used in connection with the operation of the
Predecessor Company's 17th Street store in New York City; and (3) parking lots
on 17th Street. Each of the above properties were vacated by the Predecessor
Company during the bankruptcy and each of the respective leases were rejected by
orders of the Court during 1997 or 1998. Under the terms of these leases, the
Predecessor Company was required to pay base rents plus operating expenses and
real estate taxes as defined. Total rent expense (including operating expenses)
relating to these leases was approximately $272,000 in Fiscal 1998.
Barneys subleased retail and warehouse space from a third party that
leased said space from Fener Realty Co. ("Fener"). Fener was a non-debtor entity
owned by certain members of the Pressman Family. Fener owned the property at 249
West 17th Street and triple-net leased the property located at 245 West 17th
Street (collectively the "properties") from Renef Realty (also owned by certain
members of the Pressman Family). Prior to January 1995, the Predecessor Company
leased approximately 10% of these properties directly from Fener for use in
connection with the semi-annual warehouse sales. Fener leased the remaining 90%
of the properties to a third party. In January 1995, Fener and Renef refinanced
their mortgages on the Properties. In connection therewith, ownership of the
Properties was transferred to two limited liability companies, Pine Associates
LLC ("Pine") and Spruce Associates LLC, which were indirectly owned by Fener and
Renef, respectively. As part of this transaction, the lease between Fener and
the third party was restructured as a triple-net lease between Pine and the
third party for the Properties in their entirety and the lease between the
Predecessor Company and Fener was restructured as a triple-net sublease (the
"Sublease") between the third party and the Predecessor Company (collectively
the "New Lease Arrangements"). Pursuant to the New Lease Arrangements, the third
party, in addition to its fixed rent, was responsible for paying all operating
expenses of the Properties, and the Predecessor Company was responsible for
fixed rent, all operating expenses and 90% of the taxes of the Properties,
except for amounts which were the third party's responsibility pursuant to its
prior lease. The sublease between the third party and the Predecessor Company
was rejected by order of the Court in December 1998. Total rent expense
(including operating expenses) related to this sublease was approximately
$374,000 in the six months ended January 30, 1999 and $2,055,000 in Fiscal 1998.
F-34
Notes to Consolidated Financial Statements (continued)
In prior years, the Company had entered into various transactions and
agreements with Preen. Prior to the Filing Date as well as through the Effective
Date, the Company incurred certain normal operating costs, principally personnel
costs, on behalf of Preen. This situation arose as both entities shared the same
corporate office space and certain employees (including officers) of the Company
were also providing services to Preen. After the Filing Date, the Company also
incurred and paid reorganization costs, including legal, accounting and business
advisory services, on behalf of Preen which was also operating as a debtor in
possession pursuant to the Bankruptcy Code. The Company routinely allocated to
Preen a share of both the normal operating costs and reorganization costs
incurred on their behalf, however, it was unclear (because of the bankruptcy)
whether Preen would have the ability to repay such amounts in the future. The
normal operating costs principally covered an allocation of certain employees'
salaries. The allocation was based on an estimated percentage of time that the
employee spent working on the matters of Preen. Such allocations ranged from 2%
to 100% depending on the year of allocation with the allocation percentages
declining over time during the bankruptcy proceedings as the workload for Preen
declined as properties were sold. Accordingly, at the time of the recording of
such charges that reduced expenses and generated receivables for the Predecessor
Company, reserves were provided in the operating results either as a selling,
general and administrative expense or a reorganization expense, depending on the
nature of the charge. During the six months ended January 30, 1999 and Fiscal
1998 the Predecessor Company charged Preen approximately $1,000,000 and
$418,000, respectively, for various expenses. The Company had allocated both
operating expenses and reorganization expenses, principally of a legal nature in
connection with the litigation discussed in above and the sale of or
negotiations surrounding the real estate properties owned by Preen. In December
1998, in connection with the approval of the Plan and the settlements included
therein, collectibility issues of these receivables from affiliated entities
were resolved. Accordingly, the Predecessor Company was able to reduce its
affiliate receivable reserve by approximately $1,900,000, principally
representing cash payments from an affiliate in settlement of a portion of the
outstanding receivable. This reserve reversal reduced Selling, general and
administrative expenses and reorganization costs by approximately $500,000 and
$1,400,000, respectively, in the six months ended January 30, 1999.
Barneys licensed the right to sell certain branded merchandise from
Nanelle. Nanelle, owned by certain members of the Pressman Family, held the
license to use the Kilgour, French and Stanbury trademarks (the "Mark"). Royalty
expense incurred related to this license was $24,790 in Fiscal 1999, $86,322 in
the six months ended January 30, 1999 and $171,000 in Fiscal 1998, respectively.
This expense is included in cost of sales. Pursuant to the Plan, Nanelle
transferred its rights in this license to Barneys.
(l) Isetan relationship - Prior to the Effective Date -
In 1989, the Predecessor Company entered into agreements with Isetan
to, among other things, (i) exploit the "Barneys New York" trademark in the
United States and Asia, (ii) expand its United States business through the
acquisition of real estate properties and development of major stores in New
York, Beverly Hills and Chicago, (iii) establish Barneys America, Inc. to
develop a series of smaller, leased stores in other cities across the United
States, (iv) jointly design, develop and produce product, (v) develop the
Barneys New York brand and/or other designer wholesale businesses, and (vi) open
Barneys New York stores in Japan and throughout the Pacific Rim area. Isetan
agreed to contribute up to 95% of the development costs of the three major
stores in the United States and to operate the stores in Asia, subject to the
terms of various agreements. The Company agreed to contribute (i) its knowledge
and skills in the United States specialty retailing business and the application
of these skills and knowledge to the acquisition of real estate properties and
development of stores both within and outside of the United States, (ii) certain
use in Asia of the "Barneys New York" trade name and associated goodwill value,
and (iii) the remaining 5% of the development costs of the three major stores.
As part of the ongoing relationship between Isetan and the Company, Isetan
and/or their respective affiliates (i) established Barneys America, (ii)
established a Barneys New York retail business in Asia and in connection
therewith entered into license and technical assistance agreements providing for
payment of royalties and other fees and a loan agreement secured by the minimum
royalties and technical assistance payments, (iii) acquired and developed retail
properties in New York, Beverly Hills and Chicago, (iv) established Barneys New
York Credit Co., L.P. to operate the Barneys New York private label credit card,
and (v) trained Isetan employees in the operation of the specialty retail
business.
In 1989, BNY Licensing entered into an operating license agreement with
Isetan (the "License Agreement") to license the "Barneys New York" name in Japan
and certain other Asian countries in connection with the operation of retail
stores and the manufacturing and distributing of licensed products. The License
Agreement provided for royalties based upon a percentage of net sales. The
F-35
Notes to Consolidated Financial Statements (continued)
Predecessor Company was also entitled to receive future minimum royalties over
the remaining term of the License Agreement ranging from 265,650,000 to
663,933,000 Japanese yen a year. In June 1990, Isetan assigned its interest in
the License Agreement and in the Services Agreement to Barneys Japan, a majority
owned subsidiary of Isetan. After the Filing Date, as a result of the Chapter 11
filings and the litigation surrounding these agreements as discussed in (a)
above, the Predecessor Company ceased recognizing royalty income pursuant to
these agreements. The License Agreement was terminated as part of the Plan.
Simultaneously with entering into the License Agreement, Barneys
entered into a technical assistance agreement with Isetan (the "Services
Agreement") in connection with the operation of retail stores and the
manufacturing and distributing of licensed products in Japan and other Asian
countries. The Services Agreement was coterminous with the License Agreement.
The Services Agreement provided for the payment of an annual fee based upon the
excess of a percentage of gross profit, if any, as defined in the Services
Agreement, plus other fees. The Services Agreement was terminated as part of the
Plan.
In December 1989, BNY Licensing borrowed four billion Japanese yen from
an affiliate of Isetan and executed a promissory note to evidence that
obligation (the "BNY Licensing Note"). BNY Licensing assigned as collateral its
rights to receive future royalties and Barneys assigned as collateral its rights
to Services Agreement fees, due from Isetan, to be used to pay interest and
principal due under the loan. The loan called for quarterly payments of
principal and interest at 7.48% a year (subject to adjustment in 1999) through
March 31, 2011. If calculated interest was greater than royalties and fees, the
shortfall would be added to principal and all unpaid principal will be deferred
until March 31, 2011. Gains and losses resulting from the translation of this
obligation to its United States dollar equivalent were recognized in current
operations prior to the Filing Date when the obligation became subject to
compromise. As a result of the Chapter 11 filings, the Predecessor Company
ceased accruing interest on this debt as of the Filing Date. Pursuant to the
Plan and in satisfaction of the BNY Licensing Note, BNY Licensing assigned to
Isetan 90% of the minimum royalty payable during the initial term of the amended
and restated license agreement that replaced the License Agreement.
In a prior year, the Predecessor Company sold to Preen, for
$162,446,000 in cash (the "Deferred Credits"), undivided interests in the future
payments to become due under the Services Agreement as well as royalty payments
in excess of the future minimum royalties due pursuant to the License Agreement,
each of which is discussed above. Preen had obtained the cash as a result of
various loans made by Isetan to Preen. The Predecessor Company would have
recognized the Deferred Credits as earned over the remaining terms of the
respective agreements or in accordance with the outcome of certain litigation
commenced between Barneys and Isetan. Pursuant to the Plan, both the License
Agreement and the Services Agreement were terminated. Accordingly, the
outstanding balance of the Deferred Credits was reversed into income as a
component of the extraordinary gain on discharge of debt (See (e) above).
During the Company's bankruptcy proceedings involving the Company, the
Company and certain of its affiliates and Isetan and certain of its affiliates
were engaged in litigation involving the various aspects of the relationship
outlined above. That litigation was resolved pursuant to the Plan.
F-36
Schedule II -- Valuation and Qualifying Accounts
Barneys New York, Inc. and Subsidiaries
February 3, 2001
(In thousands)
Column A Column B Column C Column D Column E
- ------------------------------------------ --------- -------------------- ------------ ---------
Additions
--------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses(a) Accounts Deductions (b) Period
- ----------------------------------------- ------ ----------- -------- -------------- ------
Predecessor Company
Year ended August 1, 1998
- -----------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 5,016 $ 2,086 $ - $ 2,716 $ 4,386
============= =========== ============= ============== =========
Six months ended January 30, 1999
- -----------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 4,386 $ 1,292 $ - $ 1,322 $ 4,356
============= =========== ============= ============== =========
Successor Company
Year ended January 29, 2000
- -----------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 4,356 $ 2,270 $ - $ 3,027 $ 3,599
============= =========== ============= ============== =========
Year ended February 3, 2001
- -----------------------------------------
Deducted from asset accounts:
Allowance for returns and doubtful
accounts $ 3,599 $ 2,982 $ - $ 2,253 $ 4,328
============= =========== ============= ============== =========
- ----------------------
(a) Primarily provisions for doubtful accounts
(b) Primarily uncollectible accounts charged against the allowance provided
therefor. The year ended January 29, 2000 also includes a $750 fair market
value adjustment in connection with the finalization of the purchase
accounting reserves.
F-37
EXHIBIT INDEX
-------------
Exhibit Name of Exhibit
- ------- ---------------
2.1 Second Amended Joint Plan of Reorganization for Barney's, Inc. ("Barneys") and certain
of its affiliates proposed by Whippoorwill Associates, Inc. ("Whippoorwill"), Bay
Harbour Management L.C. ("Bay Harbour") and the Official Committee of Unsecured
Creditors dated November 13, 1998 (the "Plan of Reorganization") (1)
2.2 Supplement to the Plan of Reorganization dated December 8, 1998 (1)
2.3 Second Supplement to the Plan of Reorganization dated December 16, 1998 (1)
3.1 Certificate of Incorporation of Barneys New York, Inc. ("Holdings"), filed with the
Secretary of State of the State of Delaware on November 16, 1998 (1)
3.2 Certificate of Designation for Series A Preferred Stock of Holdings filed with the Secretary
of State of the State of Delaware on December 24, 1998 (1)
3.3 By-laws of Holdings (1)
4.1 Specimen of Holdings' Common Stock Certificate (1)
10.1 Credit Agreement, among Barneys, Barneys (CA) Lease Corp., Barneys (NY) Lease Corp., Basco
All-American Sportswear Corp., BNY Licensing Corp. and Barneys America (Chicago) Lease
Corp., as Borrowers, the lenders party thereto, Citicorp USA, Inc. ("CUSA"), as
Administrative Agent for such lenders, and General Electric Capital Corporation, as
Documentation Agent (the "Credit Agreement"), dated as of January 28, 1999 (1)
10.2 First Amendment to the Credit Agreement dated as of March 23, 1999 (1)
10.3 Second Amendment to the Credit Agreement dated as of June 2, 1999 (2)
10.4 Third Amendment to the Credit Agreement dated as of November 30, 1999 (3)
10.5 Fourth Amendment to the Credit Agreement dated as of March 17, 2000 (5)
10.6 Fifth Amendment to the Credit Agreement dates as of March 30, 2001 (7)
10.7 Guarantee by Holdings in favor of CUSA as the Administrative Agent dated as of January
28, 1999 (1)
10.8 Security Agreement by Holdings in favor of CUSA as the Administrative Agent dated as
of January 28, 1999 (1)
10.9 Pledge Agreement by Holdings in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.10 Pledge Agreement by Barneys in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.11 Security Agreement by Barneys in favor of CUSA as the Administrative Agent dated as of
January 28, 1999 (1)
10.12 Trademark Security Agreement by Barneys and BNY Licensing Corp. in favor of CUSA as
the Administrative Agent dated as of January 28, 1999 (1)
10.13 Cash Collateral Pledge Agreement by Barneys in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
Exhibit Name of Exhibit
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10.14 Pledge Agreement by Barneys America, Inc. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.15 Security Agreement by Barneys America, Inc. in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.16 Security Agreement by PFP Fashions Inc. in favor of CUSA as the Administrative Agent
dated as of January 28, 1999 (1)
10.17 Security Agreement by Barneys (CA) Lease Corp. in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.18 Security Agreement by Barneys (NY) Lease Corp. in favor of CUSA as the Administrative
Agent dated as of January 28, 1999 (1)
10.19 Security Agreement by Basco All-American Sportswear Corp. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.20 Security Agreement by Barneys America (Chicago) Lease Corp. in favor of CUSA as the
Administrative Agent dated as of January 28, 1999 (1)
10.21 Security Agreement by BNY Licensing Corp. in favor of CUSA as Administrative Agent dated as
of January 28, 1999 (1)
10.22 Subordinated Note issued by Barneys and payable to Isetan of America, Inc. ("Isetan") dated
January 28, 1999 (the "Isetan Note") (1)
10.23 Guarantee by Holdings of the Isetan Note dated January 28, 1999 (1)
10.24 Subordinated Note issued by Barneys and payable to Bi-Equipment Lessors LLC, dated January
28, 1999 (the "Bi-Equipment Lessors Note") (1)
10.25 Guarantee by Holdings of the Bi-Equipment Lessors Note dated as of January 28, 1999 (1)
10.26 Security Agreement by Barneys in favor of Bi-Equipment Lessors LLC dated as of January 28,
1999 (1)
10.27 License Agreement among Barneys, BNY Licensing Corp. and Barneys Japan Co. Ltd. dated as of
January 28, 1999 (1)
10.28 Stock Option Plan for Non-Employee Directors effective as of March 11, 1999. (1)
10.29 Employee Stock Option Plan (6)
10.30 Registration Rights Agreement by and among Holdings and the Holders party thereto
dated as of January 28, 1999 (the Registration Rights Agreement) (1)
10.31 Amendment No. 1, dated as of February 1, 2000, to Registration Rights Agreement (3)
10.32 Letter Agreement, dated January 28, 1999, among Bay Harbour, Whippoorwill, Isetan and
Holdings (4)
10.33 Employment Agreement between Holdings and Howard Socol effective as of January 8, 2001 (7)
10.34 Registration Rights Agreement between Holdings and Howard Socol effective as of January 8,
2001 (7)
Exhibit Name of Exhibit
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21 Subsidiaries of the registrant (7)
23 Consent of Independent Auditors (7)
(1) Incorporated by reference to Barneys' Registration Statement on Form 10
(the "Form 10") filed with the Securities and Exchange Commission (the
"Commission") on June 1, 1999.
(2) Incorporated by reference to Barneys' Quarterly Report on Form 10-Q for
the quarter ended May 1, 1999.
(3) Incorporated by reference to Amendment No. 2 to the Form 10 filed with
the Commission on February 15, 2000.
(4) Incorporated by reference to Amendment No. 1 to the Form 10 filed with
the Commission on October 13, 1999.
(5) Incorporated by reference to Amendment No. 3 to the Form 10 filed with
the Commission on April 21, 2000.
(6) Incorporated by reference to Exhibit A to the Proxy Statement of the
Company for its Annual Meeting of Stockholders held on June 27, 2000.
(7) Filed herewith.