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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
{X} Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarterly period ended August 3, 2002 or
{ } Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ________________
Commission File Number - 0-26229
BARNEYS NEW YORK, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-4040818
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
575 Fifth Avenue, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 339-7300
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 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 { }
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of September 13, 2002 there were 13,903,227 shares of Barneys New
York, Inc. common stock, par value $0.01 per share, outstanding.
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BARNEYS NEW YORK, INC.
FORM 10-Q
QUARTER ENDED AUGUST 3, 2002
Table of Contents
Page No.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed consolidated statements of operations - Three and six months
ended August 3, 2002 and August 4, 2001 3
Condensed consolidated balance sheets - August 3, 2002 and
February 2, 2002 4
Condensed consolidated statements of cash flows - Six months
ended August 3, 2002 and August 4, 2001 5
Notes to condensed consolidated financial statements - August 3, 2002 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 17
ITEM 4. Controls and Procedures 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 18
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
AUGUST 3, AUGUST 4, AUGUST 3, AUGUST 4,
2002 2001 2002 2001
-------------- --------------- -------------- ---------------
Net sales $ 81,603 $ 85,146 $174,078 $ 179,215
Cost of sales 41,446 46,338 91,452 97,187
-------------- --------------- -------------- ---------------
Gross profit 40,157 38,808 82,626 82,028
Expenses:
Selling, general and administrative expenses
(including occupancy costs) 35,666 36,661 73,974 76,882
Depreciation and amortization 2,700 4,610 5,254 9,233
Other income - net (1,196) (1,373) (2,866) (2,624)
-------------- --------------- -------------- ---------------
Income (loss) before interest and financing costs
and income taxes 2,987 (1,090) 6,264 (1,463)
Interest and financing costs, net of interest income 3,326 2,571 6,029 5,292
-------------- --------------- -------------- ---------------
(Loss) income before income taxes (339) (3,661) 235 (6,755)
Income taxes 100 199 196 406
-------------- --------------- -------------- ---------------
Net (loss) income $ (439) $ (3,860) $ 39 $ (7,161)
============== =============== ============== ===============
Basic and diluted net (loss) income per share of common stock $ (0.03) $ (0.28) $ 0.00 $ (0.52)
============== =============== ============== ===============
Weighted average number of shares of common
stock outstanding 13,903 13,903 13,903 13,903
============== =============== ============== ===============
The accompanying notes are an integral part of these financial statements.
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Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share data)
(UNAUDITED)
AUGUST 3, FEBRUARY 2,
2002 2002
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ASSETS
Current assets:
Cash and cash equivalents $ 5,336 $ 10,835
Restricted cash - 200
Receivables, less allowances of $4,541 and $4,488 23,350 26,689
Inventories 60,982 52,449
Other current assets 10,455 8,616
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Total current assets 100,123 98,789
Fixed assets at cost, less accumulated depreciation
and amortization of $31,784 and $26,530 52,432 50,141
Excess reorganization value, less accumulated amortization of $26,372 and $26,372 149,439 149,439
Other assets 1,463 1,454
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Total assets $ 303,457 $ 299,823
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,744 $ 23,634
Accrued expenses 29,443 32,246
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Total current liabilities 53,187 55,880
Long-term debt 86,144 81,048
Other long-term liabilities 16,965 15,773
Series A Redeemable Preferred Stock - Aggregate liquidation preference $2,000 500 500
Shareholders' equity:
Common stock--$.01 par value; authorized
25,000,000 shares--shares issued 13,903,227 and 13,903,227 139 139
Additional paid-in capital 166,390 166,390
Retained deficit (19,868) (19,907)
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Total shareholders' equity 146,661 146,622
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Total liabilities and shareholders' equity $ 303,457 $ 299,823
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The accompanying notes are an integral part of these financial statements.
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Barneys New York, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED
AUGUST 3, AUGUST 4,
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 39 $ (7,161)
Adjustments to reconcile net income (loss) to net cash
(used) provided by operating activities:
Depreciation and amortization 6,054 9,783
Write-off of unamortized bank fees 641 -
Deferred rent 1,190 1,950
Decrease (increase) in:
Receivables 3,339 3,231
Inventories (8,533) (2,406)
Other current assets (1,839) (1,710)
Long-term assets - (1)
Increase (decrease) in:
Accounts payable and accrued expenses (2,590) (587)
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Net cash (used) provided by operating activities (1,699) 3,099
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CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed asset additions (7,546) (4,740)
Reduction in restricted cash 200 -
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Net cash used by investing activities (7,346) (4,740)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Loan origination costs (1,340) -
Proceeds from debt 225,882 196,114
Repayments of debt (220,996) (198,309)
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Net cash provided (used) by financing activities 3,546 (2,195)
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Net decrease in cash and equivalents (5,499) (3,836)
Cash and equivalents - beginning of period 10,835 17,369
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Cash and equivalents - end of period $ 5,336 $ 13,533
=============== ================
The accompanying notes are an integral part of these financial statements.
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BARNEYS NEW YORK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
Barneys New York, Inc. ("Holdings") and 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. The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended August 3, 2002 are not
necessarily indicative of the results for the entire year. References herein to
"2002" are for the 52 weeks ending February 1, 2003.
The balance sheet at February 2, 2002 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended February 2, 2002.
(2) Long-Term Debt
Long-Term Debt consisted of the following at:
(000's) August 3, 2002 February 2, 2002
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GE Facility $ 28,467 $ -
Revolving Credit Facility - 23,581
$22,500 Subordinated Note 21,888 21,678
Equipment Lessors Notes 35,789 35,789
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Total $ 86,144 $ 81,048
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In addition, $32,268,000 was committed under unexpired letters of
credit at August 3, 2002, under the GE Facility (as defined below). As of August
3, 2002, the Company was in compliance with each of the covenants contained in
the GE Facility.
On July 15, 2002, the Company entered into a replacement $105,000,000
Credit Facility led by General Electric Capital Corporation, as Administrative
Agent (the "GE Facility"). The GE Facility provides a $97,000,000 revolving loan
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commitment (the "Revolver") with a $40,000,000 sub-limit for the issuance of
letters of credit and an $8,000,000 term loan commitment (the "Term Loan").
Proceeds from the GE Facility were used to repay in full all amounts outstanding
under the previous revolving credit facility with Citibank, N.A. and are being
used for working capital, capital expenditures and general corporate purposes.
Obligations under the GE Facility are secured by a first priority and perfected
lien on substantially all of the assets of the Company.
Availability under the Revolver is calculated as a percentage of
eligible inventory (including undrawn documentary letters of credit) and Barneys
private label credit card receivables, less certain reserves. The Term Loan,
which was fully funded on the closing date of the GE Facility, will be reduced
by $425,000 each fiscal quarter commencing on November 3, 2002, but only if
availability under the Revolver would exceed $15,000,000 after giving effect to
such payment. The Term Loan may be optionally prepaid in whole or in part but
only if availability under the Revolver exceeds $15,000,000 after giving effect
to such prepayment.
Interest rates on borrowings under the Revolver are either the Base
Rate (as defined in the GE Facility) plus 1.00% or LIBOR plus 2.75%, subject to
quarterly adjustment after the first year. Interest rates on the Term Loan are
either the Base Rate plus 1.75% or LIBOR plus 3.50% and are subject to weekly
adjustments if availability declines below $15,000,000. The GE Facility also
provides for a fee of 2.25% per annum on the daily average letter of credit
amounts outstanding and a commitment fee of 0.50% on the unused portion of the
facility.
In connection with the origination of the GE Facility, the Company
incurred fees of approximately $1,300,000. Such fees are being amortized over
the life of the GE Facility as interest and financing costs. The unamortized
portion of these fees is included in Other Assets. The unamortized fees of
approximately $600,000, associated with the prior revolving credit facility,
were written off in the current period and are included in Interest expense.
The GE Facility contains financial covenants relating to net worth,
earnings (specifically, earnings before interest, taxes, depreciation and
amortization ("EBITDA")) and capital expenditures as outlined below. With the
exception of the capital expenditures covenant, which is a covenant measured on
an annual basis, the covenants discussed herein are required to be measured on a
quarterly basis.
Minimum consolidated net worth. As of the last day of every
fiscal quarter, starting with the first fiscal quarter of 2002, consolidated net
worth shall not be less than certain minimum amounts. The minimum amount at the
end of Fiscal 2002 is $132,000,000; $136,000,000 at the close of Fiscal 2003;
and $147,000,000 at the close of Fiscal 2004.
Minimum consolidated EBITDA. As of the last day of every
fiscal quarter (for the defined trailing periods), starting with the first
fiscal quarter of 2002, EBITDA shall not be less than certain minimum amounts,
subject to escalation during the fiscal year. The minimum amount at the end of
Fiscal 2002 is $16,000,000; $25,000,000 at the close of Fiscal 2003; and
$28,000,000 at the close of Fiscal 2004.
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Capital expenditures. The Company's total capital
expenditures for Fiscal 2002 were established at $5,000,000, and are subject to
upward adjustment if certain conditions are met. For Fiscal 2003 and beyond, the
cap on capital expenditures is $10,000,000 subject to upward adjustment.
In addition to the above, the Company is subject to a 30 day
clean-down provision within the 90 day period commencing December 1 of each year
wherein the Company's outstanding revolving loans and letter of credit
obligations may not exceed $65,000,000.
At August 3, 2002, the Company had approximately $14,809,000 of
availability under the Revolving Credit Facility, after considering $28,467,000
of loans and $32,268,000 of letters of credit outstanding.
The GE Facility matures on the earlier to occur of (i) July 15, 2005
or (ii) the date that is 45 days prior to the date of the first scheduled
payment related to the $22,500,000 Subordinated Note and the Equipment Lessors
Notes if such Notes have not been satisfactorily refinanced or restructured. The
first scheduled payment related to such Notes is currently due on January 28,
2004.
(3) Income Taxes
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. A federal income tax
benefit was not recorded in either 2002 or 2001, as the future use of net
operating losses generated in those periods was uncertain. In the respective
periods, however, the Company has provided income taxes principally for state,
local and franchise taxes.
(4) Earnings (loss) Per 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 EPS. 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.
Options and warrants to acquire an aggregate of 1,734,464 shares of
common stock were not included in the computation of diluted earnings per common
share for the three and six months ended August 3, 2002, as including them would
have been anti-dilutive. Options and warrants to acquire an aggregate of
1,965,458 shares of common stock were not included in the computation of diluted
earnings per common share for the three and six months ended August 4, 2001,
respectively, as including them would have been anti-dilutive.
As of August 3, 2002, the Company's common stock was not actively
traded.
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(5) New Accounting Pronouncements
(i) In June 2001, SFAS No. 142, "Goodwill and Other Intangible
Assets" was issued. SFAS No. 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets, including excess
reorganization value. Among other things, SFAS No. 142 requires that goodwill no
longer be amortized, but rather be tested annually for impairment. The Company
will test excess reorganization value for impairment using the two-step process
prescribed in SFAS No. 142. The first step is to screen for potential
impairment, while the second step measures the amount of impairment. This
statement is effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company has adopted SFAS No. 142 effective this fiscal year.
The Company has completed the first step of the initial required
impairment tests determining that the reporting unit with Excess reorganization
value of approximately $149.4 million must undergo the second step of the
impairment testing process that could result in an impairment of the Excess
reorganization value. The fair value determined in the first step was based on a
measurement date of February 3, 2002. The Company expects to complete the second
step by February 1, 2003 and the impairment charge, if any, will be reflected as
the cumulative effect of a change in accounting principles. As the Company has
not yet completed the second step, it has not determined what the effect of
these tests will be on its earnings and financial position. In addition to the
transitional test discussed above, the Company will also be required to complete
its annual goodwill impairment test later in fiscal 2002 and there can be no
assurance that this will not lead to impairment charges in excess of any that
might be required in connection with the transitional testing.
If Excess reorganization value had not been amortized in 2001, the
Company's adjusted net loss and loss per share would have been as follows:
Three months ended August 4, 2001 Six months ended August 4, 2001
---------------------------------- -----------------------------------
Basic and Basic and
Diluted Loss Diluted Loss
Net Loss Per Share Net Loss Per Share
---------------- ----------------- ----------------- -----------------
As Reported $ (3,860) $ (0.28) $ (7,161) $ (0.52)
Amortization of Excess
Reorganization Value (2,198) (0.16) (4,395) (0.32)
---------------- ----------------- ----------------- -----------------
As Adjusted $ (1,662) $ (0.12) $ (2,766) $ (0.20)
================ ================= ================= =================
(ii) In April 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections" ("SFAS No. 145"). This statement, among other
things, rescinded SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt", which required all gains and losses from extinguishments of debt to be
aggregated and, if material, classified as an extraordinary item, net of tax. In
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accordance with the provisions of SFAS No. 145 the Company has elected to early
adopt this statement. Accordingly, in connection with the early extinguishment
of the prior Revolving Credit Facility discussed in Note (2) above, the
unamortized fees of approximately $600,000 related to such facility were written
off and are included in Interest expense.
(iii) In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities," which
changes the accounting for costs such as lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity initiated after
December 31, 2002. The standard requires companies to recognize the fair value
of costs associated with exit or disposal activities when they are incurred
rather than at the date of a commitment to an exit or disposal plan. We do not
expect the adoption of this standard to have a material effect on our results of
operations.
(6) Subsequent Event
On or about July 31, 2002, an individual filed a class action
complaint against the Company in the Superior Court for the State of California,
County of San Diego. The Complaint alleges two causes of action for purported
violations of California's Civil Code and Business and Professions Code relating
to the alleged requesting by the Company of certain information. The Company is
reviewing the lawsuit and believes that the Complaint is without merit. The
Company believes that it has substantial defenses to the claims and plans to
vigorously defend the lawsuit. In management's judgement, based in part on
consultation with legal counsel, this case is not expected to have a material
adverse effect on the Company's financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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
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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.
Results of Operations
The Company sells to consumers through three inter-related
distribution channels which encompass its various product offerings: the
full-price stores, the outlet stores and the warehouse sale events.
Three Months Ended August 3, 2002 Compared to the Three Months Ended August 4,
2001
Net sales for the three months ended August 3, 2002 were $81.6
million compared to $85.1 million a year ago, a decrease of 4.2%. Comparable
store sales declined 4.1%. Sales for the quarter were impacted by reduced levels
of season-end clearance merchandise and softening consumer demand linked to
steep declines in the financial markets.
Gross profit on sales increased 3.5% to $40.2 million for the three
months ended August 3, 2002 from $38.8 million in the three months ended August
4, 2001, due to reduced markdowns and improved shortage results. As a result,
gross profit as a percentage of net sales was 49.2% for the three months ended
August 3, 2002 compared to 45.6% in the year ago period.
Selling, general and administrative expenses, including occupancy
expenses, decreased 2.7% in the three-month period ended August 3, 2002 to $35.7
million from $36.7 million in the three month period ended August 4, 2001. This
decline was primarily a result of a $1.4 million reduction in personnel and
related costs. Approximately $0.5 million of these savings is the result of a
one-time concession received by the Company related to a renegotiated collective
bargaining agreement. The remaining reduction is somewhat a function of reduced
sales (particularly as related to commissions) as well as a continuing result of
the personnel reductions, reductions in hours worked and modifications to
certain ancillary benefits implemented in Fiscal 2001. Various additional
savings of approximately $0.5 million, are partially attributed to the reduction
in sales volume discussed above, but also reflect the benefit of the various
prior fiscal year and current expense reduction initiatives which included,
among other things, re-bidding products and services, and general reductions in
consumption of products and services including office supply and telephone usage
and training. The above combined savings were in part offset by increased
professional fees of $0.3 million and increased occupancy and related costs of
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$0.3 million, principally as a result of operating one new store in the period.
Particularly as a result of increases in the previously discussed costs and the
sales decline in the period, selling, general and administrative expenses
increased to 43.7% of sales in the three months ended August 3, 2002 from 43.1%
in the three months ended August 4, 2001.
Depreciation and amortization decreased 41.4% in the three-month
period ended August 3, 2002 to $2.7 million from $4.6 million in the prior year
period as a result of the non-amortization provisions of goodwill contained in
FASB Statement No. 142, Goodwill and Other Intangible Assets.
Interest expense includes a $0.6 million write-off of the unamortized
fees associated with the prior revolving credit facility which was replaced in
the current period. Excluding such amount, interest expense increased 4.4% in
the three months ended August 3, 2002 to $2.7 million from $2.6 million in the
prior year. While average borrowings declined approximately $2.9 million from
the year ago period, the effective interest rate was higher, principally as a
result of the amortization of the additional fees paid in connection with the
prior amendment to the previous credit agreement in December 2001. Average
borrowings under the credit facility for the three months ended August 3, 2002
and August 4, 2001 were $29.4 million and $32.3 million, respectively, and the
effective interest rate on this portion of the Company's outstanding debt,
inclusive of amortization of bank fees and unused line fees, was 12.2% in the
three months ended August 3, 2002 compared to 10.3% in the comparable period of
the prior year.
The Company's net loss for the three months ended August 3, 2002 was
$0.4 million compared to a net loss of $3.9 million for the three months ended
August 4, 2001. Basic and diluted net loss per common share for the three months
ended August 3, 2002 and August 4, 2001 were $0.03 and $0.28, respectively.
Six Months Ended August 3, 2002 Compared to the Six Months Ended August 4, 2001
Net sales for the six months ended August 3, 2002 were $174.1 million
compared to $179.2 million a year ago, a decrease of 2.9%. Comparable store
sales decreased approximately 2.6%. Sales for the season were largely impacted
by reduced levels of season-end clearance merchandise and a continued soft
retail environment, particularly in the second quarter, linked to steep declines
in the financial markets.
Gross profit on sales increased 0.7% to $82.6 million for the six
months ended August 3, 2002 from $82.0 million in the six months ended August 4,
2001, due to reduced markdowns and improved shortage results. As a result, gross
profit as a percentage of net sales was 47.5% for the six months ended August 3,
2002 compared to 45.8% in the year ago period.
Selling, general and administrative expenses, including occupancy
expenses, decreased 3.8% in the six-month period ended August 3, 2002 to $74.0
million from $76.9 million in the six month period ended August 4, 2001. This
decline was primarily a result of a $2.7 million reduction in personnel and
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related costs. Approximately $0.5 million of these savings is the result of a
one-time concession received by the Company related to a renegotiated collective
bargaining agreement. The remaining reduction is somewhat a function of reduced
sales (particularly as related to commissions) as well as a continuing result of
the personnel reductions, reductions in hours worked and modifications to
certain ancillary benefits implemented in Fiscal 2001. Various additional
savings of approximately $1.1 million, are partially attributed to the reduction
in sales volume discussed above, but also reflect the benefit of the various
prior fiscal year and current expense reduction initiatives which included,
among other things, re-bidding products and services, and general reductions in
consumption of products and services including office supply and telephone usage
and training. The above combined savings were in part offset by increased
professional fees of $0.3 million and increased occupancy and related costs of
$0.4 million, principally as a result of operating one new store in the period.
Selling, general and administrative expenses were 42.5% of sales in the six
months ended August 3, 2002 as compared to 42.9% in the six months ended August
4, 2001.
Depreciation and amortization decreased 43.1% in the six-month period
ended August 3, 2002 to $5.3 million from $9.2 million in the prior year period
as a result of the non-amortization provisions of goodwill contained in FASB
Statement No. 142, Goodwill and Other Intangible Assets.
Interest expense includes a $0.6 million write-off of the unamortized
fees associated with the prior revolving credit facility which was replaced in
the current period. Excluding such amount, interest expense increased 1.8% in
the six months ended August 3, 2002 to $5.4 million from $5.3 million in the
prior year. While average borrowings declined approximately $4.4 million from
the year ago period, the effective interest rate was higher, principally as a
result of the amortization of the additional fees paid in connection with the
prior amendment to the previous credit agreement in December 2001. Average
borrowings under the credit facility for the six months ended August 3, 2002 and
August 4, 2001 were $30.8 million and $35.2 million, respectively, and the
effective interest rate on this portion of the Company's outstanding debt,
inclusive of amortization of bank fees and unused line fees, was 11.7% in the
six months ended August 3, 2002 compared to 10.7% in the comparable period of
the prior year.
Other income for the six months ended August 3, 2002 includes $0.4
million related to the assignment of a subsidiary's interest in a trademark
unrelated to the Company's business.
The Company's net income for the six months ended August 3, 2002 was
$39,000 compared to a net loss of $7.2 million for the six months ended August
4, 2001. Basic and diluted net income (loss) per common share for the six months
ended August 3, 2002 and August 4, 2001 were $0.00 and $(0.52), respectively.
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LIQUIDITY AND CAPITAL
Liquidity and Capital Resources
Cash used by operations for the six months ended August 3, 2002 was
approximately $1.7 million compared to cash provided by operations of $3.1
million in the year ago period, principally due to increased working capital
requirements related to inventories and accounts payable. The Company's working
capital was $46.9 million at August 3, 2002 compared to $42.9 million at
February 2, 2002. The Company's primary source of liquidity has been borrowings
under its various credit facilities.
The Company incurred capital expenditures of $7.5 million during the
six months ended August 3, 2002 due to reconfigurations and improvements in
existing stores, particularly the expansion of various businesses in the Madison
Avenue flagship store including fragrance and cosmetics, women's accessories,
lingerie and shoes, as well as the opening of one new regional full-price store.
In addition, the current year includes amounts related to the on-going project
to replace all point of sale registers in the existing stores. Pursuant to the
covenants contained in the GE Facility, the Company's total capital expenditures
for fiscal year 2002 were established at a base level of $5 million subject to
certain permitted adjustments. The Company will principally fund its capital
expenditures through a combination of borrowings under its credit agreement and
proceeds received in fiscal years 1999 and 2000, in connection with the prior
exercise of certain previously outstanding options and warrants to acquire
common stock.
On July 15, 2002, the Company entered into a replacement $105,000,000
Credit Facility led by General Electric Capital Corporation, as Administrative
Agent (the "GE Facility"). The GE Facility provides a $97,000,000 revolving loan
commitment (the "Revolver") with a $40,000,000 sub-limit for the issuance of
letters of credit and an $8,000,000 term loan commitment (the "Term Loan").
Proceeds from the GE Facility were used to repay in full all amounts outstanding
under the previous revolving credit facility with Citibank, N.A. and are being
used for working capital, capital expenditures and general corporate purposes.
Obligations under the GE Facility are secured by a first priority and perfected
lien on substantially all of the assets of the Company.
Availability under the Revolver is calculated as a percentage of
eligible inventory (including undrawn documentary letters of credit) and Barneys
private label credit card receivables, less certain reserves. The Term Loan,
which was fully funded on the closing date of the GE Facility, will be reduced
by $425,000 each fiscal quarter commencing on November 3, 2002 but only if
availability under the Revolver would exceed $15,000,000 after giving effect to
such payment. The Term Loan may be optionally prepaid in whole or in part but
only if availability under the Revolver exceeds $15,000,000 after giving effect
to such prepayment.
Interest rates on borrowings under the Revolver are either the Base
Rate (as defined in the GE Facility) plus 1.00% or LIBOR plus 2.75%, subject to
quarterly adjustment after the first year. Interest rates on the Term Loan are
either the Base Rate plus 1.75% or LIBOR plus 3.50% and are subject to weekly
adjustments if availability declines below $15,000,000. The GE Facility also
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provides for a fee of 2.25% per annum on the daily average letter of credit
amounts outstanding and a commitment fee of 0.50% on the unused portion of the
facility.
In connection with the origination of the GE Facility, the Company
incurred fees of approximately $1,300,000. Such fees are being amortized over
the life of the GE Facility as interest and financing costs. The unamortized
portion of these fees is included in Other Assets. The unamortized fees of
approximately $600,000, associated with the prior revolving credit facility,
were written off in the current period and are included in Interest expense.
The GE Facility contains financial covenants relating to net worth,
earnings (specifically, earnings before interest, taxes, depreciation and
amortization ("EBITDA")) and capital expenditures as outlined below. With the
exception of the capital expenditures covenant, which is a covenant measured on
an annual basis, the covenants discussed herein are required to be measured on a
quarterly basis.
Minimum consolidated net worth. As of the last day of every
fiscal quarter, starting with the first fiscal quarter of 2002, consolidated net
worth shall not be less than certain minimum amounts. The minimum amount at the
end of Fiscal 2002 is $132,000,000; $136,000,000 at the close of Fiscal 2003;
and $147,000,000 at the close of Fiscal 2004.
Minimum consolidated EBITDA. As of the last day of every
fiscal quarter (for the defined trailing periods), starting with the first
fiscal quarter of 2002, EBITDA shall not be less than certain minimum amounts,
subject to escalation during the fiscal year. The minimum amount at the end of
Fiscal 2002 is $16,000,000; $25,000,000 at the close of Fiscal 2003; and
$28,000,000 at the close of Fiscal 2004.
Capital expenditures. The Company's total capital
expenditures for Fiscal 2002 were established at $5,000,000, and are subject to
upward adjustment if certain conditions are met. For Fiscal 2003 and beyond, the
cap on capital expenditures is $10,000,000 subject to upward adjustment.
In addition to the above, the Company is subject to a 30 day
clean-down provision within the 90 day period commencing December 1 of each year
wherein the Company's outstanding revolving loans and letter of credit
obligations may not exceed $65,000,000.
At August 3, 2002, the Company had approximately $14,809,000 of
availability under the Revolving Credit Facility, after considering $28,467,000
of loans and $32,268,000 of letters of credit outstanding.
The GE Facility matures on the earlier to occur of (i) July 15, 2005
or (ii) the date that is 45 days prior to the date of the first scheduled
payment related to the $22,500,000 Subordinated Note and the Equipment Lessors
Notes if such Notes have not been satisfactorily refinanced or restructured. The
first scheduled payment related to such Notes is currently due on January 28,
2004.
Management believes that it will be in compliance with the financial
covenants contained in the GE Facility for the fiscal year ending February 1,
2003. However, any material deviations from the Company's forecasts could
- 15 -
require the Company to seek 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, SFAS No. 142, "Goodwill and Other Intangible Assets"
was issued. SFAS No. 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets, including excess reorganization
value. Among other things, SFAS No. 142 requires that goodwill no longer be
amortized, but rather be tested annually for impairment. The Company is testing
excess reorganization value for impairment using the two-step process prescribed
in SFAS No. 142. The first step is to screen for potential impairment, while the
second step measures the amount of impairment. This statement is effective for
fiscal years beginning after December 15, 2001. Accordingly, the Company has
adopted SFAS No. 142 effective this fiscal year.
The Company has completed the first step of the initial required
impairment tests determining that the reporting unit with Excess reorganization
value of approximately $149.4 million must undergo the second step of the
impairment testing process that could result in an impairment of the Excess
reorganization value. The fair value determined in the first step was based on a
measurement date of February 3, 2002. The Company expects to complete the second
step by February 1, 2003 and the impairment charge, if any, will be reflected as
the cumulative effect of a change in accounting principles. As the Company has
not yet completed the second step, it has not determined what the effect of
these tests will be on its earnings and financial position. In addition to the
transitional test discussed above, the Company will also be required to complete
its annual goodwill impairment test later in fiscal 2002 and there can be no
assurance that this will not lead to impairment charges in excess of any that
might be required in connection with the transitional testing.
If Excess reorganization value had not been amortized in 2001, the
Company's adjusted net loss and loss per share would have been as follows:
Three months ended August 4, 2001 Six months ended August 4, 2001
---------------------------------- -----------------------------------
Basic and Basic and
Diluted Loss Diluted Loss
Net Loss Per Share Net Loss Per Share
---------------- ----------------- ----------------- -----------------
As Reported $ (3,860) $ (0.28) $ (7,161) $ (0.52)
Amortization of Excess
Reorganization Value (2,198) (0.16) (4,395) (0.32)
---------------- ----------------- ----------------- -----------------
As Adjusted $ (1,662) $ (0.12) $ (2,766) $ (0.20)
================ ================= ================= =================
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the reported market risks
since the end of the most recent fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls in connection
with the preparation of this Quarterly Report.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about July 31, 2002, an individual filed a class action
complaint in the Superior Court for the State of California, County of San
Diego, North Country Division, entitled Maggie B. MacBeth, on behalf of herself
and others similarly situated v. Barneys New York and Does 1 to 20 et al. The
Complaint alleges two causes of action for purported violations of California's
Civil Code and Business and Professions Code relating to the alleged requesting
by the Company of certain information. The Complaint seeks relief on a class
basis under the statutes permitting a plaintiff to recover fines up to a maximum
of $250 for the first violation and up to $1,000 for each subsequent violation,
in the discretion of the Court, and such other damages which each member of the
class may have suffered as a result of the Company's alleged conduct. The
Complaint further seeks an accounting as well as injunctive relief with respect
to the alleged practices. Certification of the class and attorneys fees is
sought as well. The Company is reviewing the lawsuit and believes that the
Complaint is without merit. The Company believes that it has substantial
defenses to the claims and plans to vigorously defend the lawsuit. In
management's judgement, based in part on consultation with legal counsel, this
case is not expected to have a material adverse effect on the Company's
financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Stockholders of the Company was held on June 19,
2002.
(b) Each of the Directors listed in item (c) below was elected a Director
at the Annual Meeting for a one-year term.
(c) Voting for the election of directors of the Company to serve until the
next Annual Meeting:
FOR WITHHELD
(including broker
non-votes)
Shelley F. Greenhaus 9,546,309 645
John Halpern 9,546,309 645
Yasuo Okamoto 9,546,309 645
Allen I. Questrom 9,546,309 645
Howard Socol 9,546,309 645
Carl Spielvogel 9,546,309 645
David A. Strumwasser 9,546,309 645
Robert J. Tarr, Jr. 9,546,309 645
Douglas P. Teitelbaum 9,546,309 645
Steven A. Van Dyke 9,546,309 645
Other Matters:
9,546,385 shares were voted in favor of the proposal to ratify the appointment
of Ernst & Young LLP as independent auditors of the Company for the fiscal year
ending February 1, 2003, with 471 shares voted against, 98 abstentions and no
broker non-votes. Reference is made to the Company's Proxy Statement dated May
2, 2002 for its 2002 Annual Meeting for additional information concerning the
matters voted on at the meeting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. Description
10.1 Credit Agreement, among Barney's Inc., Barneys America,
Inc., 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, and General Electric Capital
Corporation, as the Administrative Agent for such lenders
("GE Capital"), dated as of July 15, 2002 (the "Credit
Agreement")
10.2 Guaranty by Barneys New York, Inc. in favor of GE
Capital, dated as of July 15, 2002
10.3 Security Agreement by the Borrowers under the Credit
Agreement, in favor of GE Capital, dated as of July 15,
2002
10.4 Pledge Agreement by the Borrowers under the Credit
Agreement, in favor of GE Capital, dated as of July 15,
2002
10.5 Security Agreement by Barneys New York, Inc. in favor of
GE Capital, dated as of July 15, 2002
10.6 Pledge Agreement by Barneys New York, Inc. in favor of GE
Capital, dated as of July 15, 2002
10.7 Intellectual Property Security Agreement by the Borrowers
under the Credit Agreement, in favor of GE Capital, dated
as of July 15, 2002
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002
(b) The Company did not file any reports on Form 8-K during the quarter
ended August 3, 2002.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: September 17, 2002
BARNEYS NEW YORK, INC.
By: /s/ Steven M. Feldman
-----------------------------------
Name: Steven M. Feldman
Title: Executive Vice President,
Chief Financial Officer
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I, Howard Socol, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Barneys New
York, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Date: September 17, 2002
/s/ Howard Socol
------------------------------
Howard Socol
Chief Executive Officer
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I, Steven M. Feldman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Barneys New
York, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
Date: September 17, 2002
/s/ Steven M. Feldman
------------------------------
Steven M. Feldman
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Credit Agreement, among Barney's Inc., Barneys America,
Inc., 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, and General Electric Capital
Corporation, as the Administrative Agent for such lenders
("GE Capital"), dated as of July 15, 2002 (the "Credit
Agreement")
10.2 Guaranty by Barneys New York, Inc. in favor of GE
Capital, dated as of July 15, 2002
10.3 Security Agreement by the Borrowers under the Credit
Agreement in favor of GE Capital, as the Administrative
Agent, dated as of July 15, 2002
10.4 Pledge Agreement by the Borrowers under the Credit
Agreement in favor of GE Capital, as the Administrative
Agent, dated as of July 15, 2002
10.5 Security Agreement by Barneys New York, Inc. in favor of
GE Capital, dated as of July 15, 2002
10.6 Pledge Agreement by Barneys New York, Inc. in favor of GE
Capital, dated as of July 15, 2002
10.7 Intellectual Property Security Agreement by the Borrowers
under the Credit Agreement in favor of GE Capital, as the
Administrative Agent, dated as of July 15, 2002
99.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002
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